I highly recommend the documentary The Buena Vista Social Club  which will appeal to music lovers as well as students of economics, the human condition, questions about the soul and capitalism. Rent it and play on a home theater with good sound. In 1998 American musician Ry Cooder travels to Cuba to re-organize legendary folk musicians — some as old as 90 — and still fantastic.



It happened.

For the first time in over two years the year-on-year growth in payroll tax receipts is positive. That is, the somewhat less negative jobs news that has been circulating is not phony. In the past we anecdotally observed some identical anomalies in both these data and the BLS jobs data, and the BLS anomalies lagged the Payroll Tax data by about five weeks. That makes us believe that no matter what happens to future payroll taxes, the BLS numbers will be positive for the next month or so. Certain politicians will take credit for it, and there will be a bullish tone to the stock market.

N.B. We do not use these data to trade the stock market, but think they're valuable nonetheless.



fish oilThere is a need for self-critical review within the statistical community.

The consumer (well, at least one of them) is always chasing after the results from new studies, e.g., individual nutrients, phytonutrients, antioxidants, fish oils, etc. – some with value, and then some later found to have little or no value or even to be harmful.

It's where science meets promotion and hucksterism, and it's a big business at the local supermarkets and warehouse stores. And policy makers and large amounts of money can be shifted by these studies. At any rate further potential problems with medical data from tests (even if the subjects are properly chosen) from, "We're so good at medical studies that most of them are wrong" by John Timmer

The problem now is that we're rapidly expanding our ability to do tests. Various speakers pointed to data sources as diverse as gene expression chips and the Sloan Digital Sky Survey, which provide tens of thousands of individual data points to analyze. At the same time, the growth of computing power has meant that we can ask many questions of these large data sets at once, and each one of these tests increases the prospects than an error will occur in a study; as Shaffer put it, "every decision increases your error prospects. She pointed out that dividing data into subgroups, which can often identify susceptible subpopulations, is also a decision, and increases the chances of a spurious error. Smaller populations are also more prone to random associations. In the end, Young noted, by the time you reach 61 tests, there's a 95 percent chance that you'll get a significant result at random. And, let's face it—researchers want to see a significant result, so there's a strong, unintentional bias towards trying different tests until something pops out. Young went on to describe a study, published in JAMA, that was a multiple testing train wreck: exposures to 275 chemicals were considered, 32 health outcomes were tracked, and 10 demographic variables were used as controls. That was about 8,800 different tests, and as many as 9 million ways of looking at the data once the demographics were considered. "


It's pretty obvious that these factors create a host of potential problems, but Young provided the best measure of where the field stands. In a survey of the recent literature, he found that 95 percent of the results of observational studies on human health had failed replication when tested using a rigorous, double blind trial. So, how do we fix this?



Japanese geishaSP500 weekly returns 1/84-present were checked for mean and stdev:

mean 0.001671
stdev 0.023238

Random number generator was used to generate 100 simulated 36-year markets, with the same stdev (0.023238) but with a mean weekly return of zero. The means of all 100 simulated markets were ranked, and the highest one was found to be 0.001663.

So the probability that actual SP500 weekly returns averaged what it did - 0.001671 - by chance alone - was <1%.

Over the same period for Japan's Nikkei 225, the actual mean and stdev for weekly returns was:

mean 0.000455
stdev 0.029022

Using the same method as for SP500 simulation, the random number generator was used to generate 100 simulated 36-year markets, with the same stdev (0.029022) but again a mean weekly return of zero. The means of all 100 simulated markets were ranked, and the highest one was found to be 0.00174. The actual mean of 0.000455 ranked 30th out of 100 simulated weeks. Japanese stock market drift had a 30% probability of occurring by chance alone.

If upward drift was the result of return for risk, why didn't it occur in Japan?

A friend suggested evaluating drift after adjusting for risk-free return (in this case, 30 day t-bill rates available as concurrent alternative to SP500 index investing). Weekly 30-day t-bill yield data from FOMC* (which uses annualized yield) was converted to weekly yield, and SP500 weekly returns were converted to "risk free return" by subtracting the weekly 30 day yield.

SP500 mean weekly returns (1954-present), and SP500 weekly "risk free" were compared to zero with t-test:

One-Sample T: wk ret, "risk free"

Test of mu = 0 vs not = 0

Variable        N         Mean      StDev     SE Mean          95% CI            T          P
wk ret       2929  0.00152  0.0210  0.0003  ( 0.0007, 0.0022)  3.93  0.000
"risk free"  2930  0.00055  0.0210  0.0003  (-0.0002, 0.0013)  1.43  0.152

Subtracting risk free rate of return dropped the return for SP500 by about 2/3, after which drift is no longer significantly different than

Jordan Low comments:

Are all dividends included? Perhaps it is because Japanese hold stocks for different reasons? I was in Tokyo when JAL went under and some people were happy to pay 1 yen to be a shareholder to get a certain number of tickets for half price a year.



With one week of March now over, the Dailyspeculations.Com calendar has been updated to no longer show the month of February. Those wanting more context can look at  the old February page.



buy low, sell high cufflinksBuy Low and Sell High. It is the oldest maxim on Wall Street. The trouble is that it is difficult to do without a copy of tomorrow's newspaper. Even better would be a copy of next year's paper.

An article cited by a reader claimed that buying at the low in the second year of a Presidential cycle and selling at the high produced superior returns. To test whether there really is something remarkable about the second year of the Presidency we can compare the return in that year to the results for all years again assuming the unrealistic advantage of knowing when the annual low is and the next year's high.

The results for all years:

average      41.4%

std             25.7%

count          81 %

Up           100%

t-stat        14.50

Minimum   11.0%

The results for the second year of any presidency:


std           18.5%

count         20 %

Up            100%

t-stat        12.13

Minimum   16.9%

The second year slightly outperforms by 8.8% but that hardly seems significant compared to all years. The t-stat for all years is better primarily because of the larger n. Again we are reminded of the Chair's admonition that of the four possible hypotheses (1st year, 2nd year, etc.) one of them had to be the best.

When we consider the claimed monthly seasonal study the picture is even murkier. We recall that there are twelve months. But that is not 12 hypotheses. That is 12 possible starting months. There are also 12 possible ending months. This gives us a combined total of 144 (12 x 12) hypotheses. The article then assumes that using only 100 data points is sufficient to test 144 hypotheses. It sounds like junk statistics to me.

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

Steve Ellison replies:

I have tested the presidential cycle. Comparing the actual prices of the S&P 500 index to a 4-year centered average, I got the following t scores for 1950-1983:

Election year t plus score

0 2.95
1 0.78
2 -6.97
3 0.30

There was a clear tendency for highs to occur in presidential election years and lows to occur in midterm years. However, when I did the same analysis for 1984-2003, the results were not statistically significant:

Election year t plus score

0 -0.25
1 -0.56
2 -1.52
3 0.05

An investor who noted the presidential cycle in the early 1980s when its wonderful record became clear would not have profited much from it, sitting out not only the terrible decline of 2002, but also double-digit advances in 1986, 1998, and 2006. I have heard of the presidential cycle many times, but never of the caveat that it should be ignored in a second term, which makes me suspicious the caveat is retrospective curve fitting.

Another indicator that was strongly correlated with stock price changes until 1983 was the 12-month change in the US unemployment rate. From 1948 to 1983, there was a strong positive correlation between changes in the unemployment rate and subsequent changes in the S&P 500, i.e., when unemployment went up, stock prices followed. However, from 1984 to 2008, that relationship was also statistically insignificant; in fact the correlation was slightly negative.

Alston Mabry responds:

The "Xth year of the presidency" strategy debate brings to mind the "sell in May and go away" strategy.

To analyze the "buy and hold for 6 months" strategy (for all years, not just 2nd-year-of-presidency), I look at all the Dow months since October 1928 and calculate the return for each of the 12 strategies that correspond to "buy on the open of month Y, and sell on the open of month Y+6". Here are some stats:

For each month, showing the total return (since Oct 1928) for the strategy where that month is month Y, the average return for all the 6-month periods with that month as month Y, and the SD for those 6-month periods:

Jan  673%  +3.51%  14.30%
Feb  829%  +3.42%  11.48%
Mar 1604%  +4.47%  15.09%
Apr  295%  +2.86%  15.48%
May   19%  +1.03%  12.57%
Jun  142%  +2.04%  13.61%
Jul  349%  +2.95%  14.12%
Aug  241%  +2.55%  13.77%
Sep   91%  +1.84%  13.82%
Oct  926%  +3.89%  13.93%
Nov 3134%  +5.28%  13.09%
Dec 1370%  +4.42%  14.15%

In the actual data, November is a clear winner, though March and December are nothing to sneeze at. But how to get a context for the significance of November's outperformance?

Just can't help but run a quick simulation, and the easiest thing to do is to take all the percentage gains for all the possible 6-month periods and randomly reshuffle them, so that a 25% gain that historically fell in the November column might wind up in lowly May, and so on.

Running that 1000 times produced the following results: For all 1000 runs, the smallest maximum total return was 1072%. In other words, each run produced a set of 12 total return percent figures, one for each month. Looking at only the maximum return in each run produces a set of 1000 maximum return observations. The smallest of these was 1072%.

For these 1000 maximum returns, the mean was 5035% and the median was 3943%. So the actual total return for November was below the simulated median and well below the simulated mean.

This was surprising because when you reshuffle data like this, you tend to reduce the overall volatility by mixing volatility regimes. Also, the actual data series of all possible 6-month % changes is highly auto correlated (+.84 at a lag of 1).

So, another way to try to establish a random benchmark is to take the month-to-month percent changes in the actual data and reshuffle those, creating a new series of 6-month % changes each time, with each simulated series being highly autocorrelated like the actual series. Running that simulation 1000 times produced the following stats:

smallest maximum (of 1000 total): 1289%
mean of 1000 maximums: 5045%
median of 1000 maximums: 4153%

Again, the actual data for November are well below the mean and median values in the runs. So, the results of these simulations do not provide any support for the idea that the November-April holding period is outside what one would expect from a random process.



oarfishOarfish Omen Spells Earthquake Disaster for Japan

This rash of tectonic movements around the Pacific "Rim of Fire" is heightening concern that Japan - the most earthquake-prone country in the world - is next in line for a major earthquake.

Those concerns have been stoked by the unexplained appearance of a fish that is known traditionally as the Messenger from the Sea God's Palace.

The giant oarfish can grow up to five metres in length and is usually to be found at depths of 1,000 metres and very rarely above 200 metres from the surface. Long and slender with a dorsal fin the length of its body, the oarfish resembles a snake.

In recent weeks, 10 specimens have been found either washed ashore or in fishing nets off Ishikawa Prefecture, half-a-dozen have been caught in nets off Toyama Prefecture and others have been reported in Kyoto, Shimane and Nagasaki prefectures, all on the northern coast.

According to traditional Japanese lore, the fish rise to the surface and beach themselves to warn of an impending earthquake - and there are scientific theories that bottom-dwelling fish may very well be susceptible to movements in seismic fault lines and act in uncharacteristic ways in advance of an earthquake - but experts here are placing more faith in their constant high-tech monitoring of the tectonic plates beneath the surface.

Market wise — maybe the appearance of strange stocks at high levels indicating impending reversal to the mean.

Pitt Maner III adds:

This following is an interesting abstract of a paper that is suggestive of the potential triggering of additional earthquakes after a strong earthquake thousands of miles away. The time scale is in years and the number of variables involved for any particular area and/or fault regimes would be quite large. The Cal Berkeley Seismology site mentions a statistic for the Heyward Fault nearby of a 60% chance of a 6.7 mag. event in the next 35 years — so you have to wonder if the odds are slightly changed by large global seismic events. California, however, appears to be one of the most prepared places for the inevitable temblor. Analogies to financial "stress tests" and regional crisis? With cracks appearing in structures after "torture testing"…

From an article on

Fault strength is a fundamental property of seismogenic zones, and its temporal changes can increase or decrease the likelihood of failure and the ultimate triggering of seismic events. Although changes in fault strength have been suggested to explain various phenomena, such as the remote triggering of seismicity1, there has been no means of actually monitoring this important property in situ. Here we argue that 20 years of observation (1987–2008) of the Parkfield area at the San Andreas fault have revealed a means of monitoring fault strength. We have identified two occasions where long-term changes in fault strength have been most probably induced remotely by large seismic events, namely the 2004 magnitude (M) 9.1 Sumatra–Andaman earthquake and the earlier 1992 M = 7.3 Landers earthquake. In both cases, the change possessed two manifestations: temporal variations in the properties of seismic scatterers—probably reflecting the stress-induced migration of fluids—and systematic temporal variations in the characteristics of repeating-earthquake sequences that are most consistent with changes in fault strength. In the case of the 1992 Landers earthquake, a period of reduced strength probably triggered the 1993 Parkfield aseismic transient2, 3, 4, 5 as well as the accompanying cluster of four M > 4 earthquakes at Parkfield. The fault-strength changes produced by the distant 2004 Sumatra–Andaman earthquake are especially important, as they suggest that the very largest earthquakes may have a global influence on the strength of the Earth's fault systems. As such a perturbation would bring many fault zones closer to failure, it should lead to temporal clustering of global seismicity. This hypothesis seems to be supported by the unusually high number of M 8 earthquakes occurring in the few years following the 2004 Sumatra–Andaman earthquake.

This Berkeley website document gives a good overview of the seismology field and future "grand challenges." Some really nice graphics.



we're all fishingHere is the trouble with multiple hypothesis problem:

Say one wants to test "what happens tomorrow if today is down". You take the mean of days after yesterday was up, and compare this to all days. But you could have asked "what happens tomorrow if today is up". So that is a hypothesis you could have thought of too.

what happens tomorrow if today is down, and bonds are up/down?
what happens tomorrow if today is down, and $/eur is up/down?
what happens tomorrow if today is down, and last year was up/down big?
what happens tomorrow if today is down, and there is a Republican in office (or not) what happens tomorrow if today is down, and the US is at war?

i.e., any hypothesis I can come up with might have been a different one (and would have been, in the case of a capable trader), and any hypothesis I come up with can also be conditioned by other concomitant variables.

Ken Drees replies:

This is exactly why I have problems with a lot of these ideas or theories. I am not saying to not explore or to find relationships, but the future is what it is and that random unknown can match, not match, match slightly, or match inversely whatever likely input one is testing. Everyday is different, yet each day is lived and used and imprinted with the similar human behavior from the previous day or a patterned day and the final resulting price changes are the end net result.

We are all fishing. Some have the latest rods and tackle, some use an old pole and gut instinct. Flexibility of techniques is important — sometimes the fish are hitting on blue, some days its green and sometimes the wind is coming from a different direction than normal and they don't bite much on anything.

I had to unlearn a lot from my h**d** broker who had me listen to Peter Eliades every day trying to pick a top in the Dow in 1995 when the market just went up and up and up. I mean every number imaginable was sliced and diced and arranged to show that the market had to go down, every Elliott Wave turned into a triangle and then another triangle and so on.

Even if you get a "go" sign on an idea and you hit, did it really work because your idea said so or was it some other factor and you got lucky? Got a match?



aliceThe 19-year-old Alice returns to the magical world of her childhood adventure, where she reunites with her old acquaintances and learns of her true destiny– to end the Red Queen's reign of terror. Fantasy-addicted director Tim Burton (SLEEPY HOLLOW [1999]; BEETLEJUICE [1988]; BATMAN; big box-office CHARLIE AND THE CHOCOLATE FACTORY [2005]; BIG FISH [2003] (our favorite); popular PLANET OF THE APES [2001]; and the goofier-than-usual CORPSE BRIDE [2005]) fashions another phantasmagoria from the cherished-if dark-children's whimsy by Lewis Carroll, the eponymous Alice in Wonderland.

The problem is, for all the visual eye-candy, the set design that extends our childhood memories of the Cheshire Cat (called just "Chez" here in this Ain't-we-just-so- sophisticated? version), the Tweedledum and Tweedledee roly-poly twins, the Mad Hatter et al., the imagery does not create engagement or even any persistent carry-through interest. It is a mild curiosity, excepting the imperious-mad menu of performances of Helena Bonham Carter as the Red Queen, the scenery-chewing loon, Johnny Depp in a carousel of accents and modes-none of them long enough to fix on-Anne Hathaway (as the White Queen) and Alan Rickman's hilariously soignée Blue Caterpillar. Blonde Mia Wasilkowska, a comely newbie to the film world, is older than the Alice of our book-recall, here nearly affianced to an effete silly-goose. The film toggles between the Carroll scripting and signature Burton metastasizing, but the result is curiously flat and unmemorable, neither (if you will) phish nor foul. Not animal, not veg.

Would children enjoy it? One seriously counsels against taking really young kids, as there is violence, mayhem and scary sequencing in the gimmick of the day, 3D, that makes even last season's "children's" fable, WHERE THE WILD THINGS ARE [2009], seem more acceptable. At least with Maurice Sendak's film, we were within the bounds of the look of the kiddie classic.

David Keyes of Cinemaphile once credited Burton's runaway surprise success, BATMAN, with the director's brilliant visual interpretation of a "dark, ominous comic book," because he brought a near-occult adult sensibility to what many usually dismissed as kid-stuff comic material. With many of his prior works, this carnival transmutational thinking works to the material's favor. Here, the result is less clear, and less successful beyond an exercise in optical opulence; as usual with many of his works, a satisfactory resolution is missing. It's the triumph of ornate form over reasonable content. Must admit, the fall down the rabbit hole was well done and unstagy, though the actual fall seemed implausibly endless.



Prince FielderSpeaking of unwritten rules in baseball, did you see Prince Fielder get plunked yesterday for his bush-league celebration after a HR end of last year? Worth noting was how he expected and accepted it, having had all winter to digest the implications of his actions.



 Young dog and old dog — there is nothing better than for the two to exist together in a symbiotic dance of grace. Old dog is energized by the youthful exuberance of the younger — his energy, his curiosity, his strength, his leading-edge in the world. The younger learns when to bark and at what, when to bite and what, learns the robust vocabulary and how to signal for relief. Old traders seek the younger, young traders seek the old dog…

Having observed the pair for quite some time now it is obvious that the two are much better off together than apart, for apart the elder sinks into the lethargy of familiarity and boredom while the younger wastes his energy chasing every blowing leaf, barking at every intruding sound, chewing at every branch as if it were a fresh femur, asleep with exhaustion at the precise time when he should be fully awake, when together they really do assimilate one another's experience.



EinsteinI came across this article on Bloomberg:

"End-of-Life Warning at $618,616 Makes Me Wonder Was It Worth It" by Amanda Bennett

It is the story of a wife who assisted her husband through a long story of pain, hope and money spent to prolong life as much as possible. It is interesting how time has a different value when you realize your life is coming to an end, and when you understand time has become a scarce resource.

Rocky Humbert comments:

Using 2005 data from the March of Dimes, the average pre-term birth costs $51,600 and the first-year medical costs are also about 10x greater for a premature birth versus a full-term birth. This is a lot of money because pre-term babies make up over 12% of American newborns. Amazingly a 2-pound baby now has a 95% probability to live a full and happy life. (Admittedly, some of these babies are permanently impaired and cost fortunes in lifetime medical costs.) Nonetheless, forty years ago, the probability of survival of a 2-pound infant was close to nil.

I bring this up because I like to focus on the positive, and truly amazing advancements in medicine have been achieved over the past decades. Polio, anyone? One of these "expensive" pre-term or in-vitro babies may be the next Einstein, and far be it from me to argue for "pulling the plug" on Einsten at age 0 or Einstein at age 100. Theoretical analysis ignores the infant mortality side of the spectrum. If one can theorize immortality, one should also theorize about the extraordinary efforts and money to reduce infant mortality and increase fertility. Why should one assume that an immortal man does not father hundreds of children? And why cannot elderly women have more children too? Hence rather than reaching the conclusion that the ratio of elderly/young would be unsustainable, one might reach the conclusion that the overall population would grow uncontrollably– perhaps with Malthusian consequences. Which of course argues that we need more Einsteins…

Nick White responds:

One needs only to consider that the march of mankind over the past 6,000 years has been generally forward. Hence if one extrapolates this trend, one is likely to conclude that as human population grows (ceteris paribis), there is more good than evil. A triumph of the optimists…I'm not so sure on this one.

Generally forward? Well, yes. But that neatly sweeps under the carpet vast swathes of humanity who may be net no better off (or possibly worse) than they might have been 6,000 years ago. Certainly, for everyone on this list, life is many orders of magnitude brighter than it was all those generations ago. Yet, overall, I would argue there's quite a bit of skew in the distribution of benefit; largely depends on what region of the world you're in and what ethnic group you hail from.

Is there more good than evil? I think this is another proximate vs. ultimate causes issue. I would argue that rational self interest (ie "greed") provides many collateral benefits– but is that intrinsically "good", and who decides? That depends, inter alia, on one's theology (or lack thereof). Generally speaking I'm short human motives, but long on some of the products of those motives!

Economically speaking, I think the progressive pattern you've identified is perhaps something approximating an unintentional Nash Equilibrium– society at wide has benefited as people have done what was best for themselves in the context of their group….but, on average, I think many people were out for their own end. (nb: of course, your example of Salk etc is duly noted, and there are numerous examples of truly beneficent altruism amongst the pantheon of social contributors) All said and done, I think Gekko sums up my position best, and I think it does capture the evolutionary spirit. It's just the side effects one must pay heed to and much of the colorful debate on this list goes back and forth on that very point; we all agree on capitalism– some of us disagree on appropriate social conscience. 



Trojan horse in Canakkale, TurkeyIn the last week or so, I've been tricked on several occasions into opening junk mail that I'd ordinarily have detected and discarded unblinkingly.

The ruse? The advertisements/solicitations/etc. arrived in my mailbox in pen scrawled, hand-addressed, regularly-stamped envelopes. Inside, though, was the full come-on.

Not bad.



The Ring of FireEarthquakes are an interesting analogy for how markets sometimes move. Correlations may be stable for a time, as they have been for the past couple of months, but then a sudden tectonic shift can either break a given correlation or maintain it but cause a sudden shift in differential between the correlated items. Case in point, Monday the first of March. I have ¾ of my trading assets in USD (alas), and have to suffer the constant currency hit when oil and to a lesser extent, other commodities and equity markets go up. It’s been like clockwork for quite some time. On Monday, oil and other commodities were down significantly, the USD up. The Canadian dollar should have been down as well (mitigating the other declines, to my advantage) but instead went roaring the other way by over a full cent — the reason being an upbeat GDP report from Canada. Needless to say I took a relatively outsized hit in CAD terms that day. The next day the correlation returned to “normal”, but the Canadian dollar had shifted to a higher relative position against the US dollar – a sudden tectonic shift in differential as it were. (A similar analogy from physics is how particles jump from one quantum energy level to another without any smooth transition in between).

The markets then have their own “ring of fire”. Earnings announcements, takeovers, devaluations, surprise government rate and policy decisions, crop reports. These are the risks of living in sunny market climes. They can be more or less managed if you build your portfolios to “code”, but once in a while such an event (e.g., the subprime crisis) can spawn a killer tsunami (the 2007-2009 bear market/“Great Recession”) and severely damage even a well-constructed portfolio. And the portfolios built by crooked contractors that cut corners (Madoff); well those are completely shattered and washed out to sea.

What’s your portfolio building code? And where’s your high ground?

Henry Gifford comments:

Building codes follow Bacon's law, both mandatory codes and voluntary standards.

The changes are partly in response to lobbying by manufacturers of products, partly in response to new technologies becoming available, partly due to changing politics/wealth levels/societal interests such as handicapped access and the spread of mandatory fire sprinklers to more and more residential buildings in the US.

So, while parts of the codes stay fixed for many years, others change rapidly, just as portfolio rules would.



Dr. Burry's positions are somewhat autistic. The real story:

“Marked impairment in the use of multiple non-verbal behaviors such as eye-to-eye gaze … ” Check.

“Failure to develop peer relationships … ” Check.

“A lack of spontaneous seeking to share enjoyment, interests, or achievements with other people … ” Check.

“Difficulty reading the social/emotional messages in someone’s eyes … ” Check.

“A faulty emotion regulation or control mechanism for expressing anger … ” Check.

“One of the reasons why computers are so appealing is not only that you do not have to talk or socialize with them, but that they are logical, consistent and not prone to moods. Thus they are an ideal interest for the person with Asperger’s Syndrome … ” Check.

“Many people have a hobby.… The difference between the normal range and the eccentricity observed in Asperger’s Syndrome is that these pursuits are often solitary, idiosyncratic and dominate the person’s time and conversation.” Check … Check …Check.

Profitable book idea: "How to Become a Market Asperger"

  1. Embrace your inner obsessions
  2. Men and women are economical
  3. Pain free without drugs or alcohol
  4. Learn to stare down a cobra
  5. Ride your shorts with a smile through hell to new highs
  6. Leverage the leverage of your conviction
  7. You win, your investors lose - Darwin lives
  8. Numerology porcine lipstick



Greg Rehmke will be speaking on at the New York Junto at the Mechanics Institute at 20 W. 44th St. on April 4th at 7:30pm on "instabilities and progress in ecosystems and economies," and all are invited.



Hans Rosling TED talkHans Rosling, cofounder of Médecins sans Frontièrs (Doctors without Borders) Sweden, uses his ebullience and amazing visualization software to display global trends and to break concepts about the modern/developing world dichotomy in this fascinating talk given to the U.S. Department of State in the summer of 2009. I highly recommend this 20 minute video which feels like three minutes.

"Unveiling the beauty of statistics for a fact based world" is the banner for his software called gapminder, which is free and can be used by anyone with an Internet connection. Google bought the software and offers free tools for embedding it in a website with your data here at



The STock Market and Finance from a Physicist's Viewpoint by MFM OSborneThe Earl's post on epigenetics brings back the memory of the great M.F.M. Osborne from 50 years, by far the most creative force in the efficient markets field with the possible exception of some readers of this site. Osborne liked to say that you should count the number of highs at 7/8 and lows at 1/8 and compute the ratio each day for individual stocks and then you'd get an index of specialist preference that was highly predictive. Like Babbage, he developed the first automated exchange algorithm some 40 years ahead of its first instantiation.

Ken Drees writes:

As with retail sales signs in grocery stores for example, 9.99 seems smaller or cheaper than $10. When trading was done in 1/8ths or teenies to me a number and 7/8ths always seemed greater than the next whole number. Why? I don't know. I felt that the next whole number was then a lock and that gave me the feeling that I had something better than what its listed price indicates. Now everything is pennies — my mind locks into price zones now down to other penny — something was lost.

Everchanging cycles in store price strategies. Instead of 2 for a dollar, now its 3 for 5, 4 for 5, 2 for 7. Its must be targeted that an average person has trouble making the division to do the odd calc. Is this strategy employed in markets now with the signposts of that nice fat 5/8th, a kosher 1/16th above the low, or good old "half" now gone missing? — it's all now just forgettable "digies".

I miss those fractions quotations. I could always visualize them.



THink about what you eat"You don't need no teef to eat my beef"

I made the best ribs I ever ate this weekend for the band. I bought two big double racks on sale and cut the ribs individually. I braised them for 2½ hours low low simmer in water, rock salt, peppercorns. Then I slathered using the whole big bottle of KC Masterpiece sauce from Costco for four hours to soak. Then baked at 350 for an hour, about two hours before eating. That sauce is really good. Soaking the ribs in the sauce after braising for several hours seems to be the key difference. Cooling so you can pick them up with your fingers helps. Of course you have to start in the morning for dinner. Worth it. Served with baked beans, fresh picked lettuce from garden in lieu of coleslaw, and rice.

Scott Brooks writes:

I know there are many BBQ aficionados on this list and there is great BBQ to be had all over the country. But with all due respect to BBQ purveyors across the country, the capital of BBQ is Missouri. Being from St. Louis I'd like to say that St. Louis takes that crown, but the reality is KC is the BBQ capital of the world.

I have a buddy in KC who goes to the KC BBQ fest every year. He is friends with guys who are into the competition big time. I have a standing invite to attend. Although I have not made it, I have sampled some of the BBQ.

I go to KC to water-ski on friends' boat in the summer and we are treated to award winning variations of BBQ by his friends. Homemade, fresh and made to be eaten on the spot.

EatingI eat myself into a stupor every time I'm out on the boat. Good times, good times!

Prof. Haave has attended some of these boat outings with me and I'm sure he can attest to the quality (and quantity) of the feast that is had both on the boat and back at the house.

Varieties of meat marinated or dry rolled (or both) to perfection, then smoked with a variety of different types of wood flavoring at the perfect temperature. Meat that literally melts in your mouth. But it doesn't stop there. The homemade sauces are absolutely to die for. Any variety you'd like. From spicy hot, to sweet as you can stand it, and everything in between. Odd flavors that you wouldn't think of, to the normal favorite flavors.

The saddest part (well the second saddest part) of it all is that the side items are delicious, too….and you don't want to waste any stomach space on anything but the BBQ.

The actual saddest part is that regardless of how hard you try, your stomach will eventually fill up and you'll have to stop eating, and you won't even be close to having tasted all the vittles.

But the good news is, it'll keep you coming back for more!



Sal MaglieI should write something about baseball and markets. I've written about the wisdom of Ted Williams for markets, and Larry Ritter, 100 market related things about baseball dare that was included in PracSpec with collab, and I've written about the hidden signs of baseball with all the thievery and spies of signs etc., and I've suggested some insights of Bill James, but the problem is I don't know anything about baseball, and I hate to write about something I don't know about like the chapter on poker in EdSpec which I wish i had never written since it was derivative and worthless. So if anyone can help me appreciate what baseball can teach about markets, I'd appreciate it. I'm particularly interested in the hidden rules, and I think I have a market system based on not running up the score, etc.

Allen Gillespie comments:

UK came back from a large deficit to tie UT with 2:13 left before loosing the game. Does the market do the same? One notes that the S&P regained its positive footing yesterday after being down for most of the year.

Also, one hidden rule is don't talk to a pitcher that is throwing a no hitter after 7 innings and give extra effort on defense. A market equivalent might be what happens over the next X batters after the first gets a hit if the market is down over the previous 21.

Jordan Neuman comments:

Baseball traditionalists love the idea of the bunt, the stolen base, and assorted "small ball" strategies. These are basically one-run strategies. And as Earl Weaver and Bill James have written, baseball people who actually do the counting, when you play for one run that is all you get. And you might not even get that.

The market equivalent has got to be all those maxims and strategies that emanate from the brokerages and the talking heads that are consistent money/opportunity losers. What is appealing in theory is more difficult in practice. I place covered calls in this category.

Stefan Jovanovich writes:

Any pitch above the shoulders is life threatening; you can die from being hit in the neck more easily than from the top side of the skull. Even so, throwing above the shoulders was within the Code even in the days before helmets had ear flaps. Sal Maglie did not get the nickname of "the Barber" because of his artful use of the straight razor. Drysdale and Early Wynn were notorious headhunters. The rule was and is a good deal more subtle. You can't throw at a batter's head if you also throw a curve ball that breaks away from him. You can't play even high level minor league ball without standing in against a pitch that is coming at your head because, if the guy is any good, that ball is going to break down and away for a strike.

Drysdale and Winn were fastball, change-up pitchers so their aggressiveness was tolerated; it was part of their game. Walter Johnson and Bob Feller are always written about as being "gentlemen" because they never threw at batters; they didn't because with their stuff (fast balls and right-handed down and in curve balls) it would have been attempted manslaughter. Sammy Sosa was "beloved" because he was a cripples hitter; he killed mistakes and ate up mediocre pitchers, but he was never feared by anyone who had stuff and knew how to use it. Barry Bonds was "disliked" because he ruined everybody and because he had the guts to wear protection for the batter's most vulnerable body part - his leading elbow and forearm - and not give a damn what the league or opponents thought about it. He also mastered what remains the hardest thing to do in hitting: swinging late and still getting around on the inside pitch. In that he was a throwback to the golden age when even someone with arms as long as Ted Williams would have his wrists pass over the inside of the plate. Modern hitters with their longer, lighter bats don't go there any more– which is why the Atlanta Braves during their glory years were always coached to pitch outside: "Having Leo Mazzone as a pitching coach lowered a pitcher's ERA by a little more than half a run."

The respect thing is wildly exaggerated. Players appreciate each other's skills but they get paid for winning and numbers, not for obeisance. Chuck Hiller, who was a wonderful catcher for the Giants, once said that if the league learned that a player had leukemia, they would be sad but, if the guy still had his stuff, the dugouts would be calling him "Luke" by the 3rd inning. Bang the Drum Slowly gets that right; everybody is sad for Robert De Nero who is dying but nobody on the team comes to the funeral except for Michael Moriarty.

Rodger Bastien comments:

A pitcher is expected to throw a brush-back pitch in the next half-inning if his teammate has been hit with a pitch, but it's taboo to throw that pitch above the batter's shoulders or behind the hitter ( a batter's instinct is to hit the dirt therefore he could be beaned that way). Good hard slides are a part of baseball but sliding "spikes high" is a no-no. Along with not stealing with a big lead you should not stretch singles to doubles or doubles to triples with a very large lead. If a batter leans over the plate, a pitcher is expected to throw inside to regain that part of the plate; a hitter with such a stance should expect a fair amount of inside pitches and should take his base without protest when hit by a pitch. When an umpire takes a nasty foul off of his unprotected areas or is shaken with a foul off of his mask, the catcher should go to the mound to give the umpire time to shake it off. And middle infielders protect themselves by throwing the ball to first during a double play right between the oncoming runner's eyes; its his responsibility to get down to avoid getting hit.



 The variations in prices during the day is a source of wonderment to all who study them. For example the price of 1 comes up so frequently as to excite the admiration for its fortitude and staying power. Of 26 markets on my screen with a total of 81 digits among them, 30 of them have/are the digit one. Indeed, the proverbial battle during the day between the ensemble of markets and the bulls and the bears might well be considered as a battle among the prices themselves for replication and survivability.

From similar observations in the field of evolution Richard Dawkins came up with the theory of Selfish Genes. He pointed out that evolution works by copying genes. The genes themselves, without any motivation on their part, are in a battle to be passed on. They don't care about the interests of the organism that they are part of. His book based on this theory is considered one of the two most influential books of science of the last 50 years, and has sold more than 1 million copies. It explains and illuminates many phenomena that the traditional view of organisms competing at the level of the phenotype in a struggle for survival of the fittest find hard to explain — particularly altruism, deception, kinship, acting against interest, vivid and startling coloration (green beards).

The time has come to apply this theory to prices themselves. They are the units of variation that try to reproduce that control markets, not the other way around as is so frequently posited. Let's start with the battle of the price 0 to extend itself. Using daily prices, we see the Dow crossing from above 10000 to below 10000 three times during the last two years and crossing from below 10000 to above 10000 on two occasions. The 0 in 10000 gets to express itself four times while in all other prices of recent vintage it is only expressed three times so that 10000 is a particularly noteworthy price to achieve.

In addition, it's a green beard that attracts other prices at 0. When the Dow hits 10000 every financial media is likely to have a headline that the magic number has been broken. Other zeroes in other markets such as the Nikkei at 10000, gold at 10000, oil at 100, the yen at 1000, and the S&P at  1000, soybeans at $10.00 are sure to note the price and copy it. The zeroes in 10000 while acting essentially selfishly benefit other zeroes in other market that have the intellect to recognize what is happening in the Dow. The transmission of these effects in the media magnifies what has been called "green bearding" by Dawkins in the concept of the selfish gene.

a green beardOf course, if recognition plays a part in the propagation of prices, so does deceit. The same way that butterflies mimic wasps, markets may pretend to be going to a recognized number like 10000 but stop right before it as fast moving operations like the specialists or the high frequency traders step in to beat out those who have been deceived by the path. Such activities lead to the well known phenomena that highs below the round number and lows just above it happen much too frequently to be explained by chance in individual stocks and the major market averages.   

As a first crack at systematizing the theory of the selfish price, I calculated the closing 10 digit of the S&P unadjusted futures for the last three years, 743 observations in all.

Battle of selfish opening and closing prices

             opening price        closing price
0                  71                  88
1                  76                  69
2                  64                  55
3                  74                  79
4                  77                  70
5                  84                  79
6                  77                  76
7                  68                  65
8                  68                  76
9                  84                  70

One notes that the digit of 2 is losing the investment table, some 5 standard errors away from expectation, while the old faithful of 0 is winning the ultimate battle closing 88 times, 3 standard errors above expectation from its 74 expectancy. There are other wonderful and noteworthy phenomena revealed in this table, and its extensions, and many beautiful aspects of the struggle for existence, the mutualism, and antagonism of the prices for one another, and always their tendency to be in a positive feedback system with the growth of the market organism itself, which I will not gainsay the reader the jubilation of ascertaining for himself.

It is well known that genes often work together with each for the greater good of each other. For example, there could be a gene to make disease less likely under certain circumstances, and a gene for long life. A typical example of a gene that is beneficial to other genes but not to itself is a gene in birds for calling out loudly and clearly in situations of danger. The gene helps all the other genes survive in its kin, but not necessarily itself as it calls attention to itself. Genes tend to  work together to make for a greater likelihood that the whole organism and all its genes will survive and reproduce. The cost benefit function of a given gene may be y expressed as pb  versus c  where b is the benefit a gene gives to another gene, c is the cost, and p is the increase in probability that the other gene will provide to it.

The cost benefit function creates a situation where the genes come to be represented according to their net contribution to their ability to be reproduced in successive generations, including their cumulative impact on all other genes in the genome. The opposite situation which occurs must less frequently is called intragenomic conflict, and the classic example is referred to as segregation distorter genes which act to crowd out other genes that are beneficial to fertility. Egbert Leigh expresses this unlikelihood as follows: The genes act as "a parliament of genes, each acting in its own interests, but if it acts hurt the others, they will combine together to suppress it."                            

Apparently the price units of selection in markets do not act to suppress their neighbors. During the last 2600 days for example in the  S&P, 2530 days in the S&P 24 hour futures, 2412 of them have allowed each of the ten separate 10 digits, 0 to 9 to appear. In other words the 24 hour range has been more than 10 on more than 95% of all days. Apparently it keeps all the individual prices healthy to exercise each of its competitors on almost all days.

Here is a good reference on this Selfish Price theory which I posit in all seriousity.

Rocky Humbert notes:

The paucity of "2" as described by the Chair is a persistent phenomenon. For the 12,143 trading days between 1955 to 2003 (when the S&P first went over 1,000), the digit "2" occurred (as a tens) only 5.1% of the time.

Perhaps some of this may be explained by number theory — i.e. index calculation effects due to stocks trading in eighths and quarters, and that may also explain the increase in the "2" in the Chair's data post decimalization. (He found "2" rose to 8% from the 5.1% over the longer period.)

One further notes that on most QWERTY keyboards, the lowly "@" sits above the "2". Prior to email, the @ was slowly facing extinction– only to be resurrected to prominence contemporaneous with AAPL stock. Hence I believe it's premature to put the "2" in the Peabody Museum diorama that also houses the Dodo Bird and Pig-footed Bandicoot. 

Marion Dreyfus comments:

There is apparently a marker gene for how many times a person sneezes when he or she sneezes daily–This might be a signal to alert noticers of the individual patterning of investment thinking or individual behavior. As some people always sneeze thrice, and only thrice, or twice if the gene for twice is embedded in the coding ''parliament'' of the genome sequencing, perhaps we also have an idiosyncratic pattern of investing that has hitherto gone unnoticed. Can this be mapped, one wonders. And if so, can one be thus invested with more knowledge of the other's "hand," as in playing poker with someone whose "tell" you know, so you can conserve bets for when a hand/bet/risk is most propitious…

Pete Earle writes:

morpholinoOne of the tools used in determining genetic action– or, more aptly, interaction– is the morpholino, a short, targeted nucleotide sequence which blocks ("knocks down") expression of one gene among two or more to see if, or how, the ultimate expression of said genes changes. My partner is involved in exactly this sort of research daily. Once she targets a gene– in this example, trying to determine the interaction of two genes in producing a specified outcome (gene A + gene B = expression C)–she then conducts subsequent experiments in which she varies the amount of the morpholino between 0% (no morpholino, the control group) and increments up to and including full strength (complete knock-down of gene A, 100%). This is to determine which gene, if any, is more important to a given expression than the other; and to see if a gene interaction is of the simply "on/off" type or if expressions take place along a spectrum of outcomes.

I suspect that with respect to Vic's Selfish Price Theory, we might look at morpholino-equivalent testing with a comparison of periods within which a given market approached a certain number-expressing level, and compare those with others, looking for volume superlatives; one would expect the day or week of the arrival of Dow 8888, 10000, and 11111 to be of higher volumes to a statistically more significant extent than, say, those when Dow hit 12345 or 9876. This could be broadened to look at random snapshots of days where, across a number of indices or index-constituting stocks– even, and perhaps especially, in the absence of such aesthetically pleasing prices as 10,000 or 55 and such– we would look for higher-than-expected volumes when and where there noteworthy appearances by a particular number across a spate of closing prices. 

Pitt Maner III writes:

My dentist last week mentioned to me that he was studying the latest papers (within one day of publication) on gene "crosstalk" so as to help his daughter in college who is doing an honors thesis on the subject (and how it relates to drug interactions with cancer cells). Cancer cells evidently have a means of (and this is over my head—cell experts please jump in) of dampening the effects of anti-cancer drugs through cellular cross-talk genes. Therefore drug manufacturer have a need to knock out the cancer cells through a series of steps to weaken these defense/signaling channel mechanisms.

Any underlying, as yet undefined, step-like mechanisms and pathways would seem to skew number distributions.

Henrik Andersson comments:

Benford's lawThis seems somewhat related to Benford's law which predicts the probability of digits, for example the probability that a stock index of stock price will start with a '1' is slightly above 30%. A funny side note is that this theory of frequency of numbers in nature can be checked using Google searches.

Victor Niederhoffer responds:

I don't think it applies here, especially for the second, third and fourth digits.

Henrik Andersson replies:

Yes, it probably only over powers other forces in the market for the first digit.

Kim Zussman writes in:

The SP500 is Benfordian:

Using daily closes SP500 1950-present, counted days which closed with the first digit = 1. eg, {1XXX.XX, 1XX.XX, 1X.XX} (there were no 1.XX yet}.

Of 15135 total days, 5514 had 1 as the first digit.

Alston Mabry writes:

And to relate that chart to genetics: If volatility = selection pressure, then when volatility/selection pressure is low, variability in digit frequency/phenotype expression is high; but when volatility/selection pressure is high, variability in digit frequency/phenotype expression is low.

And different species have different time intervals, i.e., lifespans.

Peter Earle responds to Henrik Andersson's comment:

At risk of torturing the analogy a bit– but worth mentioning: "Yes it probably only 'over powers' other forces in the market for the first digit. "Let's discuss those "other powers", as they are germane to Vic's theory. It's appropriate to at this point bring up one of the hot topics that my partner, again, is working on: epigenetics. In short, it's the imposition of hard-coding changes on DNA (via methylation) by environmental effects. While still not fully understood, one example is depicted by rat experiments in which the pups of profoundly overweight mothers (exposed to high levels of interuterine glucose) switched at birth with skinnier rat mothers show a statistically significant greater chance, thereafter, of becoming obese, even setting aside "lifestyle" and dietary settings. (See the "Barker Hypothesis" for another example of this phenomenon.)

With respect to Vic's Selfish Price theory, we might quantitatively express these variations from expected (Benford's Law) vs. actually expressed frequencies of prices/digits as an epigenetic effect: 'environmental' effects whereby the impact of market participants and economic influences -forces and memes - push toward or away from predicted, anticipated baselines.To that end, tracking the ebb and flow in expressed, realized prices from what which the Law predicts over time could provide one way– no doubt an incomplete way, but a way nonetheless - of quantifying the ever-changing cycles. 

Alston Mabry says:

Back to the tens digit, this time in the S&P cash. Starting with January, 2004, I calculated a 250-tday rolling total for each digit, e.g., in the past 250 tdays, how many times has the tens digit of the S&P Close been 0 or 1 or 2, etc. Then calculated the gap between the most frequent and least frequent digit, e.g., if 6 was the most frequent in a given 250-tday period, occurring 48 times, and 3 was the least frequent, occurring 21 times, then the max-min gap would be 48-21 = 27.

Then for I calculated the SD for each 250-tday period, too, as a measure of volatility. The attached graph shows the two series. What can be seen is how the max-min gap is higher when volatility is low, but compresses into a narrow range when volatility increases. This seems intuitively sensible if one thinks of a more volatile S&P moving quickly through various values and thus being more "random" at the tens digit. Whereas, when volatility is low, the S&P would be "stickier", hanging around longer at certain tens digits, thus creating a wider max-min gap.

Of course, an underlying factor is the arbitrary nature of choosing a unit of time such as a trading day. If one zoomed in and out, using different lengths of time to create ecah "Close", then one would probably see a clear relationship between volatility and digits on different time scales.

One more take (esoteric, but I really like the chart): For each S&P day from 1990 to present, calculate the distribution of the tens digit in the S&P for the 250-tday period ending that day: 41 zeros, 24 ones, 23 twos, etc. Then get the SD for this distribution. Example:

41 0's
24 1's
23 2's
17 3's
26 4's
20 5's
20 6's
21 7's
19 8's
39 9's

SD: 8.33

Then calculate for the same 250-tday period the SD of the daily change in points of the S&P - points rather than percent because we are relating index point movement to digit distribution.

So, for each 250-tday period, we have a measure of the volatility of the index and the variability of the tens digit. Sort all the 250-tday periods by the S&P volatility value, high to low, and graph the result - see attached graph .

Nice inverse relationship between the S&P point volatility and the variability in the tens digit.



people run from an approaching tsunami in Hilo ,HawaiiOne wonders about the impact of this earthquake on copper and basic materials prices. Is the infrastructure (rail, ports, etc.) in Chile damaged to the extent that copper shipments will be impaired for several weeks/months? And what of the demand for basic materials to repair all the other infrastructure? More ominously, is there a trend in increasingly destructive earthquakes (and collateral effects such as the 2004 tsunami disaster?)

Anton Johnson comments:

I found the paper "Measuring the Impact of Natural Disasters on Capital Markets" by Worthington and Valadkhani of Queensland University of Technology to be interesting.

George Parkanyi adds:

On vacation in Hilo last summer, we went to the tidal wave museum. There have been many major earthquakes around the Pacific rim in the past 100 years, yet only two generated killer tsunamis in Hilo Bay. The profile of an earthquake is very important to how much and how the energy propagates. The ones that tend to spawn dangerous tsunamis are the ones that cause a shearing and shift up or down of one side of the ocean floor, like the 2004 one in Indonesia. It is always correct to take the precaution of evacuating low-lying areas, because you can never know if any given earthquake will be one to generate a killer, but I don't think it is something to be overly feared, because of the relative infrequency, and the fact that there is usually plenty of time to evacuate. When you don't have a lot of time, and need to move really fast, is when you feel the earthquake, because that means it happened nearby, and is its own warning.

The risk of anyone's being hurt, in Hilo at least, is also lessened by the fact that Hilo was smart and didn't allow any re-building of residential buildings in the low-lying mapped out flooding zone. There are commercial buildings, but the chances of anyone being surprised at night in their beds is near 0. I'm pretty sure that Japan has similar measures in place along its coasts.

Kim Zussman writes:

Thanks to Big Al for the link, which produced the following academic study:

Looking just at earthquakes >7 magnitude, since 1900 has the death/year increased over time?

Running two regressions, one (death count) vs year, and the other (death count) vs year only for deaths>10, the slope coefficient was not statistically significant. Here for the second regression:

The regression equation is
deaths10+ = - 121592 + 66.3 Year

Predictor     Coef   SE Coef      T      P
Constant   -121592   131916  -0.92  0.358
Year             66.27    67.36   0.98  0.326

S = 30633.2   R-Sq = 0.4%   R-Sq(adj) = 0.0%

Note however the "Year" coefficient of 66 is positive (ie, rate increasing by 66 per year), so perhaps it will become significant sometime before Nasdaq 5000.

Jim Sogi comments:

There are interesting google results on earthquake and full moons. The theory is that gravity and tides contribute to geological pressures. We've discussed the full moon effect before on markets. Similar result for geological phenomena, but anecdotally very compelling.



 I got off the bus and walked through the Central Park snowscape at 57th and 6th. Fairy time.

Little kids with their brilliantly colored toboggans or inverted large plastic frisbees in cherry, lime green, turquoise and violet flopped down the tiniest slopes, shrilly screaming with delight. People were running the track, as per usual, enclosed in their huffing and timing. Many teams of families and friends were building snowmen, and I saw at least three snow caves, which we always advise people to build in the chilly North, if they are caught in a snowstorm or are lost in the woods and there is available snow.

I watched four energetic bunches of people on tamped-down 'slopes,' some of the adults sitting on the plastic garbage-can covers (so they looked) behind their tots.

Against the stark, clean white of the snow, the strong verticals of brown-etched black tree trunks heavy with the best snowball-making snow (but also the most perilous, as the death of a man from a falling overburdened branch demonstrated to us all if we heard the news), the colorful gear and costumes of the skaters, it was a wonder place.

The children far off made the scene evocative of those daguerreotype postcards of the first decade of the 20th century–rich and wonderful, especially with the high-prancing horse-drawn hansoms every few minutes. Two offered a free fa-la-la through the park, but I declined, entranced with everything around, far more scenic than anything in the summer months.

Stopped to talk with a chilled but friendly NBC cameraman next to his sound and light transmission truck right opposite the old–now closed, preparatory to a March reopen under new and hopefully solvent management–Tavern on the Green, shorn of its usual razzle-dazzle lights, but now looking cozier for the absence of limousines and cabs and liveried doormen. Now it is just a cozy restaurant nestled in the snow banks of the park. The TV guys, they told me, were forbidden to take shots of anything untoward: Only reportage on weather and snow conditions. No reports on branches falling and ending someone's breathing in an eye-blink.

Dogs on leashes stood on their hind legs like African prairie dogs to salute the large igloo being built opposite the Tavern. The cave/igloo was now the height of a medium daddy, and his son was inside the stuccoed white igloo, the top of his head just-just visible in the 'atrium' open-air unfinished dome, adding incrementally to the enclosure.

A family of 4 kids and tony UWS parents stopped to discuss the activities in the park, and one noticed the kids wore sleek, aerated bike helmets to prevent damage to their noggins should the boys decide to go tobogganing.

Everywhere, people smiled and spoke with one another, accessible as ever in extremis of weather or misadventure. Everywhere, the overhead shiny crisp sun found its echo in the sunny dispositions of the tots and parents, walkers, runners and horse-drawn, rug-covered buggies.

Who said childhood is finished?

Chris Tucker adds:

Spent the better part of this weekend at the local high school which features a large bowl around the baseball field. This provides natural stadium seating in the warmer months, and a wonderful, wide slope for sledding, boarding and tubing when the snow permits. Yesterday a large group of us got together for the fun, some brought beer, juice boxes and a hibachi and cooked up dogs for anyone that became peckish. Today we went out early as it was getting warm and we didn't want to ride slush and mud. But the hill was in good shape on the big side and a kid sized shovel that I keep in the truck kept the tracks in prime condition. The kids love going over jumps, as I did too at that age, but after my first try earlier in the season I decided my jump days were over. The neck and back just don't seem to appreciate the impact like they used to. There is a huge variety of toys available for this. We have seen traditional tobogans (though not this weekend), flat boogie type boards, true surf boogie boards which work just as well, saucers, boats, sleds with plastic runners, traditional Flexible Flyers, sheets of hard plastic, snow boards, tubes of all shapes and sizes (best for adults as they absorb a lot of the shock) and cardboard boxes, which work but have a short half life. The most squealing occurs either when there is a race, moms or dads go down on tummies with kids piled on their backs, or we make a chain with several vehicles and riders. The grown ups tend to make more noises of delight then the kids when we do this last bit. Tons of fun and no TV or video games in sight.



 I read and hear many people saying 'what a waste' today about the tsunami precautions in Hawaii. It reveals an interesting thought pattern that is a trap for traders and everyone confronted with imperfect prediction systems.

Are insurance premiums a waste? Is that fire extinguisher a waste? Doubt it, provided you did not overpay. We call this the Rule of 1. The Rule of 1 = the number of times a model (or modeler) can be wrong before people stop believing them.

Human brains have a horrible built-in concept of probability. We reward single successes and punish single failures when we should not. One day of good or bad luck tells little. Just because you did not die this month doesn't mean you can cancel the term life insurance for next month, which you originally bought to provide for your wife and kids in case you did die.

Traders need to estimate risk and act on that estimate, not ignore risk. No such thing as a perfect model. It (and you) will be wrong from time to time no matter how good it is (or you are). Frame the thinking as "What is the cost of the risk if it happens?" Heading for the hills after a huge earthquake is cheap insurance. The cost is of the risk is dying. A bad trade to stay on the beach. The beach will be there tomorrow. Other bad trades or too much leverage can cost you all your capital. The market will be there tomorrow, too.

Another rule for the reader. The Rule of 3. Suppose you test or look for something multiple times and do not find it. Can you estimate the probability it is there, even if you did not see it when you looked n times? The textbook example is: suppose you are told you need a serious and difficult to perform operation, and you are told the surgeon has performed the operation 20 times and no one died. What is the chance you will die? The Rule of 3 states that the 95% upper bound for no events is 3/n. So you still have a 3/20 or 15% chance of dying if you have the operation. (Van Belle, Statistical Rules of Thumb, 1st ed, pages 49-50)



Mr. KatsenelsonI worked for Lipper Analytics (now a unit of Thomson Reuters) for about three months in 1997. They interviewed new employees for their internal newspaper. A friend found this interview in their archives. I made an interesting mistake when I discussed Russia, which is only apparent to me now with the benefit of hindsight and an additional 13 years of experience. Russia cannot have a successful commodity industry (successful is a relative word) and a prospering software industry, despite Russia's incredibly educated workforce. Russia suffers from a Dutch disease — commodity industries suck out all the capital from other industries and don't let them develop.



California Glossy SnakeThe other evening I noticed a small snake huddling in a corner of the garage. It had a reddish-brown color with black spotted pattern. I moved it with a stick to see there was no rattle on the tail, then picked him up (in California the only snakes poisonous to humans have rattles. Ringnecks and Lyre snakes are mildly poisonous but not dangerous).

He was friendly (didn't try to bite), about 10" long, and looked a bit like a gopher bullsnake. But he was different; retruded mandible, vertical pupils, and a black spot on the side of the head. Turns out he was a nocturnal snake rare to this area (adjacent to Santa Monica mountains), a glossy snake (Arizona Elegans Occidentalis).

I was holding him during a discussion with some people in the kitchen, one of whom was describing her boss as "Jewish but not practicing". They asked me about the snake, and I explained he was a practicing Glossy snake.



vegas slot machinesSetups for indicies based on technicals will be correct just often enough to keep the players coming bask again and again using the same setup, similar to the biggest casino money makers, slots. The bells ring with small wins to draw the public in. Chartists always on TV and the internet showing the win based on some pattern are guaranteed to lose the next time.

William Weaver responds:

Mr. Miller makes a good point about only having to be right enough times to make the players come back for more. But I would argue that technical setups– whether they are or are not profitable– never have to be profitable for traders to attempt them. We all know that we as humans try to create patterns in all the data around us because pattern recognition in any type of data (reading for example) is how humans function, form memories, etc. Neuro-scientists feel free to attack me, but my point is not how the brain works but rather that we all show hindsight bias and recognizing a pattern in historical data is much different than recognizing one in real-time data. Even walk-forward practice is hindered by look ahead bias (we can all paint the past 20 or more years of SPX data) and a lack of emotional stress (endowment theory, prospect theory, loss aversion, disposition effect, etc.). What looks easy, coupled with success stories fueling hope, is always a trap.



For what it's worth, here are representations of the velocity of money, which is defined as the nominal gross national product divided by the money stock.Velocity tends to tank in a recession and recover thereafter.

Ken Drees replies:

Since arrow mzm = s&p, money base is non confirmation? Should not all three walk together?



2004, from Jim Sogi

March 1, 2010 | 1 Comment

It is interesting to look at 2004 after a long run up off the bottoms at prices similar to current and wonder about the similarities between then and now.

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