Sep

30

 I've been watching the news observing the enthusiastic reporters. The rain is hammering them, the wind is ripping, and they are about a couple hours away from a supposed 12-foot storm surge. One reporter for instance is standing in Key Largo, which seems to be about 90 miles away from the eye of Irma. Not sure he even knows where he will go once this thing hits.

I guess they have these guys sitting on the bench waiting to get called up and sent into action. We could be witnessing a form of hazing or simply a rite of passage.

This is also apparent in some of the resorts you venture to during holidays, an analogy is the omelet station attendee. That role seems to be the very earliest of many steps towards hotel management, akin to "Hurricane Duty."

It's one thing to step up to the omelet station with that tall white hat, but putting down your savings and competing against some of the shrewdest institutions is quite the challenge.

I have learned that there are no minor leagues to trading.

Sep

30

Should an investment committee allocate more money to a manager who has been underperforming recently? Over a 20-year span, entire stock market return was earned on just five days.

See my review of Charley Ellis's "Winning the Loser's Game".

Sep

28

The NY Times and Bloomberg wrote about this new paper (August 2017) that purports to show that Tbills outperform almost all stocks over the long run–and that a tiny number of stocks account for all of the returns. I just read it. I recommend that you read it too–since it is counter intuitive.

I see several unrealistic/unspecified methodologies in this paper including (1) equal weight holdings from IPO to delisting of every stock; (2) no clear explanation for how the capital from mergers, acquisitions and spinoffs are handled; (3) where the new investor capital comes from to buy fresh IPO's and where the cash goes when a company is acquired for cash. I also didn't study his statistics carefully. Since most every company goes through a life cycle, it's intuitive that most will disappear or be acquired/acquire, so I need a better explanation for the investor's portfolio management/cash to really understand the practical. What other problems or unique insights do you see in this paper? Something just feels wrong here.

Do Stocks Outperform Treasury Bills?

Hendrik Bessembinder, Arizona State University. Revised August 2017.

Abstract:

Most common stocks do not. Slightly more than four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns, inclusive of reinvested dividends, less than those on one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed companies. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness of multiperiod returns arises both from positive skewness in monthly returns and because the compounding of random returns induces skewness. The results help to explain why active strategies, which tend to be poorly diversified, most often underperform market averages.

Victor Niederhoffer writes: 

This ridiculous paper from anti stock which I haven't read and goes counter to the carefully worked and accurate work of the triumphal trio duly reported in all their yearbooks is an absurdity. Of course most stocks will underperform. That's the nature of cross sectional returns. The distribution has quite a few good winners. It's probably true of a normal distribution also. Certainly for the kind reported in the NYSE year book. Certainly for the stocks in any variant of the pareto distributions. How far will they go to undermine the value of equities. It's so absurd I can't begin to say how it would apply to most any real life distribution in any field like IQ's.

Stefan Jovanovich writes: 

Index investing works because it allows people to avoid the risks of trading; and most of us are lousy traders.

Enterprise ownership beats public investment in terms of ROI (not "Radio on Internet"); but the public markets offer the only way for entrepreneurs to cash out. We still own one of our start-ups; its annual payout as ROI has been greater than 40% annually for the last 38 years. But, we cannot not "cash out" by selling it to someone else. The actual market for private businesses that makes hundreds of thousands, not millions, does not exist. We have been able to "retire" - i.e. extend the life of the business beyond the time we directly manage it - by doing a private variation on an ESOP; our former employee now runs it as a part owner.

As for the tug of war between "capital" and labor, we have been lucky enough to escape Marxism almost entirely. The cash flow from the business is distributed using the New England whaling ship model of "shares". Keith, the captain and part owner, sails out into the unknown every month and we get our cut on what the barrels that he lands in New Bedford. What we all share - Keith, Eddy and her Mom, your pontificating correspondent, and everyone else in the crew - is a 19th century American sense of equality. We are all equal members of the enterprise in dignity and responsibility and everyone understands that what people "make" is a function of talent and timing, not innate worth.

P.S. Every business failure in my life has been a situation where the people in charge (including me) thought that talk about the business as "family" and a mission statement on the web site would do the trick. It didn't; it can't. 

Rocky Humbert writes: 

I read his paper again and was able to tease one critically important fact out of it.

Page 15 and table 2A/Panel C: 70.5 % of the stocks that are in the largest decile by market cap outperformed the Tbill with a 1 decade horizon. And 81.3% of those stocks had a positive return. It's only for the smallest market cap groups that a substantial percentage substantially underperformed Tbills. Look at that table carefully and you can look at your own portfolio and it all makes sense.

In essence — if you own the biggest companies, you have beaten the Tbill (as we know from experience), but if you own the smallest market cap stocks, you have not. This makes intuitive sense since there are only two kinds of small cap stocks — those that start small and end up big. And those who were once big and are on their way to 0. It's a rare and bizarre company that starts small and always stays small!

The press reports and paper abstract are written in a bearish sensationalistic manner. For whatever reason, he chose not to include the key point mentioned above in his abstract. Now that I found this fact, I feel like everything else is noise — except for reinforcing one lesson that I've discovered anectodally: individual price momentum on the way down matters. If you have a stock that was once a $100 billion market cap and is unfortunately now a $10 Billion market cap, you should take your tax loss and reinvest whatever is left in another stock. And not wait for it to go to zero…and definitely not keep averaging down. In contrast, if you bought a $50 Billion market cap stock and it's now a $100 Billion market cap stock, don't sell it because it went up a lot. The skew and history suggest that it will continue to do well. (Until it doesn't).

Sep

28

 Some prefer blocks, most like it crushed, and they all drank the ice melt.

I deliver ice at Slab City out of a childhood habit with mum dragging me around on a Welcome Wagon circuit. It is a decent thing to do, then and now.

I have one of the few have running vehicles, and the others who have them cannot afford gas, or do not have driver's licenses, so I dispense even to them. The delivery is every other day when the temperature exceeds 120F in the shade, which was most of the summer. The daily routine has been to rise like the milkman with the sun, hike a few miles before the sun wrings the moisture out of the air, and then pick up the best quality ice at, in order: the Gas Station, Dollar Store, Cafe, and Grocery Store. It fills the back seat, wrapped in sleeping bags, that chill longer than the best Coleman coolers.

I eat breakfast, and by mid-afternoon, when the citizens begin to stir from afternoon siestas in pools of sweat on their mattresses, I drive to their doorsteps, honk, and yell, 'Iceman!' A face presses against the trailer window like a Graham Wilson cartoon, or they simply kick the door open in request. Sometimes they crawl out, begging, 'Ice.'

My regular deliveries are to seniors, the handicapped, poor, and infirm. I take no advance orders, have no systematic route, and if someone is not home then the next person gets their ice. If there are sacks left over, I distribute them to the first walkers in the heat, that always brings smiles.

Ice on a hot day can snap a person out of a mean state quicker than a cool word. An iceman is someone who sells or delivers ice, historically, from a wagon, cart, or motor truck. The profession used to be much more common prior to the post-World War II spread of refrigerators and air conditioning. In even earlier times, hobos migrated to the northern states to cut and harvest the surface ice from ponds, streams and lakes for freight distribution throughout the country. There are still dozens of ice houses that stored this harvest sprinkled around the Slab City agricultural area. Many of the old-fashion small time routes were bought out in the 1990s by large ice corporations that produce and sell ice to me such as Glacier and Reddy Ice.

The tools of the iceman trade were wires to tie the bags, tongs, and ice picks to chip drinks. Nearly everyone offers me a cold drink after I deliver, before they touch theirs. I decline, sling a towel over my shoulder like an icemen of old a wet piece of sackcloth slung over the right shoulder to support and absorb, as I stand there waiting, dripping, for them to open, and then close, the doors.

Here are examples of the hot recipients:

· A single mom and her two infants

· An Alzheimered metaphysicist

· A penniless urchin

· The bull sperm man deserves an explanation. He takes delivery in an early 20th century 3'-diameter stainless steel bull sperm shipping container that resembles a scaled down Gemini space capsule. The double walls are filled with liquid nitrogen to hold a vat of precious sperm inside. I drop in two ten-pound bags that he says will keep it frozen for two days, and then he'll drink the ice melt with a long straw to the bottom.

· Two senior ladies on the route flash me with raised skirts, and one habitually yells 'The iceman cometh!'

This phrase was made famous by playwright Eugene O'Neil in a Broadway play by the same title about a group of dead-end alcoholics who spend every possible moment seeking oblivion in each other's company and trying to wheedle free drinks from Harry the bartender.

I don't charge anyone for the ten-pound sacks that only cost me $1.75. At the beginning of each month many residents have money, which dissipates like the night's cool air to a financial strapping in the last two weeks of the month as they have prioritized their immediate gratifications. I get a lot more out of this than just money - Some give me books, or sandwiches, ice beavers, or heartfelt IOU's that will never be paid. Every person who weathers the privation of a Slab City summer deserves a medal and psychiatrist gift certificate.

Slab City is unique because there is no one who does not suffer. So many cracked lips and so little ice. They are broken down into two group: those who deserve help and them who do not. I was called a communist for delivering ice, and responded that I only give to those who help themselves, but in the summer swelter no longer can. Suffering itself is not a value, but a person's fight against it is, and the lessons go appreciated. Giving something to the worthy becomes a fair trade to witness his virtue and listen to his stories. The golden moral is to not forget in your misery those who are more miserable and cannot help themselves. Even so, I selected to deliver to those who were suffering the most, or it would have been a full time job toward bankruptcy.

I was like the ice this summer, very important, for a while.

Sep

28

 To limit it to three major concerns, I suggest:

1. Having a significant number of blockchain apps come to market with a viable product

There are some already in production, such as OmiseGo and StatusIM. But more will need to succeed in the marketplace for this to be a fertile area of fintech development.

Some projects to watch are Augur (Ethereum-based), Golem (Ethereum), Gnosis (Ethereum), Factom (Bitcoin), Civic (Bitcoin), Air (Bitcoin)

There is a fundamental question of the viability of these projects as businesses. Undoubtedly, many will fail. Only time in market and experience can resolve these questions.

2. Beyond viability of blockchain-based business models, the more immediate barrier is scalability.

At the moment, the Ethereum network could not handle rapid-fire trading of prediction market contracts on platforms such as Augur or Gnosis.

These issues are expected to be resolved over the next two years through a series of technical upgrades. They will constitute "hard forks", which will probably resolve without any problems, but there is some risk.

Bitcoin has similar scalability issues that will need to be resolved to support apps like Civic and Air.

3. Regulatory and legal issues.

The ICO funding model holds potential for a revolution in capital formation. But most ICOs are in a legal grey area in most jurisdictions.

Favorable regulatory guidance will need to be issued to bring blockchain projects into the mainstream.

Sep

28

 I usually pay more attention to this kind of thing, but sometime last year, the last person alive in the 1800's died.

That seems weird to me and probably to many on this list as there are more than a few of us that personally knew people born in the 1800's.

Heck, I worked in a nursing home in 1985 with a women who was well over 100 years and vaguely remembers her great grandfather who was born in the 1700's (he was well over 100 when she knew him). That seems especially surreal to me…..I have talked to and touched the hand of a women who has talked to touched the hand of man who was alive during the Revolutionary War.

That means that there's a "one person bridge" between me and the time George Washington lived.

The oldest living person alive today (according to google.com) was born on August 4th 1900.

What does all this mean?

Somewhere in the next few years, we will pass a point in time where no one alive today was alive when someone born in the 1700's was still alive.

Here's an interesting article on the subject:

"Who Was the Last Person on Earth Born in the 1700s?"

What does all of this have to do with investing?

Well the market, as Vic always mentions, has a very nice long term positive drift. And it can be a fools errand to try and go against that drift.

The market is reflective of the human condition. As humans, we've drifted from caves, to huts, to wooden houses, to brick house, to buildings and to sky scrapers. The trajectory of mankind is the trajectory of the market. A nice upward positive drift.

But all that positive drift does us no good, if we're caught in one of the violent draw-downs at the wrong time.

Mankind may have gone from being ground-bound to standing on the moon in less than 66 years, but none of that mattered if you were one of the humans that got caught in violent uprising of WWl or the great flue epidemic of 1918, or WWll, or got stuck in a communist gulag, or in Pol Pot's killing fields.

The same is true for the market…the positive drift doesn't matter if you are an average American who worked hard your whole life and saved your money so you could retire and walked out the door with a gold watch on 1/1/2000, because your 401k has skyrocketed into the stratospheres. Or if you were the person who worked through the 2000, 2001, 2002 debacle and retired when your 401k recovered and reached new heights in 2007, only to be shellacked in 4Q07 - 1Q09.

To those people who got crushed in the dot com or housing bubbles, the long term positive drift of the market didn't matter to them anymore than the achievements of mankind mattered to the poor souls who died of of the flu in 1918 did.

Unlike video games, once you are out of the game, you don't get to respawn. You are just done.

And although finances are akin to life, there are some crucial differences. With finances, you can respawn…maybe.

You need the resources and the time…and you need to know how much you can lose before you cross the point of no return.

Sep

26

[A Barron's article, published in 2016, was concerned with a Tail Risk Protection product].

I'm a neophyte simpleton, but it seems to me that risk and reward have a linear relationship. How do you take less risk and get more reward in anything speculative?

Andy Aiken replies: 

He's proposing that far OTM put prices embed assumptions of solvency and central bank competence that are revealed to be untrue in a crisis. This is probably true to some extent. It's similar to betting on #19 on a roulette table month after month, at a casino where the (unlikely) policy buried deep in the published casino rules is that if the lights go out mid-spin, the player is declared the winner.

The payoff for a straight number bet at roulette is 36:1. Of course the probability of a straight bet winning is 1:37, so the expected value of the bet is 36/37.

Tail risk strategies are a bet that the probability of the lights going out mid-spin are significantly greater than 1:37.

The problem is that if a crisis is really severe, then no payoff may be possible.

Did the lights go out because the casino couldn't pay its electric bill (because it is bankrupt)? Did a 3-mile-diameter meteorite hit the casino? Did the Fed declare put contracts null and void, requiring redemption at the original purchase price? This problem is analogous to David Bernoulli's famous St. Petersburg paradox:

The game could be profitable if there were no tail risks on collecting the winnings themselves. Also, although there may be near-term anomalies/market inefficiencies enabling a "value" investment, the question is whether the strategy is profitable in the long run accounting for spreads, transaction costs, and tail risks on collecting the winnings. 

Sep

26

 It takes both rain and sunshine to make a rainbow. It follows the fascinating characters to Slab City.

The summer population is up 30%. They are anarchist splinters of the Rainbow Family of countrywide buses, Grapes of Wrath jalopies, hitchhikers under polychromatic backpacks, and hobos wearing RR and rainbow tattoos. The Rainbow Family is a leaderless, nomadic community of hundreds of thousands.

They pass the old concrete guard house and into sudden peace of mind. They feel where they belong. 'Make your mark!' someone shouts, and they park their car or plant a tent pole, and someone else contributes, 'You are now lost to the world you knew.'

They've spent years being bohemian and sleeping on floors. From day to day, nothing is stationary. They must be, or become, zany to keep on moving, to drift and dance, and keep on moving. They swing into town in a disorder of strewn clothes and dumpster vittles in place of a spare tire in the trunks of their vehicles, spilled cigarette ashes on the floor, shoes that are falling apart, and ready to howl from camp to camp under moonlight.

It is one of those queer little towns at the edge of the world that makes you feel the salt of the residents who make you feel right at home. From this point forward, you don't even know how to quit in life.

Slab City patterns are captivating. 2015 was the summer of the Dirty Kids, who rolled penniless into town, slept in the 'Walmart' dump among the trash that was their treasures, and could only get clean by letting the dirt grow out of their pores, but never wanted to. The next summer of 2016 was of the Hobos, who set makeshift camps behind the Mayor's house, where I walked in one morning, observing, 'There is nothing here I haven't seen before,' and found a way into their hearts. The Dirty Kids and hobos have come and gone, replaced this summer of 2017 by the Rainbow Family.

Their shared fantasy is realized here. They can drop out, live in a mobile home, be a hippie and drive around to festivals and marijuana trims, and have a baker's dozen of children with dreadlocks and nose rings. Hippy is an establishment word for their invisible, underground evolutionary process of dropping out of the TV comedy of American life. For every visible barefoot, bearded hippy, there are a thousand invisible members of the turned on underground. I think that next summer may break the pattern to produce a second Rainbow gathering. Never doubt that a small group of thoughtful, committed and connected individuals cannot change the world; it's the only thing that ever has.

Slab City has everything tempting a hippie utopia: Freedom, cheap living, drugs, sex, music, clean air, nudity, good food, few rules, and a Hotel California sensation that 'You can check out any time you like, but you can never leave.' They consciously or unconsciously like to get trapped here.

They are a hardscrabble group, the toughest of pilgrims to Slab in decades. Most come from having lived on the open road for so many years, before making this outlaw town their Shangri-La, that they have surprised themselves by not moving on. They have endured the summer heat of 115F for fifty straight days with physical persistence - walking back and forth three miles to town - and with mental tenacity - digging holes to live in like desert mammals – and suffering - working days at odd jobs to support their families and pot habits.

One day laborer passed out on the job with his face in the dirt. The SOP is to revive by pouring ice water on the neck, so you don't touch anyone who may start deft, or faking it, to whirl and stab you. However, he was grateful, and rose to work to pass out a few hours later, and again a few hours later with his face in the dirt. Since that day, he has not had to eat any more dirt to receive countless job offers.

Many are here on a spiritual journey. Slab is a pathway to personal fulfillment, because from the first minute of setting foot on his slab the seeker is put to the test to measure his brains and grit. Once that is proven, a few seek enlightenment via the old formula of ascetic experience, deprivation, and simplicity, all of which are plentiful in Slab City.

There is a man here who looks like one of the Monopoly brothers who is said to have 'more money than brains, and he has a lot of money', who was in enlightenment for five straight weeks at the foot of the Himalayas under Ram Dass. Personal growth and fulfillment is the most compelling argument for existence, and Slab City, at the end of the rainbow, is time accelerated toward this goal because life moves quickly by the minute, instead of by the day, as in other towns.

Nearly half of the summer newbies financed their travel as seasonal marijuana pickers. They reached Slab with a few hundred dollars and a stash of potent pot as a grubstake. A few became temp drug dealers, until their stash ran out, and then bought a nice $500 trailer to live out the summer. Most inexpert dealers, however, lost their shirts. One astute fellow took vehicle pink slips, trailer titles, and handwritten poor man's property deeds as security for dope sold. Nearly all of his clients defaulted on their debts, and he became the leading business tycoon with camps strewn with repossessed autos and trailers. Then, one by one, the clients beat him up, and stole their property back, until now he lives penniless and can't feed his dog in its first heat that is supposed to guard his camp.

The Slab economy has doubled with the immigrants. Most of them have become wired on methamphetamines and, like werewolves, vampires, and zombies, get activated at sunset with a puff. There is madness in every direction radiating from the camps and campfires. The cops dread them because they are gypsies, and it is easier to milk a cow that holds still. If they are chased for something illegal, they jump camps until the police give up. The Rainbowers just laugh, 'All I'm gonna do is just go on and do what I feel.'

My favorites are the hitchhikers and knights of the fast freights. Some have arrived with their homes on their backs and not even any food stamps, with holes in their shoes, nagged by their parents, tagged ADH by school psychologists, derided by Uncle Sam, buffeted along the open road, suffered of great privation, and they pad softly in the hot afternoon into Slab City with many smiles. They are the rattling skeletal progeny of America. Many have humbly worked their way up here from nothing to a state of extreme poverty. They have no ID, and will reveal nothing of their past except the footprints in their sox. Many do not go to town at all for fear of being recognized. I put them at ease with a Groucho Marx line, 'I never forget a face, but in your case I'll make an exception.'

Life is a long highway for many of the Rainbowers before they strike gold in Slab City. Suddenly, they slide on their American dream below sea level and hit home. After five minutes on a slab, nobody looks at the rainbow that carried them here.

Sep

25

 40 years ago when one first fooled around with the idea that there was a web of interconnections between markets like the web between producers and consumers in biomes of nature, one concluded that there was always a web between markets, what I called the ecology of markets, i.e. when stocks went up it caused bonds to go down, et al–but the problem was that the web was always changing. In looking back at that hypothesis and observation, doing many recent rests, one concluded that problematically that the observation was correct, and the main problem as far as opportunity is that that the web is always changing. Perhaps this is because of ever changing cycles, but perhaps due to homeostatic activities by the central banks and flexions.

anonymous writes:

1. Most of the money today is managed by AI methods.
2. AI data input is biased toward current decade, to substantial degree.
3. Within current decade, most intraday moves had Bonds suppressed by Equities strength.
4. Bonds are still not far off their ultimate record high valuation; and Equities are on their records.

It would make a hard sell to modern asset allocators to point that 40 years ago Stock fortunes were in lockstep with Bond fortunes. Will ancient history make abrupt comeback? This would make for utter disruption.

anonymous writes: 

How many markets or asset categories make up the web? Just trying to keep it simple here is what I came up with:

1. Equities
2. Fixed Income (Bonds)
3. Commodities
4. Currencies
5. Real Estate
6. Arts & Collectibles

Did I leave anything out? 

Stef Estebiza writes: 

American markets steadily, slowly, go upwards…the markets are opportunistic pathogens…until a bad note of any nature happens, they continue to do what they were doing, in this case they are going up, using the most illicit systems to do so exp-multiple. Panic has been abolished by law…what is it that still has to happen to cause a change? A random nuclear explosion? When you have liquidity and infinite ability to handle any "indicator" as you like (even the debt) what can you expect? The only one would be a collapse of consumption…one of those non-controllable costers from central banks. For now the sun shines, navigates upwards…waiting for Trump…and in the meantime, all the MINCHIATE on artificial intelligence, bitcoin etc…can also stay. 

Russ Sears writes: 

"panic has been abolished by law". Please define "panic" and put some numbers to this. It would seem to me that "panic" implies some over-reaction During the election when it was clear that HC would not win..There was panic…S&P futures down 100… then a reversal by end of day. It would be hard for me to put a market impact number on a nuclear attack, because it would be huge, and probably would be some "panic" at some point. But lack of big down days implies that the market believes it essentially has got it (the future) right. Not conclude that it is being manipulated. It's much easier to get people to believe a malicious falsehood about someone/thing than it is to get people to believe in benevolent falsehoods. 

Sep

22

David Hand's The Improbabiity Principle should go along with a book on multiple comparisons and a simulation program should be on all speculators desks.

Sep

22

 This summer in Slab City fired a heated rivalry between two Rainbow factions: the Nic@Nites and the Fat Kids.

A yearly Gathering of 10’s of 1000’s of peace loving hippies in a National Forest jolts the adjacent communities somewhere in the US. It may be the greatest reminder of alternative lifestyle since Ken Kesey’s bus Further carried his Merry Band of Pranksters cross-country that featured prominently in Tom Wolfe’s book The Kool-Aid Acid Test. The famous bus has spawned mitotically more buses, and many of them have pulled into Slab City.

Rainbow Gatherings are itinerant loosely knit communities of people who congregate in remote forests around the world starting every July 4 and continuing for about two weeks. The Rainbowers on whole supposedly share an ideology of peace, harmony, freedom, respect, and a dash of anarchy for spice. Their goal is to create a more satisfying culture than the one they find themselves surrounded in, and serve as a model for reformers in mainstream society. Everyone is friendly!

The Rainbow camps and kitchens are the basic community units. They may be based on topic, regional, spiritual, habitual, or even dietary preferences. For example, the Kid Village attracts attendees with children, Tea Time specializes in serving herbal tea, Jesus camp offers a religious foundation, and I used to stay at the Hobo camps during four national gatherings because that’s how I got there.

After the national gatherings, the various dozens of buses that form the nuclei for the category kitchens peel off in scattered directions for seasonal locations across the USA. This summer found a half-dozen of them parked in Slab City. The heat was ferocious, with ground temperatures above 150F, but most of the camps endured.

Nic@Nites is a camp that focuses on the sharing of tobacco and tobacco related products. The Nic@Nites hand out cigarettes at Slab City and will drive you crazy proselytizing tobacco wherever they go. Their goal nationwide is to have populated the nation’s alleys with so many addicts that no one will want. Their motto is, ‘If you need a cigarette, we got one; if you got a cigarette, we need one.’

The Fat Kids are another camp who serve fatty foods. They are composed of primarily overweight trust fund babies who eat well, and share their meat and greasy dishes. They’re national goal is a flavor of Herbert Hoover’s, ‘A lamb chop in every pot.’

The Nic@Nites claim the Fat Kids are killing people with fatty foods; while Fat Kids say the Nic@Nites are killing people with coffin nails.

The locals are enjoying the sport in Slab City, and fuel the flames of the butts and steaks by setting each group up to skirmish. They furtively commit arsons and burglaries, and tell one group a member of the rival one did it.

The showdown persists as both groups endeavor to attract newcomers wherever they go to help at their kitchens by giving away nicotine and fat foods, which was not covered in Vance Packard’s classic The Hidden Persuaders. The Fat Kids waddle offering you waffles, as the Nic@Nites wheeze offers of cigarettes.

All I can say is, sometimes laboratory animals, sales customers, and youth don’t know what they want until you show them. If the Rainbowers on whole would band together instead of bicker and advertise, they would quickly by sheer united numbers seize control of the Slab City economy, politics, transportation, and strong arms.

It isn’t so far-fetched. In astronomy, a binary system occurs when the orbits of two stars we see twinkling above are linked because of their gravitational interaction. There have been analogous relationships in history when an era is shaped by a rivalry and then combination of the two superstars. For example, Thomas Jefferson and Alexander Hamilton in early American government. The result of the showdown could be a binary win-win for a better Slab City.

Sep

22

 There are two ways to acquire the necessities of life:

· To produce them, or

· To plunder them

When plunder becomes a way of life for an outlaw town or group of men living together, they create for themselves a legal system that authorizes it and a moral code that glorifies it. The end result will be an escalation of theft until everyone steals each other silly. The only explanation I have for this condition in Slab City is that though stealing from each other is a silly game, it keeps the residents occupied. It's like a party university.

The heads of class look at stealing as a profession. It is a job where they devote time to refine the skill needed to maintain a constant level of success for a steady income. They normally do not spend a long time in one place, but are always scouting new locations, until landing in an outlaw town where there is a large turnover of marks.

The summa cum laude thieves and burglars are precise and logical in their actions. They have openings, middle, and end games like board contests. The winners do not hold their criminal acts in such high esteem, except they take pride in their work, and look down their noses at the amateurs who will not likely populate the town long before going to jail.

There is an evolution toward perfection of criminal activity, that requires constant attention and tinkering to stay on top of their game of robbing each other. Newly invented methods are as closely guarded as professional sports plays.

The most closely guarded news is a recently abandoned or deceased owner's homesteads that draws a land rush as soon as the owner is gone, or killed. The most popular things to look there are money jars, guns, drugs, and jewelry. I don't know anyone who has a bank account, or safety deposit box other than the inside of their walls or a hollowed out book, because banks require an ID which are sparse here. It costs nothing to open a jar and bury your stash, the common practice, which I follow. Whenever someone expires unexpectedly, his trailer insides are shredded looking for treasures in the walls, or beneath them.

Advance news is everything, or creating it.

One tricky thief who forever covets his neighbors' belongings uses a peculiar strategy to drive them out, or kill them, and then help himself to their camps, as follows.

The most common rattlesnake in these parts is the Coontail, distinguished by its alternating black-and-white tail bands just above the rattles. This is a flip-flop species of the also common Red Racer with alternating black-and-white head bands that eat rattlers.

One snake handler gifted a neighbor into his stone hut a snake with black-and-white bands, with no rattles. He proclaimed it was a Red Racer that would eat any Coontail Western Diamondback Rattlesnakes within a 50-foot radius, much as one puts a cat in a mouse house. The grifter carefully eyed the expensive battery bank inside the hut as he did so, and went on his merry way with the heartfelt thanks of his neighbor.

Each day, the target saw the snake daily in his hut, stepping around and over it. Each day, the handler reappeared, and seemed surprised to see him still standing there. Finally, the mark grew suspicious and called me over for an identification.

Here are five lessons the Slab City thief can teach you to check your loses:

· Fearless – A criminal will go to great lengths to achieve his goal, even handling venomous snakes.
· Discreet - A thief stays mute about his schemes and acquisitions, and I never would have found out about the Coontail thief had not a victim told me.
· Details – The smallest detail is of the greatest importance to a thief; in this case, he covered his tracks by broadcasting it was a harmless Red Racer that he had let go.
· Patience – Grand larceny can take a month in the planning. The thief knew his neighbor would accept the Trojan, and the end result would be declared an accident.
· Always try again – The thief kept returning to see if his mark had been driven off, or bitten.

The tail end of this story is brief. I went to the stone hut and found the snake coiled under a stuffed chair. It was trying to buzz shaking a noiseless black-white banded tail. The Coontail thief had removed the rattles, so the snake couldn't announce its identity!

I was laughing so hard that I could hardly keep my hands still on the broomstick to gently lift the accomplice and carry it out to a wash.

Sep

20

An old time book well worth reading is A Century of Prices by Theodore Burton and G.C Selden.

It suggests that high commodity prices are bearish for interest rates
because it requires more capital for all inventory and investments with
high prices. I wonder if this could be tested.

The book is very suggestive of many hypotheses. From 1919.

Sep

20

 One key to smooth international travel is to travel with only one carry-on bag. Don't check in any bags. They're a hassle during long-term travel, and will not arrive in third world countries on connecting flights. They will be stolen if checked into bus compartments, or from hostel rooms. And, are a hassle going to and from while traveling within a country. I've seen a swimming pool of crocodile tears over time in traveling to 100+ countries by travelers who don't observe the 'one-bag-on-back' rule. Everything one needs for one full year of travel around the globe can fit into one medium knapsack that fits into the carry-on compartment of airplanes. People who travel this way are called Travelers; while those who carry luggage are called Tourists. They are just different species.

Sep

20

 The Senate race in Alabama is becoming more and more interesting. The establishment candidate - Luther Strange - who was just endorsed by the Realtors national lobby - is still running behind in the polls.

The underfunded odd-ball outsider Roy Moore is being attacked in television ads paid for by Mitch McConnell's Senate Leadership PAC. The PAC is spending what is a large amount of money even for an Alabama general election. For a Republican primary, it is an enormous expenditure. Ballotpedia says they have committed to spending over $8M - which would be nearly 90% of the money that is likely to be spent on the race.

The President has endorsed McConnell's candidate - Luther Strange - and is planning to appear at a rally for him at the end of this week. The rally had been scheduled for Saturday at the local football stadium; it has since been moved to Friday and the local civic center. One could legitimately explain this change of venue on the prospect of bad weather, except for the fact that Friday is expected to be a mild (by Alabama standards) day with plenty of sunshine and little chance of rain - perfect stadium weather.

It is a measure of the near desperation of the Strange campaign that Vice President Pence is scheduled to make an appearance on Monday, the day before the election.

The delicious irony of all this is that Moore is the candidate who supports Trump's "extreme" positions; he has pledged to do away with the filibuster, and he opposes any amnesty. So far, the President's support for his opponent has not hurt Moore; the likely voter surveys show the Trump endorsement as having no significant effect. The Republican potential voters support the President overwhelmingly, but a majority of them still support Moore.

The candidates have their one debate scheduled for tomorrow evening.

Sep

20

 There are many short and long cons of master manipulators, who willingly teach them by bragging anecdotally on the road around hobo jungle campfires, and inside the pens. They live to scheme and deceive, and even as they relate former cons they may be setting you up as a mark. It must be kept solidly in mind that they get up in the morning thinking them, practice all day, and sleep dreaming them, like I used to chess. I've read every classic book on confidence games, and yet been taken many times in Slab City, with the single absorbing lesson that I will be taken again because I choose to play for this price of admission.

The Slab special is piggybacking short cons that become part of a developing sophisticated long con that locally is called getting 'Slabbed'. One of many examples is the simple theft of a white truck. It was dramatized in broad daylight by a hulking brute who pinned down a fair damsel while his comrade hotwired and skid rubber. Actually, it was not a simple theft but quite a ball of yarn.

A Slab man bought a white truck on the cheap, and used the title as collateral for a drug debt that he did not pay. The receiver of the debt handed the title for holding to a neutral third party for fear it would be strong armed from him, and passed the car in trade for a camp to a mechanic. The mechanic spent two weeks getting the vehicle in running order, and when the original man of title heard this he ripped the ignition key from the mechanic's neck, and returned the next day to pin down his wife while the mechanic was gone. A comrade drove the vehicle to their nearby camp and defended it by force. No one dared go to the police because no party had a driver's licenses. The guy who had pinned down and stolen the vehicle incurred a drug debt to the person holding the title for safety, and the latter saw fit, when the debt went unpaid, to take the title for himself. Then he sold it back to the brute who had pinned down the girl. Essentially the brute had gotten his truck repaired for the price of a probably false drug debt.

The situation was so muddled and Slabbered in short cons that only a champion grafter could unravel and spin it into a long con to his advantage.

With one of the few running vehicles in Slab City, I picked up the mechanic hitching to the local market for a tall Steel Reserve beer. He had been a Georgia sailboat skipper, before his boat sank in the Keys, after sailing along the east coast for three years subsisting on air for boat fuel and dine-and-dash for himself. The Atlantic seaboard offers many fine restaurants, at which he always selected the best and dressed nicely when he walked in penniless. He ate-and-skated at about 1500 without getting caught, marking little notches on the starboard side of the rail until the boat must have listed.

His usual technique was to walk in, have a couple of drinks at the bar, summon the best table, go outside for a cigarette break, order an expensive meal, go out for a cigarette, order a meal to go, go out for a cigarette, order dessert, and during the last cigarette break beat the meal check to his sailboat.

His hedge was a legal technicality that failing to pay a restaurant bill when it is due is not a crime, but rather a contract debt, so the dine-and-dash became a civil rather than criminal breach the single time he was detained. Then, he told the owner he had forgotten his wallet, and offered to wash dishes until the debt was clean. He started, and slipped out the back door for another cigarette break, and to the boat.

The sailor turned mechanic in Slab City was a master of the sort and long con, who claimed his wife was as adroit when she came up with this scheme to recover the cost of their white truck from the State of California. She set the trap by having reoccurring flashbacks during which she 'blacked out' screaming 'Get off me you brute!' every other night at about sunset for two weeks, until the neighbors called the police who responded each time. There was a sufficient paper trail now to spring the trap. She went to a psychiatrist who declared her crazy, and got her on SSI relief that more than compensated the truck, and would provide an income for life. They left Slab City for the east coast, presumably to buy another sailboat.

The brute who had pinned her down, drove by before they left, and congratulated her on frightening the crap out of him with her wild blackouts, and not reporting him, and wished them a fair tailwind.

The key characters in this Slab City long con are clearly identified as:

•    The Mark - The intended victim which is always the state.

•    The Grifter - A practitioner of confidence tricks, the brute.

•    The Roper - The person who identifies the mark, the drug dealer.

•    The Inside Man - The member in charge, who executes the con, the mechanic.

•    The Shill - An accomplice to the inside man, the girl.

The brain of Slab City is a Gordian Knot that is an intractable problem solved easily by finding a loophole or thinking creatively. Hence, 'cutting the Gordian Knot' and moving on. The problem is the body of citizens is a Tar Baby. In one of Uncle Remus's Br'er tales, Br'er Fox constructs a doll out of a lump of tar and dresses it with some clothes. When Br'er Rabbit comes along, offended by what he perceives as the Tar Baby's lack of manners, he pinches it and, in doing so, becomes stuck. The more Br'er Rabbit punches and kicks the Tar Baby in rage, the more stuck he gets. Br'er Fox ponders how to dispose of him. The helpless but cunning Br'er Rabbit pleads, 'Do anything you want with me, but please, Br'er Fox, don't fling me in dat briar patch!' prompting the sadistic Br'er Fox to do exactly that. As rabbits are at home in briar patches, however, the resourceful Br'er Rabbit escapes.

If you get caught in a sticky situation in Tar Baby Slab City, and think you can walk away without getting black, be prepared to use your wits with some cons of your own.

Sep

19

After each missile test by North Korea, the reaction changes slightly. On the first ones, there is a big decline overnight, then a rally. On the second not so big an overnight decline. On subsequent ones, hardly a blip overnight with the rally in US trading the next day a little less. Can this reaction to information be generalized and quantified, and can predictions be made? Will a subsequent missile test actually lead to a rally overnight? The theory of information bits is relevant I think.

Gary Phillips writes: 

Recursive events sans any consequences has resulted in the market becoming desensitized to the disruption, the resulting effect much like a diminishing return. The same phenomenon can take place when one takes his first bad hickey, and realizes one's world hasn't come to an end. Becoming de-sensitized to risk or large losses can be very destabilizing to a trader.

Kim Zussman writes: 

"The market's like an aging lothario that continually needs its balls fluffed (by cb's) to get and stay erect."

-Fun Zayn Moyl in Gots Oyer

Sep

19

It’s show time at the Range! 

Deep in the desolate Sonora, about 127 feet below sea level, out-of-towners file trailers and trucks and buses to a stage erected on a concrete slab to sit on it, in their vehicles like an old-time outdoor theater, or on junked sofas, busted lawn chairs, expatriated back seats of old cars, or rows of church pews, and rock all night under a zillion stars. 

Your host, Builder Bill, straps on his six string guitar and raises the roof with ‘House of the Rising Sun’. Then he rocks back on his heels, chuckles, and shouts for the 750th straight Saturday in 15 years, ‘Good audience!’ and the people holler for more.

It always is a great audience. Among the locals, it is their single night each week to come in out of the punishing sun in a drunken or drugged stupor and party among partiers. They double as anarchist lovers, after the tourists leave, and about this time at  midnight is when romance blooms on solid concrete.

A high-heeled polished escort drove a white Cadillac from the east coast to test the market. She brought a scheme to build an underground S&M Dungeon with whips and chains. She was smart enough to hook up with a local church investor to supply clients, and tithe a portion of the gross back. The world she would create revolved around sexual fantasy involving dominance and submission. She was going to dig and build it underground because weird tricks pay more money. The reason is they can’t go for what they want to someone they know, or out to a straight bar. The escort miscalculated that Slabbers have money just because there have drugs. I was one of the few with cash at the Range, but she kept staring at my crotch the whole time we talked, and I walked away uneasily. She didn’t even get a shovel in the ground due to lack of ‘pre-bookings’ to fund the hole, and turned around and drove her Cadillac back to New York.

A bearded man resembling Grumpy of the seven dwarfs jumped up from the audience and charged the dance floor with an 8” knife raised high over a scorpion of equal length with a raised stinger crawling amid shuffling feet. It was the largest Giant Green (Hadrurus arizonensis) I’ve ever seen. As the pair jitterbugged around each other, a lady in a tight mini-skirt butted in clamping a sawed-off 2-liter Pepsi bottle over it, and held it high for everyone to see. The music stopped, and I stepped up to identify it, and state that though the stinger is large, the venom is like a honeybee’s. Grumpy flashed the blade in my face, for he had been catching it for his girlfriend, and thought I was hustling her. She went on stage and rattled and raffled it off for marijuana. 

A drunk female in fishnet stockings fell in front of my armchair in the back row. There are four reasons I didn’t help her up: 1) She was drunk, 2) she was mistreating a dog to which she was leashed, 3) I had been taught by a high school cross-country coach never to help anyone up, and 4) she wanted a date or to stab me, because it was the third straight Saturday she had slipped in the same spot.

Dogs roam the stage. People come in a party mood, toting six-packs and fifths of whiskey and gin. Sometimes the dogs drink. I was sitting on the edge of the dance floor sewing in rhythm with the music threads of what I observed into a wall-hanging in my mind ,when, like it was a dog door, a huge brown Great Dane pranced through and looked down at me. Then it looked back to its smiling owner across the floor dancing. She had sent it over to invite me to cut in. I don’t dance, so the 180 pound animal lay down and was seven feet from tail to nose. The animal in me came out, and I scratched its ears. The girl walked over, and lay between us. I was afraid of what I might catch at her trailer, and got up and walked away.

Two women with mutual restraining orders to keep 100’ away from each other, bumped into each other on the 100’ wide cement slab of the Range as a band warmed up. The two women stood toe-to-toe cursing each other, while their teams of witnesses argued in a circle around them of who had arrived first, in order that the other legally be required to leave. Someone called the cops, who arrived in two patrol cars, doubly manned, as the officers piled out and surrounded the ruckus. They interviewed the contenders, their cornermen, and since it was unclear who had arrived first, they were ordered to technically break the restraining order by sitting 95’ apart at the far edges of the Range, and not molest each other.

As they had argued, each cast sideways glances at me for support. They are attractive seniors, but I have become cautious over my Saturdays at the Range. The last senior I picked up, later felt spited and lashed out, offering ‘Free blow jobs to any male who will hit him on the head!’ There has been a reprieve during a current affair with the chief arsonist, so the shanties of Slab City and I are safe as long as they are together.

Everybody likes to think on the first night that their relationship is the long haul. While no one knows for sure what the future holds, I have accumulated ten clues from normal society that can tell you if a partnership is built to last, and explain why each is nonsense in Slab City. 

Slabber girls are the best of any country I have visited, and the only caveat is that you have to keep your guard up. They are meaty, wholesome, savvy, and excellent. They will cut you if you perform less than your best. The reason is individuality: everywhere you look at the couples, you see happy singles, too. There are plenty to go around Slab, and few are particularly faithful. The ratio is about 3:2 and they vie fiercely for men. The pretty women sometimes do things no man would attempt anywhere else in the world.

It is interesting to note that the American sexual revolution was sometimes portrayed as a communal utopia, whereas it was just another stage in the historic rise of individualism. The sexual revolution was to destroy the idea of a permanent couple and family in a community of them, and free the individual to dip and out as he pleases, and that destruction continues to this day, and is accelerated in Slab City. The sexual revolution also marked the greatest sexual tactic of my life in getting a vasectomy. That, as an opening line, works better than deodorant.                                                                    

The Beach Boys bragged about ‘California Girls’, but my Chicken Science professor explained the biological reason why Slab City females are hornier where the sun shines more. They don’t wear clothes. We – humans and chickens – have a third eye called the pineal gland located in the middle of the brain, which secretes melatonin at night. That’s what helps us sleep. Melatonin blocks our sex hormones, and the long days of desert sunshine (or light bulbs in chicken coops) increases our libido and fertility. Plus, when Slabbers shed their feathers when it’s hot, it subconsciously makes us think about sex. 

The other admission is that mates on methamphetamine are like an outlaw and his horse under tail, and he/she’s got to ride that nag till it drops. Slab City girls have more tattoos per square inch of skin than anywhere in the world. Tattoos that tell stories of crime and passion, of regret and punishment. They express the outlaw from the outside in, and you don’t even need to look into the eyes of a date to know her horizontal waltz. Sex is somehow extended and better in direct proportion to the number of tattoos, and there’s something to talk about after instead of smoking cigarettes.

Another tip is to watch them dance. Graphic is invented on the Music Range slab. Bras-less, panty-less loose delights reveals the hidden language of their otherwise impenetrable psyches. Each movement is a word, each chorus a sentence, and each song a statement of who she is. They speak in paragraphs all night, because if you’re on thin ice with the law, you might as well dance.   

In the wee hours, like at any other event, the couples pair off and wander into the Creosote, the Rhino Room outhouse, adjacent abandoned trailers with cracked mirrors, or under Ironwood shadows on discarded couches that smell of pet urine that acts as an aphrodisiac while on meth. . The stuffing over time is knocked out of the couches. You cannot stop a Slab whore, not even by tying her to the Salvation Mountain tractor. No Slabber I ever heard of accepted money for a trick, because there is none, however few have refused to trade a bowl of weed for a bowl of pleasure. It is an accepted form of capitalism for which some females build up reputations as entrepreneurs and are very successful.

To think that all this arises from human behavior, all motivation, all our hopes and fears, heavily colored and largely controlled by the fascinating pattern of reproduction. Its significance is underestimated. They get it on, rock gently, make a harmonic, and then ride hard to climax. 

Like Steppenwolf’s Nature Child, they were born, born to be wild. Slabber girls have a special way of communicating like the chipmunks that used to crawl over me at the Sand Valley camp. They encounter someone on the street, get real close, smell their breath, and maybe peck a kiss, and then backtrack the person if they like the taste of the drug. They are useful dieticians also in tasting sperm and prescribing what you should eat. The best could hire out as government drug test kits.

The upper crust of outlaws own banks of drugs, though they will never admit it. They identify themselves by a surrounding of the most beautiful women, so, like anywhere else, they can afford to screen them. The town Arsonist asks, ‘Is your IQ higher than mine?’ The top car Bomber asks, ‘Are you a life support system for a vagina?’ The town Fence, oddly, is monogamously pussy whipped. 

Some of these females are smart enough to make you dizzy looking through them, like sitting across the chess table from one who makes all the right moves. Soon, you sense mate and don’t care about the opening, or middle game, and just want to see her coup de grace. I'm tired of watching attractive people trying to be ugly, struggling for authenticity. Why not be yourself? Like a fighter, I cut to the chase, asking, ‘Can you fight?’ With judo and wrestling skills, I could probably stay alive.

This is squattersville off the grid, and we welcome you every Saturday for the sundown concert at the Range. 

Sep

14

 DIMON: BITCOIN IS A FRAUD
DIMON: BITCOIN IS WORSE THAN TULIP BULBS
DIMON: BITCOIN WILL EVENTUALLY BLOW UP
DIMON: BITCOIN WON'T END WELL
DIMON: WOULD FIRE ANY TRADER TRADING BITCOIN FOR BEING STUPID
 

Andy Aiken writes: 

And in response, bitcoin says that Dimon is a fraud…

Alex Castaldo writes: 

Not very courageous either:

JPM's Jamie Dimon on #Bitcoin: "Don't ask me to short it, it could be at $20,000 before this happens but it will eventually blow up."

anonymous writes: 

Mine, it's better :-)

"JPMorgan patents Bitcoin-like payment system"  

Sep

14

Harvest, from Kim Zussman

September 14, 2017 | 2 Comments

 Our vines this year produced a much larger crop than anticipated. Maybe 2 tons, including an earlier pick for Rose' fermentation.

This last weekend we did the pick for reds. I hire a crew of experienced Mexican workers to pick the grapes into plastic lugs, and haul them up the hill where I transport them to our shaded sorting area. I did some picking with these boys but they are amazing. 5 guys - each not much more than 5 feet tall. But strong like oxes, and coordinated enough to carry 36# lugs along slippery slopes like I can no longer do. Couldn't ever, for that matter.

I generously tipped each of them and worried a little that they thought I was greater than them.

14 friends and neighbors formed the sorting brigade. In the shade the brigade picked off bird-damaged berries, leaves, etc. This year the grapes were left to ripen more than prior years, and I learned something: Pretty fruit isn't great fruit. Our crop already had many raisins and bird damaged berries. Raisins are ok, and the flavor improvement by waiting for full ripening through incessant bird attacks and heat waves was amazing.

The harvest party and lunch afterwards - featuring our wines - was great. Except for the neighbor who was drunk by 11, and failed in his function of sorting grapes in lieu of chatting up the on site women.

I had anticipated a bigger crop this year, but not this much bigger. As I write this there is 1000L of grape must fermenting in four containers in the garage. Fortunately I was prepared with enough fermenters, but I'm still short an aging tank that is to be shipped from Florida.

Wine making reminds me of my emergency medicine rotations as a resident. You have to think on your feet. No texts to consult, no one to ask. Each and every crisis you have to address to the best of your ability. (The Mrs is not on board as to the amount of work involved in this. But I think it is good for one's 62 year old noodle, to the extent that it forces me to learn and adapt like I was a kid)

The fermenting must is like a beautiful version of the irresolvable mess of humanity. There are thousands of compounds and enzymes going off in every direction, and your job as wine maker is to not destroy beauty and enjoy the ride. This kind of thing attracts controlling people who serendipitously succeed by letting go.

Here's to what California might have been, had the socialist putsch of the past 40+ years not robbed of us our destiny.

Check out the blind taste testing scene in the movie Bottle Shock.

Stefan Jovanovich writes: 

Amen. I first saw California in 1967 on my way to VN and it took me 5 years to get back. Our daughter, who was born and raised there, and her parents now live in permanent exile from what was our near perfect homeland. None of us is ever going back, and we will always mourn for what was destroyed - the common belief that no one in private life had the right to tell anyone else what to think or do.

Kim Zussman writes: 

I have done two Tours of Duty of living in the beauty of California, and I can confirm that the 1960s were very different, especially from a technologists point of view. The joy of creativity has moved to the effects of huge financial emphasis rather than intellectual idealism.

Our natural setting is still very desirable, but the feeling of open spaces has changed into me feeling claustrophobic in freeway traffic, escalating housing and living costs, and government that makes things worse.

But I see even more problems in the world almost everywhere else: Crowded Asia, Corrupt Latin America, poor overpopulated Africa, cold Russia, and dyeing Europe. There are too many people in all the big cities, and not enough for all the people to do. I fear the world will go through bigger problems before society settles on a more peaceful and productive system.

Sep

14

Rattlers, from Bo Keely

September 14, 2017 | 1 Comment

 Rattlesnakes are so common out here as to be mundane. One just has to get away from the crowd to visit them. I had a western diamondback for a doorkeeper at my Sand Valley burrow. They tame down quickly, and, in fact, develop a personality around you. There are low-down sidewinders that crouch in that position, and the amiable tongue-flicking uprights.

Once I came across one standing on its tail end in a wash, catching a zephyr, watching me pass. If rattlesnakes had eyelids, he would have winked.

A sidewinder named Sir was my favorite at Sand Valley. I first came upon him when I stooped to adjust my ankle weights, thinking they were leaking. The buzz was a baby sidewinder. He grew up as I pioneered the property, until he was so underfoot like a pet that I had to transport him to a wash.

I've close-up encountered, at last count, 150 western diamondbacks and sidewinders, in a ratio of 10:1 respectively, in the past 20 years out here. Though that doesn't make me an authority, like the local snake handlers who keep them in terrariums or running around their trailers to dissuade burglars, I know a rattle when I hear it.

A rattlesnake is called 'the desert gentleman' out here since he warns before striking. It's the people you have to worry about. One Slab City handler was bitten in the navel, and his wife called the ambulance. An undercover officer accompanied the paramedics, because the guy was on probation. The officer, thinking the call was a prank for a free ride to town, wordlessly hit him in the gut, and then rattled, 'I sealed the wound!' The ensuing fight became a real emergency.

Sep

14

"After a big thunderstorm, you will find that people become more friendly and sociable" from The Lost Art of Reading Nature Signs by Tristan Gooley. Does the aftermath of hurricanes and floods bring bull?

Sep

13

When will pseudo economists and foolish people at the Fed realize that low inflation is good as it increases the stock of wealth that individuals have, and stop trying to increase inflation on the absurd idea that the higher the rate of inflation the lower the rare of unemployment.

Sep

13

 Most people do not know, until I sat on one yesterday, what a sandberg is. It is a giant splinter of sand that, like an iceberg, breaks off from the greater whole to rise alone across a sea of sand.

I was car camping at Drop Two along the Coachella Canal ten miles south of Slab City when the first drop of rain at sunrise caused me to roll over in disbelief. For the first time in a month of consecutive 120F+ days, the Sonora desert was in for a storm. I rolled into a sleeper's 'burrito' sandwiched within layers of the blankets and tarp on the outside, and went back to sleep. When I awoke an hour later and looked out the end, the burrito was surrounded by puddles of water.

I dashed for the car, and read Studs Terkel's Coming of Age for another thirty minutes, until the rain abated.

In fact, the sun was shining.

But a hundred yards from the car, the Drop Two was running with a river of water. A Drop along a canal is where it passes underground for about thirty yards for an arroyo (normally dry riverbed) to cross perpendicularly to allow the passage of animals, vehicles and the biannual flash floods. Today the river was three feet deep, fifteen yards wide, and flowing 8mph above and at a right-angle to the canal.

It was foaming with tannic suds as thick as a six-inch sponge, splashing and tossed into the air. The foam is the result of organic material in the water, including their oils, that in the desert is stock full of the suds producing tannin. As the plants decompose along the flow, the oil rises to the top, where the turbulence and wave action whips it like a blender. I scooped a mouthful, and it tasted like Arizona tea.

With tea, the sun rising, and a hydraulic phenomenon unfolding before me like morning National Geographic, I sat on the bank and watched the river flow. Across it, great columns of sand weighing tons and measuring about 20 feet wide and two-stories tall broke and crashed into the river, throwing foam on a slight breeze over my head. Again and again, the great sandbergs crashed.

I was so absorbed in the spectacle, and thinking the flow from the eastern Chocolate Mountains was slackening, I didn't notice, instead, that the water was arising until it touched my scrotum. Still, I sat unperturbed as it rose to the ankles where I sat.

Suddenly, a loud crash behind, and I jumped up to see my hat floating downstream behind me! The land had been undercut behind me, and was now a drop-off of about three feet where the water was flowing rapidly. Nature has no remorse, or rules. I was trapped on a sandberg anchored to the desert floor only by the tendrils of a young Ironwood. The island was about 30' long and 10' wide, with the water rising by the minute!

But the tide fell as quickly as it had risen, with the bank of water from the Chocolates expired. In thirty minutes, the stream behind me shrank to wading height, and I escaped off the sandberg toward the safety of the car. I spend the rest of the day hiking up the main arroyo to the mountains where, by the time I reached the source two hours later, it was drying, and then I walked the very wash back to my car, to safety after being trapped on a sandberg.

Sep

13

We have an algorithm that we value greatly. I have written about it in this space and have produced a white paper on it. It uses macroeconomic data and has a record over the past 25 years of generating a 13+ percent compound annual ror with a 17+ percent maximum drawdown. The SPY's numbers are 9% and 55%, respectively. Clearly the positive returns come from dodging the drawdowns; there is no beta. BTW, the 75 year history is also very good; suffering only in the 1987 selloff.

At this time the algo is very close to going bearish. It has not signaled bearish yet, but there is a definite possibility. I would not exit long equities without that signal.

The problem is that the macroeconomic data (weekly) is reflecting the effects of two hurricanes. It is perfectly understandable that such data would mirror those unfortunate events. The circumstances clearly are different this time; when have we had two disastrous storms back to back? Because the data is macroeconomic, it is not a flexion fakeout. In fact the technical indicators all point higher. Admittedly we would like to have more information, but that's not forthcoming. An interesting and frustrating problem. At least, the signal has not yet been given.

Rocky Humbert writes: 

I believe the market's reaction tomorrow to American Airline's post-close news this evening may be generally predictive. American guided earnings lower because of the hurricane effects and also because of fuel costs. If Mr. Market doesn't blink, then expect a slew of companies to use the hurricanes as a penalty-free way to guide earnings lower. That is, the teflon market just got a fresh coat of teflon….from the hurricanes.
 

Sep

13

"The tariff" - i.e. the principal source of Federal government revenue from 1789 until 1912 - was criticized for being "unfair" and "overly complicated". Believe it or not, one of the arguments in favor of the income tax was that it would make the Federal rules for taxation simpler.

The tariff was complicated precisely because it acknowledged the basic truth of all taxation: even in a time of war, there is a tug of war between the tax payers and the tax collector; and the art of successful political economy is to allow every taxpayer to have some actual influence over how much pull the tax collector has.

The chaos, waste and abuse of the tariff system was precisely its virtue. No one, in the name of "reform", could enact broad legislation that would devastate the profits for particular industries and workers.

It is impossible to go back to that sensible system; the income tax and its withholding is as essential the present system of money, credit and banking as the Federal Reserve wire.

What is possible - even now - is for intelligent people to abandon all ideas about "reform".

An income tax that had more tax rates, not fewer would begin to take us back to an even tug of war between the collectors and taxpayers.

If the income tax and Social Security tax - which are one and the same - had consolidated rates, beginning at 2% (the original Civil War rate) and rising by 1/4% increments to 22%, the revenue would explode - just as it did after Grant (that man again) established the comprehensive tariff.

The key is to eliminate the stair step; one's rate would be flat on all income, regardless of source or type of taxpayer, based solely on the total annual income. The increase in taxation from "making more money" would become a trivial obstacle; there would be no incentive to cheat at the margin. The current wholesale lying about deductions would largely disappear because enforcement would be focused solely on a simple question: how much did you make and did you report it all?

Sep

13

I went to the book release party for "Blockchain Applications in Finance" this evening. The author spoke, as did a Chinese venture capitalist focused on fintech projects.

She likened the recent ICO ban to the government's ban of cryptocurrency trading in 2013. In that case, they slowly relaxed their restrictive stance, allowing exchanges and cryptocurrency ownership.

In 2017, the Chinese ICO market was crowded with scam projects, and in typical Chicom fashion, the government announced an outright ban on ICOs to allow them to inspect each exchange and project, and sort things out. She was fairly confident that the Chinese government would again relax its stance, but with far fewer ICOs going forward.

Sep

6

I am reviewing the quarterly earnings results available on the Standard and Poors website now that more than 98% of companies in the S&P 500 have reported earnings through June. S&P 500 trailing 12-month earnings are $104 as of June 30, and the 12-month forward forecast (which, right or wrong, is what the market actually prices) is for $124.

The most interesting thing to me was the dividend yield. S&P 500 trailing 12-month dividends were $47.22 as of June 30, which computes to a 1.95% dividend yield on the June 30 index close of 2423. The attached graph shows that the dividend yield (the blue line) has stayed in a narrow band around 2% since 2010, rising higher during the occasional selloff.

Sep

6

 It's clear that the People's Bank of China (PBOC) just cracked down on the initial offerings of cybercurrencies (as did the SEC). But it's possible that they just made all virtual currencies illegal. If someone can read Chinese, they can provide much better insights than Google Translate…

Google translate says: The tokens or "virtual currency" used in coinage financing are not issued by the monetary authorities, do not have legal and monetary properties such as indemnity and coercion, do not have legal status equivalent to money, and can not and should not be circulated as a currency in the market use.

anonymous writes: 

In China, what are said to be not allowed are always allowed for somebody, or are done by many regardless; and what are said to be allowed are always not allowed for somebody, or may not be done by many regardless.

Sep

6

 This is a very naive question, but if gasoline is way up doesn't this mean that buying crude would be profitable since gasoline is a reasonable proportion of the refining of oil and shouldn't this make crude go up with crude at a 6 month low at 46 a barrel? Does the flooding in Houston cause demand for crude to fall by that much to offset it, and is there an effect from the reduction in crude supply that shutting down drilling and possibly refining would cause?

John Netto writes: 

Vic, my apologies in getting this to you so late. I consulted my colleague who actively trades the US-Europe energy complex and he broke down how this situation with the rise of gasoline has very little impact on the price of crude oil.

Flooding in Houston depresses all kind of demand, both electricity and gasoline (no driving), but the impact on electricity is larger. Mostly this is a supply issue for gasoline alone.

The refineries are offline for awhile, so timespreads blow out (Sep/Oct and Oct/Nov go ballistic) because the gasoline supply is not there. The timespreads strengthening opens up the arbitrage to bring over European gasoline from Europe (via ship). So the arb guys sell US gasoline, buy European gasoline, and book a ship. So the supply is coming regardless of what happens to the refineries.

Crude doesn't necessarily move because crude is not being used while the refineries do not run.

More refinery downtime = no crude demand.

Once the refineries go back online, there isn't really much of an "overdrive" option to run even faster (individual refinery runs can go up and down marginally, but usually don't vary that much to matter vs off)

I hope this clarified your question.

Sep

6

 Just finished Superforecasting by Phil Tetlock. I feel that someone else on this site reviewed this book but can't say for certain. As a cross asset class trader and speculator, this book is the right combo of intelligence and irreverence. It is very digestible and one can whip through it pretty quick and really helped me just remember the power of process and accountability. If you liked, Thinking, Fast and Slow by Daniel Kahneman, or The Wisdom of Crowds by James Surowiecki, then you will probably enjoy this as well.

A couple of key points as it applies to investing:

- Total lack of accountability that he cites in the mainstream media as it pertains to forecasting geopolitics is pervasive in the financial media as well.
- Certainty is an illusion and we are playing a game of probabilities
- It's not our persona that is responsible for our profits but our process and our adherence to executing it and constantly looking to improve it.
- Be a fox and not a hedgehog (metaphors for one who is adaptable vis-a-vis one who is stuck in a position)
- understand our neurological makeup insofar as how it determines impulsive investing decisions and juxtapose that to your process to blend the two.
- devastating mistakes can be made over misinterpreting the smallest details.

Sep

6

 Living in the Sonora desert, and having been through three major Mouse Wars, suffered from Mouse Dust, observing thousands, befriending dozens, raised one as if a child in my pendleton pocket, and staying on even footing with them on whole for 20 years, here are my postulates re: desert rodent locomotion.

Loco is a proper prefix. There are about 7 species that I observe day in and out around my camp, and during long hikes. When they run from me, or predators, the start-up off the blocks is seemingly programmed en utero and childhood, and so is similar across individuals of the same species for the first few yards. This, of course, is the result of evolution, for the poorly locomoting ones would have been hunted and eaten long ago, and not reproduced. Then, in the second stage of flight, the animals' instincts give way to sheer terror, and the gait becomes more random. It's in this range that the animals may be more easily mouthed by the snapping jaws, because careful evolution has chosen the best flight plan for the initial stage. The upshot is, in my theory, that the rodents that are able to sustain longest their instinctual gait before caving in to horror will survive to reproduce, yielding the most most disciplined rodents.

Animals are far ahead of humans on evolutionary scales because we aren't hunted as much except at borders, and then the jail sentence still allows bail or release and copulation. We have become a very undisciplined species except in outlaw towns like Slab City. If you observe a person running from a mugger, even me on my long legs, I follow a prescribed stage one flight that, if closed in on, gives way only after a long distance to an all out adrenaline burst at angles and speeds the brain cannot plan before execution.

Andrew Moe writes: 

One of the best skills you can teach young basketball players is to use multiple speeds when on offense. Stop and go moves, fast to slow to fast, quick changes of direction and hop cuts are all carefully choreographed skills that can be combined into a seemingly random pattern. When you watch Steph Curry juke left, right, forward, back and into a hop step pullup 3, he's not making those moves up on the spot. He's linking sequences of carefully planned, well practiced maneuvers designed to leave his defender completely befuddled. I would guess that additional study on the jerboa, especially on play patterns of the young, would reveal similar sequences of moves to avoid predators. In the markets, the sequences are meant to draw volume. Today we saw a cut downward off the open, a crossover back the other way, another crossover to the downside, a slowing of pace and then a hard drive to the downward basket. I'd call today a Westbrook move more than a Curry so far.
 

Sep

6

 Back in the day, (on the trading floor) where you stood and whom you stood next to in the pit, had more to do with how much much money you made, than how good of a trader or market maker you were. Groups of traders congregated around various brokers (order fillers) forming little cliques within the pit, which were largely hierarchical relative to capitalization, risk tolerance, and motive; yet the pit as a whole, still functioned as an efficient marketplace. Customer orders flowed from outside the exchange into the pits, where a market was made and fair value was determined through the process of price discovery, price information then flowed back out from the exchange, and back to the customers. But, not before the locals had a chance to "pick-off" off the customers' orders.In theory, all trading was to be executed by open outcry, and all customer orders were to be kept secret until they were executed. In practice this was seldom the case. While the ball belonged to the brokers, they needed the locals to take the other side of their orders. The locals needed the brokers to get the "edge " on their trades and information about the order flow. It was this interdependence that forced a bond of trust and a doctrine of integrity between the locals and brokers. While it both empowered and enriched the pit's inhabitants, it was also the dominant reason why the pits functioned so efficiently.

Today's central banks work together in much the same way as the cliques in the pit did. Although disparate in terms of policy, execution, and motivation, the end result is a convenient alignment of their interests.They continue to underpin the markets with massive asset purchases in order to create the illusion of a healthy global economy. They are counting on structural reforms and fiscal stimulus from the Trump administration i.e., corporate tax cut, repatriation of offshore capital, and a trillion dollar infrastructure spend, will be enough to create a healthy, growing, and self-sustaining global economy, as it moves from a central bank driven recovery to a fiscal stimulus driven recovery.

And it will probably take a perfect storm of all three stimuli to reverse the the structural changes the U.S. economy has undergone in recent years; because there is nothing the Central Banks can do with monetary policy to reverse the changes related to an aging population and job distribution that has resulted in sluggish wage and productivity growth. Kind of reminds me of the waning days of open outcry, when traders on the floor hoped for some kind of Hail Mary, that would save them from obsolescence.

Sep

6

Henry Gifford's new book on Building Science rivals mine on advanced racquetball. As big, with the same angle of insightful and original gems per page that only a long practitioner would know. It's a beautiful 5-lb tome. Have him send you a copy.

Sep

5

Many insights into our field with the value of unpredictability and its measurement.

https://scienceblog.com/496099/hop-skip-run-leap-unpredictability-boosts-survival-bipedal-desert-rodents/

Andrew Moe adds:

One of the best skills you can teach young basketball players is to use multiple speeds when on offense. Stop and go moves, fast to slow to fast, quick changes of direction and hop cuts are all carefully choreographed skills that can be combined into a seemingly random pattern. When you watch Steph Curry juke left, right, forward, back and into a hop step pullup 3, he's not making those moves up on the spot. He's linking sequences of carefully planned, well practiced maneuvers designed to leave his defender completely befuddled. I would guess that additional study on the jerboa, especially on play patterns of the young, would reveal similar sequences of moves to avoid predators. In the markets, the sequences are meant to draw volume. Today we saw a cut downward off the open, a crossover back the other way, another crossover to the downside, a slowing of pace and then a hard drive to the downward basket. I'd call today a Westbrook move more than a Curry so far.

Bo Keely chimes in:

Living in the sonora desert, and having been through three major Mouse Wars, suffered from Mouse Dust, observing thousands, befriending dozens, raised one as if a child in my pendleton pocket, and staying on even footing with them on whole for 20 years, here are my postulates re: desert rodent locomotion. loco is a proper prefix. there are about 7 species that i observe day in and out around my camp, and during long hikes. when they run from me, or predators, the start-up off the blocks is seemingly programmed en utero and childhood, and so is similar across individuals of the same species for the first few yards. this, of course, is the result of evolution, for the poorly locomoting ones would have been hunted and eaten long ago, and not reproduced. then, in the second stage of flight, the animals' instincts give way to sheer terror, and the gait becomes more random. it's in this range that the animals may be more easily mouthed by the snapping jaws, because careful evolution has chosen the best flight plan for the initial stage. the upshot is, in my theory, that the rodents that are able to sustain longest their instinctual gait before caving in to horror will survive to reproduce, yielding the most most disciplined rodents. animals are far ahead of humans on evolutionary scales because we aren't hunted as much except at borders, and then the jail sentence still allows bail or release and copulation. we have become a very undisciplined species except in outlaw towns like Slab City. if you observe a person running from a mugger, even me on my long legs, i follow a prescribed stage one flight that, if closed in on, gives way only after a long distance to an all out adrenaline burst at angles and speeds the brain cannot plan before execution.

Sep

4

One of the most amazing experiences of mine on the spec list was 15 years ago. I took Hillman, the computer checkout expert from Cincinnatti, to my establishment in a remote part of Weston with 100 twists and turns. 5 years later we went back, and he drove exactly to the right place. He said he was born with it but perfected it in the navy.

Sep

4

 Forget the unemployment numbers.

The question I've got is how much of a bump to the GDP is generated by the rebuilding of Houston and the rest of Texas hit by the recent inundation?

anonymous writes: 

This will help: "The Parable of the Broken Window"

George Devaux writes: 

I am not sure about the truth of the parable.

Consider that for years people transferred wealth to insurance companies. The insurance companies put liabilities on their balance sheets, and used the cash to generate net wealth.

With the event, the insurance companies transfer cash to the people (and reduce the liabilities on the insurance companies) to restore the destructed wealth. The insurance companies retain the net wealth.

In the longer term, people having seen the destruction build differently. The people are also more prone to secure insurance. The insurance companies use their collective wisdom to innovate solutions or at least improvements that reduce future destruction.

In summary, destruction forces improvements.

Russ Sears writes: 

Banks and insurance companies cause the multiplier effect. the higher the leverage, the higher the multiplier effect is. Holding more reserves and surplus slows the speed of money. Hence rather than just GDP, it should have an "inflationary" effect as the speed of money increases. Prices also increase because of demand and supply shocks. We've already seen the effect on gasoline. 

Rocky Humbert writes: 

This is actually a complex analysis with many feedback loops. It is possible, but not necessarily true that short-term US GDP will increase due to the hurricane rebuild. Nor is it necessarily true that this will be inflationary, however, certain prices (such as local lumber and wallboard) will likely increase. I believe that the primary determinant on short-term and longer-term US GDP is what activities and investments and jobs will be sacrificed/diverted to the hurricane rebuild; what income will be temporarily or permanently lost; and what the relative multiplier effects are between these alternative uses of capital and labor and the hurricane rebuild. Furthermore, if the economy were in a recession with a high unemployment rate, the effect on GDP would probably be greater than the effect in a modestly expanding economy with a low unemployment rate.

For illustration, if my house was destroyed by a hurricane, and even if I have flood insurance, I will surely still have uncovered losses. I will therefore likely immediately reduce other spending, such as a trip to Disney World and eating out at restaurants and buying new clothes. I might also delay the purchase of a new car and other big ticket items because I will need to buy replacement furniture. More generally, local businesses will likely be disrupted — and productive local service employees will be laid off for days/weeks/months — resulting in less economic activity in the region — offset by an increased need for carpenters, plumbers, and tradesmen.

There is a debate among economists about the real multiplier effect from infrastructure spending. But even that debate assumes that the infrastructure will be upgraded and improved — not simply hauled away and replaced. But the multiplier effect is beyond the question on the table. The bottom line is: it's complicated…..

Sep

3

 "But the sea had a way of making its own rules. Wind and wave could be understood but not predicted beyond a point. There was always the unexpected storm" -Louis L' Amour

Strong words to this old trader that dabbled on the short side recently with success until not covering on the Kim-Che turnaround. Got a little, left a lot.

"One accepts one kind of belief but closes the mind to all that is or seems to be contradictory"

-Louis L'Amour

Sep

3

 Many specs are expert on geography. I wish I knew more of the subject. One of the best books I am reading is Tom McKnight, Darrel Hess Physical Geography. I like to read books on spatial statistics as a useful byproduct. The main technique seems to be to make a football type grid with two perpendicular lines N.S and E.W and then to count within each part of the grid and do correlations.

I recall with fondness my connection with Russ Shields who when chair and founder of Navtech hired 75% of all the geography graduates in each year. The books I have on political geography, economic geography, historical geography, and politica geography (I have Glassner's) are endlessly fascinating to me. I always admire those I meet who can locate and navigate to any place in the world that they visit without any aids except the mind's eye. (Susan is one of them) although that ability is not quite as valuable now that the computer directions (from Navtech) and G are so ubiquitous.

And venerable, great Jim Lorie who had a Churchillian wit, (and gave the eulogy lecture at UC when Churchil died always liked to ask geography majors when he met them "what is the capital of this state or that?"

Looking at the performance of each country in a year is a fascinating exercise in geography as it's almost like seeing a map with the closer the countries the higher the correlation of the market and as you move from east to west, the correlation becomes increasingly negative with for example the US and Russia always quite negative in a year.

Sep

3

The back and forth between North Korea and the US is so much like that between Germany and England during 1935-1939. Always Hitler said: "Please meet my just demands or I'll make war". He'd say, "My patience is running out." And then: "This is absolutely my last territorial demand". The reaction in England was that war in the past was very destructive, and that he did have some justice on his side. But they got to know him as wily. So they provided "economic sanctions" against him and appealed to the League of Nations to create peace.

Sep

3

Today (September 2cnd) is the anniversary of ERISA - the legislation passed by Congress and signed by into law by President Ford - and the creation of the IRA. In 1981 ERISA was amended to allow 401(k) plans.

This was the most important single cause of the 25 year bull market that produced our present world.

The legislation provided (1) an added supply of cash to the markets from investments by IRAs and 401(k) plans, (2) a safe haven escape for corporations from the inescapable accruals of defined benefit pensions, and (3) the ability of corporations to use their own paper instead of cash to fund present employee bonus compensation and retirement obligations.

We will know the party is over when ERISA accounts begin loading up on cryptocurrencies.

Sep

1

Churchill liked to dictate while pursuing his useful hobby of bricklaying at his country estate of Chartwell. The secretaries would climb up the ladder to take his dictation while he was building walls and dams for the lake he converted into descending pools and a heated swimming pool the family used during the winter.

Sep

1

 My wife's family experienced severe flooding. They did not live in a flood plain. It took the community over a decade to recover.

Their most challenging issue was silt. It got into everything. It found its way into walls, insulation, floors, and ceilings. To restore a flooded home, walls and insulation had to be removed. In many cases, it was easier to level the house and build a new structure on the existing foundation.

The problem with silt is its composition. While the flood originated with fresh water, it found its way into sewer systems, oil storage, and everything else. When the water receded, bacteria and oil-laden silt was left behind.

As you can imagine, some attempted to "fix" their homes without removing the silt. A decade later, you could still smell an odor inside the home, particularly when it rained. They paid when they attempted to sell the home. The lesson is you'll pay me now, or you'll pay me later.

The community included the corporate headquarters for Corning Glass. They used their technical, financial, and political resources to help rebuild the community. It did not matter if you were employed by the company or owned the local florist shop, the company was there for you. Their sense of community was never forgotten.

Sep

1

This may be a game changer. This approach should be very scale-able and very resistant to quantum decoherence from outside:

Epitaxy of advanced nanowire quantum devices

Nature 548, 434–438 (24 August 2017)

Semiconductor nanowires are ideal for realizing various low-dimensional quantum devices. In particular, topological phases of matter hosting non-Abelian quasiparticles (such as anyons) can emerge when a semiconductor nanowire with strong spin–orbit coupling is brought into contact with a superconductor1, 2. To exploit the potential of non-Abelian anyons—which are key elements of topological quantum computing—fully, they need to be exchanged in a well-controlled braiding operation3, 4, 5, 6, 7, 8. Essential hardware for braiding is a network of crystalline nanowires coupled to superconducting islands. Here we demonstrate a technique for generic bottom-up synthesis of complex quantum devices with a special focus on nanowire networks with a predefined number of superconducting islands. Structural analysis confirms the high crystalline quality of the nanowire junctions, as well as an epitaxial superconductor–semiconductor interface. Quantum transport measurements of nanowire 'hashtags' reveal Aharonov–Bohm and weak-antilocalization effects, indicating a phase-coherent system with strong spin–orbit coupling. In addition, a proximity-induced hard superconducting gap (with vanishing sub-gap conductance) is demonstrated in these hybrid superconductor–semiconductor nanowires, highlighting the successful materials development necessary for a first braiding experiment. Our approach opens up new avenues for the realization of epitaxial three-dimensional quantum architectures which have the potential to become key components of various quantum devices.

Jeff Watson comments:

The quantum computing world keeps getting bigger. IBM is building 16 and 17 qubit processors, and processors of 45 qubits has been reached and tested in a lab. It should be noted that there are some who don't think we'll see quantum computers for 10 years or so. They are also worried that quantum computing will present a threat to crypto currencies and blockchains, but there are also those who think that there will not be a threat posed by quantum computers.

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