Daily Spec is the most incredible learning experience for me. I learn from every post. The discussions have helped me to see reality in a more complete way. The clouds are parting and the sun is awash in my life.

If the progress I have made since I began reading the site could be charted, it would show a steep upward curve. A benchmark would be a recent conversation I had with a friend of the family. He couldn't believe how conversant I was with market topics. My family couldn't believe it. My family have always put this person on a pedestal because he knows so much about making money. Anyway, there was a smarter, more mature Todd at dinner that evening.

I have only Vic and Laurel to thank for my new optimistic outlook. In my world they have rock-star status. It's not about the trading as much as it is about going forward with the wind at my back and my feet planted in reality.

Ronald Weber adds:

The most refreshing part is certainly about the diversity and versatility of backgrounds and viewpoints. And that's what's terribly missing from the platitude of the Street where most analysts originate from similar MBA programs, read from the same sources, eat in the same places, chat among each other, and always have to worry about the career consequences of their outputs. 



 On certain days huge waves triple normal size break on outside reefs normally too deep to form a wave. These are called cloudbreaks. Catching them requires sitting way outside of the normal breaks to avoid getting caught inside by a breaking wave and crushed and drowning. The paddle is typically three times farther than to the regular breaks.

Today's typical faux fireworks surrounding the FOMC announcement showed a 30 point variance at the extremes around the announcement, which is approximately triple the excessive burst of absolute volatility during the recent announcements. This seemed in line with the approximately tripling of recent absolute volatility measured by daily ranges and swings. It was a good day not to get caught on the inside, and to sit and wait for the waves on the outside of the reef where the wave usually do not break except for the really big ones on the outside cloudbreak.

The other sign of a bottom is the amount of chatter, which dribbles down to close to 0, as if most folks expect the market to go along with their accounts. As the market picks up and heads back up to the highs like it did over and over again in 2000, more wine added to the vat.

Think of it this way. If the market wanted to suck in the most people possible, in maximum deception, it wouldn't just go straight down taking the few with it. It would go back up, to suck more and more back in, give them hope. It might even make new highs to bring more trend follows in on the wrong side, like it did yesterday by making one little new low to bring in more shorts right at bottom tick. It would do it several times to train them into believing that buying the dips works, then it would go down like 2001 and 2002.

Another sign of a bottom is stories the wives tell each other about the huge losses in their husband's accounts and anecdotes about such losses sifting about, worried calls wondering when and if to bail. The cruelest psychological trick is to give the person hope, hope of escape, hope of redemption, then dash those hopes.

Eric Ross replies:

I've been surfing Port Arkansas (Corpus Christi, Texas). I took Monday and Tuesday off as relaxation days because I don't like to trade the day before and day of Fed meetings. However, there were no cloudbreaks to be found. Knee high to waist high is all I got. Swells every four seconds, and while the Third Coast surfers of Texas smile at days like this, I was disappointed (but looking forward to the September breaks in Costa Rica). 



 It’s so entertaining to see the media sophists try to explain the post-Fed meeting rally. Before the meeting, Wall Street was said to be waiting for the Fed to cut the market some slack by saying inflation was no longer a worry. When that didn't happen and the market rallied anyway, because it wanted to, they had to say it was because the Fed thinks the economy will continue to expand.

James Lackey notes:

Your auto-news generator count not have possibly kept up last week. There was a blizzard of bearish stories that reminded me of the movie "JFK." There was a scene where a black ops man was explaining to the prosecutor how quite miraculously all the background info on Lee Harvey Oswald was released via newspapers globally, seconds after his arrest.

Unlike the movie, no one screwed up and got their time zones incorrect. That is to say no one released the pre-planted stories by accident before the actual release by the banks every hour of every day last week.



 It's remarkable the hubris of those with, that know what is best for those without. Yet the joke is always that advice has a direct correlation with those-with books. But the outcome for the masses is usually a great deal of pain, not to mention the lack of prosperity or opportunities. It’s usually along the lines of they. They should have been more prudent; they should have more education; they should not want so much.

Trying to explain to my 11-year-old son, the difference between prudence and risk-taking, I found my self talking in circles. For example, if owning a home is smart, under what exact conditions does that become stupid. Is it time and price? Or is it just cost of carry or use?

The current meme is the imprudence of the sub prime morass. How could they be so reckless? Who would buy a home no many down, roll in the high fees of transactions into an adjustable uncertain future rate?

Yet in my mind, from my dad that had a wild ride in the 70s market, a fixed rate brings certainty at a cost. Yet I have no problem buying a no money down, rolling in fees paying 6.5%. Yet others shriek, "you should have paid those fees with cash and have 10-20% down."

Well then, why not make it 50% down? Why not be the most prudent and pay 100% of all home transactions with cash and be debt free! Wait, there is more!

Carry of a home has other risks, taxes repairs, fires and floods. Why not have 100% of the home’s worth in cash or gold as a back up. Yes insurance is a burden. We can’t afford to pay that so wait until you have 200% of the homes value before purchasing.

Yes that seems prudent to all those that have land gold and can afford 200% of a home’s value in cash. Cash is king! We are prudent because we have cash.

It reminds me of all those that are very wealthy and say we should raise taxes on the rich. Yet all the taxes are from income. The joke is rich do not need an income, so they would pay no tax under their prudent proposals.

What upsets me is we live in the greatest country in human history. How in the world did we become so wealthy? Yet the very things that helped to unleash human drive and ambition, the profit motives, are used as arguments how this will ruin this country.

After reading a zillion news stories this weekend, the only truth I could find in any of them was that binge drinkers tend to use beer rather than hard liquor. The reason was taxes on beer are much lower. Therefore, per unit of alcohol beer is cheaper.



My collaborator and I have just completed a paper on loss aversion and would be happy to send a copy to anyone who may wish to read it. It is entitled "Painful Regret and Elation at the Track" by Adi Schnytzer and Barbara Luppi.



 I fully agree that trees are not thinking things in the strict sense, and they cannot imagine the future. However, trees may 'think' (I use that term very loosely) about the future as much in as it is to their benefit. That is, while certain aspects of trees are purely reactionary to circumstance (e.g., growing toward light), if we consider seed dispersal strategies then perhaps it could be said that trees are exhibiting a form of forward looking intelligence. They are making their best guess about what time to release their seeds. While it probably a very simple model, based on tens of thousands of years experience of the seasons, it could be called a form of anticipation and planning.

Alan Millhone writes: 

Earlier today I had a conversation with one of my long time renters. Next to his building is a very tall and full oak tree and it has begun to release its acorns. The renter was complaining about the mess the tree was making. I told him that the tree in its fullness was shading his side of the building, filtering the air we breathe and cooling that air by about 20 degrees when the hot air (95 degrees here in Belpre today) passes through the branches and leaves to reach his windows. I told him the tree needs to be trimmed sometime, but care must be taken not to injure such a wonderful living thing.

The taller part of the tree has extended its branches over to the gutters of the building, knowing that water flows there when it rains. The tree has deep roots and is solidly anchored. It has learned to withstand gusty winds, hot weather and the cold winters of Ohio. Man can learn much by careful observation of trees and the ways they adapt to many situations. 

Bill Craft writes: 

Working with forest ecology on a daily basis I have seen and studied the adaptive response of trees to stimuli, growth and regeneration. Whether it be seed dispersal, wind, sun or gravity, as earlier stated these responses evolved over many millennia and are fun to observe, admire and use. Something stalwart, romantic and functional about trees. Trees’ persistence to survive always inspires me to take out the cane and invest.



 A rich assemblage of life is able to survive tenaciously in severe environments such as the deep sea or around hydrothermal vents. Perhaps within the next couple of years (given the number of probes being sent) we will find that life exists or has existed on Mars. If you can make it there you can make it anywhere.

It has been said that fossils offer tantalizing suggestions that life developed near deep-sea hydrothermal vents and not in shallow seas, as other evidence hints.

Although life is very sparse at these depths, black smokers are the center of entire ecosystems. Sunlight is nonexistent, so many organisms such as archaea and extremophiles must convert the heat, methane, and sulfur compounds provided by black smokers into energy through a process called chemosynthesis.



What is the correct way of calculating the spread between two time series A and B of daily returns? Assuming the spread at t1 is A1-B1 and at t2 is A2-B2, the return of a trade (buy A sell B) entered at t1 and closed at t2 is not (t1-t2) / 2 as expected, but off by a few tenths of a point depending on the distance between t0 and t1 and between t1 and t2. I spent the whole weekend trying to find what I'm doing wrong, to no avail. Any help will be greatly appreciated.



An interesting occupation for those speculating on the ideal Fed communique for restoring the health of the market on Tuesday is to consider the distribution of how many times S&P futures touch unchanged on the day. It seems to happen an inordinate number of times, given the distribution of open changes and hour- to-hour or minute-by-minute changes. I wonder whether such a count might be the basis of a market indicator, and whether it might be useful for predicting such things as direction and volatility, and for setting the ideal levels of collars?

As food for thought, here's a graph of intraday prices over the past six days.

John Floyd comments:

Looking at the NDX versus Fed Funds in 1999-2001, the Fed took several months to react. In fact the Fed tightened by 50 basis points in May 2000 after the NDX had declined by roughly 30%. Not incidentally, that tightening marked the high in yields; the two-year note yield subsequently declined substantially for a variety of reasons. In fact, Fed comments remained hawkish pretty much through November 1999, with a tightening bias.

The Greenspan Fed of the time may have had a slightly different character than today's Bernanke-led Fed. But recent comments have shown no indication that the Fed is ready to react to the market action of the past three weeks. Furthermore, it could be argued that Bernanke's Fed may regard any action now to be premature, inclined as it is toward targeting inflation.

Adam Robinson comments:

The number of times the market becomes unchanged would seem to be positive correlated with "uncertainty" — viz., the greater the number of times the market registers "unchanged", the greater the market uncertainty.

I say that as a starting point, so Vic's conjecture is probably a fruitful basis of an indicator.

Also, although stock price movements are not randomly or normally distributed, of course, Vic's query reminds me of the classic drunken man walking away from a lamp post, how often after n steps does he return to the lamp post (here in 1 dimension along a numberline, either positive or negative movements).

Of course, stock prices do not move in equal increments, so the mathematics would need to be adjusted accordingly.



I have found recently that whilst property prices have not declined at all in the UK, REITs are down 25-30% from their peak. Relative strength of REITS against the FTSE also seems to be turning.


a) The illiquidity of the UK housing market plus things like 'fixed rate mortgages' has led to an imbalance between property stocks and property, and this will gradually close over the coming years. b) The squeeze on the consumer (government, housing stagnation etc) plus the crisis in exotic debt will lead by force to a considerable rise in defensive stocks (drug/food producers etc) and quality bonds, certainly relative to UK housing. c) UK interest rates will fall just as they've been doing in the US. GBP/$ rate? Who knows, but I wouldn't bet strongly on the current 'trend' continuing.

I have no idea how to test this (for example REITS are new here) and no doubt I'm as bad as most other people at macro analysis. But comments are welcome.

As a disclaimer, I am increasingly long defensive stocks and corporate bonds for no concrete reason. So confirmation bias is no doubt present in the above.

The bottom line is that I would say I am somewhat bullish REITS vs property itself, not much idea about anything else.



 "Market Mistress" may be more than just amusing shorthand Maybe-like obsessional love-investing is an addiction all along?

According to the following recent report from the L.A. Times, based on numerous amorous studies, falling in intense love is often based on potent threat, fear, worry or shared anxiety. While people can and do fall in love for a variety of reasons, the spark that ignites powerful, flaming love can often occur as a direct result of shared danger, threat or perceived fear. The body 'translates' the anxiety felt in the perilous place and hunkers onto the nearest love object in the vicinity at the time of the anxiety.

Examples are obvious. People who went through the extreme pain of searching for relatives following 9/11 sometimes connected passionately when they would never have looked at the other in balmier circumstances. Ex-pats often hook up when they are living in strenuously difficult new surroundings. Victims of disasters often bond. The body's hormones chug out tides of stimulating substances that connect the dots.If what the researchers have found to be true, men faced with attractive women in the middle of a rickety bridge will much more likely fall in love-or follow up on females they meet in precipitous circumstances-than men who meet those same attractive females on a 'safe' bridge without the ostensible threat of falling to their deaths.[1][1]The 'perils of Pauline' brought about not only the freeing of Pauline from the ropes that bound her to the rail tracks. They often ensured that a grateful and relieved Pauline clung to her shining knight forevermore. Her savior was forever her hero, while his overextended hormones relaxed after his brave effort, and bound him to her.

That being the case, given that the Market Mistress paints people into daily corners of mini-panic, the threat of considerable loss, the anxiety of seeing the market turn against one, and the rush of seeing profits from buying in a propitious moment or filling at a good price when all around are losing share, there would be a good argument that the same engines that drive addictive and heady love are at work for those on the floor with the S&P, the Dpw, NASD and even provocative overseas belles.The lizard brain and the limbic brain hold their mating dance, and the frontal lobes of logic take a hike.

Speaking for one who was befogged by puts and calls for a too-long period and some, the excitement is not dissimilar to being sick with love: Couldn't pull myself away from the numbers, the screen could spell triumph or despair, frequent praying and nail-biting, and wins were only temporary abatements to the urge to invest more, spend more, make more, win against the vicissitudes of the Mistress.That inability to eat, the obsession with the beloved object-investments, especially ones that have high beta-the boredom with whatever comes second, are all symptomatic of the long list of people we know who are primary junkies, in the field as managers or investors, or those who sneak away too often from other terrestrial jobs to see what the Mistress is up to.

In the case of sexual love, says Dr. Helen Fisher, evolutionary anthropologist at Rutgers University who studies human attraction, the tides of sweeping hormonal amplification subside after about 3 to 4 years, after which, collaborative and companionable love replaces the tsunamis of desire and engorgement of love's beginnings. But that doesn't seem to occur in the field of markets.That's regular human love, an 'addiction' that, with time, long-term legal ties, children or demanding work, becomes manageable. Since the Market is not a flesh-and-blood companion, might we not argue that the strained and urgent 'affair' with stocks, bonds, derivatives, currency pools, real estate deals and hedge funds never really abates, its tides constantly seductive and renewed with each day's 9:30 clang! of the bell?



 My 10 year old son likes to play an Internet game called RuneScape. No, it's not a total waste of his time. It teaches a few things about life, such as money management skills (saving up for quite a while to get something that will produce more money for you in a shorter amount of time), and protection of assets.

Over the past few weeks, about an hour a day (which is what we allow him on computer games), he has been building up his RuneScape character, working the mines to extract coal and other precious metals to get gold coin. He would save and save this money in order to buy, for example, the best pickaxe which enabled him to extract more metals in less time.

For example, buying this pickaxe would cost him $50,000 in gold coin and it took him an hour of play just to earn $5,000. For a kid of ten years old, this took a lot of time and patience.

Today he, like many traders, experienced a total loss in a very short time. He had entered a realm which allowed him to play with the "bigger" boys, those who had amassed large sums, weapons, tools, etc. But by entering this new realm he would be able to make that $50,000 in a third of the time. Of course he was going to join the bigger boys. That's why he was playing!

As he explained it, he began to mine some metal when some other character approached and asked if he could borrow the axe for a minute and he would give my son, in return, half of the metal he extracted. My son, being 10 years old, wanted to make friends in this new realm so he let him borrow it. The character started to mine, and my son decided to look around this new place, which took the other character off the screen for but a couple of seconds. When my son returned to the mine the character was gone. He could not find him anywhere.

Then, as he was walking around trying to find a store to buy a very cheap axe, he was attacked by two characters who completely stripped him of all his assets. He had nothing left after about 15 minutes in this new realm. He burst into tears after realizing what had just happened, all the weeks of work and saving and building up his assets, down the drain in a matter of minutes. He now had to start all over.

Last year I had my trading account up nicely, and decided to venture a little bit. Not into another market, but trade using riskier methods in the market I was familiar with. Soon I was almost completely wiped out. I sat and looked at the screen and it hit me that I had to start over, and it would take me a long time and a lot of patience to do it. I was exhausted.

My son's experience was just as devastating to him. I saw him, after a good cry in his room for about an hour, come out with both barrels loaded, and he went back to work. He learned that he could recover what he had lost, but also he could learn new skills that could help him when he ventured out again into that other realm. His confidence returned and I saw hope in his eyes. Perspective is relative, as life seems to offer the right amount of bumps and bruises to equal the capacity of the recipient.

James Lackey adds:

My 11-year-old and all his friends play the same game. For the first time since he was four I’ve had to limit him to computer time. Keep in mind we have always had computer games PS 1-2-3 hand held. It’s never interested him so much that he would play more than two hours. There are so many other things to do.

A couple weeks ago I asked him how long he was playing RuneScape. He said a few hours. My kids are so busy, I can never really give them a hard time. RuneScape is an escape for him as the kid begs for time to relax. That was my dad's gift to me about being a parent. "Take them to the park and run them."

Well today it was 99 degrees. We played baseball for 30 minutes before we gave in to the heat at 11am. Went to YMCA shot some hoops, went to store cooked lunch. The point is that games must be fun/addictive. Even PS3 after Xmas, or on a rainy day. Never have I had to tell him to quit for the day. 



"In November, 1902, began in America what has been called ‘the rich man's panic’ of 1903 in which for a year many securities were sold by holders because European creditors were recalling their loans. American business, however, slackened but little, although building operations were somewhat checked. General prices, which had been moving upward since 1897, remained almost unchanged in 1903 and 1904…." - Frank A. Fetter, Major Economic Problems, Vol. II, published in 1916.

Fetter was a Professor of Economics at Princeton. The volume has the following dedication:




 John Voelker was a Michigan Supreme Court Justice, an attorney, and an author. But I think he didn't really like to do those things as much as he liked to fish.

Many fishermen are familiar with John Voelker's response when asked why he fished for trout. For those who are not I wish to quote his answer.

"I fish because I love to, because I love the environs where trout are found, which are invariably beautiful; and hate the environs where people are found, which are invariably ugly; Because of all the television commercials, cocktail parties, social posturing I thus escape; Because in a world where most men seem to spend their lives doing things they hate, my fishing is, at once, an endless source of delight and an act of small rebellion; Because trout do not lie, or cheat, or cannot be bought, or impressed by power, but respond only to quietude and humility, and endless patience; Because I suspect that men are going along this way, for the last time, and I, for one, don't want to waste the trip; Because mercifully there are no telephones on trout waters; Because only in the woods can I find solitude without loneliness; Because bourbon out of an old tin cup always tastes better out there; Because maybe one day I'll catch a mermaid; And finally, not because I regard fishing as being so terribly important, but because I suspect that so many of the other concerns of men are equally unimportant and not nearly so much fun."

I thought it would be fun to exchange the word "fishing" for that of "trading", with a little manipulation, and see how close it came to my own sentiments about trading.

I trade because I love to; Because I love the environs where a trade is found, which is invariably beautiful, and hate the environs where no trade is found, which is invariably ugly; Because in a world where most men seem to spend their lives doing things they hate, my trading is, at once, an endless source of delight and an act of small rebellion; Because once a trade is placed it cannot lie, or cheat, or impressed by power, but respond only to quietude and humility, and endless patience; Because mercifully there are no telephones in electronic trading; Because freshly squeezed lime juice mixed into ice cold Coke tastes better than from a vending machine; Because maybe one day I'll trade like Niederhoffer, Wisdom, Williams, Sogi, Brooks, Haave; And finally, not because I regard trading as being so terribly important, but because I suspect that so many of the other concerns of men are equally unimportant and not nearly so much fun. 



 The Mass left partially finished by Mozart at his death must be one of the greatest musical works. In a Baroque style, there are contrasting quick rhythmic patterns punctuated by large moves of overlaying sweeping choral chords. In other musical pieces, and typically in the ending of a rock and roll song, the band will sustain the last chords in a slowed climactic chord. This seems to satisfy the emotional need of the listener.

Music in essence is emotion, as is the market. The market traces the path of emotion, from the rapid rises of hope, and the climactic chords of the recent down moves in the last two weeks. These climactic moves at tops last month and bottoms satisfy or reflect the emotions of the traders and market participants. It needs to be this way to resolve itself. It can't shut off short, or it would lack resolution, finality, satisfaction. If the repetition goes on too long, it become boring, stultified.

Humans crave emotional stimulation, the depths of despair, catharsis, ecstasy and rapture. They pay for it in secondhand form at the movies, plays, books. They try create drama in day-to-day events, when none is needed or called for, in order to satisfy this need of the emotions. It is a powerful force and as we have seen moves billions of dollars.

At the end of many musical pieces is the coda, a last repetition and resolution of the prior theme, typically repeated three or four times prior in a ballad, the modern musical form. Even rap follows a standard structure of intro, three to four courses of a theme, and a coda resolving the piece. The market time is not a heartbeat but plays out over weeks and months, which is a time signature foreign to normal individual human rhythms and is accessed only through other means.



It is so easy to be negative on the future after the market is down. But I believe to be successful you need to be more positive the more the market drops. Yet maybe it has to be this way for the market to take its rake.

Alan Millhone writes:

The late World "Free Style" Checker Champion, Mr. Tommie Wiswell told me once to "eliminate the negative and accentuate the positive," and "to keep your head, while others around you are losing theirs."

I do my own thing and don’t march to the same drummer as others. I try and do a little good every day. Does the Market Mistress take her 'rake,' or do the soaring vultures swoop down on occasion to feast? It appears to me to be in anything over the long haul one has to be able to ride the waves. 



 I guess I'm looked at as a deadbeat. In my personal financial world I have hardly any credit. I buy all my cars in cash. I still rent. I'm liquid except for the money tied up in land and commercial buildings I own. The only credit is a revolving credit line for construction loans and business needs but that is not personal. I have super low leverage with my clearing firm on purpose.

When the '99 markets came down I watched people lose their entire lives, built on credit. I lost more money, as did most of those at my daytrading shop, than many will earn in three lifetimes. Lucky for me the money was not around long enough for me rack up credit. I walked away debt free except for my Audi, which I paid off right away.
I had to downsize but at least I did not lose boats, cars, homes, lofts, and wives. When I entered the group of land speculators, became one of them, the first thing they taught me was to stay out of debt in your personal life.

Buy and hold land and buildings. Flipping is for those who come and go in the business. The one thing that enabled me to obtain business credit was my liquid worth and the proper bank.

A very simple solution to being in debt is to make more money which in return will create higher debt. Just look at all those shiny new cars and big homes.



 ROME (Reuters) - A Sicilian mother took away her 61-year-old son's house keys, cut off his allowance and hauled him to the police station because he stayed out late.

Tired of her son's misbehavior, the retiree in the central Sicilian city of Caltagirone turned to the police to "convince this blockhead" to behave properly, La Sicilia, one of Sicily's leading newspapers, reported on Thursday.

The son responded by saying his mother did not give him a big enough weekly allowance and did not know how to cook.

Most Italian men still live at home late into their 30s, enjoying their "mamma's" cooking, washing and ironing.

This article is poor and looks like gossip more than information. Who knows what the issue really was? "Most Italian men still live at home late into their 30s" does not make any sense to me. As an Italian, I do not recognize this as one of the many inconsistencies and contradictions of my country. We love our mothers as they do in any other country, but the sentence displays only a stereotype which has no relationship with our society and simply is not true. Unfortunately, there are also many others about Italians. But that's life!



Is there a difference in the emptiness?

Between panic grasp of a suckling babe,
Momentarily pulled from his mother chest
And the sober surviving elder,
Putting his better half to rest.

The size of Time, you say.

Then could there be an eternal hell?

The answer, my friend,
is in your choosing.

Is there a difference in fulfillment?

Between the slumber of the well nursed babe.
The mother rubbing his soft head.
And the slumber of the working lad,
With his lady in the satisfied bed.

Beware my son of the promise of a fuller full.
Than eternal Nature supplies,
A more sophisticated fulfillment,
Through the magic of a pill.

For the trick you will soon abandon babies,
And rely on the backs of other men.

So nurse my son on the motherland
Or find a willing nursemaid.
And hammer hard with pride,
To lay content with your bride.



 The interesting thing about communication is not what is said, but what the saying can reveal about the speaker. Look also at the context or the posture (real or figurative) of the speaker. Look to his agenda. Communication is used to influence more than merely to transmit information. This is not to say it must be totally false, but influence requires the target be placed a little further than the bulls eye. It’s not what they say, but what saying says about their agenda: posturing, plain and simple.

When a man professes and reassures about his honestly, what does that tell you? Will you trust a man who says, "In all honestly" or "Let me put my cards on the table" or, "Here is the bottom line"? When the news reports dismal news, it’s a reflection of a meme, not information about an objective reality. It’s shadows on the cave. Look to the man on the street. What does his posture, grooming, expression, physique, actions, dress, demeanor, words, what he is carrying, his interactions with those around tell about that person, what he is thinking and going through, his background, his attitude?

There can be collaborative communication that is different from communication to influence. Women talking might be an example. Watch two women when they communicate. It doesn't matter what they are talking about, it is a cadence and the establishment of rapport and bonding that is occurring.

One of the beauties of the market is that price execution is not communication to influence, it is the end product, the reaction. It is the judgment and execution, not the argument. Despite underlying agendas in the market, exchanges, market makers, specialists, flippers, traders, insiders, management is maneuvering to influence. The tape is the ultimate revelation of truth in our world. There are not many places in life where things are so certain and known so quickly.

The adversarial market process is designed to bring out the truth. It is a brutal and unforgiving process, but the truth will be known as closely as possible. In the market the truth again is about the participants rather than some objective fact. There is no objective idea of value, rather it is individuals' utility of owning the companies for the next period of time versus other possible investments. Look to the rapid declines with low order depth, or the steady rise to new highs on high order volume. Look to the action of the tape, the individual stocks, the market's moves. What does that tell you about the market participants, what they are feeling? Know from prior experience and study ahead of time what they will do next typically. Know yourself as well.


3 is giving its readers highly granular control over its feed. I was struck by the elegance of this:

Play with the color slider to find the level you enjoy reading most at.

My daughter, 8, will likely never have to memorize the fixed formats of pre-printed periodicals to home in on regular features of interest. As a former newspaper layout geek, it's interesting to see generations of habit suddenly rendered moot.

Stefan Jovanovich extends:

When I left New York 35 years ago the New York Times had the presumption that it was like the medieval church or the compulsory public school, that the common folk had to accept what was preached at them whether or not it was of any use or interest to them. Apparently, that presumption endures even with the changes that have occurred in the world of information.

There are 14,000 radio stations broadcasting today, twice the number that existed in 1970. This does not include satellite radio, which in the six years since its launch has acquired 13 million subscribers nationwide. Eighty-six percent of American households subscribe to cable or satellite TV, receiving an average of 102 channels; many receive two, three, four, and even five times that number. As of 2005 there were 18,267 separate magazines with regular publication schedules; in 1993 there were 14,302. The Internet Systems Consortium says that in 1982 there were 235 Internet host computers that allowed people to post content on the web; in 2006 the count was 400 million. Technorati counts more than 63 million blogs on the net. They believe 175,000 new ones are created every day.

Welcome to debate whether the Sulzbergers and the Times's staff are more or less honest than Roger Ailes, Rupert Murdoch, and Fox News; but that is truly an academic question. What is incontrovertible is that Mr. Murdoch's team has been amazingly more successful in gathering a paying audience. They have, in a matter of years, gained more viewers and readers than the Times acquired in the half century after the Herald Tribune stopped publication.

Gutenberg's movable type made writings that had been accessible to thousands available to millions. It did not guarantee that anything written would be honest, but it did mean that the judges in the competition for the truth would be all who took the trouble to learn to read, not just those lucky people who had been anointed by official learning. 



 Please may I humbly apologize to all your readers for my arrogance in April in trying to time when the Dow would peak? The market has taught me humility!

In this new spirit of humility, may I ask can be made of the amazing spike, more than 200 points in the last half-hour of trading on the Dow on August 1?

I see it almost as proof that very short-term technical analysis does not work. According to conventional TA principles, the fall from 14,000 traces out the right-hand side of a very bearish head-and-shoulders pattern with the neckline at 13,200 and potential downside to about

As always the Market Mistress, knowing this popular interpretation well, sucks in all the bears and even drops the market down to 13,150 and below a few times to whet their appetite even further and then, without warning. does the equivalent of dropping a million tons of horse feathers on them out of a clear blue sky in the closing 30 minutes of trading!

Because of their own internal dynamics markets will always do what, if it came from a human being rather than an abstract system (even though that system is the sum total of thousands of human actions), would be instantly seen as deliberate cruelty.

But here I humbly seek wisdom. Does this mean that there are technical analysis systems which work, but only by waiting for the "tech" signals and then doing the opposite of what the signals are normally said to recommend?



 I have archives of almost all my old programming and hardware designs going back 20 years or so. I was poking through some of it, written for DOS, 80 x 24 screens. No GUI. I have to detect monochrome monitors, Hercules Graphics, ISA backplane boards, fixed I/O ports, swapping overlays in and out of the huge 256 KB memory to make large (for that time) programs possible.

What a nightmare. But the program I was looking at (a DSP chip debugger) was about 400 KB. Source is about 200,000 lines of C. It is hard to find a big program of merely 400 KB these days.

Another one was an audio disk recorder using SCSI disk drives attached to a PC (sort of a precursor to what Avid's Digidesign became) circa 1988. The whole thing was 270 KB, including a custom handwritten DOS for the SCSI drives. With the slow processors of those days (8 MHz was a screamer IIRC), I had to mix in assembly language with the C code to get it all to work in real-time. I learned to write ASM on Z80s and DSP chips. Wonderful stuff. No debuggers.

Yes, I had no life in those days; married but no children yet.

All the bloatware that passes for software these days is just a big conspiracy to sell more RAM. But I appreciate the 4 GB RAM, the Quad Xeons, the six monitors, the PCI-E bus, the SATA2 and 320 MB/second 15K RPM SCSI drives on my current PC even though it bogs down when the market is running too fast. Sigh - can't win.

Tim Richmond adds:

Bloatware occurs because 1) RAM is relatively inexpensive, 2) clock speeds continue to increase, and 3) Moore's Law continues to hold true. Software developers will not be compelled to create more efficient, streamlined code when semiconductor physics offers them such an unconstrained playing field.

Alex West remarks:

I started programming on Turbo Pascal 5.5, IBM PC XT, 640 RAM. All I needed was stored on 3" disk: turbo.exe, help file and library file. It was indeed a very good time.



A back of the envelope count of declines the last few years and a glance at the 2000 era type swings shows recent down swing in line in magnitude.

[1] 93
[1] 82
[1] 77
[1] 83
[1] 100
[1] 90
[1] 118

av.  91.8



 I read The Meditations by Marcus Aurelius recently. Here are some statements I found interesting, with possible applications to trading.

"Make for thyself a definition or description of the thing which is presented to thee, so as to see distinctly what kind of a thing it is in its substance, in its nudity, in its complete entirety, and tell thyself its proper name, and the names of the things of which it has been compounded, and into which it will be resolved. For nothing is so productive of elevation of mind as to be able to examine methodically and truly every object which is presented to thee in life, and always to look at things so as to see at the same time what kind of universe this is, and what kind of use everything performs in it, and what value everything has with reference to the whole, and what with reference to man …" Accurate observation and description are important aspects of the scientific method.

"As physicians have always their instruments and knives ready for cases which suddenly require their skill, so do thou have principles ready for the understanding of things divine and human …" You never know what the market might throw at you, so be prepared to act at all times. Similarly:

"The art of life is more like the wrestler's art than the dancer's, in respect of this, that it should stand ready and firm to meet onsets which are sudden and unexpected."

"A man should always have these two tools in readiness: the one, to do only whatever the reason of the ruling and legislating faculty may suggest for the use of men; the other, to change thy opinion, if there is any one at hand who sets thee right and moves thee from any opinion. But this change of opinion must proceed only from a certain persuasion, as of what is just or of common advantage, and the like, not because it appears pleasant or brings reputation." Don't get married to your position if circumstances change.

"How much trouble he avoids who does not look to see what his neighbor says or does or thinks, but only to what he does himself, that it may be just and pure … " Avoid tips. Or as Bacon said, "If you look at [somebody else's] prices or selections first, the line you come up with will be a sort of scrambling of his line and your line. Almost invariably, it will combine the weakest features of both."

"Occupy thyself with few things, says the philosopher, if thou wouldst be tranquil. But consider if it would not be better to say, 'Do what is necessary, and whatever the reason of the animal which is naturally social requires, and as it requires'. For this brings not only the tranquility which comes from doing well, but also that which comes from doing few things. For the greatest part of what we say and do being unnecessary, if a man takes this away, he will have more leisure and less uneasiness. Accordingly on every occasion a man should ask himself, 'Is this one of the unnecessary things?' Now a man should take away not only unnecessary acts but also unnecessary thoughts, for thus superfluous acts will not follow after." Focus on the few inputs that have the greatest impact on results. Specialize in a niche and get really good at it rather than trading soybeans one day, copper the next day, and bonds the following week.

"Always run to the short way; and the short way is the natural: accordingly say and do everything in conformity with the soundest reason. For such a purpose frees a man from trouble, and warfare, and all artifice and ostentatious display." Eighteen centuries before Zipf, a principle of least effort.

"I was once a fortunate man, but I lost it, I know not how"–a common lament among speculators. "But fortunate means that a man has assigned to himself a good fortune; and a good fortune is good disposition of the soul, good emotions, good actions."

"In the gymnastic exercises suppose that a man has torn thee with his nails, and by dashing against thy head has inflicted a wound. Well, we neither show any signs of vexation, nor are we offended, nor do we suspect him afterward as a treacherous fellow; and yet we are on our guard against him, not however as an enemy, nor yet with suspicion, but we quietly get out of his way. Something like this let thy behavior be in all the other parts of life; let us overlook many things in those who are like antagonists in the gymnasium. For it is in our power, as I said, to get out of the way, and to have no suspicion nor hatred." It is pointless to get angry with the market, but one must always be wary of the market.

"Frequently consider the connection of all things in the universe and their relation to one another. For in a manner all things are implicated with one another, and all in this way are friendly to one another; for one thing comes in order after another …" This is one of the major themes of the Daily Speculations website.

"Nature which governs the whole will soon change all things which thou seest, and out of their substance will make other things, and again other things from the substance of them, in order that the world may be ever new." The creative destruction of layoffs and bankruptcies frees resources from unproductive uses and perpetually renews the economy.

"But we ought to inquire, what kind of soul it was that Socrates possessed, and if he was able to be content with being just towards men and pious towards the gods, neither idly vexed on account of men's villainy, nor yet making himself a slave to any man's ignorance, nor receiving as strange anything that fell to his share out of the universal, nor enduring it as intolerable …" Don't waste energy on unproductive emotions.

Mark Candon adds:

Marcus Aurelius applies not only to the markets. I'm going to use it for this weekend's two-ball, best-ball golf tournament.

In selecting a partner, I've got a young man who is a terrific ball-striker with a tendency to beat himself. He plays much better with an older partner who will get in his face and tell him to pick a line, swing smooth, and accept the consequences of the shot.

Sometimes he gets so pessimistic that all I can do is try to string together enough pars to get his birdie-hunting head back in the game.

He needs a confidence boost before every four-foot putt. Ironically, if he doesn't have a couple of four-foot second putts in a round, he hasn't been aggressive enough on his first putts.

He never misses those four-footers if I encourage him beforehand. Oh, to be young again, fearless with the flat stick, and decisive on the read. 



 Background: I once described how I use fellow engineers as contrary indicators. Engineers nearing retirement are best. When they walk up on their toes, sell. When they shuffle with their heads hanging, buy. One engineer in particular was such a precise indicator that, for example, he bought his first (and last) block of NASDAQ stocks on the day before the bottom fell out in 2000, and traded an economy car for a new Chevy Tahoe just before gas began to rise. As he came within 10% of the nest egg value he had targeted for retirement his moods intensified and he became a precise contrary indicator for stock market swings. Unwittingly I had even improved his precision by clueing him into the correlation. After that he would try to resist his own tendencies, only to betray himself a few times per year at major inflections.

Update: Well, he retired, and for a while I was partially blinded. But as luck would have it, he has come out of retirement to work part time. So, last week he bears down on me and loudly pronounces that the market is about to tank for three days and then run up. Why? He had committed to pull $28K out of a mutual fund to finance the purchase of a hybrid car and it would take three days for the transaction to clear. As I pondered whether or not he had given me a valuable stock market tip, it became clear that gas prices had peaked.

I know that many here are confident in their quantitative analysis. But I have to tell you that when I witness the ability of the human subconscious to process countless diverse inputs and arrive at precisely the wrong answer, I suspect that quantitative analysis is a distant second.

Alan Millhone asks:

I wonder what input your fellow engineers will offer on the current Minneapolis bridge collapse? Something I suspect in the way of construction repairs and one lane traffic triggered this horrible disaster. 

Rick Foust replies:

There has been no mention of a bridge collapse among our engineers. But your email gave me quite a start. My permanent residence is in Minneapolis, a small town I affectionately refer to as Mayberry, where 1500 souls live, in north central Kansas. I am away from home four days per week and don’t turn on the TV, so it came as a quite a shock to hear that one of our two tiny bridges had finally collapsed.

OK, I am not quite that naive, but the thought did cross my mind. Regarding an engineering assessment of the catastrophe in a somewhat larger Minneapolis, it may be a while before the engineering collective falls into sync with speculation on this event. 



Jeff Macke is it when it comes to retailers. He wrote a wonderful column on Starbucks for Minyanville. I have to admit, I belonged to the majority of value investors that could not believe five years ago that SBUX could grow at its past rates. Well, it did.

Minyanville also had a cute cartoon on SBUX.



Nigel Davies wrote: "Investors will have the opportunity to participate as supporting cast on one or more filming days, as well as being invited to the various social events surrounding the production, which may include a grand ball and a gala screening in the West End of London with the stars of the film and other film and television celebrities."

What's interesting about Zatoichi himself is the apparent humility coupled with phenomenal technique and inner confidence. My question is this: Does humility actually take tremendous inner confidence? And if this is the case, why is it called humility?

Changing your name to "Ichi Davies" would likely maximize your investment by guaranteeing a long run for 'Bridge of Lies.' Humility born of tremendous inner confidence? It's a Zen thing.

So, how much did you invest, Ichi-san?



 I do miss a former colleague of mine who used to sell panics and buy euphoria. Slim, fast, and seemingly smart, that's how he presented himself. He had a habit of cracking his fingers and did some occasional stretching to keep his arms and shoulders agile, for he is an excellent golfer. On average, he was quite a bother but he had the natural gift of being the perfect last minute trend follower. He was precious to me.

I could tell how the market was behaving by the tormented look in his eyes, almost watering in pain. He would stop shaving for a couple of days perhaps because of the stress incurred in following nighttime financial TV specials. The hairs of his face would tickle my curiosity and his anxiety would motivate me to take the opposite direction of his thoughts and manners. Therefore, in those days I would take special care in preparing myself for the office, even make an argil mask so that my skin would be clean and lean and I would look fresh like a rose.

Mostly though I would watch carefully for all signs of fear in his comments, all e-mails doomstering and calls for brainstorming meetings would be fuel to my contrarian views and cement my opinion that the falling market was a sure buy. I know that market statisticians will tell me that market drift and not my calls were to thank for the meals, yet we do need some reassuring irrational beliefs that can help. For the same reason, I don't feel comfortable if I don't wear the same socks while racing my bike or if the brand of rice crackers I eat before the race is not the same as the one I normally have.

Since I have moved to another company my former colleague cannot help me anymore. I have tried to get the information on how he looks and what he thinks about the market but my efforts were useless. So I must admit I'm a bit lost in all the panic, which is hitting the markets globally and pray to get, if not an analysis, at least a peek at my ex-contrarian indicator colleague.

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