Regardless of who wins this election, this market is going to rip to the upside — and I can be quite certain of that without even looking at the numbers, just the very tentative nature of nearly everyone around it. I've smelled this dish cooking before, and so have a lot of folks on this site. I don't know who is going to win this, but I do know that a 500 bln stop (not even flip) in the hemorrhage of balance of payments translates into an instant 3% GDP growth, and the multiplier effect on that puts us at 1965 growth, or even Truman-era growth. I was fortunate, in the 1980s and latter half of the 90s, anyone who showed up on time with their shoes on did pretty well. I had some lucky breaks too, which didn't hurt (and, as I have said repeatedly, and bears repetition for no one's sake other than my own perspective — "Anything that I may have has been given to me.").

But nothing has gone anywhere since the Spring of 2001. It would be wonderful to see growth in double digits, or just robust, 80s-90s style for the morass of all these millennials. People teasingly refer to them as "Snowflakes," but I have proactively and of my own volition gone out of my way in the past since 2007 to get into their heads, to work alongside them — not your typical snowflakes but snowflakes of all varieties. For all the negatives said about these kids (which I do not disagree with!), they are a much harder working, industrious, adaptable and far more pleasant gang than we boomers were. And for exactly them, I hope they get a break here and get the the change they deserve, and the economic growth they can use.

Stefan Martinek writes: 


The whole 2014, maybe the first part of 2015, you mentioned multiple times the issue of liquidity, the risk of a huge crash, structural liquidity problems, ETFs, etc. Do you consider all that is over? I always thought that the trend in equities (from 2009) will take some time to reverse, that there will be some chopping on the top before the next up move. I never tested this, but the chopping for another 1-2 years would look proportional, beautiful, expected… Of course growth will resume at some point. I thought that maybe market needs to take back some easy money generated in the last decade before going forward.

Jack Tierney, the President of the Old Speculator's Club writes in: 

A few observations on this thread.

First, perhaps because of its nature, Dailyspec tends to look for the cause of many social phenomena in financial terms. In our discussions, Mr. Haave suggested "that while the Southern states get more benefits those benefits go predominantly to the minority that votes democratic." Mr. Aiken's thoughts illustrate exactly why: "NY and IL are 'red states' outside of NYC and Chicago, respectively…" I can't speak for NY, but "ethnic demographics" are the key driver Big D majorities in IL…I have no idea how to quantify, or define, the effect of "cultural indices."

Mr. Hauser added a vital insight in suggesting that "many elderly move South in their retirement years" and, by extension, while their benefits add to the states' totals, it does not necessarily translate into democrat votes. I am one of those "expats" and can say with some certainty that we have had a marginal impact.

But several very important issues are either overlooked or avoided to explain why these states remain in the red column. First, and most important, many in the current (and, more than likely, continual regime) have quite boldly and heavy handedly attacked the religious foundations of many individuals in these states…certainly enough to swing the vote.

Second, gun control is no minor issue. Its rare to find a resident in my part of the state who doesn't own both a shotgun and a deer rifle…their purposes, though, are concentrated on bringing down consumable game and/or eliminating non-human varmints. Though many own pistols, their numbers are dwarfed by the many in our larger cities who use them for quite different purposes.

Third is education or, more specifically, the make-up of the curriculum and the content of the mandated text books. Many of today's parents and grandparents are now, after a significant amount of published and broadcast news, aware that they have received a less than adequate education. When school prayer was outlawed they were upset, but, over time, grudgingly came to accept it. However, when the study of Islam was made part of required courses, things became (and remain) a point of relentless debate.

Other points of contention which aren't appreciated outside the immediate area, but which lead many to the red side of the spectrum are the "elite" dictates discouraging, eliminating, or outlawing the Confederate flag, tobacco farming, soft drinks, fried food, salt, and "dipping."

Individually, these may seem to be trivial matters and, in many cases, "settled issues." Big mistake. Taken together, these represent stark examples of big government going well beyond its mandate. It took the Tea Party to underscore this and galvanize the voters…not just here but in other states as well. The current Democrat platform offers them nothing of substance and can do nothing to alter this situation.

Will things change? Sure they will. Despite a growing number of home schoolers and charters, an overwhelming majority of young students remain classroom captives in a system that has essentially replaced much that shaped western civ with new age agitprop.

But there will always be a remnant and as surely as all grand socialist experiments fail, this, too, shall pass.

Andy Aiken responds: 

It's tricky to quantify in toto, but consider a simple variable: married vs. unmarried. There is a stark difference in party ID and voting behavior between the two subgroups, all else being equal.



 It's unlikely that many have heard of the Ten Thousand Commandments. It's the title of an annual report which measures Congressional legislative progress and then contrasts its record with that of the "rules and regs" initiated by a host of federal agencies in the same period.

The most recent report reveals that Congress managed to enact 72 pieces of legislation. Federal agencies, chief among them the Departments of the Treasury, Commerce, Interior, Health and Human Services, Transportation, and the Environmental Protection Agency pumped through 3,659 new rules. The annual "rules and regs" price tag? $1,863 trillion - to put that amount in perspective, the Feds annual "take" from individual taxpayers was $1.234 trillion.

In addition to the enacted rules and regs, there are an additional 2,500 "proposed" regs awaiting a final go-ahead. There are also over 24,000 "public notices" regarding many of our daily concerns. Among these are issues of health care, education, energy production, finance, land and resource management, etc.

It's imperative to understand that agency rules and regs are legally binding decisions which are written and implemented by groups of nameless, faceless, and unelected individuals — many of whom, like members of Congress, have agendas of their own, but unlike members of Congress, are unanswerable to the American public.



 There seems to be a widely held belief that the Russian leaders are, and always have been, a collection of power-hungry thugs with little or no finesse. I have long felt that Putin, far from fitting that stereotype, has been a patient and successful player in the "great game."

Rather than get involved in the current duel, I suggest checking out New Lies for Old by Anatoliy Golitsyn. Written in 1984, Golitsyn had defected to America in 1961. His book, in addition to being a severe critique of the west's intelligence services, gives a whole series of predictions as to what would (and has) happen to Russia and its government. Considering how accurate most of his prognostications have turned out, it might not be a total waste of time. It's a long read and can be arduous, so I suggest reading some of the reviews before making the commitment.

Stefan Jovanovich adds his two cents: 

1. The comparisons of Putin to Stalin have to stop. Roy Medvedev (a Georgian) has calculated that Stalin killed 20 million Soviet citizens (this does not include any of the people who died during WW II) when you total all the premature deaths from these events: 1 million imprisoned or exiled between 1927 to 1929; 9 to 11 million peasants forced off their lands and another 2 to 3 million peasants arrested or exiled in the mass collectivization program; 1 million exiled from Moscow and Leningrad in 1935; 4 to 6 million dispatched to forced labor camps; and at least 1 million arrested for various "political crimes" from 1946 to 1953. The Soviet records alone directly confirm these deaths: 6 to 7 million killed by an artificial famine in 1932-1934 and 1 million executed during the ''Great Terror'' of 1937-1938. Solzhenitsyn thought Medvedev's number was almost a naive underestimation; he put the figure at 60 million.

2. The use of Emersonian racialist categories (Slavs) is not only bad history but also in very bad taste, given what the 14th Amendment to our Constitution says. "Slav" is a category invented by people who wished eastern Europeans nothing but harm (like Marx's label of "capitalism" for the freedom to own yourself and your own property). No one now alive in Eastern Europe recognizes the word as having any meaning. The Ukrainians speak a language largely indistinguishable from Russian; but they are separated from the Russians by religion, heritage and history. They are only fellow "Slavs" in the eyes of the rest of the world, which knows as much about their history as David knows about Hungary and Kosovo and the occupation of Paris by the German Army in WW II and the List knows about the Russians' two-hundred year war with the Chechens and the four hundred year war in Northern Ireland among the Irish, Scots, English, French and Spanish.




I've heard that the players in a commodity market know who holds the inventory, how much and where it is.

Is this true? I know it's been questioned for decades by those who indulge in gold and silver trading. With silver especially, it has long been argued that in any given month there is far more silver shorted than is deliverable. Similar questions have been raised about gold. Just recently I read a speculative assertion that a similar situation exists in the oil market.

Keep in mind, this is not an attempt to open a discussion on any of the above mentioned markets. However, if "real" commodities are allowed to trade in tandem with "paper" representations of those commodities, how do you traders determine if the "market price" is truly representative of a supply-and-demand dynamic rather than a manipulation?



 For the history buffs, this is a really cool set of depression era photographs in color

Also, while I'm on the subject, I would not recommend the book The Worst Hard Time: The Untold Story of Those who Survived the Great American Dust Bowl by Timothy Egan. While the author does an excellent job describing the period, the book goes on too long painting the picture of the day ad nauseum. I had to put it down after 2/3rds in. 

Jack Tierney, President of the Old Speculator's Club, writes in:

Sorry to hear that Vince didn't like this book. It was among the non-fiction titles my library book club included last year. At year end we generally review the group's opinion on our choices — this was selected as the "best" of the non-fiction selections. It resonated especially well with those older members who felt that their parents had informed them fully on just how bad the Depression (and the weather) really was.

It also demonstrated that Steinbeck's Grapes of Wrath presented only a slice of what actually transpired…and that those stuck in the Oklahoma/Texas area had no place to run or hide — and that FDR's plan to plant two million trees where trees had never grown was a great "works" project, but one with little chance of success.

More important (at least to me) was Washington's (and the east coast power elite's) ongoing indifference to problems in "fly-over" land. When one of the major dust storms engulfed the Capitol, remediation bills that had lingered in Congress for years, got passed overnight. 



 PJM capacity auctions for the post smokestack-era shows coal did not exit the market as many expected. Approximately 15,500 MWe more capacity show up than was needed (equivalent to 15 - 20 nuclear power plants). Of the 15,500 MW, 10,000 MW was coal.

In my opinion, this is huge. Power producers paid billions to upgrade their coal units to comply with EPA's new regulations effective 2015. Many of those units failed to clear the auction. Companies like Exelon gambled most these units would avoid the capex and exit the market. Companies like NRG Energy gambled ROI's on additional capex for older coal units would pay off. Both companies may have miscalculated, at least for 2016.

The aggregate loss in the PJM market is over $4 billion (when compared to the previous year). This loss is only for 2016. Subsequent years are unknown.

The President of the Old Speculator's Club, Jack Tierney, writes: 

Germany already has one of the highest per capita carbon footprints in the EU, largely driven by its use of coal. Phasing out nuclear will increase coal use significantly. Germany is building new lignite stations without prospect of carbon capture and storage (CCS). These are the worst possible policies from a climate change perspective.

German policy, with a nuclear moratorium and a move to more coal but without mitigating CCS, seems short-sighted and parochial. It undermines the EU position on climate change issues, already weakened by the shortcomings of its flagship emissions trading scheme.

A good article about it.

Additionally, CBI is supposedly lined up to do a significant amount of work in constructing new gas-to-LNG plants - a major reason it has moved up substantially this year.



 The Rothschild dynasty famously got one of its big breaks following Wellington's victory at Waterloo. With an information network, backed by his four brothers spread across the Continent, Nathan Meyer was able to receive news of the victory twenty-four hours ahead of everyone else. He then either (i) bought the British bond market, (ii) bear raided it and then bought it, or (iii) was really short (as the tale is untrue) and lost money, depending upon which version of history you want to believe. To finance the trade, Nathan Meyer utilised OPM. He had been elected fiduciary of Prince William's fortune. This should have been invested in gilts, but instead was used to back the Rothschilds' speculation.

But the Rothschilds were far from the only banking family to sprout up in the era. Constant European conflict provided repeated demand for sovereign capital. For example, 1715 and 1745 (eerily familiar dates) saw domestic invasion of Britain by the Old Pretender and Bonnie Prince Charlie.

Some useful lessons can be learned from the Goldsmid banking family. Led by Benjamin and Abraham Goldsmid, they were essentially on the other side of the Rothschilds' famous trade.

According to historian Derek Taylor, the Goldsmids got their start as London bill brokers to provincial banks. They moved into forex and loan raising, and eventually received an appointment as the Government's preferred banker alongside Baring Brothers. The Goldsmids were granted British preference by breaking a City cartel. The Government had historically raised funds on the back of gold reserves, but towards the end of the 1700s reserves had dwindled and brokers were demanding high discounts on underwritings. By fully extending their resources and forgoing substantial discounts, the Goldsmids broke the cartel.

Leadership of domestic financing led the Goldsmids to capital raisings for British supported activities in Russia, Prussia, Austria, and Hanover. The Goldsmids, not wanting to loose their preferred status, continued to back operations to the hilt.

 Sadly, the strain from it all led to the suicide of Benjamin Goldsmid inv1808. Abraham Goldsmid continued operations, but in 1810 was caught with £800,000 of an unsaleable new issue, at which point the bond market dropped heavily in value. Abraham continued to back the deteriorating position, to great cost. He eventually committed suicide as well. The tragedy came only a few years from the nadir of the bond market and the Rothschilds' huge coup.

We might draw some useful lessons from the comparison:

1. If you accrue a fortune by repeatedly backing an attractive risk, at some point, stop doing that and diversify.

2. If you're leveraged in a position that's breaking down and could take you under, get out no matter what the emotional or reputational cost.

3. Make sure you have sufficient reserves to survive the nadir of the market in order to prospect in the rebound.

4. If it all blows up, dust yourself off and try again. People hated you for your success on the way up and hated themselves for their schadenfreude on the way down. Either way, suicide is not the answer!

John Tierney, the President of the Old Speculator's Club, writes in:

It seems there are several other useful lessons here. First, bankers with "skin in the game" will tend to be far more scrupulous in their lending practices than those utilizing other people's savings and backed by government deposit insurance. Second, shame and disgrace, once as fundamental to business as honesty and integrity, has been supplanted by bailouts and reinstatement.

Richard Owen replies: 

I dig that people want to see bank CEOs disgraced, so these are great points.

I away wonder though, given there is a banking crisis approximately every decade, and without central bank support, e.g., in the 19th century, thousands of banks went poof every crisis, the only logical conclusion would be that no rational individual should become the CEO of a massively leveraged carry trade, as is will automatically lead to disgrace at some point. Nature is pretty smart for solving solvable problems by iteration, it has failed to do so for banking so far. Which gives pause for thought. [*Pulls out narrow banking manual*]. The only banks that seems to survive century to century are places like Moses Mocatta, which don't run a real balance sheet.



 I became curious on the issue of usury sometime back and found an article (which I cannot re-discover) which made the following case:

Once upon a time in Europe, most people lived in widely separated agrarian communities under the power and protection of a "lord." These were essentially closed communities with closed economies. As a result, the lord of the village did his best to make sure his community possessed all the trades and skills necessary to get by year-to-year. Surpluses were rare, trade even rarer.

So it wasn't unusual for a village economy to have roughly the same amount of capital circulating from year to year to year. Any significant or ongoing loss of capital could cripple an already fragile economy. An overwhelming amount of the capital (and labor) was controlled by the lord with the church coming in a distant second. It was apparent to most that the viability of the community depended almost totally on the fiscal wisdom of the lord.

Lords had significant holdings in land, crops, and rents; many were also very ambitious, others merely spendthrifts. It was not unheard of for a lord to borrow against any one or several of his many assets. If these "loans" were at no interest, repayments could be made out of the regular expected flow of funds - and the village's capital would remain static. However, a loan at interest meant that each payment meant a small loss to the capital base.

The larger the loans, the longer the prepayment, the more the capital base dwindled. If, and when, a loan was completely repaid (with interest), the community would be that much poorer. Obviously, it would be the peasants, tradesman, and artisans who would suffer first and most; the lord and the church later. So the church banned usury as a measure to short-stop "executive mismanagement."

As far as I can determine there was no scriptural issue here. In fact, in the parable of the talents, one man buried his coin lest it be lost, incurring the wrath of the master. He incurred that wrath anyway for not putting the coin to productive use and, at the least, he should "have deposited my money with the bankers, and at my coming I should have received back my own with interest."

I'm not familiar with the Hebrew of Islamic positions on this issue, so I can't say whether or not theirs are similar or more nuanced.



 I can't recall recommending any TV or radio program; I certainly never thought I'd recommend one broadcast by NPR. But this is one that should be heard:

Trends With Benefits


150,000 added to job market every month - 250,000 added to disability program every month - disability pay amounts to $1000 a month plus full medical coverage

disability lawyers representing refused applicants face no government adversary arguing for initial decision -win about 75% of time against unrepresented appellant

states paying welfare (expending state dollars) hire specialist firm which goes through welfare list in effort to switch recipients to disability program (using federal dollars) - gets paid $2300 a head, if a child or children in that same household can be found learning disabled or otherwise, firm receives $1400 and child gets $700 a month

Clinton's "successful" war on welfare ushered in era of disability growth

The broadcast is to be one of several that run all week — will be very interested in hearing reactions of NPR regulars to this cultural apostasy.



 Complicated things of high quality don't just break down in a big cataclysm. Take a modern car. They are well built. The engine will last for half a million miles if properly maintained. However it is the little things that start breaking: the plastic ashtray falls out, the rubber seals wear, the bearing start getting loose, the fabric tears. These little things can get more serious. If the seal leaks, and the oil is low, the engine can wear prematurely. The shocks wear, and the ball joints go. The steering gets loose. Small things can lead to bigger problems. Take a modern city, like New York in the 70s. First it's some graffitti, then some broken windows, soon vagrants move in, garbage piles up and the city head to bankruptcy. It's the small things first. Take a huge economy like the US. The GDP isn't going to fall apart. Employment probably won't go off a cliff. It's going to be small things first. Take a corporation. The earning won't collapse right off. It will be receivables up, inventory up, sales down, or even smaller things. Maintenance up, or down. Take a market like the Nasdaq.

Leo Jia writes: 

These are very insightful. Our bodies are about the same. And while the destruction process happens this way, it is interesting to note the creation process is also quite like this. First, small trivial things get created, then the large more significant things. All things seem to move like this in circles. Bubbles start small, grow big, then shrink a little, then burst.

Jim Lackey adds: 

Hold on ther' hoss. The first thing we do, it wash, feed and stable the horses before the cowboys. This car post caught my eye. If the simplest part breaks, a mass air flow sensor, the engine runs rich and bad things happen. Yet we have a dummy light! Even back in the day we had dummy lights for high temp, or low oil pressure. These little 25-200 dollar parts break on brand new machines. Take the worn out 100k 7 year old car. Yes what you say is true. 35 years ago the 100k car may be dead in the crusher for scrap. Today what people thing of the heart of the car is the engine. With CNC , CAD and CAM all short for, computers do not have UAW contract for, tired nor sick nor go out of whack and slap together the last V-8 at the end of bowling night. Therefore the engines are designed and build and installed to Engineer spec. They do last for 250k. Most but not all of them do 250k except for the short cut copy cat Far East red flag waiving commies BYD my 6.

The little things that are build to spec yet cant possibly last for 7-12 years as you say rubber O rings, Balls joints, tie rod end,s brake rotors struts all must be changed or maintained. The most complex and weakest link of the chain on new cars is automatic transmissions. I made one the of the worst mistakes trading this week. I was taught about racing cars bikes and anything with an engine, failures. In a way we kept track of the max min wait time on a failure of a part. We change them at or before the median failure time. I forgot all about that for our trading. Didn't lose, it was much worse than that to a racer not winning is as painful as being on fire.

One spec posted a customer service report on cars and diamonds weeks ago. The gist was one man said change all parts. The other man said wait 5,000 miles. The implication was the second man said wait, and was best. What wasn't taken into account was two things. The performance of the car and his safety and time of a second trip to the shop. Other was the parts probably were not in stock at dealer B. There fore the guy simply told what most want to hear, no money today rather than we will have to keep your car over night as the parts are coming off the ship from Japan.

The discussion also goes to medical. too much of medicine is based on illness. When talking to my Docs and their ranges for normal I burst out and said, your kidding right? How do basic stats escape Medical training? How much better can we all feel if we did X and Y do the the people all wait until a breakdown and see the Doc for solution which prescribed as X. I know why. I did the same thing last week on my trading. I didn't consider wellness. I was waiting for the market to become sick then do trade X. My trading doc even warned me and kept me from having a bad loss. He was focused on wellness ( is best I can describe) I was looking for the illness. (Okay so the markets went 1530 to 1490 and I said why not wait for 1475 to come in? I pull my racing pits cap over my head and tell the wife, at least I didn't lose short)

How much better will a car perform with New tires brakes and rotors vs a car with 5,000 miles of anecdotal testimony to wait. I can give you the stats on new vs 20k or 40k miles and after one race on a real car. Racers change brakes and tires after each and every weekend. We rebuild engines most every weekend depending on class. In some pro classes we rebuilt engines after every single 1/4 mile run, new pistons, rods and bearings, Valve sprints and retainers, all seals and gaskets.

What the anecdote above states is the engine will run for 250,000 so then to should the car. Yet the car will not move with a broken ball joint. The engine will die with a broken timing belt and over heat with a bad water pump, that now last to 110,000 miles. So the engine system is still only good to run for 110,000 miles. The trans and rear end gears all die at 125-150 and the fuel pumps and all do the same. The catalytic converters die way before this. Most cars have a 5 year 100,000 mile warranty on the drive train. Its only 3/36 or 5/50k on bumper to bumper.. The emission control systems or parts are now only good for 80,000 miles.

So in theory your car is now worse than a 1969 model. It will break down and be non drive able 20,000 miles before the 1969 model died and went to the crusher. Yet your correct, at 80k miles your car will be fixed for 1,000 bucks and in 69 you needed a new engine trans and every hose belt and switch was dead.

This entire deal of failures was burned into my trading memory banks for life. I used it in some ad hoc way since MR Vic showed me in 2004. Yet the advances in his technology on how to quickly repair the trading engine and have it on the road to profitability was lacking by lackey.

The story I wrote about my teenager failing to appreciate the need for trans fluid made me dump the BMX van for 25% above scrap rates to a new friend. I am now shopping for a good used van. There is also a meme on pricing of used vs new cars. We try not use never always when it comes to life. Yet the financial advice out there has man a never and always do.

Too many men are all over the past 10 year return of stock at or about nil. The we are in a range trader calls have been falsified many times this decade. The SPU made a high in 07 the Russel or what ever made a high this year. Yet its true and maybe always is tr that not all stocks make a new high as the joke is many stocks fail to exist, survivor ship bias. Its all mumbo as they use all or this or that index.

Then to say all new cars have engines that run to 250k miles and do not fall apart all at once.. is also false. A brand new car has the ability to shit down or go into safe mode. Its broken according to our ladies who drive. It can only be idled at 35mph to your local shop. With palladium and platinum are such high prices the emission control systems are too expensive. The cars heart is not the engine, it never was the brain. It used to be the driver and the mechanic. Now its a computer. We have fire trucks that will not start if the diesel engines emission system is on soot burn mode.

Now we have computers in control of making markets for the global stock and futures markets. All economic reality seems to be lost in the short term. If political hack from Berlin says A and EU hack said confirm A and US is about to have a press conference you can forget about the next four hours prices being predictive. The markets computers go into safe mode. They will move and shut down quickly and we must, as traders idle at 35 MPH to our local dealer of data to find out what happens next after that part failure.

For what ever reasons I have gained my passion for markets back. Of course we know where we lost it. What makes men take risk? What makes risk takers skip a generation? Is that true? I had a friend as me this week about becoming a spec. I asked him to answer this one question. Would you rather trade your money and take risk per 500k account to eeke out a living or use another mans money and take 20% of profits yet no fees? I have asked this Q so many times and it reveals much about a mans capacity to take risk, yet most important to take pain. Ya see racers, we do not care about losing crashing or getting hurt. Its part of the game. We do not like losing, yet not winning that is so painful, like I said we wear fire suits and not winning is as bad as completely destroying your car on driver error and being on fire.

The gist of the answer is if your rather trad OPM you do not belong in the hours 1/2 day markets, ever. Do not do it..It has to be the hardest way to make a living. The easiest way if you have any capacity to sell or raise money is ride the tides and collect a fee. I am sure you can find a way to make a firm stand on the middle ground. Some fine research and pick some fine stocks and short some over plus commodities after the bubble has been busted and hold that roll that for years. Now you have the ability to take down a small fee and a profit incentive.

What has changed my attitude is being certain about one thing. These markets change direction and patterns change so quickly its fast, like racing and Fun! Where in the hades have I been the past few years not to look at all of this as a positive thing for, me. I love to go fast. lack

My motivational quotes for this week attached.

August 1908 issue of a periodical for bicyclists called "Bassett's Scrap Book". A short item contrasted the modern age to ancient times and presented a variation of the epigraph:

"Naram Sin, 5000 B.C. We have fallen upon evil times, the world has waxed old and wicked. Politics are very corrupt. Children are no longer respectful to their elders. Each man wants to make himself conspicuous and write a book."Johnson's often-quoted definition of genius, "the infinite capacity for taking pains."

"genius is inspiration, talent and perspiration." Kate Sanborn

The President of the Old Speculator's Club, Jack Tierney, writes: 

I seem to recall the name

Carnegie's "Gospel of Wealth" idea took his peers by storm at the very moment the great school transformation began—the idea that the wealthy owed society a duty to take over everything in the public interest, was an uncanny echo of Carnegie's experience as a boy watching the elite establishment of Britain and the teachings of its state religion…Since Aristotle, thinkers have understood that work is the vital theater of self-knowledge. Schooling in concert with a controlled workplace is the most effective way to foreclose the development of imagination ever devised. But where did these radical doctrines of true belief come from? Who spread them? We get at least part of the answer from the tantalizing clue Walt Whitman left when he said "only Hegel is fit for America." Hegel was the protean Prussian philosopher capable of shaping Karl Marx on one hand and J.P. Morgan on the other; the man who taught a generation of prominent Americans that history itself could be controlled by the deliberate provoking of crises. Carnegie used his own considerable influence to keep this expatriate New England Hegelian the U.S. Commissioner of Education for sixteen years, long enough to set the stage for an era of "scientific management" (or "Fordism" as the Soviets called it) in American schooling. Long enough to bring about the rise of the multilayered school bureaucracy. But it would be a huge mistake to regard Harris and other true believers as merely tools of business interests; what they were about was the creation of a modern living faith to replace the Christian one which had died for them. It was their good fortune to live at precisely the moment when the dreamers of the empire of business (to use emperor Carnegie's label) for an Anglo-American world state were beginning to consider worldwide schooling as the most direct route to that destination.

Mr. Krisrock writes: 

This happens when there is a world price for labor…that American foundations arranged for 100 years.

Jack Tierney responds:

I'll go along with the parts played by American foundations, but not the 100 years. In a recent book by David Horowitz, "The New Leviathan," he points out that many of the great foundations we still hear so much about have wandered substantially from the goals envisioned by their founders.

Among them are the Ford and Rockefeller foundations, as well as those of Pew and John MacArthur. Each accumulated substantial fortunes in very capitalistic endeavors…and expected their trusts to continue to promote efforts in that direction.

At first this worked as the initial appointed trustees were chosen by the benefactor. Over the years, however, (and this relates to my initial post) subsequent trustees went off in their own, very contrary direction. inevitably, they labeled these modifications as "progressive," a catchall phrase that seems to excuse almost any perversion of original intent.

Most of these changes in direction have occurred over the last 50 years as the original trustees passed away or retired. Only Olin was prescient enough to "sunset" his trust to forestall this drift.



 One of the recent Book Club selections we went through was O'Reilly's Killing Lincoln. It was a fast read with many interesting facts and quite a few questionable assumptions. Overall, Lincoln is depicted as a wonderful, caring man– as most of the reviews (almost all raves) attest. However, as a companion piece, I would recommend Lincoln Uncensored by Jospeh Fallon. The book is neither history nor commentary, but a compilation of Lincoln's views, taken from his speeches and written documents. They reveal a man of conflicting positions on important issues. Whether these "changes of heart" were a result of maturity, events, or circumstances is left to the reader. Whether the issue is slavery, religion, the constitution, states rights, or many of the other issues of the day, you can almost be sure to find that Lincoln, at one time or another, came down firmly on both sides.

P.S. I have been told that several organizations that typically carry all books on Lincoln have taken a pass on O'Reilly's effort (due to "many" inaccuracies). I have not checked up on this but the woman who informed me of it has rarely been incorrect (she is a retired history teacher, so this is more than a passing interest to her).



I cam across a great blog post about a very interesting paper called "Multiple Victim Public Shootings, Bombings, and Right-to-Carry Concealed Handgun Laws: A Study by Profs. John Lott and William Landes". This is the abstract:

Few events obtain the same instant worldwide news coverage as multiple victim public shootings. These crimes allow us to study the alternative methods used to kill a large number of people (e.g., shootings versus bombings), marginal deterrence and the severity of the crime, substitutability of penalties, private versus public methods of deterrence and incapacitation, and whether attacks produce "copycats."

Our results are surprising and dramatic. While arrest or conviction rates and the death penalty reduce "normal" murder rates, our results find that the only policy factor to influence multiple victim public shootings is the passage of concealed handgun laws. We explain why public shootings are more sensitive than other violent crimes to concealed handguns, why the laws reduce both the number of shootings as well as their severity, and why other penalties like executions have differential deterrent effects depending upon the type of murder.

The results of this paper support the hypothesis that concealed handgun or shall issue laws reduce the number of multiple victim public shootings. Attackers are deterred and the number of people injured or killed per attack is also reduced, thus for the first time providing evidence that the harm from crimes that still occur can be mitigated.

Not only does the passage of a shall issue law have a significant impact on multiple shootings but it is the only law related variable that appears to have a significant impact…A particularly surprising result is how the death penalty is so important in deterring murders generally, but has no significant impact on multiple victim public shootings.

Gary Rogan writes:

I have little interest in guns one way or the other. What little interest I do have is based on the instructive nature of how magical thinking is applied by ideological fanatics to "solve" the problem exactly the wrong way.

1. It is clear that if you ban any kind of widely available gun type today, "the bad guys" will have access to guns for decades because there are currently hundreds of millions in circulation. It is also clear that access to guns will become more difficult for "the good guys". And while it is also clear that there will be SOME reduction in the type of gun violence like the latest incident, that was a very unusual case in that the nut stole the guns from his law-abiding mother. It is not at all clear how widespread such reductions would be given that the nut would still be able to obtain many forms of different guns from the same type of law-abiding source and more typical nuts would get some guns somewhere without any problem.

2. It is clear that when you create "gun free zones" and proudly advertise them as such you create "fish in a barrel" type situation for the nuts, which they find highly attractive both psychologically and practically.

3. It seems obvious that concealed carry permits and specifically having a lot of their holders in the former "gun free zones" will dramatically cut down on the number of casualties. This is due both to the ability to stop the nut and to the observed tendency of such nuts to kill themselves as soon as being even vaguely aware of a confrontation with another armed person. And of course just the knowledge that the formerly "gun free zone" no longer is will make that zone infinitely safer based on the deterrence effect. It would be therefore amazing to watch how the usual suspects immediately start talking about gun control without explaining anything about the linkage between such and the number of victims or even any logic behind their line of thinking, were it not their normal modus operandi. The same "logic" the usual suspects apply to higher taxes on the rich being beneficial, and Bush causing the big recession by his "policies" to which we don't want to go back to, is applied to gun control. This supports the theory I advanced a couple of weeks ago that the biggest thing that rules the world today is "suspension of disbelief".



 I'm not familiar with the habits of the California tradesman, but for any homeowner residing in a state where deer hunting is a second religion, this couple's action would be fully justified. "Holding a tradesman hostage during deer hunting season" ought to receive the same widely accepted legal defense of "He deserved killing". If it doesn't exist yet, one of our court's will surely invoke a doctrine of "compelling homeowner interest" to legitimize otherwise criminal activities.

Handyman Held Hostage In Morgan Hill, Forced To Fix Home MORGAN HILL:

Two people who live in a large Morgan Hill home have been arrested on suspicion of holding a handyman hostage and forcing him to do home repairs.

Investigators said the 50-year-old victim was lured to a home on 200 block of Caldwell Court Monday morning. The sprawling 4,600 square foot home has five bedrooms and is equipped with a pool, a beach volleyball court, and a tennis court.

"He was assaulted, he was threatened with his life, and he was forced to do some work at the house," Sgt. Jose Cardoza of the Santa Clara County Sheriff's Office told CBS 5.

Detectives said 36-year-old Jason DeJesus and 33-year-old Chanelle Troedson beat the handyman, threatened to kill him and forced him to fix several items in the house over a six-hour span. The repairs included a dishwasher and a broken door.



 In a discussion with Janine Wedel, author of The Shadow Elite, we discussed the prevalence of flexionism in other fields besides finance. She pointed out that big pharma has the same revolving door, and intersecting relations between consultants, government employees, university professorships, regulatory oversight, and profit making insider trading that so many of the graduates of my alma mater are so famous for and caused high officials to be fired after the payment of a 29 million fine for a friend. She pointed out that the military industrial complex is replete with such flexionism and pointed to such organizations as the BIA, and the directorships on military firms held by former high ranking generals. The recent spate of insider trading cases for hedge fundists who got information from Drs on the certification committees for drug efficacy, with more than 50 convictions so far shows how rampant this lapse is among Drs.

I immediately asked if romance was always involved in the rise and fall of such flexions and we discussed why pictures of the wife of one of the prime movers in my alma mater's foray into Russia, a hedge fundist, are no longer available on the Internet. And that led to a discussion of Petraeus's downfall and whether there is a invariable relation between flexionism and romance. Rumpole's famous lament "why is it always romance" was discussed. From my reading of economic history, I am currently reading e.g the pc book A New Economic View of American History by J. Atack and Peter Passell, I pointed out that our entire political history from the founding of America is replete with self dealing, flexionism and financial avarice influencing the course of events. We discussed the plight of holders of continental debt, and how relatives of Alexander Hamilton, then Secretary of the Treasury went to the south to buy the debt issued by the continental congresses at 8 cents on the dollar after southerners desperately needed the money for living expenses and were willing to take any amount for their worthless continentals, which Hamilton subsequently convinced Washington to redeem at par.

The history of the two Federal Banks of the United States also was replete with ample opportunities for financiers to profit, and the rise and fall of the Morrises and Biddle in conjunction with the fortunes of these banks, and their role in selling government debt before their fall was discussed.

A discussion of flexionism in Roman times could not be averred, and the self dealing of all the generals who were paid after political careers in the legislature with appointments to govern the provinces where they were expected to rekindle their fortunes with bribes from the merchants in the provinces, as well as the spoils of war was discussed. The Conway Rebellion where the revolutionary war almost ended with the sack of Washington by disgruntled soldiers wanting pay also came into discussion.

The questions arises—- what are the fields and times where flexionism must inevitably arise, and is it good or bad, and how prevalent is it in different economic systems and times.

Gary Rogan writes: 

Discussing the history of the world without self dealing and flexionism is like discussing human physiology without mentioning pathogens and immunity– it would be so incomplete as to not make any sense. Monarchy and aristocracy, the typical situation that humans found themselves in for almost their entire history in centralized societies, are basically codified and/or legalized systems of self dealing. The few attempts at democracy generally degenerated into flexionsims and self dealing with the passage of time. The short recent history of Egyptian democracy (one man, one vote, once) are probably at the short end of the spectrum and the unraveling American democracy is at the other.

It seems like there is no way to avoid self dealing altogether because human nature seems to be irresistibly drawn to it when the opportunity arises, but having a populace that is highly educated, full of enthusiasm and public spirit, and in some sense somewhat uniform in its composition, seems to control it to a degree. There is nobody to police self dealing and flexionism at the top but the population at large. The worst political systems will work better with a quality population, and that's one reason why the history of socialism is so different from one country to another.

Mick Tierney writes: 

On Nov. 19, the chair posted a theory put forward by Umberto Eco and his studies on mass media, culture, and interrupted romance. In respond to this most recent post, addressing flexions, prime movers, romance, etc., I suggest he once again visit Eco and his most recent "fictional" effort: The Prague Cemetery. It's a bear of a book - for the reader must first determine whether the narrators are, in fact, two individual in conflict, or whether it is a single schizophrenic doing battle with himself.

I placed "fictional" in quotes because all the events and participants [except for the narrator(s)] are real - and their exploits really occurred. Since I was to lead a discussion on the book, I spent hours Googling to fact check what seemed to be the familiar ramblings of the conspiracy nut. With the expected exceptions of the conversations, Eco lays out a history that makes it readily apparent that many of the events we once attributed to random occurrence and/or happenstance have been, in fact, orchestrated by individuals whose names you will most likely not find prominently mentioned.

His history covers most of the European countries as well as Russia. In his narrative, there is not a single country, nationality, religious or fraternal organization that does get libeled (although contrary to Russell Baker's contention, he doesn't even address wealthy white, Episcopalian males, much less slander them).

It's a monster book and not an easy read — if you're easily offended ignore it. If you want to witness an interesting account of the real causes behind "inexplicable events," it provides some interesting insights into powers that have always existed and that today's manipulators are, in fact, relatively ham-handed in their machinations.



 Did others notice that the media lavished fawning attentions on the incumbent this time as he swooped in for a post-Sandy look-see, versus the complete opposite, total opprobrium, against W when he humbly visited the post-Katrina landscape?

From the President of the Old Speculator's Club:

Having spent over 35 years in advertising, I look for campaign themes and whether or not they're effective. Once a successful one has been developed, it's important to study how it can be maintained, tweaked, or revamped to remain relevant. Frequently, this entails being somewhat less than completely forthcoming. The scriveners of the editorial department looked down upon us for this practice.*** (example at bottom)
Now they and their buddies who have been co-opted by the political establishment (hello, Messrs. Moyers, Stephanopoulus, Axelrod, Carney, etc. ), pretty much follow that same playbook. They take what's working, beat it to death, quickly abandon that which is not, and if it cannot be abandoned, it is re-fashioned into something that originally came from the other party (with years and years of congressional records, easy access to old speeches and videos. It's near impossible to NOT find a politician who didn't flip-flop on most issues…Ron Paul may be the exception but look what happened to him).

But there is one significant difference. When advertising a consumer product or service, all that is required is enough customers to make an acceptable profit — this number may be (relatively speaking) a very small percentage of the population. Historically, Rolls Royce, Remy Martin, Rolex, and Louis Vuitton have done very well with a small customer base. Chevy, Gilbey's, Timex, and Martha Stewart, on the other hand, need far more customers to turn a comparable profit.

Better quality goods, marked-up accordingly and marketed smartly ("at 60 MPH all you can hear is the ticking of the dashboard clock") will do very well, even in times of economic adversity. Goods of lesser quality, need a far broader audience and one more concerned with cost than quality or durability. Little wonder them that politicians require (by marketing standards) a staggering "50% plus 1" - one wonders that if it were not for the "two-party system," if anybody could ever get elected.

And here's where the current "rub" comes into play. Though the final result has been characterized in many different ways, the final numbers make it a very slim majority for the incumbent — slim enough, in, fact, that any one of several special interest groups (African-Americans, Hispanics, Roman Catholics, gays, pro-lifers, eco-friendlies, educators, union members, etc.) can claim their votes were the deciding factor.

In my old business, all we had to do, once the sale was made, was deliver the promised product. (If we didn't we could be prosecuted.) It's going to get real dicey when these various groups present the bill for their services (some already have). With a cupboard that's almost bare, the real fun is still ahead of us.

This is the post-Sandy problem that will have to be dealt with and the WH is going to need a magician more than a czar or mouthpiece.

***(I once received a nasty note from the Home Guide editor who chastised me for writing a nice review of a "terrible" restaurant. Well, of course, I wrote a nice review - they were a paying advertiser and I received, in addition to a free meal and copious amounts of gin, $30 tax-free - at the time I was making about $180 a week, my tax bracket was 28%, and I was paying close to a full week's salary in child support - so a free $30 was an incredible windfall. In any event, I pointed out that I had used about 400 of my 800 words raving about the establishment's use of anchovy stuffed olives in their very fine martinis. Another 250 words were devoted to the magnificent ambiance, prompt service, and large parking lot. What remained went to its pastoral location, extensive hours, and drive-out instructions - not a word about the quality of food. And, honestly, the food wasn't "terrible," but the Editor possessed a finer palate and a large enough salary to satisfy it…I got by at Franksville…with lots of sauerkraut and chili on top.)



No one has ever accused the BBC of being balanced, or even honest, especially when it comes to Israel. British anti-semitism in full show, or just plain stupidity? A great example.

Mick Tierney writes:

It's kind of surprising how many on the left see the BBC for exactly what it is, but insist that NPR is the epitome of even-handedness. Ann Coulter (certainly no friend of the left) pretty much nailed it when she suggested that NPR stood for "National Palestinian Radio."

David Lilienfeld adds:

From the "You can't make this stuff up" file:

I turned on the radio about 30 minutes ago thinking I was catching the morning business news. Unfortunately, it was the end of the BBC report on our local NPR station. I thought the show was finishing, but it turned out it wasn't. An Israeli commentary was being questioned by the show's host, and the following was heard:

Host: Isn't it true that Israel has killed many, many Palestinians in this 6 day war?

Israeli: Yes, that's true. Also true is that Hamas fired hundreds of rockets at Israel.

H: But wasn't Israel's response out of proportion to those rockets? I mean, those rockets didn't have much ability to kill anyone. Some didn't even have any bombs onboard.

I: No, it wasn't out of proportion. Would your country have tolerated such an attack as well as Israel has?

H: My country didn't kill a leader of a government.

I: A terrorist organization. And he was killed after the rockets starting firing. They have been firing for a long time.

H: But isn't it true that Israel left Hamas with no choice but to do something militarily to break the blockade Israel imposed? Israel says it wants to see a Palestinian state form, but how can one form if it has no chance of trade?

I: Hamas is a terror organization. It kills Israelis. It has been doing so and it will continue to do so if Israel doesn't do such things.

H: No matter. Secretary of State Hilary Clinton is going to the region to try and broker a cease-fire.

I: Yes. Prime Minister Netanyahu has said all along that diplomacy is always better than military action.

H: I'm hearing from lots of our listeners that while they sympathize with Israel needing to do something about the rocket fire, they think the last six days has been an over-reaction. Andy in Lagos, thank you for that observation. Perhaps Israel should have tried diplomacy before sending in its military.

I: Israel took the matter to the UN and the UN had no interest in dealing with the problem.

H: Maybe Israel should have tried harder. Lots of Palestinians would still be alive if it had given the UN more time.

At that point, I turned the radio off. The business news can wait; better to get my blood pressure back to normal.



 Hello everyone,

I visit my local McDonalds a few times a week for coffee.

Today for the first time i was asked if I wanted to contribute a dollar to the Ronald McDonald House and I said yes as it is a very good cause.

I wonder if their usual donations are now down due to a weak economy?



Jack Tierney writes: 

Alan, you can almost bet that contributions are down — maybe significantly. In the past week I've attended two board meetings. One at my church, another at our local Help Center. As you might expect, church contributions are down quite a bit — but that can happen for a variety of reasons. The real "tell" is reflected in the participation by those who tithe. This is an important number as those who practice it, keep it up even in hard times. When that figure drops noticeably, as it has, the most dependable sources are making less or nothing at all.

The situation at the Help Center isn't much better as many regular contributors are also church goers and their first contribution goes to the church, what's left to the Help Center. A big percentage of our money comes from big and small local businesses. That, too, has taken a hit — and despite several seasonal appeals has met with poor response.

The situation is particularly acute at this time (for all agencies like ours) because of a change in the Food Stamp payment schedule. Up until October of this year, most recipients received their electronic deposit on the first or second of the month (a major reason why Wal-Mart has revealed that the first of the month is usually their busiest (with many stores reporting their busiest hours are immediately after midnight). However, the recipients now receive their payments any time between the 1st and the 20th of the month. Since most barely scrimp by on a 30 day cycle, those who found themselves having to wait an additional week or three, flocked to our doors - and pretty much stripped us of all our stocks.

With little time, fewer dollars, and less enthusiasm, this will not be one of our better Thanksgivings (and we receive a lot of help from the local grocery stores who leave bins in prominent places for canned good and other non-perishables; the Library, Police, and Fire departments also give us a lot of help - yet things remain bleak. Generally,we dispense anywhere from 150-200 turkeys (9-12 lbs.) As of this morning we have only 71 available. So I wouldn't be at all surprised if McDonald's is experiencing smaller donations.

And after reading the Robert Reich piece that Kim submitted this morning, suggesting that 501(c)(3) charities could be run more efficiently and "equally" by governmental types like himself, I wouldn't be surprised to see usually generous individuals become reluctant to contribute to causes where the proceeds are re-directed to more "deserving" recipients.



To answer my own question.

Using the last 100 daily returns of SPY as the "x" and HDY (ishare High dividend ETF) as Y I got the following linear regression:

y = 0.6279 x + 0; with R^2 of 68.2%

and today .52% - 1% (.63) gives negative Alpha… -0.11.

Certainly within statistical significance bounds, but negative none the less.

Jack Tierney writes: 

I hold a number of dividend stocks and find that although there are more up than down, none of the moves is substantial — certainly smaller than those of the general averages.

What interests me right now is volatility — something that has never been very good to me, but I took a TV break this afternoon to see what the CNBC wise men and their guests think. It would seem that many are expecting Obama to win, the Senate to remain Democrat, and the House to remain Rep.

If today's market is reflecting that expectation, it would take only a couple of votes going the "wrong" way to upset this equilibrium. If the surprise is at the presidential level, the move could be huge…but not necessarily positive as many believe. On the contrary, there is a sizable portion of electorate that not only feels the President should be re-elected but that it is "owed" to him. If they are disappointed, I would expect them to demonstrate their unhappiness in no uncertain terms.

Almost equally disruptive would be a "no-decision" result - at least until a recount (or several recounts) are completed. All this is supposition, but not entirely out of the question. In any event, at least according the Art Cashen, it's not unusual for an election day bounce to be followed by a following day re-tracement. The Chair with his many readily available facts and figures would be able to affirm or deny this.



 Many have seen the paper by academics (from Utah!) attempting to explain the observation of empirical intelligence in Ashkenazi Jews. [Cochran, Hardy, Harpending 2005].

Synopsis: Jews of eastern Europe were excluded from mainstream society and gathered in Shtetls. In these villages, exceptionally intelligent boys studied Torah — and the most talented were skilled at debating meaning between themselves and with the elders. The most intelligent grew up to become religious scholars, who in these societies became wealthy — and the most desirable for marriage to village nubiles.

Unlike many Christian religions, young Jewish religious scholars were expected to reproduce in quantity. Thus conserving and proliferating genes for memory and reasoning, and possibly explaining disproportionate representation among pre-political Nobelists.

It is also possible that the successful among the tribes in Pogromal Russia also favored reproductive survival for the wily in coping with an oppressive state bureaucracy.

One could posit that such selection pressure could explain a measure of Jewish affinity for the heavy-handed state, including an instinct that this environment is rich with opportunities for equivocating, lawyering, and fertile profit.

Mick Tierney writes: 

 I'm somewhat familiar with the study you refer to, Kim, as well as similar conclusions reached by Charles Murray. But what interested me most about your post was this: "…young Jewish religious scholars were expected to reproduce in quantity." It caught my attention because of a battle that flared up back in June between "Commentary" and "Forward" - both, apparently, Jewish journals with significant influence. Their dispute turns on issues with which various Christian sects are familiar.

The below excerpts (and the entire article) seems to suggest that there might, in fact, be an "affinity for the heavy-handed state" among some of the faithful, but certainly not all. (I understand that there while there're differences between the Ashkenazi and the Haredim, both groups place a heavy emphasis on education.):

"In a city like New York where 74 percent of all Jewish school-age children are Orthodox, there is little question the traditional dominance of secular and liberal Jews is not likely to persist in the long run.

"That this would upset liberals is understandable. But that ought not to excuse the willingness of the editorial page of the Forward when discussing the Orthodox community to engage in the sort of language it would never excuse were such words directed at non-Jews."

"And that is what has apparently goaded the Forward into publishing a rant whose only real purpose is to stigmatize Orthodox Jews as an expanding horde of lazy welfare cheats who ought to be denied assistance as they out-reproduce more responsible liberal Jews."

"…it is one thing to express concerns about the future of that community, it is quite another to write in a manner that speaks of the rising Orthodox birth rate as if we would all be better off if those children were never born.

"…when a critique of the welfare state crosses over into prejudice against specific groups or language that resonates with bias that sounds more like eugenics than political analysis, a line has been crossed."

If it is true that being fruitful has been a successful mechanism for maintaining intellectual superiority (and it's hard to argue with the current "facts on the table") then the current NY contentions could have serious long-term consequences.



 "Matt Damon's Anti-Fracking Movie Financed by Oil Rich Arab Nation ":

A new film starring Matt Damon presents American oil and natural gas producers as money-grubbing villains purportedly poisoning rural American towns. It is therefore of particular note that it is financed in part by the royal family of the oil-rich United Arab Emirates.The creators of Promised Land have gone to absurd lengths to vilify oil and gas companies… Since recent events have demonstrated the relative environmental soundness of hydraulic fracturing – a technique for extracting oil and gas from shale formations – Promised Land's script has been altered to make doom-saying environmentalists the tools of oil companies attempting to discredit legitimate "fracking" concerns.

Pitt T. Maner III writes: 

One of the major ceramic proppant companies just put in a 52-week low. The specialized fracking "sand" business might at some point be an interesting area for further research.

David Lilienfeld writes: 

Yes, I was thinking of them and also the niche international business, in general, of designing, producing and expertly injecting fracking sands and proppants into formations. CRR had a pretty good run from July 2009 to July 2011. It's interesting that they have plants in Russia and China. But the swoon, as you say, may continue. The following idea appears to be making the internet rounds (one would think fracking will play a role in these future worldwide developments): 

The relative fortunes of the United States, Russia, and China — and their ability to exert influence in the world — are tied in no small measure to global gas developments," Harvard University's Kennedy School of Government concluded in a report this summer.

Jack Tierney writes: 

Several years back we had a thread related to a coal mine cave in that resulted in numerous deaths and extensive studies to determine the cause(s). A significant portion of the blame fell to "seismicity." The conclusion was that continued use of high explosive well below ground level had a significant enough impact on the earth's composition to create tremors - some serious enough to escalate into earthquakes.

At the time I as a big fan of coal and the study and subsequent developments didn't help my positions at all. Another energy sector I liked was involved in obtaining power through an Enhanced Geothermal System. This involve injecting cold water at very high pressure down to the "hot rocks" below. Though some ""shear" was expected, the reactions received exceeded expectations. Enough so that Switzerland abandoned the idea. Continued seismic events at on-going systems are watched closely and the equities of companies involved in the process (the poster child is Orman [ORA]) have done poorly.

With those developments in mind and ever aware of the not inconsiderable power of the environmentalists opposed to this method, I have re-established those coal positions. Any adverse event substantial enough to even hint at congressional hearings could put a real damper on these current darlings and their numerous fans. And coal would once again be the most abundant and readily available power source for this country's power needs.

I took a flyer similar to this way back in the '90s. Older market types will recall Bre-X and the scandal that surrounded the "seeding" of the gold samples which indicated a huge resource. If I remember the stock went over $100 and might have surpassed $200 (things get foggier as I get older). In any event, after the responsible geologist threw himself out of an aircraft in a successful suicide attempt, the stock was closed to trading.

However, the CEO of the company screamed bloody murder, claimed it was a rush to judgment, and that the results were legitimate and all was well. And the exchanges relented and trading resumed…with stock at 2 3/8 (yes, stocks did trade in fractions). I assumed as most did that the whole thing was, in fact, a hoax. But trading had been re-instated by the responsbile overseer and for a couple of hundred bucks per round lot, the potential upside was enormous - so I made the bet, and lost. But I'd do it again. Maybe I did.



T here are millions in California looking for jobs, but few want the type of work available.

A couple of years ago NPR's Terry Gross interviewed an apple farmer from Washington facing this problem. Most "Anglos" didn't even want to attempt the work — those who did rarely lasted more than several days. Last year Alabama was in the same position after its Republican governor managed to get through legislation requiring all field laborers to be citizens or holders of green cards. For the past three years Tennessee has not been able to find enough workers to keep its many nurseries thriving.

In every case there are (were) many job seekers. In most cases, though, the Anglo component of that cohort didn't even apply. Much of this may be well known but what is new (at least to me) is that for the first time ever the number of unemployed over 25 with some college or a college degree outnumber those with a high school diploma or less.

If this is an anomaly I suppose it's no big deal. However, if it signals a paradigm shift, then the high cost of education really does deserve some serious study. Two weeks ago the Senate released an 1100 page report outlining the depredations of the for-profit colleges. Despite appeals that the study also incorporate our many non-profits, the Senate majority said "no."

Should this development prove to be a new trend then the current secondary school curricula must also be re-examined. And I would hope that emphasis would go into examining the position and credentialing of the "guidance counselor". Currently the big push is to get as many high school graduates as possible enrolled in college — any college. The secondary school system measures its success by this number…and it is widely circulated. However, I've never been able to get a number of how many of these college bound grads also received a college degree.

If secondary schools and their guidance counselors are aware of a shift then it would behoove them to adjust their curricula and guidance to remain true to John Dewey's Creed:

"Every teacher should realize he is a social servant set apart for the maintenance of the proper social order and the securing of the right social growth. In this way the teacher is always the prophet of the true God and the usherer in of the true kingdom of heaven."



 A friend recently sent me this interesting article by Steven Pressfield on the most important writing lesson he ever learned .

I agree with the three answers Pressfield supplies to get your copy read. However, I disagree with much of the rest. First, "Advertising lies…it's evil, it's phony…" Fact is you can trust advertising copy a lot further than the Editorial content that may run immediately adjacent to it.

Misrepresentation in an ad can actually wind up getting you prosecuted. fined or sentenced to public service (rarely is anyone tossed in the clink). In any event, the result is usually a career killer. Editorial writers (columnists and editorial page contributors), on the other hand, under cover of the "opinion piece" label, can play with facts a lot more loosely. If they are very adept at it, they'll find themselves syndicated; if they're geniuses at it, they'll make it to the electronic circuit as guest contributors (with modest to healthy stipends). If they're really, really good, they can become press secretary to the President.

Pressfield is not totally correct that "nobody" wants to read your sh*t. A great majority read sh*t because they HAVE to. It might be just to find who has the cheapest can of coffee, who has the best deal on a new mattress, a used car, or who is featuring the cheapest movies. The great myth (at least in the newspaper business) was the editorialist's contention that the paper was chosen for the singular purpose of reading their collective thoughts.

The greatest presentation I ever attended featured our computer geeks demonstrating for the editorial staff what the product would look like when transferred to an electronic format. One amongst them, and by means a rookie, asked why advertising was included in the electronic version much as it would be in the paper itself. Couldn't it just be pushed to the back, grouped together, and left for the unwashed to search out much as they did with our Classified ads?

The lead presenter was a very young new employee who had been brought on for his computer expertise. Unaware of the deference that editorial was used to receiving, he proceeded to reveal some research on the primary reason (what feature did they turn to first) our subscribers bought the paper. First bomb: on any given day, anywhere from 25-45% of our readers bought the paper for the ads (Thursday, food advertising day, had the highest percentage). Bomb two, 8-10% of our very tony readership turned first to Ann Landers, another 8% to the comics, 7% for the crossword puzzle, 5% to the horoscope, another 5% to the bridge column. Among editorial's heavyweights only Mike Royko and Siskel/Ebert made a measurable impression.

After reading Pressfield's biography, I'm a little surprised at his perspective. He and I are the same age and entered the business about the same time. We were fortunate in having what may well wind up being the last generations of engaged readers responding to or rejecting our selling messages. Selling to today's "Tweet Generation" though, must be a real challenge and I'm glad I'm out.



I don't recall being as excited as I am today for science and our
endeavors in space. Must be some of what the mood was like in 1969.
Funny how the geo-political B.S. fades away for a few days when one can
watch this and the Olympics and enjoy all the greatness that humanity is
capable of…

(BTW, speaking of 1969,  a friend astutely observed that the moon landing coincides with the day that good old Teddy drove off the bridge…luckily for him attention was overwhelmingly skyward…).



 Readers of the dailyspec are far too like-minded to give "junk mail" a balanced hearing. Once upon a time I provided copy for "junk mail" pieces — in return I received a much needed supplement to my income. Those who paid me also received an income from these pieces….prior to the internet a huge number of new investors entered the equity markets through direct mail "junk" pieces. The WSJ, NYT, and Forbes/Fortune/Business Week may have been the journals for the well-heeled, but junk mail went a long way in getting the uninitiated involved - at the time, it appeared they were being introduced to a new and exciting road to wealth creation.

And for many it worked out that way. For others it did not. In fact, it really grinds on me every time I hear them referred to as "sheeple." It's difficult to get through a day of posts without coming across at least one that heralds the market as capitalism's glorious tool which, when judiciously utilized, can provide the "common man' with an uncommonly abundant life. Contrarily, they are also viewed (along with us) as the prey upon which the flexions feast. They are probably both, but one cannot deny that through their participation, the markets have become bigger, richer, and more opportunistic fields in which to play.

Junk mail is far more than that, though. For many companies (and churches, charities, and publishing enterprises) it is the most cost-effective way to reach its "target market." It has been suggested that junk mail's existence is largely due to rural markets - I doubt that many here recall the Sears catalog, but it was the earliest and, arguably, the most successful of the junk mail genre. So, to an extent, the rural market argument carries some validity. However, catalogs became widely anticipated and popular vehicles for merchants in a wide variety of businesses. And for years, their junk mail pieces provided lots of income and lots of profits.

The modern urban dweller also benefits from direct mail. Take a close look at some to the pieces you receive before junking them. Many, you will discover, feature coupons - I realize there exists an element which looks with scorn upon the couponing experience. For that group, I would suggest hanging around an urban supermarket and watching the many who use them - they're exceeded only by those you'll find at 12:01 a.m. at a rural Wal-Mart on the 1st of any given month (food stamp day).

Most in this group are, if not well-off, relatively comfortable. This can't be said for most of those who eagerly await the next delivery and its assortment of coupons, two-for-one deals, Revival notices, and pieces announcing Poker Runs for the family down the road whose double-wide burned to the ground a month ago.

Should the Post Office go out of business, I would expect one of the current for-profit deliverers to institute a similar service - if not, the market will create an economical way of getting these messages out - and you'll still open that box and see "junk-mail." You can't kill a service on which so many depend, benefit, and profit.



 I believe one of the elements we overlooked in our conversations about Apple was (is?) the Mac's superior graphics applications. Whether this superiority was by accident or design, it played a major role in the Mac's initial financial success.

Apple was (numerically) a small player (and seller) in a big and growing field. But outfits with big bucks and a need for superior graphics (i.e., newspapers, ad agencies, job shops, and design studios) had no difficulty in choosing the Apple products despite their much higher prices and refusal to license out knock-offs.

If I remember correctly, Macs had about 5-8% of the consumer market, but were dominant not only for those businesses listed above, but for any organization that wanted to produce a professional looking, graphic-intensive mailer or newsletter. As a result, many graphics-oriented software developers submitted their best work to Apple — and the disparity grew.

Despite owning over 80 Macs in our department alone (the editorial staff had more), we could never negotiate a volume discount; Mac was the market. Only a little before my retirement did the PCs begin to show some advances in design capabilities. My few remaining contacts tell me Macs are still used. If Jobs factored this into his development plans then he was very insightful.

Ken Drees writes:

Jobs made huge inroads with schools/universities as a distributions channel for macs–thereby seizing a very healthy nitch that became loyal. Journalism schools were MAC city in the 80s /90s.

Daniel Flam writes: 

Apple does have some nifty innovations, but along with a very totalitarian mentality. Democracies can turn into anarchy –monarchies can become totalitarian, and Apple is a dictatorship. Some people yearn for a messiah– Apple gave those people what they want. 



 On a moral note, which I feel totally inadequate to opine upon, why is it considered so universally reprehensible to be a stool pigeon, or to dessert a sinking ship? Maturin always refused to spill the beans on his fellow mariners even when it would have helped to defeat the French or save his ship, or help out his best friend, because of the moral stigma.

Jack Tierney comments: 

This dilemma is dramatically presented in "Scent of a Woman." Al Pacino gives a rip-roaring soliloquy on why his "ward" is justified in not implicating three associates who violated the school's honor code - first, by behaving in an ungentlemanly manner, and second by not admitting to it. Due largely to the speech, the young man is exonerated to cheers from his fellow classmates and much of the faculty. The line from the speech that I recall vividly goes something like this: "Many times I was faced with the choice of doing right or wrong. In every case I knew what the right decision was. I never took it. Why? Because it was too damn hard!"

Almost everyone seemed happy with the conclusion. I was not. As far as I'm concerned. the over-riding issue is whether, once we have sworn to adhere to a code, it is permissible to toss it to the winds because popular opinion or powerful forces believe otherwise. The young man and Pacino are, unsurprisingly, both portrayed heroically. Hollywood has a history of lionizing scoundrels and demonizing those who spoke against them. Should that be the template by which we measure honorable behavior?

Rudolf Hauser comments: 

This may well be something some of us are genetically programmed to do. The fact that the trait is so common across cultures is suggestive of this. Genetic traits depend on survival of the gene that carries them, which means they aid survival and reproduction. The logic is that on the evolution of reciprocal altruism is that it genetically paid to help one's siblings since they shared many of the same genes, increasing the odds that the gene that encouraged such behavior would be more likely to survive since some of one's siblings would share that gene. But then there was a recognition problem.(The evolution of such traits is likely to have started among our pre human ancestors who did not have the benefit of language.) An older sibling would know who its younger siblings were but not the other way around. But the odds of the gene thriving would increase if it acted in the interest of those who helped one as they might be older siblings. Members of the same tribal group would be more likely to share that gene than outsiders. But altruistic behavior has costs to the entity engaging in it. The most favorable trait would therefore be to appear to be altruistic without being so in fact but benefitting the altruistic behavior of others toward oneself. But that is costly to those who do engage in altruistic behavior, so a genetic response in which the behavior of cheaters and traitors is punished would tend to reduce such cheating. Experiments have shown that people are willing to punish cheaters even if it has an economic cost to them of doing so. Along similar lines, there is more of a hostile attitude toward those outside a group than those within one's group. Both of these traits account for why it is considered so reprehensible to be a stool pigeon or engage in other behavior inconsistent with what are viewed as societal obligations to the group.

From a moral standpoint, doing what is right morally is far more important than loyalty to someone whose moral behavior turns out to be reprehensible. The purpose of liberty in part is the belief that one should be able to act on the basis of one's individual conscience rather than following the possibly evil dictates of society. The opposition of society to such behavior is one reason the fight for liberty is often so difficult and why individuals are often reluctant to stand by what they believe to be right.



 Perhaps someone can explain this one for me:

Facebook is valued at an astronomical amount. Its revenue base is, basically advertising. But FB is sustained, use-wise, by kids and young adults ( <30 ), who at one time had a fair bit of purchasing power and/or influenced significantly what a typical family bought.

Today, however, that demographic group doesn't have that kind of purchasing power. So what's the appeal for advertisers in supporting FB? Is there any data to suggest that ad buys on FB have a higher ROI than other media venues?

If not, is FB just a lousy investment, or a good one because these things are temporary?

Anatoly Veltman writes: 

Also, consider the theory of reflexivity in the case of FB, of self-perpetuation. I notice that my 11 y.o. daughter has gained self-confidence (and self-absorption) via FB-ing.

Those kids flaunt their "social edge" over the older purse-holders, and pull on purse-strings with ever-increasing zeal.

Like Henry Ford said, "I'll pay my workers enough to buy my cars", FB is fostering its own consumer channel.

Gary Rogan writes: 

The hope with large end-user software companies has always been that they (a) create dominance in their particular specialty (b) use this dominance to figure out as yet unpredictable way to monetize way beyond their current valuation (c) use this dominance and their speed of execution to stay ahead of adverse end-user trends. If often hasn't worked out this way, but of course when it does you get outsized returns.

Stefan Jovanovich writes: 

For the most recent quarter FB generated roughly $.5B in EBITDA - the same result that my favorite submarine with screendoor investment - AMAT - produced. FB did it with 1/4th the number of employees and 40% of the revenue. Does that justify a valuation 5 times what the market now pays for Applied Materials? Yes - if the belief continues that network effects will predominate in social media as they have in paid search. The world will need the production of foundries - both steel and silicon - but it will only pay a premium for businesses that promise that their profit margins will increase on marginal sales because there is no used/distressed inventory out there to compete with the "new" products. The answer will be No only if the world of corporations and teenagers decides that Google+ is a better way to sell their virtual images to the world. (Note to file: since those of us here at Chaos Manor now buy and own stocks as if they were cars and houses - i.e. once we find one we like well enough to buy, it is usually a decade and more before we even think about selling, these comments are only for people - all 3 of you - still willing to attend early morning mass at the church of Buy and Hold.)

Peter Tep adds: 

Above all else, Facebook is just a huge time sink and besides being a networking tool, is another place for people to gloat and boast or climb the social hierarchy — meant in a non negative way. With so many kids using it and literally connected to it 24-7, it's probably going to be a good investment if Facebook finds more ways to market to it's users on an even more emotional level. Has anyone seen the series posted on Ritzholtz blog about this?

I guess it is a great investment because it keeps people emotionally connected, like a great movie is playing out in front of them and they are part of it. If Facebook refines its marketing strategies even more using its users' data, then I guess the sky's the limit.

Jack Tierney writes: 

David asks some important questions regarding FB and its value. I agree that the current price is astronomical, but have very little knowledge of the operation — I am not a member and, barring any unforeseen developments, will not join. I have followed FB for sometime and have not joined because of the incredible amount of information they can gather regarding your personal history, preferences, and affiliations.

That very knowledge, though, explains why this could be a very rewarding investment. Back when I was still employed I did some work with the "research and marketing" groups. One of the first puzzling discoveries I made while going over some data was that, although our newspaper regularly received a huge amount of national food advertising, the relatively small markets covered by the Miami Herald and the Milwaukee Journal, received more.

It was explained to me that both cities were unique in that they were split almost evenly demographically. The wealthy, well-to-do, and upper middle class occupied one half of town, those not that well off, the other. This gave General Mills, Coca-Cola, Proctor & Gamble, etc. ideal platforms from which to launch new products, different packaging, innovative couponing programs, size and container preferences (12 oz. cans vs. 16 oz. bottles).

These two cities gave marketers some valuable insight into buyer preferences…yet it was no where near good enough. The Holy Grail, what each individual preferred, was not only impossible to discover, but impractical to reach. That may now be achievable with FB.

While many who are members argue that they reveal very little about their preferences, few are aware of how much their "friends", directly or indirectly, reveal about them. The most memorable story sent to me regarded an English woman who had been "on the dole" for a couple of years, receiving whatever that country's monthly stipend is for an unmarried, unemployed woman with two children. Someone from Inland Revenue (apparently the equivalent to our IRS) decided to check up on her. Rather than checking her page, he started with the pages of some of her friends.

He happened to come across one that featured a several month old picture of the woman in question, relaxing on a beach in some exotic, expensive European resort — with her new husband. Her friend also happened to mention how fortunate she had been to have an employer who let her take a month long paid vacation.

Well, the outcome was not a pretty one. But the story illustrates that if a "friend" should just happens to mention you're a pizza lover, expect to get an uncommonly large number of pizza promotions - from Pizza Parlors in your very own neighborhood. (How did they know???)

If FB plays this right, they could pull in billions. Marketing has always been about reaching the maximum number of potential buyers for the least cost. From what I've read about FB, this is within their reach. If they follow through, or allowed to follow through, their reach is incredible and I would consider buying.

J.T Holley writes:

I'm 41. I choose to "like" The Jefferson Theater so that I could see the feeds/updates of concerts that were being booked. I got notice that they were having a Southern Rock Band "Blackberry Smoke" play on July 25th. They also said that if you "liked" the announcement then you would be put into a drawing for free tickets. I won. I have two free tickets and allowed them (they asked) if they could say that I won.

GM and all others that don't understand the power of FB are foolish. It reminds me of A. Miller's "Death of a Salesman" and Charley's wise words:

"The only thing you got in this world is what you can sell. And the funny thing is that you're a salesman, and you don't know that." Charley

and he best double negative ever to be used in writing when Charley addresses Willy (foreshadowing).

"Nobody's worth nothin' dead." Charley

Google became the yellow pages.

FB is becomin' greater than the yellow pages.

It's a tectonic shift that many aren't willin' to accept or grasp. I'm nobody and humble and I get it.

Dylan Distasio writes: 

While I think your example is a good one of what Facebook COULD monetize, they are far behind Google on most advertising metrics and have a very low click through rate on the ads they do allow. It's understandable, Google is in the business of ads and has been at it for longer. Zuckerberg seems hesitant to admit or embrace the fact that FB is also in the business of advertising.

And the fact that Google is a yellow pages should not be scoffed at. It is a large part of why their ads in search work and demand higher prices. They are for things people are looking for and highly targeted.

I think with the amount of personal data Facebook has, they have great potential to monetize ads. The big question is whether they are interested, and if so, will they be able to execute.

The current issue of MIT Technology Review has a great article on a team at FB that is looking at the bigger picture in sociological terms of what they can do with the data. While their explicit goal is not focused on monetizing the data, some interesting techniques for doing so may come out of it indirectly.

Facebook has to be careful about how far they go in using people's data in the interest of monetizing it, and has to build a more sophisticated toolbox of ad types and techniques if they want to compete with Google. While they have certainly reached what appears to be critical mass as a social network, people can be fickle with their allegiances, and are happy to jump ship to something else when they get bored or feel slighted. FB will be forced to walk the same tightrope Google does if they want to seriously compete with them.

It should be an interesting couple of years watching this unfold. That said, I think based on the current view of things, FB is tremendously overvalued unless they are willing to start heavily exploiting the data in their possession. I'm not sure Zuckerberg is willing to, and he controls the company with 51% of voting shares. He's now a billionaire and can run his own agenda for quite awhile at the shareholders expense. As an example, I would question his acquistion of Instagram for $1 billion dollars but I guess time will tell. It will help them in the mobile space where FB is currently very weak, but we'll see if it was worth a billion to buy a company with no revenue.



 Have you seen this article- "Obama: Government Job Slayer". Supposedly Obama has cut more than 500,000 government jobs. 

Jack Tierney writes:

Members of the military are counted as government employees. For many who weren't sure this became evident during Clinton's administration — you might remember his assertion that government had become too big and he intended to cut back on its size. One of his follow-up pronouncements declared that substantial cuts had been made. However, the cuts were primarily in the military numbers; about 700,000 full-timers and 275,000 reservists.

Cuts that became an election issue…primarily in the Bush/Kerry confrontation — Kerry had been a supporter of the cuts. At almost any other time this might have served him well - but 9/11 cast a giant shadow.

Rudolf Hauser writes: 

I believe the recently released public sector employment numbers refer to total government employment at the BLS definitions, which exclude the armed forces. The seasonally adjusted numbers from Jan. 1993 to Jan. 1997 show an increase in government employment of 692M, but a decline in Federal government employment of 247M. The corresponding numbers from Jan. 2001 to Jan. 2005 show and increase in total government employment of 900M and a drop in Federal government employment of 26M. The numbers from Jan. 2009 to June 2012 show a total decline of 633M but a slight rise in Federal government employment of 16M. In essence all of the trends referred to where in state and local government employment, something that Clinton and Bush can hardly be credited for and a decline that Obama can only be blamed for by arguing that he made the economy so bad that those governments revenue trends brought about the drop. It certainly had nothing to do with a desire on Obama's part to reduce the size of government.



 I'm glad to see that an acquaintance of the Chair has brought up the additional (secondary?) opinions. Too often we concentrate on the "big picture" while the real drama is played out in relative obscurity. One of my sideline activities involved promoting and selling tickets for the Golden Gloves. One of the benefits (?) was the provision that we could watch the fights for free. Every year there were several matches which received a big hype because of current win/loss records, past matches, on-going grudges, and the sure-fire big-draw match: two loud mouths with dis-similar socio/economic/ethnic backgrounds (Black/Hispanic, Irish/Italian, Catholic/Protestant, privileged neighborhood/housing project).

With few exceptions the fights rarely lived up to expectations and ended quickly. The real interesting matches, those that promised on-going animosity and future rematches, were found on the under-card. The winners generally prevailed because of a final round "lucky punch" or a very close, highly disputed decision by the judges. In any case, though the result might have been settled for the time being, there was little doubt that rematches were in the future.

In our current conflict over "tax or penalty?" I believe too little attention has been paid to the under-card opinions submitted (authored) by Ginsburg and Scalia. (A confession: for a number of years, long ago, I read old SC opinions regularly - my interest was not in their conclusions, but in the elegant manner the authors employed in laying out the problem, recorded the influences and previous events that guided their reasoning, the flaws in those of their opposition, and why their conclusion ought to ultimately prevail.)

In her opinion (arguing that Congress can use penalties to enforce participation), Ginsburg is unnecessarily lengthy (in my opinion) in repeating portion of the Bill that could just as easily been footnoted or referenced. That said, I believe much of her case can be summed up from the following excerpt:

The Framers understood that the "general Interests of the Union" would change over time, in ways they could not anticipate. Accordingly, they recognized that the Consti­tution was of necessity a "great outlin[e]," not a detailed blueprint, [see McCulloch v. Maryland,] "explained by the context or by the facts of the case," Letter from James Madison to N. P. Trist (Dec. 1831)… "Nothing . . . can be more fallacious," Alexander Hamilton emphasized, "than to infer the extent of any power, proper to be lodged in the national government, from . . . its immediate necessities. There ought to be a CAPACITY to provide for future contingencies[,] as they may happen; and as these are illimitable in their nature, it is impossible safely to limit that capacity." The Federalist No. 34…"

Her points seem to follow those embraced by the "living Constitution" segment of the legal community. Of course, I have reproduced only a small fragment of her entire argument and others may feel a more lengthy exposition of them is required. They are invited to go at it.

Scalia's opinion is one in which he disputes both Roberts' majority opinion and Ginsburg's minority dissent. Although his opinion is not quite as lengthy as Ginburg's, it is substantial and others may examine it for more telling excerpts. In the following I believe he addresses the cases put forth by both Roberts and Ginsburg:

"It is important to bear this in mind in evaluating the tax argument of the Government and of those who support it: The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so…" He finds they did not. Further:

"Our cases establish a clear line between a tax and a penalty: "'[A] tax is an enforced contribution to provide for the support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.'" … this Court has held that a "tax" imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax. It is one of the canons of interpretation that a statute that penalizes an act makes it unlawful: "[W]here the statute inflicts a penalty for doing an act, although the act itself is not expressly prohibited, yet to do the act is unlawful, because it cannot be supposed that the Legislature intended that a penalty should be inflicted for a lawful act."

I've gone through this exercise because I believe the two "minor" opinions will be used to establish arguments for and against future Congressional taxing/penalty legislation. While others might find Roberts' decision Solomonesque, I think future developments will prove otherwise. Currently, a recommended tax increase, for whatever purpose or on whatever constituency, is negatively received. However, we are quickly approaching that magic moment when the number of voters required to pay no federal taxes will surpass that of those who do.

For years, the well-off, the middle-class, and the just-getting-by majority has done an admirable job in approving (many times with great reluctance) beneficial programs for the poor, the working-poor, the physically and mentally challenged, and otherwise disadvantaged minorities.

I chose the word "admirably" purposely. I realize there are those, many perhaps, who will disagree with the descriptor. If that's the case, fine. My concern is that when that current minority achieves majority status, that view will linger and bring about tax/penalty legislation that force current Roberts' admirers to reconsider their position. The fight is not over - it has just begun.



 I note that one of our noted contributors has observed that "What Madison et. al. did not anticipate was the Federal government would supersede the States in authority [and] would have laughed/cried/raged at the notion that the "commerce clause" enabled Congress to have the power to do anything more than pay for the Army and Navy…"

While this observation may be true enough for Madison, I find that among the "et als" there were contemporaries who disagreed…and did so quite publicly and aggressively. Their thoughts and objections were widely distributed at the time. Unfortunately, their observations, which have proven prophetic, have been largely forgotten or ignored by current commentators and educators. I view the "Anti-Federalist Papers" as Liberty's Abel to the Federalist's Cain.

In Anti-Federalist #32, Brutus reads Article 1, Section 8 and concludes that "Under this clause may be imposed a poll tax, a land tax, a tax on houses and buildings, on windows and fireplaces… comprehends an excise on all kinds of liquors, spirits, wines, cider, beer, etc., and…on every necessary or conveniency of life, whether of foreign or home growth or manufactory…It opens a door to the appointment of a swarm of revenue and excise collectors to prey upon the honest and industrious part of the community, [and] eat up their substance. . . "

As to our contributors surprise that the ruling "says the Federal government cannot automatically compel the States to follow Congress' mandates", Brutus, responds: "I shall only remark, that this power, given to the federal legislature, directly annihilates all the powers of the state legislatures…the general government having in their control every possible source of revenue, and authority to pass any law they may deem necessary…[s]hould any state attempt to raise money by law, the general government may repeal or arrest it in the execution…"

I would further question the contention that this apparent sop to States' rights might is a victory. In fact, I wouldn't be surprised to see the reasoning used (or mis-used) just as the commerce clause has been used and mis-used by Congress to step a little beyond the boundaries envisioned by the founders. That said, the Federalists, though heralded as deep thinking patriots who brought a "dream" to life, a substantial number were among that period's well-to-do (the aristocracy, if you will). The author of Anti-Federalist 1 describes them as members " of the NOBLE order of C[incinnatu]s, holders of public securities, men of great wealth and expectations of public office, Bankers and Lawyers…[t]he Lawyers in particular, keep up an incessant declamation for its adoption; like greedy gudgeons they long to satiate their voracious stomachs…I hope my fellow-citizens will look well to the characters of their preference, and remember the Old Patriots of 75; they have never led them astray…"

They were little different from the gentlemen and (now) ladies currently occupying Congress and assuring us that the Declaration is their pole star and the Constitution sacrosanct. (Other interesting contentions one discovers in the Anti-Federalist Papers is that many of the fine gentlemen elected to attend the Convention, didn't..resulting in a more limited debate, conducted largely by those intent on creating a new document, not amending the existing Articles.) Whether these contentions can stand up to historical scrutiny is open - but, to date, the secondary education establishment has limited its scope on this period to fulsome praise for Federalists X and LI (Roman numerals 10 and 51).

I would argue, despite strident claims to the contrary, that our representative are not interested in a better informed, better educated, and more involved public. Governments prefer well-fed, as opposed to well read, voters.



 Although this piece about the sorry state of "Generation I" was written by an Australian about that country's young people, it could just as well have been written by an American teacher. In fact, I've read (and heard) similar opinions from numerous American "oldsters" - a number of them teachers. I'm not especially enamored of much that Millennials represent, embrace, or hold sacred (seemingly nothing). However, these youngsters didn't spring from the earth fully formed.

Indeed, much of what they are is the result of molds we've designed, promoted, supported, and enforced.They are not the same molds I was asked to conform to by my parents and grand-parents. We may have believed we were special but only after we had accomplished something that merited "special" recognition. Making the "no-cut-everyone-plays-everyone-gets-a-trophy" soccer league is now considered "special." Worse, several years of T-ball (a pale imitation of athletic prowess), followed by several more of "coach-pitch" has led a multitude of pre-teens to mistakenly believe they have a real shot at future stardom. This "specialness" carries over into the classroom where it is becoming unusual to find fewer than 80-90% of the class on either the "all-A" or "all A & B" honor rolls.

Yet, when they finally reach those golden years of secondary education, they're exposed to mentors like Van Der Wagen who are shocked to discover his students are, in fact, barely literate. Worse, the meme that "math is hard" has become such a broadly accepted truism, that students beyond the fifth grade are required to use a hand calculator. Any young person with the ability to perceive these distortions, and also hearing the calumny being heaped upon them for their "backwardness, would rightly rebel. However, in spite of the fact that rebellion brought about this nation, it is currently considered (and taught) that rebellion is a bad thing.

I don't have to look back too far to recall a generation that took to the streets rebelling against many of the things their parents and their government thought righteous. Many felt Viet Nam was terrible and young men and women demonstrated in the streets, on campuses, and in the capitol (after Ford did away with the draft the young women continued to protest while many of their male counterparts ran into scheduling conflicts).

Going back a little further, we discover another rebellion - this for the civil rights of black people. Today, it's difficult to find any of my fellow high school compatriots who will not boast of his or her contributions to the movement. Yet, still possessing a modicum of memory, I know quite well that most never strayed far from our rural hometown - most, in fact, had never met a black person - some still haven't.

So, as abhorrent as rebellion is considered, those of recent generations have not been reluctant to participate - admittedly, it has been fobbed off as "civil disobedience" but demonstrations against governments resistant to change is frequently required - Jefferson said so. Yet our current crop of youngsters, despite the scorn regularly directed their way, have remained remarkably docile. What, might you ask, do they have to complain about?

Let's see…well, first off, there's my generation. We've been promised the moon by both parties and in programs like Social Security, Medicare, and Medicaid. Despite their imminent bankruptcy, we're demanding that they deliver on those promises - no matter that though they'll ease us to a semi-comfortable ending, their design and funding guarantees that Millennials not only will not particpate, but may well be bankrupted by them. Then there's my children's generation. Overall, they were born in comfortable settings and enjoyed the good things that happened to us (economically) in their youth and middle age.

Unfortunately, we neglected to teach them the virtue of thrift and the danger of debt. We taught them that they could achieve anything they wished - it was the American promise. They neglected to note that things wished for frequently also had to be paid for - as a result they've spent (or borrowed) themselves into a monstrous hole and there is little chance they'll get out.

We've been great role models. One generation, though old enough to know better, still believes in the Entitlement Tooth Fairy; a second generation, born with unprecedented opportunity, has not only frittered away its own birthright but that of their children, too. And yet both generations read articles like Van Der Wagen's and pronounce "amen."

A final observation on Van Der Wagen. He (or she) doesn't help his argument when he points out that Chinese students "expect that they will be given a tonne of information and will be assigned extensive homework…" Asian students in American schools feel the same - but unlike their American counterparts, they go out and find the information and do homework. And they go on to become successful in their further studies and are extremely careful in pursuing a course of study that the commercial world rewards well.

Their success, though, underscores a more important point. Students learn; teachers rarely "teach" rather they guide and, hopefully inspire. But he's right in one aspect - it is a "gargantuan task" and one he clearly is not up to. Australia is better off with his retirement.



 In a recent trip to the Netherlands, I noted the weakness in the Dutch real estate market. This brought back a memory of a speech by Alan Greenspan in Cambridge, referencing a PhD thesis, that a loss on the value of one's home (nest egg) had twice the impact on consumer spending as an equal loss in the stock market (risk capital). According to Behavioral finance, "errors" like this are a natural tendency of people, and hence persist (are not averaged out) by Mr. Market. In principle, a shrewd investor can take advantage of these market inefficiencies.

The problems with Dutch real estate, similar problems in Denmark, not to mention Spain, do not bode well for European consumer behavior to my mind, possibly for years to come. Does anyone have any thoughts or data on this?

Secondly, my hypothesis regarding the origins of the real estate problems in the US (also possibly Europe, Japan?) has to do with the "baby boom", (the overreaction to the loss of good men in WWII.) One definition of the baby "bubble" are people born between 1946 and 1964 (average 1955), which makes the average baby boomers roughly 57 today. My hypothesis goes like this: as the baby boomers retire, or approach retirement, they shed risk assets or assets they are overleveraged. In this case real estate. As this process ends or mitigates, the real estate market should improve, with dramatic consequences for US consumer behavior. (not tremendously original, I know.)

My question in this: Does anyone have any data on the demographics of people shedding assists, particularly real estate, related to retirement? That is, a graph hopefully showing the peak of asset shedding by people in their 50's and 60's?

Thanks in advance for your thoughts, criticisms, or data,


Andrei Kotlov writes: 


Two quick remarks (but no data) :

(1) Curtailed consumer spending is good for the economy (current consumption destroys capital; production is [mostly] in anticipation of future consumption).

(2) The U.S. housing bubble was caused by the easy-money policy of the Fed; rather, that policy ensured that *a* bubble would appear; other factors (e.g., acts of Congress) directed the easy money into the housing specifically. What you describe (shedding of real estate by the baby boomers) could explain the *burst* of the bubble—though, in my opinion, the burst occurred primarily because the Fed [temporarily] reversed its easy-money policy.



Jack Tierney writes: 

I don't know that your hypotheses will hold up. I agree that Boomers, and more significantly, their parents, will want to shed assets - including homes and equities. I believe Boomers, like current retirees will find it easy to sell their homes (or condos) IF they're willing to take a significant haircut. Despite what real estate cheerleaders might claim, there's no getting around the facts (from the Fed) that between '07 and '10 the average American household experienced a 39% decline in net worth. The following two years have seen no improvement. Traditionally, those most likely (and financially equipped) to purchase a single family home are college-educated professionals. Unlike those of other past generations, these will be populated by graduates who carry significant amounts of debt - and their creditor is the most relentless, and unforgiving, collector imaginable - the Federal government. Since these debts cannot be negotiated down, expunged by death, or bankrupted away, they will be paid down before capital accumulation can begin. As a result, the cohort most likely to support a resurgent real estate market will be, at best, delayed in bringing it about. Even then, there is and will continue to be a contraction in wages. Significantly, the post-Boomer generations (Gen-Xers and Millenials) will be, relatively speaking, financial beggars. We must remember that the technological advances we can't stop raving about came about as all business advances do - to reduce the cost of production…and wages are (or used to be) a big cost of production. Those few who have been able to overcome the "math is difficult" meme and obtain an education (and degree) in a handful of specialty fields will continue to do well…and will become home owners assuming they have also learned to save…a problematic assumption.

Another cohort, which will include a significant number of college grads, will fight for positions that offer something a little better than above average incomes…they may become home owners but their zip codes, like mine, will not be noted for country clubs, cotillions, or Chris Crafts. A similar cohort, but one slightly less fortunate and/or ambitious, will contain a fair representation of graduates from every level, and their lives will be marked by a payday-to-payday narrative. Some in this group will never repay their education loans and either move in with family members or migrate from one transient hotel to another. They will not contribute to a real estate boom or consumer spending. The final group will be composed of the poor - working and otherwise. I have no idea how big it will be, but am sure it will be substantial, it will be urban, and it will be restless. Public housing will be the order of the day but among its residents there will be those who recall the "good old days" when various government sponsored programs were numerous and sufficient. Some will recall the wealth that existed, how quickly and inexplicably it disappeared, and the culprits (real and imagined) who destroyed it. The primary concern of the government, whatever form it may have taken, will be, as it ever is, to maintain docility.

While these developments might well result in "dramatic consequences for US consumer behavior," I doubt we'll ever see a housing market or the level of consumerism like that we experienced following WW II. It not only requires great wealth, but a great concentration of wealth. The kind that exists only when your major competitors have destroyed their manufacturing bases not once, but twice, in three decades - and yours remains unscathed. Under those circumstance you can build homes or automobiles with varying degrees of quality, pay substantial wages, and still have an incredible boom.

Andre Clapp responds: 

Hi Jack,

Alas, I think I agree with you. Looks like we're in for some tough sledding for at least another decade, maybe longer. Not to sound too much like the writer of "Generation X", but I think that the argument can be made that this older generation (including me) has very much "borrowed" or "stolen" from the younger generation. (Pay as you go SS might be an example of this. The high cost of healthcare, the national debt, etc.)

In this sense, I am somewhat sympathetic (often unpopular in financial circles) to the inflationary monetary policies of the Fed and the ECB. Although I agree that printing all this money amounts to "confiscation" of wealth from Savers and bond holders, I think it may be morally justifiable as a politically feasible way to transfer wealth from the older to the younger generations. At least give the younger generation some motivation to work, invest, and take some risk, as opposed to moving in with their parents/grandparents and playing video games all day. I believe we have seen the later in Japan, which to my mind decided to let deflation run its course (and protect the savers and bond holders, which of course are predominantly the older generation.)

What do you think of this?

Also, it is notable that despite the trillions of dollars that have been injected into western economies by the Fed and ECB, it has yet to produce meaningful inflation… Any thoughts on this? Is the psychological impact so great that no amount of monetary easing will produce inflation? Can't push on a string kind of thing?

I couldn't help noticing that the Danish government recently sold bonds at a negative yield.

Best Regards,


Andrei Kotlov writes: 


Two quick thoughts:

(1) Inflation (money printing) amounts to enriching those who stands by the printing press (the gov't) and confiscation from those who are removed from the printing press, in proportion to their distance. The savers (the older gen) will suffer just as much as the future lenders (the younger gen) who will pay the higher rates.

(2) Money printing has not lead to 'meaningful inflation' *yet* because it has been done concurrently with the naturally-occurring deflation (caused by the contraction of credit).

Gary Rogan writes: 

To advocate as "morally justifiable" the despicable activity aiming "to transfer wealth from the older to the younger generations" is itself not morally justifiable, regardless of how much the younger generation is expected to benefit.

Also another reason why this activity hasn't resulted in inflation yet is because the Fed is paying banks significantly higher than the market rate to keep their excess reserves on deposit there. Sooner or later this music will stop, and there will be a flood of inflation that will be declared "unexpected" for months on end, just like the number of unemployment claims has been.

Russ Sears writes: 

For a bigger picture that takes finance into the picture look at the census data on home ownership before and after the bubble .

The meal for a life-time I believe is in the anatomy of a bubble contained in the home ownership percentages.

Ownership rate in the US was 63.9% in 1990 with the magic of Mortgage Backed Securities, the Fannie and Freddie programs this was raised to 67.4% by 2000. Then came the push into sub-prime and this was raised to 69.0% by 2004… It hoovered at this unsustainable level a couple years where the greater fool seemed to take over before the dam broke in 2007 with a drop of 0.7% (68.8%/2006 to 68.1%/2007) and the QE fix was in to keep it from continuing the crash and clearing the market. The home ownership in 2010 still stood at 66.9% off 0.5% from 2009. I suspect your conclusions are correct that with the lose of government subsidized financing the ownership rates need to get back to closer to 1990 levels.

However, looking at the numbers it would appear that the older ages have continued to value home ownership.. Those aged 65+ followed a similar path of the overall demographic until recently. (76.3%/1990; 80.4%/2000; 81.1%/2004

With the lower rates they appear to be the ones that currently are taking advantage of them to purchase housing. going from 80.1% in 2008 to 80.5% /2009 and 2010)

This group may very well continue to drop below to the 1990 levels once the rates are not being stimulated.

However, as an actuary well aware of the risk of out living your wealth, I would argue that the home ownership is many elderly household's main hedge against long term inflation. Plus the nostalgia of setting roots and maintaining an inheritance. They would need to be clearly convinced deflation is here to stay before they give up on home ownership.

Gary Rogan writes: 

Andre, I'm not sure which intergenerational theft mechanism you mean (one could argue that say Social Security is some for of that type of theft or whatever), but regardless:

Just talking about returning wealth to its rightful owner is communist rhetoric and implies collective punishment for a class of people. There is no justice in making a group of people pay for something they didn't individually undertake. There is no justice in making members of this group pay out of any proportion to how much each of them supposedly "stole". There is no justice in an unelected and unappointed (for this purpose) body extracting this retribution, especially without even a semblance of due process. There is no justice in this body using a totally spurious explanation because it's politically convenient for undertaking this sort of justice.

Of course as a practical matter, this is just theft in order to make the constituent banks whole and to impose taxation by more palatable means mainly to support those in power staying in power. Nobody has any intention helping the younger generation. But to me, justifying collective theft as collective punishment or justice is simply abhorrent.



 Some people just worry way too much. Muppets, too, are guilty of the same character flaw according to a note I just received from Miss Piggy.

"Poor, dear Kermi, he'll never appreciate just how much I care for him or the lengths I'll go to keep him from harm. Way back in '17, when things looked dark I plopped him in a beautiful, if somewhat chilly, crock pot. To forestall his usual kvetching, I applied a minimum amount of heat. And guess what? He survived!

"Then again in '32 when things really got nasty I cranked the heat up a bit more. Once again he survived.

"Again in '50 when the Russkies sent the whole world into a shiver, I added a bit more heat (even got the go-ahead from the two old men in the balcony). Not only did he survive but began to put on weight…a lot of weight.

"'94's increase wasn't anything remarkable (he survived didn't he?), nor was this most recent one….although he's noticeably skinnier…almost looks like he did in '32.

"Despite all my attention and obvious concern, the ungrateful wretch is kvetching again. Afraid things might get too hot. Honestly, some muppets never know how great they've got it!

"Fortunately, I'm a forgiving Pig and in eight months we'll be looking back and laughing about it. And if need be, I'll crank up the heat a bit. Never hurts."



 I am so removed from Wall Street that this may be an obvious point:

I think it will turn out that Greg Smith did Goldman Sachs a great favor. No amount of purposeful PR could have helped GS so much and turned the tide running against GS so effectively as Smith's pompous, self-serving and unsupported resignation op ed.

Except among the irrational haters of wealth and speculation, Smith's op ed will wind up generating sympathy for GS, and I predict this week will mark the bottom of GS both in reputation and stock price. It will be pretty much all up from here.

The true criticism of GS, of course, would be its corrupt, crony-capitalist relationships with current and prior Presidential Administrations. But that's too subtle and knowledgeable a criticism. Rather the criticism in the popular mind is "greed". Smith's attempt to cloak his resignation in anti-greed will be seen through and will lead to greater acceptance of a beleaguered GS just trying to go about its business of making Wall Street work.

Rocky Humbert writes: 

As a GS alum, I would like to offer a few observations, without directly commenting on Dan's point.

When I left GS as a vice president in 1989, GS was run by Whitehead and Weinberg, successors to the legendary Gus Levy. The firm was a private partnership, and importantly, the investment banking/capital markets side of the company dwarfed the trading side of the company. This is a critical distinction from today. Sure, Bob Rubin's risk arb desk was hugely profitable. Sure, we did some big block trades in equities; but the much higher commissions of that period, and the firm's limited capital, ensured that the focus was on flow and not on principal transactions. By then, Traders were second class citizens versus the hermes-wearing, first-class-flying I-bankers who, at that time, would never ever represent a company in a hostile takeover. Of course there were some guys who pushed the envelope on occasion (I won't name names), but there was a distinct belief that everything flowed from the profitability of the clients. For an analogy of the inherent tensions between Ibanking and trading, revisit the Gluckman/Peterson feud at the ancient Lehman Brothers (pre-Amex deal).

That really was the GS culture back then. Heck, Weinberg drove a crappy Ford sedan because we did the Ford IPO. And few things could get you in trouble faster than talking badly about an important client. It was unthinkable that we would push a client into a security that we thought would turn out badly. We looked down our noses at Bear Stearns and the other bulge bracket firms who were known for that sort of thing. (Aside: I posit that the GS cultural evolution can be gleaned from the type of car the CEO drove.)

The world evolves, and I believe that the evolution of GS into its current form is a reflection of:

1) The end of its being a private partnership — which ensured risk taking with OTHER people's money. I still remember having a particularly bad losing day when Eric Sheinberg walked up to me, whacked me on the head and said with a reassuring smile, "Don't sweat it. It's ONLY money…..and it's MY money."

2) The domination of trading profits versus investment banking revenues. Management realized you can only grow investment banking to a certain size due to its service nature; whereas you can compound capital by investment and trading in a theoretically unlimited way.

3) The growth of trading technology and impersonalization of counterparty relationships. (It's much easier to "screw" someone who you don't know.)

4) The 10 percent rule, where they fire the worst performing 10% of employees every year. Back in the Whitehead/Weinberg day, such a concept would have been unfathomable. It really was a family lifetime employment sort of feel, not dissimilar to GE before Jack Welch and IBM before Lou Gestner.

5) And many other examples that correlate with a 30 year bull market in debt as a pct of GDP.

I am not lamenting here. I am simply saying that Smith is right when he observes that the GS culture has changed.

Too, the world has changed.

And, to be honest, I don't really understand why Smith wrote that piece except as an attempt to be Michael Lewis-esque, but without the chuckle factor.

Jack Tierney writes: 

Notes of interest in the GS "time to buy?" discussion: Goldman's full-year net income hit a record $13.4 billion in 2009, then slipped to $8.4 billion in 2010 before tumbling to $4.4 billion last year. Goldman's share price has plummeted from its 2009 high of $192 to the current quote of $111. During 2009 and 2010, Goldman spent 71% of its net income buying back its stock. But last year, the company spent 264% of net income buying its stock (excluding the repurchase of preferred stock from Warren Buffet, Goldman still spent 140% of its net income buying its own shares last year - double the rate of 2009-10.) Last week, Goldman executives cashed in $20 million worth of stock that had been "locked up" for the last three years. Over the last five years, Goldman's management spent $21 billion of the shareholders' capital buying GS stock in the open market at an average price of $171 a share. Today, the stock sells for $111. On a mark-to-market basis, therefore, Goldman's stock buy-back "investment" has produced a loss of about $7.3 billion for shareholders…. Last week, nine Goldman insiders sold their stock as fast as the law would let them. They cashed out $20 million worth of stock at an average price of $107.44.

Fred Crossman replies: 

Great points, Jack, on buy backs. I noted that American retailers have continually expanded at a much greater rate than the population growth. In addition to declining per store sales and income these retailers have been furiously buying back stock since 2007 to goose earnings. LOW has reduced shares outstanding by 12%, BBY 18%, HD 20%, KSS 11%, WMT, 15% and SHLD 29%. All buybacks above book value (destroying share holder value). Especially HD, now trading at 4.1 times book. 

Bruno Ombreux writes: 

There is a very simple way not to be screwed by GS, or anybody else. I am talking about trading, not corporate finance.

If you are making trades directly with GS, you are presumably a company, not some small private speculator. So you have a tool which is called "Risk management policy" and you make it a sackable offense not to comply with it. In the risk management policy, you list the markets and the instruments people are allowed to trade.

For instance:

- only markets with at least 3 active market makers and x trades/per day
- only vanilla instruments like swaps In addition, you have procedures like "trader must obtain 3 quotes from 3 different counterparties prior to making a trade", and a track record of the consulted counterparties and their quotes must be kept in the trading system, for each trade. In these types of market, you are not trading every 5 minutes, so you have the time to do all this.

There is no way you are getting screwed if you restrict yourself to simple instruments and they have the best bid/ask available among several other market makers.

Rocky Humbert comments: 

Sorry, but I don't understand your distinction between trading and investing. I also don't understand your definition of vanilla. I am however a fan of "rocky road" flavor.

I agree with you that entering trades that you are not sure to be able to exit is risky. But if the market provides you with a sufficient liquidity premium, it's rational and it can be profitable. But only if you do it right of course.

Bruno Ombreux replies: 

Trading vs investing: this could be the beginning of an endless semantic debate.

But let's use a couple of examples:
- trading: I buy a basket of stocks this morning with the intention of reselling before the close
- investing: I build a portfolio of stocks with the intention to keep it a relatively long time, because I think that these stocks value will increase due to whatever reason, growth, value, the economy…

I also like the following classification, which I believe comes from Minsky:
- Profits on the position neither depend on price variation of the asset, nor on cost of carry: I am investing.
- Profits do not depend on price variation, but only on positive carry: I am trading.
- Profit depend on price variation of the asset: I am speculating.

The example and the definition are not equivalent, but they give a rough idea of what trading is and what investing is. The border between both activities can be blurry. But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.

Now, to answer your second question, what is vanilla? Vanilla is anything that is simple, easy to understand and commonly traded. In the energy markets, everybody trades swaps and Asian options. These are vanilla. What is not vanilla would be a double-barrier option on Singapore 180 cst Fuel Oil, settled at the average CAD/EUR exchange rate lagged 3 months vs the Fuel oil averaging period. That is not vanilla, and definitely more simple than many equity derivative deals.

Dylan Distasio comments: 

But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.

I will let those wiser than myself comment on the rest of your analysis, but the above jumps out at me as a poor definition of investing. Holding a bond to maturity may be a valid example of your argument, but there are plenty of people arguably INVESTING in other instruments who need a market to close their positions. A few off the top of my head include real estate, stocks, bonds not held to maturity but still held as investments, commodities including physical ones held in safes or other venues. Of course you need a market to close out most investments! I may be missing something but this seems obvious. If you cannot find someone else to buy or sell your investment at the time of closing the position, you have zero liquidity and for all intents and purposes zero value if you need that liquidity immediately. Without a secondary market, most investments cannot realize their value.



 1. There is a critical point in the market, a critical decision that the market gods weigh on a scale like Zeus with his balance scale deciding whether Achilles or Hector will win, that determines the market fate, and it is key and should be the focus of all news stories and market considerations but never is.

Never trust anyone but your family and best friend because everyone is disloyal in a pinch. Peleus was left for dead by his father in law after killing his brother in law to become ruler and this led to the Trojan war. Caesar trusted his best friends but they turned on him when an opportunity for power, money, and romance reared its ugly head.

3. Deception is key. The most successful Greek was the Deceiver Odysseus, and he tricked everyone he dealt with as the market tries to trick you with Odyssean power.

4. The goal is always to come home. Odysseus went home, as does the market. The only loyal ones were the wife and son and the best servant. The market retraces and comes home to break even an inordinate number of times.

5. Never mix romance with business or the market. The Trojan was was started by Paris intervening in romance and being swept off his feet by Aphrodite, and Achilles killed tens of thousands and prolonged the war by 10 years when Menelaus stole his mistress.

6. Don't try to walk with the Gods. Peleus married a half God and married her the last time the Gods and mortals mingled at a celebration and it caused him to be the most distressful of men. Trying to emulate Soros or the other greats is the seed of destruction.

7. Okay, give me the rest. And correct and tighten the above. I'm out of my depth but wanted to get the gist across.

Ken Drees comments:

 Like using a mirror against Medusa, one must plan against the adversary and sometimes use their expected attacks to beat them. Like shielding oneself from the siren song, one must be totally prepared, seek council before the journey (the trade) about what dangers are expected.

Also, it seems every entity in mythology had a weak spot. It's probably best to note these weaknesses in your thinking and in your emotions, not how can I beat the market, but how can the market beat me today?

Bill Rafter writes:

The greatest two rules:

(1) nothing to excess and (2) know yourself.

Pete Earle writes:

One lesson from mythology which resonates with me is the oracles/prophets/predictors almost always forecast correctly, but rarely in an obvious or immediately relevant way. The predictions made are usually realized, but not before taking extremely circuitous, and usually counterintuitive ways to reach fulfillment.

In my experience, predictions regarding the direction of equities or commodities inferred from option markets so often prove accurate…but only after traveling in the most wrong, most unanticipated ways.

Alston Mabry responds: 

 Pete, I think of that as "shaking the tree", i.e., we're gonna get there, but we're gonna shake out as many weak hands as we can along the way.

Peter Earle replies: 

Absolutely. Stop-running and the like as the "gods" way of seeing who's "worthy"; who can withstand the flood, the fire, the sturm und drang.

Jim Lackey writes: 

In 2008 I learned from Ryan Carlson– Sisyphus. There is a little useless book Wit and Wisdom from Wallstreet. So many of the quotes are the exact opposite from 3 pages ago… yet for a day they are seemingly sage advice. Worse for the long term. It's all good advice, yet in the mean time we must eat, and in the long term we all end up dust in the wind.

Traders lament when we miss profits. We are miserable when we lose. If we are not careful we are never happy. I have the habit of having to work myself up into a fury to win a race, pass a test or trade. My wife calls it "business mode" everyone else calls it being a jerk. Finally this year I have the ability to take a loss and this week miss a glorious rally and profit… yet at 4:20 PM its over. I am done pushing the boulder back up the hill for the day. I will return at 1:30am or by 7am, all but two business days a year. It can be torture if you do not like to trade, but if you love it…

Here is a quote from my kids music, "This is Our Science" by Astronautalis: "Our work is never done/ We are Sisyphus".

p.s I notice that if I don't like the rap beats I miss quite a bit of new poetry. I hear my teenagers say random lines and say what! That is amazing. Then I hear the song and say no wonder I never heard that line before. Damn drum machines.

Jack Tierney adds: 

Recently I've been reading up on complexity, system dynamics, and the unpredictable consequences that occur when tinkering with non-linear systems. The markets seems subject to all and, if I'm even remotely correct in interpreting the literature, there's only one certainty: expecting linear consequences (e.g, provide banks with more liquidity, bringing about an increase in business borrowing, resulting in a resurgent economy) is rarely, if ever, realized.

Instead, the unseen effects on unimagined factors, almost always derails the logic train. A source I've referred to on occasion is "Cassandra's legacy." Appropriately enough, the custodian of that site provides an interesting historical allegory, in the form of Goth Princess/Roman Empress, Galla Placidia, and her part in the demise of the Roman Empire. It's a very lengthy read and, unless history like this interests you, tough going. So, a few highlights:

"Managing any large structure is difficult and we tend to do it badly; a whole empire may be an especially difficult case. To do it well, we would need to use a method what I mentioned before: system dynamics; which is a way to describe systems and the relation of the various elements that compose them.

"…every time that the Romans fought the Barbarians, they could win or lose, but each battle made the Empire a little poorer and a little weaker. The empire was using resources that could not be replaced; non-renewable resources, as we would say today….the solution was not more troops but less troops. It was not more imperial bureaucracy but less imperial bureaucracy, not more taxes but less taxes.

"In the end, the solution was right there and it was simple: it was Middle Ages. Middle ages meant getting rid of the suffocating imperial bureaucracy; it meant transforming the expensive legions into local militias; have people paying taxes locally, in short transforming the centralized empire into a decentralized constellation of small states. Without the terrible expenses of the Imperial court and of the Imperial bureaucracy, these small states had a chance to rebuild their economy and start a new phase of prosperity, as indeed it happened during the Middle Ages.

"What Placidia could do as an Empress was, mainly, to enact laws….It seems that Placidia was acting according to her style; ease the unavoidable, don't fight it….Placidia forbade the coloni, the peasants bound to the land, to enlist in the army. That deprived the army of one of its sources of manpower and we may imagine that it greatly weakened it. Another law enacted by Placidia, allowed the great landowners to tax their subjects themselves. This deprived the Imperial Court of its main source of revenues."

Stefan Jovanovich comments:

As much as King George's scribbler Edmund Gibbon despised Christianity, he had the Middle Ages even more because its bureaucracies were the worst of all — local and mean and stupid.

Professor Bard should revise his history. What he wrote here — "Middle ages meant getting rid of the suffocating imperial bureaucracy; it meant transforming the expensive legions into local militias; have people paying taxes locally, in short transforming the centralized empire into a decentralized constellation of small states. Without the terrible expenses of the Imperial court and of the Imperial bureaucracy, these small states had a chance to rebuild their economy and start a new phase of prosperity, as indeed it happened during the Middle Ages." - is nonsense.

The Roman Empire's tax collections were always "local"; that is why Roman politicians were willing to pay such enormous bribes to be appointed provincial governors. The legions were also "local"; the Empire's expansion came from granting "foreigners" - i.e. the people we would today call Spaniards, French and Syrians - the privileges of citizenship, which meant they were also qualified to serve in the local legions. This was equally true under the Republic; "crossing the Rubicon" would not persist as a bad metaphor if Rome's soldiery had been centralized.

As for economics, whatever the "terrible expenses of the imperial court", they were nothing compared to the ravages of coin clipping. The solidus of the Eastern Empire maintained an unchanged weight and measure for 4+ centuries - a record that is likely never to be broken. (It exceeds the span of sound money for the British Empire and the United States of America put together.) After Princess Placida's day coinage, under the wonderful decentralization of the Middle Ages, effectively disappeared.

"Dearth of provisions, too, increased by degrees, and the scarcity of good money was so great, from its being counterfeited, that, sometimes out of ten or more shillings, hardly a dozen pence would be received. The king himself was reported to have ordered the weight of the penny, as established in King Henry's time, to be reduced, because, having exhausted the vast treasures of his predecessor, he was unable to provide for the expense of so many soldiers. All things, then, became venal in England; and churches and abbeys were no longer secretly, but even publicly exposed to sale." - William of Malmsbury wrote this in 1140 AD - the period that Professor Bard praises so highly for its progress over the degeneracies of the Empire.

Hume deserves the last word on this and most other subjects that interested him.

"Mankind are so much the same, in all times and places, that history informs us of nothing new or strange in this particular. Its chief use is only to discover the constant and universal principles of human nature."

Easan Katir adds: 

The Greeks have fooled people since the Bronze Age. Instead of a horse, they now have Trojan bonds.

Steve Ellison comments: 

Jack, the Atlantic had an article about why projects that had successful pilots often failed when rolled out to the general population.

Why Pilot Projects Fail– Here are some excerpts:

Promising pilot projects often don't scale … Rolling something out across an existing system is substantially different from even a well run test, and often, it simply doesn't translate.
Sometimes the 'success' of the earlier project was simply a result of random chance …

Sometimes the success was due to what you might call a 'hidden parameter', something that researchers don't realize is affecting their test. Remember the New Coke debacle? …

Sometimes the success was due to the high quality, fully committed staff. …

Sometimes the program becomes unmanageable as it gets larger. You can think about all sorts of technical issues, where architectures that work for a few nodes completely break down when too many connections or users are added. …

Sometimes the results are survivor bias. This is an especially big problem with studying health care, and the poor. Health care, because compliance rates are quite low (by one estimate I heard, something like 3/4 of the blood pressure medication prescribed is not being taken 9 months in) and the poor, because their lives are chaotic and they tend to move around a lot … In the end, you've got a study of unusually compliant and stable people (who may be different in all sorts of ways) and oops! that's not what the general population looks like.



 I read this interesting article lately that posed the question:

Is it possible that student loans are to some extent simply replacing unemployment insurance as a source of subsistence income? If so, we may be creating another asset bubble of sorts, with consequences much more dire to the debtors than anything we have seen before. Thanks to the “bankruptcy reforms” of 2005, those student loans cannot be “cleared” by bankruptcy, no matter how hopeless the situation. We may have simply created a new version of a Dickensian “debtors’ prison” that may ultimately imprison an entire generation of young borrowers."


The answer is yes. 

(Department of Education) The U.S. Department of Education today released the official FY 2009 national student loan cohort default rate, which has risen to 8.8 percent, up from 7.0 percent in FY 2008. The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.

And keep in mind student loans are still expanding in this crisis. While every other sector of debt is contracting this is the only area growing. What is worse is that the earnings for recent college graduates doesn’t reflect the higher costs of college:

Since 2000, in real terms college costs are now up by 23% Since 2000, in real terms real pay for college graduates is down by 11%

The reason when we look back and see greater earnings for those who go to college is the reality that many never came out with so much debt. Decades of data are being used and applied to the current rip off and high cost model that has never been seen in the past. Plus, you had a tightly regulated market and for-profits were nearly unheard of.

Alston Mabry writes:

Also, as I understand it, the default rates, especially for for-profits, are understated, because the DOE only looks at default rates within a certain period after the student leaves the school (two years, I believe). And so the schools have programs to keep people out of default until they fall out of the counting period, after which they are on their own.

Jordan Neuman adds: 

It is like anything else, whether you want to call it a "bubble" or "ever-changing cycles." In the late-90s the argument for stocks was that they had never had a down 15-year period. By definition, then, no price was too high for stocks if held for the long-term. Of course taking the yield down to 1% was never part of stocks' history. The same goes for housing in the last decade. Housing prices only go up over time!

The reasons that college educated workers have done better historically is that the college degree served as a screening mechanism when fewer went to college. Now that everybody goes the screening is worth less to employers. But colleges are charging, and are abetted by Government policies, for the old promise. Just like health care and housing, government policies have distorted the pricing mechanism enough to wreck the whole system.



For those who trade frequently throughout the day — if your late day buy and sell choices tend to prove less profitable, there may be a good reason…. check out this article "Do You Suffer From Decision Making Fatigue?"

No matter how rational and high-minded you try to be, you can’t make decision after decision without paying a biological price. It’s different from ordinary physical fatigue — you’re not consciously aware of being tired — but you’re low on mental energy.

Willpower turned out to be more than a folk concept or a metaphor. It really was a form of mental energy that could be exhausted. The experiments confirmed the 19th-century notion of willpower being like a muscle that was fatigued with use, a force that could be conserved by avoiding temptation….Part of the resistance against making decisions comes from our fear of giving up options.

Ken Drees writes:

I attended a mental toughness seminar once from a sports psychologist/ business executive improvement guru. At the end of the seminar when we were worn down he talked about diet and how levels of glucose dropped during the day, etc. Thats when he pulled out his product line of carb tabs — little wafers that would boost your levels without a lot of calories — needless to say we got some free samples and the order form was passed around and there was psychology 101 all over the room as no one wanted to not buy for fear of being a loner, and those that were worn down said what the heck, lets give it a try. You had your excited female buyers as the whip for the tired guys to give it a try, what can you lose — come on be mentally tough and make a decision to change your life. So that is what is in those cardboard boxes at the back of the room — carbo tabs. This was before Adkins so there was no anti-carb thinking back then.

A snippet from the article:

The benefits of glucose were unmistakable in the study of the Israeli parole board. In midmorning, usually a little before 10:30, the parole board would take a break, and the judges would be served a sandwich and a piece of fruit. The prisoners who appeared just before the break had only about a 20 percent chance of getting parole, but the ones appearing right after had around a 65 percent chance. The odds dropped again as the morning wore on, and prisoners really didn’t want to appear just before lunch: the chance of getting parole at that time was only 10 percent. After lunch it soared up to 60 percent, but only briefly. Remember that Jewish Israeli prisoner who appeared at 3:10 p.m. and was denied parole from his sentence for assault? He had the misfortune of being the sixth case heard after lunch. But another Jewish Israeli prisoner serving the same sentence for the same crime was lucky enough to appear at 1:27 p.m., the first case after lunch, and he was rewarded with parole. It must have seemed to him like a fine example of the justice system at work, but it probably had more to do with the judge’s glucose levels.



 The surest way to put the brakes on the upward action is to give a hefty boost to the margin requirement. The current $6000 for an $180,000 contract is just too rich a target to pass up.

On the financials which, to my mind, are being given a well deserved beating, I'm looking for another "Christopher Cox" moment. For those who may not remember the last time our nation's highly regarded bankers (including the holy of holies, Robert Rubin) received a drubbing, Cox issued a prohibition against shorting stocks in the nations 20 or so largest financial institutions. I recall it well as I had a large SKF position which really got nailed.

However, I was still in the green, though substantially less so. Cox, apparently aware of some lingering gains and a recovering SKF, shortly thereafter expanded the "may not short" list to include something like 719 financial institutions. The party was over.

I wouldn't be surprised to see it occur once again as the usual ranters (who remain remarkably quiet during bullish bubbles) are heaping complaints on the HFT system and its contribution to the current downdraft on banking equities - complaints that are gaining traction as the French now feel equally grieved as their banks just underwent a similar brutalization..

I find myself in a similar situation currently with precious metals (long) and banks (short). I've attempted to partially hedge each position with the appropriate ETFs but am skeptical that it's enough. Wall Street's Cramers and fellow-travelers get especially nasty when their icons get shellacked. However, mums the word when dotcoms and real estate go parabolically skyward - just ask Al "Irrational Exuberance" Greenspan. The Street will exact its pound of flesh.


By the way, someone commented that Prechter has been wrong all along on gold. That is absolutely correct - he has been similarly mistaken on silver.



 Even amid acknowledgment by US leaders of the need to reassure jittery investors, world markets fell and both fell with the Aug 2 deadline to raise the gov borrowing limit fast approaching. What a joke. We can now see yet another function of the stock market aside from its benchmark for how costly it is to raise funds, and a source of liquidity and enabler of all to participate in the returns from enterprise, and its main function of transferring resources from the people at the bottom of the feeding chain to those at the top while paying for the vast infrastructure needed to provide the above functions.

It's function is to provide a signaling mechanism and excuse for service revenues to be increased and for the geese to be plucked with the least amount of hissing by appeal to the terrible things that would happen if it were left to its own courses and it went down were spending not to be maintained, and service revenues from those who have more than the common man to be putatively increased.

Jack Tierney, President of the Old Speculator's Club, writes: 

I'm not sure if we're all looking at the same markets. I just checked out the 12-month performance for all the major averages. All relatively close to their 12-month highs. If these results are due to "jittery investors" then I confidently predict that the DJ average will crack (or come close to cracking - within 200 pts.) its all-time high by the end of '11 if ANY debt ceiling settlement is reached.

Fear-mongering seems to be at an all-time high. Curiously, leaders of the world's major religions are criticized by some who claim their structures are built through fear utilizing the sweat-labor of gullible peasants. Well, this very sane, quantifiable, transparent capitalist structure we call "the market" appears to operate in much the same manner. Yet it is lauded by many of those same individuals.



To put some conviction behind my surmise, I just purchased some DDM at 65.35. Check back with me next January. 



 Why Oslo? … you ask

Actually, Norway and all of Scandinavia serve as an excellent barometer for the "progress" of Islam in the West.

The best blog I've found to monitor developments has been The Gates of Vienna. There is yet to be an update for the 22nd, but keep an eye on it. (All their articles are translated.)

Also keep track of one of their regular contributors: Fjordman. He used to keep his own blog, but now contributes to others -one of which, The Brussels Journal, also gives the current developments in the EU.

Jan-Petter Janssen writes:

*Muhammed cartoons re-published last month
*Troops in Afghanistan
*Supports coalition in Iraq
*F16s actively bombing Libya these days
*Very bad integration
*Large muslim population
*100s of muslims went to the streets protests last year: Peaceful, but
one speaker warned against a 9/11 on Norwegian soil
*Nobel peace price
*Mullah Krekar

… and so the list goes on…




Listening to CNBC I discovered that my substantial cash hoard existed not out of sound judgement, but was a residual effect of the beating the market has taken twice over the last decade. Once I, and others like me, shook this fear the market would skyrocket. Although I still hold substantial amounts of cash, the "others" jumped in and have powered the market higher. Same CNBC individuals now classified this development as the result of "the dumb money" moving in and, hence, a good time to "take something off the table." Dumb when you're in and dumb when you're out– can't win.

I've been reading and hearing much of the "economic miracles" of India and China. Definitely the countries to be invested in for the next century. Both countries feature tons of human capital boasting high academic achievement in important areas (engineering, mining, electronics, high tech). The work force will be kept busy for many, many years as demand for infrastructure, living quarters, and agricultural development surges. Best investment idea: baby girls. Unless much is done to correct the artificially skewed birth rates in each country, the forecasted miracles could well be still-born. Lots of money, a great job, a great home, and much admiration are great. But the essential element is missing and woe unto him who denies it.

U.S. residential real estate will never come back to its one-time prominence. And it's not strictly a matter of over supply due to improvident building and financing. The great middle class, prosperity's sin qua non, is on its death bed and won't be resurrected. Great jobs at great pay for the blue collar class are gone and won't return. "We think and they sweat" is a cute idea but not enough individuals think to support a burgeoning economy. There are plenty who sweat but at wages that dim any hope of a return to multi-TVs, multi-cars, multi-6-packs, and multi-vacations at the shore.

Prices for commodities should no longer be expected to revert to "historical means." Gold and silver are especially attractive to Indians and Chinese who view both with a reverence that stands prudence on its ear. Similarly, the essential food commodities are now the target of increasingly affluent countries which previously had little capital and little desire to possess them. Inhabitants of those countries who still can't afford them (as well as their familiar staples) are now taking to the streets - governments will be forced to find ways to appropriate them.

Current events in the Middle East are being characterized by the media as an "Arab Spring" and the world cheers. Same thing when the Soviet Union broke up. Also when Castro came to power in Cuba. Ghandi in India. Members of the Tea Party: fascists.

Have come across a couple of sources recently (Eric Hoffer and Bill Bonner) who point out that little changed industrially or economically in the world between 1800 B.C. and 1800 A.D. (oops, a PC blunder). Both hypothesize that someone like Aristotle would have felt equally comfortable in either time frame. The years 1800 to 2100 are an anomaly. Both then go on to surmise that we are due for another extended period of turtle-like advances. Sounds like punctuated equilibrium (that should undo the PC blunder).



 If someone could relate the 10 most important ways to be a successful beggar and somehow rate the big CEO's on how they fare on this, perhaps it would be a good way to pick investments these days. Certainly the basketball player, and the [deleted pending resolution of offer and counteroffer] would be high up there, and the heads of the certain institution from areas that are renowned for their ability to compromise would have many lessons to teach, and juicy stocks ripe for investment. The head of a metals company renowned for its low cost elevators in my day was a butler and this would seem to be very ideal training in the absence of a school for beggars in this country. How to generalize?

Gary Rogan writes:

They can't really beg and retain any illusion of authority. They have to prostitute themselves to the regime while plausibly (somewhat) appearing highly enthusiastic and supportive.

Some of the skills:

-Be able to speak with passion and conviction about complete nonsense, generally in the collectivist/green future and similar areas.
-Be able to deny obvious truth with passion and conviction in public, such as the real motivation for any help from the government.
-Regularly show up in Davos.
-Express a great deal of concern for various oppressed constituencies, at home and abroad and describe at length how the company/CEO are helping them.
-Be excited about creating jobs, especially "good" jobs, "skilled" jobs, "green" jobs. Talk at length about how the US needs to be a country that "builds things".
-Be able to motivate a large number of employees by any means necessary to contribute the government political candidate.
-Invest heavily in a number of "relationships" in DC to create wide-spread support for bailing out the company.
-If the company is a conglomerate that owns any media properties turn those properties into the echo chamber for the regime.
-Infrequently offer mild criticism of the regime while emphasizing the silver lining.
-Get involved as advisers to the various regime commissions.
-Hire former regime members.

Steve Ellison writes: 

Maiming: In one country I visited, there were many beggars, who served an important role in their religion by giving the faithful opportunities to do good deeds. Many of the beggars had been purposely maimed by their handlers in order to attract more alms.

Spinning a yarn: When I first worked in the big city as a young man, I was stunned by how many panhandlers there were. Locals informed me that the Republican president was to blame. I saw the same panhandlers day after day, but every once in a while somebody would approach me with a sad story. One woman rode the subway telling everyone she needed to get to a hospital for a medical procedure but needed money to get there. I occasionally would be approached by someone claiming to be a stranded traveler who needed money to get home.

Performing unwanted services to create a sense of obligation: The last time I went to the Los Angeles airport, I was approached as I walked out of the terminal by a woman who asked if I needed help finding anything. I said I just needed to find the shuttle bus for rental cars. She pointed out where it was (it was right in front of me, and I would have found it myself within five seconds) and then asked for money. Squeegie men and charities that send preprinted address labels are in this category, too.

Feigning virtue: I know people who have offered jobs to people holding signs saying, "Will work for food". None of the sign holders have ever shown up to work.

John Tierney writes:

10 attributes which get the alms seeker off to a good start:

1. stresses that the company is concentrating on "giving back to the community"

2. actively involved in and/or seeking out green initiatives.

3. putting increased emphasis on organic growth, but always has an eye-out for M&A opportunities

4. working hand-in-hand with government agencies/NGOs to address hunger/AIDS/climate change

5. supports and serves on advisory boards of outfits like Breast Cancer Awareness, Habitat for Humanity, Thurgood Marshall Scholarship program, anti-vivisection league, and Sierra Club

6. never misses annual meetings at Davos & Jackson Hole; always has time for interview with CNBC and others; dresses casually, but not ostentatiously for same, addresses interviewer by first name…refers to this year's meeting as "one of the most exciting" ever

7. rarely indulges in short-term predictions, instead devotes most of his time to long term initiatives (which he'd like to discuss, but, at this time, is premature); sees things improving slowly but surely

8. believes the Fed did the right thing - might have made a few small errors but, generally, moved decisively at a critical time. Country will bounce back, always has.

9. bailouts, QE1 & QE2, though regrettable, were necessary for the preservation of the financial system.

10. insists the public will realize a "healthy return" on bailout funds

Vince Fulco writes:

Not to be forgotten, the institutions that pound their chests with pride in their ad campaigns using misinformation as JPM has been doing recently re: the X number of mortgages (400M as I recall) the company has modified in 2010. "In order to do our part and assist ordinary consumers get back on their feet…" is the approximate spirit of the ad. Needless to say, for better or worse, in early consultation with these companies, the administration & Treasury planned for a 4-5X number of alterations.

Gary Rogan adds: 

Basically, the main requirement for being a CEO today is excelling at credible hypocrisy.

Russ Sears contributes:

Here are a half dozen more.

1. Beg for federal money for your customers. This should allow your prices to double what they put in. Plus the room for undetected fraud goes up. (See higher education and Medicare, medicaid and first time buyers tax credits). This way you get the best of both worlds, customers thanking you for making it affordable and tax payers footing the bills.

2. Give away your product to third world countries with tax breaks so that the Feds will extend the favor by lengthening your patent protection in US. Again gratitude for sticking it too us.

3. Have the government make it illegal not to be insured, and then make sure your product must be paid for by insurance. (car, health, PMI etc) Again with the government involved raising the easy of defrauding insurance companies.

4. If you are captured by the unions, make the government give only union shops a chance.

5. Use your size to get tax breaks as incentives, use your popularity to have the citizens build your stadiums.

6. Make sure that court system understands that with all the lawyers you hire, you are the ones keeping the judges in a job. Bringing regulatory capture to a new level, too big to prosecute.

World traveler B.K. writes: 

I've seen countless mutilated beggars in India, enough to make you want to cry coins to them. However, the practical advice is not to give: "In India thousands of children are being mutilated annually. The joints of their bones get injected with bleach. Infection is the result and amputation follows. Eyes are stuck out as well. …"

However, the greatest beggar I ever saw was an armless man in the NYC subway with a sign around his neck, 'Please give to buy drum set.'

George Parkanyi writes:

That may well be, but I look at it this way– who am I to judge? I once gave a leg-less homeless man a ten-dollar bill. Well he just absolutely lit up into a beautiful smile, looked me straight in the eye and said "God bless you!". That blessing hit me like a sonic boom. I felt it physically, and walked away feeling like I received much more out of that exchange than he did. Make of that what you will, but it had a huge impact on my outlook on life, and how we relate to each other. 

Marion Dreyfus writes: 

I saw the same mutilations and deliberate crippling in Nepal. Hundreds of kids tottered after Westerners, begging and making mewling sounds. If once you gave you were encircled and could not advance another step until each and every child had gotten coins from one. 

Art Cooper writes:

One of my favorite Sherlock Holmes stories is "The Man With the Twisted Lip," an exceptionally successful London street beggar, who gave his benefactors psychic value for their alms.

Pitt T. Maner III writes:

Here is an article on organized phony beggars. Those who donate must be able to differentiate the individuals worthy of a helping hand:

"Certain persons posing as social leaders have been running the racket of beggary. We are busy in gathering necessary evidence to initiate criminal action against them," Ramalingappa said.

He claimed that at few places the "beggary business" was going on a "commission basis"

and whenever the officials conducted raids, the beggars escaped from the clutches of law and also alerted others over mobile phones.

"Whenever the beggars in disguise are arrested, lawyers rush to get them released," Ramalingappa said. Most of these rackets thrive in and around well known pilgrim centres and religious places where people generously offer to beggars. He said an awareness programme will be launched to impress upon people that beggary should not be encouraged.

Stating that no proper rehabilitation of "genuine beggars" has taken place anywhere in the State, Ramalingappa said a comprehensive survey on the conditions of beggars will be taken up soon. There are 914 beggars including 168 women in rehabilitation centres all over the State. Steps were being taken to set these centres in order.



 The amazing moves this week are consistent with my 50 year old studies as to what happens following cardinal panics like airline crashes, and presidential assassinations. A terrible move down, and then by the end of the week, right where it was before. It happened to i s p and the grains and oil and the dollar yen. What else? How to generalize?

Jon Longtin responds: 

"…how to generalize?"

One thought would be to do a simple curve fit on an instrument of your choice after each event in history. Since the events themselves are unique and relatively short in duration (earthquake, assassination, terrorist bombing, etc.) and also very well defined in time, the trigger point (or time t=0) is well known almost immediately after the event happens.

In general a cusp-like response is observed (very rapid decline, followed by a well-defined apex, and then a rapid ascent (although probably not as sharp as the descent) to some threshold pre-event point (say 80%).

The underlying argument would be that people's mass reaction to any catastrophic event is similar (panic, confusion, and uncertainty followed by the gradual realization that the world is not ending, and things work back to normal). Since the underlying behavior is the same, it's not unreasonable to expect that the financial instrument's response should similarly be the same across different events. One could then try to form a single curve by appropriate scaling (so-called self-similar behavior). Then, when a new situation presents itself (hate to sound so detached when speaking of disasters), one could chart the instrument's history against the curve, and as soon as enough points were collected, match/scale it to the master curve and make an estimate as to the turn-around point and recovery and go from there.

One could further classify events into separate categories, e.g., natural disasters, political events, financial events, etc., and prepare appropriate curves for each, since the nature of the event will be similarly well defined and knowable very soon after it happens.

The engineering analog is somewhat along the following lines: a standard technique to test a system is to apply an impulse response and see how the system responds. Examples include tapping an automobile frame with a hammer and measuring how the structure responses in time, or using a gunshot to measure the acoustics in a large hall. In these measurements, the initial driver (the hammer hit or gunshot) happens so quickly that it has come and gone before the system has had a chance to even begin to respond. As a consequence the resulting measurement is only the response of the system and is not contaminated by the initial response.

In contrast, drivers that that are longer in time have a more complicated interaction with the structure, because the structure will start to respond to the first part of the driver, but the system is still being driven. The analog would be grabbing onto the car frame with your hands and shaking it repeatedly for a few minutes to get it to vibrate: the car frame will begin to response as soon as you start shaking it, but then as you continue to shake it, that further alters the response, which affects the response, etc. etc. = much more complicated to analyze and predict.

 In financial terms, disasters are often very short in duration (seconds and minutes), and subsequently they behave like an impulse response, with the system being society. In contrast, an event such as the wave of unrest in the middle east is a much longer time-frame event (weeks and months): the event and the response become highly coupled, making their analysis more complicated.

Anatoly Veltman writes:

Not sure if it's a separate topic, but there are sometimes dangers when you generalize. For example, the level of EUR currency (and its perceived trend) is significantly higher today than at this sample's outset. To what degree did this influence most commodities' comeback?

Another layer that could be added to this sample's analysis: what to make of the relatively lagging instruments? Sugar, Platinum and Palladium haven't made up their losses…

The President of the Old Speculator's Club, John Tierney, responds: 

How does one make generalizations from the recent events outlined by the Chair? I have no doubt that his 50-year study shows similar market reactions. However, I'm reluctant to adopt any new theories or adjust my current investment outlook due to these studies. The current environment, and one that has existed at least since the Fed initiated QE1, is the involvement of government agencies.

I and others have suggested this surreptitious presence in the past. We have been (rightly) put in our place because we failed to fulfill the Chair's mandate: "stats on the table" (something, by the way, which Rocky was very, very good at).

In the current situation and that which has existed for several years now, we KNOW that our government (and others) have been manipulating the "invisible hand." We may not be aware of the extent of the presence, or where it is being applied, but that it exists is an established (and self-confessed) fact.

With that in mind, I'm left to "guess" whether the current scenario is an accurate re-enactment of past events, or whether it has been manipulated to seem so. For years we on the List have been leery of the efficacy of any government interference in the markets. With that in mind, it's difficult to make a legitimate extrapolation from past events - the new, big, player makes any surmise questionable.

My reluctance to revise my pre-existing view of the market's course is only enhanced by the numerous television experts who are outlining a "bounce-back" scenario based on past bounce-backs. It may well occur but will it endure or will it vanish with the exit of the interference? I'm currently betting (and that IS the right word) against it.

William Weaver shares: 

Check out this interesting abstract:

Behavioral economic studies reveal that negative sentiment driven by bad mood and anxiety affects investment decisions and may hence affect asset pricing. In this study we examine the effect of aviation disasters on stock prices. We find evidence of a significant negative event effect with a market average loss of more than $60 billion per aviation disaster, whereas the estimated actual loss is no more than $1 billion. In two days a price reversal occurs. We find the effect to be greater in small and riskier stocks and in firms belonging to less stable industries. This event effect is also accompanied by an increase in the perceived risk: implied volatility increases after aviation disasters without an increase in actual volatility.

Found via the Empirical Finance blog



 If you are looking for a good book, try The Shadow Elite by Janine Wedel. She coined and documented the flexions of all stripes. Also very good is The Short Stories of Jack Schaefer, and Mathematics Unlimited, 2001 and Beyond by Engquist, Schmid et al

John Tierney writes:

OK, if you are looking for non-fiction try The Invisible Hook: The Hidden Economics of Pirates

Kim Zussman recommends: 

"This Time is Different" by Reinhart and Rogoff

(Spoiler hint: the common ploy of sovereign debt default via confiscation and hyperinflation appears not to apply to U$)

Scott Brooks writes: 

We've talked about it on the list before and I I found it very good: Amity Shlaes "The Forgotten Man"

Easan Katir writes: 

To the Last Penny is an excellent but little-known Edwin Lefevre work, which, thanks to Google books, one can read online.

Bud Conrad writes: 

How about my book, which explains how the economy works from the view of an engineer looking at the total system. It also gives investment recommendations in the second half. It is titled Profiting from the World's Economic Crisis and published by John Wiley. Amazon has reviews and some sample pages. It is number one in one category on interest rates. 

Craig Mee adds:

I recommend the Book on Games of Chance. A few of you may be no doubt already connected with it. Here is an interesting excerpt about it:

Cardano was an illegitimate child whose mother had tried to abort him. His father was a mathematically gifted lawyer and friend of Leonardo da Vinci. Cardano studied medicine at the University of Pavia, but his eccentricity and low birth earned him few friends. Eventually, he became the first to describe typhoid fever, a not inconsiderable achievement in itself, but today, he is best known for his love affair with algebra. He published the solutions to the cubic and quartic equations in his 1545 book Ars Magna, but Cardano was notoriously short of money, and had to keep himself solvent by gambling and playing chess. His book Liber de ludo aleae ("*Book on Games of Chance*") written in 1526, but not published until 1663, contains the first systematic treatment of probability, as well as a section on cheating methods. I told you he was bad.

Vince Fulco adds:

A little late to this thread but "Panic" by Andrew Redleaf and Richard Vigilante is proving to be a good read. Redleaf is a convert arb manager out in my neck of the woods who runs Whitebox Advisors. He is in print in his Dec 2006 letter stating, "Here is a flat out prediction for the New Year. Sometime in the next 12-18 months there is going to be a panic in credit markets. Spreads which now hover at an extremely tight 300 bps or so, will gap to more than 1,000. To put it another way, prices of HY securities will drop by something like 20 percent with some weak paper plunging even deeper"

A few powerful paragraphs from the first chapter:

The ideology of modern finance tears capitalism in two, then abandons the half beyond the ken of bureaucrats and the professors. Capitalism demands free markets because it needs free minds. Modern investment theory says efficient markets can moot the minds entirely. The entrepreneur cherishes freedom including the freedom to fail. The bureaucrat of capital dreams of a world in which failure is impossible. Confronted with demons of uncertainty, the entrepreneur wrestles with them till dawn. The bureaucrat of capital crafts idols of ignorance and worships in the dark.

Prevailing in Washington as on Wall St. were the most vile and self-destructive assumptions of anti-capitalists everywhere who imagined they could wield capital while abandoning the principles that created it; that systems could substitute for the moral standards they once embodied; or that men who lost trillions of dollars of other people's money might somehow recover it if only the govt gave them trillions more. Crony capitalists on the right and socialists on the left united as always behind their most fundamental belief, that wealth is to be captured by power and pull rather than created in the minds of men.



 There is something about True Grit that is truly loathsome. Each of the 3 main characters is deeply flawed. Marshall Rooster Cogburn is a drunk and dead beat who speaks unintelligibly. Texas Ranger LaBoeuf is a show off, loser, and a chauvinist. The girl is sharp tongued, litigious, and naive (no wonder she didn't get married). It all fits in with the idea that has the world in its grip, that the purpose of life is to keep oneself small by sacrifice. There is no chemistry or romance between any of the characters except for Pepper the Quixotian leader of the outlaws, who as could be predicted was the only man good in his every day business of being a outlaw. No wonder this Western follows the code of the west breaking, denigrating Brokeback Mountain and no wonder that Louis L'Amour's novels have sold more than all western authors combined since the beginning of time, and that they dare not make one of them or an Atlas Shrugged, in favor of this disrespectful Portis trash that violates all the rules of good mystery by having one hair breadth, extraordinary, lucky escape after another, and stereotyped snake bite scene (a la Larry Mcmurtry) release the tension.

P.S I have never written about a subject not directly related to the multivariate analysis of time series that Mr. Jovanovich has not corrected and amplified on where I was astray. And I must admit that I didn't realize that the Western Novel was yet another of his expertises. Okay, I want to know from him if he agrees with me, on this one point that Monte Walsh is the greatest western novel, (if the chapter where the accountant comes to reduce the pay of the hands that took vengeance on the trainmen doesn't make you cry, I'll eat that hat the accountant wore that was so tempting to Hat, Cal and Monte), and the best business novel of all time.

Stefan Jovanovich replies: 

Grub street used to honor the basic code for reviewers: read the book first, then slander the author. We should do the same. Portis' book is like neither of the movies; the John Wayne version comes much closer in spirit, but it is still far, far too "nice". The actual novel is a memoir written by a tough-spirited, one-armed spinster Presbyterian capitalist remembering the one man whom she loved and how they avenged the murder of her father when she was– by other people's standards– "still a girl". Blaming authors for what Hollywood makes of their books is like blaming men for the conduct of their ex-wives after they finish paying the alimony; all the authors can be held accountable for is the size of the check they cash.

I am old enough to have lived near (but definitely not in) Beverly Hills when Louis L'Amour still gave readings at the library. He was a great and good man, and– yes– Monte Walsh is the classic. As is often the case, my anger is misdirected; what infuriates me about this latest version of True Grit is what is says about the Coen brothers' decline and fall. The novel will survive their abomination of it; hell, it will probably be reread again. But for the Coen brothers, what hope is there now? Intolerable Cruelty is the best and funniest film ever about Hollywood and lawyers and now the guys who made it can only do splatter trash.

P.S. Eddy just called. She thinks our only hope is to pray that South Park's explanation once again holds true and blame it all on Matt Damon and his friend. 

Dylan Distasio writes: 

At the risk of raising some hackles, I'd make the argument the McCarthy's "Blood Meridian or the Evening Redness in the West" is one of the greatest Western novels in that genre and one of the best I've read from 20th century authors in general.

J.T Holley writes:

If you like Blood Meridian then go read Suttree. IMHO, it is an existential masterpiece. Cornelius being a man of the "made, trust-fund baby, life of given not earned goes to be a fisherman in TN. Though the content could be considered as a rebellious misguided stab at the establishment, I found it a read that was of self-introspect, self-realization, self-reliance while battling vices with choice by going to the extreme to find such. Once again not oft mentioned amongst Cormac's works, I feel it is one of my favorite reads to crack open and read again. I'm a Southerner so the read is much suited to me, so some of the "in between the lines" stuff might not be appreciated.

Jim Wildman writes: 

My personal favorites in the Western genre.

"The Virginian" (Wister) if for no other reason than "Smile when you call me that"…and the baby swap prank.

"A Man Called Noon" (L'Amour) always makes me think about how I define who I am.

In "The Last of His Breed" Mr L'Amour applies similar themes from his Westerns to modern times. For my taste, the book is a bit long, but in fairness, it takes a while to walk across Siberia. And it has a great last line.

Trader Craft comments: 

Another great classic of the West is Thomas Bergman's "Little Big Man". Much better than the Dustin Hoffman movie.

Scott Brooks writes:

 As one who doesn't read a lot of westerns, (and I'm sure the purist will scoff at me) I have to say that Larry McMurtry's, "Lonesome Dove" is my favorite of that genre.

Good guys and bad guys. Multiple story lines all intertwined. Sudden and unforgiving death. Fortunes made and fortunes lost. Adventures piled on top of adventures. Good choices and bad choices. Friendships that are strong, but that don't override honor. Human foibles that override honor to do what is perceived as the "right thing". False friendship's that never were except to be used as seen fit by the "user".

Story of youth and aging and lesson's learned, lessons shared and lesson's taught. Love found, love spurned, and love lost. The superficial wannabes intermingled with the intellectual drivers. The high self esteem and low self esteem of characters revealed for the world to see.

Characters that arrive unexpectedly and stay and others that depart just as unexpectedly. Ego's that clash and feelings that are hurt. Life and time wasted on loves that can never be.

High risk adventures fraught with deadly consequences. People that love risk, taking more and more risk because the downside never happens to them…until it does.

Their are cowboy versions of "Eddie Willer's" (hard working and reliable) tying their horses to the wagon's of cowboy versions of "John Galt" (hard working reliable, but intellectually superior)…..but in a much more realistic sense….i.e. there's no mythical "static electricity generator" or "nearly infallible hero's"….just really smart people who make more good decisions than bad decisions…but who make bad decision…sometimes with catastrophic consequences.

I could go on and on, but something has just struck me as I write this general description of "Lonesome Dove"…..am I describing a Western Novel, or the modern day "Spec List".

Jack Tierney writes:

The Chair's mention of L'Amour reminds me that I've neglected to comment on the man's autobiography, "The Education of a Wandering Man". Unpublished during his life, the manuscript was found in his desk only later. The author of the Introduction speculates that L'Amour purposely put off publication fearing charges of braggadocio.

After reading the book, it's a possibility. For many years he kept a written record of the books he had read– the selections are so diverse and numerous that it's impossible to pigeon-hole his preferences or determine how he found the time.

Because of finances, he left home at early and, Hoffer-like, rode the rails in search of employment. He also shipped out for as many foreign ports as he could find, baby-sat an abandoned mine for three months in the middle of nowhere without any human contact, and took up small-town prize-fighting when he really needed money and the locals really needed a fight.

But no matter where he was or how broke, he always had books. If there's any drawback in his story it's the realization that one could have read much, much more if he hadn't been sidelined by trivialities.

Pitt T. Maner III writes:

 It looks from L'Amour's autobiography that, from the years from 1930 to 1937 in particular, he tried to read approximately 100 books and plays each year. They were not what you would think a man writing Westerns would be reading.

Not a bad New Year's resolution if one has the time. It takes discipline too.

A quick perusal indicates he liked to read several books by one author or playwright that he liked within each year. Certain themes or genres captured his attention. Perhaps he was buying books in bulk or series from bookstores.

In 1930, for instance, he read many of the plays of Eugene O'Neill. In 1931 he read Flaubert. Shakespeare and Detective stories were popular with L'Amour in
1932. It looks like works by H.G. Wells and Conrad were favorites. L'Amour's lists are interesting because there are many books included that are not commonly read these days.

For instance "Trader Horn" by A.A. Horn and Ethelreda Lewis was a book made into a movie with filming done in Africa under extremely difficult conditions (they don't make movies like the used to).

The world was less explored and a bit more mysterious just 80 years ago.

The best writers often do a tremendous amount of critical reading and know a little bit about a vast array of subjects— even things that would be considered controversial today.



UPDATE 1/31/2011:

Contestants Summary:

- 31 Spec-listers contributed to the 2011 Investment Contest with "specific" recommendations.

- Average 4 recommendations per person (mean of 4.2, median and mode of 4) came in.

- 6 contestants gave only 1 recommendation, 3 gave only 2 and thus 9 out of the total 31 have NOT given the minimum 3 recommendations needed as per the Rules clarified by Ken Drees.

- The Hall of Fame entry for the largest number of ideas (did someone say diversification?) is from Tim Melvin, close on whose heels are J. T. Holley with 11 and Ken Drees with 10.

- The most creatively expressed entry of course has come from Rocky Humbert.

- At this moment 17 out of 31 contestants are in positive performance territory, 14 are in negative performance territory.

- Barring a major outlier of a 112.90% loss on the Option Strategy of Phil McDonnell (not accounting for the margin required for short options, but just taking the ratio of initial cash inflow to outflow):

- Average of all Individual contestant returns is -2.54% and the Standard Deviation of returns achieved by all contestants is 5.39.

- Biggest Gainer at this point is Jared Albert (with his all in single stock bet on REFR) with a 22.87% gain. The only contestant a Z score greater than 2 ( His is actually 4.72 !!)

- Biggest Loser at this point (barring the Giga-leveraged position of Mr. McDonnell) is Ken Drees at -10.36% with a Z Score that is at -1.45.

- Wildcards have not been accounted for as at this point, with wide
deviations of recommendations from the rules specified by most. While 9
participants have less than 3 recommendations, those with more than 4
include several who have not chosen to specify which 3 are their primary recommends. Without clarity on a universal measurability wildcard accounting is on hold. Those making more than 1 recommendations would find that their aggregate average return is derived by taking a sum of returns of individual positions divided by the number of recommends. Unless specified by any person that positions are taken in a specific ratio its equal sums invested approach.

Contracts Summary:

- A total of 109 contracts are utilized by the contestants across bonds, equity indices (Nikkei, Kenyan Stocks included too!), commodities, currencies and individual stock positions.

- The ratio of Shorts to Longs across all recommendations, irrespective of the type of contract (call, put, bearish ETF etc.) is 4 SELL orders Vs 9 Buy Orders. Not inferring that this list is more used to pressing the Buy Button. Just an occurence on this instance.

- The Average Return, so far, on the 109 contracts utilized is -1.26% with a Standard Deviation of 12.42%. Median Return is 0.39% and the mode of Returns of all contracts used is 0.

- The Highest Return is on MICRON TECH at 28.09, if one does not account for the July 2011 Put 25 strike on SLV utilized by Phil McDonnell.

- The Lowest Return is on IPTV at -50%, if one does not account for the Jan 2012 Call 40 Strike on SLV utilized by Phil McDonnell.

- Only Two contracts are having a greater than 2 z score and only 3 contracts are having a less than -2 Z score.

Victor Niederhoffer wrote:

One is constantly amazed at the sagacity in their fields of our fellow specs. My goodness, there's hardly a field that one of us doesn't know about from my own hard ball squash rackets to the space advertising or our President, from surfing to astronomy. We certainly have a wide range.

May I suggest without violating our mandate that we consider our best sagacities as to the best ways to make a profit in the next year of 2011.

My best trades always start with assuming that whatever didn't work the most last year will work the best this year, and whatever worked the best last year will work the worst this year. I'd be bullish on bonds and bearish on stocks, bullish on Japan and bearish on US stocks.

I'd bet against the banks because Ron Paul is going to be watching them and the cronies in the institutions will not be able to transfer as much resources as they've given them in the past 2 years which has to be much greater in value than their total market value.

I keep wondering what investments I should make based on the hobo's visit and I guess it has to be generic drugs and foods.

What ideas do you have for 2011 that might be profitable? To make it interesting I'll give a prize of 2500 to the best forecast, based on results as of the end of 2011.

David Hillman writes: 

"I do know that a sagging Market keeps my units from being full."

One would suggest it is a sagging 'economy' contributing to vacancy, not a sagging 'market'. There is a difference. 

Ken Drees, appointed moderator of the contest, clearly states the new rules of the game:

 1. Submissions for contest entries must be made on the last two days of 2010, December 30th or 31st.
2. Entries need to be labeled in subject line as "2011 contest investment prediction picks" or something very close so that we know this is your official entry.
3. Entries need 3 predictions and 1 wildcard trade prediction (anything goes on the wildcard).

4. Extra predictions may be submitted and will be judged as extra credit. This will not detract from the main predictions and may or may not be judged at all.

5. Extra predictions will be looked on as bravado– if you've got it then flaunt it. It may pay off or you may give the judge a sour palate.

The desire to have entries coming in at years end is to ensure that you have the best data as to year end 2010 and that you don't ignite someone else to your wisdom.

Market direction picks are wanted:

Examples: 30 year treasury yield will fall to 3% in 2011, S&P 500 will hit "x" by June, and then by "y" by December 2011.

The more exact your prediction is, the more weight will be given. The more exact your prediction, the more weight you will receive if right and thus the more weight you will receive if wrong. If you predict that copper will hit 5.00 dollars in 2011 and it does you will be given a great score, if you say that copper will hit 5.00 dollars in march and then it will decline to4.35 and so forth you will be judged all along that prediction and will receive extra weight good or bad. You decide on how detailed your submission is structured.

Will you try to be precise (maybe foolhardy) and go for the glory? Or will you play it safe and not stand out from the crowd? It is a doubled edged sword so its best to be the one handed market prognosticator and make your best predictions. Pretend these predictions are some pearls that you would give to a close friend or relative. You may actually help a speclister to make some money by giving up a pearl, if that speclister so desires to act upon a contest–G-d help him or her.

Markets can be currency, stocks, bonds, commodities, etc. Single stock picks can be given for the one wildcard trade prediction. If you give multiple stock picks for the wildcard then they will all be judged and in the spirit of giving a friend a pearl–lets make it "the best of the best, not one of six".

All judgments are the Chair's. The Chair will make final determination of the winner. Entries received with less than 3 market predictions will not be considered. Entries received without a wildcard will be considered.The spirit of the contest is "Give us something we can use".

Bill Rafter adds: 

Suggestion for contest:

"Static" entry: A collection of up to 10 assets which will be entered on the initial date (say 12/31/2010) and will be unaltered until the end data (i.e. 12/31/2011). The assets could be a compilation of longs and shorts, or could have the 10 slots entirely filled with one asset (e.g. gold). The assets could also be a yield and a fixed rate; that is one could go long the 10-year yield and short a fixed yield such as 3 percent. This latter item will accommodate those who want to enter a prediction but are unsure which asset to enter as many are unfamiliar with the various bond coupons.

"Rebalanced" entry: A collection of up to 10 assets which will be rebalanced on the last trading day of each month. Although the assets will remain unchanged, their percentage of the portfolio will change. This is to accommodate those risk-averse entrants employing a mean-reversion strategy.

Both Static and Rebalanced entries will be judged on a reward-to-risk basis. That is, the return achieved at the end of the year, divided by the maximum drawdown (percentage) one had to endure to achieve that return.

Not sure how to handle other prognostications such as "Famous female singer revealed to be man." But I doubt such entries have financial benefits.

I'm willing to be an arbiter who would do the rebalancing if necessary. I am not willing to prove or disprove the alleged cross-dressers.

Ralph Vince writes:

A very low volume bar on the weekly (likely, the first of two consecutive) after a respectable run-up, the backdrop of rates having risen in recent weeks, breadth having topped out and receding - and a lunar eclipse on the very night of the Winter Solstice.

If I were a Roman General I would take that as a sign to sit for next few months and do nothing.

I'm going to sit and do nothing.

Sounds like an interim top in an otherwise bullish, long-term backdrop.

Gordon Haave writes: 

 My three predictions:

Gold/ silver ratio falls below 25 Kenyan stock market outperforms US by more than 10%

Dollar ends 10% stronger compared to euro

All are actionable predictions.

Steve Ellison writes:

I did many regressions looking for factors that might predict a year-ahead return for the S&P 500. A few factors are at extreme values at the end of 2010.

The US 10-year Treasury bond yield at 3.37% is the second-lowest end-of year yield in the last 50 years. The S&P 500 contract is in backwardation with the front contract at a 0.4% premium to the next contract back, the second highest year-end premium in the 29 years of the futures.

Unfortunately, neither of those factors has much correlation with the price change in the S&P 500 the following year. Here are a few that do.

The yield curve (10-year yield minus 3-month yield) is in the top 10% of its last 50 year-end values. In the last 30 years, the yield curve has been positively correlated with year-ahead changes in the S&P 500, with a t score of 2.17 and an R squared of 0.143.

The US unemployment rate at 9.8% is the third highest in the past 60 years. In the last 30 years, the unemployment rate has been positively correlated with year-ahead changes in the S&P 500, with a t score of 0.90 and an R squared of 0.028.

In a variation of the technique used by the Yale permabear, I calculated the S&P 500 earnings/price ratio using 5-year trailing earnings. I get an annualized earnings yield of 4.6%. In the last 18 years, this ratio has been positively correlated with year-ahead changes in the S&P 500, with a t score of 0.92 and an R squared of

Finally, there is a negative correlation between the 30-year S&P 500 change and the year-ahead change, with a t score of -2.28 and an R squared of 0.094. The S&P 500 index price is 9.27 times its price of 30 years ago. The median year-end price in the last 52 years was 6.65 times the price 30 years earlier.

Using the predicted values from each of the regressions, and weighting the predictions by the R squared values, I get an overall prediction for an 11.8% increase in the S&P 500 in 2011. With an 11.8% increase, SPY would close 2011 at 140.52.

Factor                  Prediction      t       N    R sq
US Treasury yield curve      1.162    2.17      30   0.143
30-year change               1.052   -2.28      52   0.094
Trailing 5-year E/P          1.104    0.92      18   0.050
US unemployment rate         1.153    0.90      30   0.028

Weighted total               1.118
SPY 12/30/10               125.72
Predicted SPY 12/30/11     140.52

Jan-Petter Janssen writes: 

PREDICTION I - The Inconvenient Truth The poorest one or two billion on this planet have had enough of increasing food prices. Riots and civil unrest force governments to ban exports, and they start importing at any cost. World trade collapses. Manufacturers of farm equipment will do extremely well. Buy the most undervalued producer you can find. My bet is
* Kverneland (Yahoo: KVE.OL). NOK 6.50 per share today. At least NOK 30 on Dec 31th 2011.

PREDICTION II - The Ultimate Bubble The US and many EU nations hold enormous gold reserves. E.g. both Italy and France hold the equivalent of the annual world production. The gold meme changes from an inflation hedge / return to the gold standard to (a potential) over-supply from the selling of indebted nations. I don't see the bubble bursting quite yet, but
* Short gold if it hits $2,000 per ounce and buy back at $400.

PREDICTION III - The Status Quo Asia's ace is cheap labor. The US' recent winning card is cheap energy through natural gas. This will not change in 2011. Henry Hub Feb 2011 currently trades at $4.34 per MMBtu. Feb 2012 is at $5.14. I would
* Short the Feb 2012 contract and buy back on the last trading day of 2011.

Vince Fulco predicts:

 This is strictly an old school, fundamental equity call as my crystal ball for the indices 12 months out is necessarily foggy. My recommendation is BP equity primarily for the reasons I gave earlier in the year on June 5th (stock closed Friday, June 4th @ $37.16, currently $43.53). It faced a hellish downdraft post my mention for consideration, primarily due to the intensification of news flow and legal unknowns (Rocky articulated these well). Also although the capital structure arb boys savaged the equity (to 28ish!), it is up nicely to year's end if one held on and averaged in with wide scales given the heightened vol.

Additional points/guesstimates are:

1) If 2010 was annus horribilis, 2011 with be annus recuperato. A chastened mgmt who have articulated they'll run things more conservatively will have a lot to prove to stakeholders.

2) Dividend to be re-instated to some level probably by the end of the second quarter. I am guessing $1.00 annualized per ADS as a start (or
2.29%), this should bring in the index hugging funds with mandates for only holding dividend payers. There is a small chance for a 1x special dividend later in the year.

3) Crude continues to be in a state of significant profitability for the majors in the short term. It would appear finding costs are creeping however.

4) The lawsuits and additional recoveries to be extracted from the settlement fund and company directly have very long tails, on the order of 10 years.

5) The company seems fully committed to sloughing off tertiary assets to build up its liquid balance sheet. Debt to total capital remains relatively low and manageable.

6) The stock remains at a significant discount to its better-of breed peers (EV/normalized EBITDA, Cash Flow, etc) and rightly so but I am betting the discount should narrow back to near historical levels.

Potential negatives:

1) The company and govt have been vastly understating the remaining fuel amounts and effects. Release of independent data intensifies demands for a much larger payout by the company closer to the highest end estimates of $50-80B.

2) It experiences another similar event of smaller magnitude which continues to sully the company's weakened reputation.

3) China admits to and begins to fear rampant inflation, puts the kabosh to the (global) economy and crude has a meaningful decline the likes of which we haven't seen in a few years.

4) Congress freaks at a >$100-120 price for crude and actually institutes an "excess profits" tax. Less likely with the GOP coming in.

A buy at this level would be for an unleveraged, diversified, longer term acct which I have it in. However, I am willing to hold the full year or +30% total return (including special dividend) from the closing price of $43.53 @ 12/30/10, whichever comes first. Like a good sellside recommendation, I believe the stock has downside of around 20% (don't they all when recommended!?!) where I would consider another long entry depending on circumstances (not pertinent to the contest).

Mr. Albert enters: 

 Single pick stock ticker is REFR

The only way this gold chain wearing day trader has a chance against all the right tail brain power on the list is with one high risk/high reward put it all on red kind of micro cap.

Basic story is this company owns all the patents to what will become the standard for switchable glazings (SPD smart glass). It's taken roughly 50 years of development to get a commercialized product, and next year Mercedes will almost without doubt use SPD in the 2012 SLK (press launch 1/29/11 public launch at the Geneva auto show in march 2011).

Once MB validate the tech, mass adoption and revenues will follow etc and this 'show me' stock will rocket to the moon.

Dan Grossman writes:

Trying to comply with and adapt the complex contest rules (which most others don't seem to be following in any event) to my areas of stock market interest:

1. The S&P will be down in the 1st qtr, and at some point in the qtr will fall at least

2. For takeover investors: GENZ will (finally) make a deal to be acquired in the 1st qtr for a value of at least $80; and AMRN after completion of its ANCHOR trial will make a deal to be acquired for a price of at least $8.

3. For conservative investors: Low multiple small caps HELE and DFG will be up a combined average of 20% by the end of the year.

For my single stock pick, I am something of a johnny-one-note: MNTA will be up lots during the year — if I have to pick a specific amount, I'd say at least 70%. (My prior legal predictions on this stock have proved correct but the stock price has not appropriately reflected same.)

Finally, if I win the contest (which I think is fairly likely), I will donate the prize to a free market or libertarian charity. I don't see why Victor should have to subsidize this distinguished group that could all well afford an contest entrance fee to more equitably finance the prize.

Best to all for the New Year,


Gary Rogan writes:

 1. S&P 500 will rise 3% by April and then fall 12% from the peak by the end of the year.
2. 30 year treasury yields will rise to 5% by March and 6% by year end.
3. Gold will hit 1450 by April, will fall to 1100 by September and rise to 1550 by year end.

Wildcard: Short Netflix.

Jack Tierney, President of the Old Speculator's Club, writes: 

Equal Amounts in:

TBT (short long bonds)
YCS (short Yen)
GRU (Long Grains - heavy on wheat)
CHK (Long NG - takeover)

(Wild Card)
BONXF.PK or BTR.V (Long junior gold)

12/30 closing prices (in order):


Bill Rafter writes:

Two entries:

Buy: FXP and IRWD

Hold for the entire year.

William Weaver writes:

 For Returns: Long XIV January 21st through year end

For Return/Risk: Long XIV*.30 and Long VXZ*.70 from close today

I hope everyone has enjoyed a very merry holiday season, and to all I wish a wonderful New Year.



Ken Drees writes:

Yes, they have been going up, but I am going contrary contrary here and going with the trends.

1. Silver: buy day 1 of trading at any price via the following vehicles: paas, slw, exk, hl –25% each for 100% When silver hits 39/ounce, sell 10% of holdings, when silver hits 44/ounce sell 30% of holdings, when silver hits 49 sell 60%–hold rest (divide into 4 parts) and sell each tranche every 5 dollars up till gone–54/oz, 59, 64, 69.

2. Buy GDXJ day 1 (junior gold miner etf)—rotation down from majors to juniors with a positive gold backdrop. HOLD ALL YEAR.

3. USO. Buy day 1 then do—sell 25% at 119/bbl oil, sell 80% at 148/bbl, sell whats left at 179/bbl or 139/bbl (whichever comes first after 148)

wildcard: AMEX URANUIM STOCKS. UEC, URRE, URZ, DNN. 25% EACH, buy day 1 then do SELL 70% OF EVERYTHING AT 96$LB u http://www.uxc.com/ FOR PRICING, AND HOLD REST FOR YEAR END.

Happy New Year!

Ken Drees———keepin it real.

Sam Eisenstadt forecasts:

My forecast for the S&P 500 for the year ending Dec 31, 2011;

S&P 500       1410

Anton Johnson writes: 

Equal amounts allocated to:

EDZ Short moc 1-21-2011, buy to cover at 50% gain, or moc 12/30/2011

VXX Short moc 1-21-2011, buy to cover moc 12/30/2011

UBT Short moo 1-3-2011, buy to cover moc 12/30/2011

Scott Brooks picks: 


Evenly between the 4 (25% each)

Sushil Kedia predicts:


1) Gold
2) Copper
3) Japanese Yen

30% moves approximately in each, within 2011.

Rocky Humbert writes:

(There was no mention nor requirement that my 2011 prediction had to be in English. Here is my submission.) … Happy New Year, Rocky

Sa aking mahal na kaibigan: Sa haba ng 2010, ako na ibinigay ng ilang mga ideya trading na nagtrabaho sa labas magnificently, at ng ilang mga ideya na hindi na kaya malaki. May ay wala nakapagtataka tungkol sa isang hula taon dulo, at kung ikaw ay maaaring isalin ito talata, ikaw ay malamang na gawin ang mas mahusay na paggawa ng iyong sariling pananaliksik kaysa sa pakikinig sa mga kalokohan na ako at ang iba pa ay magbigay. Ang susi sa tagumpay sa 2011 ay ang parehong bilang ito ay palaging (tulad ng ipinaliwanag sa pamamagitan ng G. Ed Seykota), sa makatuwid: 1) Trade sa mga kalakaran. 2) Ride winners at losers hiwa. 3) Pamahalaan ang panganib. 4) Panatilihin ang isip at diwa malinaw. Upang kung saan gusto ko idagdag, fundamentals talaga bagay, at kung ito ay hindi magkaroon ng kahulugan, ito ay hindi magkaroon ng kahulugan, at diyan ay wala lalo na pinakinabangang tungkol sa pagiging isang contrarian bilang ang pinagkasunduan ay karaniwang karapatan maliban sa paggawa sa mga puntos. (Tandaan na ito ay pinagkasunduan na ang araw ay babangon na bukas, na quote Seth Klarman!) Pagbati para sa isang malusog na masaya at pinakinabangang 2011, at siguraduhin na basahin www.rockyhumbert.com kung saan ako magsulat sa Ingles ngunit ang aking mga saloobin ay walang malinaw kaysa talata na ito, ngunit inaasahan namin na ito ay mas kapaki-pakinabang.

Dylan Distasio comments: 

Gawin mo magsalita tagalog?

Gary Rogan writes:

After a worthy challenge, Mr. Rogan is now also a master of Google Translate, and a discoverer of an exciting fact that Google Translate calls Tagalog "Filipino". This was a difficult obstacle for Mr. Rogan to overcome, but he persevered and here's Rocky's prediction in English (sort of):

My dear friend: Over the course of 2010, I provided some trading ideas worked out magnificently, and some ideas that are not so great. There is nothing magical about a forecast year end, and if you can translate this paragraph, you will probably do better doing your own research rather than listening to the nonsense that I and others will give. The key to success in 2011 is the same as it always has (as explained by Mr. Ed Seykota), namely: 1) Trade with the trend.

2) Ride cut winners and losers. 3) Manage risk. 4) Keep the mind and spirit clear. To which I would add, fundamentals really matter, and if it does not make sense, it does not make sense, and there is nothing particularly profitable about being a contrarian as the consensus is usually right but turning points. (Note that it is agreed that the sun will rise tomorrow, to quote Seth Klarman) Best wishes for a happy healthy and profitable 2011, and be sure to read www.rockyhumbert.com which I write in English but my attitude is nothing clearer than this paragraph, but hopefully it is more useful.

Tim Melvin writes:

Ah the years end prediction exercise. It is of course a mostly useless exercise since not a one of us can predict what shocks, positive or negative, the world and the markets could see in 2011. I find it crack up laugh out loud funny that some pundits come out and offer up earnings estimates, GDP growth assumptions and interest rate guesses to give a precise level for the year end S&P 500 price. You might as well numbers out of a bag and rearrange them by lottery to come up with a year end number. In a world where we are fighting two wars, a hostile government holds the majority of our debt and several sovereign nations continually teeter on the edge of oblivion it's pretty much ridiculous to assume what could happen in the year ahead. Having said that, as my son's favorite WWE wrestler when he was a little guy used to say "It's time to play the game!"

Ill start with bonds. I have owned puts on the long term treasury market for two years now. I gave some back in 2010 after a huge gain in 2009 but am still slightly ahead. Ill roll the position forward and buy January 2012 puts and stay short. When I look at bods I hear some folks talking about rising basic commodity prices and worrying about inflation. They are of course correct. This is happening. I hear some other really smart folks talking of weak real estate, high jobless rates and the potential for falling back into recession. Naturally, they are also exactly correct. So I will predict the one thing no one else is. We are on the verge of good old fashioned 1970s style stagflation. Commodity and basic needs prices will accelerate as QE2 has at least stimulated demand form emerging markets by allowing these wonderful credits to borrow money cheaper than a school teacher with a 750 FICO score. Binds go lower as rates spike. Our economy and balance sheet are a mess and we have governments run by men in tin hats lecturing us on fiscal responsibility. How low will they go Tim? How the hell do I know? I just think they go lower by enough for me to profit.

 Nor can I tell you where the stock market will go this year. I suspect we have had it too good for too long for no reason so I think we get at least one spectacular gut wrenching, vomit inducing sell off during the year. Much as lower than expected profits exposed the silly valuations of the new paradigm stocks I think that the darling group, retail , will spark a sell-off in the stock market this year. Sales will be up a little bit but except for Tiffany's (TIF) and that ilk margins are horrific. Discounting started early this holiday and grew from there. They will get steeper now that that Santa Claus has given back my credit card and returned to the great white north. The earnings season will see a lot of missed estimates and lowered forecasts and that could well pop the bubble. Once it starts the HFT boys and girls should make sure it goes lower than anyone expects.

Here's the thing about my prediction. It is no better than anyone else's. In other words I am talking my book and predicting what I hope will happen. Having learned this lesson over the years I have learned that when it comes to market timing and market direction I am probably the dumbest guy in the room. Because of that I have trained myself to always buy the stuff that's too cheap not to own and hold it regardless. After the rally since September truly cheap stuff is a little scarce on the ground but I have found enough to be about 40% long going into the year. I have a watch list as long as a taller persons right arm but most of it hover above truly cheap.

Here is what I own going into the year and think is still cheap enough to buy. I like Winn Dixie (WINN). The grocery business sucks right now. Wal mart has crushed margins industry wide. That aside WINN trades at 60% of tangible book value and at some point their 514 stores in the Southeast will attract attention from investors. A takeover here would be less than shocking. I will add Presidential Life (PLFE) to the list. This stock is also at 60% of tangible book and I expect to see a lot of M&A activity in the insurance sector this year and this should raise valuations across the board. I like Miller Petroleum (MILL) with their drilling presence in Alaska and the shale field soft Tennessee. This one trades at 70% of tangible book. Ill add Imperial Sugar (IPSU), Syms (SYMS) and Micron tech (MU) and Avatar Holdings (AVTR) to my list of cheapies and move on for now.

I am going to start building my small bank portfolio this year. Eventually this group becomes the F-you walk away money trade of the decade. As real estate losses work through the balance sheet and some measure of stability returns to the financial system, perhaps toward the end of the year the small baileys savings and loan type banks should start to recover. We will also see a mind blowing M&A wave as larger banks look to gain not just market share but healthy assets to put on the books. Right now these names trade at a fraction of tangible book value. They will reach a multiple of that in a recovery or takeover scenario. Right now I own shares of Shore Bancshares (SHBI), a local bank trading at 80% of book value and a reasonably healthy loan portfolio. I have some other mini microcap banks as well that shall remain my little secret and not used to figure how my predictions work out. I mention them because if you have a mini micro bank in your community you should go meet then bankers, review the books and consider investing if it trades below the magical tangible book value and has excess capital. Flagstar Bancorp(FBC) is my super long shot undated call option n the economy and real estate markets.

I will also play the thrift conversion game heavily this year. With the elimination of the Office of Thrift Services under the new financial regulation many of the benefits of being a private or mutual thrift are going away. There are a ton of mutual savings banks that will now convert to publicly traded banks. A lot of these deals will be priced below the pro forma book value that is created by adding all that lovely IPO cash to the balance sheet without a corresponding increase in the shares outstanding. Right now I have Fox Chase Bancorp (FXCB) and Capital Federal Financial(CFFN). There will be more. Deals are happening every day right now and again I would keep an eye out for local deals that you can take advantage of in the next few months.

I also think that 2011 will be the year of the activist investor. These folks took a beating since 2007 but this should be their year. There is a ton of cash on corporate balance sheets but lots of underperformance in the current economic environment. We will see activist drive takeovers, restructures, and special dividends this year in my opinion. Recent filings of interest include strong activist positions in Surmodics(SRDX), SeaChange International (SEAC), and Energy Solutions. Tracking activist portfolios and 13D filings should be a very profitable activity in 2011.

I have been looking at some interesting new stuff with options as well I am not going to give most of it away just yet but I ll give you one stimulated by a recent list discussion. H and R Black is highly likely to go into a private equity portfolio next year. Management has made every mistake you can make and the loss of RALs is a big problem for the company. However the brand has real value. I do not want town the stock just yet but I like the idea of selling the January 2012 at $.70 to $.75. If you cash secure the put it's a 10% or so return if the stock stays above the strike. If it falls below I' ll be happy to own the stock with a 6 handle net. Back in 2008 everyone anticipated a huge default wave to hit the high yield market. Thanks to federal stimulus money pumping programs it did not happen. However in the spirit of sell the dog food the dog will eat a given moment the hedge fund world raised an enormous amount od distressed debt money. Thanks to this high yield spreads are far too low. CCC paper in particular is priced at absurd levels. These things trade like money good paper and much of it is not. Extend and pretend has helped but if the economy stays weak and interest rates rise rolling over the tsunami f paper due over the next few years becomes nigh onto impossible. I am going take small position in puts on the various high yield ETFs. If I am right they will explode when that market implodes. Continuing to talk my book I hope this happens. Among my nightly prayers is "Please God just one more two year period of asset rich companies with current payments having bonds trade below recovery value and I promise not to piss the money away this time. Amen.

PS. If you add in risk arbitrage spreads of 30% annualized returns along with this I would not object. Love, Tim.

I can't tell you what the markets will do. I do know that I want to own some safe and cheap stocks, some well capitalized small banks trading below book and participate in activist situation. I will be under invested in equities going into the year hoping my watch list becomes my buy list in market stumble. I will have put positions on long T-Bonds and high yield hoping for a large asymmetrical payoff.

Other than that I am clueless.

Kim Zussman comments: 

Does anyone else think this year is harder than usual to forecast? Is it better now to forecast based on market fundamentals or mass psychology? We are at a two year high in stocks, after a huge rally off the '09 bottom that followed through this year. One can make compelling arguments for next year to decline (best case scenarios already discounted, prior big declines followed by others, volatility low, house prices still too high, FED out of tools, gov debt/gdp, Roubini says so, benefits to wall st not main st, persistent high unemployment, Year-to-year there is no significant relationship, but there is a weak down tendency after two consecutive up years. ). And compelling arguments for up as well (crash-fears cooling, short MA's > long MA's, retail investors and much cash still on sidelines, tax-cut extended, employee social security lowered, earnings increasing, GDP increasing, Tepper and Goldman say so, FED herding into risk assets, benefits to wall st not main st, employment starting to increase).

Is the level of government market-intervention effective, sustainable, or really that unusual? The FED looks to be avoiding Japan-style deflation at all costs, and has a better tool in the dollar. A bond yields decline would help growth and reduce deflation risk. Increasing yields would be expected with increasing inflation; bad for growth but welcomed by retiring boomers looking for fixed income. Will Obamacare be challenged or defanged by states or in the supreme court? Will 2011 be the year of the muni-bubble pop?

A ball of confusion!

4 picks in equal proportion:

long XLV (health care etf; underperformed last year)

long CMF (Cali muni bond fund; fears over-wrought, investors still need tax-free yield)

short GLD (looks like a bubble and who needs gold anyway)

short IEF (7-10Y treasuries; near multi-year high/QE2 is weaker than vigilantism)

Alan Millhone writes:

 Hello everyone,

I note discussion over the rules etc. Then you have a fellow like myself who has never bought or sold through the Market a single share.

For myself I will stick with what I know a little something. No, not Checkers —

Rental property. I have some empty units and beginning to rent one or two of late to increase my bottom line.

I will not venture into areas I know little or nothing and will stay the course in 2011 with what I am comfortable.

Happy New Year and good health,



Jay Pasch predicts: 

2010 will close below SP futures 1255.

Buy-and-holders will be sorely disappointed as 2011 presents itself as a whip-saw year.

99% of the bullish prognosticators will eat crow except for the few lonely that called for a tempered intra-year high of ~ SPX 1300.

SPX will test 1130 by April 15 with a new recovery high as high as 1300 by the end of July.

SPX 1300 will fail with new 2011 low of 1050 before ending the year right about where it started.

The Midwest will continue to supply the country with good-natured humble stock, relatively speaking.

Chris Tucker enters: 

Buy and Hold


Wildcard:  Buy and Hold AVAV

Gibbons Burke comments: 

Mr. Ed Seykota once outlined for me the four essential rules of trading:

1) The trend is your friend (till it bends when it ends.)

2) Ride your winners.

3) Cut your losses short.

4) Keep the size of your bet small.

Then there are the "special" rules:

5) Follow all the rules.

and for masters of the game:

6) Know when to break rule #5

A prosperous and joy-filled New Year to everyone.



John Floyd writes:

In no particular order with target prices to be reached at some point in 2011:

1) Short the Australian Dollar:current 1.0220, target price .8000

2) Short the Euro: current 1.3375, target price 1.00

3) Short European Bank Stocks, can use BEBANKS index: current 107.40, target 70

A Mr. Krisrock predicts: 

 1…housing will continue to lag…no matter what can be done…and with it unemployment will remain

2…bonds will outperform as republicans will make cutting spending the first attack they make…QE 2 will be replaced by QE3

3…with every economist in the world bullish, stocks will underperform…

4…commodities are peaking ….

Laurel Kenner predicts: 

After having made monkeys of those luminaries who shorted Treasuries last year, the market in 2011 has had its laugh and will finally carry out the long-anticipated plunge in bond prices.

Short the 30-year bond futures and cover at 80.

Pete Earle writes:

All picks are for 'all year' (open first trading day/close last trading day).

1. Long EUR/USD
2. Short gold (GLD)

MMR (McMoran Exploration Corp)
HDIX (Home Diagnostics Inc)
TUES (Tuesday Morning Corp)

PBP (Powershares S&P500 Buy-Write ETF)
NIB (iPath DJ-UBS Cocoa ETF)
KG (King Pharmaceuticals)

Happy New Year to all,

Pete Earle

Paolo Pezzutti enters: 

If I may humbly add my 2 cents:

- bearish on S&P: 900 in dec
- crisis in Europe will bring EURUSD down to 1.15
- gold will remain a safe have haven: up to 1500
- big winner: natural gas to 8

J.T Holley contributes: 


The Market Mistress so eloquently must come first and foremost. Just as daily historical stats point to betting on the "unchanged" so is my S&P 500 trade for calendar year 2011. Straddle the Mistress Day 1. My choice for own reasons with whatever leverage is suitable for pain thresholds is a quasi straddle. 100% Long and 50% Short in whatever instrument you choose. If instrument allows more leverage, first take away 50% of the 50% Short at suitable time and add to the depreciated/hopefully still less than 100% Long. Feel free to add to the Long at this discretionary point if it suits you. At the next occasion that is discretionary take away remaining Short side of Quasi Straddle, buckle up, and go Long whatever % Long that your instrument or brokerage allows till the end of 2011. Take note and use the historical annual standard deviation of the S&P 500 as a rudder or North Star, and throw in the quarterly standard deviation for testing. I think the ambiguity of the current situation will make the next 200-300 trading days of data collection highly important, more so than prior, but will probably yield results that produce just the same results whatever the Power Magnification of the Microscope.

Long the U.S. Dollar. Don't bother with the rest of the world and concern yourself with which of the few other Socialist-minded Country currencies to short. Just Long the U.S. Dollar on Day 1 of 2011. Keep it simple and specialize in only the Long of the U.S. Dollar. Cataclysmic Economic Nuclear Winter ain't gonna happen. When the Pastor preaches only on the Armageddon and passes the plate while at the pulpit there is only one thing that happens eventually - the Parish dwindles and the plate stops getting filled. The Dollar will bend as has, but won't break or at least I ain't bettin' on such.

Ala Mr. Melvin, Short any investment vehicle you like that contains the words or numerals "perpetual maturity", "zero coupon" and "20-30yr maturity" in their respective regulated descriptions, that were issued in times of yore. Unfortunately it doesn't work like a light switch with the timing, remember it's more like air going into a balloon or a slow motion see-saw. We always want profits initially and now and it just doesn't work that way it seems in speculation. Also, a side hedge is to start initially looking at any financial institution that begins, dabbles, originates and gains high margin fees from 50-100 year home loans or Zero-Coupon Home Loans if such start to make their way Stateside. The Gummit is done with this infusion and cheer leading. They are in protection mode, their profit was made. Now the savy financial engineers that are left or upcoming will continue to find ways to get the masses to think they "Own" homes while actually renting them. Think Car Industry '90-'06 with. Japan did it with their Notes and I'm sure some like-minded MBA's are baiting/pushing the envelopes now in board rooms across the U.S. with their profitability and ROI models, probably have ditched the Projector and have all around the cherry table with IPads watching their presentation. This will ultimately I feel humbly be the end of the Mortgage Interest Deduction as it will be dwindled down to a moot point and won't any longer be the leading tax deduction that it was created to so-called help.


Short Gold, Short it, Short it more. Take all of your emotions and historical supply and demand factors out of the equation, just look at the historical standard deviation and how far right it is and think of Buzz Lightyear in Toy Story and when he thought he was actually flying and the look on his face at apex realization. That plus continue doing a study on Google Searches and the number of hits on "stolen gold", "stolen jewelery", and Google Google side Ads for "We buy Gold". I don't own gold jewelery, and have surrendered the only gold piece that I ever wore, but if I was still wearing it I'd be mighty weary of those that would be willing to chop a finger off to obtain. That ain't my fear, that's more their greed.

Long lithium related or raw if such. Technology demands such going forward.


Long Natural Gas. Trading Day 1 till last trading day of the year. The historic "cheap" price in the minds of wannabe's will cause it to be leveraged long and oft with increasing volume regardless of the supply. Demand will follow, Pickens sowed the seeds and paid the price workin' the mule while plowin'. De-regulation on the supply side of commercial business statements is still in its infancy and will continue, politics will not beat out free markets going into the future.

Long Crude and look to see the round 150 broken in years to come while China invents, perfects, and sees the utility in the Nuclear fueled tanker.

Long LED, solar, and wind generation related with tiny % positions. Green makes since, its here to stay and become high margined profitable businesses.


Short Sugar. Sorry Mr. Bow Tie. Monsanto has you Beet! That being stated, the substitute has arrived and genetically altered "Roundup Ready" is here to stay no matter what the Legislative Luddite Agrarians try, deny, or attempt. With that said, Long MON. It is way more than a seed company. It is more a pharmaceutical engineer and will bring down the obesity ridden words Corn Syrup eventually as well. Russia and Ireland will make sure of this with their attitudes of profit legally or illegally.

Prepare to long in late 2011 the commercialized marijuana and its manufacturing, distribution companies that need to expand profitability from its declining tobacco. Altria can't wait, neither can Monsanto. It isn't a moral issue any longer, it's a financial profit one. We get the joke, or choke? If the Gummit doesn't see what substitutes that K2 are doing and the legal hassles of such and what is going on in Lisbon then they need to have an economic lesson or two. It will be a compromise between the Commercial Adjective Definition Agrarians and Gummit for tax purposes with the Green theme continuing and lobbying.

Short Coffee, but just the 1st Qtr of 2011. Sorry Seattle. I will also state that there will exist a higher profit margin substitute for the gas combustible engine than a substitute for caffeine laden coffee.

Sex and Speculation:

Look to see www.fyretv.com go public in 2011 with whatever investment bank that does such trying their best to be anonymous. Are their any investment banks around? This Boxxx will make Red Box blush and Apple TV's box envious. IPTV and all related should be a category that should be Longed in 2011 it is here to stay and is in it's infancy. Way too many puns could be developed from this statement. Yes, I know fellas the fyre boxxx is 6"'s X 7"'s.


This is one category to always go Long. I have vastly improved my guitar playin' in '10 and will do so in '11. AAPL still has the edge and few rivals are even gaining market share and its still a buy on dips, sell on highs empirically counted. They finally realized that .99 cents wasn't cutting it and .69 cents was more appropriate for those that have bought Led Zeppelin IV songs on LP, 8-track, cassette, and CD over the course of their lives. Also, I believe technology has a better shot at profitably bringing music back into public schools than the Federal or State Gummits ever will.


Long - Your mind. Double down on this Day 1 of 2011. It's the most capable, profitable thing you have going for you. I just learned this after the last 36 months.

Long - Counting, you need it now more than ever. It's as important as capitalism.

Long - Being humble, it's intangible but if quantified has a STD of 4 if not higher.

Long - Common Sense.

Long - Our Children. The media is starting to question if their education is priceless, when it is, but not in their context or jam.

Short - Politics. It isn't a spectator sport and it has been made to be such.

Short - Fear, it is way way been played out. Test anything out there if you like. I have. It is prevalent still and disbelief is rampant.

Long - Greed, but don't be greedy just profitable. Wall Street: Money Never Sleeps was the pilot fish.

I had to end on a Long note.

Happy New Year's Specs. Thanks to all for support over the last four years. I finally realized that it ain't about being right or wrong, just profitable in all endeavors. Too many losses led to this, pain felt after lookin' within, and countin' ones character results with pen/paper.

Russ Sears writes:

 For my entry to the contest, I will stick with the stocks ETF, and the index markets and avoid individual stocks, and the bonds and interest rates. This entry was thrown together rather quickly, not at all an acceptable level if it was real money. This entry is meant to show my personal biases and familiarity, rather than my investment regiment. I am largely talking my personal book.

Therefore, in the spirit of the contest , as well as the rules I will expose my line of thinking but only put numbers on actual entry predictions. Finally, if my caveats are not warning enough, I will comment on how a prediction or contest entry differs from any real investment. I would make or have made.

The USA number one new product export will continue to be the exportation of inflation. The printing of dollars will continue to have unintended consequences than its intended effect on the national economy but have an effect on the global economy.. Such monetary policy will hit areas with the most potential for growth: the emerging markets of China and India. In these economies, that spends over half their income on food, food will continue to rise. This appears to be a position opposite the Chairs starting point prediction of reversal of last year's trends.

Likewise, the demand for precious metals such as gold and silver will not wane as these are the poor man's hedge against food cost. It may be overkill for the advanced economies to horde the necessities and load up on precious metals Yet, unlike the 70's the US/ European economy no longer controls gold and silver a paradigm shift in thinking that perhaps the simple statistician that uses weighted averages and the geocentric economist have missed. So I believe those entries shorting gold or silver will be largely disappointed. However in a nod to the chair's wisdom, I will not pick metals directly as an entry. Last year's surprise is seldom this year's media darling. However, the trend can continue and gold could have a good year. The exception to the reversal rule seems to be with bubbles which gain a momentum of their own, apart from the fundamentals. The media has a natural sympathy in suggesting a return to the drama of he 70's, the stagflation dilemma, ,and propelling an indicator of doom. With the media's and the Fed's befuddled backing perhaps the "exception" is to be expected. But I certainly don't see metal's impending collapse nor its continued performance.

The stability or even elevated food prices will have some big effects on the heartland.

1. For my trend is your friend pick: Rather than buy directly into a agriculture commodity based index like DBA, I am suggesting you buy an equity agriculture based ETF like CRBA year end price at 77.50. I am suggesting that this ETF do not need to have commodities produce a stellar year, but simply need more confirmation that commodity price have established a higher long term floor. Individually I own several of these stocks and my wife family are farmers and landowners (for full disclosure purposes not to suggest I know anything about the agriculture business) Price of farmland is raising, due to low rates, GSE available credit, high grain prices due to high demand from China/India, ethanol substitution of oil A more direct investment in agriculture stability would be farmland. Farmers are buying tractors, best seeds and fertilizers of course, but will this accelerate. Being wrong on my core theme of stable to rising food/commodity price will ruin this trade. Therefore any real trade would do due diligence on individual stocks, and put a trailing floor. And be sensitive to higher volatility in commodities as well as a appropriate entry and exit level.

2. For the long term negative alpha, short term strength trade: I am going with airlines and FAA at 49.42 at year end. There seems to be finally some ability to pass cost through to the consumer, will it hold?

3. For the comeback of the year trade XHB: (the homebuilders ETF), bounces back with 25% return. While the overbuilding and vacancy rates in many high population density areas will continue to drag the home makes down, the new demand from the heartland for high end houses will rise that is this is I am suggesting that the homebuilders index is a good play for housing regionally decoupling from the national index. And much of what was said about the trading of agriculture ETF, also apply to this ETF. However, while I consider this a "surprise", the surprise is that this ETF does not have a negative alpha or slightly positive. This is in-line with my S&P 500 prediction below. Therefore unless you want volatility, simply buying the S&P Vanguard fund would probably be wiser. Or simply hold these inline to the index.

4. For the S&P Index itself I would go with the Vanguard 500 Fund as my vehicle VFINXF, and predict it will end 2011 at $145.03, this is 25% + the dividend. This is largely due to how I believe the economy will react this year. 

5. For my wild card regional banks EFT, greater than IAT > 37.50 by end 2011…

Yanki Onen writes:

 I would like to thank all for sharing their insights and wisdom. As we all know and reminded time to time, how unforgiven could the market Mistress be. We also know how nurturing and giving it could be. Time to time i had my share of falls and rises. Everytime I fall, I pick your book turn couple of pages to get my fix then scroll through articles in DSpecs seeking wisdom and a flash of light. It never fails, before you know, back to the races. I have all of you to thank for that.

Now the ideas;

-This year's lagger next year's winner CSCO

Go long Jan 2012 20 Puts @ 2.63 Go long CSCO @ 19.55 Being long the put gives you the leverage and protection for a whole year, to give the stock time to make a move.

You could own 100,000 shares for $263K with portfolio margin ! Sooner the stock moves the more you make (time decay)

-Sell contango Buy backwardation

You could never go wrong if you accept the truth, Index funds always roll and specs dont take physical delivery. This cant be more true in Cotton.

Right before Index roll dates (it is widely published) sell front month buy back month especially when it is giving you almost -30 to do so Sell March CT Buy July CT pyramid this trade untill the roll date (sometime at the end of Jan or begining of Feb) when they are almost done rolling(watch the shift in open interest) close out and Buy May CT sell July CT wait patiently for it to play it out again untill the next roll.

- Leveraged ETFs suckers play!

Two ways to play this one out if you could borrow and sell short, short both FAZ and FAS equal $ amounts since the trade is neutral, execute this trade almost free of margin. One thing is for sure to stay even long after we are gone is volatility and triple leveraged products melt under volatility!

If you cant borrow the shares execute the trade using Jan 12 options to open synthetic short positions. This trade works with time and patience!

Vic, thanks again for providing a platform to listen and to be heard.


Yanki Onen

Phil McDonnell writes: 

When investing one should consider a diversified portfolio. But in a contest the best strategy is just to go for it. After all you have to be number one.

With that thought in mind I am going to bet it all on Silver using derivatives on the ETF SLV.

SLV closed at 30.18 on Friday.

Buy Jan 2013 40 call for 3.45.
Sell Jan 2012 40 call at 1.80.
Sell Jul 25 put at 1.15.

Net debit is .50.

Exit strategy: close out entire position if SLV ETF reaches a price of 40 or better. If 40 is not reached then exit on 2/31/2011 at the close.

George Parkanyi entered:

For what it's worth, the Great White North weighs in ….
3 Markets equally weighted - 3 stages each (if rules allow) - all trades front months
3 JAN 2011
BUY NAT GAS at open

BUY SILVER at open

BUY CORN at open
28 FEB 2011 (Reverse Positions)
SELL and then SHORT NAT GAS at open

SELL and then SHORT SILVER at open

SELL and then SHORT CORN at open
1 AUG 2011 (Reverse Positions)
COVER and then BUY NAT GAS at open

COVER and then BUY SILVER at open

COVER and then BUY CORN at open
Hold all positions to the end of the year

3 JAN BUY PLATINUM and hold to end of year.


. Markets to unexpectedly carry through in New Year despite correction fears.

. Spain/Ireland debt roll issues - Europe/Euro in general- will be in the news in Q1/Q2

- markets will correct sharply in late Q1 through Q2 (interest rates will be rising)

. Markets will kick in again in Q3 & Q4 with strong finish on more/earlier QE in both Europe and US - hard assets will remain in favour; corn & platinum shortages; cooling trend & economic recovery to favour nat gas

. Also assuming seasonals will perform more or less according to stats

If rules do not allow directional changes; then go long NAT GAS, SILVER, and CORN on 1 AUG 2011 (cash until then); wild card trade the same.

Gratuitous/pointless prediction: At least two European countries will drop out of Euro in 2011 (at least announce it) and go back to their own currency. 

Marlowe Cassetti enters:

FXE - Currency Shares Euro Trust

XLE - Energy Select

BAL - iPath Dow Jones-AIG Cotton Total Return Sub-Index

GDXJ - Market Vectors Junior Gold Miners

AMJ - JPMorgan Alerian MLP Index ETN

Wild Card:


VNM - Market Vectors Vietnam ETF

Kim Zussman entered: 

long XLV (health care etf; underperformed last year)
long CMF (Cali muni bond fund; fears over-wrought, investors still
need tax-free yield)
short GLD (looks like a bubble and who needs gold anyway)
short IEF (7-10Y treasuries; near multi-year high/QE2 is weaker than



 The other day, I was forced to attend an amateur showing of Dickens "A Christmas Carol." The production was well executed, the stagecraft was excellent, and the scenery was first rate. I've seen the Dickens classic so many times, I either just nod off, daydream, or try to improve my mind. During the show, I started to think of how the author, Charles Dickens, really hated capitalists and was a socialist at heart. He portrayed Ebeneezer Scrooge as the prototypical capitalist of the day, but his real "sin" was that he was a miser, only interested in his self, mistreating everyone. The fact that Scrooge had a bad attitude and dour personality did not work in his favor and was a great device used by Dickens to generate hatred for capitalists and the rich in general.

This got me thinking on many levels. For one thing, Scrooge was a businessman who earned his money fair and square. He cheated nobody and expected his contracts and debts to be paid as per any previous agreements, Scrooge ran a tight ship, to the point of being called miserly. He was a demanding employer of his clerk Mr. Cratchit, who accepted the employment contract with Mr. Scrooge with good cheer. Much has been said and written about the evil Mr Scrooge, his name has become part of the lexicon of the definition of an evil capitalist. Even the people in the neighborhood made disparaging remarks about Scrooge, and this mistreatment and lack of respect added to his dour personality. There was no evil to Mr Scrooge, and his unfavorable treatment was a literary device, a populist reaction by the left, the socialists who portray all rich as greedy, evil people who allow people to suffer while they live rich, extravagant lives. 

As I said before, Mr Scrooge had an employment contract with his clerk, Mr. Cratchit who was a man of good cheer. Cratchit's wife constantly complained that Scrooge was an old miser with a flinty heart of stone. She neglected to mention that Mr. Cratchit was free to seek employment elsewhere if his working conditions were so bad, but this aspect and so many others were left out by Dickens. As for Scrooge's miserly description, some would call his miserliness thrift, which is an esteemed Franklinian virtue.

Scrooge's refusal to participate in a festive dinner with his nephew and wife was his business and he certainly didn't deserve the ridicule heaped upon him by the women folk, nor was he required to offer an explanation or apology. He was merely exercising his freedom to do what he wanted, and if he chose not to celebrate Christmas, that was his natural, god given right. During Scrooge's pre ghost phase, he was a hard nosed flinty business man, albeit a bit ill mannered. There is no law against being ill mannered, dour, mean, or miserly. Scrooge was free to do whatever he wanted, with no worries what society would think as long as he behaved within the law and remaining scandal free.

Every good story likes to make a case of human redemption, a change from self interest to the interest and service of the collective. In popular culture, rich are inherently evil, their gains ill gotten off the backs of workers, and the poor always triumph over the rich. Dickens masterfully pulled this off when he had three ghosts visit Scrooge on Christmas Eve to scare the hell out of him and change his evil ways. His powerful scare tactics caused Mr Scrooge to abandon his own self interest, abandon his personal freedom for the good of society, destroy the profitability of his business, and spend his hard earned wealth on charity to repent for his earlier miserliness.

The messages Dickens made in a Christmas Carol were very clear. Productive people must give to the more deserving poor to be considered worthy, rich people are not happy due to guilt, producers must abandon self interest in order to satisfy the needs of others in a society who don't work as hard, businessmen must run their personal business for the sole benefit of their employees, conversely to the detriment of the stockholders. And finally one must give exorbitant sums to the poor, provide medical care for the employees, and give retroactive raises to allegedly underpaid employees. Benevolence is not a virtue in this world, it is a requirement. Scrooge was manipulated into this transformation by the three ghosts creating immense guilt and fear, and by the end of the story Mr Scrooge was more concerned with what people thought of him, his personal image, than the real work of creating profits, creating jobs, growing a business, and contributing to the general business climate.

At the end of the story Mr. Scrooge was a transformed man. He was happy, benevolent, highly thought of, giving,almost giddy, much like a person who has had a drink or ten. A good case could be made that he was a better man, but w hat he lost was the real tragedy. Scrooge lost his independence, his freedom, became dependent not on profits, but on the opinions of others. He was required to give money away, raised expectations of others, and caused economic imbalance by changing the market pay scale of employees in his business. In a way, Scrooge's new found largesse probably was bad for the economy as a whole a la the theories of Hazlitt. On another note, happiness tends to be fleeting much like health and I suspect that with Mr Scrooge, old habits die hard.

When the curtain closed, everyone was cheering. I felt a bit of sadness, as here's another story of poverty trumps wealth, rich is evil while poor is good, and being a second hander is more important than being a real, virtuous free man. In the end, Mr. Scrooge was the real loser and the real story was the transformation of a rich, productive man into a welfare state.

Rocky Humbert comments:

Dear Jeff:

Considering "A Christmas Carol" to be an indictment of Victorian Capitalism is not a novel idea, yet I still find your words and spirit to be sad, indeed.

While you are free to intrepret Dickens however you see fit, you have no such freedom with respect to core Judeo-Christian values, which parts of Dickens' play embodies. The principles which you lament are the core principles of Judaism and Christianity.

What you find lamentable, I find laudable. When you find trivial, I find grand. In short, I celebrate the charity and goodness toward man that Christmas celebrates, while you mock it as political correctness.

I wish you a happy holiday, and hope that you someday discover what Scrooged learned– that there is no greater joy than bringing happiness to others.

Scott Brooks adds:

 Let's not confuse charity with force of threat.

Scrooge offered a fair deal at a fair price. The way we can infer that this is the case is that people came to him, and willingly signed a contract. Scrooge performed his half of the contract by loaning them money. What is wrong with him expecting that they honor their portion of the contract?

And, let's not confuse what Scrooge did for charity. Giving to other under threat of force…..i.e. the spirits (under the direction of Dickens) threatened him with the threat of eternal damnation if he didn't commit business suicide.

Another problem with "A Christmas Carol" was that the story ended on December 25th. Let's flash forward to the "The Week After Christmas":

Bob Cratchit shows up at work on the 26th only to find that he doesn't have a job. Why? Because Scrooge, in his "fit of charity to bring happiness and joy to others" tore up all the debts owed to him and there was no more accounting work for Cratchit to do.

Later that day, and throughout the next week, a bunch of former Scrooge customers come to the office to borrow more money, only to find it closed because Scrooge has no more money to lend out. If he did, it would be evil (under Rocky's view of the world) to unfairly loan out money. And he couldn't just keep the money, he would have to give it away to atone for his supposed sins.

Therefore, the vital role that Scrooge played in the community…i.e. loaning money to people that had need of a loan for whatever purpose they felt they needed a loan for (and that Scrooge deemed as a good "loan risk")….that vital role was no longer available in the community.

And what happens when credit dries up in a society….well, I think we can all agree that that's not a good thing.

Sorry Rocky, but you're wrong in your assessment. This is not charity or Christian/Judeo ethics. This is a story by a man who didn't like Capitalism, that slams capitalism. It could have been written by most any journalist or university professor in today's society.

David Hillman writes:

 And then, there's the contrarian point of view

….which makes as much sense as does the interpretation of A Christmas Carol as an indictment of Victorian Capitalism [which, by the way, was far different from what we generally think of as 20th Century capitalism, i.e., the kinder, gentler Fordist model or the so-called millennial capitalism that has been evolving since the 1980s.]

I don't know much, but two things I know, 1) what Dickens' meaning and intent in A Christmas Carol was is about as clear as what the founding fathers intended in the Constitution, or as clear as whether the origin of the universe was a God or a Big Bang, and 2) we don't see things as they are, we see things as we are.

That said, I would posit that one's interpretation of A Christmas Carol, or just about anything else for that matter, tells us far more about the interpreter than it does of Dickens. 

Gary Rogan writes:

It's interesting that with all of his supposedly anti-capitalist novels, Dickens undertook two trips to America mostly to lobby for copyright enforcement. He also blamed his bankruptcy and later health and financial problems close to his death on being deprived of his rightful royalty stream. Somehow various American software companies and their hyper-liberal billionaire founders fighting intellectual property theft in China come to mind, although they are all in decidedly better financial shape.

Kim Zussman chimes in:

It's not every day you see Jewish pro-Christmas arguments against Mormons; a market top indicator?

The 1938 Christmas Carol is a great film, and if you don't tear up your trading accounts are definitely too flush.

Scrooge's encounters with ghostly futures cause us to ask what is really important. It is difficult to balance the race for money with taking time for things and people who will too soon be grown, old, or gone.

Stefan Jovanovich writes:

"A Christmas Carol" is far less about what our List calls "capitalism" - i.e. pricing by competition - and far more about Dickens' wanting the world to have a universal catcher in the rye and not be like the America he saw in 1842. He was appalled by our slavery and by our insane "push". He was also upset by the fact that, like the East Asians today, Americans were notorious copyright pirates. We were also the source of his growing wealth by being the best customers for his books. During his visit to New York his American publisher and his admirers (Washington Irving, William Cullen Bryant) held a gala in his honor, with 3000 people attending.

Dickens knew almost nothing about business by 1843 (the date of A Christmas Carol's publication) from direct experience or observation. His father had worked in the Navy Pay office and lived on a family inheritance. Dickens' only job in any "dark, satanic mill" was a few months sticking labels on bottles of shoe polish. He then went back to school. After school he worked in a law office as a clerk, taught himself the new short-hand and became a court reporter through a family connection. That led to political journalism. Sketches by Boz - his first book published in 1836 - is a collection of his political pieces for the Morning Chronicle, covering the Parliamentary elections.

The socialism Jeff finds in the story is there; it is the same socialism you find in Thoreau. It came from the same source - Unitarianism - which Dickens became interested in while visiting the U.S. And, capitalism in its modern forms was still in its infancy. It would be another decade and more before limited liability was formally recognized in Britain in the legislation of 1855-1856.

Gibbons Burke writes:

A Christmas Carol is not anti-Capitalist as such. But it makes a case strongly against Capitalism run by capitalists who serve Mammon rather than God. Scrooge, who initially perfectly represents that anti-human form of Capitalism at its worst soul-less excess, is the perfect picture of a seemingly-self-satisfied soul roasting in a Hell on Earth of his own devising, and he seems certainly destined for the eternal flame pit until his heart is converted later in the book. At that moment he becomes filled with the Joy that is the gigantic secret of the Christian (according to Chesterton).

Here is Dickens' initial description of old Scrooge - which seems to have plenty of editorial voltage:

Oh! But he was a tight-fisted hand at the grindstone, Scrooge! a squeezing, wrenching, grasping, scraping, clutching, covetous, old sinner! Hard and sharp as flint, from which no steel had ever struck out generous fire; secret, and self-contained, and solitary as an oyster. The cold within him froze his old features, nipped his pointed nose, shrivelled his cheek, stiffened his gait; made his eyes red, his thin lips blue; and spoke out shrewdly in his grating voice. A frosty rime was on his head, and on his eyebrows, and his wiry chin. He carried his own low temperature always about with him; he iced his office in the dog-days; and didn't thaw it one degree at Christmas.

External heat and cold had little influence on Scrooge. No warmth could warm, no wintry weather chill him. No wind that blew was bitterer than he, no falling snow was more intent upon its purpose, no pelting rain less open to entreaty. Foul weather didn't know where to have him. The heaviest rain, and snow, and hail, and sleet, could boast of the advantage over him in only one respect. They often "came down" handsomely, and Scrooge never did.

Nobody ever stopped him in the street to say, with gladsome looks, "My dear Scrooge, how are you? When will you come to see me?" No beggars implored him to bestow a trifle, no children asked him what it was o'clock, no man or woman ever once in all his life inquired the way to such and such a place, of Scrooge. Even the blind men's dogs appeared to know him; and when they saw him coming on, would tug their owners into doorways and up courts; and then would wag their tails as though they said, "No eye at all is better than an evil eye, dark master!"

But what did Scrooge care! It was the very thing he liked. To edge his way along the crowded paths of life, warning all human sympathy to keep its distance, was what the knowing ones call "nuts" to Scrooge.

The book is available in several illustrated editions for free on Project Gutenberg.

Jeff Watson responds: 

So, in other words, while Scrooge was unpopular, he enjoyed total freedom. That sounds pretty good to me. At least If I had his rep, I wouldn't have to say no to 30 requests for donations a day. Can you imagine how refreshing it would be to perform an essential service, perform admirably in business, deliver superior service, and not give a damn what people thought of you? That would make Hank Reardon proud. It is not a crime to be disagreeable, a skinflint, self serving or any other eccentricity. If we punished men for their eccentricities, Henry Ford would have never created and revolutionized the automobile business, J.P. Morgan would never have risen beyond the level of margin clerk, the old Commodore Vanderbilt would have probably died in a house of ill repute, Barney Frank would have been hanging out on…, and Bill Clinton would probably be in an Arkansas … for a very youthful indiscretion. 

John Tierney writes:

In 1899 Elbert Hubbard viewed the "Scrooges" thusly:

We have recently been hearing much maudlin sympathy expressed for the "downtrodden denizen of the sweat-shop" and the "homeless wanderer searching for honest employment," & with it all often go many hard words for the men in power.

Nothing is said about the employer who grows old before his time in a vain attempt to get frowsy ne'er-do-wells to do intelligent work; and his long patient striving with "help" that does nothing but loaf when his back is turned. In every store and factory there is a constant weeding-out process going on. The employer is constantly sending away "help" that have shown their incapacity to further the interests of the business, and others are being taken on. No matter how good times are, this sorting continues, only if times are hard and work is scarce, the sorting is done finer- but out and forever out, the incompetent and unworthy go.

It is the survival of the fittest. Self-interest prompts every employer to keep the best- those who can carry a message to Garcia.

I know one man of really brilliant parts who has not the ability to manage a business of his own, and yet who is absolutely worthless to any one else, because he carries with him constantly the insane suspicion that his employer is oppressing, or intending to oppress him. He cannot give orders; and he will not receive them. Should a message be given him to take to Garcia, his answer would probably be, "Take it yourself."

Tonight this man walks the streets looking for work, the wind whistling through his threadbare coat. No one who knows him dare employ him, for he is a regular fire-brand of discontent. He is impervious to reason, and the only thing that can impress him is the toe of a thick-soled No. 9 boot.

Tim Melvin comments:

 The question of scrooge and how we view him is one that men of business have wrestled with since the damn story was published. The thing is that Dickens does not paint Scrooge as the example of every businessman. We tend to take much of the Scrooge story out of context, I think. Business itself is not painted as evil or wrong. Was not Fezziwig the owner of a prosperous and successful business when young Ebenezer was employed there in his youth. Judging by the Christmas party it was prosperous business indeed. Yet Fezziwig was a generous soul to his employees who treated then well and asked for a fair days work for a fair day's pay and got it it cheerfully from those in his employ. Scrooge described his time employed there and his boss thusly, "The happiness he gives, is quite as great as if it cost a fortune ."

In contrast Scrooge underpaid Bob Cratchitt and treated him poorly. To say that Mr. Cratchitt could simply look for other employment is as ridiculous a statement as it is heartless. With a large family and a sick child he would be foolish to change what employment he did have by seeking other employ. Given the hours he toiled when would he had the time anyway?

Scrooge is indicted not for being a man of business but for being a man who shuts out the world and pursues only business in a mean spirited way. I greet my lender when I see him on the street. Scrooge was harsh man who was probably the lender of last resort and treated his customers poorly. Good business is a win win were the partied walk away feeling that both have scored a victory in my experience. To have your neighbors ignore you in the street and cackle over yor corpse does not paint the idea that he did business fairly in my mind. To be sure we all have probably made some enemies along the way, but we have made friends as well who would mourn our passing/ not so in this case.

Scrooge is indicted of closing his heart to all of humanity. He chooses commerce over the love of a woman and the potential for a life and a family. He helps no one with a kind word, a gentle lesson or a shared idea. The concept of charity is unique to us all. But hard asses as all of us are, as libertarian and objectivist rooted as we are, would we hesitate to assist a friend, relative or even employee who had an ill child if we had the resources to do so? Which of us would not give our nephew, our only family a visit on a holiday eve or at least a kind word, a lesson in the ways of the world that might help them succeed in life?

Scrooge was not indicted and sentenced to haunting for being a business man. He was convicted of living without love. The love of a child, of a woman, of humanity. He hated himself as much as he hated the rest of the world. Scrooge's crime was not being a business man but for failing to appreciate the wonder that life actually can be. I like so many other readers of this site detest the corporate charities, and I say no quickly and clearly in my best bah humbug fashion. But just like everyone else here there are charities and causes I believe in and donate my time and money. I do not buy the in the give to all philosophy or faceless giving anymore than the rest of you. I do believe in libraries, special olympics and a few other causes and I give. So do you whether it's a church, a cause, a philosophy of a friend in need so quit pretending your are an objectivist hardass who helps no one. Not only is that so much BS, it's a heartless life that would create a scrooge like existence and so far I have met no spec who fits that description.

Scrooge's crime was not business. It was living with love, without the touch and hear of another, without a child's smile, a lover kiss or the hand of a friend. By Dickens account he denied himself all the makes life special. There is no account given of good food, or beautiful music or even good books. Scrooge's crime was not one of business. He was guilty of crimes against life itself. 

Jeff Watson responds: 

(While I agree with much of Tim's premise, I'd like to see the statutes Scrooge violated regarding the aforementioned crimes). If those are indeed crimes that Scrooge committed, I fear the state is on the road to becoming more totalitarian if they feel the necessity to regulate those areas of normal but eccentric human behavior. Again, it's not against the law to be a total dick, nor should the government concern itself with forbidding person to be rude, self absorbed, cheap, hated, or mean spirited. I certainly can't find anything in the constitution addressing this issue. 

Stefan Jovanovich writes:

Dickens wanted women to stay in the kitchen; Hubbard wanted them to own the restaurant.

His company - Larkin Soap - gave Frank Lloyd Wright his first big commission. The friezes on open galleries of the building had these mottoes: GENEROSITY ALTRUISM SACRIFICE, INTEGRITY LOYALTY FIDELITY, IMAGINATION JUDGMENT INITIATIVE, INTELLIGENCE ENTHUSIASM CONTROL, CO-OPERATION ECONOMY INDUSTRY.

Here is Hubbard's story of how he started the Philistine magazine and the Roycroft shops. Begins at page 309



 Last night, we lost another baseball great, Bob Feller.

Ralph Vince comments:

He was here all the time, in this little town of Chagrin Falls, (along with a few other old-time MLB pitchers, none in stature to Feller). I don't know if he lived here, or just hung around here. This is the kind of place people come to just to hang. (God alone knows why. This is a bit of a pre-lapsarian place. At the local hardware store, if you need anything metric, you won't find it in this town. Need film? At the drugstore you can get Kodak, but not Fuji or Konika.)

He was not very well liked, not regarded as a pleasant guy at all.

Stefan Jovanovich writes in: 

And, why, pray tell, should it matter a tinker's damn whether the man was "well-liked" or considered "pleasant"? The man had the unfortunate habit of always telling the truth– about baseball and about this country. He and Wahoo Sam Crawford were two of a kind. 

Jack Tierney writes: 

This reminds me of my home town's only claim to major league fame, Jay Hook. Jay was the local hero who made it to the "bigs" but never made a big splash.

He wound up with the Mets and Stengel in the expansion draft and had the honor of pitching the first Mets' win ever. He was a graduate of Northwestern (thermodynamics) so could tie his shoes without help.

Jay's most notable accomplishment, though, (and maybe even the one that lead Stengel to ask "Can anyone here play this game?") occurred as he and another pitcher sat making calculations in the dugout during a game.

Stengel wanted to know what the hell they were doing.

Displaying a sheet containing a host of complex maths calculation Jay told Casey that they were assuming Gibson could throw a curve ball at 90 mph. The problem: Given that speed and distance between home plate and where Gibson released the ball, how many revolutions did the ball make?

I never discovered if they determined the answer as Casey snatched the paper and dumped it.

I don't know if this story ever made the papers but it was related to me by his father, Cecil (proprietor of Cec's Drugstore), over a traditional Sunday morning after-Mass vanilla malt.



 "The philosopher Hannah Arendt famously argued that the atrocities of the Holocaust were not caused by psychopaths but by ordinary people placed under extraordinary pressure to conform. Since then we have learned that the pressure need not be extraordinary at all. In fact, it may not be experienced as pressure, but as relief. Human beings are herd animals. We survive only in highly coordinated groups…The visible courageous individual is but the tip of a social iceberg. When you go against the group, you do it not on your own, but in the name–and with the backing–of another group. In other words, we can't avoid conformity."

From an Psychology Today article on conformity.

There's some interesting conjecture (some of it quantified) at the website indicated. Also interesting are the additional links provided to the tests done by Muzafer Sherif, Solomon Asch, and Stanley Milgram. Their "experiments", though limited in scope tend to support Arendt's contention that our "individual courage is a manifestation of group convictions and affiliations." Despite our most strenuous objections, we are all conformists– even those opposing the dominant conformist opinion, are conforming to a nascent opposition conformist view.

While I find the theory depressing, it could, if enough information were collected, sifted for relevancy, and interpreted correctly, provide real market insights. The studies seem to indicated that the dominant conformist meme will eventually be supplanted by another early stage body of thought which, regardless of merit, will dictate the next opinion-shaping, market-controlling mind set.

I believe a current topic, Bernie Madoff, provides a good example. He seems to be taking his place with Nixon and McCarthy as men who have committed an unforgivable sin against their brothers. However, why does he deserve this?

Certainly he bilked many out of billions– most of them quite wealthy, most of them reaching for that extra little bit of yield not available to those amongst the hoi-polloi. Yet it is this group that is most regularly fleeced by financial fraud and misrepresentation. But it not unusual for the few perpetrators who are caught to receive a mild wrist-slapping and, within, an acceptable period, re-entered into their former sphere.

What seems to be overlooked is that many of those fleeced by Madoff (e.g., Cage, Bacon, Sedgwick) have ample time and opportunity to re- establish their wealth, or a goodly portion of it. The poorer victims of the less publicized bilkings quite often have neither the time nor opportunity (nor the sympathy) needed to come back.

The once-upon-a-time conformist meme was: "Thou shalt not steal."

Its more modern incarnation seems to be: "Thou shalt not steal from the wealthy."



There would be implication for many other contracts as well (for example bonds and metals), if such were to occur early next week.

Rocky Humbert writes:

Without expressing any opinion on this, I'd point out that there is a Japanese stock ETF which hedges out the Yen/$ exposure. So if you believe that the BOJ will take steps that pushes up the Nikkei AND the Yen will decline against the Dollar too, then buying some DXJ is a good vehicle for expressing this view.

(There are lots of other ways to express this dual view, but this is the simplest way for ETF traders.)

Jack Tierney writes:

YCS [pro shares ultra short yen] would be a more aggressive way to play the imagined scenario….

Gary Rogan writes: 

This doesn't have much to do with hedging the exposure or this particular ETF, but I have not seen a discussion of the following anywhere so I'll pose this as a question. If you look at the composition of Nikkei-225 you see that a large percentage of it is in these groups:

Foods, Textiles and Apparel, Pulp & Paper, Chemicals, Oil & Coal Products, Rubber Products, Glass & Ceramics, Steel Products, Nonferrous metals, Machinery, Electric Machinery, Shipbuilding, Automotive, Precision Instruments, and Other Manufacturing.

It seems like my favorite Central Banker has successfully unleashed a worldwide raw materials inflation cycle, measured in whatever currency you chose. Given that Japan imports so much of its raw materials and so do many of the countries where it now chooses to do some of its manufacturing, how can what's about to happen, even if the final demand somehow rises, be good for Japan?



 I'm sure we'll never agree on who was the best but I ask you not to forget Minnie Minoso. He had some great stats although he never had an opportunity to play in the "bigs" until he was 28. (And continued on until he was 65.)

What made Minnie stand out was his determination to get on base. If the White Sox really needed a runner or Minnie was in a slump, Minnie had the sure-fire way to get on base.

He just stuck his head over home plate and took one in the ear, got up, and jogged to first (and frequently stole second). Led the league in this category 10 times, Never saw that in the Yankee Clipper, the Man, the Mick, or the Splendid Splinter.

Stefan Jovanovich writes:

Yogi Berra - Minnie Minoso story: Whitey Ford was starting for the Yankees and they were playing the White Sox when they had their great 1950s team. Ford throws the first pitch - a fastball - and Luis Aparicio lines a single to center. Nellie Fox comes up and Ford and Yogi decide to switch to the curve ball; Fox hits if off the right field wall for a double, Aparacio scores. Minnie Minoso is next; and they decide to go soft ball. Minoso hits the change-up into the left field bleachers. 3-0 White Sox. Casey Stengel decides to invite Yogi to join him in making a visit to the mound. "How we doing, boys?" he asks Ford and his catcher. "Well, Skip," says Yogi, "Whitey's mixing up his pitches." "Yes," says Stengel, "but how is he doing?" Yogi answered: "I can't really say. I haven't caught any yet."

Jeff Watson comments:

Not wishing to diss the Mick who's easily in my top ten, but my favorite person in baseball of all time would have to be Ty Cobb. Not only was he was a great rough and tumble, aggressive ballplayer, he was a sagacious trader who died rich off of his investments. Cobb had a "need to win," part of his make-up that came straight from his gut– it's too bad that he had more than a few character flaws. But then again, one could make an argument that his flaws were a sign of the time….apologists make that argument for Jefferson all the time. 

Tim Melvin writes:

My favorite Cobb story from wikipedia:

Cobb's competitive fires continued to burn after retirement. In 1941, Cobb faced Babe Ruth in a series of charity golf matches at courses outside New York, Boston and Detroit. (Cobb won.) At the 1947 Old Timers Game in Yankee Stadium, Cobb warned catcher Benny Bengough to move back, claiming he was rusty and hadn't swung a bat in almost 20 years. Bengough stepped back, to avoid being struck by Cobb's backswing. Having repositioned the catcher, Cobb cannily laid down a perfect bunt in front of the plate, and easily beat the throw from a surprised Bengough.

Sam Marx writes:

It is usually agreed that Ted Williams was a better hitter than Joe DiMaggio, but what quality is it that allows a lesser hitter, like DiMaggio, to have hitting a streak of 56 games whereas no other hitter ever came close. I believe DiMaggio also had other long streaks of hitting in games including when he was in the minors. 



The 58th Bilderberg Meeting will be held in Sitges, Spain 3 – 6 June 2010. The Conference will deal mainly with Financial Reform, Security, Cyber Technology, Energy, Pakistan, Afghanistan, World Food Problem, Global Cooling, Social Networking, Medical Science, EU-US relations.

Read an article on it here.  



 ….to the Chair and the judges. I would like to add that I would have been neither surprised nor disappointed had Mr. Parkanyi's effort prevailed.

Had this contest occurred two months ago, I would have squandered the proceeds on a trip to Tunica and taken a whirl at Texas Hold 'em. However, I wound up doing it on my own dime and learned several hard lessons.

First, bad cards won't kill you; it's the really good cards that are just not quite good enough, that will.

Second, the game itself is slower and duller than baseball; I realize many will challenge me on both accounts - so be it.

Third, the younger players have been watching too much TV. Unlike the older players, they mull for many minutes over almost every hand, wear their ultra-wide brimmed, ostentatiously colored baseball hats backwards, and are generally surly (win or lose).

Fourth, the older players are not a bit shy about calling "clock" when the younger continue to tarry.

Finally, the game can't hold a candle to duplicate bridge. Here you can just "muck" your bad hands and snooze until a good one comes along. In duplicate, every hand must be played and played well and played quickly; a poorly played hand whether a good one or a bad one counts against you, significantly; slow play can get you penalized or bounced.

Despite all that I would play again if they used a format seen in an Australian tournament where you had a max of 30 seconds to make your bet and one couldn't bet "all in" before the flop. It makes for a faster, less theatrical game and prevents a dominant chip leader from foreclosing many good potential hands with pre-flop all-in bets.



a modern dy robin hood: stealing from the rich and giving to the poora modern dy robin hood: stealing from the rich and giving to the poor


Out of the dark that puzzles me,
Dumb as a post from year to year,
I thank whatever guides that be,
For my yet unspoken jeer.

 From the chapped lips of prophecy,
I have heard repeated tales told,
Rife with cant and sophistry,
Of the certain demise of gold.

Beyond London Pool and Buttonwood,
Looms the shadow of twenty-nine,
With the return of Robin Hood,
And western civs assured decline.

It matters not how skewed their view,
Nor how firmly beheld the meme,
I've had the strength to see it through,
Riding capital's tidal stream.



pez dispenser dispensing viagraHere are some poignant things to reflect upon about yesterday, May 21, I think:

0. The low of the day was below the low on the Flash Crash day.

1. A Millstein occurred, was it bullish or bearish and as of when.

2. The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net.

3. The low was not quite equal to the low of the year on Feb 7.

4. The interactions with bonds and oil and copper and the dollar was predictive.

5. It followed a series of disastrous Thursdays, with double digit S&P declines.

6. The sponsor said he wouldn't buy stocks.

7. A promoter said he sees S&P below 950 in fib retracement. Another sage from a broker's house saw stocks rallying. Presumably their disseminated views caused spikes at the time of announcement. Was there anything predictive in comparing the reaction.

8. The S&P pit opening followed the biggest decline in a year.

9. The fixed income prices opened at an all time high, and closed at an all time high but managed to drop a percentage regardless.

10. The flash rise occurred with 20 minutes to go from a 1.5 percentage drop in afternoon after a vastly different experience in prior days.

11. The courage to not be dissuaded out of your position from the other broker, or the inner survival man, or your assistant who always wants to take profits as of Friday 3:40pm would have been redoubtable.

12. Mr. Vix and Mr. Vic opened at one year highs and followed a similar trajectory to the fixed income.

13. A 10 percent correction occurred; is it bullish or bearish or random. Same for breaks of the long moving averages.

14. To what extent did May options expiration have a predictive effect.

15. Were the movements in the Euro and Asian markets overnight a pilot fish?

16. Was revulsion from the increases in "sharings" and "service" scheduled for the beginning of 2011 a factor?

17.  What political factors relating to the approval of bailouts by houses in Europe and reforms in the US played a part?

18. How do predicted earnings increases factor into the Fed Model and should the Shillerian 10 year p/e calculation be obfuscated with the man.

19. It was the biggest decline in a week in the year.

20. There had been a run of multiple intervals of declines in a row.

21. How did all this affect and react to the moves in individual stocks?

Inquiring robots within and without the mind wish to know the answer to such questions on a scientific and or useful basis for future input. What approaches and other more poignant queries should be proffered or gainsaid?


22. The sage likes to compare the stimulus bill to taking 1/2 a tablet of Viagra and then diluting it with candy. We need more he said.

What are the natural reflections engendered by such an utterance?

I'll give a prize at the annual spec party for the best such reflection.

Pitt T. Maner comments:

Bob Dole petting a dog on the headThe potential stimulative effects of lower oil prices come to mind. There are more scholarly sources to be found, but here is a snippet of thought.

"Every $1 per barrel drop in oil's price increases U.S. GDP by $100 billion per year and every 1 cent decrease in gasoline's price increases U.S. consumer disposable income by about $600 million per year."

Lower oil prices like Viagra would seem to be useful for the longer term mechanism of action effects but its the lowering of obesity (and sugar consumption) and belt-tightening of runaway spending that may be more important in the long run.

An image of Bob Dole petting his dog on the head comes to mind. 

Martin Lindkvist writes:

The sage seems to know a lot about the right dose of……candy. Some questions remain to be answered though. When he said "we need more", was he referring to the stimulus bill or the stimulus pill? And who are we? Should the market mistress be jealous? 

Sushil Kedia adds:

The mythical character James Taggart in Atlas Shrugged would have said so had Viagra been available in that age. Might I extend the tautomerization such that the James Taggarts hidden all over "in the system" are as sagacious as the sage or perhaps the other way round that the sagacity of the sage is a Taggartian mumble.

He never believed that anyone should be paying taxes. At least that's what he positioned to imply by never giving out dividends. He could have little regard for those who indeed tax their finances and their bodies to experience the pleasures of achievement and the achievement of pleasure, respectively.

Give me more! This ain't enough!!

Jack Tierney comments:

"Our first stimulus bill, it seemed to me, was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in as everybody was putting it into their own constituencies. It doesn't have quite the wallop." - Warren Buffett

A spoonful of sugar helps the medicine go down
In this instance, Mr. Buffett is borrowing from the equally iconic Mr. Disney and his tune "A Spoonful of Sugar Helps the Medicine Go Down." However, since so many different and divergent candies were necessary to satisfy the various "constituencies," few were pleased with the aftertaste. Mr. Buffett has suggested a second dose and "taking it straight" since July of '09. Unfortunately, inherent in his initial support and subsequent carping is the unavoidable insistence that there exists a stimulus package, which properly configured, will work. This is unfortunate because it foretells that something, something equally stupid, will be done.

The suggestion (whether sugar coated or not) is flawed on two counts (at least). First, the same "smartest guys in the room" who created the disease and subsequent medicine are once again heading up the project. Secondly, the historical record contains numerous examples of "stimulus programs" which have two things in common: they have been designed and promoted by the very brightest and they have all failed.

Further, if we are to adhere to our commonly held characterization of the market as The Mistress, then Mr. Buffett's Viagra suggestion is obviously misdirected. Although the recommended medication might do wonders for the stimulators, the only important response is hers (and I'm sure that I'm not alone in observing that on occasions, rare occasions, our enthusiasm just isn't enough).

At some times (perhaps at all times) we must let the Mistress work it out on her own. If TV ads and infomercials are to be believed, modern self-applicable developments have added to the numerous nostrums, aids, and approaches already available. Checking the historical record once again, we find that her response times can be capricious. But she alone determines the timing; the addition or withholding of a spoonful of sugar won't speed things along.

Steve Ellison comments:

"The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net."

A simple calculation of open relative to the previous close would have shown the similarity of Thursday and Friday. For example: "a 10 percent correction occured, is it bullish or bearish.or random. same for breaks of the long moving averages."Dr. Zussman showed last July that several moving averages from 40 to 70 weeks had good predictive value, so I would interpret the break of the 40-week average as bearish.

"the sponsor said he wouldnt buy stocks."

So what? He's a bond guy.

"What approaches and other more poignant queries should be proffered or gainsaid?

At the beginning of May, I posted the performances of 13 asset classes in a horse racing format. I suspect that some important "forms" in the markets last about two months. That is why I showed two-month performances and chose to post them at the beginning of a new two-month period. The S&P 500 had the second best return of the 13 asset classes in March and April. Furthermore, the form in March and April was a slow and steady upward trend. The public would be looking for more of the same in May and June, so something very different was guaranteed to happen.



most likedOver the past several years I have been in four reading groups. In that time a number of selections have been duplicated. Most selections receive mixed reviews. A few appeal to just about every reader, a few others bomb with most.

Only one book was more enjoyed than "Water for Elephants"– "The Book Thief" (an honorable mention to "1000 Splendid Suns.")

The runaway winner on the Most Disliked List: "The Lovely Bones" (with a dishonorable mention to "The Friday Night Knitting Club").

Regarding the Sage's views of GS. CNBC has a program (the name of which currently escapes me) that immediately follows Bartiromo. Melissa Lee has four regulars (with an occasional substitute) commenting on different aspects of that day's trading. On the Mon. or Tues. following the initial GS the substitute was a former employee of that concern. When the question of Blankfein being dumped came up, he confidently said it would never happen. His reason, which went unchallenged: in the Sage's covenant with GS on the $5 billion loan, is a clause that gives the Sage an out should Blankfein leave.



 Something I found on my way to looking for something else:

"We haven't yet seen full-blown panic in Th**land, but the situation (and the Th** Capital Fund's NAV) is well worth monitoring if you'relooking for a contrarian investment in a solid emerging market."



 I married into a family with extensive employment ties to AT&T. My mother-in-law, one brother-in-law, one of my wife's uncles as well as another aunt all made careers at ATT. The only thing they admired more than the payroll deduction stock- buying program was the medical coverage. I'm familiar with a number of companies that offer very comprehensive programs, but none compare with what Bell offered. Not only was coverage complete, but remained so into retirement; the employee costs were so minimal as to be non- existent.

It's a wonderful story so far. Nothing really changed when the government and the courts came along and created the Baby Bells. However, their medical coverage created what I have long termed the "Bell Babies." My wife and the children of other long-time Bell employees are among them. But first a little background:

My mother-in-law retired at 62 and passed away at 84– I cannot even estimate the number of (free) office visits she paid to various doctors in that 22 year period. I do know, though, that many of those visits were largely unnecessary. She easily averaged at least two office visits a month during all that time; and when she was seriously discomforted (as when she threw out her back) two visits a week were common– despite the doctor's advice that the visits really weren't necessary, that the healing period would take awhile. Her example, as well as that of her sister and her son (her brother was admirably averse to visiting the doctor even for free), created the Bell Babies. As infants, children, and teens those who had a parent covered by Bell became accustomed to seeing the doctor over the most trivial of aches and pains. This was fine while Mom's policy covered them. However, once they married (to someone not covered by the ATT policy), costs, sometime high ones, became involved. Despite the costs, old habits are hard to break– especially if the services provided have become to viewed as entitlements.

The coverage offered by my employer, although not as generous as ATT's) certainly was very good. When I retired and retained the policy (slightly modified), my monthly cost was a very affordable $347 a month. Seven years later when I qualified for Medicare it was $1200 a month with many modifications and co-pays. During that period many of us discovered just how expensive medical care really was.

But there were many, my spouse among them, whose initial reaction to any ache or pain was to make a doctor's appointment. Ironically, the "generous" coverage that our employers obtained for us (and which our current chief executive thinks is too expensive), has created a class of Medical Care Junkies– many of whom, including my wife, have learned (expensively) that doctoral abstinence is a good thing.

With that in mind, I believe that the newly dictated medical programs may well discourage a number of us from making frivolous office visits. However, it may also create a whole new class of customers who previously were, or feel they were, under-protected. And their numbers and impact could well be substantial.

If I've learned anything from these experiences it is that while I may find it difficult to pay medical costs under this new legislation, I can still afford dental and eye care. Under the various policies we've had, coverage for those specialties was very limited and very low. Practitioners in those fields had to deal with real people with real incomes, factor in real costs and price appropriately. I believe they've done a remarkable job. Where insurance didn't apply (or applied only marginally), costs remained bearable. But blanket medical coverage has proven to be poor economic policy– and it gets worse as government "helps."



John P.A IoannidisThis is a sad conclusion for scientific research:

Why Most Published Research Findings Are False


There is increasing concern that most current published research findings are false. The probability that a research claim is true may depend on study power and bias, the number of other studies on the same question, and, importantly, the ratio of true to no relationships among the relationships probed in each scientific field. In this framework, a research finding is less likely to be true when the studies conducted in a field are smaller; when effect sizes are smaller; when there is a greater number and lesser preselection of tested relationships; where there is greater flexibility in designs, definitions, outcomes, and analytical modes; when there is greater financial and other interest and prejudice; and when more teams are involved in a scientific field in chase of statistical significance. Simulations show that for most study designs and settings, it is more likely for a research claim to be false than true. Moreover, for many current scientific fields, claimed research findings may often be simply accurate measures of the prevailing bias. In this essay, I discuss the implications of these problems for the conduct and interpretation of research.

paper by John P. A. Ioannidis

Pitt Maner writes:

Dr. Ioannidis puts up good argument to criticisms of his paper, which is frequently downloaded. One wonders if you can extend his arguments to economic and business research — are there too many "paper mills" out there?

"Scientific investigation is the noblest pursuit. I think we can improve the respect of the public for researchers by showing how difficult success is. Confidence in the research enterprise is probably undermined primarily when we claim that discoveries are more certain than they really are, and then the public, scientists, and patients suffer the painful refutations."

His credentials appear acceptable, so he may be worth listening to.

Dr. Ioannidis continues to push for better use of and improvements in the use of statistics in medical studies. So on the face of it he appears to fill an important role in maintaining high standards for published medical research. Perhaps those in the profession can give a better assessment of Dr. Ioannidis' methods and the validity of his criticisms. Here is the overview of a paper titled Limits to forecasting in personalized medicine:

Biomedical research is generating massive amounts of information about potential prognostic factors for health and disease. However, few prognostic factors or systems are robustly validated, and still fewer have made a convincing difference in health outcomes or in prolonging life expectancy. For most diseases and outcomes, a considerable component of the prognostic variance remains unknown, and may remain so for the foreseeable future. I discuss here some of the main problems in medical forecasting that pose obstacles to personalized medicine. Their recognition may help identify solutions to improve personalized prognosis, or at least understand and cope with the component of the future that we cannot predict. Much prognostic research is stuck at generating "publishable units", without any interest in conclusively proving their worth, let alone moving them into real life applications. Information is reported selectively and reporting is deficient. The replication record of prognostic claims is poor. Even among replicated prognostic effects, few are convincingly shown to add much information besides what is already known through more simple, traditional measurements. There are few efforts to systematize prognostic knowledge. Most prognostic effects are subtle when traced to the molecular level, where most current research operates. Many researchers, clinicians, and the public are not appropriately educated to interpret prognostic information. We still have not even agreed on what the important health outcomes are that we want to predict and intervene for, and some subjectivity may be unavoidable. Finally, without concomitant effective, affordable, and non-harmful interventions, prognosis alone is of questionable value, and wrong prognosis or a wrong interpretation thereof can be harmful. The identification of these problems also suggests a roadmap on what could be done to amend them. Solutions include a systematic approach to the design, conduct, reporting, replication, and clinical translation of prognostic research; as well as the education of researchers, clinicians, and the general public. Finally, we need to recognize that perfect individualized health forecasting is not a realistic target in the foreseeable future, and we have to live with considerable residual uncertainty.



Here are some strategies and tactics I used or should have used in hardball squash, paddleball, and racketball — sports that I played a combined total of more than 10000 referred matches in, often at number 1 — that appear to have market applications:

1. The first blow is half the battle. Always get off to an early lead.

2. After forcing your opponent deep, hit a short shot. After a run of big length, play for a reversal.

3. Hit a hard serve from the very beginning. Never give your opponent a chance to get his bearings.

4. Never use your hands, eyes, legs before a match. Don't watch your opponent play before a match. It takes up too much energy.

5. When forced to run to the right short where your opponent is expecting a crosscourt return, hit it down the line.

6. Always move and prepare while the opponent is hitting his shots. Get your orders in place beforehand.

7. Always hit your short shots hard. It doesn't give your opponent a chance to move up even though the ball bounces deep.

8. Never argue with the referees. You must realize that most games are rigged to be much more in benefit of the officials than the players, like the Olympics and certain markets, and if you try to upset that ecology, you are a threat.

9. Never hit the same shot twice in a row. Bacon. Third intentions.

10. Hit the ball on the short hop as it prevents your opponent from setting up. The second big move after a reversal is deadly.

11. Hit shots where you can make the point outright with a reasonable probability but where your error rate is low. In hardball squash the shot I used the most was the three wall nick that cleared the front wall by a foot and where the trajectory of the ball to the first side wall was short enough that it was easy to hit.

12. Save some special shots for the end. Expect something new from the adversary at the end. Beware of closes before ends of periods and holidays.

13. Never stop to admire your own shots. One reason the Knicks lose so much is that they have showboats like Robinson who like to hang on the net or smile at the fans after they happen to score a non-percentage shot.

14. Play a percentage game, never hitting shots with too high a risk/reward ratio as a good opponent will keep digging out your medium difficult shots until you miss.

15. Pay particular attention to the aftermath of every shot you hit, and think of your shots as series rather than single isolated events. Marty Riesman always used to say that the second shot you hit on a point in ping pong was key to winning the rally.

Regrettably my game was pretty stable in squash and paddleball, and I didn't have to vary it much to win, except against Sharif Khan, over a 12 year period. I had some weaknesses, which I realized only afterwards. And in racketball, my slice backhand took so much pace off the ball that I was forever handicapped and never was able to make it up the final rungs of the ladder. However, most of these tactics seem basic and resilient in retrospect. What strategies do you find from your own sports that are helpful in preparing for markets or life?

By the way, many of these thoughts were inspired by watching the most boring sport in the world, luge at the Olympics, the amazing response by the officials that it was the competitor's fault that he died because he was leaning the wrong way at the turn — is death a proper remedy for a lapse bound to occur? — and the Knicks' ability to lose with Robinson in the game as they are never prepared to get a rebound when he plays, and his showboating and control of the game is opposite all proper strategies.

Pitt T. Maner III writes:

My sports activities in the past have mainly revolved around basketball pickup games from age 12 to 40 (about the time the ankles started to make the game riskier to play) at the local playground and social tennis. There are so many things you learn and continue to learn when you play games.

With tennis I was interested in some of the findings of Vic Braden. He was one of the earlier coaches to look at slow motion films to determine the physics of the game and what was actually going on. Braden was about learning to hit the same old boring shot and playing the percentages–using topspin. For the average player I believe it was Braden that said if you can stay in a rally in which you get the ball over the net 5 times you have a better chance of winning the point. Most amateurs (myself included) become impatient and want to end the point quickly with ill-advised smash or drop shots. So patience can be a virtue. Bolletterri camp also emphasized hitting balls higher over the net when you are pinned behind the baseline—give yourself a margin for error when you are in a disadvantageous situation—stay in the point.

Average players usually have a weakness—that is normally the backhand. For some reason most people would rather avoid learning and spending the time to hit a good backhand— they would rather concede having a bad backhand and run around shots to hit a forehand. So you can exploit this observation year after year. Braden discussed the backhand as a shot where you are getting out of a chair and tranferring your weight—simple mental models and cues can be very helpful to refer back to.

With basketball one quickly learns the advantage of good, aggressive postioning. Most rebounds, even in the pro game, are collected below the 10- foot high rim. Small players that learn to follow the trajectory of the basketball and learn to box out can leverage their abilities to collect rebounds or "over the back" fouls.

Who can forget some of the games that used to be played in college ball when there was no shot clock and teams went into a 4 corners defense? Princeton was a team that played a similar patient style that exhausted oppenents having to play defense and run through screen after screen and watch for backdoor cuts. Again an example of employing a patient strategy , playing percentages, and using fundamentals to level the playing field.

I was watching the NBA HORSE competition the other night and thought back to the early-70's TV NBA games when they had HORSE competitions at halftime. As good as Kevin Durant is at shooting (he won his second championship in HORSE against Rondo of the Celtics with tremendous 3-point range shots), there is not doubt in my mind that Pete Maravich would have taken him with no problem. And he would have used very simple close-in trick shots requiring a high level of coordination. Maravich was an example of a player who reaped the results of a lifetime of practice (his dad was a coach). Although he was very fancy with his shots and passes—he was pretty fundamentally sound. Larry Bird was similar in some respects. Fundamental skills seem to be lacking with a lot of modern age players. Everyone now is a specialist. Forget about free throw shooting. There are not too many Rick Barry's or Calvin Murphy's around. Even though the "granny shot" (two-hand, underhand free throw) that Barry used would probably improve Shaquille O'Neal's free throw percentage, he and most others would not be caught dead using it, it would hurt their "cool" image —and for some its better to be "cool" than it is to win ball games. So "old school" is not always a bad thing.

Jack Tierney writes:

My interest in handball began and ended early. My grandfather, an excellent athlete, played at least three times a week at the Chicago Athletic Club. When I was about 7 or 8 he came home early one day and announced he was through with the game - his regular playing partner had experienced a fatal heart attack during that day's match. Both he and my grandfather were 61.

Fast forward 30 years when I began handling advertising for Bob Kendler, owner of Community Builders and bunches of real estate (including the former Edith Rockefeller McCormick Estate). Although Bob loved his businesses his real passion was handball and he never missed an opportunity to play.

Nor did he let pass an opportunity to knock racket sports in general, and racquet ball in particular. So I was really surprised when he showed up one day for a photo shoot with a stack of racquet ball promotional brochures. When I inquired about the reason for this apparent apostasy, he replied that, unlike handball, there was money to made in racket sports.

"Handball players show up to play the game, in whatever apparel is immediately available," he explained. "Racquet ballers like to look fashionable and will pay a premium to do so. They also spend princely sums for rackets and balls. And the margins are a lot better than either remodeling or real estate."

I asked him if there were any downsides. "Other than the competition which is sure to come, there's only one: Paul Haber." The only negative comments he ever made about handball always involved Paul Haber who drank, smoked, and represented, in Bob's opinion, a rather unheroic lifestyle. So, I wondered, what threat could Haber pose to the growth of this other sport.

"Because Haber, in his typical arrogant fashion, accepted a challenge from Bud Muelheisen, the national masters racquetball champion. Handball versus racquetball."

"Of course," I presumed, "he got thumped."

"Of course, he didn't! He lost the first game and then won the next two. If word gets around it could easily ruin a booming business. Serious guys play handball; the rest play racquet ball."

I don't know if word got around, but if so it didn't harm racquet ball (or Bob's business). So, there may be no money in handball but, as we've come to learn, there's some nice loot in athletic apparel and equipment.



 My second-oldest daughter Katie's post on Igon Values is very relevant to our field. Who are the useful idiots in our field and how can their self-serving posings be used for profit? Let us start in the Midwest. Or the islands.

Alston Mabry adds:

I thought the "igon values" thing was a joke, but upon reading Pinker's review of Gladwell, I find it isn't. For one who writes about research, as Gladwell does, to not be able to sit down and work linear algebra problems is fine (me neither), but to not know that there is a word, "eigenvalue", which may arise in conversation with scientists — that's embarrassing.

The issue of "igon values" bears on the more general issue of knowledge production and dissemination. I like watching science shows, but even when I'm watching a high-quality show like NOVA, I'm wondering, "Where are the folks, with the same level of expertise, who think at least some of this is crap? What is their critique?" It often seems that a well-communicated disagreement can help the audience understand more of what's important. And actually, a good example is Pinker's review of Gladwell.

In most or all fields of research, one could assemble a group of experts who have similar training and knowledge, but who disagree on important points in the field, especially at the boundaries of discovery. Then you have popular writers trying to understand and condense some field into book form — but if the experts don't agree, how can the popularizers possibly be "right"?

Stefan Jovanovich writes:

Mr. Mabry is far too kind. Scientists talk their books all the time. A scientific reputation is made by presenting a theory that is striking, original and difficult to evaluate.  That theory becomes the scientist's brand. His/her future in academia is tied to the success of that brand.  Few, if any scientists, are crazy/honest/selfless enough to challenge the truth of their brand.  Hence, Heisenberg's comment that "the progress of science can be measured by professors' funerals."

In science, practitioners would rarely be lying about what they are doing. But in markets, who tells the "truth," unless that truth is consistent with the talker's book? Then there is the sheer volume of new "knowledge" produced on a daily basis. How does one cope?

Bruno Ombreux writes:

H G G JrHere is a suggestion. I believe it is linked to the Igon.

I am halfway through a book that is dealing with all these issues: Scientific Method in Practice by Hugh G. Gauch. It sheds light and fosters reflections on such things as scientific questions and methods, disproving or proving hypotheses…

It is a book about science. Since good trading is a science, this is a book about good trading too. Good trading is necessarily scientific, because good trading requires good predictions. Only science can yield good predictions. If trading is not scientific, it can't be good.

This is also a philosophical book. After a few chapters, I have enough philosophical ammunition to completely destroy the Black Swan school, on epistemological grounds. The Black Swan ideas that we cannot have models that work, that variance is either infinite or undetermined, are just as naive, and far less nuanced, version of David Hume's radical skepticism. In one sentence: we can't know anything. Scientific Method in Practice advises not to waste time arguing with radical skeptics. They are not targeting science, but common sense. Common sense is literally what humans can sense in common. In this case, we all can measure variances. Common sense is a key presupposition of science. Without common sense, there can be no science. Without science, there cannot be any debate between scientists and radical skeptics, since the later are saying in effect that the former don't exist.

Incidentally, the fat tails debate wonderfully illustrates one problem mentioned in the book, that is the underdetermination of theory by data. Observing fat tails, I can find offhand a bunch of explanations:

  1. power law
  2. slowly converging normal
  3. Student
  4. truncated Levy flight
  5. mixture
  6. Markov switching model
  7. Agent-based dynamics

The same evidence produces a handful of theories. We are confronted to the issue of theory choice. In this case, I would start by getting rid of those that don't make predictions. Power laws would be the first casualty.

EigenvaluesNow, on to another book recommendation: a first-year course in linear algebra and as such is related to the original topic. "Igon values for dummies," if you want. And it is free. This is a useful book for traders, because it is impossible to understand any recent article on economics or statistics without at least a passing knowledge of linear algebra.

I don't think mastery of Igon values is required to trade well, but other concepts can be very useful. For instance, the notion of projections, covered in chapter 3.VI, really helped me understand multicollinearity in regressions. Multicollinearity is the rule in financial time series. Often, its presence is not a problem, but you'd better know about it and when it can be a problem.

Combining this book's chapter 3.VI.2 about Gram-Schmidt Orthogonalization, with chapter 3.2.3 of this other free book, one gets a clear understanding of multicollinearity.

Jack Tierney writes:

 Being unfamiliar with eigenvalues (whether spelled correctly or not) led me to follow the threads in Katie's article. Those threads, in turn, led to still others. I finally landed on this.

The author laments the increasing propensity of Rhodes Scholars to go into the world of finance as opposed to some of the nobler scientific fields that once claimed so many of those blessed by old Cecil's beneficence.

"This break in an almost century-old pattern coincided with great increases in occupational earnings differentials, which have continued to grow, seemingly exponentially…the differentials in earnings…were often rationalized by Rhodes scholars as reasonable additional compensation to balance the lower standing of business jobs among their peers. "When differentials could become a hundredfold or far more — and as investment banking and similar firms started to recruit young Rhodes scholars who had degrees in math, physics or even history, English and theology — the yawning prospective wealth chasm understandably became impossible for many to ignore…"

So there we have it. Offer enough money and even the brightest will sell out. Let a dilettante like Gladwell emulate them, though, and the wrath of the informed will be merciless (just follow some of the threads and you'll discover that Kate's handling of Gladwell was relatively humane).

However, numerous responses seemed refer to the incalculable worth of the scientific method and were it adhered to, we would all be much better off and far less likely to be exposed to the ditherings of Gladwell et al.

Back in '93 a remarkable book written by a woman embittered by her brother's courtroom experiences hit the best seller list. It was "Whores of the Court" and detailed the lengths to which those supposedly trained in the scientific method quite easily (and lucratively) sold their conclusions. Each side could present "experts" with similarly impressive credentials; each side had access to the same evidentiary material; yet their conclusions could not
have been more different.

It might be legitimately argued that psychiatrists/psychologists aren't scientists in the pure sense of the word. Currently, however, we have scientists whose credentials most definitely measure up. Yet on issues ranging from the efficacy of ethanol to global warming to the amount of oil left within the earth's crust, their conclusions couldn't be more disparate. To put it bluntly, our scientists' opinions are for sale and this is occurring as government policy is
more and more determined by their conclusions.

Whose opinions are the most sought after and well rewarded (at least through speaking engagements, articles in the mainstream journals, and in research grants)? Generally, those whose views are the most dire or the least apocalyptic. This, in itself, is a sad development. But increasingly scientists whose expertise lay elsewhere are chiming in on one side or the other. As a result we are faced with promotions that announce that "X Number of PhDs Support Global Warming Theory", or "Y Number of PhDs Claim Peak Oil is a Sham."

I am increasingly exposed to individuals who claim (and firmly believe) that their opinion is as good as anyone else's, that it's unnecessary to study both sides of an issue, that it is quite OK to shout down a speaker whose views diverge from yours, and that it's quite alright to do whatever it takes to get whatever it is one wants.

In such a world, is Gladwell to be condemned or lauded? Are the newly minted Rhodes Scholars so misguided in pursuing wealth? Are scientists who missed the gravy train to be faulted for making a last mad dash for the gold ring on the caboose? Was Linus Pauling correct in observing that peers are nothing more than people who pee together?

Alston Mabry adds:

This post reminded me of the book "Psychology of Intelligence Analysis" which contains these guidelines:

"Start out by making certain you are asking–or being asked–the right questions."

"Relying only on information that is automatically delivered to you will probably not solve all your analytical problems."

"Do not be misled by the fact that so much evidence supports your preconceived idea of which is the most likely hypothesis. That same evidence may be consistent with several different hypotheses."

"Proceed by trying to reject hypotheses rather than confirm them. The most likely hypothesis is usually the one with the least evidence against it, not the one with the most evidence for it."

Chris Tucker replies:

Wow.  Some great reading in that book.  Thanks, Al. This is from Chap. 2 "Why Can't We See What Is There To Be Seen?":

People tend to think of perception as a passive process. We see, hear, smell, taste or feel stimuli that impinge upon our senses. We think that if we are at all objective, we record what is actually there. Yet perception is demonstrably an active rather than a passive process; it constructs rather than records "reality." Perception implies understanding as well as awareness. It is a process of inference in which people construct their own version of reality on the basis of information provided through the five senses.

This is so important in my line of air traffic control.  I am constantly telling trainees that listening is not something that happens to them, it is something one must actively engage in.  Upon hearing a pilot read back a clearance, whether it be an altitude, heading, speed or route, one must pay close attention to what is said and to check it against what is expected to be heard.  It is common for trainees to simply assume that they heard the correct readback and disconcerting to them when it is pointed out that this was not the case.  We spend a great deal of time teaching them how to listen attentively.

Another facet that I have mentioned before is teaching them to get the data from the scope — to look at groundspeeds and recognize overtakes, to look at altitudes and calculate rates of climb or descent, to look at aircraft types and make hypotheses about expected performance, to look at routes and destinations and see who has to get below whom, and to create plans based on all of these.  And then to observe and check hypotheses, again and again to make sure that what one expected to happen is really happening.  And if not, how to take steps to create the reality one intends.

The key to improvement in these areas is a combination of repeated exposure and active thinking about the available data. Exposure alone can make some tasks become automatic, but active thinking and attentiveness can accelerate learning and skill acquisition.

Phil McDonell comments:

Gladwell self styles as a translator from the arcane indecipherable world of science to the everyday world of business and laymen. A good translator must understand the vocabulary of the original source language and must have a command of the vocabulary of the target language. However a command of the two relevant vocabularies is not sufficient. If it were computers would be the best translators.

What Gladwell lacks is semantic comprehension. It is often not sufficient to merely translate the words without a deeper understanding of the content. His Igon Value mistake is a glaring example.

Clearly his substitution of Igon Value for eigenvalue comes from only hearing the word as opposed to actually reading it in a book. Perhaps someone explained it in a phone or lunch conversation and Gladwell seized on it as an interesting buzz word.

Eigenvalues are actually a very beautiful construct in linear algebra. A simple intuitive way to look at them is the amount by which a quantity is stretched in a certain dimension. Suppose a stock or mutual fund has a beta of 2 and an alpha of zero. The equation is:

stock return = 2 * market return + zero

The eigenvalue for the above system is simply 2 because it stretches the market return by a factor of two.

The idea generalizes to 2 or more dimensions. Each dimension of a linear system has its own eigenvalue. If you have ever looked at yourself in a fun house mirror then you can understand this idea. The mirror that makes you look tall and thin has a stretching eigenvalue in the vertical direction and a shrinking eigenvalue (<1) in the horizontal direction.

Like the fun house mirror a matrix can be thought of as a transformation or mapping of one image to another. If one takes the eigenvalues of a matrix and multiplies them together the product acts much like a volume just as length times width of a rectangle gives the area. In Linear Algebra this volume is called the determinant. If any of the eigenvalues is zero then one of the dimensions has collapsed. It also means the determinant will be zero, the system of equations cannot be solved and any regression will be meaningless.

I have never seen any financial model take into account a determinant. Yet there seems to be a grudging acceptance of the idea that when a financial panic hits all the correlations approach 1 as people seek liquidity by whatever means necessary. Rather than simply look at risk from a simple beta model or VAR approach perhaps the proper way to model disaster is the determinant where all the risk are multiplied together.

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



 What has happened to us? Why this plaintive (and almost universal) hope for "new" leadership? Press for an explanation from almost anyone who shares this hope and you'll discover he wants something from the government… a job, a tax break, an artificially low loan rate, or an ongoing handout. I don't believe America's problem is leadership… our problem is "followership." This country grew rapidly and successfully because Americans have traditionally been lousy followers. We crossed the Alleghenies, the Mississippi, the Plains, and the Rockies, not at the behest of Washington, but more times than not, because of its constitutionally mandated indifference to economic setbacks, income disparities, and low wages. Hard times meant it was time to acquire a new trade, start a new business, move to a new territory, or plant a different crop. For the most part, Americans weren't specialists but jacks of all trades — the times demanded it and those who refused to recognize it, were destined to spend their lives just scraping by working for others.

The American of late 20th and early 21st centuries is (generally speaking) content with working for others. Through an incredible series of remarkable developments (thanks almost entirely to the remnant who maintained the pioneer spirit) those of us born in this very narrow slice of time receive (or received) very generous wages…enough so that we are content in our niches. Our contentment has been reinforced by an ever-expanding series of programs which shelter us (to varying degrees) from true, honest-to-God grinding poverty.

However, there now exists a real threat, if the intelligentsia of the 6 o'clock news is to be believed (and, for once, they may be on to something) of a major economic downturn. But instead of carefully surveying the situation, weighing the probabilities, and adjusting our saving and spending accordingly, we cry out to Washington: "Save us…give us the leadership we need!"

Well, folks, this isn't Exodus and no one, including Obama, is going to perform Moses-like feats. It's time to look within ourselves, discover our own leadership abilities and guide our families as best as possible. There are plenty of promises coming from the many politicians out there but, as we are discovering with remarkable clarity, every promise has a very, very steep price tag. Also becoming equally clear is that all those comforting shelter programs are not only very expensive, but work only when a limited number of families (or pensioners, or savers, or banks) are affected.

In a general slowdown, we shall discover the emptiness of the promises. Like it or not, the present economic downturn, regardless of its severity or duration, is going to introduce a strange but age-old concept to many of the unsuspecting: self-reliance. It's time to lead, not follow.

P.S.: And pay little attention to the world's view of us. As Nock pointed out as far back as 1937, most of our "allies" merely want us to come in, clean up the mess, and get out as quickly and quietly as possible.

Mark Goulston comments:

I agree heartily with you. It's a big challenge to see if American can show some and take personal responsibility. We have become a country of blamers, excuse makers and self-pitiers and it's amazing that we've gotten away with it as long as we have.



PonziI'll suggest that empathy does exist, but that sympathy does not. I'll concede that $50 billion is a substantial sum and that Madoff is a bad, bad man. However, I am personally aware of individuals who will argue that they collectively lost substantially more with the dot.com bust up; and, further, that some of the sleazes involved in the never-ending promotion of those equities were as culpable as BM yet suffered either no or minor consequences.

Those burned earlier certainly can empathize with the more recent victims, but find sympathy difficult to muster when the common reply to their plight was "We're sorry, but it should have been obvious that the market was in a bubble."

Additionally, Ponzi schemes and other swindles far more frequently target the farmers, pharmacists, and farriers of my region than the doctors, lawyers, and Indian chiefs of New England. When it occurs here, it's generally revealed on the 10 o'clock news with some thirty-something Yankee-import filing a 3-minute report concluding with the inevitable finger-wagging "if it sounds too good to be true, it probably is." While never stated, the implication is clear: "these rednecks will never learn."

However, when we have a Madoff event, we no longer have a "Ponzi scheme." We have a "Very Sophisticated Ponzi Scheme." Again, it is never stated, but the clear implication is "no one but the very, very clever and very, very bad can gull the Masters of the Universe." And news coverage goes well beyond 3 minutes with "specials" running 30-60 minutes; calls for congressional hearings are de rigueur; and presidents (past, present, and future) chime in with words of concern and promises of action. You will not hear a single "if it sounds too good…etc."

Apparently it is bad form to give the finger-wagging lecture to the victims of a "very sophisticated" Ponzi scheme. Likewise, it must be bad form to voice general sympathy or call for congressional hearings when the great unwashed take their first financial bath at the "stay-the-course" urgings of those always optimistic brokerage houses (RIP).

In general, then, it seems to me that the apparent lack of sympathy stems from an unavoidable perception that there is greater concern being shown the wealthy in this, their most perilous moment. And while suicide is a most terrible thing, I would wager there are millions of poor schlepps who were similarly wiped out, yet still go to work every day facing the new reality that they'll never retire…and, indeed, might live the rest of their lives in poverty.

Millions of others, myself included, wonder if the whole story has been told. We don't worry that $50 billion sounds too high. We're concerned it may be too low, that there are other Madoffs out there - that our pension funds may be the next to be listed as insolvent. If we have learned anything in the last decade it is that there are a substantial number of dishonest, unsavory characters populating the financial industry. Worse, rather than being the brightest, some of these individuals are almost criminally stupid - however, many are aware of this short-coming and to cover for it, invest our funds with someone really smart - like Bernie Madoff.

Very sophisticated, indeed.



Whenever knocking a hat off I feel, and want to tear the weekly paper to pieces, and lash out at all the nabobs,  I don't take me to Nantucket but read "The Surprise" by O'Brian. There I find a passage about how the hands like to pretend that the ship is about to go under with the non-mariner dignitaries, and how the water is going to sink it, if not the waves or the backlash. It makes me think about the reasons for all the negativism. Is it the insiders trying to scare the daylights out of the public like the mariners? Yes. What difference does it make if the economy is down 1/2% this quarter and goes up 4% a year the next several years? Or what difference does it make that there was a housing recession the worst in 25 years. Or that the financial institutions had much water on their balance sheets. Such has happened before in the last 100 years, and is it bullish or bearish when all this negativism is about. One needs a Jack Aubrey with his natural ebullience to see the sweet sailing ahead on the blue waters that beckon.

Tim Melvin replies:

It makes all the difference in the world for any of us who wish to bet on US stocks… unless we are capitalized to withstand a 20% or more drawdown in stock prices. it especially matter if you are using any leverage at all (and yes I counted it. The average peak to valley drawdown in stock prices in a recession is on the order of 30+%. we have not even come close to the 1000 SPY levels that would be normal. The last time we had stagflation, the market fell over 60% peak to valley) There will indeed be blue skies ahead someday… the question is when? The combination of a falling economy, falling real estate and higher food and energy prices is crushing the consumer. If consumers do not buy luxury items, go out to eat, to the movies or even replace wardrobes, household items and even wardrobes, the companies that make these items, the retailers that sell them, and the companies that supply raw materials have lower profits. They cant borrow to make it through bad times and the water on bank balance sheets has tightened credit.

Loathe as I am to ever be opposite to one of the men I most admire, I think that most stocks are a poor bet right now. yes we will cure cancer, technology will advance and the long term future will be bright indeed. But not right now and reality is still not priced in the stock market. The dollar gets it, and bonds are starting to. The storm must pass before the sailor can safely leave the harbor. One caught in the storm must batten down and hope to ride it out as safely as possible. many , if not most, of those who ignored the warnings of wind and tide may well perish. Not even Aubrey would sail into the typhoon unless he it was a matter of the greatest urgency. As investors and traders we have one supreme luxury. We do not have to leave the harbor, and can profit by betting on the typhoon once in a great while, or simply sail a different sea.

Vic illustrates:

Here is a passage from The Surprise: "The envoy, Stanhope, had been told that water was coming in through the sides, and a seaman had told him that this was the gravest sign of all. One of the young gentlemen added that being pooped was more likely than actual foundering, or breaking in two, though neither possibility was to be overlooked. " Stephen said "The water coming in was inconvenient and even disconcerting but it was a usual phenomenon in such circumstances, particularly in aged vessels: It was what the mariners termed "the working of the ship." And be cautioned against too literal a belief in the words of the sailors: "They take an obscure delight in practicing upon us landlubbers". Once relieved of the sensation of imminent death, Mr. Stanhope…. ". Yes, the delight the brokers take in downgrading one another, and spreading rumours of runs, and trying to run the nakeds up again as they did the last two Springs, is not too innocent, but calculated to gain increased emoluments from the government and their future colleagues at the Board, and increase their share of the prizes as the landlubbers abandon ship.

Russ Humbert writes:

Perhaps it is no coincidence that Lehman, Merrill and Morgan Stanley, having received a review from the rating agencies that downgraded but still maintained their excellent ship worthiness, that the shorts would be emboldened. After getting so much wrong on the mortgage backed front any affirmation from them is similar to an endorsement from Bush's foreign intelligence chief on Iran. And perhaps it is no coincidence that Merrill, was the first to come out stating the shorts are full of hot air on Lehman's because they see they are next in line.

It will be interesting to watch for confirmation that Ben's revival meeting with all the investment banks included thinly veiled threats to those Investment Bankers who don't support their competitive brothers and reminders that  any piling on by them would be remembered for a long time. Was there a reminder that Bear Stearns did not help LTCM in 1998? Will Ben rally the troops? Will he speak in code? And how will the other brethren react? And will the SEC this time understand that their turf is in jeopardy and launch a full assault on the rumormongers, as they did on the  hyperbole of the dot com analyst? It has been my experience that a regulator fearing a turf grab is a dangerous animal backed into his own den with the hunter thinking he is cornered. And finally, could it be that the switch in NY governors will be the wind turning against those who believe their job is to protect us from big business without regard to method because size is equal to guilty?

The President of the Old Speculators Club, Mr. Tierney, issues a warning:

"Seems to me the greatest opportunities to make money going forward over the next 18 months to 24 months is to Short Gold, Short Oil, Dollar Cost into Equities as always, Long Dollar" - A reader of this web site

An interesting observation. In that it's been almost exactly 7 years since I announced the dumping my entire portfolio except for a couple of resource stocks, some retrospection is in order.

A recent post lauded the performance of IBM, hitting a multi-year high of ~$125. More recently, AXP was commended for its performance around $45. Those were among the equities I cast overboard, IBM @ $115.04 and AXP @ $39.43. As of today I would have been up 11.47% with Big Blue and 18.67% with AmEx - not exactly stunning performances over seven years (especially if one were to calculate the effects of inflation).

On the issue of shorting gold it has been an idea promoted by various List members at various times over that same time span - they have been incorrect. The concept of overpriced oil harkens back to the build-up to the second invasion of Iraq, when it was posited that the price would go back below $35; similar pullback predictions have been scattered over the past five years - once again, incorrectly.

The long dollar argument was made most forcefully by Yale Hirsch and his imported and highly regarded currency-expert henchwoman. That dates back about three years or so and, again, was incorrect.

Now the drunk who insists on looking under the street light for his lost keys because it's easier to see, may, once in a millenium, find them there. That's just luck. However, how do we judge the many sighted Street "names" who, over an extended period of time, have groped in the dark but come up empty?

More important, to whom do you listen for guidance in perilous times: the babbling and infrequently lucky drunk or to the sober and calculating historical record? The answer is obvious. Unfortunately, as has been documented and repeated innumerable times, the Market Mistress does not do the obvious.

Nor does she (nor anyone else so far) prepare meals of crow.

J. T. Holley asks:

Do you really think that we are in perilous times?

Jack Tierney replies:

Yes, I do. But in fairness, that's my nature. While many look on the markets with unflagging optimism (Vic and Laurel , L.V. Gave , Dimson et al. ), I tend to believe we have lived at a truly extraordinary time in an extraordinary country. So extraordinary, in fact, that not only those with the courage and capital, but also those who've stood and waited at the right place, have seen modest sums grow exponentially.

I am one of the latter, caught up by events and carried with the wave. Others, through risk-taking and foresight, have done substantially better, and deservedly so. However, the last 60-70 years doesn't, in my opinion, establish an immutable pattern. Historically, our past century is an anomaly. There has always existed a self-selected minority which achieved wealth through courage and daring.

But these last two (or three) generations have been unique in that wealth has "trickled down." Enough so, unfortunately, that it has become politically correct to view abundance, if not affluence, as a birthright - and one which can legislated for those who have missed out.

In itself, though, that's not enough to make me skeptical. My profit sharing account took some real whacks in '73-'75 and again in '79. I was fortunate enough to be in cash in '87, but got a minor haircut again in '91. I can live with oil crises, the slow motion crack-up of steel, autos, and aircraft. Technology, however it is defined at different times and different places, always ends up with more losers than winners.

But when major problems come out of the banking/finance sector, it's time to squeeze the pennies. Forget for the moment about those who have overspent and under saved. Instead, consider those financial institutions which have peddled gobs of their mortgage paper to pension funds, both public and private. By Greenspan's description, these are among those most able to undertake risk. In fact, they are not.

Much like myself, the memberships are made up of ordinary individuals who expect a modest sum to be available when they retire. If nothing is there, there exists no fallback positions. Already there are rumors of deficiency notices circulating… some involving major unions, others major metropolises. Jefferson County in Alabama is on the hook for over $3 billion in auction rate securities because JPMorgan and others sold them on interest rate swaps as a way to cut down on expenses.

In short, from the time of John Law, banking foul ups have had a much more severe effect on an unsuspecting public than any other business blunder. When bankers get it wrong, almost everybody gets hurt. So, yes, I'm concerned.

Stefan Jovanovich dissents:

I don't think the facts of American history support John's pessimism or his assumption that the years since the Great Depression have been uniquely profitable. The increase in wealth in the British colonies of North America from the end of King Phillip's War to the start of the Revolution was far greater per-capita than anything we have seen in the last 90 years; that is why there was an immigration boom that dwarfed anything the country has experienced since then. The period from the end of the Civil War to the passage of Smoot Hawley was equally spectacular as far as individual wealth in the North, Middle and Far West (but not the South) are concerned; and, once again, people literally flocked to the United States. Both periods depended on changes in technology that were - at least from the point of view of their effects on the rest of the world - far more dramatic than anything we have seen in our lifetimes. The improvement and broad use of Jethro Tull's seed drill was an agricultural revolution that equaled the effects of artificial fertilizer in our time, and the mating of steam power with Jacquard's loom turned India from a textile exporter to importer (with help, it must be admitted, from Britain's discriminatory trade rules).

John is right that, initially, "technology …. always ends up with more losers than winners" in the sense that machines replace people. But without that displacement no increases in wealth are possible. Socialism's real curse is that it kills all invention and change; in the name of fairness and equality Lavoisier's head is always the first to go.

The genuinely new and different improvement of our time has not been in wealth but in health. What the world has never seen before are the mortality statistics. Even with the devastations of the two World Wars and the results of Marxist national self-improvements in Europe, Asia and Africa, the change in the ability of people to be born safely, survive childhood and live long enough to suffer the diseases of old age and indulgence over the last hundred years has been breathtaking.

I wish I could share the assumption that the "public" - that anonymous sociological beast - has been duped by the evil bankers. Perhaps that has been true elsewhere in the country. But, from the point of view of California, the people who have borrowed money to buy dirt and houses and condos have been a great deal less unsuspecting than the folks who bought the securities that allowed the pyramid party to keep going. The borrowers knew they were signing for far more money than they could pay back out just the way anyone who could read knew during the Internet bubble that very few people were actually making any money from the brave new virtual world. In both cases the buyers thought it didn't matter; and, for a great deal longer than we supposedly rational business people considered possible, they were right.

My real quarrel is not with John's assumptions but with the premise that seems almost universal - namely, that bankers are still the source of enterprise capital that they were even a generation ago. Nothing that I know from direct experience or from studying the numbers for profitable non-financial public companies bears that out. We own common stock in 147 companies that do business in everything from shoes to lasers, and not one of them has relied on commercial borrowing or public financing as a significant source of cash since 2000. Of the over 100 independent business people I know here in California, the only ones people who have been able to rely on commercial credit from banks have been the folks dealing in real estate. Everyone else has been told no. Even SBA loans became dependent on the entrepreneur's having real estate that could be pledged as security.

Ironically, now that residential real estate out here is finally getting cheap enough to compete with rental prices and people with jobs and savings want to buy houses, the same bankers who issued ARM liar loans are largely unwilling to issue straight mortgages when the numbers pencil out. Having watched the Sandlers convert everyone to their cultist belief in appraisal values as the standard for credit-worthiness, most California lenders are now refusing loans because of their fears of what REO sales will do to future housing prices. The prospective buyers, who are offering to put real money down, are willing to take the risks; but the bankers still think they know the market better than people willing to put up most of their savings because they can buy a house for what it now costs them to rent an apartment.

The old bankers are always getting it wrong. That is why we end up having to find new ones.



Last Jan. 31 I picked water and coal as the plays for the year. In that time, the Dow. has gone down .2% while the S&P dipped 4.51%. The water stocks listed showed a slightly positive return of 1.56%. I didn't list any coal selections since I owned too many and wasn't particularly crazy about the rest.

It can be revealed now that I held CNX (+116.75%), FCL (+57.39%), and ICO (+17.25%). However, after Congress completely passed over coal in the energy bill and the geniuses running California, Florida, Nevada, and South Carolina banned new power plants utilizing the product, I bailed on two of the three (I leave it to you to guess which I still hold). Please look carefully at the states that pointed the way in the anti-coal charge - none really appreciate the cold since they so rarely experience it - I was thrilled last week, then, when I heard it was snowing (and sticking) in Santa Barbara.

Coal's out performance, however, hinged on three unusual events: floods in Australia, power outages in South Africa, and snow storms in China. I still believe it's our best hope for somewhat alleviating the energy shortage. However, I'm in a smaller minority than a year ago. I also mentioned that coal-to-liquid stocks might be a good bet. Very wrong. Every potential alternative energy source received a few nickels and dimes from Congress - not CTL, though, and the stocks tanked badly. And the best of the bunch, Sasol, is now advesely affected by the SA power crisis.

A closer look at the water stocks shows that Companhia de San Basi (SBS) once again was the best performer among the foreign entries gaining 37.96%. Suez (SZEZY) gained 23.92%, and Kelda Group was up to 20.22%. The American stocks were lead by Lindsay (LNN) with a 99.09% gain, and then a huge gap down to Northwest Pipe (NWPX) with a modest 10.45% move, and last year's American leader, Layn Christensen (LAYN) with an OK 4.39% push up. Major diappointments were Gorman-Rupp (GRC -31.16%) and Watts Water (WTS -31.00%). Tetra (TTI) was the biggest loser at -32.51%. The only loser among the foreign stocks was United Utility (UUPLY) at -4.81%.

Please note that neither Suez nor United were Pink Sheet stocks when selected a year ago. Both are huge companies and both decided they didn't need the NYSE or SarbOx. This trend has gained momentum this year and I expect it to continue. (Can you blame them when the utlimate authority and high priest of foreign investment is little Chuckie Schumer?) To keep abreast sign up with otcqx.com/otcqx/home as they not only announce the delistings but provide information on the quality of the companies moving.

In conjunction with these moves and others from the NYSE, a Mastercard survey revealed that London is now considered the leading center of commerce, besting NY in economic stability, ease of doing business, financial flow and business center ("depends on the clustering effect of business formation, supported by efficiency in logistics and transportation linkages").

In a similar vein, Bob Adams of New Global Initiatives hired Zogby to get a feel for American emigration. The results indicate 1.6 million households have already decided to leave, 1.8 million are seriously considering it, and 7.7 million are "serious about leaving and may do so." Since no similar study has been conducted, these figures may well be normal. However, when constituents as diverse as Russian airlines and Uruguayan day laborers will not accept dollars, it's possible that the bloom is off the rose.

Of course, much of the concern revolves around how serious and extensive the fall-out will be over poorly extended mortgages, the CDOs in which they're packaged, and the financial heft of the counter-parties who have guaranteed these pieces of dreck. No one need worry about the dollar as it is establishing itself as a carry-trade funding currency (although Bernanke still has 250 basis points to cut before he achieves Japanese levels - and if Cramer has anything to say about it, it will happen.)

I'm in the process, a very slow process, of puttng together my favorite "pinks." Some of the world's great companies refuse to play by our rules (e.g., Nestle, Samsung, Gazprom) yet can provide some great returns. Unfortunately, there exists an irrational fear of stocks listed in the Pink Sheets. Admittedly, many, many are dogs, but there are quality issues also.

Before I sign off, though, I have a question for a group which lives and breathes the dogma of "ever-changing cycles." If "the cycle" is your touchstone, why are recessions so feared and, in some cases, denied? Without them there would be no cycle. An occasional flushing is essential to any system, so why don't we just get it over with and carry on?



Do a Google search on "Hyperactive Bob."

It is being used in Zaxby's, a fast-food chain with 330 restaurants. Others are sure to follow, because it offers a competitive edge. The system:

  1. Uses robotic vision to count cars and collect point-of-sale information.
  2. Analyzes historical and current data about each restaurant, adjusting itself to the specific situation. (Reportedly, Hyperactive Technologies says Hyperactive Bob is better even than seasoned employees.)
  3. Tells employees which foods to cook to meet current and expected orders.

Robots make ideal workers. But what of the displaced manual laborers? The traditional argument goes that they can return to school, learn new skills and perform work with higher value added. Historically, that may have been true. The argument made by Dr. Brain  and increasingly supported by hard evidence is that artificially intelligent robotic systems will be chasing these people right up the skill curve, in many cases faster than the people can cope.



 I bought A Year Without 'Made In China' because it received very nice comments from disparate sources. The author, tired of seeing "Made in China" on so much merchandise, especially on the Christmas gifts of 2005, decided to see what it would be like to go on a full year boycott of anything made in that country.

It's a painful revelation especially if you have become accustomed to sunglasses, almost any kind of footwear (but flip-flops and tennis shoes especially), children's toys, staples, ink cartridges, almost any small (or not so small) electrical appliance, and costume jewelry.

Bongiorni leads us through a variety of events that demand replacement purchases and holidays which carry with them the expectation of gifting. If you, like she, decide to opt against Chinese merchandise, your shopping will be far more difficult or far more expensive — or both. In addition to the book's success in illustrating this, it is also a not-so-subtle screed aimed at Wal-Mart. In fact, Bongiorni admits she doesn't like the chain and uses it frequently as a punching bag.

Her husband (the "Weak Link") and two children are cajoled into joining her on this quest. Their initial support is less than whole hearted but in traditional American fashion, acquiesce to Mom. Obviously, they encounter many problems - otherwise this wouldn't have been a book, but a long essay - and, in fact, that is what it should have been. After a very short while the problems become predictable as do the various participants' reactions to them. What begins as an interesting study turns into a forecastable whine … much of it with merit.

If there's a hero in the book it's her husband. Despite an eye problem he gets along for several months without sun glasses; his coffee is prepared by boiling water in a pot since a non-Chinese peculator is not to be found; and he learns to sew so that, using materials from a multitude of countries, he can make sleeping bags for his children.

Don't be confused (as her five-year-old son is) into believing that she dislikes the Chinese, it is quite the contrary, as she protests over and over again. Some twists occur at the conclusion, including the reaction of the Chinese press. It's an interesting story which reveals just how much we have become dependent on China for many of our (affordable) daily necessities. What is even more frightening, and which Bongiorni touches on briefly, is that if her boycott had included any product that had even one Chinese component…the boycott wouldn't have lasted anywhere near a year. In that case, ubiquitous takes on a whole new meaning.



 The drumbeat continues in Congress, on the networks, the net, and in our most prominent journals: save the poor person who finds himself upside down on his mortgage or unable to meet his rescheduled payment. The same mortgage he couldn't initially afford but which a banker (or other grasping facilitator) created is now more unaffordable. Ideally, these people should be standing there wailing "What was I thinking?" Instead (because this is the American Dream we're talking about), more salvation promises are being brought forth than the most ambitious evangelist could ever hope for.

It's just not fair that these poor souls who in many case told outright lies about their finances to get these loans. Nor is it fair to the bankers or brokers who, with a wink and a nod, laid out the necessary cash. No, these are great inequities and they're getting plenty of play. Deliver us from evil.

The real villain in this case is Alan Greenspan and a host of other financial types who aided and abetted this fraud. The great lie, told over and over and over again, ran like this: "The derivatives markets pass on risk to those most able to afford it." Now we have money market funds both here and in Europe unable to meet withdrawal requests. Money market funds are not magnets for risk takers' funds — they were designed and marketed as safe havens for the idle capital of those preferring to avoid risk.

So the people currently getting burned are not the heroic risk takers, but the real engines of capitalism: the savers. For years this group accepted (because it had no choice) trivial interest on substantial sums. The argument put forward by Bernanke and others was that this existed because of a worldwide "savings glut."

Sure, the citizens of a handful of countries saved handsomely. But as figures showed month-in and month-out, the industrialized countries of the world, remarkable for their aversion to saving, continued to print more and more currency. Easy money, easy lending, easy fees. Reserve standards were relaxed, lending requirements were eased, and the administration of the largest non-central-bank creators of money in the world, Fannie and Freddie, were left to the benevolent oversight of politicians.

Spare me the debtors' lament. What they've lost, or are in danger of losing, wasn't theirs to begin with. What savers have lost was theirs, and they are being overlooked once again. And if their deposit happens to exceed the uninsured maximum, well, that's not only too bad, but also shows a terrible lack of good sense.



 It's been a bad year for predator and prey alike. For the first time in eight years and on three occasions, I've seen lone coyotes hunting the nearby fields in broad daylight. Typically the local packs hunt as a group after dark. My 17 year old, totally deaf and partially blind Schnauzer mix doesn't go out without an escort.

The red-tail hawk, a truly beautiful bird, has joined the turkey vulture in cleaning up the road kill. Generally they like their prey live. And I've seen more vultures than usual become road kill as they are reluctant to leave a meal in the very real fear that should they fly off, others will flock to the scene. As a result, they try to hop a short distance away and let oncoming traffic pass. Occasionally they misjudge and pay the price, and occasionally one of our locals with little regard for dents or paint work will deliberately nail one (a turkey vulture can weigh 40 pounds and be lethal to windshields).

Summer started early this year, with trees and shrubs and the crocus greening up in February, but a late freeze accomplished something I've never seen before. The trees, whether oak, maple, or beech, lost all their leaves. The black walnuts flower late, so they missed the frost, but are yellowing — way too early. The many wildflowers that typically grow in profusion on my "back 40" didn't appear this year. Those few butterflies that did emerge in late February had nothing to feed on and quickly died off. The late emergers are few and are living off the several butterfly bushes we have. But whether they're sufficient remains a question.

On the bright side of the bug picture, the Japanese beetles have been few (so, too, were my blackberries, which they seem drawn to). There are bees but very few (and none of the big black and yellow ones that so industriously pollinate just about everything around here).

The hummingbirds arrived on time (late March/early April) but got caught short by the freeze. Few of their favorite nectar-bearing flowers bloomed and it's been a bad year for the spiders and other insects they'll occasionally snack on. Their salvation has been a crazy woman who is going through five pounds of sugar a week to keep five feeders full. Surprisingly, these birds which were aggressive about six years back have now established some collegial bonds. It's common to see four feeding simultaneously, which used to occur only just prior to their early October migration, when they lard up for the long flight to Central America (only once did they leave later, when hurricanes hit Mexico in the first and second weeks of October and the birds left the third week — how did they know?).

Despite three dogs who love to chase, both deer and turkey are seen frequently close to the house. For preservation's sake, I haven't cut the grass in over six weeks and at about six inches high, remains about the last available free range feed. The local farmers have brought in only one hay harvest and right now it's questionable if there'll be a second. Rolls that went for $30 last year are bringing $60 and up. A guy from Michigan trucked down 38 rolls just two weeks ago and received $70 each.

Rabbits and squirrels are infrequently seen - as is usually the case when times are hard on the coyotes. Very few cardinals, even fewer blue jays, and the goldfinch, usually numerous, are almost non-existent. It hasn't been a great year for humans either. Too hot for too long! What we really need is a return of the bees.



Frequently I place particularly long emails in a "to be read later file." I received Joseph Epstein's "Kid Turns 70" almost two weeks ago. I just read it this morning and find some of the thoughts not unlike those expressed by the Chair regarding the "Old Lions." This is a very long article. Here are a few excerpts:

W.H. Auden, who pegged out at 66, said that while praying we ought quickly to get over the begging part and get on to the gratitude part. "Let all your thinks," he wrote, "be thanks." 

I have never attempted to calculate the collective age of my readers. When I am out flogging a new book, or giving a talk, the audience who come to hear me are generally quite as old as I, and some a bit older. Perhaps the young do not spend much time attending such non-events. Perhaps they feel I haven't much to say to them.

But how long can a writer commenting on the culture be expected really to know the culture? In fact, there can even be something a little unseemly about writers beyond a certain age claiming to share the pleasures of the young.

Chateaubriand (1768-1848), whose dates show that he lived through the ancien régime, the French Revolution, Napoleon, the Restoration, the Second Republic, and died just before the Revolution of 1848, wrote: "Nowadays one who lingers on in this world has witnessed not only the death of men, but also the death of ideas: principles, customs, tastes, pleasures, pains, feelings–nothing resembles what he used to know. He is of a different race from the human species in whose midst he is ending his days." In my youth one could go into a drugstore and confidently ask for a package of Luckies and nervously whisper one's request for condoms. Now things are precisely reversed.

Another diminution I begin to notice is in the realm of tact. I have less of it. I feel readier than ever before to express my perturbation, impatience, boredom. Why, with less time remaining, hold back? "I wonder," I find myself wanting to say to a fairly large number of people, "if you haven't greatly overestimated your charm?



An exchange of verse, For better or worse, Is safer and often more fun.

Rime Of The Ancient Duck Hunter

I journeyed to the Meadowlands
from the world's most busy city,
An Econ book within my hands,
A work on volatility.
A stranger took the seat behind
and boldly whispered in my ear
"Your choice of books is unrefined,
'Tis a choice that could cost you dear.
A heavy sigh escaped his nose
A derisive laugh passed his lips.
"Tis more opaque than Siegel's prose
but less debased than Cohen's tips."

"And who are you if I may ask
to cast aspersions on this tome?
Your breath smells of a whiskey flask,
And your garb suggests no known home.
This book, you see, is all the rage
And gets four stars on Amazon,
Here's high praise from the noted Sage
And kudos from his hangers on."
"I know from whence you come, my son,
I lived there, too, not long ago.
But reading these can be overdone
And trusting them will bring you low."

"So say you, but your words imply
That I like you will miss the goal.
But I'm the caster of my die,
The captain of my ev'ry roll.
I've read the books and studied charts,
Mastered the orphic candle sticks,
Devoured Benoit's arcane arts,
And have learned to make the spondulix."
"Boy, listen to my woeful tale
Before you hold your present path,
How e'en the best are brought to quail
When forced to face the market's wrath.

"While your oversights linger on
Your triumphs will be ground down fine,
And though you doubt the denouement,
The path of hubris is malign.
I laud the dreams that brought you here
But warn that they can be interred
Through brief moments of abject fear,
Damning you to my unwashed herd.
You're on a quest but what's the goal?
Is it power, wealth, or repose?
The first two demand self-control,
The last resides in hobo's clothes."

"Do you plan on slow and steady,
or a style that's fast and gutsy?
Will the morning find you ready
Or a little vodka rusty?
Will your nights be spent in slumber
Or will you be hectored by the Yen?
Will your fate hang on a number,
Or will you hedge to play again?
Will you laugh and love, read and play?
If there's a life beyond the Street
will you enjoy the great buffet
or suck on lemons  and retreat?"

"When you've mastered the one within
and how he'll lay his chosen course,
Step forth undaunted and begin
To fight the dragons in your bourse.
The best laid trades go oft askew
While the visceral thunder home;
Both enticements you must eschew,
Your will another chromosome.
Success is but a bastard hope,
Accepted as beyond the drudge,
It's really just a fictive trope,
But free to those who self-adjudge."

"So, young man, it's time I leave you,
My terminal not far ahead,
A final chant and I bid adieu,
Repeat as needed before bed.
Ursa, Ursa, churning nightly,
Is that you knocking on my door?
I just heard, but only slightly,
Bear claws scuttling 'cross the floor.
If that's you then, go far away,
But if you linger and cavort,
Provide me with a single day
In which to set a monster short."



 I am both an investor and trader. But looking at my results I should probably only be an investor. It is not easy to trade with a full-time job on the side.

As an investor I am 100% long with my stocks. I will stay 100% long no matter what. I can sell a stock, but only if I am able to find a better one to replace it. I am not going to sell because of the overall market. Actually, I could sell if it goes up 130% like Shanghai last year. But I am never going to sell because it has been going down.

Today, my investments are down 2% from 12/31/2006, and down 10% from February intraday peak equity. I don't care the slightest bit. They could go down 30% and I wouldn't care either.

I am not crazy. There is a very good reason for this stubbornness.

I started investing seriously in stocks in 1996. Since then there has been a crisis in 1997, another one in 1998, and one of the biggest bear markets in history in 2000-2002. I was investing with a mix of stock picking, market timing, style timing, and small/big timing. Believe it or not my market timing allowed me to sell at all the intermediate tops in 1997, in 1998, and in March 2000. It allowed me to avoid the bulk of the bear market in 2000-2002. I came back too early in August 2002, sold in September, came back at the exact bottom in March 2003!

With this nearly perfect timing, you would think I have impressive compounded returns. That couldn't be further from the true. At the end in 2005, I did a complete audit of my 10-year record. It was prompted, among other things, by some things I read on the Spec List, mostly from the Chair but not only from him. So thank you guys for your down-to-earth audit-prompting approach.

Results of the 10-year audit:

Market timing resulted in dramatically lower volatility and draw-downs than the market; but who cares? It resulted in only a 2% over-performance compared to the index. In terms of absolute returns, beating the index by only 2% is ridiculous. It is incredible that even though I caught most major tops and bottoms in 10 years, I only over-performed by 2%. Even more sobering is that if I had kept the first 10 stocks I ever bought and never sold them, forgot them and never done anything else, my over-performance would have been 4%.

How could this happen? Well, that's very easy:

First, I caught all the actual tops, but also about 10 of them which never turned out to be tops. The market continued higher and I missed part of the move. Second, even when the top was an actual top and I was flat, it created the problem of knowing when to get back in, which in most cases occurred a bit too late. Third, buying and selling too much is created a lot of friction in the form of commissions. Over 10 years, the amount paid in commissions can be really impressive.

Based on this I decided to be always 100% long. I am not timing the market, styles, or anything any longer. I still hope to continue beating the market by a couple percent a year from stock-picking (probably more beta than alpha). I don't care if the results are more volatile. This is largely compensated by a huge decrease in workload and worry. Freed time can be dedicated to more useful pursuits, like learning to trade.

Jaime Klein writes:

I have, well, had, two now only one extremely financially talented relatives. The late one, when told I was going into the financial business, laughed rather rudely, I thought. And noting so many of my family members were already in that line of work, he asked me who was going to bring home the bacon. Well, he said, seeing as you're determined, I'd give you this bit of advice: Never buy a stock if in your lifetime you don't see it returning your original investment to you annually in dividends. And if they're any good, they only pay two percent.

Absurdly enough, his own results were so far beyond this as to make this counsel seem the most conservative expectation possible. He was probably 30 years ahead of the sage into Coca Cola, which he obtained by selling Minute Maid to them for stock. He never sold it except to buy the occasional Goya or Renoir, or make a charitable donation to Harvard or MIT.

I was aware of only two other plays: one was a quick flip which his partner told me netted over 100X in less than three years. The other was selling United Fruit, which I imagine he paid near nothing for, to Eli Black, right at the top back in the conglomerate heat of the '60s. I can't remember much about the foolish and ill-fated acquisitor except that he defenestrated himself shortly thereafter, taking his briefcase along with him.

Anyway, it's been my pleasure, while unfortunately lacking in outstanding talent myself, to have met so many ingenious and interesting people in my all too brief 65 years. One of these days I'm hoping I'll learn something from them. But in the meanwhile, it's always fascinating, albeit particularly in the political and religious arenas sometimes quite alarming, to see how clever so many people are.

From Scott Brooks:

Volatility is a terrible measure of risk. There is no risk on the upside of volatility. The goal should be to reduce all down side volatility, thus my patented investment strategy of buy low and sell high (Green List/Red List post from several months ago).

In all seriousness, I am fixated on the discovery of ways to mitigate downside volatility while participating in most of the upside of volatility. But since I'm far from the smartest person on this list and have been told in no uncertain terms that it can't be done, I feel like I'm fighting an uphill battle. Still, who knows, maybe there is a way!

I've never been one to give up just because others say it can't be done. If I listened to others (like my guidance counselors), I'd probably be laying carpet back in Maplewood, going to the corner bar, watching COPS every night, and aspiring only to be the "Maplewoods, King of White Trash."

From Craig Mee:

I accept these results, however…

Plenty of you know a lot more about stocks then I do. But I would like to offer here that a two percent increase in returns and with this, the opportunity to be out of the market in major declines, represents to me some nice sleepy nights.

With a bit of fine-tuning maybe marks can be picked slightly better on entering and exiting longer term positions. But on that black swan event, when something may drive the market into a huge selling spiral, I believe for me at least it may be worth that extra agro.

From Kim Zussman:

Similar but less quantitative self-assessments:

1. At least in US, taxes bite deeply into putative alpha (or masquerading beta) if you trade vs buy and hold.

2. Concur that most effect was lowering volatility. You will get lower volatility with stocks<100%, and pretty much always lower returns. Looking back, you will regret not being 100% stocks, but during the ride you live happier <<100%. Thinking about a big down year as a future possibility feels a lot different than having one.*

3. Besides drift, the reason buy and hold works is that there is too much temptation for the vast majority of people to time the market. It is unnatural not to check your investments, and not to be tempted to act on them. People don't like it when their million $ port becomes worth $800,000, and sell before "losing it all". Then it turns around and people don't like missing up 30% years, and buy back in. The hope-panic-irony cycle makes the market rise over time only for those not riding the emotocycle.

* The abstraction of future pain and foolish willingness to fall in love is nicely summarized by the late Sam Kinnison.

Jack Tierney adds:

I was invited to a dinner party but expected very little. The guests were getting thin on top and hefty through the middle. Our host was dressed in colors that defy the known spectrum and civility was to be shown the greatest horse's rectum. So we mingled and we spoke and mentioned our positions. I mooted that I was all in cash and was swarmed by five physicians. "Perhaps an evil humor attacked him on his flight or maybe he's an infidel who has yet to see the light." Their concern was very real and they needed to be consoled so I admitted that in addition I owned a little gold. Screams and wails followed and the panic gained momentum.

To quell the crowd I shouted, "Wait, I also own argentum." Now that they were fully aware of these judgmental flaws they ripped away my velvet gloves and exposed my hairy paws. They marched me toward the door when the host yelled out to quit, "Why this poor benighted soul has never heard of drift."

So began my lessons and I've brought them to the south, a bearish thought may cross your mind but never cross your mouth.

Abe Dunkelheit adds:

 Bruno's post was very interesting. I made exactly the same observation. Market timing lowers volatility but doesn't guarantee any substantial out performance. And yes, one's first ideas tend to be much better researched than all these other in and out decisions. Never to sell them would have turned out the best in my personal case also.

And there seem to be people who don't make any professional impression and live a very retired life who tend to buy and hold and accumulate incredible returns without doing much.

I know about a guy in Switzerland who was retired and did it with wine. He bought all these Chateau Mouton Rothschild wines for USD 500 a bottle 10 years ago and they now go for USD 10,000 at auction because rap stars and Russian mafia are pushing prices up. I only know about this guy because I was one of the sellers. I had bought my bottles for USD 300 and thought a cool 60% gain in less than two years could not be wrong. He had an incredible cellar with all these wines, but his house and car and his whole appearance were very modest.

Another example I know about is a guy who was jobless and lived on social security, but had saved several hundred thousand euros [back then deutschmarks] and invested them through the accounts of his children. He put it all into Deutsche Telecom at the IPO and cashed in a 600% profit during the Internet boom. That was his one and only investment.



 Beijing is to create one of the world's biggest investing companies, with possible ramifications for global stock, bond, and commodities markets. It might also affect how the US finances its huge budget deficits.

The finance minister said China might follow the lead of Singapore's Temasek Holdings, which manages nearly $90 billion in government pension funds and other assets. It owns stakes in Singapore Airlines and Singapore Telecom, as well as in banks, real estate, shipping, energy, and other industries in India, China, South Korea, and elsewhere.

But even that represents a return of less than 3 percent on the $1 trillion in holdings. By contrast, Singapore's Temasek says it has averaged an 18 percent annual return since it was created in 1974.

From Alston Mabry:

Don't forget that this October, Japan Post will begin the privatization process:

"In October, Japan's post office will be split into four companies - a bank with assets of Y226,000bn (GBP956bn, $1,867bn, E1,428bn), a life assurance company with assets of Y114,000bn, a mail delivery service and a post office network.

"The break-up of the post office, also the world's largest bank and insurance company, will transfer management of more than $3,000bn (GBP1,537bn, E2,295bn) of assets into private hands later this year and bring new competition into the Japanese banking and insurance sectors."



 Sun Tzu: "To subdue the enemy without fighting is the acme of skill."

I expected some disagreement with my admittedly unconventional view - especially that of China. I was surprised, however, that no less a personage than Mr. Gave chose to do so. Through a number of John Mauldin's letters I'm familiar with Mr. Gave's new paradigm of the "platform company" and his "we think, they sweat" view of markets, trade, and profit distributions.

His example of Singapore as a model for future Chinese governmental development is instructive. Lee the Younger is Singapore's third PM (his father was its first, elected in '59); both come from the PAP (People's Action Party) which has never suffered an electoral setback. Singapore may well be the garden spot of the Chinese world. Press reports are almost unanimous in hawking this view. Those papers that disagree are quickly slapped, followed by lawsuits (which they win) followed by injunctions that prohibit further publication.

I confess to having a westernized view of things - I am a westerner. But it is possible, I admit, to adopt an Eastern view; I would suggest that most do, in fact, take Mr. Gave's view and see China as a new land (a new America some believe) rich in opportunity, resources, and labor. To date little of that promise has been realized. In that respect, China is little different from Russia.

In fact, the countries are remarkably similar in their courting of Western investment and technology, and equally remarkable in attempting to steal what cannot be purchased. Most seem to shrug this off as a "folkway" of the East and as acceptable as expense account padding is here. Demosthenes saw Philip of Macedonia doing the same thing to Greece and stated they had "conceded to him a right, which in former times has been the subject of…war.…The right of doing what he pleases, openly fleecing and pillaging.…"

I know it's considered woefully passé to label anyone or any country as Communist and worse still to use the phrase "communist conspiracy." But the idea that China is innocently toddling towards its own peaceful manifest destiny has some flaws. The Middle Kingdom has been inward looking for close to a millennium. Now they have a blue-water and a green-water navy, nuclear missiles, an army of 200 million, the ability to shoot down satellites hundreds of miles in space, and the ability and will to shoot down and hold in detention an American fighter plane and its crew. These developments lead me to believe they possess aspirations beyond their own borders.

Much of the Sino-Soviet relationship, its history, its structure, and its plans are laid out in detail in Anatoliy Golitsyn's New Lies For Old. book is unique in that it was written in '82 and in which he reveals the planned downfall of the Soviet state and its ultimate resurrection. It also reveals how phony splits were created between the two nations that lead the Western powers (chiefly the U.S.) hungry Unlike histories told by other ex-KGB agents, Golitsyn'sfor an ally, to help modernize Chinese armaments."Both in relation to the Soviets in the 1960s and to the Chinese in the 1970s and 1980s, the West has forgotten the error of the German General Staff in helping to rearm the Soviet Union after the Treaty of Rapallo in 1922. The Sino-Soviet scissors strategy has not been recognized for what it is."

And the strategy was ingenious. Why did Western politicians like Nixon, Thatcher, and Reagan seem to have a better rapport with the Chinese? Because making nice to the Left would have triggered an immediate negative response among conservatives. But it was the Right that feared the Soviets more, so they were the natural dupes for the rearmament pitch ("the enemy of my enemy is my friend"). The only thing that was essential was maintaining a fiction of friction. And they've done an admirable job.

Do we have a Sino/Soviet-American war in the future or can the Chinese accomplish the same thing by simply putting its trillion dollars worth of U.S. paper up for sale? The effect would be devastating and would accomplish exactly what bin-Laden has been promoting.

Sixteen years ago we thought the USSR was dead and a new day of freedom and "peace dividends" was upon us. Today Russia is once again run by a gang of thugs that can trace their lineage to the KGB, and Putin's replacement will have the same pedigree. Why should we expect China which, if anything, has been historically more repressive, to be any different?



I recently read the quote: 

"Could it be that all the bruised and battered hold-outs from '00-'03 will finally join in and we resume the incessant trek toward the summit of market-based capitalism?"

Perhaps partially, but they're certainly not the key drivers in the market's recent run (without a significant dip). I suggested a couple of years ago that, though it might be counter-intuitive, an ever-increasing deficit in our balance of trade is actually a GOOD thing for the market.

Many words have been expended attributing ever-falling bond prices to the re-investment of these excesses. However, foreign interest in American assets goes well beyond bonds. Americans, as individuals, as corporations, and as a government have considerable assets - worth many trillions of dollars. And for the last several years they have been for sale - cheap - and getting cheaper.

Though the Dow and the S&P may have had impressive runs, so too have many of the major markets of the world. Back in '01 when everything was going to hell, Friedman of Stratfor hammered at the idea that the situation was unusually precarious because world markets, generally asynchronous, were, for once synchronized. He believed asynchronous markets were preferable as that gave asset allocators a range of choices in which substantive risk could be balanced with relative safety - with the exception of the Great Depression, there had always existed profitable markets.

I'm speculating that we are currently experiencing the opposite of Friedman's in-sync bear markets. And while our trade imbalances have contributed to our market's upward move, the fact is that governments, worldwide, contribute also by over-printing their currencies. As a result, with a few anomalies, it's become very difficult to find a "bad" market - but it's easy to find bad stocks (I know).

Additionally, commodity prices, despite recent setbacks, remain very high. Art, and I don't mean just the work of the masters but crap like Warhol's stuff, is once again selling at incredible prices. I understand coin collecting is once again becoming hot with higher prices not necessarily tied to metallic content. And other collectibles, at least from the occasional hour spent watching the Antique Road Show, are also escalating.

Wrapping it up, I see the current situation resulting from our trade deficit creating necessary purchases by foreigners, tax cuts increasing our own expendable funds, central banks creating lots of extra cash (some available at below market rates), and the re-emergence of the "battered hold-outs." The latter, though, are buying some of the other "real assets" mentioned.

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