Do you see any analogies between the Eurozone banking situation today and the failure of CreditAnstalt in 1931? - A Reader

The business of credit is always a Ponzi scheme in the sense that the issuer of notes, checks and IOUs never have enough money on hand to cash out all the promises. How could it not be? The stock and bond markets are nothing but promises to pay in the future rather than now. From the very beginning the United States has been founded on IOUs, not cash; George Washington's first pay day as President came in the form of a check, not dollars. The entire justification in U.S. law for having banks and insurance companies and securities firms all be special entities is that "the law" will somehow guarantee that these special people called bankers and brokers will never make imprudent promises to pay. Most of the time, the banks, insurance companies and securities firms succeed in at least the appearance of being prudent. They have to; their business is to sell their reputation for being "safe". But there are no actual guarantees being made; that is why the fine print always ends up saying "we promise but we don't personally back what we are saying".

The conventional financial histories try to point to "events" like the formal bankruptcy of the CreditAnstalt in 1931 as "causes". They follow the same approach that most military histories do - and all German General Staffs did - in studying the "lessons" of war. (Apologies for all the quotation marks, but the infection of the language by scholastic theology is now universal. Just as almost all discussions of enterprise end up using Marx's vocabulary, history has not escape from the assumption that life is a classroom.)

The CreditAnstalt had failed by 1919. Its assets - loans made before the Great War - had been melted away to nothing by a pile of sugar in the rain; having Hayek in the bureaucracy did nothing to prevent the new stub of a country called Austria from printing its way to hyperinflation. What happened in the next dozen years was simply the redecorating of the accountings of all the banks in Central Europe to pretend that there had been no default by the authorities that controlled domestic legal tender. (As long as your depositors have no ability to swap their paper money and statements of account for coin, the banks as custodians have no trouble.) The country was ruined, but the banks were still fine. Their trouble came when their foreign counter-parties who had been sending gold to Vienna in the 1920s lost faith that they would ever see any repayments that could be sent abroad and actually cashed out into other currencies.

The event that caused that loss of faith was a decision to "save" the Atlantic world from the Great Depression. You will not find anything in the contemporary accounts or the current academic histories that says otherwise. In January 1930 The Hoover Administration led the Allies to agree that reparations need no longer be paid; what that meant, of course, was that Austria's currency would no longer have even an indirect connection to specie because there would be no more international lending by the U.S.

It seems to me that the present offers a completely different situation. Anyone can escape the clutches of official IOU currency by following Kyle Bass and buying bullion; they can also go further down the rabbit hole and buy Bitcoins. But, in neither case is there any doubt that the person selling gold or digital currency for conventional legal tender can go into the FX market and choose which other StayPuffedMarshmallow currency - pounds, euros, dollars, yen, francs, pesos, etc. - he wants to trade for.

By 1931 the world of commerce had literally begun to freeze because large foreign exchange transactions were no longer possible except the pseudo ones between the central banks and even the people with "good" money (U.S. dollars, in particular) found that they no longer had any. For a comparable modern situation, imagine that half the credit and debit cards in the U.S. suddenly disappeared and there were no replacements and no new extensions of consumer credit.

Deutsche Bank has already failed in the same way the Credit Anstalt did in 1919; the difference is that the units of account that DB's credit and debit cards use have not have lost all exchange value. Germans will still be able to go to Florida for their winter holidays and use magnetic stripe and chip credit to pay for their Mai Tais.



 If you measure wars by what proves lethal to your own side, then this is one like no other, as far as Americans are concerned. 2 out of every 3 casualties (killed and wounded) in Iraq and Afghanistan have been caused by the enemy's use of landmines and improvised explosive devices (IEDs). In the last Asian war (called "Vietnam" although it really was the 2nd Indochina War) fought by Americans, the fighting was largely conventional. The Viet Minh and Viet Cong used land mines, as did the Americans and their allies; but the use of what were then called booby traps was not greatly different from what it had been in Korea. Only 1 out of 7 or 8 casualties (roughly 14%) were from landmines.

The "war on terror" has become a terrorist war.



 The progression of winners in anything usually follows these steps:

1. In the beginning there are random advantages and accidental winners.

2. The neophytes then develop different body types and the superior becomes the victor.

3. Then among the better physically developed the brain determines the winner. This is the strategy stage.

4. Once the bodies and minds are on a par, the one who practices hardest to become the most graceful is victor.

5. The final champion develops an edge to lever out all the other qualities of body, mind, grace, and even spirit.

Knowing this, you may hone your skills stage by stage to reach the top.



 Today was a perfect day in the way expectations work. I don't fully know how they work but some of these factors were involved.

1. Market started way down Monday for fear that Trump would win the debate. The old accepted thing is always what the market wants even if it's creeping socialism and higher service rates.

2. Then on Tuesday evening, the market went down 1/2 % before the debate on fear that Trump would win. Fear always causes stops to be run.

3. Then during the debate, the market went up 20 points as it became obvious that the cattleist was winning and that trump was rambling, and interrupting, and proud of fact that he made money by stiffing people, and buying foreclosed houses, and not paying service.

4. Then the market went down 26 points to the open on the theory that you should buy the rumour and sell the news. Sort of a variant of "the threat is worse than the execution". Often good news i.e that the cattleist won, is worse than bad news. Of course often the good news is known in advance by flexions and they sell after it. Of course some people might have sold because the realization that the cattleist would win means that after-tax capital gains will be lower and regulation will be higher.

5. Then the market went up 10 quick points from the open to show that they were happy after all with the cattleist and to take profits from those who were stopped out at the open.

6. Then the market dropped a quick 5 points to recapitulate yesterdays and the prior days decline. People suffer from the remembrance of last 2 events effect or whatever absurd name Kahneman specifically gives it [Ed.: recency bias?].

7. Then finally the market advanced to where it was after the debate, letting no good opportunity for a stop or profit go unheeded. And it ain't over yet. Only a Brett can make sense of it all.



 I'll go with the prediction market which reduced the probability of wining to 0.30 from 0.37 for Trump. Having listened to the debate, it is hard to believe that anyone could have thought Trump won the debate. He was totally unprepared. He could only mutter "wrong" and talk about his abilities in response to totally prepared remarks from Hillary. The Times gave a good fair analysis of the debate. As did Washington Post and Fortune.

anonymous writes: 

The prediction market is not anything like the markets that you all trade in every day. (Those of us out here in the piney woods are guilty of buying and selling stocks on occasion but comparing what we do to what you all do is like comparing subsistence farming to Cargill.) For one thing, there is no size. The move down 7 points came on basically no volume. If a stock moves that much on that little money changing hands, the shares belong to a business that is already bankrupt. Oh, wait, that is the general business magazine trade these days….and the newspaper business. For those who want to know where the money went…  There is not much volume; but there is, as there used to be with Berkshire in the good old days when its owner did outperform the market, some considerable size.

Victor Niederhoffer replies: 

I believe that the many small traders with insights and incentive to make money keep the prediction market very accurate. And there are numerous studies that show that the prediction markets work much better than the polls. (I think). 

Andy Aiken writes: 

A problem with most prediction models, including prediction markets, for the US presidential election, is that they combine state polls using a Gaussian copula-like approach. Andrew Gelman, political scientist at Columbia, showed how this approach is subject to the ecological fallacy. He resolves this with a hierarchical Bayesian model, which Nate Silver adapted for his 538 site. This is not to say that 538 is accurate, since it is only as good as the polls that are used as inputs, but it avoids a common methodological flaw. It doesn't take too much capital to manipulate a prediction market. I personally know some people close to Bush who in 2004 would push up or down the Presidential Election contracts market on the Iowa Electronic Market, merely to influence perceptions. Brexit may have been an example of such a manipulation attempt.



I just read this quote supposedly from Jeremy Siegel: "Dividends matter a lot. Reinvesting dividends is the critical factor giving the edge to most winning stocks in the long run…"

Why is this true when there is so much friction in reinvesting dividends vs. the more direct corporate reinvestment. For example, taxation, and the need to buy stock above book value when hypothetically a good company can invest in its business at book value and via earnings and with a decent ROE generate a multiple of that in terms of share price. How can high dividend payout top high ROE or ROIC and a high reinvestment rate.



The black doctor inspires some relevant Wiswell Proverbs.

1. "Not all games are lost in the mid and end games; many players go astray in the opening"

(beware of hasty opening forays)

2. "Some players know the game very well but don't know the game players themselves: this can lead to self defeat"

(It is bad to trade against the Fed or the flexions or small groups that control the fixings or pricings)

3. "Some players can stand a series of dull games, but the creative player lives for a challenge and a crisis. The latter star may win a brilliancy prize now and then but often at the risk of losing a few"

(A derivatives expert can make a profit once every 10 years or so assuming he can get out without the 100% bid ask spread or that homeostasis does not come at expiration)

4. "Keep your manuscript and in your years ahead, your manuscript will keep you"

(write down your trades and prices and keep them handy in front of you not on an instrument that can be wiped out by a (hammer?) or an algorithm)

5. "It is important to keep your forces together, yet flexible, ready, to attack or defend as the game develops. Any General will tell you that a divided army is hardly headed for victory."

(too many positions, too many accounts, too much money committed to margin is guaranteed to cause failure)

6. "Do not assume that every move a master makes is strong, or that every move a patzer makes is weak. Play the board not the player."

(the palindrome and the upside down man have been known to nod)

7. "When we resign with a draw on the board, and many of us do we don't deserve a draw"

(getting out of a winning position when it starts backpedaling is a dreadful psychosis that we should ask Dr. Brett about)

8. "The fourth dimension. In addition to the opening, the midgame, and the ending, there is a fourth act to every game– the result."

(you can play a great and lose, and a bad game and win)

9. The right way to win a game is before the first move has been made.

(prepare before the opening and know why and what you are doing)

10. "The winner of a game is not always determined by who is right–but in the end, by who is left."

(squalls, stops, and margin calls can occur)



 I was watching a formula one race the other evening and it reminded me of the racing line. The racing line is the direction, speed and angle in which a driver goes through a corner. Come in too far from the inside, your exit will be poor. Too far out, someone can pass you. Come out of the corner perfectly but be in the wrong gear, you're toast.

I was thinking how many times traders hit a trade entry well but don't have the right leverage (wrong gear). Or come in too far from the inside and spin out before they complete the corner (capitulate with too much leverage).



Computers are the key to modern trading. The Chair is famous for inventing modern algorithmic computer trading. I am trying to learn new computer skills including Python and Pro Tools audio recording interface. (Was it Spec-lister Jeff Sasmor that invented Pro Tools?) I am struggling to learn both programming and the new interface. I recommend to all young people starting out to study computer science. Computers run pretty much everything in the world now. The richest people I know are computer scientists who started businesses. They are in fact some of the richest people in the entire world. Trading is dependent on computers, programming, speed. Learning a trading interface and being able to operate it with speed accuracy under pressure is essential to trading.

Some years ago I learned R with the help of some erudite and benevolent Spec Listers. I fondly remember the Wiz, a true master, who from the top of head could with a single line of code, search relevant data, process it, and have it report a table of elegant results. Computer science does not replace judgment or vision, but realization requires the computer skills.

Some of the specialized programmers can get a bit nerdy. Thinkers of big thoughts can really benefit from being able to program and fine tune their thinking. Writing up the algo's really clears up thinking. The computers really help with the massive number crunching that would be impossible without them. I kind of understand the basic statistics and math in a general way, but the computers help me do the computations.



 O. Henry often boasted that you could name any place, any situation, any number and he could write a short story about it. I have often felt that I could take any situation, and relation, any game, and find a relation to markets in it (albeit not usually a predictive one).

I recently was studying integration by parts so I could compute moments of the exponential distribution. I gave myself the challenge of finding a market relation for integration by parts. I am wondering if anyone can find some useful take off point and relation to markets in it. I will give my answer after the market closes today.



Chain Rule says that the area to be covered by u dv = uv - area covered by v du

In that case when u and v are high the effect of a change in the other one should be algebraically higher than when u or v is low.

I looked at the 5 occasions when tbonds, crude and SPU all set a 10 day high, sort of like today although not all highs. In the last 6 years.

I find a change in SPU is very bearish– down 32 next 5 days. A change in bonds down is very bullish. Change in crude very bearish. Down almost 10 ^+% next 5 days. Change in bonds quite bullish.

Compare that to 3 occasions when they all were at 10 day lows:

change in S&P fairly bullish

change in bonds very negative

change in crude fairly bullish

No significant effect except that bonds tends to continue at extremes.



Imagine a world that were perfect. Imagine such a world would have no approximations. No variations. No risk.

Such a world would have no humans, but only pre-destined robots that appear to be humans. Such a world would also have no opportunities. In such a world, enterprise would have no value. It would certainly be a boring, unchallenging place. Such a world would have no incentives.

So we should rather feel happy that we live in an imperfect world that makes us perfectly human, offers opportunities, and incentivizes enterprise. Uncertainty should never be eliminated. If it were possible to eliminate uncertainties it would be a world of the living dead.

Well, if uncertainties prevail, the only choice we have is either switching off for a while from active risk to passive risk and then switching back on. Risk cannot be eliminated. From choosing styles, instruments, level of exposure we are only able to make a choice to believe we are better off handling one type of risk over another. Returns originate out of risk and not vice versa, since whether or not there are prospects of any returns, risk will always be there.



 In music, space is very important. The underlying beat can be implied. The space between notes and phrases is as important as the notes themselves. Modern hip hop has a lot of musical space. In the 80s the mixes tended to be thick with no space. It was a wall of sound.

I've been thinking about the spaces between vol events and their distributions. They can be as important as the moves the themselves because of timing, leverage issues.

Peter Pinkhaven writes: 

Somewhat unrelated, but I think the study of changing cycles and tastes is important.

Pre 2005, most hip hop music was sampled. The mix had an aesthetic and sonic ambiance that was very hard to emulate from scratch in modern digital studios– as most records that producers sampled from were originally cut to tape through dozens of vintage analog mixing desks and compressors, before being cut to vinyl. Producers would record open spaces of sound into these into 12-bit or 16-bit samplers and then loop them. They would go to find a drum break — some common ones are Skulls Snap's its a new day, California Soul, Led Zeppelin's When the Levee Breaks.

Creativity came from a lack of technological ability to manipulate the sound. These samplers could only hold 12-60 seconds of sampling time. In order to get bass lines, you had to cut a kick drum note into the first sine wave, loop it and what you would get is a long buzz. EQ filter the high end of this buzz and pitch it down 12 octaves, you had the authentic sound of golden era hip hop bass.

As computers started to enter the modern studio, these samplers were not seen as useful anymore. The limitations of them became a hindrance. Most sequencing starts and ends on the computer these days. Its not hard to replicate the vintage sonic sound anymore. These factors I think are what led to the open space Mr. Sogi was referencing to.



 Two interesting developments this week in the competition for smart home ecosystem.

Apple iOS 10 update which introduces the Home app. (note, Home is also the name for Google's competitor to Amazon's Alexa.)

Amazon's echo "dots" for those who prefer their Alexa services with a lower profile and footprint than the obelisk Amazon Echo.

Amazon is also offering Echo Dot bundles with Bose, Phillips Hue and ecoBee Thermostats for preorder.

Samsung SmartThings seems to be lagging but they are a bit distracted by the Galaxy Note 7. Perhaps released too early (arguably applies to Apple and Google as well.)

Full disclosure: Despite being a gadget geek and early adopter, I have not yet set up automation in my home for two reasons:

1. Waiting for the ecosystem shake outs–who wants to choose the equivalent to BetaMax and have to rebuy/reconfigure etc?

2. Not yet comfortable with security practices by the providers as well as data privacy concerns (they need to incentivize me to give such delicious consumer data away.)

Dylan Distasio adds:

I have been dipping my feet into the smart home waters. I was an early Echo adopter based on getting a good price on it. I have since picked up a Tap and FireTV on Prime Day, and plan on some Dots next now that Amazon has released v2.0. I am only able to turn lights on and off with the Echo ecosystem at this point, and have it integrated with Belkins WeMo and Philips Hue wireless lights. I also have a WeMo switch it can control that can be wired to anything I please, but I haven't gotten around to going nuts yet.

Regarding 1) I'm not sure if you're familiar with If This, Then That (, but for me, it is the greatest thing ever for home automation across competing platforms and standards. While it is not comprehensive, you can create simple recipes for actions (or use existing ones) as long as your devices support IFTT (many of them do, including the Echo). I use it to control the lights from the Echo, and would highly recommend checking it out.

2) I agree with you on this, and don't have a great answer. I'd prefer to build the system around open source components and have the voice recognition done on an internal server in my house with no phoning home, but I've given into the dark side.



 Emerson state polls for Colorado, Georgia, Arkansas and Missouri.

The "news" is that Trump is now up 2 in Colorado. The poll has a MOE of 3.4.

Reuters-Ipsos now has "high confidence" that Trump will win Vermont. Their current Electoral Vote prediction is Trump 243, Clinton 242. They rate Maine as a "toss-up" and do not predict Rhode Island because of insufficient data. (General commentary has recently said Trump has a chance in R.I.)

Their 60% turnout model has Clinton winning the election by 13; their current odds are Clinton 3:2.

anonymous writes: 

OK but Rhode Island is the most liberal spot in the country. It's not even worth looking there. I don't think it has voted Republican since 1908.

I live in Manhattan and believe a terrorist did the new work. The Rep was not my candidate, but he is now. My mother's family built the wall here. I am no stranger to work.



 Centuries ago, sailors on long voyages would leave a pair of pigs on every deserted island. Or a pair of goats. Either way, on any future visit, each island would be a source of meat. These islands were home to breeds of birds with no natural predators that lived no place else on earth. The plants there, without enemies, evolved without thorns or poisons. Without predators and enemies, these islands were paradise. The sailors, the next time they visited these islands, found the only things still there would be herds of goats or pigs. Build your bridges slowly, and don't burn them.

Victor Niederhoffer writes:

I look around 3 times and wait for Dr. Jov to correct.



 There are only two rules for a successful education: (1) have parents with high IQs and (2) have teachers with high IQs. I leave it to each of you to determine what the cumulative score is for your particular situation.

As for educational systems and testing, always remember that they are designed for the "norm" - the roughly 2/3rd of the test takers who fit nicely in the middle of the presumed bell curve. The curve for skills is not, in fact, in the shape of any bell known to man; but the political demands for education are, and always will be, a perfectly symmetrical one.

If tests were used and designed properly, they would not be for "grading" at all; but for diagnosis of the particular students' skill levels in very particular subjects - not "math" but numeracy (how easily a child memorizes times tables), spacial geometry (fitting blocks into holes), visual pattern recognition, capacity for abstraction and so on. Of course, selling such tests to publicly funded schools will and always has been impossible for a number of reasons.

Good luck with your struggles and believe in your children. (My particular good fortune was to have scarlet fever as a child so I missed the first few years of indoctrination and was able to teach myself to read and write with the help of my older sisters when they came home from middle school. I also had the absolute loyalty and affection of our father.)



 In the Industrial Revolution in London many new workers came to work for pennies. The Royal Mint did not want to be bothered coining small change, but it made it difficult to pay the workers. A private mint began minting pennies and became the de facto currency to pay pennies to the workers their meager wages.

Now, $100's are almost too small to carry enough cash for traveling and business needs. I had difficulty spending 500 Euro notes as most establishments wouldn't take or break them. Credit cards and other forms of money are more common but with a large vig. Bit Coin if it becomes more popular and stable seems like a good solution. When I was in New Zealand I had to go through some gyrations to buy from private parties, or transfer money funds through banks to pay private parties. Each time I had to pay quite expensive transfer fees and commissions to transfer funds and to convert currencies.

An international currency that can be split small, or transferred in large size and move large amounts internationally would be very beneficial. Negative rates add to the vig of holding cash. There needs to be a better currency.



 "There is a tide in the affairs of men, which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures." - Shakespeare

Jim Sogi writes: 

The connection between tides and earthquakes allows some degree of prediction of timing which was difficult before. As with markets, it's not so much whether, but when.

Richard Prout writes: 

Well a guy in NZ used to love doing this:

Everyone says he is a nutter.

I read a tiny bit of related science and it actually did seem to suggest more quakes due to global warming and water pressure on plates, and also big tide issues.



 Today is the anniversary of Jay Cooke and Company's bankruptcy in 1873, after failing to secure a government loan. But what seems to me most memorable is the fact that Henry Clews advised Grant NOT to make the loan to "save" Wall Street, even though it put Clews' own fortunes in jeopardy.

The Clews family is an extraordinary clan.

Henry Clews

Elsie Clews Parsons

Henry Clews Jr

Henry Clews Museum



The Autobiography of Frank Tarbeaux is well worth the time. It was a great recommendation from the chair.

I like how he found out that horses with a weaze, a lung condition in the east could be bought for $25 and then freight trained to Wyoming and cured by the mountain air and then sold for as much as $500 depending on the quality of the stock.

And that if you wanted men to play cards after dinner serve burgundy since a man will like a warm and soothing feeling that yields to the idea of cards rather than serving champagne which gets a man worked up and wanting to stretch his legs looking for ladies after the meal.



The normal state of affairs is that 1-month expected volatility (i.e. VIX) is lower than 3-month expected volatility. In many ways this is similar to short term interest rates being lower than longer rates. The logic is that a lot more grief (random or otherwise) can happen over the long term and the market prices that in.

Let us suppose you believe that expected volatility is forward looking (the standard belief). Should you happen to find yourself in the (less common) situation where the market has priced 1-month expected volatility higher than the 3-month, the logical conclusion is that the market places a higher risk on the near term. Since higher levels of expected volatility tend to be bearish, your subsequent conclusion is that the market will get its butt handed to it fairly soon.

Hey, that means you could simply take the difference of the two expected volatilities. Sounds great, but the levels of 1-month and 3-month expected volatilities are not directly comparable. To make them comparable the geek/data monkey has to normalize them over the most representative period. To further complicate this, the last item (the representative period) is never static, but variable. However all of the above are minor items that can be dealt with.

Now the question is: Why am I telling you this NOW? Go figure.

N.B. I am deliberately choosing not to show this in chart form.



 In honor of new member Richard Prout:

"I've known scores of men who were unable to wait to win. They are too impatient. They want to do everything all at once. When I was racing my horses, all over the world I always figured there was plenty of time. I would be out there with them at crack of dawn watching them. And I would see to it that they lost races until their prices were right. I didn't care how long it took. But when they were right, and I knew they were right, I got busy."

The cowboys and soldiers fought when Frank wasn't taking their money in cards. "The odds were all in favor of the cowboys. The soldiers nothing but city boys, and didn't know anything about firearms except what they were taught in the army. The cowboys were all gun fighters. The cowboys filed down their triggers until they hung on a hair, just being discharged by pulling back the hammer. The solders guns were hard on the pull, a necessary army reg to prevent the poor gentleman from shooting each other by mistake. Lots of soldiers were killed". "There wasn't any law except guns unless a man shot someone in the back or got caught stealing horses. A man or two was killed, and what could be done about it? Nothing. The army could just charge it to profit and loss."

"The women liked to gamble. And they were all wild about systems. Of course it is a mathematical fact that no system can be built to get around the zero the percentage always must be in favor of the bank. In Monte Carlo there is one zero in roulette and here there are two zeros. Of course for a professional gambler like myself the casinos would be foolish places to spend my time. I gamble only to make money… when a hand of cowboys came in and with their gold dust, or sold their cattle, we would sit up night and day spelling each other until we had cleaned them out. I never put a shovel to the ground during all those mining fevers, and I saw them all except the great gold rush of 49. And I wasn't born then."



 "Chinese Billionaire linked to giant aluminum stockpile in mexican desert"

This is one of many ways to get capital out of the country, Ken Rogoff highlighted others in an article awhile back.

I am not in full agreement with the sanguine view on NZ, China, etc. for a variety of lengthy reasons but I thought this piece interesting.

Vince Fulco writes:

As an aside, my sample set is small since I am growing my network with Chinese who are in Toastmasters or employed by foreign firms, but I have rarely met a harder working group of young people. Most are required to work ridiculous amounts of overtime and still find time to go to English language schools, Meetups, Toastmasters like professional organizations and the gym/yoga/run once in a while. And from what I have been told by a few western employers, hiring people with advanced degrees and strong professional/personal motivations costs peanuts. That having been said, they are no fools and will jump ship for a small increase in salary. Loyalty means nothing if the employer is going to underpay for any length of time.

Maybe I forgot what it means to be young and give everything to an employer/cause/dream. The bottom line is underlying the grossly inefficient state-owned enterprise system are some stars in the making benchmarked on a world scale who can be hired for a relative pittance.



This is a great article: a modern tale of fear and rescue.

'Steve Moon, 24, was on a normal mission to lure red fish using cut bait near Burnt Store Marina. Instead, he was nearly left as the bait, stranded and surrounded by sharks.

"It wasn't a big deal until I counted 10, and they kept getting closer and more aggressive, getting within a foot of me," Moon said.'

Florida man rescued after being surrounded by 10 sharks By Tony Sadiku



 Bertrand Russel's sage advice is a two minute meal for a lifetime.

Stefan Jovanovich counters: 

Fortunately, by that time, the old fart didn't have that much longer to live. Why does anyone ever believe anything that a communist ever says - even the ones who later recant? Russell ignored the central facts about Marxism for almost his entire life and believed that "communism is necessary to the world". He criticized the Soviet Union but that seems to have been primarily the result of Lenin's being uninterested in Russell's own genius (they met in 1920 when the philosopher went to Moscow to see what wonders had been wrought by the "communist experiment"). To the end of his life Russell believed in and praised the tyranny of experts. That seems to be the vice of very, very smart people; they cannot understand how or why all the stupid people should be left to be free to muddle through their own individual lives.

That sentiment was behind Russell's belief in his own racial superiority: "It seems on the whole fair to regard Negroes as on the average inferior to white men, although for work in the tropics they are indispensable, so that their extermination (apart from the question of humanity) would be highly undesirable." He wrote that in 1929. When he discovered how much that opinion went against the grain of good Leftist doctrine, he did his best to pretend he hadn't meant what he wrote and that, in any case, he was only discussing the question of environmental conditioning.

As for his advice about study and school, only someone born a Lord could be so ridiculous. No one who goes through conventional education is allowed to ignore what the school teachers "wish to believe". If they persist in the delusion that they should only ask "what are the facts?", the smarter they are the less likely they are to make it through. Nora's favorite Physics professor at Cal dropped out of high school in the 10th grade because, as he put it, "I could either go completely crazy or finish". Russell never once in his life faced those hurdles so, of course, he could give people the kind of advice that regularly got people shot everywhere that Marx and Engels were part of the curriculum.



 In Australia, the best trading story I know is in Following the Equator by Mark Twain. The gist is that Cecil Rhodes started his fortune by catching a shark in Botany Bay. The shark had eaten a German spy in the North Sea when war broke out between Germany and France. The spy's diary was in the shark's belly and Rhodes immediately cornered the wool futures market as England would no longer be exporting wool. One thing led to another and Rhodes soon used his stake to buy his first diamond mines.

As an aside, to take a page out of the book of all the world travelers we have, my favorite botanical garden is the Rhodes Gardens in Capetown. I like the Gardens in Hilo, Hawaii also and will buy a tree there for Artie. Through the spec list I met a good man, Ken Roman, and I now have a beautiful bench in the Bronx Gardens: "In honor of Artie and Elaine and their love of books and nature," looking out at the stand of tulip trees from the 1890s, and the library and Ken's Roman Pavilion Gazebo. One thing leads to another.

A favorite thing to do when trading was going very well in the old days was to take Laurel or Susan (never together) to the Roman pavilion and read a 100 year old book about markets there surrounded by the smell and sight of the trees. One apologetically notes that "The Autobiography of Frank Tarbeaux is only 86 years old. A spate of such books was planned in 1929 and published in 1930.



 I just posted that Gary doesn't know one book game in chess but beats me and Bill, a 1700 all the time. He's an athlete and doesn't know how to lie or cheat like the others. He has common sense as his answer showed as both combatants are using our ammo. He doesn't have 30 secret service or handlers following him around like the others. As he said, "he'll just try to be smarter in the future". But is it smarter to know these jeopardy questions thrown at him to humiliate him. I'd put his IQ at 160, probably the equal of his partner who knows all the pres's of each country, and speaks Greek and Latin the way the 36 in his family had to do to get into Harvard.

Jeff adds:

Remember that Trump doesn't know what the nuclear triad is and the harridan cattle trader didn't know what the letter C in an e-mail header meant. The termagant also didn't know that Libya is having a civil war, one that she started. Gary shouldn't know what Aleppo is as his concerns are to stay away from foreign entanglements.

Charles adds:

A colleague suggested that a good comeback would have been "Look, my intention is to not start wars, so that Americans won't have to know the name of every war ravaged hamlet on earth."



Arizona Frank who did much turf training and punting in Australia would berate all his jockeys when they tried to win. He insisted like Bacon that the only way for him to make a reasonable return on his stable was to make his horses run bad in the races while he prepared them to win so that he could receive proper winning odds when he bet on his horses. How much like a market that looks bad.



Here is a story I trust you will all find most useful and informative. I have not figured out how to game the Whole Foods Market system yet, but this story gives away some of the good tactics that work in most shopping cart checkout stores.

"How to Pick the Fastest Line at the Supermarket"

anonymous writes: 

There are similar tactics in the TSA security lines. Avoid lines with kids and old people and wheelchairs. Avoid lines with ladies with lots of bling. Best is to get TSA pre or priority or first class lines. One trick is to use a different gate portal. For example, the line at the end of the terminal in Honolulu had a handful vs an half hour line in the middle. Another trick is to go to the International Terminal and walk back to domestic. The lines at international are empty during mid day as many Intl flights come late at night. A good thing if you have time is to come very early for the flight and check in early. Even better is to ride a private jet. 



 Not market related, but useful if true:

The overly long article makes the case that:

1. It is severe overkill to be changing your oil every 3,000 miles. 5,000 may even be more frequent than necessary–try 7,500.

2. If you use Mobil 1 Extended Performance synthetic oil, you can stretch it out to 15,000 miles.

3. Not included in the article, but I recall a big study by Consumer Reports that came to roughly the same conclusion. The experiment was done on NYC taxi cabs (iirc).

I hate changing oil and had been thinking of how great it would be to have a Tesla for that reason. But I could live with once every 15,000 miles.

anonymous writes: 

I think you can make an analogy here with time, risk, and energy spent on unnecessary trades that among other things, don't meet certain criteria, are part of a preset dogma that doesn't take advantage of market price movements, use of energy, capital, etc. that could be used for other activities, etc.



 I just completed a drive from Lewistown, Montana to Miami, Florida going through the Dakotas, Minnesota, Wisconsin, Michigan and then dropping South. Here are a few of the things we noticed.

The most highway patrolmen pulling over people was in Ohio. So many we googled it and found that in fact Ohio gives more tickets than any other state combined the ticket giving business is $6 billion a year revenue to the states.

I was amazed how few signs I saw for Clinton or Trump, certainly a scarcity of them. The Trump signs were always very large and homemade. They were not the traditional poster signs given by the candidates. I find this very interesting. It probably marks the intensity of his followers.

The price of gasoline varied from 3.27 a gallon at the airport in Miami to $1.84 in South Carolina. On average we paid 2.00 .Lots and lots of semi-trucks and discovered they get paid about 45 cents a mile up to 60 depending on the goods they are delivering and a few other things. So for my 2,500 miles I would have made $1,250; not easy money at all.

I have also had my fill of talk radio, but it can be helpful when getting sleepy. I found talk jocks I very much disagreed with and listened to them. Stayed awake with no problem.

Happy trails to all.



 "People in Los Angeles are getting rid of their cars"

Uber and Lyft have already devastated investments in taxi medalions. Their ride sharing applications will cause the car manufacturing industry to shrink from the current peak. Replacement parts may increase as the average fleet wears out rather than ages out.

Watch LA traffic to determine if the increase in ride sharing causes congestion to actually decrease. A decrease in congestion may result in a decrease in the demand for transportation infrastructure, and lower profits for specialty construction equipment and contractors. (I tried to convince the local county government not to fund the extension of DC Metrorail and let software apps handle the growth in travel. Obviously, I failed to convince them.)

Be careful with investments in toll roads or toll road bonds (short opportunities?). Income of parking company REIT's may also suffer at some point, but this may be hidden by capital gains if interest rates remain below market clearing levels.



 Lately, I've been studying a lot of close up magic. Knowing how magic works gives a glimpse into many market behaviors. I've realized that the market mistress is the best magician ever. That being said, Jay Sankey provides the best magic tutorials I've ever seen on Youtube and I recommend that you subscribe and see how "in your face deception" really works.

Here's a classic trick that will fool anyone, and this guy is the best. Without any equivocation, I will say that this is the most elegant card trick I've ever seen. (As an aside, I'd fast forward the video first to 17:00 to see how the trick in full to gain perspective, then back up to the beginning to see the behind the "scenes"). This will be the best 18 minutes you ever spent learning something new.



 There are some nice part whole fallacies in the article below. And one should comment on the one thing he knows about Pouille and Nishikori have beautiful games but their serves aren't good enough to win. The serve is key to the game, and the court is so fast that there is little left for good all around players like the aforementioned. The key to the serve apparently is a loose arm and body and a strong wrist snap from a high toss. I like those who try to hit it exactly before it descends i.e. when it's moving at 0 velocity. Nadal I knew would lose and he can hardly hold his serve anymore and his grotesque strokes wear the body out much faster than the flowing one so his career is over. The two handed backhand seems to be the only one that will return a fast serve effectively. Everything depends on the serve and a good way to practice it is to serve from a sitting position. Interestingly Arizona Frank in gun fights often jumped to a sitting or side position or suggested that there was someone behind his adversary in his many gunfights.

"Keeping Score: Key to Winning at the U.S. Open Is in the First Four Shots"



One has had pleasure of reading the autobiography of Arizona Frank and if he isn't the spitting reincarnation of Jeff I don't know. He played every scam, known in those days as "gyps" in the book especially the minister horse trade, the race walking trade, the sawing off the trigger scam (a good way to kill someone), three card monte, and many others. He killed many a man without compunction but gave up drinking at 75. Almost all of the gyps are quite comparable to those we see in the market. He had the luxury like Marty Riesman of being the son of a bookie, in this case the most astute horse trader of the plains and he could tell just by sitting on a horse what ailments it had. He liked to buy horses from those trying to cheat him, and he never let them know he knew of their fraud as that raised the price when the fraudster knew he knew. I wish I had 1/10 the knowledge of Arizona Frank regarding frauds as it would have saved me hundreds of millions. So many of those that have defrauded me have used variants of the Gyps that Arizona Frank wrote about.

Here's the start of one of Arizona Frank's best gyps: 

His newspaper ad.

"A Widow Lady…. Will sell at a great sacrifice the cotts of her deceased husband's sporting stable, consisting of the fast, valuable and well known road team orange boy and blossom. Orange boy has traded the mile is 22 1 blossom at 225 and double to pole in 230. They are six year old and perfectly sound, beautiful dark bays and black points, 115 hands. They drive together like one. They will not be sold for turf purposes. Will also dispose of trotting wagons, training cart, fancy blanket and harness. In fact the complete contents of a gentleman's driving stable. Michigan avenue"

The ad proved itself to be as attractive as I had intended, not only in luring prospective buyers for the horses, but also in drawing suitors for the widow lady."

Frank had bought the horse for $25 bucks at the stockyard and dressed up as a minister to shoo away all the potential buyers who wished to use the horses for "turf purposes".



 The one particular breed of "value" investor I hate most are those who develop vendettas against particular "overvalued" stocks of companies that are changing the world. What bugs me is their attempt at moralizing. It is a crusade to prevent investors from being ripped of by such "charlatans" as Bezos, or the Priceline founder, etc who are among the greatest geniuses of retail and business of all time, perhaps the greatest in Bezos' case. Or it is the "Tesla bears.' Fine. Apologies to those here who hate the company. Yet. It's an awesome product.

If in the process of a leap in technology, better things, a few speculators get burned, so be it. Why not let speculators fund advanced research on business concepts, technologies, etc. Overvaluation is a GOOD thing but for naked fraud, and a tremendous number of those phonies are offset by one Bezos from a "good for society" prospective.

The next great "fraud" of an overvalued company with an amazing product, great customer satisfaction, etc, that the usual bears hate–having studied the "accounting metrics" till their poindexter heads are nearly exploding–I resolve to go long. Reasonable odds they will be crushed given I can only lose 100% yet might gain 20,000%.



 Jonathan Tepper sent around the various "Value" gurus checklist's for investment in a company. Some useful info, however, I've learned investing has a lot of jazz elements, the notes between separate the winners and losers. Nothing is truly useful if everyone knows it, which is why so much of TA and accounting fundamental stock scans and the like that are now given away for free by brokers to lure in the public have no chance of working more than a coin flip and will be totally useless soon. The same may be said for much of the quant algo VWAP world. New paths are needed. Peaceful Labor Day to all.



 In retrospect, largely, my life has been tilting at windmills. And that may not have been such a bad thing. Being in a battle keeps one focused on what is immediately in front of you and gives you great incentives to wake up tomorrow morning. So while others may think whatever you are engaged in is simply, what I have done, tilting at windmills, nonetheless it can be very helpful and important in your own life. The hell with them in other words. Years ago one of my friends said that I never stopped to smell the roses, I was always working, and that I was missing out on life. My answer to him was that I just had different roses to smell.



 I was dragging my feet in the canal the other day, watching four young men prepare a fire for a common pot of what we used to call hobo stew. That is, they were talking about how delicious it was going to be, while a single girl gathered firewood. I asked her in private why she allowed it. She replied, "Does not the one who serves control them?" Then I enjoyed what unfolded. The girl prepared the stew of beans, potatoes, tomatoes, and cans of this and that. With full bellies, the men doled out what they had come for, methamphetamine for sex. Then, one by one, they fell asleep poisoned by the stew. The girl methodically fleeced their wallets and walked away singing like a bird.

Pitt T. Maner III writes: 

Looks like SC has been taken over by modern art since I took the tour in 2014. At that time a German film crew was visiting and producing a short piece about Salvation Mountain and they generously provided free beer during their overnight stay.

A truly interesting collection of people reside in Slab City. A patient interviewer could easily write a book– "Slab City Stories". Bring a sand wedge though if you want to play golf at the homemade golf course– and to keep various things at bay.

SC has a MASH-like feel as community members (a fair number ex-military) gather around cocktail hour to watch Air Force jets take practice runs and drop bombs in a valley several miles to the east. The various metal parts and bomb guidance fins left are often salvaged for profit.

Small drone footage is now available on youtube also that captures some of the ambience.



 We Indians had a "schumpeter day in a decade" here in India on 1st September, with Mukesh Ambani of reliance announcing that the voice call on Jio (to be launched telecom operations of reliance industries) will be charged at zero.

I remember my employer provided mobile phones back in '97 charging at 33 INR per minute (1.2 USD at those days) for voice call.

Now that it is at zero INR, but charged at 50 INR (or 0.75 us cents) per GB.

Roughly 6 mb per minute, it's around 2.5 /3 hours of voice call over Jio internet per 75 cents.

With all that background I'm open to accept bets at 1in2.

"By 2026 the data downloads will be charged at zero cents but apps using them".

P.S. India is eagerly awaiting an alcoholic beverage launch by Mukesh Ambani called Pio (drink in hindi).



 What little I know about living longer can be encapsulated with just a few bullet points.

1. Choose parents with longevity genes. That is probably the best thing you can do.

2. Eat wisely. I've been taking vitamins and mineral supplements for 40 some years am convinced that you need it to quench free radical destruction which is the main reason for taking the supplements. Moderate consumer of alcohol. Rarely hard alcohol, wine on occasion but am cutting back on that recently.

3. Sleep is something most people overlook. As I am getting older it seems I need more. Sleep has gone from 4 to 6 hours a night to 6 to 8 hours a night, and it is a disturbing to me but seems natural. At least not much I can do about it.

4. Telomere length is one of the best predictors of longevity so anything you can do to enhance and stop telomere destruction will be helpful. About four years ago I began taking a supplement called Astralagus for that end and when tested I'm in an age group of people about 40 so I do think this has made a substantial difference. This is a project originated by Yale Hirsch and I have done additional work on my own. But supplements are not enough you still need

5. Exercise. There I have avoided the idea of all things in moderation and gone to extremes; 80 some marathons. Way too many… pretty stupid in retrospect but fitting with my general psychological makeup I suppose.

6. The absolute best predictor of how much longer you're going to live is lung function based on the Framingham study. So big question here. How do we increase lung function, what form of exercise does the best job of that?

From what I've read and my own personal experience, high intensity training (HITS) or (PACE 8) are the best. This means short intense blasts of 10 to 30 seconds of almost all out sprints, weights, swimming, whatever it is but short intense exercise is far better than hundreds of repetitive miles of running or biking. I've been doing this exercise approach for the last 10 years or so and I believe it is also one reason why my telomere length rates so high.

I've never been gifted athletically the only thing that helped was to stay in the game… To persist. Seldom have I been number one or number two. I can hang in 3rd to 5th position but certainly I have no great athletic ability. All that is help there is to work very hard at it… So I get extremely upset when I see gifted athletes pass away their abilities through lifestyle choices or not working at it.

I have looked at things like fasting which is supposed to increase longevity, but I point out the number one advocate/practitioner of that died early and it did not seem to be an appealing lifestyle.

7. What may be the number one enhancer of longevity is to be in love with something… Your wife, your career, your hobby some one thing that just drives you crazy that you really live for.

Well, I'm certain I've rambled on long enough, considering the hundreds of books I've read seminars I've gone to on longevity and such– not much of a statement but that is as I see it.

I also have a little different take on the medical profession. I try to stay away from doctors. Only go if there is an acute issue. I'm on no medications, have blood workups done every two years and occasionally do other tests but these are all self-directed. In short, I think monitoring and being responsible for your health works better than turning your health over to the medical professional. Not that I wouldn't do that if there was a major issue but for the most part the daily maintenance function, responsibility, is mine. I own that and I work really hard on it so I study, I read, I don't trust a lot of what I read which means I cogitate before I take action anymore. It used to be the other way around. 

anonymous writes: 

Interesting about the astralagus. My sister's good friend and college classmate is who some consider the US telomere guru. Dr. Ed Park has some very expensive astralagus that is not the sort favored by the senator, I see. his books might prove helpful though.

The idea I like is following something one loves. I have watched Larry look for Noah's Ark, then for the trading Holy Grail and now for the fountain of youth. I follow all his pursuits with wonder and admiration.



 The Final Meeting of the NYC Junto, organized by Victor Niederhoffer since 1985, will take place today, Thursday September 1, 2016.  This Junto has lasted just as long as the original in Philadelphia.  Thanks to all who participated over the years and made it such an augmentative experience.

Today's meeting will feature Andrew Bernstein who will speak about The Heroes of Capitalism. Meeting starts at 7:30pm, speaker begins at 8pm. Location is the General Society Library, 20 West 44th St. (Between 5th & 6th avenues). New York, NY. All readers of are invited to attend.



 Drug profits appear low to support so much deadly crime.

"Chicago's West Side overrun by drug markets"

"The shopping list, according to police affidavits, includes sawbucks, which is $10 dollars, "rocks" of crack cocaine, sold $14 to the pack, or "nickel blows" of heroin for $5 dollars apiece. Street dealers typically earn $20 or $30 dollars for every $100 dollars they turn over to their bosses."

There have been attempts to figure out economic solutions.

Here is an early paper that tries to put numbers to the trade: "a systematic miscalculation of risk" 

"This paper provides the first detailed analysis of the financial activities of an entrepreneurial street gang."



 Whatever your thing – speculation, athletics, or business – sit for ten minutes and graph your past to a better future. The horizontal axis is time and the vertical skill. The line assumedly rises.

Now to see where it is going, how fast, and why. You will note jumps in the line over time, and try to attribute them to a cause such as a new trick, data, or advisor. Put dots on the line and write tiny reasons for the jumps.

Now you have a graph of where you have been. Look off the invisible future end and imagine what old tricks to repeat and new lessons to add to reach future gains.

There you go on your way to profit in finance, sports, or anything that follows a performance due to ability streak.



Growth is created by increased productivity, population, good weather, technological and scientific advances, robots and computers extending and increasing human capacity and output, increased confidence, immigration, and longer life spans. Japan is the poster child for no growth due to decreasing population, no immigration, and low creativity.


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