There is nothing as bad as losing the money you had and nothing as good as making it back after you lost. Thus, on Wednesday [2009/09/30], the market rose 2% from low and you made it back. The contentment, the joy! And the almanaktarian's favorite day coming up, with a beaten favorite play to boot! But the cronies knew. Disaster. One lost what one had on Thursday [2009/10/01]. You see, we're in crisis mode. Unless the health bill is passed, those jobs will not come back; what we need is to prosecute Secretary Mellon or his modern counterpart the way the magnetic radio person did in the 1930s. On Friday, bonds at a one-year high, and the cronies took profits on the number. Someone has to pay. Let us hope that the seasonalists, almanaktarians, and followers of all stripes will fare better in another world where we will not meet them.

Ronald Weber suggests:

What if markets slowly begin to realize "hey, we have come out of the worst crisis in a 100 year with many scars but we are still on our feet," couldn't it justify a much higher valuation level (lower risk premium) for equity markets?

Paolo Pezzutti analyzes:

Wednesday shows how desperate bulls were to let the market regain the opening level. Their failure and frustration is quite evident during Thursday's action. On Friday they tried to close the down gap of the open, but they were much less aggressive. Maybe they are realizing that the market needs to move to much lower levels before attracting new buyers who are also now concerned with negative news and W, U, square roots shape recession scenarios… If this is true we should sell any rebound next week.

Faisal Danka predicts:

Its not over till it's over. The retail traders who have seen the minor dips since March and have jumped on to the July bandwagon (even if a bit late) would be seeing this as an opportunity to buy on dips. All lagging indicators as well as price is showing break of resistance trendlines and key levels. On the heels of bad to worse news, we still have not seen a correction in above 10% range. This is why I think, a hint of good news and we break above 10k on the Dow. Just when none of the retailer traders will expect, the commercial loan situation will come to fruition coupled with lack of topline growth, and the long-awaited bear run will start.



Many elements of the fraud charges against M would seem to have applicability to markets. The macher thing, where he was seen as a "macher," a big-hearted big shot. His denying to some people the favor of taking their funds. His friend the tall partner who would mention at clubs that "Bernie earned me 12% this year and he's not open to the public but I can probably get you in." Cialdini apparently calls this a triple threat fraud where someone else mentions how great M is, and then you don't investigate because it would be an affront to the accomplice (who you don't know is getting a fee), and you use all your energy to see if you can get in rather than to investigate the performance. Amazing is that we've all been subject to reports of returns in the security field that seem way out of line with those actually achieved.

Sam Marx comments:

In addition, because M owned and ran a large brokerage firm, the "mark" would feel that his investment was getting some illegal inside advantage that resulted in high returns, such as front running. Most, if not all, confidence games rely on the greed of the mark. You never hear about successful Ponzi Schemes that have been successfully unwound.

James Sogi writes:

That's a good point. Its the reverse of the survivor bias. Let's call it the loser syndrome, where the losses are hidden, as the successful con, the mark doesn't know he's been taken. Further if he does, he doesn't want to blow the whistle because of either romance, his own complicity or blameworthiness. On a more common scale, the denial syndrome often glosses over and forgets failures, losses, defects, losing trades, that extra drink

James Goldcamp writes:

The surprising part of this to me is much less the regulatory overnight or lack thereof, but the third party fiduciary roles. Where was the administrator and the auditors of the funds? How could this have happened? Will it turn out that he invented counterfeit bank and Prime Broker statements and if so did he personally have the technical means to do so? (Unless he was his own PB, but it's hard to believe any reasonably sophisticated investor like Tre~0nt would buy into such a set-up). I have to ask, how did the trial balance, balance?

Victor Niederhoffer requests:

Let us never forget the human tragedies here. I cry when I read the letters of people who had their life savings or wealth or retirement or plans ruined by this. My goodness, what a terrible crime and way to live one's life.

Ronald Weber writes:

Tragic indeed, but I can’t help to quote the good old Livermore, almost one century ago, on the average investor:

“He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”

“There is profit in studying the human factors-the ease with which human beings beleive what it pleases them to believe; and how they allow themselves-indeed, urge themselves- to be influenced by their cupidity or by the dollar-cost of the average man’s carelessness. Fear and hope remain the same.”

“Investments were not wanted. The demand was for easy money; for the sure gambling profit.”



  One can't fail to notice that (-80% later) there is not a single analyst's sell rating on either MBIA or Ambac! A disturbing silence, in my opinion.

Sam Eisenstadt writes in:

For a negative statement on both companies, see the Value Line Investment Survey Summary & Index, dated Feb 8, 2008. Both stocks are currently ranked in Group 5 (poor) for Timeliness. Ambac was lowered to a Group 4 (unfavorable) on 8/3/2007 and MBIA to a Group 4 on 2/9/2007.

Our Ranking System has not been asleep at the switch.



Black HelicoptersThis week in particular has all the signs of a collective manipulation scheme: Banks need extra cash to cover their loss but they can't place any new products with their clients, so what do you do? You ring the cashier at the prop desk! First you choose a week where many US/ most European/ all Japanese investors are still on holiday, you get some analysts to issue a few dubious downgrades on Intel (strange timing anyway!), you call your pals at in the media to back the market action with news and unproven causality; you get your oil trader to tick the magic $100 level where you cash in on options and structured products triggers — and while you're at it, you might as well take advantage of the holiday in Tokyo to push the Yen. Meanwhile, Bernanke is as absent as ever, worrying more about transparency issues (who cares about that anyway?) than trying to display real leadership. Strange days indeed!



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

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

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

Ronald Weber adds:

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



 Japan (or the BoJ) seems to have found a new original way to create inflation and stimulate consumption at the same time: by taking Milton Friedman at his words and droping money from the sky! Unfortunately Mr Friedman never tested his theory in Japan, as it seems that ordinary citizens are declining the offer and returning the cash to the police. So Americans want to consume but they can't and Japanese can consume but they won't, what a world!

From the AFP (July, 28) "Mystery money in Japan appears in mailboxes, falls from sky"

A mystery gripping Japan over anonymous cash gifts has taken a new twist. For those who want the next batch of giveaways, the place to look is in their mailboxes — or even right at their feet. Residents of a Tokyo apartment building are baffled [over the appearance] of 1.81 million yen.

But residents became "spooked" rather than pleased with the anonymous gifts — and were too upright to pocket the money secretly. The predominantly middle-class apartment building in Tokyo is not alone. An envelope with one million yen was left in the mailbox of a 31-year-old woman in the western city of Kobe on Wednesday. Police admit they have no idea who is leaving the cash — whether a few people are behind the bizarre giveaways or if Japan is witnessing a craze of copycat benevolence. Since June, dozens of city halls and other public buildings across the country have reported finding neatly packaged envelopes full of cash in men's restrooms. The bathroom money has come with identical letters asking people to do good deeds — leading to speculation that the benefactor may be a public servant trying to cheer up his profession or perhaps a member of a new-age religion.

On Wednesday, bills worth 960,000 yen were inexplicably seen "falling" in front of a convenience store. "We can just say the money came from the skies," a puzzled police official said. "There were other passers-by outside and customers in the store but the incident caused no confusion," he said. "People thought it was too eerie to touch." The largest single drop-off so far was in the ancient city of Kyoto on July 23, astonishing a 67-year-old woman who found an envelope containing 10 million yen of stacked bills in her mailbox. Media tallies suggest more than four million yen, including some found last year, has been found in the public restrooms. 



 Reading the Bond Guru's August 2007 Investment Outlook, I'm forced to consider the psychological condition known as Stockholm Syndrome, whereby individuals in close proximity with those exerting power over them come to not only sympathize with but in some cases actively defend and endorse their captors.

Peppered with class warfare ("private equity and hedge fund managers.. aided and abetted.. at the expense of labor") and the politics of envy ("trust funds," "inheritances," "ego-rich donations" described as "egregious and wasteful"), one wonders: does years of contact with Treasury officials, central bankers, federal/state/municipal politicians, perhaps coupled with immersion in the detailed study of government statistics and the consideration of various parties' policies, inevitably lead one to an appreciation for, or embracing of, statism?

East Sider adds:

I think the Bond Guru is positioning himself to take Sage's spot as the "own man" cited by the press as promoting pernicious state activity despite seemingly capitalist credentials.

When I read the Bond Guru's article, I thought of my many track friends that bad-mouthed the sprinters. The sprinters were often headed for big bucks in the NFL. They were blessed with the right talent to make big money. You see the same thing with the old guys in three major sports complaining about the youngsters now getting the big dollars. These complainers think that they where in the "athletic" business. That they got paid for their competitiveness. What they miss is that they are in the entertainment business. Their game just is not as entertaining as the major sports games have become.

Russ Sears adds:

He thinks he is in the investment business, just like them. What Gross misses is he is in the risk-taking business. No doubt his is a good investor, perhaps better than the guys pulling down the bigger bucks. But he is not a good risk taker.

But what else it reminded me of was when I first married my wife. We would go visit some friends, farmer daughters. The farmer wife would join us staying up late, playing card or talking. While the farmer sat in the back of the house flipping channels to find the most depressing newscast available. As only tired but intoxicated with life young girls in front of a young guy can, they would giggles and laugh in such fits till the old farmer would yell, "stop that laughing out there! You girls are driving me crazy!" Then I would hear latter that the girls got a stern lecture on being so unproductive and frivolous. It was probably the most productive night of the month on that farm.

In short he forgot how to enjoy life, enjoyment’s infinite value, and forgotten how motivating that can be.

Ronald Weber writes: 

I believe one should just see him as a good salesman doing his job, in his case: selling bond funds! And for people to buy his funds he needs of course to spread negative news flows.

Actually, he does a pretty good job at sales; but somehow most of the investor’s community take him way too seriously as a "financial prophet"! I like to think of him as a good "dramatic" entertainer before Leno’s Tonight Show and after a noisy day from the "neo-comic" NBC/Bloomi/Analysts crowd! 



 I read a fascinating article on the BBC website about a self-learning, dynamic robot, which has been built around the theories of Nikolai Bernstein; the main concept could very well be part of a trading system (though I hate that "trading system" name!).

Runbot can adapt to changes in the terrain!

Roboticists are using the lessons of a 1930s human physiologist to build the world's fastest walking robot. RunBot is a self-learning, dynamic robot, which has been built around the theories of Nikolai Bernstein. (…) Bernstein said that animal movement was not under the total control of the brain but rather, "local circuits" did most of the command and control work. The brain was involved in the process of walking, he said, only when the understood parameters were altered, such as moving from one type of terrain to another, or dealing with uneven surfaces.

The basic walking steps of RunBot, which has been built by scientists co-operating across Europe, are controlled by reflex information received by peripheral sensors on the joints and feet of the robot, as well as an accelerometer which monitors the pitch of the machine. These sensors pass data on to local neural loops - the equivalent of local circuits - which analyse the information and make adjustments to the gait of the robot in real time.

Information from sensors is constantly created by the interaction of the robot with the terrain so that RunBot can adjust its step if there is a change in the environment. As the robot takes each step, control circuits ensure that the joints are not overstretched and that the next step begins. But if the robot encounters an obstacle, or a dramatic change in the terrain, such as a slope, then the higher level functions of the robot - the learning circuitries - are used.

About half of the time during a gait cycle we (humans) are not doing anything, just falling forward. We are propelling ourselves over and over again - like releasing a spring.



I recently came across some old Clients Letters from Tweedy, Browne, and almost ten years later they are still a delight to read. Hereby some excerpts around the peak of the tech bubble:

March 2, 1999:

A rising tide lifts all boats. However, the gains experienced by the S&P 500 were concentrated in a small number of stocks dominated by technology companies. Of the 500 stocks in the S&P 500, 3% of the issues, 15 stocks, accounted for 52% of the Index's return. Of those 15 stocks, 9 were either technology or communications companies. If you owned only those 15 stocks, you had a stellar year. Most value investors did not.

In a year like 1998, the overall performance of an index is not indicative of the performance of stocks in general. For example, the performance of the equal weighted version of the S&P 500 shows a gain of only 13%, or less than one-half of the overall index (.) This disparity is much more pronounced in the NASDAQ Composite Index. Although the Index is comprised of nearly 4,700 separate stocks, only 5 stock account for 50% percent of the Index's performance. Microsoft alone represents approximately 27% of the Index.

March 23, 2000:

On Priceline.com: The company went public in March 1999 at $16 per share and shot up to a peak of $138 on May 7, 1999 (.) By October of last year, the stock had plummeted to around $7 per share, and some Wall Street analysts were saying the company's business plan may have been "flawed." Amazingly enough, no Wall Street analyst rated the stock a "sell"; its worst rating was "hold," and many buy recommendations still existed. Today the stock sells for less than $3. A decline from $138 per share to $3 is nearly 98%.

Little did we know that as we were finishing last year's client letter and trying to explain why we had not participated in one of the greatest gold rushes in Wall Street history, the party was about to end.



 The cocktail mix of pig disease, water shortage, and a few hundred million angry farmers in China could lead to a global jump in inflation and some nasty manufacturing disruptions.

According to a recent comment from Gavekal:

"At this stage, the number one constraint to China's impressive growth has to be water." Across the country, millions are experiencing serious water shortages, "and by one estimate, 22% of the nation's farmland is now being affected. The sad tails of droughts and water shortages have lately become a feature of newspaper articles both on the Mainland and in Hong Kong.

"It seems that China is currently facing a two-pronged water problem: First, there isn't enough of it, and the little that there is tends to be concentrated in the more agricultural South, while the desert in the West and the North continue to advance rapidly. Second, the water that China does have is increasingly polluted, and unfit to drink. The main problem is that water use for farmers is heavily subsidized in China: As a result, rural China gets water for only 16 US cents per cubic-meter, which is significantly less than the US$2.50/m3 paid in the US and does not come even close to communicating the scarcity and true cost of delivering the water."

Now comes the scary part:

"However, if the water subsidies were eliminated, a majority of farms would, all of a sudden, become economically unviable. Removing the water subsidies would thus most likely create serious social upheavals and possibly food shortages as well, the worst of both worlds as far as the central government is concerned. Nevertheless, the current system can't last either. Today, China requires more than 10x the amount of water used in the US to produce a dollar of GDP. Unfortunately, the recent spikes in food prices are likely to prevent any bold thinking from the government on this important issue. So the most likely policy response is to keep throwing money, and labor, at the problem (China is spending some US$80bn to build canals to bring water from the South to the North)."

On top of that you add the recent pig disease that swept through 10 provinces in China that decimated the swine population and ramped up pork prices. It has already affected more than two million pigs and killed 400 000 of them. It's also comforting to know that few thing are as essential to the Chinese diet as pork. And if you’re superstitious it's also good to know that 2007 is the Chinese Year of the Pig!

We will continue with an excerpt from The New York Times:

"Steep increases for pork loins and bacon are the most tangible sign that after a decade in which prices have fluctuated but not moved significantly upward, inflation is creeping back into China. In response to this pressure at home, Chinese companies are starting to raise prices for exports, removing what has been a brake on inflation in the West. The crisis over pork prices in China, like the jolt many Americans feel when gasoline prices jump, offers one example of how prices can suddenly soar.

"The Chinese government is struggling to cope - including deliberating whether to sell a snuffling, smelly strategic reserve of hundreds of thousands of live pigs kept at special subsidized farms for precisely the shortage the country is now facing. Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat. The cost of pig veterinary medicine has soared. Some pig farms, shut down because of low prices last year, were unprepared for strong demand this spring. And outbreaks of disease have killed many pigs, though no reliable estimates of how many are available.

"The most recent statistics from the Agriculture Ministry show that prices for live pigs rose 71.3 percent in April from March, while pork prices climbed 29.3 percent. The price of pork followed pig prices higher in May as well, to the dismay of shoppers."

Maybe it will turn out to be a non-event at the end, but it still reminds us that China's success story could be more fragile than most investors are ready to bet. Stay tuned…

Greg Rehmke comments: 

“The Chinese government is struggling to cope…” Newspapers regularly report that governments or federal agencies working hard to deal with the crisis-of-the-week. We have a impending water shortage in China this week. Last week the headlines were of massive floods in China. This suggests an opportunity to improve infrastructure (though western environmentalists still oppose new dams).

When water is owned and has prices less will be wasted. If Chinese farms cannot compete without “free” water, they will shift to different crops. When farms pay more for water they economize and innovate, and some on the margins go out of business. Chinese farmers, starved of capital for generations, need far fewer workers as they gain access to modern farm machinery and methods. Workers naturally migration to village and city factories. ”Social upheaval” is more the consequence of Chinese government intervention in capital markets, restricting investment in some areas and subsidizing it in others. Chinese economic growth of 10% is celebrated, yet a free China would grow faster with less pollution and resource waste. Michael Cox offers this analogy. One man struggles to clear a path through the jungle. With a machete he can move ahead much faster (up to 10%, say). But when those behind him find the trail, they can go much, much faster. China found the capitalist trail and would have run along it much faster without the remnants of communist bureaucracies "struggling to cope."

An online source reports the U.S. imported 150,000 tons of apple juice concentrate from China in 2006. That takes a lot of water to grow. U.S. customers won’t notice slightly higher prices from less Chinese apple juice, though U.S. orchardists would. Ending water subsidies for apple production in China could benefit many, while harming some in the short term. Higher pork prices hurt the poor but encourage efficient pig farmers to expand, and to clean up their operations to better avoid disease. Will “social upheaval” follow higher pork prices, or just more fish for dinner?



 I noticed a society much at peace with itself managing nearly one fourth of the world’s wealth while traversing across Geneva for three days. Not a single war in the last five hundred and fifty years. Yet despite continued prosperity they have not built even one skyscraper! The chairman’s hubris indicator has another corroboration from this metropolis. Yes, the only real tall structure out there is a giant fountain in the middle of a huge and clean lake that overshadows all other low-hung medieval looking architecture. Here is a society that has clearly known that there is no money in ego.

For a first-timer like me in a new city deciphering the map to the last building is not always easy. At each occasion that I had to request help seeking directions to any particular addresses I was shocked positively that they were willing to take a small walk ranging from 50 to 250 yards showing where I needed to go. In all other cities that I have been the best help I have received ranged from a helpless smile to a quick pointing of the finger. Hoi polloi of Geneva are happy, positive, and willing to spare time for a total stranger.

The city has a very proactive pro-business administration. Each tourist or foreign national arriving into Geneva is given a free pass by their hotels, paid for by the city administration, that entitles the recipients to travel freely in Geneva using all public transport. No rushed trains, no filled up trams, buses stopping by to let pedestrians pass (not just private vehicles but big buses stopping!), near zero pollution, hoards of art-dealers, bankers, jewelers, confectioners, members of the oldest profession, politicians, bureaucrats, aspiring summer interns — you could see them all passing by in a single day, at peace with their diverse objectives conjoint only at wealth and power in this one city.

A visit to the United Nations reminded me of the many key pacts, conventions, and treaties signed at and containing the name of Geneva.

I had a negative experience too. On the first day of my arrival I went to the McDonald’s on the Rue de Laussane knowing that it is one hygienic food parlor that will have some fare for a vegetarian too. I found it but had my wallet picked up. Within three hours of landing in a new city, to be left with a situation where all your credit cards and cash are gone can be a shock. However, the manager of this McDonald’s took me to his cubicle and surprised me with a replay of the tapes of at least four different hidden cameras installed in the store. In less than 10 minutes we were zooming on the face of the individual who picked up my wallet. The famous Corps de Police of the Republique et Canton de Geneve were called in. They took 20 minutes to arrive and promised to collect a copy of the recording from the store manager the next day. Then they noted down the physical features of the wallet-picker with a few replays of the tape. The police officers promised me all positive action and left graciously.

However, a sixth sense told me to grab the phone, call my banks and cancel all the cards immediately and seek activation of the replacement cards. The last day that I was leaving Geneva I visited the police station and the McDonald’s to check if any action happened. I discovered the police officers had not yet returned to the store to collect the tape and had not yet flashed the physical features of the wallet picker on their wireless vans!

I am certain that McDonald’s does not have hidden cameras across their stores in possibly any other country. Bottom line: the big brother in Switzerland is watching everyone. But credit card thieves, small pickpockets, and denizens of this universe without the potential of owning a numbered account yet can fend for themselves.

But then a city thriving upon 500 years of warless prosperity gave me a sufficiently happy time to forgive and forget.

Ronald Weber replies:

 I am surprised but nevertheless pleased by your impressions of Geneva. Although it's my hometown, it is not particularly known for its friendliness toward visitors.

The infrastructure, aesthetic, and the quality of life have declined remarkably over the past 20 years. Geneva had its golden era in the 60s and 70s with oil money, but everything is relative and it's still a wonderful place to live. May I suggest that you also visit Zurich on your next trip?

Perhaps you are familiar with the famous quote from Orson Welles in The Third Man, "The violent Italian culture that produced the Borgias also produced Michelangelo, while all the Swiss, known for 500 years of order and good manners, could come up with was the cuckoo clock!"



 I'm fascinated by bubbles and crashes. They have a romantic feel, with all the theatrical elements reflected in a simple chart: enthusiasm, greed, madness, drama, fear, despair, and deception. My website has an entire section devoted to this phenomenon; I really believe that the study of these extremes can help us better understand the normal behavior of markets.

But enough theory! Japan small caps together with the GCC markets were the first bubbles to pop in 2006, and they haven't recovered since. The Mothers Index is probably one of the most manic-depressive of all markets I'm aware of. Since 2002 it has managed to climb from 500 to 2500 before falling back to 1500 in 2003, climbing back to 2500 in 2005, to finally loose 70% and counting. If you're looking for low correlations markets don't look further! But wait, I forgot to tell you that the bottom of 2002 was the terminal slot of a 90% freefall off its stratospheric 7500 peak in 1999!

Is this a sign of things to come in our part of the world? In spite of my general bullishness there are warning signs of sporadic irrationalities. How else can you name a struggling ex-dot com such as Artnet (Germany) that has an EBITDA of Euro 1 Mio and is valued at Euro 100 Mio?

But that's precisely the beauty of bubbles; they have this unmistakable flavor that brings out the best and worse of human beings. In the early stage you don't participate because you have decided that they are irrational. Then, after a rise of 50% you are still congratulating yourself, but you do have a little remorse for these opportunity costs. Then, after another +100% rise the elixir makes its way to your most greedy brain corners, and finally you decide to jump in (after finding the rational of course!). One of the most intriguing aspects of bubbles is that you make the highest returns precisely when nearing the peak.

Another fascinating aspect of bubbles is how they managed to fool everyone. Look at a chart of Deutsch Telecom since the late 1990s. What the Germans used to call the "Volksaktie" (the people's stock), looks more like a comedy than a romantic act. Actually, the chart does remind us of an inverted "V."

I wish I had kept all these useless analysts' reports on Deutsche Telekom (among others). They would have made for a great laugh today. But strangely they all disappear under some rug, no more trace in Bloomberg or anywhere. Maybe it's the invisible hand!



 I just read The Alchemy of Finance from George Soros (it's never too late!).

As much as I was fascinated by Mr. Soros's description of market mechanisms and his reflexivity theory, I found his analysis flawed and mainstream when he begins to make long-term macro-economic predictions.

Now that's funny. One of history's most successful fund managers turned out to be wrong on most of his long-term predictions: the decline of the US economy, the rise of Japan as the next superpower, the Imperial cycle, etc.

So how can it be that someone who was wrong on so many predictions turned out to have generated such amazing returns for so long? Could it be that the achemy is nothing more than a great camouflage?

I see brilliant economists who are very accurate in their long-term predictions and present analysis, but somehow they can be lousy when it comes to managing money and "be right" within a tolerable time-horizon. On the other hand, I see brilliant fund managers who, I think, are lousy economists; maybe for the better, their success can't necessarily be attributed to what they believe is the true cause.

Mr. Soros's understanding of market characteristics (rational and irrational) and of markets participants is undeniable. And that, combined with a form of intuition, could be his main strength. Most important, he is very successful at "being right" within the next six months, which is all that matters for most investors! How it is packaged for the public and is a different matter.

Riz Din adds: 

I formed a very similar opinion after reading Alchemy. I find it astounding how someone's long term convictions can be so off base while his trading produces super profits. After reading the insightful trading-diary portion of the book, I concluded that his strengths lie in his not trading based on his long-term views, but rather listening and reacting to the market on a day to day basis. His somewhat stubborn bearishness seemed absent in the day-to-day trading mode.



 From Bloomberg today:

"German Finance Minister Peer Steinbrueck will try to win support for closer hedge-fund scrutiny at this weekends G8 meeting. However, Germany's task will be complicated by U.S. Treasury Secretary Henry Paulson's decision to stay away from the gathering to prepare for meetings with Chinese officials next week."

And the best part:

"The U.S. and the U.K. disagree, arguing that markets are better placed than governments to keep an eye on the pools of capital."

Now that's a nice slap in the face! Are the Germans totally naive or did they really think they could take some lead in this topic, especially with the ex-CEO of the world's largest bank turned hedge fund and the representative of Europe's largest financial centre?

An independent research house recently commented: It's a bit like being stuck in the corner of a Hollywood party. You're busting to say something, but Tom Cruise, Angelina Jolie, and Scarlett Johansson keep turning their backs. And Hank Paulson, Ben Bernanke, and Alan Greenspan have already cornered the canapés and are on the other side of the room, laughing and joking with Zhou Xiaochuan and Jin Renqing of China, and Japans Koji Omi and Toshihiko Fukui, Asia's key Finance Ministers and Central Bankers.



 I was just checking some fares for a short trip. What does it tell you about relative sector performance and inflation expectations when a round trip coach flight from Europe to JFK costs less than an upscale hotel room in New York? In other words, 15 hours in the sky at close to mach one is about equal to 24 rrs at zero speed in a Manhattan small luxury room! Air travel probably can't get much cheaper than this, but real estate in Manhattan could have some room to correct. Like Japan in the mid 80s the process could stretch on for a while before it reverts, if it ever does!



Diagnosing the System, by Stafford Beer (John Wiley & Sons) This books presents an interesting way of looking at organizational structure, but some of the terms could be applied in a financial markets system/context. Here are a few excerpts:

  1. Viable: able to maintain a separate existence
  2. Homeostasis: stability of a system's internal environment, despite the system's having to cope with an unpredictable environment
  3. Invariant: a factor in a complicated situation that is unaffected by all the changes surrounding it
  4. Variety: a measure of complexity: the number of possible states of a system
  5. The Law of Requisite Variety: only variety can absorb variety (Ashby's Law)
  6. Attenuator: a device that reduces variety
  7. Amplifier: a device that increases variety
  8. Transducer: encodes or decodes a message whenever it crosses a system boundary - and therefore needs a different mode of expression
  9. Oscillation: failing to settle down in homeostatic equilibrium, a dynamic system over-corrects itself continuously



 There has been entirely too little thought given to the mechanism, pathways and reasons that negative feedback works in markets. Perhaps the main reason is that the feeding web is based on a reasonable stability in what and how much is being eaten and recycled.

The people who consume and redistribute must maintain a ready and stable supply of those who produce. They develop mechanisms to keep everything going. One of them is the specialization and great efficiency in their activities. If markets deviate too much from the areas and levels within which the specialization has developed, then much waste and new effort and mechanisms will be necessary.

Aside from the grind that trend following causes (i.e. the losses in execution), and the negative feedback system of movements in the supply and demand schedules that equilibrate, which Marshall pioneered and are now standard in economics, and the numerous other reasons I've set forth (e.g. the fixed nature of the system and the flexibility to profit from it), this appears to me to be the main reason that trend following doesn't work.

Here are a few interesting articles on the subject:

How Great Traders Make Millions in Up or Down Markets 

Does Trend Following Work On Stocks?

Interviews At RealWorld Trading

Why I Don't Believe in Trends

Briefly Speaking . . . 

Bill Rafter writes: 

Dr. Bruno had posed the idea of beating an index by deleting the worst performers. This is an area in which we have done considerable work. Please note that we do not consider this trend-following. The assets are not charted, just ranked.

Let us imagine an investor who is savvy enough to identify what is strong about an economy and invest in sectors representative of those areas, while avoiding sectors representing the weaker areas of the economy. Note that we are not requiring our investor to be prescient. He does not need to see what will be strong tomorrow, just what is strong and weak now, measured by performance over a recent period.

What is a market sector? The S&P does that work for us, and breaks down the overall market (that is, the S&P 500) into 10 Sectors. They further break it down into 24 Industry Groups, and further still into 60-plus Industries and 140-plus Sub-Industries. The number of the various groups and their constituents changes from time to time as the economy evolves, but essentially the 500 stocks can be grouped in a variety of ways, depending on the degree of focus desired. Some of the groupings are so narrow that only one company represents that group.

Our investor starts out looking at the 10 Sectors and ranks them according to their performance (such as their quarterly rate of change). He then invests in those ranked first through fourth (25 percent in each), and maintains those holdings until the rankings change. How does he do? Not bad, it turns out.


From 1990 through 2006, which encompasses several types of market conditions, the overall market managed an 8 percent compound annual rate of return. Our savvy investor achieved 10.77%. A less savvy investor who had the bad fortune to pick the worst six groups would have earned 7.23%. Those results are below. (Note, for comparison purposes, all results excluded dividends.)


How can our savvy investor do better? By simply sharpening one's focus, major improvements can be achieved. If instead of ranking the top 4 of10 Sectors, our savvy investor invests in a similar number (say the top 4, 5 or 6) of the 24 Industry Groups, he achieves a 13.12% compoundedannual rate of return over the same period. Note that the same stocks are represented in the 10 Sectors and the 24 Industry Groups. At no time did he have to be prescient.


One thing you will notice from the graphs above is that the equity curves of our savvy and unlucky investors mimic the rises and declines of the market index itself. Being savvy makes money but it does not insulate one from overall bad markets because the Sectors and even the Industry Groups are not significantly diversified from the overall market.

Why not keep going further out and rank all stocks individually? That clearly results in superior returns, but the volume of trading is such that it can only be accomplished effectively in a fund structure - not by the individual. And even ranking thousands of stocks will not insulate an investor from an overall market decline, if he is only invested in equities. The answer of course is diversification.

It is possible to rank debt and alternative investment sectors alongside equities, in the hope of letting their performances dictate what the investor should own. However the debt and commodities markets have different volatilities than the equities markets. Anyone ranking them must make adjustments for their inherent differences. That is, when ranking really diverse assets, one must rank them on a risk-adjusted basis for it to be a true comparison. However if we make those adjustments and rank treasury bonds (debt) against our 24 Industry Groups (equity) we can avoid some of the overall equity declines. We refer to this as a Strategic Overlay:


Adding this Strategic Overlay increases the returns slightly, but more important, diversifies the investor away from some periods of total equity market decline. We are not talking of a policy of running for cover every time the equities markets stall. In the long run, the investor must be in equities.

Invariably in ranking diverse assets such as equities, debt and commodities, our investor will be faced with a decision that he should be completely out of equities. It is likely that will occur during a period of high volatility for equities, but one that has also experienced great returns. Thus, our investor would be abandoning equities when his recent experience would suggest otherwise. And since timing can never be perfect, it is further likely that the equities he abandons will continue to outperform for some period. On an absolute basis, equities may rank best, but on a risk-adjusted basis, they may not. It is not uncommon for investors to ignore risk in such a situation, to their subsequent regret.

Ranking is not without its problems. For example, if you are selecting the top 4 groups of whatever category, there is a fair chance that at some time the assets ranked 4 and 5 will change places back and forth on a daily basis. This "flutter" can be easily solved by providing those who make the cut with a subsequent incumbency advantage. For a newcomer to replace a list member, it then must outrank the current assets on the selected list by the incumbency advantage. This is very similar to the manner in which thermostats work. We have found adding an incumbency advantage to be a profitable improvement without considering transactions costs. When one also considers the reduced transaction costs, the benefits increase even more.

Another important consideration is the "lookback" period. Above we used the example of our savvy investor ranking assets on the basis of their quarterly growth. Not surprisingly, the choice of a lookback period can have an effect on profitability. Since markets tend to fall more abruptly than they rise, lookback periods that perform best during rising markets are markedly different from those that perform best during falling markets. Determining whether a market is rising or falling can be problematic, as it can only be done with certainty in retrospect. However, another key factor influencing the choice of a lookback period is volatility, which can be determined concurrently. Thus an optimal lookback period can be automatically determined based on volatility.

There is certainly no question that a diligent investor can outperform the market. By outperforming the market we mean that he will achieve a greater average rate of return than the market, while limiting the maximum drawdown (or percentage equity decline) to less than that experienced by the market. But the average investor is generally not up to the diligence or persistence required.

In the research work illustrated above, all transactions were executed on the close of the day following a decision being made. Thus the strategy illustrated is certainly executable. Nothing required a forecast; all that was required was for the investor to recognize concurrently which assets have performed well over a recent period. It is not difficult, but requires daily monitoring.


Charles Pennington writes:

Referring to the MathInvestor's plot:

www.mathinvestdecisions.com/Worst_6_of_10.gif :

At first glance it appears that the "Best" have been beating the "Worst" consistently.

In fact, however, all of the outperformance was from 1990 through 1995. From 1996 to present, it was approximately a tie.

Reading from the plot, I see that the "Best" portfolio was at about 2.1 at the start of 1996. It grew to about 5.5 at the end of the chart for a gain of about 160%. Over the same period, the "Worst" grew from 1.3 to 3.2, a gain of about 150%, essentially the same.

So for the past 11 years, this system had negligible outperformance.

One should also consider that the "Best" portfolio benefits in the study from stale pricing, which one could not capture in real trading. Furthermore, dividends were not included in the study. My guess is that the "Worst" portfolio would have had a higher dividend yield.

In order to improve this kind of study, I would recommend:

1.) Use instruments that can actually be traded, rather than S&P sectors, in order to eliminate the stale pricing concern.

2.) Plot the results on a semilog graph. That would have made it clear that all the outperformance happened before 1996.

3.) Finally, include dividends. The reported difference in compound annual returns (10.8% vs 8.0%) would be completely negated if the "Worst" portfolio had a yield 2.8% higher than the "Best".

Bill Rafter replies:

Gentlemen, please! The previously sent illustration of asset ranking is not a proposed "system," but simply an illustration that tilting one's portfolio away from dogs and toward previous performers can have a beneficial effect on the portfolio. The comparison between the 10 Sectors and the 24 Industry Groups illustrates the benefits of focus. That is, (1) don't buy previous dogs, and (2) sharpen your investment focus. Ignore these points and you will be leaving money on the table.

We have done this work with many different assets such as ETFs and even Fidelity funds (which require a 30-day holding period), both of which can be realistically traded. They are successful, but not overwhelmingly so. Strangely, one of the best asset groups to trade in this manner would be proprietarily-traded small-cap funds.

Unfortunately if you try trading those, your broker will disown you. I mention that example only to suggest that some assets truly do have "legs," or "tails" if you prefer. I think their success is attributed to the fact that some prop traders are better than others, and ranking them works. An asset group with which we have had no success is high-yield debt funds. I have no idea why.

A comment from Jerry Parker:

 I wrote an initial comment to you via your website [can be found under the comments link by the title of this post], disputing your point of view, which a friend of mine read, and sent me the following:

I read your comment on Niederhoffer's Daily Spec in response to his arguments against trend following. Personally, I don't think it boils down to intelligence, but rather to ego. Giving up control to an ego-less computer is not an easy task for someone who believes so strongly in the ability of the human mind. I have great respect for his work and his passion for self study, but of course disagree with his thoughts on trend following. On each trade, he is only able to profit if it "trends" in a favorable direction, whether the holding period is 1 minute or 1 year. Call it what you will, but he trades trends all day.

He's right. I was wrong. Trend following is THE enemy of the 'genius'. You and your friends can't even see how stupid your website is. You are blinded by your superior intelligence and arrogance.

Victor Niederhoffer responds:

Thanks much for your contributions to the debate. I will try to improve my understanding of this subject and my performance in the future so as not to be such an easy target for your critiques.

Ronald Weber writes: 

 When you think about it, most players in the financial industry are nothing but trend followers (or momentum-players). This includes analysts, advisors, relationship managers, and most fund or money managers. If there is any doubt, check the EE I function on Bloomberg, or the money flow/price functions of mutual funds.

The main reason may have more to do with career risk and the clients themselves. If you're on the right side while everyone is wrong, you will be rewarded; if you're on the wrong side like most of your peers you will be ok; and if you're wrong while everyone is right then you're in trouble!

In addition, most normal human beings (daily specs not included!) don't like ideas that deviate too much from the consensus. You are considered a total heretic if you try to explain why, for example, there is no link between the weak USD and the twin deficits. This is true, too, if you would have told anyone in 2002 that the Japanese banks will experience a dramatic rebound like the Scandinavian banks in the early '90s, and so on, or if you currently express any doubt on any commodity.

So go with the flow, and give them what they want! It makes life easier for everyone! If you can deal with your conscience of course!

The worse is that you tend to get marginalized when you express doubt on contagious thoughts. You force most people to think. You're the boring party spoiler! It's probably one reason why the most successful money managers or most creative research houses happen to be small organizations.

Jeremy Smith offers:

 Not arguing one way or the other here, but for any market or any stock that is making all time highs (measured for sake of argument in years) do we properly say about such markets and stocks that there is no trend?

Vincent Andres contributes: 

I would distinguish/disambiguate drift and trend.

"Drift": Plentifully discussed here. "Trend": See arcsine, law of series, etc.

In 2D, the French author Jean-Paul Delahaye speaks about "effet rateau" (rake effect), here and here .

Basically, our tendency is to believe that random equals equiprobability everywhere (2D) or random equals equiprobability everytime (1D), and thus that nonequiprobability everywhere/everytime equals non random

In 1D, non equiprobability everytime means that the sequence -1 +1 -1 +1 -1 +1 -1 +1 is in fact the rare and a very non random sequence, while the sequences -1 +1 +1 +1 +1 +1 -1 +1 with a "trend" are in fact the truly random ones. By the way, this arcsine effect does certainly not explain 100% of all the observed trends. There may also be true ones. Mistress would be too simple. True drift may certainly produce some true trends, but certainly far less than believed by many.

Dylan Distasio adds:

 For those who don't believe trend following can be a successful strategy, how would you explain the long-term performance of the No Load Fund X newsletter? Their system consists of a fairly simple relative strength mutual fund (and increasingly ETF) model where funds are held until they weaken enough in relative strength to swap out with new ones.

The results have been audited by Hulbert and consistently outperform the S&P 500 over a relatively long time frame (1980 onwards). I think their results make a trend following approach worth investigating…

Jerry Parker comments again: 

All you are saying is that you're not smart enough to develop a trend following system that works. What do you say about the billions of dollars traded by trend following CTAs and their long term track records?

Steve Leslie writes:

 If the Chair is not smart enough to figure out trend following, what does that bode for the rest of us?

There is a very old yet wise statement: Do not confuse brains with a bull market.

Case in point: prior to 2000 the great tech market run was being fueled by the hysteria surrounding Y2K. Remember that term? It is not around today but it was the cause for the greatest bull market seen in stocks ever. Dot.com stocks and new issues were being bought with reckless abandon.

New issues were priced overnight and would open 40-50 points higher the next trading day. Money managers had standing orders to buy any new issues. There was no need for dog-and-pony or road shows. It was an absolute classic and chaotic case of extraordinary delusion and crowd madness.
Due diligence was put on hold, or perhaps abandoned. A colleague of mine once owned enough stock in a dot.com that had he sold it at a propitious time, he would have had enough money to purchase a small Hatteras yacht. Today, like many contemporary dot.coms, that stock is essentially worthless. It would not buy a Mad magazine.

Corporations once had a virtual open-ended budget to upgrade their hardware and software to prepare for the upcoming potential disaster. This liquidity allowed service companies to cash in by charging exorbitant fees. Quarter to quarter earnings comparisons were beyond belief and companies did not just meet the numbers, they blew by them like rocket ships. What made it so easy to make money was that when one sold a stock, all they had to do was purchase another similar stock that also was accelerating. The thought processes where so limited. Forget value investing; nobody on the planet wanted to talk to those guys. The value managers had to scrape by for years while they saw their redemptions flow into tech, momentum, and micro cap funds. It became a Ponzi scheme, a game of musical chairs. The problem was timing.

The music stopped in March of 2000 when CIO's need for new technology dried up coincident with the free money, and the stock market went into the greatest decline since the great depression. The NASDAQ peaked around 5000. Today it hovers around 2500, roughly half what it was 7 years ago.

It was not as if there were no warning signs. Beginning in late 1999, the tech market began to thin out and leadership became concentrated in a few issues. Chief among the group were Cisco, Oracle, Qwest, and a handful of others. Every tech, momentum, and growth fund had those stocks in their portfolio. This was coincident with the smart money selling into the sectors. The money managers were showing their hands if only one could read between the lines. Their remarks were "these stocks are being priced to perfection." They could not find compelling reasons not to own any of these stocks. And so on and on it went.

After 9/11 markets and industries began to collapse. The travel industry became almost nonexistent. Even Las Vegas went on life support. People absolutely refused to fly. Furthermore, business in and around New York City was in deep peril. This forced the Fed to begin dramatically reducing interest rates to reignite the economy. It worked, as corporations began to refinance their debt and restructure loans, etc.

The coincident effect began to show up in the housing industry. Homeowners refinanced their mortgages (yours truly included) and took equity out of their homes. Home-buyers were thirsty for real estate and bought homes as if they would disappear off the earth. For $2000 one could buy an option on a new construction home that would not be finished for a year. "Flipping" became the term du jour. Buy a home in a hot market such as Florida for nothing down and sell it six months later at a much higher price. Real estate was white hot. Closing on real estate was set back weeks and weeks. Sellers had multiple offers on their homes many times in the same day. This came to a screeching halt recently with the gradual rise in interest rates and the mass overbuilding of homes, and the housing industry has slowed dramatically.

Houses for sale now sit on the blocks for nine months or more. Builders such as Toll, KB, and Centex have commented that this is the worst real estate market they have seen in decades. Expansion plans have all but stopped and individuals are walking away from their deposits rather than be upside down in their new home.

Now we have an ebullient stock market that has gone nearly 1000 days without so much as a 2% correction in a day. The longest such stretch in history. What does this portend? Time will tell. Margin debt is now at near all-time highs and confidence indicators are skewed. Yet we hear about trend followers and momentum traders and their success. I find this more than curious. One thing that they ever fail to mention is that momentum trading and trend following does not work very well in a trendless market. I never heard much about trend followers from June 2000 to October 2002. I am certain that this game of musical chairs will end, or at least be temporarily interrupted.

As always, it is the diligent speculator who will be prepared for the inevitable and capitalize upon this event. Santayana once said, "Those who cannot remember the past are condemned to repeat it."

From "A Student:"

 Capitalism is the most successful economic system in the history of the world. Too often we put technology up as the main driving force behind capitalism. Although it is true that it has much to offer, there is another overlooked hero of capitalism. The cornerstone of capitalism is good marketing.

The trend following (TF) group of fund managers is a perfect example of good marketing. As most know, the group as a whole has managed to amass billions of investor money. The fund operators have managed to become wealthy through high fees. The key to this success is good marketing not performance. It is a tribute to capitalism.

The sports loving fund manger is a perfect example. All of his funds were negative for 2006 and all but one was negative over the last 3 years! So whether one looks at it from a short-term one year stand point or a three year perspective his investors have not made money. Despite this the manager still made money by the truckload during this period. Chalk it up to good marketing, it certainly was not performance.

The secret to this marketing success is intriguing. Normally hedge funds and CTAs cannot solicit investors nor even publicly tout their wares on an Internet site. The TF funds have found a way around this. There may be a web site which openly markets the 'concept' of TF but ostensibly not the funds. On this site the names of the high priests of TF are repeatedly uttered with near religious reverence. Thus this concept site surreptitiously drives the investors to the TF funds.

One of the brilliant marketing tactics used on the site is the continuous repetition of the open question, "Why are they (TF managers) so rich?" The question is offered as a sophist's response to the real world question as to whether TF makes money. The marketing brilliance lies in the fact that there is never a need to provide factual support or performance records. Thus the inconvenient poor performance of the TF funds over the last few years is swept under the carpet.

Also swept under the rug are the performance figures for once-great trend followers who no longer are among the great, i.e., those who didn't survive. Ditto for the non-surviving funds in this or that market from the surviving trend followers.

Another smart technique is how the group drives investor traffic to its concept site. Every few years a hagiographic book is written which idolizes the TF high priests. It ostensibly offers to reveal the hidden secrets of TF.

Yet after reading the book the investor is left with no usable information, merely a constant repetition of the marketing slogan: How come these guys are so rich? Obviously the answer is good marketing but the the book is moot on the subject. Presumably, the books are meant to be helpful and the authors are true believers without a tie-in in mind. But the invisible hand of self-interest often works in mysterious ways.

In the latest incarnation of the TF book the author is presented as an independent researcher and observer. Yet a few days after publication he assumes the role of Director of Marketing for the concept site. Even the least savvy observer must admit that it is extraordinary marketing when one can persuade the prospect to pay $30 to buy a copy of the marketing literature.

Jason Ruspini adds:

 "I attribute much of the success of the selected bigs to being net long leveraged in fixed income and stocks during the relevant periods."

I humbly corroborate this point. If one eliminates long equity, long fixed income (and fx carry) positions, most trend-following returns evaporate.

Metals and energies have helped recently, after years of paying floor traders.

Victor replies:

 I don't agree with all the points above. For example, the beauty of capitalism is not its puffery, but the efficiency of its marketing and distribution system as well as the information and incentives that the prices provide so as to fulfill the pitiless desires of the consumers. Also beautiful is in the mechanism that it provides for those with savings making low returns to invest in the projects of entrepreneurs with much higher returns in fields that are urgently desired by customers.

I have been the butt of abuse and scorn from the trend followers for many years. One such abusive letter apparently sparked the writer's note. Aside from my other limitations, the trend following followers apparently find my refusal to believe in the value of any fixed systems a negative. They also apparently don't like the serial correlation coefficients I periodically report that test the basic tenets of the trend following canon.

I believe that if there are trends, then the standard statistical methods for detecting same, i.e., correlograms, regressions, runs and turning point tests, arima estimates, variance ratio tests, and non-linear extensions of same will show them.

Such tests as I have run do not reveal any systematic departures from randomness. Nor if they did would I believe they were predictive, especially in the light of the principle of ever changing cycles about which I have written extensively.

Doubtless there is a drift in the overall level of stock prices. And certain fund managers who are biased in that direction should certainly be able to capture some of that drift to the extent that the times they are short or out of the market don't override it. However, this is not supportive of trend following in my book.

Similarly, there certainly has been over the last 30 years a strong upward movement in fixed income prices. To the extent that a person was long during this period, especially if on leverage, there is very good reason to believe that they would have made money, especially if they limited their shorts to a moiete.

Many of the criticisms of my views on trend following point to the great big boys who say they follow trends. To the extent that those big boys are not counterbalanced by others bigs who have lost, I attribute much of the success of the selected bigs to being net long leveraged in fixed income and stocks during the relevant periods.

I have no firm belief as to whether such things as trends in individual stocks exist. The statistical problem is too complex for me because of a paucity of independent data points, and the difficulties of maintaining an operational prospective file.

Neither do I have much conviction as to whether trends exist in commodities or foreign exchange. The overall negative returns to the public in such fields seem to be of so vast a magnitude that it would not be a fruitful line of inquiry.

If I found such trends through the normal statistical methods, I would suspect them as a lure of the invisible evil hand to bring in big money to follow trends after a little money has been made by following them, the same way human imposters work in other fields. I believe that such a tendency for trend followers to lose with relatively big money after making with smaller amounts is a feature of all fixed systems. And it's guaranteed to happen by the law of ever-changing cycles.

The main substantive objection to my views that I have found in the past, other than that trend followers know many people who make money following trends (a view which is self-reported and selective and non-systematic, and thus open to some of the objections of those of the letter-writer), is that they themselves follow trends and charts and make much money doing it. What is not seen by these in my views is what they would have made with their natural instincts if they did not use trend following as one of their planks. This is a difficult argument for them to understand or to confirm or deny.

My views on trend following are always open to new evidence, and new ways of looking at the subject. I solicit and will publish all views on this subject in the spirit of free inquiry and mutual education.

 Jeff Sasmor writes:

 Would you really call what FUNDX does trend following? Well, whatever they do works.

I used their system successfully in my retirement accounts and my kids' college UTMA's and am happy enough with it that I dumped about 25% of that money in their company's Mutual Funds which do the same process as the newsletter. The MFs are like an FOF approach. The added expense charges are worth it. IMO, anyway. Their fund universe is quite small compared to the totality of funds that exist, and they create classes of funds based on their measure of risk.

This is what they say is their process. When friends ask me what to buy I tell them to buy the FUNDX mutual fund if their time scale is long. No one has complained yet!

It ain't perfect (And what is? unless your aim is to prove that you're right) but it's better than me fumfering around trying to pick MFs from recommendations in Money Magazine, Forbes, or Morningstar.

I'm really not convinced that what they do is trend following though.

Dylan Distasio Adds:

 For those who don't believe trend following can be a successful strategy, how would you explain the long-term performance of the No Load Fund X newsletter?

Michael Marchese writes: 

In a recent post, Mr. Leslie finished his essay with, "I never heard much about trend followers from June 2000 to October 2002." This link shows the month-to-month performance of 13 trend followers during that period of time. It seems they did OK.

Hanny Saad writes:

 Not only is trend following invalid statistically but, looking at the bigger picture, it has to be invalid logically without even running your unusual tests.

If wealth distribution is to remain in the range of 20 to 80, trend following cannot exist. In other words, if the majority followed the trend (hence the concept of trends), and if trend following is in fact profitable, the majority will become rich and the 20-80 distribution will collapse. This defeats logic and history. That said, there is the well-covered (by the Chair) general market upward drift that should also come as no surprise to the macro thinkers. The increase in the general population, wealth, and the entrepreneurial spirit over the long term will inevitably contribute to the upward drift of the general market indices as is very well demonstrated by the triumphal trio.

While all world markets did well over the last 100 yrs, you notice upon closer examination that the markets that outperformed were the US, Canada, Australia, and New Zealand. The one common denominator that these countries have is that they are all immigration countries. They attract people.

Contrary to what one hears about the negative effects of immigration, and how immigrants cause recessions, the people who leave their homelands looking for a better life generally have quite developed entrepreneurial spirits. As a result, they contribute to the steeper upward curve of the markets of these countries. When immigrants are allowed into these countries, with their life savings, home purchases, land development, saving and borrowing, immigration becomes a rudder against recession, or at least helps with soft landings. Immigration countries have that extra weapon called LAND.

So in brief, no - trends do not exists and can not exist either statistically or logically, with the exception of the forever upward drift of population and general markets with some curves steeper than others, those of the countries with the extra weapon called land and immigration.

A rereading of The Wealth And Poverty Of Nations, by Landes, and the triumph of the optimist may be in order.

Steve Ellison adds:

 So Mr. Parker's real objective was simply to insult the Chair, not to provide any evidence of the merits of trend following that would enlighten us (anecdotes and tautologies that all traders can only profit from favorable trends prove nothing). I too lack the intelligence to develop a trend following system that works. When I test conditions that I naively believe to be indicative of trends, such as crossovers of moving averages, X-day highs and lows, and the direction of the most recent Y percent move, I usually find negative returns going forward.

Bacon summarized his entire book in a single sentence: "Always copper the public play!" My more detailed summary was, "When the public embraces a particular betting strategy, payoffs fall, and incentives (for favored horsemen) to win are diminished."

Trend Following — Cause, from James Sogi: 

Generate a Brownian motion time series with drift in R

WN <-rnorm(1024);RW<-cumsum(WN);DELTAT<-1/252;

MU<-.15*DELTAT;SIG<-.2*sqrt(DELTAT);TIME<-(1:1024)/252 stock<-exp(SIG*RW+MU*TIME) ts.plot(stock)

Run it a few times. Shows lots of trends. Pick one. You might get lucky.

Trend Following v. Buy and Hold, from Yishen Kuik 

The real price of pork bellies and wheat should fall over time as innovation drives down costs of production. Theoretically, however, the nominal price might still show drift if the inflation is high enough to overcome the falling real costs of production.

I've looked at the number of oranges, bacon, and tea a blue collar worker's weekly wages could have purchased in New York in 2000 versus London in the 1700s. All quantities showed a significant increase (i.e., become relatively cheaper), lending support to the idea that real costs of production for most basic foodstuffs fall over time.

Then again, according to Keynes, one should be able to earn a risk premium from speculating in commodity futures by normal backwardation, since one is providing an insurance service to commercial hedgers. So one doesn't necessarily need rising spot prices to earn this premium, according to Keynes.

Not All Deer are Five-Pointers, from Larry Williams

 What's frustrating to me about trading is having a view, as I sometimes do, that a market should be close to a short term sell, yet I have no entry. This betwixt and between is frustrating, wanting to sell but not seeing the precise entry point, and knowing I may miss the entry and then see the market decline.

So I wait. It's hard to learn not to pull the trigger at every deer you see. Not all are five-pointers… and some will be bagged by better hunters than I.

From Gregory van Kipnis:

 Back in the 70s a long-term study was done by the economic consulting firm of Townsend Greenspan (yes, Alan's firm) on a variety of raw material price indexes. It included the Journal of Commerce index, a government index of the geometric mean of raw materials and a few others. The study concluded that despite population growth and rapid industrialization since the Revolutionary War era, that supply, with a lag, kept up with demand, or substitutions (kerosene for whale blubber) would emerge, which net-net led to raw material prices being a zero sum game. Periods of specific commodity price rises were followed by periods of offsetting declining prices. That is, raw materials were not a systematic source of inflation independent of monetary phenomena.

It was important to the study to construct the indexes correctly and broadly, because there were always some commodities that had longer-term rising trends and would bias an index that gave them too much weight. Other commodities went into long-term decline and would get dropped by the commodity exchanges or the popular press. Just as in indexes of fund performance there can be survivor bias, so too with government measures of economic activity and inflation.

However, this is not to say there are no trends at the individual commodity level of detail. Trends are set up by changes in the supply/demand balance. If the supply/demand balance changes for a stock or a commodity, its price will break out. If it is a highly efficient market, the breakout will be swift and leave little opportunity for mechanical methods of exploitation. If it is not an efficient market (for example, you have a lock on information, the new reality is not fully understood, the spread of awareness is slow, or there is heavy disagreement, someone big has to protect a position against an adverse move) the adjustment may be slower to unfold and look like a classic trend. This more often is the case in commodities.

Conversely, if you find a breakout, look for supporting reasons in the supply/demand data before jumping in. But, you need to be fast. In today's more highly efficient markets the problem is best summarized by the paradox: "look before you leap; but he who hesitates is lost!"

Larry Williams adds:

I would posit there is no long-term drift to commodities and thus we have a huge difference in these vehicles.

The commodity index basket guys have a mantra that commodities will go higher - drift - but I can find no evidence that this is anything but a dream, piquant words of promotion that ring true but are not.

I anxiously stand to be corrected.

Marlowe Cassetti writes:

 "Along a similar vein, why would anybody pay Powershares to do this kind of work when the tools to do it yourself are so readily available?"

The simple answer is if someone wishes to prescribe to P&F methodology investing, then an ETF is a convenient investment vehicle.

With that said, this would be an interesting experiment. Will the DWA ETF be another Value Line Mutual Fund that routinely fails to beat the market while their newsletter routinely scores high marks? There are other such examples, such as IBD's William O'Neal's aborted mutual fund that was suppose to beat the market with the fabulous CANSLIM system. We have talked about the great track record of No-Load Fund-X newsletter, and their mutual fund, FUNDX, has done quite well in both up and down markets (an exception to the above mentioned cases).

For full disclosure I have recently added three of their mutual funds to my portfolio FUNDX, HOTFX, and RELAX. Hey, I'm retired and have better things to do than do-it-yourself mutual fund building. With 35 acres, I have a lot of dead wood to convert into firewood. Did you know that on old, dead juniper tree turns into cast iron that dulls a chain saw in minutes? But it will splinter like glass when whacked with a sledgehammer.

Kim Zussman writes:

…about the great track record of No-Load Fund-X newsletter and their mutual fund FUNDX has done quite well in both up and down markets… (MC)

Curious about FUNDX, checked its daily returns against ETF SPY (essentially large stock benchmark).

Regression Analysis of FUNDX versus SPY since inception, 6/02 (the regression equation is FUNDX = 0.00039 + 0.158 SPY):

Predictor    Coef         SE Coef           T             P
Constant    0.00039    0.000264        1.48        0.14
SPY            0.15780    0.026720        5.91        0.00

S = 0.00901468    R-Sq = 2.9%   R-Sq (adj) = 2.8%

The constant (alpha) is not quite significant, but it is positive, so FUNDX did out-perform SPY. Slope is significant and the coefficient is about 0.16, which means FUNDX was less volatile than SPY.

This is also shown by F-test for variance:

Test for Equal Variances: SPY, FUNDX

F-Test (normal distribution) Test statistic = 1.17, p-value = 0.009 (FUNDX<SPY)

But t-test for difference between daily returns shows no difference:

Two-sample T for SPY vs FUNDX

            N          Mean      St Dev       SE Mean
SPY      1169     0.00041  0.0099       0.00029
FUNDX 1169     0.00045  0.0091       0.00027   T=0.12        

So it looks like FUNDX has been giving slight/insignificant out-performance with significantly less volatility; which makes sense since it is a fund of mutual funds and ETFs.

Even better is Dr Bruno's idea of beating the index by deleting the worst (or few worst) stocks (new additions?).

How about an equal-weighted SP500 (which out-performs when small stocks do), without the worst 50 and double-weighting the best 50.

Call it FUN-EX, in honor of the fun you had with your X that was all mooted in the end.

Alex Castaldo writes:

The results provided by Dr. Zussman are fascinating:

The fund has a Beta of only 0.157, incredibly low for a stock fund (unless they hold a lot of cash). Yet the standard deviation of 0.91468% per day is broadly consistent with stock investing (S&P has a standard deviation of 1%). How can we reconcile this? What would Scholes-Williams, Dimson, and Andy Lo think when they see such a low beta? Must be some kind of bias.

I regressed the FUNDX returns on current and lagged S&P returns a la Dimson (1979) with the following results:

Regression Statistics
Multiple R                0.6816
R Square                 0.4646
Adjusted R Square   0.4627
Standard Error        0.0066
Observations           0.1166

                    df         SS          MS         F            Significance F
Regression       4      0.0444    0.0111   251.89    8.2E-156
Residual      1161      0.0511    4.4E-05
Total           1165      0.0955

                Coefficients  Standard Error  t-Stat        P-value
Intercept  8.17E-05     0.000194           0.4194        0.6749
SPX          0.18122      0.019696           9.2007        1.6E-19
SPX[-1]    0.60257      0.019719         30.5566        6E-151 SPX[-2]    0.08519      0.019692           4.3260        1.648E-05 SPX[-3]    0.04524      0.019656           2.3017        0.0215

Note the following:

(1) All four S&P coefficients are highly significant.

(2) The Dimson Beta is 0.914 (the sum of the 4 SPX coefficients). The mystery of the low beta has been solved.

(3) The evidence of price staleness, price smoothing, non-trading, whatever you want to call it is clear. Prof. Pennington touched on this the other day; an "efficiently priced" asset should not respond to past S&P price moves. Apparently though, FUNDX holds plenty of such assets (or else the prices of FUNDX itself, which I got from Yahoo, are stale).

S. Les writes:

Have to investigate the Fund X phenomenon. And look to see how it has done in last several years since it was post selected as good. Someone has to win a contest, but the beaten favorites are always my a priori choice except when so many others use that as a system the way they do in sports eye at the harness races, in which case waiting for two races or two days seems more apt a priori. VN 

 I went to the Fund X website to read up, and the information is quite sparse. It is a very attenuated website. I called the toll free number and chatted with the person on the other line. Information was OK, but, in my view, I had to ask the proper questions. One has several options here. One is to purchase the service and do the fund switching themselves based on the advice of their experts. The advisory service tracks funds that have the best relative strength performance and makes their recommendations from there, www.fundx.com.

Another is to purchase one of four funds available. They have varying levels of aggressiveness. Fund 3 appears to be the recommended one.

If one purchases the style 3 one will get a very broad based fund of funds. I went to yahoo to look up the holdings at www.finance.yahoo.com/q/hl?s=FUNDX.

Top ten holdings are 47.5% of the portfolio, apparently concentrated in emerging markets and international funds at this time.

In summary, if money were to be placed into the Fund X 3 portfolio, I believe it would be so broad based and diversified that returns would be very watered down. Along with risk you would certainly be getting a lot of funds. You won't set the world on fire with this concept, but you won't get blown up, either.

Larry Williams adds:

My 2002 book, Right Stock at the Right Time, explains such an approach in the Dow 30. The losers were the overvalued stocks in the Dow.It is a simple and elegant idea…forget looking for winners…just don't buy overvalued stocks and you beat the idex.

This notion was developed in 1997, when i began actually doing it, and written about in the book. This approach has continued to outperform the Dow, it is fully revealed.

Craig Cuyler writes:

Larry's comment on right stock right time is correct and can be used to shed a little bit of light on trend following. This argument is at the heart of fundamental indexation, which amongst other points argues that cap weighting systematically over-weights overvalued stocks and under-weights undervalued stocks in a portfolio.

Only 29% of the top 10 stocks outperformed the market average over a 10yr period (1964-2004) according to Research Affiliates (this is another subject). The concept of "right stock right time" might be expressed another way, as "right market right time." The point is that constant analysis needs to take place for insuring investment in the products that are most likely to give one a return.

The big error that the trend followers make, in my mind, is they apply a homogeneous methodology to a number of markets and these are usually the ones that are "hot" at the time that the funds are applied. The system is then left to its own devices and inevitably breaks down. Most funds will be invested at exactly the time when the commodity, currencies, etc., are at their most overvalued.

Some worthwhile questions are: How does one identify a trend? Why is it important that one identifies a trend? How is it that security trends allow me to make money? In what time frame must the trend take place and why? What exactly is a trend and how long must it last to be so labeled?

I think it is important to differentiate between speculation using leverage and investing in equities because, as Vic (and most specs on the list) point out, there is a drift factor in equities which, when using sound valuation principles, can make it easier to identify equities that have a high probability of trending. Trend followers don't wait for a security to be overvalued before taking profits. They wait for the trend to change before then trying to profit from the reversal.

Jeff Sasmor adds:

As a user of both the newsletter and the FUNDX mutual fund I'd like to comment that using the mutual fund removes the emotional component of me reading the newsletter and having to make the buys and sells. Perhaps not an issue for others, but I found myself not really able to follow the recommendations exactly - I tend to have an itchy trigger finger to sell things. This is not surprising since I do mostly short-term and day trades. That's my bias; I'm risk averse. So the mutual fund puts that all on autopilot. It more closely matches the performance of their model portfolio.

I don't know how to comment on the comparisons to Value Line Arithmetic Index (VAY). Does anyone follow that exactly as a portfolio?

My aim is to achieve reasonable returns and not perfection. I assume I don't know what's going to happen and that most likely any market opinion that I have is going to be wrong. Like Mentor of Arisia, I know that complete knowledge requires infinite time. That and beta blockers helps to remove the shame aspect of being wrong. But there's always an emotional component.

As someone who is not a financial professional, but who is asked what to buy by friends and acquaintances who know I trade daily (in my small and parasitical fashion), I have found that this whole subject of investing is opaque to most people. Sort of like how in the early days of computing almost no one knew anything about computers. Those who did were the gatekeepers, the high priests of the temple in a way. Most people nowadays still don't know what goes on inside the computer that they use every day. It's a black box - opaque. They rely on the Geek Squad and other professionals to help them out. It makes sense. Can't really expect most people to take the time to learn the subject or even want to. Should they care whether their SW runs on C++ or Python, or what the internal object-oriented class structure of Microsoft Excel is, or whether the website they are looking at is XHTML compliant? Heck no!

Similarly, most people don't know anything about markets; don't want to learn, don't want to take the time, don't have the interest. And maybe they shouldn't. But they are told they need to invest for retirement. As so-called retail investors they depend on financial consultants, fee-based planners, and such to tell them what to do. Often they get self-serving or become too loaded with fees (spec-listers who provide these services excepted).

So I think that the simple advice that I give, of buying broad-based index ETFs like SPY and IWM and something like FUNDX, while certainly less than perfect, and certainly less profitable than managing your own investments full-time, is really suitable for many people who don't really have the inclination, time, or ability to investigate the significant issues for themselves or sort out the multitudes of conflicting opinions put forth by the financial media.

You may not achieve the theoretical maximum returns (no one does), but you will benefit from the upward drift in prices and your blended costs will be reasonable. And it's better than the cash and CDs that a lot of people still have in their retirement accounts.

BTW: FOMA = Foma are harmless untruths, intended to comfort simple souls.
An example : "Prosperity is just around the corner."

I'm not out to defend FUNDX, I have nothing to do with them. I'm just happy with it. 

Steve Ellison writes: 

One might ask what the purpose of trends is in the market ecosystem. In the old days, trends occurred because information disseminated slowly from insiders to Wall Streeters to the general public, thus ensuring that the public lost more than it had a right to. Memes that capture the public imagination, such as Nasdaq in the 1990s, take years to work through the population, and introduce many opportunities for selling new investment products to the public.

Perhaps some amount of trending is needed from time to time in every market to keep the public interested and tossing chips into the market. I saw this statement at the FX Money Trends website on September 21, 2005: "[T]he head of institutional sales at one of the largest FX dealing rooms in the US … lamented that for the past 2 months trading volume had dried up for his firm dramatically because of the 'lack of trend' and that many 'system traders' had simply shut down to preserve capital."

I saw a similar dynamic recently at a craps table when shooters lost four or five consecutive points, triggering my stop loss so that I quit playing. About half the other players left the table at the same time. "The table's cold," said one.

To test whether a market might trend out of necessity to attract money, I used point and figure methodology with 1% boxes and one-box reversals on the S&P 500 futures. I found five instances in the past 18 months in which four consecutive reversals had occurred and tabulated the next four points after each of these instances (the last of which has only had three subsequent points so far). The results were highly non-predictive.

Starting        Next 4 points
Date      Continuations  Reversals
01/03/06        3            1
05/23/06        1            3
06/29/06        2            2
08/15/06        2            2
01/12/07        1            2
             —–        —–
               9           10

Anthony Tadlock writes:

I had intended to write a post or two on my recent two week trip to Cairo, Aswan, and Alexandria. There is nothing salient to trading but Egypt seems to have more Tourist Police and other guards armed with machine guns than tourists. It is a service economy with very few tourists or middle/upper classes to service. Virtually no westerners walk on the streets of Cairo or Alexandria. I did my best to ignore my investments and had closed all my highly speculative short-term trades before leaving for the trip.

While preparing for taxes I was looking over some of my trades for last year. Absolute worst trade was going long CVS and WAG too soon after WalMart announced $2 generic pricing. I had friends in town and wasn't able to spend my usual time watching and studying the market. I just watched them fall for two days and without looking at a chart, studying historical prices and determining how far they might fall, decided the market was being stupid and went long. Couldn't wait to tell my visitors how "smart" a trader I was and my expected profit. It was fun, until announcement after announcement by WalMart kept causing the stocks to keep falling. The result was panic selling near the bottom, even though I had told myself before the trade that I could happily buy and hold both. Basically, I followed all of Vic's rules on "How to Lose."

Trends: If only following a trend meant being able to draw a straight line or buy a system and buy green and sell red. The trend I wrote about several months ago about more babies being born of affluent parents still seems to be intact. I have recently seen pregnant moms pushing strollers again. Planes to Europe have been at capacity my last two trips and on both trips several crying toddlers made sleep difficult, in both directions. Are people with young children using their home as an ATM to fund a European trip? Are they racking up credit card debt that they can't afford? Depleting their savings? (Oh wait - Americans don't save anything.) If they are, then something fundamental has changed about how humans behave.

From James Sogi:

My daughter the PhD candidate at Berkeley in bio-chem is involved in some mind-boggling work. It's all very confidential, but she tried to explain to me some of her undergrad research in words less than 29 letters long. Molecules have shapes and fit together like keys. The right shape needs to fit in for a lock. Double helices of the DNA strand are a popular example, but it works with different shapes. There is competition to fit the missing piece. They talk to each other somehow. One of her favorite stories as a child was Shel Silverstein's Missing Piece. Maybe that's where her chemical background arose. Silverstein's imagery is how I picture it at my low level. 

Looking at this past few months chart patterns it is impossible not to see the similarity in how the strands might try fit together missing pieces in Wykoffian functionality. The math and methods must be complicated, but might supply some ideas for how the ranges and strands in the market might fit together, and provide some predictive methods along the lines of biochemical probability theory. I'll need some assistance from the bio-chem section of the Spec-list to articulate this better.

From Kim Zussman: 

Doing same as Alex Castaldo, using SPY daily change (cl-cl) as independent and FUNDX as dependent gave different resluts:

Regression Analysis: FUNDX versus SPY ret, SPY-1, SPY-2

The regression equation is FUNDX = 0.000383 + 0.188 SPY ret - 0.0502 SPY-1 - 0.0313 SPY-2

Predictor     Coef           SE Coef       T        P
Constant     0.000383    0.00029      1.35    0.179
SPY ret       0.187620    0.03120      6.01    0.000*            SPY-1        -0.050180    0.03136     -1.60   0.110           SPY-2        -0.031250    0.03121     -1.00   0.317 *(contemporaneous)

S = 0.00970927   R-Sq = 3.2%   R-Sq (adj) = 3.0%

Perhaps FUNDX vs a tradeable index is the explanation.




What has struck me most since 2003 is that an increasing number of people (brokers, money manager, individual investors) seem to have become “do-it-yourself” little hedge fund managers (at least in their imagination). You notice it mainly in their use of market language: “CME, futures, shorting, active trading, modeling, soft commodity, stop-loss, technical analysis, macro this and that.”

It all brings me back to Vic’s good old theory on the “ever changing cycle,” as many smart people (again!) have been proven wrong since the post-2000 period.

Just as the crowd (doesn’t exclude investment banks’ analysts) got used to the new ‘99 economy of one-way price behavior (irrational only for those who didn’t participate!), and as (almost) everyone became a dot-com expert with a dot-com style language, the market began to … well, we all know the story.

Post 01′ everyone began to put their brain at work trying to adapt to a new environment (basically high volatility, one-way down with a few false starts). While the crowd finally repositioned away from equity into hedge-funds, bonds and structured products–there we go again: U-turn big time (low volatility, one-way up!). Most people found their portfolios on the wrong-side (again!).

Ironically, the best performers over the past three years have been the good-old fashioned money managers with a well diversified equity portfolio, watching their boring positions beat most hedge-funds (with a few exceptions) with probably much less work involved and more flexibility (liquidity).

This is oversimplifying of course, but somehow sadly true … and I can’t wait for the next cycle, as many investors are still stuck in real estate, hedge-funds and protected notes.



This week’s Barron’s plugged GaveKal’s idea of the “platform company”. This is a polite illustration of Bacon’s concept of the public’s being always behind the form, as pointed out by Victor and Laurel. GaveKal has been on this theme for at least three years. I’ve been a subscriber to their services since the late 1990s. GaveKal is smart. I’m talking super smart. They are a small team of French, English and Americans based in Hong Kong and I have met the team a few times. It amazes me how their output is consistently informative, rational and timely. They beat the pants off the big guns on the Street like Steve Roach et al.. It shows how a small team of highly motivated individuals can outperform their much better capitalized peers. There is a lesson in that for all of us. By the way, I highly recommend their book Our Brave New World. The tome is a cage match between market memes and logical quantitative thought. I am in no way associated with the authors, other than being a regular subscriber to their services and do not in any way benefit from increased sales of their book, etc.

Gabriel Ivan replies:

There is no doubt in my mind that Charles Gave is “super smart” but his Barron’s interview is riddled with half-truths, smoke and mirrors, which shows crystal clear he’s got an agenda. Just a few remarks were:

Reading his comments on the “platform companies” I experienced a NASDAQ 2000 deja-vu all over again. Back then, the smart folks that run Legg Mason today, also had a pretty compelling argument on how dotcoms can generate cash flow indefinitely through working capital and low Capex layouts. The “new economy” model, and we know how that story ends. Furthermore, he presents the valid r&d expenses argument, but conveniently forgets to adjust the Motorola capital to cash flow example accordingly.

In the current-account deficit argument he starts by anchoring the reader in the 7% of GDP as being a banana republic level, but then he switches immediately to the net worth comparison where the 1.5% looks better. This jumping around between income statement and balance sheet would make any Shenanigan CFO blush.

Including the volatile stock and bond holdings in the U.S. net worth calculations, (although a favorite shill of the Fed. Reserve), is not comforting if the trade policy is based on it.

He claims most of the U.S. consumption goes towards healthcare and education like it’s a positive thing per se, with no regards to the return on that capital spent. The quality of healthcare and education (esp. undergrad) per $ spent might have been a better read.

The nail in the coffin is the play-down of the real estate problem. It is the true mark of poor salesmen — lying about the obvious. The growth in real estate prices, in other countries says nothing about their affordability, own to rent analysis, etc., nor do the interest rate increases have an effect, when such increases have much lower impact due to central banks’ lower reach onto business cycles, the absence of mortgage markets, etc..


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