Sep

30

Pennington jerseyEvidence is accumulating that football, at least at the professional level, is causing dementia and other cognitive problems among retired players.

"..the Michigan researchers conducted a phone survey in late 2008 in which 1,063 retired players — those who participated from an original random list of 1,625 — were asked questions on a variety of health topics. Players had to have played at least three or four seasons to qualify. Questions were derived from the standard National Health Interview Survey so that rates could be compared with those previously collected from the general population, the report said.

"The Michigan researchers found that 6.1 percent of players age 50 and above reported that they had received a dementia-related diagnosis, five times higher than the cited national average of 1.2 percent. Men age 30 through 49, for whom the national average is 0.1 percent, showed a rate of 1.9 percent, or 19 times that of the general population.

"The paper itself questioned the reliability of using phone surveys to assess prevalence rates of diagnosed dementia, as did several experts in telephone interviews. For example, some of those affected might not be reachable; then again, N.F.L. players may have greater access to doctors to make the diagnosis, and so on."

The study already seems compelling. There could be some promising ways to test the idea further and learn more, such as measuring the dependence of cognitive problems on:

– years played
– self-reported number of diagnosed concussions over football career
– height and weight at retirement
– "safety" of position played, as rated by some independent source.
(e.g. punter and kicker would probably be rated safest)

Obviously this may cause some worries among high school and college players. One can hope that the problems don't really kick in until the play reaches the weight and speed level of the NFL.

Victor Niederhoffer generalizes:

HeaderThe study the Professor alluded to reinforces my long held belief that soccer is an evil sport, and the body is not meant to be banged up, especially the head, and that this causes early death and dementia. In addition to the heading shot, which must be involved on at least a third of all goals, I find soccer objectionable for my kids because kids with no other means of recreation or occupation play it from the day they are born, and by the time they compete with Americans who have to go to school and develop other interests, they are much too good for the Americans to compete against . Also, I hate that you can't play it without great effort after you graduate from college so it's not a life long source of recreation. My father Artie always said, whatever you do, don't let your kids play football. And I would add soccer and boxing.

Jordan Neuman opines:

I always thought that the rise of soccer in the suburbs over the last generation was just an extension of liberal politics because everybody can play. If someone has no talent they just stick him on defense. (I am speaking of school kids, obviously at higher levels of play this does not apply.)

On the other hand when my kid is pitching, he is on the stage. When he is throwing good strikes it is beautiful. When he gets lit up you have to tip your hat to the hitter (also on his personal stage). I always thought all those volumes expended on "America is baseball" were wasted, and most are. But there is a reason that baseball is a uniquely American game.

Ryan Carlson digresses to his favorite sport:

One of the many reasons why I find hockey to be such an honorable sport is that cheapshots and any unsportsmanlike conduct is dealt with through "the code" that such behavior has to be answered through fistfights. The code serves as a check and balance for problems to be addressed quickly and so liberties aren't taken when the ref is looking the other way. An entertaining book for those interested is The Code: The Unwritten Rules Of Fighting And Retaliation In The NHL

Scott Brooks continues:

GassoffHaving grown up a big St. Louis Blues fan and overall general hockey fan, I watched more than my fair share of hockey. We had season tickets to the Blues when I was growing up in the 1970s. My dad ate at a restaurant by his work that was frequently attended by Blues players. Dad was on first name basis with such greats as the Plager Brothers, Garry Unger, Bob Gassoff, Noel Picard, Chuck Lefley and many others.

Watching the dynamics of hockey growing up, it was clear that every team needed at least one good enforcer. This was the guy that would go out and beat up whoever on the the other team "breached protocol". If someone smashed into the Garry Unger (the Blues main scorer back in his day), he'd have to deal with one of the Plager Brother or (even worse for him), Bob Gassoff!

My father knew Plagers and Bob Gassoff and would tell me regular stories about what nice guys they were — but on the ice, holy cow! They were animals!

Pound for pound, there was no tougher, meaner group of hockey players ever to step on the ice than those Blues teams in the early/mid 1970s. The Plager Brothers were two of the toughest men ever to play in the NHL. And the best pure fighter to ever step on the ice was Bob Gassoff!

Bob Gassoff was the ultimate enforcer. Even the Plager Brothers — easily in the top 25 best fighters to ever step on the ice in the history of the NHL — would defer fights to their teammate Bob Gassoff.

Of course, there is always the image in my mind of the Blues going up into the stands fighting with the crowd in Philadelphia (a city known for its toughness).

And of course, there is ultimate showdown in the history of the NHL: Bob Gassoff vs. Tiger Williams as to who was the toughest man in the NHL. Both coaches agreed in advance to not let the players on the ice at the same time. But with around three seconds left in the game (and the game already won), there was a dead puck face off. The coaches put Gassoff and Williams on the ice at the same time. They lined up next to each other in the circle, looked directly into each others eyes, nodded to each other and proceeded to drop their gloves and go at it!

What a spectacle! After the fight, Bob Plager grabbed a bloodied Bob Gassoff and skated him around the ice holding his hand up like a referee does for the victorious prize fighter. Gassoff had won the ultimate hockey battle!

I think the markets would be a lot more interesting if we could have enforcers. If someone squeezes you out of your position too many times, you just send over your equivalent of Bob Gassoff to let him know he'd better not do that anymore!

Vinh Tu gets back to the subject of using the head in sports:

HeaderWhen I was between the ages of 8 at 12, my parents signed me up for soccer, and made me go play it, even if it sometimes meant they had to tear me from my Apple II computer. Doing clever things with one's feet was fun, and I'm sure that all the running was beneficial to me, physically. But I also remember heading practice, where a beefy coach would force 10-year-olds to use smack their heads against a flying ball. I remember that I only once, after much trepidation, allowing a ball to hit my head. I immediately knew that the feeling in my head after the impact was not at all good. After that, I could not help but flinch or duck during these heading drills, despite feeling intimidated by the large, angry, frustrated coach. Meanwhile there were a few kids on the team who really took to it and were gleefully smacking their heads against balls launched at them by the coach. It would have been interesting to follow up on my team mates and see if there has been any correlation between being a keen header and intelligence, and a few decades from now, dementia, and also whether there are correlations with other behavioural traits (perhaps lack of caution and restraint, impulsiveness?) and genetic correlations.

Stefan Jovanovich reassures:

BoxingThe most important question to be asked about getting smacked in the head is "where?". The upper forehead and the forward peak of the skull can take a severe impact without any damage; the same blow to the temple will kill a person. There is no question that football players and professional boxers have problems with dementia from the repeated blows to the temple. Vinh Tu's beefy coach was an idiot and bully. The first lesson in learning how to head a ball is teaching the kid to watch the ball into his/her forehead, and the best way to teach that lesson is to have two kids soft-toss the ball back and forth, as if they were playing pepper.

There is very little risk of head injury in amateur boxing; if it is properly worn, the head gear protects the temples and the upper jaw – the two places where you can get hurt.

What is stupid about the design of football head gear are that the helmet is allowed to float; compare the design to military headgear where the webbing and the helmet are cross-braced so they move together.

Tom Marks is skeptical:

InjuryA humble postulate: Nearly all orthopedic and neurological injuries related to professional sports stem from the fact that eons of evolution hardly designed the human body for the unique stresses these activities put on it.

Sports-related head and knee injuries aren't going away anytime soon, especially the latter. Somebody could design a more efficient helmet, but only nature could design a knee that could better withstand the unnatural rigors of playing running back in the NFL. And there's nothing hasty about nature. It tends to deliberate long and hard.

Sep

29

SunspotsIt is likely that the Sun is entering a cooling period of 20 to 30 years according to some scientists. The current sunspot minimum is the longest and most severe in roughly the last 100 years. The NASA site spaceweather.com has more on this.

We hear dire predictions that the Earth's temperature may drop 1 degree C over a certain number of years. The question arises as to whether this is a normal fluctuation in the Earth's temperature or not. Scientists often speak of the Solar Constant. It is the mean energy output of the Sun. In fact it only varies about 1% up or down. This doesn't seem like a large deviation. Based on an average room temperature of something like 20 degrees C this sounds like it would mean an average temperature variation on Earth of about .2 degrees. Clearly the global warming prediction are much larger that this by about a factor of five. Most global warming proponents simply ignore the variation in the Solar Constant as too small to be relevant.

All such thinking as the above is based on a simple numerical fallacy. If the Earth was a rock in the middle of space and not near any star such as our Sun it would have a temperature of about absolute zero which about -273 degrees C. Almost all the heating to about 20 degrees C is due to the Sun's energy hitting us. Thus the Sun generates about 500 (~273 + 20) degrees C of heating on the Earth not just 20 degrees. But when we remember that the Solar Constant can vary by 1% during normal fluctuations we realize that these variations can cause 3 degrees C worth of climate change, having nothing to do with man made causes. Suddenly the dire predictions of 1 degree cooling seem relatively modest compared to the natural cycles of 3 degrees. This calculation is consistent with the fact that the highest temperature on record over all the Earth was 1998 and it has been cooling for the last 11 years.

Then the question for speculators is how to trade these fluctuations. If one believes we are in a cooling cycle then buy land and stocks in Southern areas perhaps even South of the US. Certainly one would consider selling the same in Northern latitudes. If one believes that the warming proponents are right then buy Northern land and Canadian stocks.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Canadian trader George Parkanyi responds:

I've been monitoring the sun-is-cooling chatter as well. Here in Canada, anecdotally it certainly "feels" like cooling. We've barely had to use our air conditioner the past few summers - and Ottawa used to have very hot, muggy summer days in August and July. None this year.

If we have a 3 degree dip in the average temperature of the earth, it's going to get very uncomfortable. That may be mitigated somewhat by warming effects from greenhouse gases. However, the C02 is causing other problems, like raising the acidity of the oceans, killing reefs and plankton etc. Carbon emissions are not just a climate-change issue. They're also a pollution issue.

As to whether this is tradeable? Long-term perhaps, because the changes are slow, but which scenario wins out? And how will you be able to tell which climate effect is temporary, and which part of a long-term trend?

Cooling will pressure agriculture, as might excessive warming (droughts). Agricultural commodities could become an either-way bet. Either scenario would also force significant infrastructure changes/adaptations. Basic materials?

With cooling, energy would be huge - carbon or otherwise. Natural gas will be interesting to watch if we have a colder winter than last year. Alternative energy would be a winner as well, less so biofuels because of weather vulnerability. Nuclear could become quite important again out of necessity.

Certainly a lot of food for thought here.

Tristram Waye replies to George: 

Thanks to global warming you and I get a chance to live and travel this land. Canada was covered by ice some 10-18 thousand years ago. The great mountain valleys and bountiful fresh water are lush nutrient rich plains are a result. I am thankful for global warming myself. Especially when I take that boat cruise across Waterton Lake to Goat's Haunt, Montana. 

I think the problem with the debate on global warming is that it is one-sided, myopic and short-sighted. We live 90 years and therefore we lack the perspective of thousands or millions of years. Where I am sitting was covered with many feet of ice at one time; but its melting seems unrelated to certain large vehicles, cow exhaust and people in general.

The idea that warming is bad is unproven. The idea that more CO2 is dangerous lacks credibility. The belief that men can change the temperature of the earth presumes that we can even get the weather forcast right three days in a row, and five days out. One has to laugh at the concept of climate change, otherwise known as the four seasons. Even Vivaldi knew about that.

The notion of man made global warming sets man apart from the planet he lives on. It presumes that we are not of the earth, but gods of it. Tsunamis destroy villages and lives. Hurricanes can not be predicted, eradicated or steered beyond harm's way. And yet there are those that believe we can change the climate of the whole world when we cannot even predict it five days out? Who should decide the optimal climate for the world? Imagine that debate at the UN. If we are cooling, will we receive subsidies for driving F-250s? I can't wait to hear that answer.

The investment thesis here should be focused on the premise that too many people and governments are on one side of this idea, and have sold their souls to it. There is no turning back for many of these ideologues.

A cooling trend will badly damage many careers, organizations and individual reputations. Perhaps all of the money currently being wasted on a natural process will find better uses elsewhere. Perhaps they will turn water into wine, or get blood from a stone for their next great cause to save humanity.

Craig Humbert remarks:

Sunspots have picked up the last two weeks, so maybe this is the upswing predicted for the last three years. This is a really interesting year with the Arctic cooler than normal due to the volcanic activity in Alaska and Russia. The tropics are warmer than normal because of El Nino and increased sunspots would presumably add to that. Iben Browning talked about this years ago saying the clash of these extremes whips the jet stream up and down like crazy. El Nino years normally are good for our grain belt but this year should provide plenty of excitement.

Sep

29

 Serial correlation coefficients, correlograms and periodograms are computed by taking cross products over fixed or variable time intervals. I believe a more salient way to do it for markets might be a variant of computing them with respect to price intervals.

On the same front, the empirical chance of the market's closing exactly unchanged, or very close, is much higher than would be expected from chance. And what does this indicate for the future? An idea comes from the expected utility of a vote in a election, its being very low considering the chances that you would cast the deciding vote.

The economy in England showed much vibrancy while I was there and all taxi drivers said that in the last two weeks there had been a marked improvement in activity from its previous relatively high levels. Perhaps taxi drivers should join truck drivers as opinion leaders to tally when looking for leading indicators of the economy's health.

Sep

29

Editor's Note: We do not usually publish material from other sites. But we thought this scintillating review from Michael Covel, a unique and pleasantly surprising source, is so good it is worth republishing.

 A friend recently invited me to a private screening of Michael Moore’s new film Capitalism: A Love Story. The September 16th invite not surprisingly leaned a certain direction:

“[Michael] Moore takes us into the homes of ordinary people whose lives have been turned upside down; and he goes looking for explanations in Washington, DC and elsewhere. What he finds are the all-too-familiar symptoms of a love affair gone astray: lies, abuse, betrayal and 14,000 jobs being lost every day. Capitalism: A Love Story…is Michael Moore’s ultimate quest to answer the question he’s posed throughout his illustrious filmmaking career: Who are we and why do we behave the way that we do?”

Considering Moore was going to be there for a Q&A after (moderated by Arianna Huffington), I quickly signed on. Now before painting a picture of Moore’s new film let me be honest: my belief set is essentially libertarian (‘Government out of my bedroom and my pocketbook’). Not only do government solutions not excite me, they scare the living blank out of me. Remember when George Bush declared, “I’ve abandoned free-market principles to save the free-market system…to make sure the economy doesn’t collapse”? He might as well of said, “Hide your money, kids – ’cause I’m coming to take it!”

Oh sure, in theory I would like to see everyone with their own homestead, money in their pocket for regular shopping frenzies and no health worries despite eating at Burger King 24/7, but arriving at those goals is not exactly doable unless government robs Peter to pay Paul and or starts up the printing press.

And that view of course puts me in opposition to Moore since he has no problem with government as his and our father figure. That is his utopia. He truly believes warehouses of Washington, DC-based federal workers remotely running our lives is the optimal plan. He is an unapologetic socialist who really doesn’t care why the poor are poor or the rich are rich, he just wants it fixed. So not surprisingly, and with some generalization as I proffer this, Democrats like Moore and Republicans don’t.

However, I was excited to see a ‘mainstream’ film that was backed by big Hollywood bucks conclude capitalism as ‘evil.’ Arguably the most successful documentarian ever, a man who has made untold millions of dollars, was going to legitimately make the case that there was an alternative to capitalism. I sat down in a packed Mann’s Bruin Theater in Westwood, CA eager to see how his vision could possibly flesh out.

Moore is a rather simple guy. He is likable. He sees the world as good guys (people with no money) and bad guys (people with money). His Flint, Michigan union worker upbringing is his worldview. If you did not have that upbringing or if your life started less severe than his you are an evil capitalist. If on the other hand you were a laid off factory worker with a sixth grade education you are the true hero. I don’t care one way or the other that he has that view and I am not knocking union workers, but Moore sees the world through a class warfare lens resulting in a certain agenda: force wealth to be spread amongst everyone regardless of effort. Within minutes it was clear where Capitalism: A Love Story was headed. The ‘highlights’ included:

* We listen to heartbreaking stories of foreclosed families across America, but we don’t learn why the foreclosures happened. Did these people treat their homes as piggy banks? Were there refis on top of refis just to keep buying mall trinkets and other goodies with no respect to risk or logic? We don’t find out.

* We meet one family who was just foreclosed on so desperate for money that they were willing to accept $1,000 for cleaning out the house that they were just evicted from. Was it sad? Yes. But, should we end capitalism due to this one family in Peoria, IL?

* We are introduced to a guy whose company is called ‘Condo Vultures’ buying and selling foreclosed properties. Since he acted like a used car salesman, the implication was that he was an evil capitalist. However, Moore doesn’t tell us if his buyers were ‘working class’ people making smart buying decisions after prices had dropped.

* We listen to Catholic priests who denounce capitalism as an evil to be eradicated. What they would put in its place and how would the new system work? The priests don’t tell us.

* We learn that Wal-Mart bought life insurance policies on many workers. We are then told to feel outrage when Wal-Mart receives a large payout from an employee death while the families still struggle with bills. I saw where Moore was heading here, but this was a reason to end capitalism?

* We hear a story from a commercial pilot so low on money that he has to use food stamps. Moore points out that many pilots are making less than Taco Bell managers and then attributes a recent plane crash in Buffalo to underpaid pilots. This one crash is extrapolated out as yet another reason to end capitalism.

I was pleasantly surprised at Moore’s attempt at balance. For example, he included:

* A carpenter, while ply-wooding up a foreclosed home, says, “If people pay their bills, they don’t get thrown out.”

* A dressing down of Senator Chris Dodd (D) by name. Moore calling out a top Democrat? He sure did. He nailed him.

* A lengthy dissertation on the evils of Goldman Sachs. He rips Robert Rubin and Hank Paulson big time and I agree with him. In fact, I said to myself, “Moore you should have done your whole film on Goldman Sachs!”

Throughout the various stories and interviews he also weaves a conspiracy (all Moore films do this). The plot goes something like this: America won World War II and quickly dominated due to no competition (Germany and Japan were destroyed). We had great post-war success where everyone lived in union-like equality. Jobs were plentiful and families were happy. However, things start to go bad in the 1970s, and Moore uses a snippet of President Carter preaching about greed. This clip was predictably building to Moore’s big reason for all problems today: the Reagan revolution.

Moore sees Reagan entering the scene as a shill for corporate banking interests. However, everyone is happy as the good times roll all the way through into Clinton times. Moore does take subtle shots at President Clinton, but nails his right hand economic man Larry Summers directly as a primary reason for the banking collapse. So, while Moore sees Japan and Germany today as socialistic winners where corporations benefit workers more than shareholders, he sees America sinking fast.

So is that it? That was the proof that capitalism is an evil to eliminate? Essentially, yes, that’s Moore’s proof. What is his solution? Tugging on your idealistic heartstrings of course! Moore ends his film with recently uncovered video of FDR talking to America on January 11, 1944. Looking into the camera a weary FDR proposed what he called a second Bill of Rights – an economic Bill of Rights for all regardless of station, race, or creed that included:

* The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.
* The right to earn enough to provide adequate food and clothing and recreation.
* The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.
* The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
* The right of every family to a decent home.
* The right to adequate medical care and the opportunity to achieve and enjoy good health.
* The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment.
* The right to a good education.

As FDR concluded and the film ended, I was shocked at the reaction. The theater of 400+ stood and cheered wildly at FDR’s 1944 proposal. The questions running through my head were immediate: How does one legislate words like “useful”, “enough”, “recreation”, “adequate”, “decent”, and “good”? Who decides all of this and to what degree? At past points in history to voice an opposition opinion in the middle of such a single-minded herd would have certainly been my physical demise! Interestingly, during the Q&A Huffington and Moore discussed bank failure fears during the fall of 2008. They asked for a show of hands of how many people moved money around or attempted to protect against a bank failure. I had the only hand that went up.

FDR’s plan hauled out by Moore six decades after it was forgotten reminded me of another interchange – this one from the 1970s. Then talk show master, the Oprah of his day, Phil Donahue was interviewing free market economist Milton Friedman and wanted to know if Friedman had ever had a moment of doubt about “capitalism and whether greed’s a good idea to run on?”

Friedman was quick in response, “…is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Donahue (and the video of this on YouTube is classic) then countered saying that capitalism rewards the ability to manipulate the system and not virtue. Friedman was having none of it, “And what does reward virtue? You think the communist commissar rewards virtue? …Do you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? …Just tell me where in the world you find these angels who are going to organize society for us?”

Friedman’s logic was what I was remembering as a theater full of people cheered wildly for a second Bill of Rights. How did this film crowd actually think FDR’s 1944 vision could be executed? Frankly, it was clear to me at that moment capitalism was on shaky ground. Starting with Bush ‘abandoning’ capitalism to bailouts for everyone to Obama gifting away the future – we seriously might be past the point of no return toward a socialization of America.

Figuring someone else must see the problems with this film, I started poking around the net for other views. One critic declared that the value of Capitalism: A Love Story was not in the moviemaking, but in its message that hits you in the gut and makes you angry. This film did not make me angry, but it did punch me in the gut. The people in that theater with me were not bad people, including Moore. They just seem to all have consumed a lethal dose of Kool-Aid! And at the end of his Q&A Moore pushed the audience to understand that while they don’t have the money, they do have the vote. He implored them to use their vote to take money from one group to give it another group. Did he really say that openly with no ambiguity? Yes, sadly.

Dr. Covel is the author of Trend Following: Learn to Make Millions, FT Press, 2009

Greg Rehmke offers:

I enjoyed your description of the film. And it is great especially that you took the time to go see it and to write about it. One problem with ideological documentaries is that only people who already agree go to see them, just as with Fox News or the many ideological magazines and blogs. So most people hear only cherry-picked stories that support their biases and beliefs. I have a few quick notes on the "Second Bill of Rights – an economic Bill of Rights for all…" that see them through the lens of "freedom to" rather than "freedom from":

* The right to a useful and remunerative job in the industries or shops or farms or mines of the nation. [Rehmke comment: On first glance, this sounds like "freedom from" unemployment. But is can also be seen as calling for an economic right to launch industries, shops, farms, and mines. Few people today can succeed, either individually or as small teams, in getting permits to start any of these enterprises. The rich can because they have lawyers, tax accountants, contacts in state and local government regulatory agencies, and contacts with government-backed bankers. Corporate farming thrives on subsidies, pushing out family farms. Inner city entrepreneurs in Detroit need 70 permits for home-based businesses, etc. This is all the fruit is state-capitalism, and is the status quo for much of the economy. If the poor could legally provide transportation services to each other, that would create both a million more jobs and provide cheap transportation for poor people to nearby employment and social services.]

* The right to earn enough to provide adequate food and clothing and recreation. [Rehmke comment: Minimum wage laws and payroll taxes combine to make low-wage jobs generally hard to find for the low-skilled (because low-wage jobs are made expensive for employers). Technology innovation and fairly free trade has dropped the price of clothes so today's poor can afford what middle-income Americans in the 1940s could only dream of. Food is inexpensive too, even with all sorts of tariffs, taxes, and agricultural price supports. In 1944, single people lived with families or as borders. Inexpensive housing is also blocked by local zoning and building codes. If group housing, borders, and factory housing were not banned by most local zoning, the poor today would live much better on below-minimum wage jobs than middle-income Americans of the 1940s. "Average home size has doubled from the 1950s" yet most families are smaller.]

* The right of every farmer to raise and sell his products at a return which will give him and his family a decent living. [Rehmke comment: Well, the farmer should have the right to try, without being badgered by regulators. Farms and orchards in California, Oregon, and Washington require inexpensive and reliable workers, and many of these hard-working people are from Mexico. They are regularly harassed for not having adequate documentation to prove they have permits from the federal government to work in the U.S. as free and responsible human beings. (The Krieble Foundation guest worker plan would resolve end illegal immigration.) Without inexpensive labor, few family farms can survive, especially as farmers get older.]

* The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad. [Rehmke comment: Governments create and maintain monopolies. State capitalism has created vast swaths of monopolistic professions across America. From doctors to electricians, hair stylists to legal advisors, teachers to nurses, transit drivers to bed & breakfast operators–expensive permits, government-sanctioned "training", dense regulations, and special taxes are the rule rather than the exception. Mercantilistic regulations make business services more costly, and restrict business opportunities to those how have skills not only to run a business, but also to navigate regulations usually erected by established competitors, plus complex tax codes and labor laws. Plus established competitors can often find a way to litigate new competitors out of business.]

* The right of every family to a decent home. [Rehmke comment: Again, freedom to build and live in homes would be helpful. Builders could construct 1944-size homes very, very inexpensively, if they were legally allowed to by local zoning boards and urban planners. Government has driven up the price of housing, prodded by elites already in comfortable homes and not wanting too many neighbors, especially poor ones. Randy O'Toole's book, Best Laid Plains, tells this sad story. Housing and land use regulations not only raise the cost of housing but contribute to regular housing bubbles.]

* The right to adequate medical care and the opportunity to achieve and enjoy good health. [Rehmke comment: I agree that access to medical care should be free. If it were, hundreds of thousands more people would quickly move into medical fields, being quickly trained to provide diagnostic services with support of sophisticate software and teleconferencing with doctors). Thousands, then tens of thousands of highly-trained doctors would move to America from India and Mexico (and tens of thousands more would gain access to training in those countries). Hundreds of thousands of trained nurses would move to America from the Philippines and Kenya. Incomes for many of today's doctors and nurses would drop, but services for the poor would expand. Wal-Mart and other firms would likely provide free or near-free medical services just to bring in customers (though they might expect a blizzard of malpractice lawsuits that activists would likely hit them with). "Enjoying good health" requires people exercise and eat healthy foods. This behavior would be encouraged if insurance companies were allowed to set catastrophic insurance rates on the basis of exercise, diet and other behaviors that influence medical risks. Government shouldn't hector overweight people to diet and exercise, but medical insurance premiums $100 or $200 a month higher, based on actuarial data, would provide strong and reality-based stimulus for active lifestyles and healthy diets.]

* The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment. [Rehmke comment: the above suggested reforms would move Americans toward these goals. Sound currency would encourage savings just as unsound currency punishes saving for old age. Transfer-based Social Security and Medicare are unsustainable, so individual retirement accounts of some kind would provide the financial safety net that would provide adequate protection. Government tax policy distorts medical-insurance, and people should be allowed to opt-out of government welfare/social security programs.]

* The right to a good education. [Rehmke comment: A dose of freedom would improve education. James Tooley's excellent book "The Beautiful Tree" looks at successful private schools for the poor across Africa, India and other poor countries. If only America's inner-cities could enjoy the freedom to educate that the poor have in Latin America, Africa, India, and communist China. America's thriving homeschool movement is developing into hundreds of fast-growing firms offering a wide range of quality educational services, and innovative private schools are expanding too. Again, here as with other areas, entrenched elites operate and benefit from an expensive government education "monopoly" that offers mediocre or poor education with expensive, watered-down, politically-correct and colorful but boring textbooks.]

Dr. Rehmke is the author of The Complete Idiot's Guide to Global Economics, Alpha, 2008

Sep

28

L of LThe basic premise of The Logic of Life by Tim Harford is that people are rational, that they act to get more of things when they are cheap, less when they are expensive, that they take account of the future outcomes of their decisions, subject to constaints of wealth and health, and that they respond to incentives. But sometimes their rationality is constrained by the psychological biases that Kahneman and Tversky write about. It's a follower in this regard of Freakonomics by Leavitt and Dubner, and Discovering Your Inner Economist by Tyler Cowen.

Unlike these latter two books where the authors' analytical insights and original research lurk behind every page, Harford's book is a compilation of startling finding by others, interviews with the authors, and anecdotes about his own predilections and biases. Those predilections are the kind that make one more and more reluctant to know him as the book progresses. At the supermarket you find him scoffing at the potato chips and junk food that the typical patron buys, at another page deploring the spread of kebab shops in his neighborhood, at another regretting that his colleagues at the World Bank or the residents of Rock Island or Detroit are not as vibrant as he would like.

In short this is another one of those books, where the author dislikes the common things and common people that he is writing about, and stands above them in cynical obloquy. Worse yet, Harford allows these biases to permeate his analysis of the findings of the studies he provides and fails to report their limitations and alternate explanations.

The book opens with the usual appeal to sex and readership with the report that teenagers are engaging much more in the upper varieties of sex than the lower. The reason is the increased cost of the latter. No times series are given to support this change in activity and no alternate explanations are given. An incredibly shallow discussion of mice choice is given in this chapter to show that mice as well as men respond to incentives. The experiment he reports supposedly shows that mice respond to lower prices and higher income by buying more of an inferior good when their income changes (a Giffen good) without any consideration of alternate explanations such as the changing tastes or health or senses of the mice. The second chapter is about Chris Ferguson's success in Las Vegas, and has nothing to do with the economics or game theory he's writing about.

The third chapter talks about the work of Becker on the incidence of divorce as a function of the division of labor and the alternatives available to women, and the increased cost to a woman of bearing a child versus men. He lightens the subject with some anecdotes about speed dating where women choose only 10% of the potentials and men choose 20%. The fourth chapter is a completely speculative account of the reasons that CEOs get more money than their underlings which he believes is due to the demonstration effect they have in creating incentives for others.

The fifth chapter is an application of the selfish gene to why cities are more popular than rural areas and why women prefer cities because they can find more wealthy family providers. No alternate explanations for the differential desire of the sexes to live in cities or the changing options that the internet now provides is given. The sixth chapter is the typical agrarian reformer's discussion of racism in hiring, this time based on resumes sent to employers by a brilliant Harvard economist that shows that when the name seems like the employee comes from a poor area, he is less likely to be called back. No consideration is given to the rationality of the employer in making such a decisions or the latent factors that show that socioeconomic class and performance, or intelligence and performance, are related. The rest of the book is about the increased spikiness of the world, the importance of property rights as an incentive to work hard, and an analysis of 1000 years of world history applying his  selective findings from the previous chapters.

This last chapter is particularly weak because the author stubbornly refuses to set forth the prime movers of the economy from  history — that businesses respond to profits, that individuals have many substitutes for their desires, that innovation comes from the opportunity for profits, that keeping the fruits of one's efforts inspires one to greater efforts, that markets are essential to provide the signals that allow the orderly distribution of goods, and that the rule of law and strong property rights create the backdrop necessary for improvements in material well being.

One can speculate that the reasons that these principles are ignored throughout the book is that they are antagonistic to the sense of life of Harford. And since this book is about the everyday activities of people and animals in improving themselves, this bias of Harford's makes the Logic of Life very illogical and incomplete.

Sep

28

The Theory of Quantitative Relativity indicates cone-shaped plotting of domains representing order size execution of issuances trading on electronic exchange markets. Circular base of order size cones generate upon convergence of velocity bound sums; inclusive of mass aligned with directional vectors of closed, subspace sums bound to a linear mapping of transaction exchange energy patterns.

Published September 2008…

As market fragmentation grows, fueled by ECN competition as well as individual bank platforms, market aggregation becomes more important. In fact, it has become one of the most important developments in recent years. Independent trading platform vendors have emerged to meet this growing market demand from clients. In addition, large dealing banks have increasingly turned to internalization to reduce costs and improve profit margins. More specifically, internalization enables banks to capture the spread internally and avoid paying the spread to an ECN, leaving virtually no footprint in the marketplace and eliminating ECN brokerage fees and associated interbank settlement fees, such as CLS costs.

Published December 2008…

Retail and institutional investors have been stunned at recent stock market volatility. The general thinking is that everything is related to the global financial crisis, starting, for the most part, in August 2007, when the Volatility Index, or VIX, started to climb. We believe, however, that there are more fundamental reasons behind the explosion in trading volume and the speed at which stock prices and indexes are changing. It has to do with the way electronic trading, the new for-profit exchanges and ECNs, the NYSE Hybrid and the SEC's Regulation NMS have all come together in unexpected ways, starting, coincidently, in late summer of 2007.

This has resulted in the proliferation of a new generation of very profitable, high-speed, computerized trading firms and methods that are causing retail and institutional investors to chase artificial prices. These high frequency traders make tiny amounts of money per share, on a huge volume of small trades, taking advantage of the fact that all listed stocks are now available for electronic trading, thanks to Reg NMS and the NYSE Hybrid. Now that it has become so profitable, according to Traders Magazine, more such firms are starting up, funded by hedge funds and private equity (only $10 million to $100 million is needed), and the exchanges and ECNs are courting their business.

Geometrically, an order-relative domain forms upon a circular base. The diameter of that base of the corresponding cone parallels an assimilated plotting (or linear progression) of issue transactional velocity. This line ends at the point of divergence among indicators constituting that directional function of the issuance transaction (or series of order executions).

Diameter of circular base of domain represents averaging of order size. Linear sequencing of orders therewith generate plotting of closed, convex sets less extreme points (e.g., apex connecting legs of cone).

This rules-based construct of geometric portioning offers a method to reconstruct electronic exchange market footprinting. The purpose (or value) of such plotting is being able to quantify patterns of market relativity otherwise eliminated or nontransparent within increasingly fragmented markets. That inability to correlate is also caused by low latency, high frequency systematics as well as during (artificial) pricing gyrations of market aggregation and periods of high levels of volatility.
 

Sep

28

Libertarians (other than me) are mostly united around the idea that global warming is not a problem, which I find a strange reaction, no matter how repulsive government involvement is.

Libertarians often say government health care is a bad idea, but don't claim that people don't get sick. Libertarians don't like government schools, but don't claim everyone can get a great education on their own. They (and I) say these areas have real problems, either caused by or not helped by government involvement. What of climate? Cruise ships will transit the Northwest passage in a few years, the first time the ice will be melted fully across in a very long time. So why when the planet is warming up and the government gets involved is a warmer planet not a problem?

Last week I listened to a PhD defense at the Goddard Institute for Space Study, the place where Jim Hansen and crowd have made some accurate predictions about climate change, predictions of the sort where they predicted future things before anyone had the data. I was struck by two things:

1. They were already modeling earth's poles with no ice as an everyday modeling activity, and then studying clouds and whatever else was the topic being studied.

2. The speaker tossing around a term like they used it all the time: 2xCO2. It dawned on me they were talking about CO2 doubling in the atmosphere, which is not far off if current trends continue.

It was back in the mid 1800s when CO2 was identified as a greenhouse gas. The debate was held in The Royal Society, and largely ended there as to whether CO2 is a greenhouse gas or not (See Note below).

I don't have faith that the models are trustworthy, but the data from countries that have less climate diversity than the US say things are warming up rapidly. US television stations are in many different climate zones, but all the TV stations in Australia are in places that are hot and getting hotter. Ditto for most of Israel. Some parts of the world are getting too dry for farming for the first time in centuries, even with pumped water. If this trend continues, much money will change hands because of it.

What investments would do well if the planet keeps warming up?

Approximately 100% of energy saving activities related to buildings in the US (and some other places) involve government programs, which are another story. Most efforts to make money on owning the infrastructure for supplying water end with protests about prices, and government seizure of the "privatized" water system. General Electric is heavily involved in manufacturing the equipment for water related products (large scale), and energy generation products as well, and they seem to be doing a good enough job to displace the need for many startups in these areas.

I think this will be an area of huge opportunity, but don't yet see what position to take.

Technical Note. The earth gains heat one way: infrared radiation from the sun. Our atmosphere, including CO2, is largely transparent to infrared radiation on the wavelength the sun emits: short wave.

The earth loses heat one way: infrared radiation radiated out from the earth into outer space. The CO2 and other gases (including water vapor) in our atmosphere are not as transparent to infrared on the longer wavelength the earth emits (because the earth's temperature is different than the sun's temperature), thus some of the infrared emitted is absorbed and/or reflected back. The more CO2, the stronger this effect, and the warmer the planet.

People argue about how much CO2 will have what effect, but nobody disputes the operation of the basic mechanism.

On another subject: There is no evidence yet of green-collar work on buildings saving any energy.  See an article in the NY Post in which I am quoted:

LEED buildings don't conserve energy. In fact, a LEED study commissioned by the USGBC suggests that certified buildings often use more energy.

Much credit for this discovery goes to a Manhattan building-energy consultant, Henry Gifford, who was the first to blow the whistle on the USGBC's bogus promises of energy savings.

William Brauer writes:

As a Libertarian and noting that Greenland was once green, I'm not sold on manmade CO2's being the big driver in warming and find recent literature on sunspot activity to be compelling. I don't agree at all that Libertarian beliefs dismiss public education, though the belief would be that a private enterprise would out perform a government-run school (read Harvard v. UMass). As a Libertarian I do not deny that people get sick, but if we must take a program approach to increasing access to care, we would increase incomes to enable the poor to afford insurance rather than wipe the slate clean and start a government managed system.

Sep

27

I've always been partial to the notion that reality is largely an illusion, one crafted by presumptions that are largely imposed upon us. All too often what we conclude is an immutable function of what we expect. Which is problematic because society lies, and that's where we get the expectations from.

From a recent NYTimes piece:

"…when the German naturalist Alexander von Humboldt told a friend, a Parisian doctor, that he wanted to meet a certifiable lunatic, he was invited to the doctor’s home for supper. A few days later, Humboldt found himself placed at the dinner table between two men. One was polite, somewhat reserved, and didn’t go in for small talk. The other, dressed in ill-matched clothes, chattered away on every subject under the sun, gesticulating wildly, while making horrible faces. When the meal was over, Humboldt turned to his host. “I like your lunatic,” he whispered, indicating the talkative man. The host frowned. “But it’s the other one who’s the lunatic. The man you’re pointing to is Monsieur Honoré de Balzac…”

Vincent Andres adds:

There is a nice novel on Humboldt, Measuring The World .

Sep

25

FlyI took a day to fish the Farmington River  recently, not far from where I live in Connecticut. It is a beautiful river, wide and easy for casting, varied in structure, with a flow perfect for wading this time of year. The Fall colors are just starting, and a blue sky lights the clear river water. It is my favorite time of year to fish. A large portion of the river runs through a state park, so the access is surrounded by an old growth forest. It is a nice walk from the car to the water, a transition and a time to think. I always like to rig up on the water, not by the car. Standing in the river, I can listen, watch and plan.

The Farmington, besides being one of the more beautiful rivers I have fished, is also one of the most popular among anglers and gets pressure. But, there are plenty of large rainbows, browns and brook trout to make up for this. At the fly shop on the last trip a guide showed me a picture of a 30 inch brown he had caught earlier that day. This is the type of thing that keeps one coming back. Here they allow bait fishing as well as fly fishing. Fly fishermen and bait fishermen often have to tolerate each other but rarely do they enjoy the other's company. It is sort of like snowboarders and skiers, sailors and power boaters. They have a fly fisherman only section, but today I venture out to the open waters to see what the day brings.

ForestI drive up-river higher than last trip, park the car and begin walking through the forest. I enjoy this part, listening to the forest and river. I am looking for clues, the insects, water color, flow, structure of the river. I scan below the water for signs of fish. Though I pass only a few anglers, I decided that today I need to do things a little differently to be successful. These fish see many anglers over the season and the learn the lures and flies. To start with, I find a spot which is hard to access, down a step embankment. Then instead of the smooth glassy water, I look for the rocky, fast water. This will rule out the bait fishermen who can only fish the deep pools. Most fly fishermen won't wade the rocky water to risk slipping and losing gear. Plus, the trout like this aerated water with plenty of food. The rocks below provide a nice spot to relax after a meal. I call it "pocket water". I see some small insects flying around, but decide to put on a large attractor fly to see if I get a reaction. After a few casts I hook into a nice brown trout, 16 inches. My day is already a success.

RainbowUpriver I see a deep pool where earlier a fellow angler was casting without success. I know this area gets fished often, but for good reason as it holds large rainbows deep below. I walk up and try a few casts. Shortly after I see a fish rising across the current. As a general rule, the largest fish will be in the most difficult areas to reach. It is the survivorship bias as played out in nature. In this case the fish is just on the edge of a swift current, which would sweep a fly line away before it could reach the fish. I move up ahead and scramble out on some rocks for better position and wait. Sometimes the best thing to do while fishing is to stop and wait. He rises again for a small insect. I find that the largest fish tend to eat the smallest bugs. I think they like to challenge the angler; smaller flys are harder to cast and difficult to see on the water.

I scan my fly box for a selection and decide to go with an even smaller bug than normal. I throw several casts over the current into the seam when he is feeding. I try to vary each cast, different lengths, changing the speed or angle. Sure enough, a quick splash and he takes the bug, a beautiful 18 inch rainbow. I tighten up the line and feel the tug on the other end. I focus on keeping the pressure on him and steer him towards the shore as I move off the rocks. A fish quickly landed is much easier to return to the river. I land him a few minutes later. I take a mental picture for the winter months ahead, the red, blue and green colors on his back, his wide oval shape, strong tail slapping on the water, the bright reflection of the sun off his scales. A great day!

I did catch a few more here and there over the course of the day. Doing things just a little bit differently turned the day into a big success.

Sep

24

S EllisonA recent Wall Street Journal article discusses findings that children born in the winter do worse in school and earn less than children born at other times of year. The first reaction was to search for environmental factors. Did lack of sunlight in infancy cause lasting damage? Did being in the same grade with younger students limit achievement?

Further research showed that heredity might play a role. Births to highly educated women peaked in May each year, while births to less educated women peaked in January. The likelihood that a woman giving birth was married was 2 percentage points less in January than May.

Nigel Davies reacts:

I learned recently that 75% of a child's IQ is from the mother, so it may be purely an IQ thing. As May minus 9 months = September maybe smart women tend to schedule their baby production after their summer holiday!?

David Wren-Hardin queries:

I read the same article, and saw nothing in there about heredity playing a role. It did say, as you say Steve, that the winter-born babies tend to be born to less-educated women. Education is, obviously, something someone does, not something someone inherits.

And to Nigel: Who told you 75%?!

Nigel Davies replies:

A reliable source.

Alex Castaldo adds:

I think I could guess the source's gender.

Gordon Haave is not amused:

Obviously none of you have read The Bell Curve by Richard Herrnstein and Charles Murray.

David Wren-Hardin comments:

David W-HI've read parts of the book. There are some interesting conclusions, but they fall far too far on the intelligence is pre-determined and we can do nothing about it spectrum. Are we blank slates? No, but our intelligence is highly tuned by our environment. That's actually great news — we don't have to simply accept that some people are "stupid", shrug our shoulders and move on. Everyone can become smarter and realize more of his potential.

A more recent book that analyzes some new studies and takes a fresh look at old ones is Intelligence and How to Get It by Richard Nisbett, a Distinguished University Professor at Michigan.

More and more study is showing that IQ is much more malleable to environment than previously thought. For example, twin-studies had been used to state that IQ must be inherited since twins raised in different environments have similar IQs. However, once you control for the selection bias in adoptive parents — people who adopt tend to be more highly educated and have more resources — a great deal of the "heredity" effect goes away. It's still there, just not as strong as previously assumed.

There have also been studies showing how the "culturally unbiased" tests, the ones that are supposed to tease out untaught learning from innate intelligence, are actually highly affected by previous exposure to various spatial concepts.

Yishen Kuik summarizes:

YishenFrom what I remember about studies of intelligence, the key findings were:

1) The correlation of IQ scores by adopted siblings & their natural siblings was 0.0 (ie no different from strangers), whereas those between natural siblings was about 0.6.

2) The correlation of IQ scores of monozygotic twins separated at birth was 0.9 vs dyzygotic twins raised together at 0.6.

Those were the strong conclusions used to argue that environment had far less impact on how well someone scored on an IQ test, compared with their natural endowment. (Note that this does not imply they inherited their intelligence from intelligent parents). How does Prof. Nisbett's findings about cultural biases or the fact that adopters tend to be well educated / wealthier alter these findings?

Stefan Jovanovich writes:

This may not answer Yishen's question directly, but what follows is the sum of what my father told me about IQ tests. Dad had, I think, some credibility on the subject; he made his fortune from running the only for-profit publisher who competed successfully with ETS. He was also smart enough never, ever to voice these opinions to anyone until the year and a half before his death when he decided that he would indulge himself in the luxury of telling himself and anyone who would listen the absolute, unvarnished truth about what he knew from half a century in the book and test trades.

1) IQ tests are unpopular precisely because they are brutally honest and cannot easily be rigged. No one likes their results. The students hate them because they show us all how rare exceptional intelligence really is. The teachers hate the IQ tests because they find that the brightest students are most often not the diligently obedient pupils who copy down everything the teachers say and repeat it back to them on the exams. Instead, the tests suggest that really bright people are unruly and more interested in their own thoughts than other people's. The parents hate them because the test results shout that money alone cannot buy brains. The school boards and administrators hate them because the test results indicate that most of the time spent in class is utterly wasted.

2) There are only three reliable correlations between inputs and measurable academic achievement — the IQ of the child, the IQ of the parents and the IQ of the teachers. Every other metric — class size, spending per pupil, curriculum models (new, new vs. old, old math) have not statistical importance. Dad would hardly have been surprised by Dr. Nisbett's findings since the IQ of adoptive parents is significantly higher than the general population. He would, I think, have disagreed strongly with the assertion that "a great deal of the 'heredity' effect goes away." By far the most important single cause of success was the IQ of the child.

David Wren-Hardin replies:

I agree with most of what you said earlier; IQ is measurable, and people don't like that. What I want to add is that it is modifiable. But past certain points, it may not make a difference on life outcomes. Other traits, such as persistence and the ability to delay gratification, may have greater effects.

I'm not going to speak for Dr. Nesbitt, but on this last point I'd say that the child's IQ has already been set by the environment he came from. My argument doesn't necessarily help the education debate, it may, in fact, it may make it bleaker: Compared to the effect of a child's surroundings in his early years, public education comes in with too little, too late. "Low IQs" are still the parents' fault, but not necessarily because of genetics.

But the take home message to me, and what I tell my kids, is that they can always be better at something than they are now, if they apply themselves at the limits of their ability.

Stefan Jovanovich sums up:

Dad would certainly have agreed with David. He thought that modern teachers' refusal to "teach to the test" was an indication of how corrupt education had become. IQ can be "taught" in the same way that people learn alphabets and sums; be repeated trial and error — taking tests again and again. It appalled him that school was made over into something that was "fun" and "self-discovery." Learning was work, and that is why the students should be paid for their results, even as early as kindergarten. That would, Dad thought, teach persistence and the ability to delay gratification — which, as David notes, are "lessons" that are vital to the growth of human happiness and accomplishment.

Sep

24

M MooreCAPITALI$M: A LOVE STORY
A “documentary” by Michael Moore

In a faux-soothing voiceover narrative dripping with sarcasm meant to lull with its gloved malevolence, clownish Michael Moore (Sicko, 2007; Bowling for Columbine; Fahrenheit 9/11; The Awful Truth; Roger & Me) carries the spear yet again for his soapbox. (Not to mix metaphors.) (Too late.)

He plays gotcha with banks and Wall Street institutions, capturing security men impassively holding him off at Goldman Sachs, Merrill, outside Lehman, piteously holding empty money bags for the Market CEOs to toss down money to repay the taxpayer.

A native of Flint, Michigan, where his father worked the GM assembly line, he does close-ups on unemployed Detroit workers and their echoing warehouses and abandoned factories. But while he castigates the headmen at car companies, Moore fails to note that the industry died not because of greed on the part of the car industry, but because the very unions he lionizes in his nasal smart-alecky way charged more than the traffic—literally—could bear. The Japanese and Germans he rhapsodizes over—omitting the finicky point that they waged war to the death with us in the 40s, so their industry went understandably belly-up—are now back on track, charging less because their workers expect less, make less, and have fewer womb-to-tomb satisfactions doled out by their union HQ. They deliver the cars the public seems to want. It wasn’t beauty killed the beast, Michael.

Moore focuses his lens on the crying men and women being foreclosed. Their petite protests calling for the banks to stop ‘hounding’ them are covered in loving close-up. But not once does he discuss the meltdown from its ACORN-, Chris Dodd- and Barney Frank-encouraged mismatched underpinnings: The families could not afford these houses to start with, and foreclosure was an unfortunate foregone conclusion. It wasn’t all due just to the MBS people on Wall Street. These noble people squatting where they are no longer paying back their debts are simply caught red-handed as they tried to rip off the system. Oops! Our bad! pays few dividends in comfy home and hearth. To be sure, many are the culprits behind the meltdown, but this fairy tale is not the exegesis he thinks it is.

He gets cheap laughs throughout by quick, almost subliminal montage cuts of Palin, Cheney; longer and deeper excerpts of Bush 43; and all things GOP. He shows the tearful joy of students when the new guy is elected, shows his overhyped “Change” speech cuts. Taking aim further back, he mocks and derides Reagan for his movie and ad background.

But Moore elides all mention of the corruption that is now emerging, in the $835,000 handed out like Good’n’Plenty to the operatives and thugs of SEIO and ACORN. He gets in a few digs at Madoff, so we know he was tweaking the movie during recent weeks. While he shows the rise of the popularity arrow from candidate McCain to the so-so relative heights of the new guy, he somehow misses showing the equally fast plummet of his chosen in the past months. Fails to show the massive, much larger protests against the new President in townhalls or Washington, DC; fails to even mention that the people who shoe-horned the election results have been definitively exposed, are now disgraced and defunded. Fails to demonstrate the least journalistic responsibility on what might be the positives of Capitalism. Fails to show how, if the first bailout was a snake-oil deal, the recent doings of bailouts and porkulus bills are far more costly, and far more imperiously shoved down the public gullet.

Moore on the current occupant of such deals? He will have none of it.

Of his own millions, his apartment in a tony building in the City, his new office in Michigan, his fat bank balance owing to the same perilous capitalism? We hear nothing, nor any acknowledgment.

Of all the carefully sculpted half-told tales and stuff he pushes, there is one news gobbet that might be viewed as a scoop: He calls into question the dreadful custom of many large corporations of insuring their young workers in case of death. Untold workers died without their wives or husbands being at all aware of the heavy insurance policies their companies had bought against them. This was unconscionable.

This custom stopped, became public knowledge, before the film was complete. It should never have been allowed, and it does seem an unforgivably ghoulish and icy way to add gravy to the bottom line.

Moore also points out how shockingly underpaid many new pilots are; they need to supplement their incomes with waitressing or serving at MacDonald’s. But this is not news.

He has nothing good to say at all about this country, nor has he excavated any positive aphorisms on this exceptional country, from Ben Franklin to our day. He interviews radical priests in their richly appointed and gilded churches, unaware of the irony of these lavishly supported religious criticizing the institution of capitalism. Like Keith Obermann, who never dares entertain a guest who might disagree with him, Moore does not deign to interview anyone who might have a good word for the system that made him the modern Mr. Chutzpah, unshaven and richer than his entire lineage. By a country mile.

CAPITALISM: A LOVE STORY, is divorced. From reality.

marion d s dreyfus is a movie reviewer at Rotten Tomatoes .

Sep

23

Prof PTennis28.com gives in order the youngest and oldest major tournament winners of the open era — e.g. Michael Chang was the youngest winner at age 17, in 1989, at Roland Garros, and Ken Rosewall the oldest, at age 37, in 1972, at the Australian.

I list the top 25 youngest and top 25 oldest below, along with my assignment of "E" (Eastern) or "W" (Western).

Of the 25 youngest winners, 12, by my count, use a Western grip.

Of the 25 oldest, only four use a Western grip –and all four are Andre Agassi, and I think that's generous, since I would argue that his grip, toward the end of his career, may have been more Eastern than the average player's.

So apart from the borderline case of Agassi, none of the oldest 25 winners used a Western grip, while 12 of the 25 youngest winners did. This supports the Chair's prediction that Nadal doesn't have many more years to go at the highest level.

25 youngest major tournament winners:
1    Michael Chang    1989    Roland Garros    17y 3m 20d E
2    Boris Becker    1985    Wimbledon    17y 7m 15d E
3    Mats Wilander    1982    Roland Garros    17y 9m 15d E
4    Bjorn Borg    1974    Roland Garros    18y 0m 10d W
5    Boris Becker    1986    Wimbledon    18y 7m 14d E
6    Rafael Nadal    2005    Roland Garros    19y 0m 2d W
7    Bjorn Borg    1975    Roland Garros    19y 0m 9d W
8    Pete Sampras    1990    US Open    19y 0m 28d E
9    Mats Wilander    1983    Australian    19y 3m 19d E
10    Stefan Edberg    1985    Australian    19y 10m 19d E
11    Rafael Nadal    2006    Roland Garros    20y 0m 8d W
12    Bjorn Borg    1976    Wimbledon    20y 0m 27d W
13    Mats Wilander    1984    Australian    20y 3m 17d E
14    Lleyton Hewitt    2001    US Open    20y 6m 16d W
15    John McEnroe    1979    US Open    20y 6m 24d E
16    Marat Safin    2000    US Open    20y 7m 14d W
17    Gustavo Kuerten    1997    Roland Garros    20y 8m 29d W
18    Mats Wilander    1985    Roland Garros    20y 9m 18d E
19    Jim Courier    1991    Roland Garros    20y 9m 23d W
20    Stefan Edberg    1987    Australian    21y 0m 6d E
21    Rafael Nadal    2007    Roland Garros    21y 0m 7d W
22    Andy Roddick    2003    US Open    21y 0m 8d W
23    Bjorn Borg    1977    Wimbledon    21y 0m 26d W
24    Jimmy Connors    1974    Australian    21y 3m 30d E
25    Lleyton Hewitt    2002    Wimbledon    21y 4m 13d W

25 oldest major tournament winners
1    Ken Rosewall    1972    Australian    37y 2m 1d E
2    Ken Rosewall    1971    Australian    36y 2m 12d E
3    Ken Rosewall    1970    US Open    35y 10m 11d E
4    Andres Gimeno    1972    Roland Garros    34y 10m 1d E
5    Ken Rosewall    1968    Roland Garros    33y 7m 7d E
6    Andre Agassi    2003    Australian    32y 8m 28d W
7    Arthur Ashe    1975    Wimbledon    31y 11m 25d E
8    Rod Laver    1969    US Open    31y 1m 0d E
9    Pete Sampras    2002    US Open    31y 0m 27d E
10    Jimmy Connors    1983    US Open    31y 0m 9d E
11    Rod Laver    1969    Wimbledon    30y 10m 26d E
12    Rod Laver    1969    Roland Garros    30y 9m 30d E
13    Andre Agassi    2001    Australian    30y 8m 30d W
14    John Newcombe    1975    Australian    30y 7m 9d E
15    Rod Laver    1969    Australian    30y 5m 18d E
16    Andres Gomez    1990    Roland Garros    30y 3m 14d E
17    Jimmy Connors    1982    US Open    30y 0m 10d E
18    Petr Korda    1998    Australian    30y 0m 9d E
19    Rod Laver    1968    Wimbledon    29y 10m 27d E
20    Ivan Lendl    1990    Australian    29y 10m 21d E
21    Jimmy Connors    1982    Wimbledon    29y 10m 2d E
22    Goran Ivanisevic    2001    Wimbledon    29y 9m 26d E
23    Andre Agassi    2000    Australian    29y 9m 1d W
24    Andre Agassi    1999    US Open    29y 4m 14d W
25    John Newcombe    1973    US Open    29y 3m 17d E

Sep

22

V NIt is common to use mumbo to show that the market isn't what it seems by saying such things as 30% of all stocks are more than 20% below their 12 month high, or if you missed the 10 biggest days in the market, it's actually down 10%.

It turns out that the 10 biggest days in the market this year have averaged up 33 points. The S&P itself is up 167 points. So: "If you missed the 10 biggest rises you would actually down 162 points this year." Better yet, if you missed the five biggest rises, you'd actually be down 80 points. Left out, of course, is how much you'd be up if you missed the 10 biggest declines, which by the way averaged a mere 31 points down.

On a visit to Vinalhaven this weekend with a young son we were joined on the ferry by 20 members of the Maine Ghost Hunters Society, prompting these thoughts and related ones.

Sep

22

LackBlame innovation for driving profits to zero. Then come the crises, the deregulation or re-regulation and the destruction of an eco system. The net result is the tipping point, a cascade, a rapid rise in temperatures and pressure, then a meltdown of the core. Then the speculators have all "been there done that" and know what to do next time we park the car in a dimly lit parking lot. Get the joke, and the joke is: a private transaction in a dimly lit lot may be more free market and profitable than on any low fee exchange today. Risk? Aaah to me it is about the same. Let's take a look.

Crash of 87..Innovation: portfolio insurance and program trading.. Crash. Regulation.. Brokers must answer phones.. scandals.. re-regulation.. electronic orders must be filled automatically by SOES. Outcome, eco system breakdown.. Small brokers swoop in, drive the profits from spreads and the ripping off of customers at open and close to zero.

Tipping point: Innovation..Electronic ECN networks to manoeuver around the brokers' market making systems..Brokers must now deal without side source of liquidity. Brokers stop making markets in tech stocks..focus on Investment Banking to fill demand of a viral marketing boom. Demand for Tech IPO's and the internet. Prices rise to ponzi-esque levels, pushed up by a mutual beneficial exchange..day traders, the small private specs want high prices, sellers are banished, brokers benefit from high prices to bring investment banking biz… and crash..

Regulation.. to save day traders and small specs from themselves..big brokers with a regulator in their pocket demand rules to protect themselves from evil speculators.. which drives out most small brokers.. The innovators, the small brokers with ECN's are sold to the big brokers.. they see orders first, shut out small specs, profits dive to zero.

Small specs go to work for old friends at hedge funds that now control ECN's with big brokers.. High frequency trading is born.. Innovation: computers now have the power to be programed to run faster than an army of fast fingered day traders..Old day trading firm's managers now work for hedge funds programming and operating auto X ECN's and markets. Servers are moved geographically, like day traders once moved themselves, to get fastest access and flash quotes.

The other half of the day traders (self employed small specs) attack the next slow moving system in need of reform and drive profits to zero, real estate transactions. The 6 percent broker fee and 5k closing costs, 4-6 weeks to close is driven to 48 hour no fee, no doc fast movers. Profits off transaction for slow movers are driven to zero. Once again the only way to profit is to drive the prices of the underlying product to uneconomic levels. Hot products are not IPO's but the new condo developments and CDO's…Prices crash, brokers and private specs once more driven from the markets.

Scandal forces change.. the last of the hold outs, the former NYSE big man that held an ironclad grip on the specialist regime, made too much profit for some. This PR blunder destroyed the specialist system. The merger of ARCA and the NYSE seat members was one of those inside jobs where everyone in the trading community either laughed or said good. "Those damn specialists have been robbing me for 2 cents a share for 50 years." Oh but wait.. Lets go back to 1987! Was it the specialists that didn't answer the phones or do the best job they could..or was it the Nasdaq early electronic markets? Free, low cost, open access markets have a risk.

Of course, brokers' management find they can't "make it up on volume" off equities. NYSE is spun off with the Arca ECN. Investment banking dries up after crash, once again look to innovation..First is the logical boom, just like last time, its off RE and CDO's..But wait there is more. Why not invent a new tracking stock like they did to satisfy the tech boom's demand. Let's do commodity ETF's.

Its a win-win situation, the pension funds can diversify without being ripped off by those nasty speculators in the pits. Once again electronic volume soars, transaction profits are driven to zero.. and the only way to profit is to send the underlying up to uneconomic prices..oil and many commodity-prices go parabolic during the great recession and financial panic extremes, then, of course, as usual, crash.

Here we are! What a fair system! Yikes! Anyone can have direct access to any market for a low fee, get a transaction and fill price in under one second. How wonderful! Except for the fact now information travels so quickly, from Shanghai to London, NY, San Fran and back to Tokyo and everyone in between has fast access. The split second any new information is let out, all quotes and prices disappear. Uh oh, what if everyone was electronic with all the same information in hand?

Wouldn't the market now be efficient? Sureeeeeeee until the liquidity pump is shut down, then boom. Once again it's like the 100-year old books, where J.P. in a top hat must step onto the exchange floor and say no worries all the money you need is on hand at a reasonable rate. Problem is there is no exchange floor. The banker in chief must go on 60 minutes TV news show to say all is well. So many are on the same side of the bets now that the funds target rate is zero and they have an asset purchase backstop! "WOW..this is just like back in nineteen hundred and" is the quote.

If we have 150 of our closest buddies standing shoulder to shoulder would we make better, quicker decisions? Is pit trading beneficial to the markets' eco system?  Perhaps not, but I can tell you first hand, we would all be much braver.

The markets have changed forever. These seven month, 7 week, 7 day in a row random runs are nothing new. They are in the 100 year old books when a few big global banks controlled the markets. We are now in the new era of electronics, rapid fire trading and information. Okay that is not new, what is new is now everyone has all of the above.

Which makes it an illusion of control. The few control too much of the money flows. Few have reserves, there is no profit on transactions. There is no back up for the system when the few the proud the elite turn off the spigot and the illusion of liquidity and control vanishes.

Hey, its all good here, we went from 6 cents a share 30 years ago after fixed commissions,  to 2 cents a decade ago..to now 1/2 cent a share fees all in, on stocks. That is fantastic reduction in the cost of doing business. Only problem is we need others to trade with and against.  A small spec and trader could always come and go as we please. Problem is now everyone thinks they can.

Aaah don't worry we have the federalies as a back stop say the bankers.. Oh boy just wait, until a few big specs find the time to break the central bank…then the forest fire that can't be extinguished.. and finally in 100 years the full cycle, the eco system is restored..and those without license and government inside contacts will again profit off mutually beneficial exchanges for a reasonable fee above zero..the salesman and specialist will return.

I imagine some dude said about the same things in 1939, after the telegraph, telephone, RCA tech boom and bust and government intervention..or the 19th century RR boom… or..

However our never ending quest to reduce costs drives all profits to zero, we kill one another, watch the boom, the bust and the Man left standing is always the government regulator. Their blue ribbon panel on market reforms is the final 'get the joke'. The government never becomes efficient.. so it was much better to pay that broker or pit trader his 2 cents after all…unless you prefer to trade with the Feds.

Sep

22

F FSome of the more vivid analogies to markets come in blood sports. Harry Clews writes well about them in Florida Frenzy. Here he describes and wonders about the honesty of cock fighting: "I watched guys shouting across the pit at one another, calling numbers, signaling to each other with upheld fingers, and it seemed to me there was no way in the world they could keep track of the bets. I turned to the man who had brought me and asked why losers of bets being made that way didn't renege, simply say the bet hadn't been made and walk away. "First, everyone here knows every one else. And second, these folks are as good as their word. Some of them got more money than others, but it ain't one here whose word you can't risk your life on. And the last thing is, welching on a bet can buy you a lot of trouble real cheap. You could git dead from it.' " Crews didn't realize that people will be dishonest when there is not any repeat business involved because then it's in their interests. And he doesn't take account of the value of reputation. But he does give a pretty good explanation of why there were so few cases of dishonesty in the pits even when walking away from a trade made the difference between life and success.

Victor adds:

It is an interesting aspect of human nature that pit traders, among the least honorable people I have ever met in dealing with the outside world, are so highly ethical in their dealing within their own tribe.

Tom Marks replies:

T MWhen futures trading was exclusively pit-based I always wondered why funds just didn't hire an ex-pit guy to go down there, tap the executing brokers on the shoulder, introduce himself, explain that he'd worked on the floor for many years, but now represents the interests of person X.

Then further explain that person X would greatly appreciate if any executing broker of his would eschew getting egregiously creative in the handling of his orders. Especially since person X has a knack for ferreting out patterns that is by no way limited to price movements on a grander scale.

Polite and to the point. They'd get the message.

That said, though, some might suggest that the chicanery of pit traders pales in comparison to what routinely goes on in law, and especially medicine, of the high-end variety. Regarding the latter, the bill is run up considerably by ordering expensive tests of dubious necessity and diagnostic value considering the circumstances. In that field it's called The Game.

Just as in pit trading and law, not all doctors play The Game, but regrettably a fair share do.

Art Cooper remarks:

Consider the difference in consequences between acting unethically to one's "own tribe" vs. the outside world. As a general rule, the adverse consequences from acting unethically towards the former are serious enough to enforce ethcial conduct. Adverse consequences from acting unethically towards the outside world, if any, tend to be attenuated. It's not a question of human nature; it's a matter of self-interest.

Douglas Dimick writes:

During my second year at U Miami Law, I went to one of these fights with a south Miami Cuban club type. Electronic market exchange systems would appear to shift the “ethic” here from the integrity of transacted exchange to the efficacy of the market process.

I see it here in China. Markets are rigged though the exchange transaction appears rules-based (or fair); from a transactional standpoint, the evil of nontransparent manipulations of supply and demand result with fraudulent systematics. Government and Communist Party affiliated holdings being sold (or bled) into the market, for instance, indicates how such a bloodless system sucks the life (or money) out of 80% of those who participate — being the percent of losers in China’s stock markets.

Sep

22

ReactorWhile nuclear power gets bad press, it's really a pretty nifty way to make electricity.  Modern Pressurized Water Reactors are safer than outsiders could ever imagine. In addition to numerous automatic safety shutdown mechanisms, they possess a very reassuring design property known as a "negative temperature coefficient of reactivity." Basically, it means that as the neutron-absorbing control rods are pulled out of the core of an operating reactor (in other words "reactivity is added"),  more fission takes place, and the water that removes heat from the core heats up and expands. This causes fewer neutrons to be slowed down by the water to a speed at which they can cause fission, and therefore, the higher temperature ultimately lowers reactivity. It's a true negative feedback loop that mitigates problems from a heavy-handed reactor operator and partially keeps the rate of change of reactor power manageable by a human.  It is difficult to cause a nuclear accident these days, due to the safety of the design and the many interlocks and safety features available to the operator. It takes a comedy of major maintenance errors and poor judgment (Three Mile Island) or a bad design and overriding of safety features on purpose (Chernobyl) to damage a reactor at power.

However, that is not true at all during a reactor startup. When a reactor is starting up, the level of reactor power is so low that only a negligible amount of heat is produced. Reactor power when fully shut down is very low– say 1×10^-10% of the reactor's full power design limit. What this means is that when pulling rods out to start up the reactor, an operator must be extremely careful! There is no negative temperature coefficient of reactivity to mitigate the power rise, and if you pull rods out too quickly, you can be raising reactor power at such a rate– maybe even as high as a factor of 100,000 every minute (aka a "start up rate" of 5 "decades per minute")– that you can go from not even creating any heat at all to a meltdown in a matter of seconds. There are safety features designed to prevent this scenario, but you're never supposed to test safety features. Besides, if you get the power rising too quickly during a startup, you can possibly cause problems more quickly than the automatic protection system can solve them, if you know what I mean.

See any connections to the markets?

I read and watch a great deal of the financial press, and every time I hear pundits talking about interest rates and inflation I think of a reactor's control rods and reactivity. People act as though the Fed's reactor operator is carefully watching the dials, and will be able to deftly move the rods back into the core (remove liquidity) just at the right moment to pull us from the precipice but maintain an absolutely stable price level. What they're missing is that the reactor of the economy was truly shut down for a while at the end of last year. We were no longer operating at power, and they were probably right to recognize that things like the Taylor rule don't apply when it hit the fan. Right or wrong, the Fed pulled all the control rods out of the core as fast as they could. Now, rods are at the top, and the economy's "reactor power" is probably screaming up at an incredible "startup rate" right now, but it's not moving the needles that anyone can see– yet. I'm afraid that once the economy starts moving the needle, by means of rising lagging economic indicators (all indicators are lagging, by definition, by the way) it will be too late for the human operators at the Fed to take away the punch bowl by putting rods back to the "normal" levels. Plus, the Fed's reactor operators won't even be able to take action when the needles start to twitch, because there will be congressional supervisors straight out of the plot of an Ayn Rand novel standing over the Fed's shoulders whispering that more is better for the little people– until it's too late, at which time Congress will blame those that they pressured only a short time ago. Heck, I think it's already too late. It's hard to find signs of strong American deflationary pressure that can't be explained mainly by falling gas prices in the last year (which were elevated to begin with by those darn speculators, right?). Plus, most of the official indicators are bogus anyway, and will be exposed as a scandal du jour sometime down the road when it's obvious in retrospect what all the problems were with them.

I have questions, but no answers. It's a tough situation, because on one hand, instead of a negative temperature coefficient of reactivity, the economy has a positive liquidity coefficient of reactivity– the more you add, the more the economy heats up, and it may be getting ready to heat up quicker than anyone thinks. On the other hand, if you stop pulling rods too early, before the reactor is "self-sustaining," reactor power will fall back down to near zero– a depression. I have no idea where we are in all this, but I would be surprised if inflation doesn't come back to the forefront of the American psyche in the next few months or years. All I know is that as an unstable, discontinuous market system with demand cliffs and greed and fear it's absolutely certain that the Fed will take away the liquidity either too soon or too late. I think it's unlikely they'll do it too soon.

Sep

21

V NA recent visit to the Boston Science Museum and Sturbridge Village brought back an important theme. Dell has reduced the number of parts and suppliers and inventory in its products by a factor of 10 in last five years, and keeps just two hours inventory on hand in Asian factories. The replacement of a screw with a clip-on saves one second a screw. The fewer parts you have, the more you can act as a platform for profit for your company rather than a carrier shell for others to stand on your shoulders. The amount of bread a farmer can make with 40 hours of labor these days is more than 60x what is was in 1820. The reason is increased capital, broadly defined. The main asset in the capital stock is human capital.

All these combine into a price to weight ratio or a price to parts ratio. Looking through the Dow I find high price of typical product to (weight + parts) ratios in Intel, IBM, Microsoft, Verizon, Walt Disney, J and J, Pfizer. I hypothesize that for a standardized group of, say, the 500 companies in the S&P at the end of this year, the companies with the highest ratios will outperform the rest.

Sep

21

Making Your Obsession Work for You; Instead of Against You

Many self help books tell you to “live your dream” or “love what you do and do what you love”. They emphasize that you must be passionate about what you do to be successful.. The problem with this is it can feed your obsessive tendencies.. The obsessions can lead to great success, or unbalanced, dismal misery and failure. Sometimes, and perhaps most tragically, one of the greatest heroes and the best in one arena can be the most miserable and flawed person after their greatest success.

You certainly don't qualify for the US Olympic marathon trials without being obsessive. But neither can you average over 100 km per week for over 20 years without being somewhat balanced. I believe what success I had as a runner, and subsequently many of the life lessons learned from that success, came from obsessive stubbornness, not to give up.

Here are some rules to balance your obsession.

First rule is to choose your obsession, rather than letting it occur. Test the waters: business, science, art and sport have many branches.

Part of this decision should certainly be ability or having an edge. Frank Shorter Jr.'s High School football coach sent him over to the cross country coach. Edges can often be developed with a good plan or coach, yet some skills you must innately have. For new first time track recruits (Jr. High kids) I run a battery of tests to find their strength. In love and in life many people make themselves miserable because some things you can not change in people or yourself. Conversely there is great joy in doing that which you are naturally superbly equipped.

Second rule. Surround yourself with people that have an equal commitment, and are smarter or better than you. It is no coincidence that the only two marathoners to qualify for the US trials from Indiana in 1996 were me and my coach/training partner.

Obsess about how you can improve, not what you have done wrong. Believe in your coach, believe in yourself and believe in your plan. Be coach-able, especially be self-coach-able

Third rule. Understand that it is an obsession, with all its limitations and dysfunctional tendencies as well as its beauties and benefits. Balance your life outside your obsession. Balance the emotional with the factual. Balance the physical with the mental. Einstein took long walks, and credits his great discovery to those walks. Balance the creative flexibility with the disciplined rigor. Develop wonderful distractions before your performance. Have supporting fall-backs for the major disappointments. Do not take perfectionist solitude in ritualistic practice, but do not expect any accolades until the foundational fundamentals are mastered with practice, practice, practice. Then even as a master, often the formula is: Create, then perfect.

Fourth rule. Find a way to make it work, while it is still an impractical ideal. Einstein worked at the patent office, many young artists work day jobs to pay the bills. Athletes have college and the minors to develop. There are garage bands and garage start-ups. Artists are known for their salad days. I went to grad school and got a Masters in Math so I could continue to train hard, compete and run. And took those dreadful Actuarial exams to continue to support my running.

Fifth rule. Obsess about the small gains and rewards, not just the risk. For motivation focus on the journey. Great things are accomplished one small goal at a time. Most grand journeys would never begin if you focus only on the end, so enjoy the trip. Focus on the new sights and education along the way, do not focus on the impossibility of reaching the goal. But likewise, do not dismiss the risks, obsess about overcoming the risks as well as about obtaining the rewards. Much of attempting the impossible is learning new ways to deal with the risks. Legendary coach Bill Bowerman, Nike co-founder, invented the “Waffle Trainer” to cushion each pounding step in training. Thus he revolutionized distance running and created the running boom.

Sixth and Final Rule. Create and move on.

When the race is won or lost,

When the paint has dried,

When the child is grown;

Drink deep in the glory, the sorrow, the beauty and the life,

Let them move your soul,

Thank G_d for the good,

Draw strength and knowledge from the bitter,

Bathe the sweat and rest your legs.

Look for the next horizon,

Pray for the new-born.

The lesson always is:

'The sunrise belongs to those that dream.'

Sep

21

As my wife is now studying, of all things, nuclear physics, I am currently reading "The Fly in the Cathedral: How a Group of Cambridge Scientists Won the International Race to Split the Atom" by Brian Cathcart .

The physical sciences have always been dear to my heart and so I am having fun helping her with her homework. {What is the deBroglie wavelength of a baseball thrown at 30 meters/second (about 67 and a half miles/hour)? Can such wave characteristics be detected? What is the deBroglie wavelength of a proton traveling at one tenth of the speed of light?}

I took particular joy in the authors description of George Gamow, a brilliant theorist who is known for explaining alpha decay via a theory of quantum mechanical tunneling, which is one of the strangest aspects of quantum mechanics and the one that I find most interesting (along with Heisenberg's Uncertainty Principle).

To quote Cathcart: "Meanwhile Gamow was establishing himself as the court jester of the institute, always staging practical jokes, writing poems and songs and organizing parties where people played parlour games - a favorite involved everyone lying on their backs and passing balloons around with their feet. He was the soul of the party and people loved his talk all the more because of the breathtaking liberties he took with language. Although he spoke neither German nor English nor Danish with any accuracy [Ed.: he was Russian] he did not hesitate to hold forth in all of them and the letters he wrote in this period bear witness to the anarchy of his vocabulary and syntax."

"Anarchy of his vocabulary" indeed! My wife is excited about and interested in the material and I am happy to see her unexpected diversion in this direction (she is a Librarian by trade). For those interested, the course she is taking is here, and if you page down to the "Lecture Links" and then click any one of the dates and then scroll through the material in the window on the left you can get an idea of what she is up against. We have our studying cut out for us.

Sep

19

TildenHypothesis: The more western your grip, the less longevity in your career.

With a "western" grip, the racquet face is "closed", facing relatively downward, and you have to take a big swing, rotating your body as much or more than 180 degrees, with great racquet speed and top-spin. Nadal is probably the ultimate. Borg was western for his era (though not nearly as much so as Nadal and current players).

With a continental grip, the racquet face is relatively open; you hit flatter, with less spin, and your body rotation is closer to 90 degrees.

One can think of a host of players with eastern or continental grips who had long careers, playing to relatively old age: Laver (one of the world's top players until he retired at 38), McEnroe, Tilden, Navratilova (playing up to age 50!). Federer has a relatively eastern grip by today's standards. Jimmy Connors hit flat, no spin, the ultimate easterner, and he competed well at age 39. Agassi played near the top to a ripe old age, and his grip was a bit western, but not extreme for today's play. Both Federer and Sampras (US Open winner at age 31) were more eastern than most of their competitors.

Here are some of the big westerners:
Borg — Retired at 26
Nadal — Game in apparent decline at age 23
Courier — Retired at age 30, won 6 major tournaments, all before turning 24
Roddick — Still in the mix, but probably peaked at age 21

Going back further in time — Bill Tilden (eastern) and Bill Johnston (extreme western) were born just one year apart. Johnston won the US Open in 1915 and 1919, but then Tilden won it in 1920, 1921, 1922, 1923, 1924, 1925 and 1929.

With age it just becomes too difficult to hit the big, swirling western forehand, and so players that have a relatively economical stroke are the last ones standing.

(Note that most of the "modern" grips and styles are described in Bill Tilden's 1925 book "Match Play and the Spin of the Ball" which I have reviewed before.)

Sep

16

ShipYou may be in search of some region with a manner of living with a 1930s USA flavor and those harsh lessons as a new way of life. This is how I started afresh in Iquitos, Peru at the headwaters of the Amazon in 24 hours for $75.

Read the rest of Bo Keely's How To Start… [Approx. 2900 words].

Sep

15

What is the meaning of this long, long leg, low volatility but directional, with many up consecutive days? Maybe we have to see it as a sign of decreased strength to move to the upside. Maybe it is just a market where bears are still fearful to step in. The down gap of Monday was another lost opportunity for a correction. When will it come, what event will trigger it?

Steve Ellison laughs:

The correction will begin five minutes after you decide you can't stand it any more and buy at market…

George Parkanyi urges caution:

Well, if we muddle into the next earnings reporting quarter in October, the bar was so low last year that we'll probably see more "surprises" to the up-side. I'm not sure you want to be short that. I'm not sure I want to be short that.

Vince Fulco reports:

Sitting at a fancy bar/restaurant I rarely frequent here in the Midwest, have had the chance to listen to ancillary conversations at other tables. Helps to have been on a trading desk with two phones to ears while talking to a third person besides. All the talk is about the dreck stocks– AIG, FNM, BSX, et al. I feel like I am back in 1998 when the 'concept' stocks went gangbusters while liquidity remained too loose. I hate concept stocks like the plague but you know you are getting old(er) when the cycles keep repeating.

Sep

15

I just read the headline about Federer using profanity — so that's why I am bringing this up. Obviously Williams was spouting a fountain of profanity, and I saw one of the Russian players using it as she was losing to Oudin. Compared to Oudin who exclaimed "OK, good, all right" when a point went her way — a positive exclamation. What is happening today with this widespread abuse?

You are what you eat, what you think and what words and thoughts are in your mind and heart. And these inside truths come out during stress, like sports. These professionals should clean up their acts. I fell into the profanity trap and had to work day by day to retrain myself to not utter this filth. It can be done. I knew I was cured when I would stub a toe or bang a thumb and the word "ouch" came out instead of "&*^%^%*&".

Profanity is anti-good. Profanity is what my father said was "lowbrow" talk. To see a grown professional women bellow the exclamation "WTF?" — it's really a shame. Am I just getting older and complaining about kids today? Am I turning into the guy who watches to make sure kids don't walk on my lawn?

Oh snap!

Nick White adds:

I would love to say that I'm immune to such things but, alas, I am not.

Coarse language is usually an attempt by males to boost the perception of their machismo amongst peers. Naturally this explains much behaviour on the trading floor and locker room alike.

However, when one works amongst our quantitative French bretheren, one will hear the far more silken, "plus tard!" at an alarming frequency during the trading day. Perhaps this is a more appropriate substitute?

Left to the reader to ponder whether it's the efficacy of their models or their nature that unleashes the vitriol from within.

Tom Marks considers the importance of courtesy:

Victor wrote: "Artie always used to thank the referees for calling foot faults because of their vigilance. Do thank the rules committee."

A FSuch sage fatherly advice also applies to courts other than those used in racquet sports.

Years ago I was out at dinner with a cousin, a seasoned litigator, and his fledgling lawyer son. The father was imparting to the young man some pointers on how he should conduct himself in a courtroom. Prominently mentioned was that, win or — especially — lose, some gesture of sincere appreciation and thanks should be made to the jury after they have reached their verdict,

The reason being is, firstly, it's the proper thing to do. In fulfilling their civic responsibilities, they have just spent their considerable time listening to the brutally boring details of a situation that almost always will have no beneficial impact on their individual lives whatsoever.

But secondly, even though he would in all probability never see any of those people again, nor be professionally reliant on their opinion, there's a good chance he would see that judge in another case.

Sportsmanship counts, it also gets noticed. The jurist community is not a very large one, and word gets around. Next time around he might get the benefit of the doubt from the bench on a seemingly minor procedural point that could eventually tip the scales in his favor.

There are few things in life with less downside than good manners. No matter the field, no matter the situation.

Sep

15

Federer1. Never become overconfident when you're winning. Federer should have put on the steam after the first set.

2. Don't argue with the referee during the match. You often get a bad reading of the rules and gypped in training, but if you let it affect you during the fray, you'll lose more.

3. Always assume a family will cheat you in favor of one of their own. Presumably Federer argued about the challenge after 20 seconds because someone in the audience who saw the replay on TV had time to signal Del Potro to challenge.

4. Early ability at an activity can become less important as time waxes, the same way Nadal was able to win because of athleticism early in his career but now his bad strokes will bring him down.

5. Bad fundamentals will always bring you down in the end. The terrible wristy backhand of Federer and the all-around stiffness in Nadal's strokes are bound to cause the former to choke in crucial moments, and the latter to lose everything.

6. A happy family life creates better play. Clijsters was able to win because she wasn't under the pressure of a belligerent father. You can't trade well when you're fighting with the other.

7. Never give up. Del Potro lost seven times in a row to Federer, but a break in the second set gave him the confidence to come back. Just in time… just in time… the market turned.

8. Redistribution creates hateful behavior. You look at others in terms of what they can do for you or what they want from you. The hateful belligerence on the court is the natural outgrowth of the crony stuff at the Department of the Interior. Expect an increase in hostility.

9. Von Cramm and Artie always used to thank the referees for calling foot faults because of their vigilance. Do thank the rules committee, and join it if you want to be bailed out when your belly is turning up.

10. A long run of successes puts you in peril and leads to overconfidence, as the starting upset proved.

11. The reason Federer lost was because of that ridiculous shot through the legs. You always have time to run around that shot. And it's in-your-face to try it in a match and always non-percentage. When he started talking about its being the best shot of his life, and possibly the greatest shot in history… you've won the trading championships for the best performance last year — and you're ready to grow over confident in your niche. At least in trading, as the thread on quitting shows, you can stop at the top. In sports, you just have to pretend you're behind by the same score you just won by. And never showboat.

Sep

15

What is the theme of The Trees by Rush, is it Americans (oaks) vs Canadians (maples) or is it about inequality in general ? — a Reader

It is an attack on those obsessed with equality, pointing out that you can make people equal only by chopping down those who are above others.

Vincent Andres adds:

I first read that song/poem on Sardanapale, a very interesting French/English language outside-the-box thinking site.

Nick White warns:

But how do you define being "above" or — to strip away the euphemism — "better than" others? Are there not also plentiful examples whereby those whom one might consider "inferior" in one domain eventuate themselves to be superior to the original observer in another?

Such talk is dangerous. Libertarian values can all too easily be conflated with thinly-veiled elitism. Not that I am suggesting that of anyone here – just an observation from the tone of the piece.

Gordon Haave replies:

That's the point. You can't. So you chop everyone down to zero because it is the only way to make everyone equal.

J. T. Holley jokes:

Not to zero, only up to the point where all the Oaks uproot themselves and leave the Maples in their own forest and move to Colorado.

Chris Tucker concludes:

Is it not fair to say that some are better than others in a particular field of endeavor? Some are better tennis players, some are better traders, some are better friends, some have better (more) integrity, some are better at cheating. Some are definitely members of certain elites — GM Davies is an elite chessplayer, for example. The elitism that Nick refers to arises from a more broad or general sense of superiority in many ways or every way. That is the dangerous kind that leads to exclusionary thinking. The point of Neil Peart's lyrics is that we are not all equal at everything, but governments would treat us as such in order to make legislation play to the lowest common denominator, in much the same way as a teacher must teach to the slowest student in the class or the team is hamstrung by the slowest member. It is simply the distillation of one important idea, that equality can be brought about by trying to force everyone to be the same and since you definitely cannot make everyone faster or smarter or nicer or more sensible, you just might be able to make the fast ones slower, the smart ones dumber and the sensible ones senseless.

Sep

12

On Friday I saw Anvil: The Story of Anvil.

It was the most interesting movie I have seen in a long time. It is an independent film I saw at the Oklahoma City Museum of Art. Anvil was an up-and-coming heavy metal band in the early 1980s. I vaguely recalled the name… I myself was an Iron Maiden and Judas Priest fan. Anyway, unlike Maiden, the Priest, Scorpions, and others, Anvil never made it big time.

The lead two member of Anvil, however, never gave up, and they have been playing together for thirty years. They are broke and work regular jobs, yet they still think that one day they will have a hit album and become world-wide rock stars.

The film is a documentary about Anvil, and their quixotic quest to become world-renowned stars. At first it is amusing – almost like watching Spinal Tap as the lead singer and guitarist "Lips" lives in his fantasy rock and roll world. As they movie progresses, it becomes a bit depressing. The third part is the culmination of their attempt to launch a new album with a new producer, and an attempt to get a contract with a major label. The last scene is fantastic, but I will not tell the readers how it ends.

I spent most of my time thinking about my own life, and the lives of others that I know. When is the appropriate time to give up? Most second rate metal bands from the 80s gave up a long time ago. Are they better off for it? Or should they have kept living the dream? The same could easily be applied to traders and money managers. I for one gave up trading last year. Should I have? How long should I have kept at it before quitting?

This is of course an unanswerable question.

Duncan Coker recalls:

When I was 18 I had dreams of forming and being a part of the next Allman Brothers band and pursed this the first few years of college — much to the detriment of my GPA and class attendance. That dream ended in my early 20s. But I still play and enjoy guitar to this day and my musical friends of earlier days are still among my closest. So I will always be a guitarist, but never a rock star.

GM Nigel Davies analyzes:

There is an answer, but it requires thinking in terms of the journey rather than the perceived destination. As long as someone experiences personal growth as a result of his endeavours (and this manifests itself in a feeling of passion) then the activity is worth continuing. But when it becomes all about destinations (ambition, money, power) then the odds are high that an accident will happen.

Sep

11

BudThere is something missing in the article from Zerohedge.com, "Correlation Of S&P 500 Performance With Fed Monetization". The Quantitative Easing of buying $917b more securities went nowhere as shown by the big increase in deposits ($886b) at the Fed by the same institutions that sold the securities. They just left the newly created money sitting on the Fed's balance sheet, earning the modest interest that the Fed now pays. They didn't go buy stocks with it. Yes they could have, but the Fed balance sheet doesn't suggest that as a likely action. Furthermore, the Fed didn't really create new money for QE because many of their direct loans were paid down. The Fed balance sheet has been flat during this time frame. The banks, who had been paying interest on their borrowing, sold MBS and Treasuries to the Fed, and now are collecting interest rather than paying it. It would have to be some back channel of additional off Fed balance sheet funding to claim that the Fed is the source of money for the stock market rally IMO. Yes, it does seem that the QE lines up with the increase in stocks. Zerohedge suggests there is a multiplier on Fed money, and that could be the case. Then the big financial institutions would have to be borrowing, perhaps pointing to their big deposits at the Fed to justify big loans, to invest in the stock market. Maybe, but I haven't seen evidence of that either. I'd be delighted if the proposed relationship were valid as then that would explain the surprisingly big jump in stocks as being Fed monetization induced, since I still see great weakness in the overall economy that doesn't justify stocks rising. But the proposed link doesn't hold from what I see. Anybody else see how the link would work?

Dr. Conrad is chief economist of Casey Research and a professor at Golden Gate University.

Rocky Humbert offers:

Another possible explanation:

As part of QE, the Fed bought MBS securities from the open market, which reduced their supply and increased their price. This caused some marginal participants to purchase other, less expensive fixed income assets. In this case, corporate bonds.

The Vanguard Short-Term Investment Grade Bond Fund (VFSTX) has returned 12% year-to-date and the Vanguard Intermediate Investment Grade Bond Fund (VFICX) has returned 15% year-to-date. These are huge moves.

As the cost of corporate debt financing declines, it’s logical equity valuations should benefit.

Dr. Humbert is a quantitative analyst and speculator who blogs as OneHonestMan.

Our money and credit expert Rudolf Hauser writes:

From the Zerohedge article "And instead of this excess money hitting broader aggregates such as M2 or MZM, it is held by the banks, who proceed to buy securities outright on their own, either Treasuries or Equities."

When banks purchase securities they pay for them with those Fed created reserves. The person or institution selling those securities now has a bank deposit. The impact on M2 is the same as if the bank had made a loan. But if the high-powered money created by the Fed is kept at the Fed M2 is not expanded. In short the article is incorrect.

Sep

11

MesaI have been thinking about my current modern civilized lifestyle versus a more primitive lifestyle of the hunter-gatherer or pastoral nomad. It started on a recent visit to Mesa Verde in southwest Colorado. Here with my sister and nieces we visited early villages built into the rocks dated around 1100-1300. They are beautiful to see both as a wonderful reminder of the past and their incredible setting high in the cliffs with views 50 miles out onto the plateau. But in reading the history these relics are just the very last remainders of a very ancient culture they call the Ancestral Puebloans. The earlier people had no structures and were nomadic. They moved in rhythm with the seasons and were hunter-gatherers. Their life was much different than the agriculturalists who built the cliff dwellings. The early people had more time away from the fields of labor for one thing. Mobility was also an important part of the older culture, though it took more land to support this. I can see many advantages, more time for culture and family, less work, plenty of movement and variety, fewer possessions to maintain, better physical health. But I believe there was one main disadvantage that led them away from this lifestyle — risk. These people had to live day to day, week to week with great uncertainty. There was no store of grains to support them should supplies dry up or if the hunt was poor, no fallback position. They ate what they could kill and gather. This was a cost for the lifestyle they preferred. The hunter-gatherer still exists somewhere within me today, the desire for simplicity, movement, physical agility, more time for family, and a sense of living in the present. All very positive things.

Sep

11

What is the explanation (either your own or the "conventional wisdom") for why bonds have been rallying concurrent with a strong stock market and all the talk about recovery?

Bloomberg news reports:

The $12 billion of [long term govt bonds] offered yesterday drew the strongest demand in more than two years. The U.S. Treasury auctioned [a total of] $70 billion of notes and bonds in three sales this week to help finance a record budget deficit. “It was a stellar auction at much lower rates,” said Thomas Tucci, head of U.S. government bond trading at RBC.

Paolo Pezzutti adds:

It seems that all assets are going in the same direction (commodities, bonds, stocks). Is there anything negatively correlated that one could consider to diversify?

Alston Mabry has a one word answer:

USD

Phil McDonnell also replied:

Same day correlations for various assets with respect to stocks (SPY) for the last 105 days:

FXY yen -44%
TLT 20yr -32%

So there are still some things that are negatively correlated with stocks. Same day correlations are not useful for Granger-style prediction [of one time series from another], but they are useful for reducing the risk of a portfolio constructed using the various assets.

It should also be noted that just because price levels have gone up over a certain period of time [i.e. an upward drift in both series] does not mean that the price changes are positively correlated. The preceding correlations were calculated based on daily net changes in order to avoid the spurious correlation problem caused by using price levels.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Vincent Andres answers:

Why have bonds been rallying? In the past, government(s) were putting their hands in the machine only under exceptional/rare occasions. Now they are doing that on a regular basis. Markets (as we used to know them) have never been so oligopolistic and manipulated. The fact that old rules like stocks up/bonds down (and many others) now no longer works is simply one of the signature of all those oligopolistic interventions.

A possible scenario : The stock rally being a completely constructed one, concerning in fact only a restricted number of actors. Those actors aside, the stock markets were not rallying, that is what bond buyers believe and why they buy bonds.

For our stock "markets" (and some others), just a facade subsists.

Sep

10

RafaNever has a man of former stature deteriorated as quickly as Nadal. He's a mere shadow of himself two years ago. His poor strokes and lack of athleticism of the former youth are encroaching on him. In the terrible first set against Gonzales today, in which he saved only two set points by Gonzalez, choking, his shots were falling short and he couldn't make any short angles and was hard pressed to beat a journeyman. With his current game, I would imagine a 6-1, 6-1, 6-3 finals loss to Federer — if he makes the finals, which I doubt. It reminds me of a commodity market like oil or beans once the white shoe firm gets out of its position.

Sep

10

I hypothesize that there is a fulcrum in markets at six months from the lows. The idea comes to me from the well known fact (well known to divorce lawyers, at least) that hostility within couples reaches a maximum in February. I hypothesize that as the circular distance from February/from the low increases, the hostility recedes to harmony and back again and that a similar phenomenon occurs in markets. How to test?

Alan Millhone has some predictions:

A MIt is predicted holiday sales will be down this year, isn't it? Also I think many couples will stick it out for now as they can share one roof and different bedrooms! Also many are too financially strapped to file and pay for a divorce. I hypothesize a fall in the divorce rate. I have a couple who live together and have rented from me for ten years. Both draw SSI. She would like to get rid of him but he pays half the rent, so he is still there. This shopping season should be interesting. On another note I bought and moved a very large safe today from a customer of mine. My locksmith re-comboed it and said safes like this are scarce. Demand for safes will be strong, but I did not buy it for price appreciation — I have always liked safes!

Sep

10

Don't you just love the way our world no longer calls things what they are? — A Reader

The dual of this being human tendency to look at the present, but with often an indelible image of the past in our eyes — which doesn't help to notice the changes.

I wonder if, as we gravely devise on whether things are or aren't changing, the change hasn't already been effective for several years. Our pink glasses and our financial + governments tricks, smokescreens and diversions being the only cause of our lag in perception.

Have you read The Simulacra (1964 science fiction novel)?

Sep

9

Flying is a risky proposition at all times, there are just so many, many ways to err in a completely unforgiving manner. One of the things that kills a lot of private pilots is "Get Home-itis". The need to get back can easily overpowers ones good judgment. "Perhaps if I hurry I'll beat that storm" or "visibility isn't really that bad, I've flown in worse" or "Yeah, icing conditions have been reported, but if we fly high enough I'm sure we can avoid it" and even (yes, pilots actually make this mistake) "I think we should have enough fuel to get back, no need to top off the tanks, Let's Go!" Good pilots are constantly reading about and discussing the mistakes that have killed other pilots. Not because we are morbid, but because there are always valuable lessons to be found in them.

The need to "get back" in pilots I think is synonymous with the need for traders to do the same. Wanting badly to get back to even can prevent one from focusing on the higher priority goal of doing it safely or at least with a modicum of judgment.

Alston Mabry adds:

One of the differences between the markets and an activity like flying is that in flying, if you decide to be prudent and land the plane rather than brave the worsening weather, you never know what would have happened. You might have been perfectly safe.

But in markets, you get to see what would have happened. With a catch: The deceptive part being that you don't know how you would have reacted along the way. "I could have been up 50% if I'd just bought the index in early March!" Except that if you had bought the index, you might have sold to capture the first 15%.

Sep

8

Dr PhilFor much of today's action the Nasdaq lagged behind the S&P index in percentage terms. The Nasdaq has a higher beta than the S&P so one would normally expect it to move farther and faster both up and down. Like a race horse making it final surge to the finish the Nasdaq managed to surge ahead of the S&P in the final minutes of trading to restore the normal order of things.

Naturally this raised two questions. First, what happens if the Nasdaq under performs the S&P on an up day? Second, what happens the next day after the Nasdaq is stronger than the S&P? To resolve these questions the following study looked at a little over 4100 days of trading for the Nasdaq index and used the SPY ETF as the trading vehicle for the next day. The following table shows the next day results after SPY is up and it is stronger than or weaker than the Nasdaq in percentage terms.

.         +SPY>Naz       +SPY<Naz

Avg     -0.00012        0.00008

SD       0.012612993    0.010327566

n         968            1271

% Up     0.508          0.509

t-stat  -0.290          0.275

The average returns are close to zero and the percentage of times up is about 51% for each case. However the t-stat is non-significant for both cases despite sample sizes of ~1000.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

David Higgs remarks:

As of late there have been some days where the move of the markets was attributed to just one or two stocks due to short covering. But then this is a different fly in the ointment…

Sep

7

 In discussing the importance of deception, Stonewall Jackson minced no words: "Always mystify, mislead, and surprise the enemy if possible, and when you strike and overcome him, never let up in the pursuit so long as your men have strength to follow, for an army routed, if hotly pursued, becomes panic stricken and can then be destroyed by half the number. The other rule is never fight against heavy odds, if by any possible manoeuvering you can hurl your own force on only a part, and that the weakest part of your enemy and crush it. Such tactics will win every time, and a small army may thus destroy a large one in detail, and repeated victory will make it invincible." This quote from the excellent and non-PC book Don't Tread on Me by H. W. Crocker III, bought at the Military Bookman, is similar to one in Education of a Speculator and could have come directly out of Liddell Hart.

It has myriad applications in markets, but let us start with the 23 point drop on 09 01 2009. What could have been more unexpected? On the liberal almanackian's favorite day of the month, the day that is above all completely invulnerable. It started at 11:00 with a nice 15 point drop. Apparently the forces of the bears were marshalled by an invisible hand to destroy the weakest part of the enemy that was fearful because of the random September bias. It would have taken only a few divisions of the bears to mount that attack. And once they were near Mr. Round, it was only a question of when the crush would occur. They did destroy a large one in detail but reinforcements were sent in, perhaps under the generalship of bobby bull.

Ken Drees adds:

Actually the first ambushes occurred on 8/31, one day ahead of schedule, scattering the light rifle infantry trying to hold the flank in sparse woods. They were thus chased into the treelines and foothills on 9/1 and quickly captured, killed or disperse — but, reinforced by better terrain and dug in forces, the maruaders had to retreat, regroup and reassess. A strong down — maybe not fully over?

This well announced September weakness has shrugged off a first assault, but has taken some casualties due to too many non battle days and lax preparedness on the fringe as scouts and light rifle infantry were routed. But now the company has been alerted to the fact of attack — how strong is this force? And how strong are the bull defenders? It's been quiet for three days now.

Victor Niederhoffer replies:

But such moves overcome the least observable difference and therefore are prone to enemy reinforcements as Irving Redel, former chairman of Comex, a mentor, and great man often likes to say.

Irving Redel

Sep

7

 This past Friday in my 4-team men’s recreational over-30 soccer league, we wrapped up our round robin play to set the positions for the “final”. As we were the top team in the regular season (Brazil), we also ended up winning the round robin with a possible 7 of 9 points. And we managed to do so without scoring a single goal. How? One of the weaker teams played us to 0-0 draw, and then the next two teams (including our arch-rival Argentina who we now play on the final) defaulted for lack of players. As one of our opponents lamented - “Man those guys are good at showing up!”. And that got me to thinking about … showing up.

Now in this situation the point is not so much the seven points, given that six of them weren’t really earned on the field, but rather that in some situations, simply just participating creates opportunity. We have a berth in the final because enough of our players were committed enough to come to the field and play, and in this case just that was enough. (Personally, I don’t think the voo-doo dolls made any difference.) For so many situations in life, if you don’t show up, “put yourself out there”, or get into the game, the chance for opportunity to present itself is guaranteed to be zero. It reminds me of the joke about the man who keeps praying to God to win the lottery until finally in frustration God answers “Could you at least meet me half way and buy a lottery ticket!”. Sometimes it takes years and painstaking effort to make headway, but sometimes also it can happen in minutes – as in the case of the field promotion. Now you don’t necessarily have to go into battle, but in business for example you might advance because someone suddenly leaves, or you’re the only one around to deal with some unexpected crisis. By sticking it out and continuing to “show up” – both for the same things and for different things - you increase the odds that one day you’ll be in the right place at the right time.

I think that what typically holds people back from “showing up” is often fear, habit, or just simple loss of interest. My experience has been that when I forced myself into a situation I expected not to enjoy, of which I was afraid, or that I would find boring, more often than not - by far – the surprise has been to the up side rather than the down. I’ve found it’s not always so bad to jump into the unknown. (A fun book to read along these lines is “Yes Man”, by Danny Wallace. I highly recommend it, especially for pessimists.)

So what then would be the trader’s version of “showing up”?…

Anatoly Veltman writes:

"None have a gift like Beethoven - trading is a learned skill" Matt Johnson once said…; "the market tells me what to do, and when to do it, all I do is listen and follow."

1. Gold was mired in a tiny range all summer; the chart clearly broke out pre-Labor Day. The most widely-traded spec instrument EUR had carved out a similar chart-pattern; but was held back by the NFP report. Tens of millions of EUR traders were given a chance to prepare for Tue action — did they? (Same, of course, was true about daily CHF chart). I want to point out that trading Beethovens often see much more and much sooner than "efficient markets."

2. In summer of 2005, following post-Katrina Sunday night's "regular opening" fiasco (NatGas gapped 20% and trade was "disorderly") NYMEX announced an unprecedented 10am early open for Sunday following widely-anticipated Rita's land-fall. Pre-opening orders "matched" to what appeared to be little-changed (!) opening print: that's for a contract that just doubled (!) in anticipation of hurricane damage — while Sat reports clearly indicated Rita's miss (!) Seconds before 10am open, I entered offer at $12.299, right through the bid, and got a partial fill. My sale at $12.299 remained that night's high, and at regular 7pm night open the contract was changing hands 4% lower on good volume! To this day, I'm ashamed for participants who didn't show up at 10am that Sunday — although, who knows if I'd get to sell any more size if they did…

Sep

5

GannOn holidays we all step back and look to where we were at the same time last year, and at the previous holiday. Such a tendency led the mystic W. D. Gann to suggest turning points tend to cluster around holidays. Other interesting tendencies are the swings between consecutive holidays. Do they tend to reverse? Are agonizing reappraisals more common after holidays? Are there any French insider trading actions lurking in the wings while the U.S. markets are closed, such as occurred around Washington's Birthday 2008? Do the moves in the days after holidays tend to put investors on the wrong foot? Hypothesizing minds wish to test.

Anatoly Veltman replies:

I don't know about Gann, but there are some objective reasons why holidays matter:

  1. Holidays tend to be located around season-changes, (reporting) period changes, the time for new fund/budget allocations, when new traders kick-in, etc.
  2. If a strong trend persisted all the way into a holiday, then additional/final margin calling will inevitably be enforced — more forcefully than in course of non-holiday trend.
  3. There is increased probability of surprise news/disclosures over 3-day weekend vs. 2-day weekend.

To add my subjective opinion, as I'm enjoying this pre-school holiday with the kids: we should be thankful for the quite lengthy quiet period re: terrorism threats that we have had. My gut tells me to beware — plus I've found a tendency over my almost 25 years of gold trading: this useless commodity "knows" best.

Matt Johnson recalls:

I studied Gann for a while; I couldn't find success with his theories. Maybe his ideas were wrong, which might also be the reason why he died flat broke. Some turning points or breakouts can happen around holidays due to the lack of liquidity. I remember a great Euro trade either last Thanksgiving or two ago, it was Friday; US banks were on skeleton crews and HK and Ldn had a clear path -— follow through on Monday was also fantastic.

Sep

3

Today's NYC Junto at the library of the mechanics institute at 7:15 pm will consist of a philosophic discussion of the film A Man for All Seasons by Doug Rasmussen, the noted libertarian philosopher. There will also be a showing of the film itself.

Sep

3

Read the latest missive from Bo Keely in the Amazon. [Approx. 4 kilo words].

Sep

3

Gold1. In Thursday morning quarterbacking, the one day move in gold from 956 to 978 showed that there were still enough animal spirits left to break the round number. But the web is is always changing. After the 30 most similar movements in gold, stocks declined about 0.3% the next day.

2. There have now been seven daily excursions above and below, three round trips above and below Mr. Big Round in the last month. But how would one test in an elegant fashion if it's consistent with randomness? The artful simulator comes to mind with randomly selected numbers.

V Hugo3. I am reading a biography of Victor Hugo. And the similarity of his life, productivity, creativity, and life force with that of Verdi and Beethoven, comes to mind. What trader, or what company, shows a similar life force, and at what stage of his, or its, career?

4. The market move on Monday is an example of the anticipation is worse than the realization, as elegantly limned with a bow to Mr. E, by Mr. Moe.

Sep

1

After I looked at the data from 1900 to 2008, it is safe to conclude that September historically was the worst month for investors, period. — A Reader of Dailyspeculations.

A MAnalysis of seasonality effects often falls victim to one of the most common oversights in probability. It is illustrated by the birthday problem in which a group of 23 or more randomly chosen individuals will be found to have (with probability greater than 50%) at least one pair sharing a birthday. With two individuals and 365 days in a year matches are rare, and 23 individuals still do not seem many compared to 365 days, but this apparent paradox is resolved by considering the number of possible pairings between those 23 individuals instead [Ed.: 23*22/2 = 253 pairings, which is close to 365].

In much the same way as a naive application of probability will massively underestimate the odds of two individuals in the group of 23 sharing a birthday, seasonality studies suffer from a similar effect. When grouping by week, month, or season, combinatorial considerations come into play. While 63 out 108 Septembers having a loss might appear statistically significant as a series of Bernoulli random trials (assuming an underlying 50/50 split between up and down months, p = .03), such effects are washed away when we instead consider the underlying empirical distribution of days or weeks, randomly permuted to form months. When comparing the months composing September to a random basket of days the results are random. Attempts to find seasons of non-randomness are frequently subject to data mining bias, as the same permutation test debunking the September drift is easily used to identify (falsely) statistically significant periods.

The study: Running a bootstrap permutation study on Dow data from 1960 to 2008 we estimate the empirical distribution of differences in monthly return between September and other months. We test the hypothesis that a random September is no more bearish than a composition of random days sampled with replacement. We find that the mean difference between populations is 0.0695%, yielding a p-value of 0.3612 – random.

Bob Humbert writes:

The same September underperformance anomaly exists in the municipal and corporate bond markets. Doesn't this seem "unusual" or is it simply a byproduct of relative value transmitting itself through the various asset classes?

I am not as numerate as you; but keep in mind this: if a coin comes up tails 20 times in a row a Trader would examine the coin… while a Quant would merely assume he was witness to an extremely remote event…

Alston Mabry reports on another study of the issue:

Stats for all Dow months from Oct 1928 thru Aug 2009:

All Dow months:
mean: +0.37%
sd: 5.44%

Take all days in this period, randomly pull 20 to create a month like September, and do this 1000 times (with replacement) to create 1000 randomly-selected "months" with the following stats:

1000 randomly-created months:
mean: +0.26%
sd: 5.03%

Close enough, given the vagaries of the actual monthly data, the use of replacement, etc. Randomly pulling out days creates a distribution of "months" very much like the actual distribution, so one cannot find a solid critique of the use of the actual monthly data, given the similar stats of the randomly-created months.

Then pull the actual Septembers out and compare them to the actual months:

All actual Septembers:
mean: -1.66%
sd: 6.37%
z vs all Dow months: -3.34

That z is spot on with the result from the random resorts of months posted earlier. So, one must conclude again that, in the time period under study, September has been unusually cruel.

The thing about the previously-posted analysis with the random resorts is that one is really asking the generalized question: If one treats the monthly % change series as a set that can be redistributed among the months-as-containers, what is the likelihood that any month will have an extreme mean like -1.66%? I think this eliminates the multiple-comparison problem, since it doesn't have to be September.

But another issue is: Can you treat a series like Dow monthly % changes as a set that can be re-sorted? One concern is the issue of volatility regime changes. For example: in a volatile year, September is the worst month at -4%, and December the best at +4%; then in a calmer year, September is the best month at +2%, and December the worst at -2%; now you have September's mean return as -1% and December's as +1%. But is September really "worse"? Or does it just appear so because of the problems inherent in mixing volatility regimes?

One way I've tried to address this issue is to normalize each month as a z score compared to the mean and sd of the previous 12 months. So that in the example with September and December, the values for September might be -2.5 and +2.5, and the same for December, making the months equivalent.

Normalizing the Dow months (again, Oct 1928 though Aug 2009) in this way and then analyzing September again, one gets:

All Dow months normalized:
mean: -0.05
sd: 1.19

September:
mean: -0.37
sd: 1.23
z vs all months: -2.42

So this adjustment pulls the z score in (as it does in all cases I've used it), but here the z for September still leaves it in the "unusually cruel" category.

Mr. K wrote: "Shorting September every year for 80 years could be fine, but on any given year, it is a crapshoot."

Alas, yes — a crapshoot with a bias. But the analysis is fun.

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