Keeping in mind that I maintained my record of not watching more than 10 minutes of any NFL game this season, from all that I've read, Grossman has never been considered more than a mediocre QB. That the Bears went as far as they did is surprising (and as a Packer fan I have little use for the Bears).

The real comparison between the QBs (for me) occurred at my Monday exercise class. In Tennessee, Peyton is still regarded as a hometown hero. The Indianapolis win was almost as big as a Titan's win would have been. But nobody in the class (and there are some big Manning fans there) remarked on him having a great game. In fact, the consensus was that he didn't deserve the MVP award. (Last night Letterman, an Indianapolis native, wanted to recognize the QB who won the team it's championship: Rex Grossman.)

I'll leave to those who saw the game to determine whether or not the award was deserved.

Victor Niederhoffer writes:

While I can't understand anything that the President is talking about, let alone its relevance to markets, one has learned that he is always far above us in all specs of hunting, and we place it on web with the humble and reverential mien that we always have when the President's bag of ducks bulges so much greater than our own.



I have to admit it here and now. I like White Castle burgers. I even buy them frozen and microwave them. How many parsecs does it take to walk one of those off?

Clive comments:

You would have to walk 160 miles to purge that one Big Mac from your body!

I'm in big trouble then. I eat those things at least three times a week by the bag full. In fact just today I bought two of them and six double cheese burgers. I can't explain why, but whenever I eat those, no matter what my P&L looks like, life is good. My dogs are fans too!

Jack Tierney adds: 

This is a painful thread for those of us consigned to a life of tofu and bean sprouts. But we put on a brave face and tell ourselves our path is not only straight but virtuous, that baseball is an allegory for life, that the market climbs a wall of worry, and that inverted yield curves are non-events.

However, if this thread continues, may you be visited by the Conductor of Cardiac Events.



A Note from the President: 

The Chair proposes that I stick my neck out. I'm accepting only because the august company that comprises the List prevents many of us from letting it "all hang out." That's unfortunate since I believe the List has members whose forecasts might prove very insightful. However, I'm not one of them. In fact, I've been so wrong so often that one of my forecasts, if viewed as the babblings of a hoodoo, might provide a fortune to those who fade my conjectures. With that in mind, I offer an early apology for any prediction that may prove accurate.

First, in a recent post I revealed that I was over weighted in natural resources. This is an affliction that dates back many years and must be accepted with the same understanding one extends to his fellows for their inexplicable preference for blondes or redheads. So with one exception, which I'll get to a little later, we'll skip that category.

My favorite "chemical" is extremely abundant, slightly acidic, and is as essential as oxygen. It is water. I don't like it for just next year, but for the next thirty. Investor owned water stocks are few in number. Herewith are nine: AWR, WTR, CWT, CWCO, SBS, MSEX, SWWC, SZE, and UU. From here, it's a game of pick-and-choose; however, over the past year, three foreign companies (SBS, SZE, UU) have cumulatively crushed their American counterparts. However, until last year, American water companies carried the highest valuations as measured by P/E or P/B. Although the group gets little mention, American water utility stocks have outperformed other asset classes for the past 12 years. (Actually, it's been longer, but I can't find my reference.)

As most are aware, only a small percentage of the earth's water is drinkable (potable). And unlike other commodities, there is no substitute, nor is it likely more will be discovered. I have followed the desalination industry since 1974, and though much has been promised, little has been delivered (although CWCO seems to be doing very well). I believe more successes will eventually be achieved, but timing is iffy. (There's a lesson here for those who believe our energy problems will be solved shortly.)

Water infrastructure worldwide is pathetic. And it will take hundreds of billions (probably trillions) of dollars to set it right. Those who provide pipes, pumps, membranes, meters, etc. can benefit substantially. Because water is so essential to those who pump, process, and/or sell, it would seem inevitably profitable, although not necessarily. A number of years ago, I invested in one of the foreign companies listed above. They specialized in taking over municipal water works and rebuilding the systems. As required, they went in and began repairs to the system, improved efficiency, and cut down on costs (partially by eliminating public employees).

However, their investments were substantial and as agreed in the initial contracts, they sought to recover their expenses through increased charges. Every city and hamlet in this nation has a Utility Watchdog Group - their main job is to bitch about every utility increase ever put forward, regardless of its legitimacy. But, with water, the problem is especially acute. We can drive less, dress warmer indoors in winter, put up with higher indoor temperatures during the summer, shut off the gas to the decorative lighting fixtures, or move in with our in-laws. We cannot cut back much on our water consumption. So, when that price goes up, there is more than the usual complaining. If the price goes up several years in a row, the outcry cannot be ignored. As a result, the same city councils that brought in the outside company now attempt to control, freeze, or roll-back prices - even though they had no contractual power to do so.

But governments, as was just demonstrated when congress successfully demanded that legitimate contracts with the oil companies be rewritten, can do almost anything they choose. As a result, this company backed out of deals with several American cities because they could not and would not operate in the red. Running a for-profit water system in an American city should be a no-brainer money-maker - and in many cases, it is. But when the real crunch comes, when water prices, of necessity, skyrocket, it is imperative to be aware of the Cowardly American Politician who will abrogate any contract if it assures his or her continuation in office.

The group with the most to offer and with the least vulnerability to political duplicity are those companies that supply pipes, valves, pumps, meters, etc. that will become essential purchases in the immediate future. Although there are several large caps that have become involved in these areas, their exposure remains relatively small in relation to the size of their overall operation. However, there are a number of companies which could perform nicely: LAYN, NWPX, TS, GRC, LNN, HYFXF, WTS, TTI, and KELGF.

(An approach to supplying water that to date hasn't been too successful but hasn't received much attention, is the use of machines that pull potable water out of air. These machines, depending on size, can produce anywhere from two liters up per day. If the area's climate meets certain humidity minimums, the systems will work. However, I've been reluctant to even attempt a speculation as it seems something this important would have received much more coverage by this time. I'm not sure if this is a performance or a marketing issue.)

A second area that appears fruitful (but which revolts just about everyone) is coal. I doubt, despite current talk, that America will ever again go nuclear. (And even if I'm proven wrong tomorrow, the first new plant wouldn't be up and running until 2015). And the movers and shakers (that phrase, by the way, is from a very nice poem, We Are the Music Makers) have determined that we will cut back on gasoline (i.e, oil) consumption. The cuts envisioned are Lilliputian and one of the proposed substitutes, corn-based ethanol, is an excellent example of why a government should never be allowed to determine efficiency.

The recent news stories on the escalating price of tacos and the Mexican government's reaction to it, is the first bell in the death knell of corn-based ethanol. The next bell will be an American one when prices of pork and chicken begin to rise because we've determined it's more important to feed our cars than the livestock our consumers count on for protein.

Yes, perhaps we can expand corn growing acreage (at the expense of soy beans, but only with the use of more fertilizers, pesticides, and herbicides) and satisfy both demands - at least until the weather, a capricious demon, decides otherwise. Additionally, the very best estimate I've seen to date on daily ethanol production (assuming the current 116 plants and the 79 under construction are all up and running) totals 718,000 barrels. That's 3.5% of our daily requirement. If we all decided to never exceed 60 mph, we would save that much. (Interesting fact: the amount of grain it takes to produce 25 gallons of gas could feed one person for an entire year.)

It doesn't appear that either the Congress or the states are in the mood to approve drilling in the Rockies, in Alaska, or offshore in any of our sanctified coastlines. Russia and China are moving quickly and decisively in striking long-term deals with foreign oil producers. India is beginning to search for deals. Europe appears content to whine over Putin's insensitivity while hoping his tenure is followed by a kinder, gentler former KGB operative. Our oil companies aren't doing much more than being kicked out of Russia and Venezuela.

But we still will need a fuel and we will need it in abundance and we will need it from a dependable source. Coal is the only alternative. And it need not be the dirty, filthy stuff that used to be poured down the basement shoot when I was a kid. Germany developed the Fischer-Tropsch method for synthesizing a hydrocarbon like coal into a much cleaner burning liquid. We have several companies (mostly small ones, but I understand GE is testing the waters) who are currently using the process with our largest coal producers.

The process works. The question to be answered is at what level (of acceptable carbon output) will the bar be set. There exist influential groups who feel no level (of coal emissions) is acceptable. I doubt that they'll prevail. But should they, you can be sure that when Americans begin shivering too much in winter and sweating too much in summer, they'll be rolled flatter than a nickel beer. As with the Fischer-Tropsch companies, I'm not going to name any candidates as they're not that numerous and my omissions would be indicative of my holdings. (By the way, I do not own any of those stocks whose symbols I have listed.)

Those are my two primary targets. Water shouldn't be a surprise; it's been a great idea for a long time. Coal is something else; to some it may seem like buying into pornography. For those, I suggest searching the geothermal field, though initially expensive, the systems work (in both summer and winter), and can be installed almost anyplace where several deep holes can be drilled.

I became president of the old duck hunters courtesy of Gordon MacQuarie's great stories. It's appropriate then that I end with a Macquarie story (notice the difference in spelling.) My son will be 42 next month and has been a confirmed bachelor. Just two weekends ago I received an email from him (he's lived in Japan for six years) announcing his marriage this coming July in Honolulu. Now I felt I was pretty well set in making whatever minor financial arrangements I could for my children and theirs. (Lord knows we're leaving them with enough debts.) This adds a new dimension and one that requires real long-term thinking.

For those in the same boat, check out MIC, The Macquarie Infrastructure Fund (there are a group of Macquarie Funds and you may find one more appropriate). This fund has been buying up (or getting long-term - 75 year - leases) on tollroads, airport parking lots, commercial heating and cooling outfits, and energy service providers. If it's something that's an absolute public necessity, Macquarie owns or holds a long term lease on it. It pays a great dividend, but I'm told, reading their financial statement, it will give you the yips.

I now yield the field for at least a year.

The President further adds:

Scott asks a good question and, frankly, I don't know how to answer it. But I believe we have reached a point where we have to admit that governments and their offspring are poorly run. And though the threat of government interference is always real, the current state of government, especially at the state level, could actually prove beneficial.

For example, Macquarie and another outfit leased the Indiana Skyway for 75 years for $3.85 billion. It's estimated the companies will recoup their investment in 17 years and make an additional $21 billion over the remaining 58 years.

There has been talk of Daley also leasing the Illinois Tollways. Two days ago, Illinois announced it was leasing its lottery for $10 billion. These will be huge income generators for years. Likewise, Tennessee and several other states sold their future cash flow from the Tobacco settlement for discounted sums so that they could balance their annual budgets for two years. The buyers will reap nice returns for years.

Many states, and Illinois is one of the biggest offenders, have contributed little or nothing to their states' employee retirement funds over the past six years. Their only outs are raising income taxes (not going to happen) or selling off their hugest cash generating properties - for lengthy terms and at substantial discounts.

Our state governments, like our federal government, have been badly run, and finding additional revenue streams is getting harder and harder. In each case, though, the lessee has made sure the state has kept a financial interest in the asset; this seems a smart move as it might discourage the governments from taking draconian actions in moments of remorse.

For selected firms, then, governments may be providing great investment opportunities. We may be in the early days of an entirely new asset class; especially for those with long term investment horizons.

Jaime Klein adds: 

Currently, the only cost effective technology to extract drinking water from air humidity is cloud seeding. It is routinely done in Israel (and other places) and causes about a 10% increase in rainfall (amounting to about 800 million cubic meters per year). Since only about 15% of the rainfall is actually used (in agricultural irrigation, tapwater, etc.) artificial cloud seeding produces some 120 million cubic meters/year.

As Henry's insightful note shows, the production of fresh water is a question of energy. All the oceans are full of water so there is no scarcity of raw material. And all the water is being recycled in nature so it will never "end." In Israel, we are producing 200 million cubic meters/year of fresh water by desalination for an average cost of 0.65 U.S. dollar per cubic meter (the consumer pays an average of 1 $US/cubic meter). The desalination industry was established by the State and operates under 20 year-long contracts, selling all its production to the State at a fixed price. There are no free markets in water, not here nor everywhere, since conduction and distribution is a natural monopoly.

In my opinion (shared by Treasury's wonderkids), Israel doesn't need that expensive water, and the desalination industry was established in a moment of national panic caused by a two-year long drought.

By the way, water demand can easily be reduced by increasing its price. The curve is quite inelastic since water costs so little. In fact, even in Israel where domestic water is very expensive, the water company's bill is less than 1% household income. Wastewater removal and treatment may cost an additional 1%. I don't think anybody will make fast profits in the water industry in the coming years.

Henry Gifford offers: 

The question was raised about how much energy it takes to run a machine that takes water out of the air. I will show some counting on the question, and let others reach their own conclusions about why they are not popular.

Starting with the same 25 gallons of ethanol, which was described as being made from a year's worth of food:

84,100 BTU/Gal x 25 - 2,102,500 BTU / 3.41 = 616,568 WattHours of energy in the ethanol

Assuming current USA electricity grid efficiency of 33% (Source: Electric Power Research Institute), that can be converted to 203,467 WattHours of electricity.

An off-the-shelf dehumidifier (Grainger part # 5BB55, info below) takes 30 pints of water out of air per day, and uses (115 Volts x 5.3 Amps) 609 Watts to run. Therefore the 25 gallons of ethanol could perhaps run it for (203,467/609) 334 hours, yielding (334 x 30) 10,000 gallons of water. Probably the machine is rated under ideal conditions (high humidity, low temperature), and therefore the machine can only produce a small fraction of that under more realistic conditions - 500 or 1,000 gallons of water from 25 gallons of ethanol?

A test could be done by putting a bucket under the drip from a window air conditioner or a dehumidifier, and measuring how long it takes to fill the bucket, and then comparing how much electricity the machine uses.

Dehumidifier, 30 Pints Residential Dehumidifier, Capacity 30 Pints in 24 Hours, 115 Volts, 60 Hz, 5.3 Amps, Fan CFM 181, Humidity Range 20 to 80 % RH, Ambient Temp Range 64 to 95, Fan Speeds 1, Bucket Capacity 17.2 Pt, Height 22 7/8 In, Width 15 3/8 In, Depth 12 2/3 In, Impact Resistant Thermoplastic Cabinet, Color White, Includes Four Casters, Removable Front-Loaded Bucket, Hose Connection For Continuous Drain Operation, Filter

Henry Gifford further adds:

I understand that there are no free markets in water here, but disagree that the reason is that conduction and distribution are natural monopolies. There is no free market for corn, apartments, car rentals, health insurance, or many other things here for which there are multiple players competing for the same customer.

New York City's water is of higher quality than the bottled water in most places (usually just municipal water run through a filter), yet it "sells" for only $1.25/cubic meter, which hardly covers the cost of repairing the pipes. Indeed it is still "too cheap to the meter" - many customers still have no meters. As said below, use can hardly go down when the price is too low.

Catching and storing and cleaning and drinking/using rainwater runoff from roofs has been routine in the Caribbean for generations, and is increasingly done in the U.S. Southwest, and would be more popular if subsidized water and electricity (for pumping) were not available.

Jaime Klein responds:

(1) The domiciliary water supply market is a natural monopoly not because of regulation or subsidies, but because the customer has no alternative supplier. All attempts to introduce competition have failed. Even so, the price is dirt cheap.

(2) Rainfall catching water supply systems are fantastically expensive and dangerous to your health. If the price paid for one cubic meter of drinking water from a municipal system is, say, one $US, then the cost of the equipment to catch rainfall, to store, to purify and to pump it (investment + M&O) is, comparatively, astronomical, and averages $15 per cubic meter. As a conversation piece or environmental toy, it may be worth it, but please don't drink the water. Rainwater is not pure, it carries atmospheric particles and poisonous gases. Water from the first rains of the season are highly contaminated and toxic. Even urban tree foliage suffers. The water has to be stored, which is another potential source of contamination. The water has to be purified, possibly by addition of a chemical or by reverse osmosis. It has to be tested before consumption. This is a highly professional area, certainly not for amateurs.

In Israel, the Ministry of Health discourages home rainfall catchment systems, and in practice forbids it. There are strict water testing programs (every two weeks, samples are to be taken by licensed samplers and sent to licensed laboratories) and the water has to meet quality standards (zero coli count, pH, etc.). None of the traditional rainfall catchment systems (and there are many in Israel) are able to supply water of drinking quality and are de facto forbidden. It is not that the Ministry has inspectors searching for home systems to close them down, but no permits have ever been granted.

Henry Gifford comments: 

Imagine you were running a government in a desert area as described below. Thousands of your subjects would know the history of the people who lived for thousands of years in houses without modern heating or cooling and who used thermal mass to even out the diurnal heating/cooling load. Some would know that with modern windows and a few centimeters of foam on the outside of the thermal mass, modern standards of comfort can be achieved easily. Abundant solar energy could make hot water for showering and electricity. This would leave people able to live entirely "off the grid" except for one thing: safe drinking water.

Having people depend on a centralized water system would be good for the government, especially in an area where governments have a history of organizing wars for control of land with abundant water resources. Therefore I find it unsurprising that a government in an arid area tells people rainwater is unhealthy, and cannot be made healthy. Governments in other areas, such as the Caribbean and Texas, tell people the opposite.

Henry Gifford adds:

 I apologize sincerely about your "concerns for Israel", which you describe as the "mass immigration" of "potential husbands" to Wall Street here in New York. The street is only a few blocks long, yet is big enough to drain the pool of potential husbands from many countries. A proportionally sized financial center in Israel would be far less than one block long, which might leave some of your four beautiful, talented daughters in the same predicament as many beautiful, talented US women: stuck choosing from millions of single men who do not work on Wall Street.



 There are 441 operational nuclear power reactors around the world today, with the IAEA reporting that 130 new nuclear power plants are either being built or are in the planning stages. These are conservative estimates, with the actual number of new plants likely to be much higher. [Read more here]

As you might expect, the above site gives a very bullish view on uranium. On the other hand, it is almost impossible to find a bearish article. However, the availability of uranium properties with legitimate producing possibilities is very limited. Even then, a new uranium discovery (or even an established but unbuilt operation), usually takes about ten years to get into production. From what I've read, permitting it can be lengthy and expensive; one forward looking company spent nuclear's "dark years" acquiring already licensed properties … its price is up about 40% over the past year but about 3500% over the past five years.

It's not unusual to find untested companies whose stocks have already experienced runs of 1000-2000%. Even CCJ, the class of the field, has run up something like 700% over the last five years.

If you want to stick with the picks-and-shovels aspect of investing, find out whose got the contracts to build the new plants and who refines the raw product into usable material.

– Jack Tierney

C. Kin comments:

I recall from my early days in the business (early '90s actually) that there were a large number of dormant penny stocks left over from a prolific bubble in uranium shares in the '40s and '50s. Perhaps the chair could direct us to a historic reference on the topic, which was presumably as frenzied and irrational as the dotcom craze. I remember hearing stories about companies whose shares would take flight on rumors that they were about to develop an atomic train/boat/airplane and nuclear-powered consumer products.

Such companies today may very well (if they still exist) herd mountain goats and supervise moose pastures.

I'd love to read up on the topic (from someone other than Doug Casey).



The president has been reluctant to say much as he finds himself (once again) taking a side of the trade that the Chair finds disadvantageous. Specifically, it's a portfolio (it has been alleged) way overweight in natural resources. I dislike recording how these positions have turned out or how I believe they will do in the near or distant future.

Not for nothing do I have a file labeled "Dumb Posts," which seeks to track rash assessments made by various members (myself included). I have had opportunities to dredge these up when developments have proved them most embarrassing, but have over-ridden my animal spirits as I see no profit in it.

But as I check my portfolio against that of my wife (for whom I invest), I find that Marty Whitman was correct when he postulated that "I make more money just sitting on my ass." Her account has done marvelously well, but with infrequent trades throughout the year. Positions I long ago exited remain in her account with triple digit gains. On the one hand, I'm embarrassed by my lack of discipline, but on the other hand, I still have my tenacity in believing in my original assessment.

So, many mallards for her with the 20 gauge single shot. Far fewer for myself with a 12 gauge pump.

– Jack Tierney 

Scott Brooks comments: 

I never think how easy it is to kill a deer, just like I never think of how easy it is to make money in the markets. It simply isn't.

Sure, if I sit in the deer stand long enough, I will kill a deer … all I've got to do is sit long enough through all kinds of weather … bad conditions, good conditions and everything in between. The long term positive drift of the deer will eventually bring enough deer within range and I'll get enough shots so that eventually, I'll get a deer.

The same is true of the markets. Jack wrote a wonderful piece today and referenced his wife who has more of a buy and hold strategy … letting the long term positive drift of the market bring her positive returns.

There are some that just need to be satisfied with simply achieving investment success by sitting in the long term positive drift of the market … heck most money managers don't beat the market … why … because it's hard … really, really, hard!

You have to set your goals, set your standards, and be realistic about what you are capable of achieving. Always strive to push yourself, but don't try to achieve more than your capable of. I was a good high jumper in college, but I was never going to jump higher than 6' 8". That was the best I could do … and it wasn't good enough at that level … so I gave up high jumping and concentrated on my studies.

Did I fail? No! As a matter of fact, I never felt that I failed at that endeavor, rather I believed that I had succeeded greatly … I jumped much higher than I ever thought I could.

Most hunters are satisfied that they have shot a deer. I revel in their success! I love it when they get their deer! I take pleasure in their pleasure. Even though I take pleasure in others financial success, I don't judge my success by their standards. I set my own standards and work to achieve them.

When I feel like I'm getting in a slump, I force myself to fight through it. I have several things that I do to get through these phases.

I force myself to assess what I've been doing. Invariably, I'll find that I've gotten lazy about the "little stuff." For instance, in deer hunting, I can do all the macro work in the world on my farm. I can plant all kinds of food plots. I can hang stands on heavily used travel corridors, and practice with the bow until I'm dead nuts on for any shot up to 50 yards. I can then think about how I'm gonna go out and kill that big buck.

But all of that won't matter if I haven't paid attention to the smallest details … for instance, I refer you to my recent post on camouflage and the importance of scent control … maybe I forgot to take the neck strap off my binoculars and wash them in scent free soap in the wash machine. I know that sounds pretty trivial, but if I'm gonna kill that big buck (beat the markets), I have to pay attention to this kind of little seemingly insignificant detail.

I've taken what I've learned on the Daily Spec and applied it to my investment philosophy. I've always been a technical analyst. I love charts. I still love to look at them. But now I test them empirically by counting.

But, to be honest with you, I don't like counting that much. Sure, I can do it … but I don't like it. So I hired a quant to do the calculations on the hypotheses that I developed to improve my trading systems. Most of my hypotheses turn out to be a load of hooey … but every once in a while, I come up with something that improves my view of the systems.

As I become a better counter (yes, even though I don't like it, I force myself to learn it, do it, and get better at it), my mind is opened up to new possibilities that I otherwise would have likely never seen.

I also have a belief system. No, I'm not talking about religion … I'm talking about believing in myself and what I'm capable of doing. A long time ago, I read Napoleon Hill's book, Think and Grow Rich, and took it to heart when he said,

The dominant thought you hold in your mind will manifest itself in your life in some form of outward reality!

I've never forgotten that.

I've experienced the power of that belief in my life recently. A few months ago, I took into consideration the stock in my life and where I was at in the world and then compared that to where I believed I should be based on my skills, drive, and intellect … and I found myself coming up short.

I didn't like that. Not at all. So I planted the seed in my mind to look for opportunity, to look for the world to deliver me the opportunities that I was looking for … ok, so the world doesn't really knock on my door and say, "Delivery for Mr. Brooks." But I am surrounded by opportunities … all around me … and I have to tune my mind properly to be able to see them. I have to be in the right state of mind, otherwise, I simply won't see the opportunities that abound around me.

Eventually, my mind sees the opportunities, filters them, and arranges them in a fashion that makes sense, and Viola, I clearly see what I'd been missing before.

So it starts with a belief in yourself … an unbending belief that you will succeed and get what you want. Then it comes down to a meticulous attention to detail, and notice that nowhere did I think it was going to be easy!

There are other steps, but I think that's a good start.

Kim Zussman adds: 

'All wives are buy and hold cause if you wanna hold 'em, ya gotta … never mind.

Specs are familiar with friends and family who know next to nothing about markets, but due to a combination of luck and inaction, wind up beating your pants off (in certain periods). Jack mentioned stocks his wife held which he had regrettably sold below current prices.

Of course anyone looking at sells occurring in '01-'02 in most cases can kick themselves now. However one recalls a similar sport undertaken as a balm in 2002 when looking at sells from '00-'01 and noting how much lower they became since settling.

The knife cuts both ways (though upward trend makes one side sharper), and perhaps analysis of closed regrets contains some predictive value.

Sam Humbert comments:

friends and family who know next to nothing about markets, but due to combination of luck and inaction … 

One of my 'thoughts in the shower' recently was: why is "inaction" so lionized in discussions of stockholdings? A standard financial press trope is "oldster who has a cache of stocks from 1950 now worth $x million," as if it's a tremendous triumph of skill/willpower/perspicacity to throw some stocks into the oubliette.

It clearly requires no skill/willpower to hold "stuff" in general. I have an old pair of skis in the basement — last used them 15 years ago, and with the warm Vermont winters nowadays I may never use them again. They'll be in my basement till whenever (if ever) I get around to eBaying them.

So what's the big deal about inaction? The cause for pride?



In considering support systems in markets, one would certainly not wish to overlook Thigmomorphogenesis ( which I believe formed the basis of the modern boy wonder's systems) which are height and thickness responses to strong winds to make the tree more stable.

One often finds that after a big move in an individual stock or market, there is much backing and filling, reversals, and gravitational moves to the close of the big move, before further growth or decline ensues. The question is whether such phenomena are predictive and how to test. Perhaps in the spirit of David Brooks, who better to ask then the specs. We have foresters and technicians among us.

Vic further adds:

Many trees are supported by roots attached to the trunk as seen here. I am wondering if this natural phenomenon, used widely in architecture and engineering, has its counterpart in markets, and whether this can be quantified and whether it creates for more stability. I wonder what other support systems exist, their prevalence and function.

J.T. Holley comments: 

As mentioned before on the List, while I was in Wilmington, NC a few years back, the Bald Cypress trees have a wonderful support system and are a great metaphor for the markets. Not only do they have the buttressing effect with their bottom trunk, but they also possess "knees" that serve both to get oxygen to the roots and to further support the tree in the silt laden waters. 

Mentally, picture the bids and asks around the market price of a stock. They too are the "knees" that feed oxygen to the price. I will try to type a rudimentary picture:

b = bid      a = ask      x = price

       X     a
 b     X     a
b b b b X a a a a

As the bids and asks move together in compromise they feed the price, adjusting upwards and also downwards. The bids and asks can form the "knees" by having a larger size than that on either side of it, bringing either strength or weakness towards the price inwards. The key in attempting to quantify might be to see how "fat" the price attributing to the buttressing effect is. Do round numbers have more of a buttressing effect and stability? Do low beta stocks have fat buttressing? 

For what it's worth, the Bald Cypress lives along the water's edge. I've been told that trees that have large and big leaves act as "sails on a boat" when hurricanes blow through and they get easily knocked down. The Bald Cypress seems to be well adjusted in the South in combating Mother Nature's breath by having well adapted leaves for this theory and the buttressing is the kicker. They are the most amazing trees next to the Sequoia's that I've witnessed in my life.

Scott Brooks adds:

Based on the link Vic provided, we've learned that trees don't collapse on their weight. This is incongruent with trading as stocks collapse all the time from their own weight (i.e. tulip mania, .com bubble, etc.)

What I found interesting in the wikipedia search is that the more a tree limb is rubbed, the more their growth pattern is altered and as a result the limb gets thicker (and stronger I assume). This may be analogous to a stock building a base before moving up (growing). There seems to be a disconnect here as a stock that is heavily traded (rubbed) would likely move strongly in one direction. Stocks seem to build bases when there is a lack of excess interest in one direction or another (interest in buying is equal to interest in selling). It's not until there are more buyers lined up to buy than there are sellers willing to sell that the base is broken to the top side. The inverse is true for breaking to the downside.

Thigmomorphogenesis is the response by plants to mechanical sensation (touch) by altering their growth patterns. In the wild, these patterns can be evinced by wind, raindrops, and rubbing by passing animals.

M.J. Jaffe discovered in the 1970s that regular rubbing of bending of stems inhibits their elongation and stimulates their radial expansion, resulting in shorter, stockier plants.

Growth responses are caused by changes in gene expression. This is likely related to the calcium-binding protein calmodulin, suggesting Ca2+ involvement in mediating growth responses.

Mark Goulston offers:

Here is another interpretation of thigmomorphogenesis. “The more a tree or plant is rubbed, the more its radial vs. elongated growth increases” is a metaphor for "the more hits that life smacks you with, the wider your stance better be to endure subsequent ones." This is not unlike cowboys circling the wagons when under attack, or animals hunkering down to diminish their exposed area to repeated attacks. The question is how much this is a reaction to attacks vs. an anticipation of future attacks where the most Darwinian evolved to withstand future attacks (that actually occur vs. merely a bubbameister) will out survive peers. On the other hand, if there are no future attacks, such an increased girth or widened stance will limit your movement and flexibility.

The interpersonal equivalent is that when nobody is attacking you and you act defensively, you are perceived by the other as being on the offensive.

No wonder the world will always needs shrinks and lawyers.

John Kuhn comments:

There is a giddy feeling when one of one's holdings experiences the "long bar" lurch. One is almost helpless to push the sell button. Yet as with those vomitous feelings engendered by unimpeded collapse, so with the inebriating joys of rapid equity advance … many an optimal moment for action is signaled in the emotion. As a counting incompetent, many of my best moves are in fading the long bar, and more of my worst, by failing to do so.

Jack Tierney adds:

What I found interesting in the wikipedia search is that the more a tree limb is rubbed, the more their growth pattern is altered and as a result the limb gets thicker (and stronger I assume).

I wasn't aware of this (or of much else), but this comment triggered a memory that goes back to a high school literature class. One day one of my fellow students popped up with the following rhyme: 

A woman, a dog and a walnut tree, the more you beat them, the better they be. 

As I recall, Mrs. Rigsby wasn't terribly amused and even less so when the offender couldn't name the source. The rest of us didn't much concern ourselves with that - instead we pondered how such treatment could benefit a tree (it was an accepted truism for the other two). 

Scott's remark moved me to Google the line which remained buried in the recesses of my mind. It's attributed to Thomas Fuller, a "British Clergyman and Writer, one of the most prolific authors of the 17th century. 1608-1661." 

So it only took 50 years or so to find a possible answer; I'm not sure that there's any market applicability involved.



A bunch of years ago the French kicked out NATO. Now it appears they’re prepared to sacrifice the Euro and the EU. On the birght side, the dollar needs all the help it can get.

From France’s current best known poet, de Villepin:

Like Moliere’s doctor, the ECB is killing the patient in order to cure it. Given their obstinant refusal to face up to errors, it is time to prepare for a return to our own national monetary system,

[Read More]



The Hawaiian polymath James Sogi recommends Coercive Family Processes by Gerald R. Patterson. The book discusses how to measure and study aggressive behavior, and has already lead to great controversy in my family, as it recommends an authoritarian approach to raising children by removing what kids value, e.g. attention, when they are bad. Don't give them attention when they cry. Removing the attention is called negative reinforcement. The whole subject of how we behave when faced with stimuli of various kinds, with selling and buying being the behavior, and the environment, e.g. an economic announcement, a vivid change in a related market, or a backdrop of staged conditioning by the Fed Commissioners, would seem to call out for study and testing. This introduction to operant conditioning provides a nice summary of the kinds of things that behavioral psychologists study and might open up some fruitful lines of inquiry. A good reference to Patterson's work can be found here. In examining the diverse bodies of stimulus and response schedules covered by behavioral psychologists, one comes away with the impression that the grass is always greener on the other side and that if instead of following the promiscuous theories of cognitive psychology, that have a hypothesis for any seemingly irrational behavior, (albeit most of them are completely rational and based on rules of thumb that people in real life as opposed to college students for a buck an hour would choose), the often validated and completely specified studies of operant conditioning would be a much more fruitful line of inquiry for market people. One feels he is one the right track here as "Operant Conditioning" and "Stock Market " is almost a Google whack at 337 mentions but "Operant Conditioning" "Cognitive Psychology" has a promiscuous 38,700 mentions. It would be good to take the basic two by two table of operant conditioning and classify it by fixed ratio, fixed interval, variable ratio, variable interval, and see how these relate to predictive patterns. For example: bonds up/ stocks down, a positive reinforcer when it occurs at a steady rate with little variation (fixed interval) versus when it occurs with great variability (variable ratio). But bonds up/ stocks down, if it occurs at an unsteady state, it is an example of a positive punishment variable ratio. All the predictions of operant conditioning could be tested in the real world of humans with prices in markets, instead of on rats.

Reinforcement (behavior increases) Punishment (behavior decreases)
Positive (something added) Positive Reinforcement: Something added increases behavior Positive Punishment: Something added decreases behavior
Negative (something removed) Negative Reinforcement: Something removed increases behavior Negative Punishment: Something removed decreases behavior

Source: "An Animal Trainer's Introduction To Operant and Classical Conditioning"

Alston Mabry Replies:

As I understand it, in animal learning trials, if you put the rat in the cage with the little lever, eventually, in the process of exploring the cage, the rat pushes on the lever, and there is some possibility that a bit of food plops out. The process repeats, and the rat learns to associate pushing the lever with getting food. Interestingly, if what you want is for the rat to push the lever a lot, you provide the food reward only intermittently and randomly. If the food is provided each time the rat pushes the lever, the rat will push the lever only when it is hungry. However, if the food appears only occasionally when the lever is pressed, the rat will press the lever over and over, brimming with anticipation. Now let's assume the Mistress is a master trainer, to her own benefit. She places the rat (trader) in it's cage (home office with high-speed internet access, TradeStation account, etc.) and waits until the rat discovers the plastic keys on the keyboard and starts tapping them. Then she provides the rat with a food pellet (profitable trade). If the Mistress wants the trader/rat to trade as often as possible, she will reward the trader/rat with a profit (food pellet) only intermittently and randomly. If the trader/rat could get profit/food any time it pleased just by tapping the keys on the keyboard, then it would tap the keys only when it needed money. But because it is actually the Mistress who is in control, and she wants to maximize trading behavior from each rat, she keeps the rewards as random and unexpected as possible. In fact, "unexpectedness" is one of her most important tools. By the Rescorla-Wagner model of conditioning, the greater the unexpectedness of the reward, the higher the associative strength of the learning. This is why it is so effective for the Mistress, after a rat has tapped the keys many, many times with no reward at all and become convinced in bleak despair that no further reward is possible, to toss a nice food pellet into the cage and provoke the rat to even greater efforts.

Russell Sears responds:

This is of course the opposite of what is recommended for a baby totally dependent on the parent. I find this one of the greatest challenges of parenting, determining when to use negative reinforcement to cut off the dependency. And looking around to family and friends, especially with young adults, it seems many have never truthfully acknowledged this.

Steve Leslie adds:

This is exactly the foundation of slot machines. Intermittent rewards promote more activity on behalf of the participant. The theory is that if one gets rewarded on equal installments the activity is seen as work, whereas if one receives an intermittent reward then it is seen more as recreation. This is also how companies motivate their salesmen and saleswomen. They conduct sales contests but they do it randomly. It is one way that the company keeps the salespersons attention. Brokerage firms were famous for offering sales contests during the summer months, typically the slowest months for commissions to keep the brokers working and keep the revenue flowing. Here is a sidebar to this discussion. In Las Vegas, if a casino advertises that they give a 99% payout on their slots, then they must pay out on average the machines that they have posted to pay out that amount. This does not mean that every slot machine in the casino pays out 99%. It applies only to the bank of machines that are listed as paying out this amount and the patron has to look long and hard inside the facility to find those. What this does mean is that if you took a large enough sample size for example a $1 slot machine and played this machine forever and each individual were to put $100 in and no more, taken collectively they would receive back $99 on average. Now statisticians will tell you that everyone who plays slots will eventually go broke. The reason for this is that people continually take their reward and plow it back into the machine until eventually they have spent their full bankroll. Therefore the machine will collect everything, it just takes longer if the payouts are higher. This applies to all other games as well including roulette baccarat and dice. Even though you can approach almost even money odds such as betting the color on a roulette wheel, the player only on the baccarat table, and the line on the craps table, if you keep playing them long enough you will lose your entire bankroll.

Jay Pasch replies:

Markets are authoritarian, nature is authoritarian, society is authoritarian, the world they're going to live in is authoritarian, "ya gotta serve somebody" as Dylan would say. Of course there is great benefit to self and others in going against at times, i.e. Thoreau's Civil Disobedience, the rebel call, et al. But on the battlefield of child-rearing, relieving one's self of authority is like dropping one's arms on the field, and pants, and waiting to take one between the… eyes. What works best for the young warriors is that they have 'contracted' to decency and respect with all of the ensuing benefits and luxuries given their meritorious behavior; but break the contract and it is they that surrender their benefits, rather than the mindset that some sort of entitlement has been 'taken away'. Under this arrangement the kids have buy-in, they feel important, creative, their ideas beneficial, because they were asked to help create their world in the first place. They see clearly the reality of their own behavior, understanding it was they that surrendered their privileges rather than the big bad general removing their stripes…

Daniel Flam replies:

It would seem to me that all education revolves around pain. So you say we can't "flik" the kids? Ok let's give them a mental pain Like take away something they like, put them in the corner, its like the way the intelligence interrogators in the western world operate under the democratic laws, we just find a better way of inflicting pain in confines of the law… I find the same with the market… which bring an old adage… "No pain, no gain" How would we go about studying pain in the market?

Steve Leslie replies:

First let me say that "No Pain No Gain" is a very dangerous statement. Physical pain while training is an indication that one is approaching a physical limit. By going too far, one can instill permanent damage. Only a fool would feel a muscle tearing during a set of lifting weights and continue to lift weights. Now there are minor aches and pains that an athlete must endure however there are limits that the body can withstand. An athlete who is in touch with their body is well aware of the difference. I am sure my good friends Dr. Goulston and Dr. Dorn are much more qualified than myself to comment on this subject matter and I hope that they do weigh in. However, there are three distinct subjects here.

Giving a child an iPod for excellent grades is positive reinforcement. Withholding a reward from a child or taking away privileges would be negative reinforcement. Yelling and/or corporal punishment would be forms of punishment They are very different. The problem with punishment is that it has a very short term result. And repeated punishment eventually will result in no positive result whatsoever. Please forgive me for probably misrepresenting this study but here goes: There was a famous study performed where an electric grid was installed in an enclosed box. Mice were placed in the box and half of the box was shocked. The mice went over to the other side away from the pain. Then a barrier was installed so they could not move from one side of the box to the other. Then the mice were shocked. They initially tried to escape to the other side. However the barrier would not allow them to move over. After repeated shocking, the barrier was removed. The mice were shocked yet they did not move over to the safe side. In effect, they were conditioned to just sit and take the pain. Think about this: When your dog runs away and you beat it. That is punishment. If the dog runs away and you beat it again it will be trained to stay away. If you beat a dog long enough eventually it will just lie there and allow itself to be beaten. This is shown dramatically in abused wives. They become beaten physically and/or mentally and that if this occurs long enough that eventually they just sit there and continue to be beaten. And should someone come along and offer them sanctuary, the abused wife will chose to stay with the abuser. Someone once said you train animals but you teach children. If you really want to go into deeper understanding of this, I recommend an exceptional person Dr. James Dobson either in his numerous books on this subject most notably Love Must Be Tough. He also hosts an extremely informative radio show entitled Focus on the Family. My church radio station broadcasts this as do many Christian radio stations around the corner. He is seen very regularly on Fox shows such as Hannity and Colmes.

Daniel Flam adds:

Having spoiled brats that everyone in the room hates to be around because you don't want to put them in their spot, Will just delay the point in time where someone that is not a family member will put him in place in a most unpleasant way. Bringing up Children is like painting a work of art. You must use all the colors of the spectrum, although some colors should be used a very small dose, or you might get an ugly result. I see additional factors to the one suggested:

Today we find names for anyone who doesn't behave like a sedated rabbit. This reminds me of that shirt "I hate it when people think I have ADD! Oh look, a chicken!"

James Sogi replies:

Rather than 'greed' and 'fear', counting, like behaviorism, is more scientific. Quantify to predict. The market trains everyone to do the wrong thing. When one is trained to go long, the market goes south. When one is trained to play the range, it breaks out. Of course it trains one in the just the most intermittent and thus most powerful manner, like slots, to go the wrong way. It is called variable reinforcement. Counting gives the clue that the training is in play and not to follow the masses and to stay a step ahead of the market. Be the trainer not the trainee. Who is in control here after all. Little babies train their parents. It is the brat in public that has the haggard parent running around like a chicken. Both are miserable. Proper training involves the use of love attention and affection. It is not the rats-in-a-box syndrome. The natural reaction is to run to the crying baby. That merely reinforces the crying. The natural crying pattern has variations. When there is a break in the first few moments of crying, use that moment variation to sooth the child. The reinforces the calm not the cry. Inconsistent parents give mixed signals can cause confused children, unhappiness. Consistency give certainty and clearness to the child. I tried to see how many days we could et my kids without crying. How many times per day would they cry? Why did they cry, what were the operant conditions? Quantify the responses. Forget the mumbo cognitive jive. In the market, the public rushes to the upsurge, but is this the correct response? When the market tanks, the public trained panics. Again, scientists, is this the right response? Quantify one's own responses to get an idea of what works, what doesn't. consistency brings profit.

J. T. Holley reminisces:

My PaPa would espouse to me "the grass might be greener on the other side but someone has to mow and rake it too" whenever I would act like those cognitive psychologists! I think the operant conditioning like B. F. Skinner is appropriate for those dealing with the markets. The classic philosophy (shortened and brief) is that Plato felt to "know the good was to do the good", whereas Aristotle had a more operant conditioning belief in that "to do the good was to know the good".

Russell Sears suggests exercise:

What the kid needs is an outlet for his energy. Have the kid run a few lapse, go a few miles on his bike, or even shoot some hoops. I would suggest, that what Lackey encourages his kids to do has more to do with his kids well adjusted behavior . Lackey little league, and coaching wouldn't see these kids. Kids with no competitive outlet, takes it out on the adults. Exercise generally works better than any drug for mild depression. But what Doctor will prescribe 2-3 miles run everyday for 2 months to a single Mom for her kid. Its called "child abuse". But giving him mind altering drugs, to a developing growing brain, is called "therapeutic care."

Pamela Van Giessen laments:

This seems to be part of a larger issue where every single moment of childrens' days are being structured and moderated by adults. There is school, soccer practice, swim lessons, judo, music lessons, play dates, etc. It's kind of like jail. Even worse because at every turn there are adults loitering, supervising, and otherwise keeping a watchful eye. I call them helicopter parents. They mean well, but I can't help but be eternally grateful for my parent's lack of vigilance. I read an excerpt from John Dickerson's book about his mother, Nancy (first female TV news star), where he noted how absent his parents were and that he and his siblings were often left to their own devices, and how, in the long run, that turned out to not be an entirely bad thing. My American nephews are supervised 24/7 and while they are smart and adorable children, I notice that they are more prone to temper tantrums and the like. My Dutch nephews roam free; they rarely have a baby spell. And, honestly, the Dutch kids seem more creative and amusingly naughty. I like children who stick carrots up their nose at the dinner table, provided they are stealthy and quiet about it. Kids don't put up with other kid's temper tantrums and so children who hang out with children stop behaving like brats — at least if they want to have friends. At the age of seven, I was biking a mile to go get candy. I rarely see children about my 'hood without adults. Can't they even go to the bodega without Mom? At what point will they not be supervised and watched over? I've also noticed that the young women (oh, how I hate saying that) that work for me seem to approach their jobs, careers, and even daily to-do list like a school exam that they must ace. They miss the larger point about spontaneity, about creating, about doing as you go and it all becomes about getting an A and moving on to the next "test." They also seem to structure their lives accordingly. From x-time to y-time is work time, from z-time to a-time is not work time. One hopes that romance isn't scheduled so rigidly. When I think of all the wonderful experiences and successes (and even some failures) I've had by being spontaneous, by looking in rooms I wasn't due to be in, by not scheduling my life with much structure it makes me sad to see us creating a society of automatons.

Nat Stewart adds:

One of the most worrisome trends in my view is the "bans" on student organized, spontaneous recess games, which for me were always the highlight of the day in the early grades. The spontaneity and sense of it being "ours" and not a teacher/instructor lead activity also increased the value and fun of these activities. I think for many kids this type of vigorous exercise is almost a need or requirement, It certainly was for me. Kids who are naturally curious, such as this kid in the article who is a "gifted reader" need independent outlets to exercise their own curiosity, and opportunities for individual study and thought. I think many of these kids are just bored stiff! The extreme bureaucratic environment is not a good learning environment for many children. Kid can use logic, and I believe many start to rebel and have trouble when they are repeatedly asked to do things that they do not find logical. "Johnny has a problem…" Well, maybe he is mad that so much of his day is wasted in useless, pointless, mind numbing activities? Maybe he would rather be off on his own, reading a book. Kids can be sensitive to injustice, and little things over time poison can poison ones attitude to the entire process or system, which is unfortunate. All kids are different. Labeling children with 1000 different Disorders is only a smokescreen that hides our severely dysfunctional system.

Professor Gordon Haave replies:

I would suggest that what is wrong with the children is nothing… except a total lack of discipline and their learning at 5 when taken to a psychiatrist that being crazy is normal and they can do whatever they want because they are not being bad, they are "sick". Another good thing about Oklahoma: I don't know anyone who sends their kid to a psychiatrist. Kids get discipline, hard work, and an ass-whupping if they do something particularly egregious.

November 11, 2006 Troubled Children What's Wrong With a Child? Psychiatrists Often Disagree By Benedict Carey

Paul Williams, 13, has had almost as many psychiatric diagnoses as birthdays.

The first psychiatrist he saw, at age 7, decided after a 20-minute visit that the boy was suffering from depression.

A grave looking child, quiet and instinctively suspicious of others, he looked depressed, said his mother, Kasan Williams. Yet it soon became clear that the boy was too restless, too explosive, to be suffering from chronic depression.

Paul was a gifted reader, curious, independent. But in fourth grade, after a screaming match with a school counselor, he walked out of the building and disappeared, riding the F train for most of the night through Brooklyn, alone, while his family searched frantically.

It was the second time in two years that he had disappeared for the night, and his mother was determined to find some answers, some guidance.

Sam Humbert responds:

The long-time sense of the word "discipline" was to instruct, educate, train. It somehow became twisted (as has the word "liberal") to mean, in common usage, Prof. H's "ass-whupping." What does an "ass-whupping" instruct or educate? Well, it teaches that if you're frustrated, angry, tired or stressed, and have the advantage of being bigger and stronger than the other guy, then it's OK to indicate your frustration with verbal or physical violence. Is this the what a parent wants to teach? "Discipline", in the bastardized sense of the word, means the parent has failed. Failed to authentically instruct, educate, train. And is now lashing out, motivated by frustration, not by a desire to educate or improve the child. The parent's reptile brain is in charge. And what becomes of kids who are beaten into submission for 12, 14 years.. But then become teenagers? How will they conduct themselves "out of eyeshot" of their parents, when their parents are around to "control" them with "discipline"? What actually does work in parenting — since "discipline" doesn't — is spending time with kids, and most especially, meeting them at their level, not at your own. Becoming engaged in their lives, their interests, their hopes, fears, dreams. Really hearing them, rather than lecturing them. My kids have never been "disciplined", and many parents in our town have commented to us that there are — far from being "undisciplined" — among the kindest, most thoughtful little boys they've met. The proof is in the pudding.

Professor Gordon Haave replies:

Although, as I have said, I don't believe in Ass whupping, I don't think what you are stating is correct. In its simplest form, it is the most crude way of stating "actions have consequences". Most of this on this list know that there are better ways of teaching that then ass-whupping, therefore they don't do it. Around here in Oklahoma, it is probably not very common, but was even just 15 or 20 years ago. Now, what goes on in NYC is simply the opposite message, that actions don't have consequences, that nothing is your fault, that if you look out the window during class or talk back to your mother you have a problem that needs to be medicated. Mr. Wiz suggests that those who receive an ass-whupping grow up having learned the wrong lessons, etc. I submit that it is better than the weirdos who grow up thinking that actions don't have consequences. They are more prone to destroying families and societies, in my opinion. So, I will restate: Ass-whupping is preferable to the NYC psychobabble approach, even if it is crude in its own right.

Stefan Jovanovich responds:

The "ass-whupping" meme seems to me more than a bit overdone. Striking a small child is like beating a cat. Children are small creatures compared to us adults, and they spend most of the years up to the age of puberty navigating around us comparative giants. Simply restraining them physically - holding them still - is enough physical punishment for "acting out". What was notable in the article about poor Paul Williams is that his father - the person most likely to have the physical strength to be able to hold him still - is nowhere mentioned. You can step on a cat's tail, and she will instantly forgive you even though the pain was excruciating. Intentionally strike the same animal with one-tenth the same force, and she will view you as an enemy until the day one of you dies. I agree with Gordon's skepticism about psychiatric diagnoses. Since they almost always have no clinical basis in blood chemistry or any other quantifiable physical symptom, they are usually like visits before the parole board. The patient - i.e. prisoner - has to reassure everyone that he is "sorry" and will make a sincere effort towards "rehabilitation" - i.e. sitting still in school. My Dad's theory was that compulsory education was invented so that the adults could find somewhere to warehouse the children during working hours. In his darker moments he also speculated that it was an expression of society's underlying belief that poverty was a crime. Since almost all children were destitute, society was simply doing what it did with other criminals - locking them up and then pretending that incarceration had some useful purpose.

GM Nigel Davies responds:

I agree. And given that one of the tenets of libertarianism is to remove physical force and coercion from human affairs, this seems to be given quite the wrong message. I strongly suspect that kids who get beaten will tend towards an authoritarian attitude to life. There are more creative ways to instill discipline, such as gaining a child's attention by showing them something that actualky interests them and using a system of reward and punishment based on what they like to do. If good behaviour is rewarded it represents a trade and fosters an attitude to life based on exchange rather than force.

The President of the Old Speculators Club:

I recently read an article with a darker view — suggesting that Americans who send their children to public schools are allowing the "state" to "kidnap" their children for 8 hours a day. Hours in which they are taught what it is believed they should be taught, and shielded from those things that might make them less than docile, cooperative citizens. The goal is to produce individuals who will view governments the provider of all solutions.

Roger Arnold replies:

When I was a boy, getting a butt tannin from time to time was a part of growing up, as it was for everyone else I knew. I can still hear the sound of my father's belt as it is pulled through his belt loops. My mother would send me and my brother to our room with a pronouncement of "wait til your father gets home", and we would sit in there laughing and joking until we heard the front door open — and oh my god that's when the terror began. Nowadays we joke about it at family get togethers and, although I have never raised a hand to my own child, I can understand the utility of the spanking as a tool of nurturing.

Jim Sogi adds:

The characterization as 'authoritarian' places the wrong emphasis. The reason is that firstly operant conditioning is not necessarily controlled by parents as the authoritarian and that secondly rewards are more powerful than punishments. Everyone is subject to operant conditioning regimes, some of which they may be aware, but also by many others of which they are not aware. There are in fact random conditioning regimes that wreak havoc on the unsuspecting. The result is superstitious behavior and the development of personal "issues" and psychotic behavior due to the various random influences at work creating random patterns in people without their knowledge. We see this in the markets daily. When one is not aware of the theories of social learning, feedback loops can be created that are destructive and create bad habits. When one is aware of feedback patterns in social situations one can control the bad influences and foster the good. A human cannot opt out of conditioning regimes. They exist everywhere in the family, in society, at work, and also as random elements in daily life. The question is not whether social learning takes place, the question is which regime is going to dominate your development? The random crying of a baby? The whims of a teenager? The random flow of traffic? Or the structured goal oriented regime of successful adults in the pursuit of happiness. To believe one is not conditioned every minute is denial. The question is who is doing the conditioning and to what ends? In the delightful and hilarious book, Taxonomy of Barnacles by Galt Niederhoffer, read during the last vacation, the issue posed by the author was whether nature or nurture were the determining factors in the success of a person. This issue has been a great debate in our family and I agree with the author that nature is the predominant influence, and that we in fact are subject to many of the same traits our grandfather's displayed to a remarkable degree, and that conditioning might try to guild refined gold or paint the lily, but the mold is cast genetically to a much greater degree than most are willing to admit.

Steve Leslie offers:

Jim, you have nailed what I find one of the most difficult aspects of trading. If I open a trade and the price goes the direction I want, I feel rewarded; if it goes the other way, I feel punished, but these feelings have little to do with actual success. Success is trading when, and only when, one has an edge. Individual trades may not be profitable because of variance or because the hypothesized edge is illusory or has fallen prey to changing cycles. Success is managing risk so that, after the inevitable setbacks, one lives to fight another day.



I was watching CNBC over a bowl of cereal a short while ago and Pisani said something along the following lines: “The S&P cash hit 1388 or 1389 again this morning and backed off. This is about the seventh time this has happened.” I don’t generally follow information like this but have seen lengthy List conversations about various indicies at various levels (including “the round”). First, is Pisani’s information accurate (or at least close)? Secondly, is it indicative of anything important? I’ve heard much of “levels of support and resistance” but am not sure that they, or double and triple tops, are significant (it wasn’t that long ago that Dow 11350 was being watched as an area of resistance - obviously it has been overcome).

John Bollinger replies:

I find repeated visits to a level, line, band, etc… useful as ‘logical places’ to take decisions. This is the sort of thing that is hard to ‘count’, but relatively easy to trade. Some of you may know Fred Wynia, it was he that taught me the importance of making decisions at ‘logical places’. I put ‘logical places’ in quotes as it is Fred’s term.

Dr. Phil McDonnell replies:

Pisani is accurate. The previous 6 dates and highs are:

11/13  1387.61
11/8   1388.92
11/8   1388.61
11/7   1388.19
10/27  1388.89
10/26  1389.45

So this morning’s high made the 7th such high in the 1387-1389 range.

Under the category of knowing one’s adversary I would note that there has been a long term up channel which one can draw on a chart over the last few years. The tops of significant rallies appear to be collinear, so drawing a line through them gives an upper limit to the channel for chartists. We hit that line on 10/26 at 1389 (or so) on the SnP.

Note that the line is an up sloping line but it has a much more gradual slope than the recent advance from the June-July lows. I would put this in the same category as round numbers and other such things which cannot possibly work but do. Human beings are superstitious and those who look at charts may sell at such junctions ‘just to be safe’.



Lately, I've been contemplating the lessons that I've learned in my life, with special emphasis on the things that I learned, believed, and found out later were wrong.

I wonder what I don't know now that is hurting me as a father, businessman, husband, etc.

For instance, I never bothered with counting. I relied solely on technical analysis and my ability (or what I perceived as my ability) to recognize patterns and tendencies. If this list has taught me anything (besides the necessity of counting), it is to test my premises and try to falsify.

Let me give you an example of something that happened to me over the 4th of July weekend.

My family went down to our lake house for the week. We went over to the Current River to sit on the shore and let the kids swim.

I absolutely hate doing that. I hate the intense heat coupled with the bugs. I hate sitting on a gravel beach. I hate getting grit in my swim trunks (it always seems to find its way into uncomfortable areas).

But what I hate most are the types of people that are there. Now before you judge me for what I'm about to say, please hear my confession to the end and my followup request for forgiveness.

I didn't like the people that frequent those gravel beaches. I don't like the way they act, the things they do and they way they behave. I don't like their lifestyle. I simply don't like much about them. Basically, they were the epitome of white trash.

I was sitting on the gravel beach, next to my dad, step mom, and 4 year old. My wife and older 3 kids went downstream about 200 yards to play on a rope swing (swing out from shore over the river and let go…lots of fun, if you're a kid).

The people on the upstream side of me were listening to some country music that I didn't like, were guzzling beer, and chain smoking (I hate the smell of smoke). The people on the down stream side of me were smoking and guzzling beer, and listening to some weird bluesy thing that I didn't like (please note, all these people drive their cars right to the shore line and turn on their stereos). The people on the sandbar behind me were listening to Lynrd Skynrd which I do enjoy, but couldn't hear too well because of the other idiots' loud music…but that didn't matter because the Skynrd crew was directly upwind of me, so I got to smell their smoke.

The conversations that were occurring around me were enough to make me want to jump and strangle them all. "My stupid boss was b!+ching at me again, for being late. But I was only 1 minute late, so I wanted to tell him to #$%#^$$ off" Basically I was surrounded by the inane conversations of low IQ, low personal drive, low self esteem, lazy, under educated, union mentality, entitlement mentality, tattoo adorned, chain smoking, alcoholic wife beaters, who's lifetime highlight was when they were on COPS! Yes, typical white trash.

At least that's what I was thinking. I know that's harsh. But it's what I was thinking.

I guess I'll confess right here that I have a hard spot in my heart for white trash because I grew up with them, played with them, fought with them (read: got my butt whupped), got stabbed by them 3 times, and was bored with their inane idiotic low IQ conversations.

Anyway, back to the story.

I decided to walk down stream to watch the kids swing.

As I got within 100 yards of the rope, I watched my 7 year old son, Hunter, take his turn for a swing. He walked way up the hill with the rope, ran down, kicked his legs up and started his swing out over the river. Unfortunately, he held the rope to low, so when the rope snapped taut, Hunter went crashing into the water right at the edge of the shore.

I watched him climb out of the water with a pained look on his face and could see him mouthing the words, "ouch, ouch", and holding his leg.

My 11 year old son David walked over to Hunter to see what was wrong. David's eye's got real big and he started screaming to his mom, "Mom, get over here, Hunter is hurt". At first Gwen didn't know what was going on, but when David yelled, "Mom, Hunter is cut bad, I can see his bone", Gwen sprang into action. She turned to yell for me to come over and help as she was running out in the water to get to the other side of the river (the rope swing was on the opposite from where we were).

I turned to one of the one of the people that I had classified as white trash and handed them my hat and sunglasses and asked them to "hold this". They did so without hesitation. As I ran out into the river, I was contemplating how to get Hunter back across. I saw a "white trash lady" with an inner tube. I was going to ask her for the inner tube, but I didn't have a chance to ask as, she was already running towards me with the tube saying, "Take this across to get the boy".

As I was swimming across, I noticed another man was ahead of me almost to the other side already. He ran up on the other shore where my wife, Gwen was already with Hunter. He ran up and said, "I'm an off duty police officer, let me help".

Now as a rule of thumb, when someone is hurt, you're supposed to stay calm and let them know everything is going to be ok. This "white trash off duty police officer" took one look at Hunter's leg, and dropped the F- Bomb, "Holy F###". But even with that faux pas, he took charge. He grabbed Hunter's leg, and applied pressure, got a wrap around it.

I finally made it to the shore, and saw that things were as under control as they could be with Hunter, so I started to strategize how to get him across the river.

At that moment, a group of "white trash canoeists" were coming across the river. A whole group of them!!!

The first one to make said, "Put him in here, put him in here, we'll get him across". So I picked up Hunter, cradling him in my arms, with the "white trash off duty cop" still applying pressure to his leg and waded out into the current.

When I got to the canoe, the "white trash lady" in the front jumped out and said, "get in here", helped us in, got Hunter and me situated so I could apply pressure to his leg, and her husband started paddling us across. I have no idea what happened to her, except that I could hear her yelling at her husband, "Paddle faster, paddle faster".

It was then that I noticed, as I'm paddling with my right hand, and holding Hunter's leg with my left hand what was happening in front of me, upstream.

A whole group of canoeist were coming downstream, but in front of them, blocking the way, was a whole bunch of "white trash people". They were directing them to the shore and out of our way. I heard several other "white trash people" yelling upstream to another group of WTP to bring down their power boat to get us upstream (actually it was the group of WTP that was smoking, beer guzzling, and listening to some weird bluesy music right next to where I was just sitting 5 minutes ago) that had the powerboat. They started coming down stream to help.

By this time, we were in shallow water (maybe thigh deep). All of a sudden, WTP started running out into the water, getting on both sides of the canoe, grabbing it, and pushing it up stream.

I was yelling up to my father, "Bring the Ranger down, Dad, unhook the dogs and bring the Ranger down" (we had my Polaris Ranger with us at the Gravel Beach). Unfortunately, my dad didn't hear me. However, that didn't matter. Some WTP ran up to him, told him what was happening while another WTP was unhooking the dogs from the Ranger.

My dad jumped into the Ranger and started coming towards us. As he's driving down the gravel beach, WTP are moving their chairs and coolers out of the way so he could get by.

When I saw him coming, I told everyone pushing the canoe upstream to get us to the shore, which they did. I jumped out and grabbed Hunter and started running up the gravel beach.

Just as my dad and I met, and I was putting Hunter into the Ranger, handing him to his mother (I have no idea how she got there), a WTP ran up to me and said, "Here you go buddy, good luck with the boy, the nearest hospital is in Ellington". The reason he said "here you go" was because he was running toward me to give me back my hat and glasses.

I have no idea what happened to that inner tube that fine lady shared with me. I have no idea what happened to that canoe, that off duty cop, the person who gave me my hat back, the people who pushed the canoe, the people who directed the canoe's toward the shore, the guy in the power boat who tried to get to us…I have no idea whatsoever. I don't think I would recognize any of those people if they walked up to me and said hello.

All I know is that the same people that I was just looking down upon as white trash with just short of disdain were the ones who had, without question, jumped up and helped me rescue my son from his precarious situation. They had given of themselves and helped me and my family!

I wonder, how many more blind spots do I have in my life? How could I have let myself get so blind so as to not see the goodness within people? How many other areas of my life am I missing out on opportunity because of preconceived erroneous notions?

How does this effect my trading? Where am I lacking wisdom, or worse yet, where am I ignorant and don't know that I'm ignorant?

I am on a mission to find those blind spots. I want to then falsify and remove them from my life.

In the meantime, I owe all those wonderful human beings on that gravel beach an apology.

Craig Mee replies:

I offer that, being in situations you are used to, (ie WTP having probably most holidays and weekend breaks in the same areas ) breeds familiarity and confidence and thus a solid framework, for moving into top gear and showing a professional evaluation of the circumstances when needed. Though bring others in with no knowledge of local condition ie, depths, drop offs, road access, and the like, and they will fail miserably , no matter how good the intentions. > > Maybe the old adage of , trade markets you know, and in a crisis where, most downside will be, you will surprise yourself, by how well you dealt with it.

The President of the Old Speculators' Club responds:

A friend of mine who reads this column asked me why I was writing a three-part series about "rednecks" when there are so many other things going on right now that are worth writing about. It's a worthy question. And there are many reasons why I consider the discussion of "redneck" America timely. Here are just a few:

1. The slow transition of our economy from one fundamentally based on domestic manufacturing and production to one based on technology and services — that imports its hard goods from other countries. This has implications for the future of such typical "redneck" (and largely unionized) vocations as factory work, trucking, mining, auto assembly, etc.

2. The cultural shift that's challenging (some would say marginalizing) such historically mainstream American institutions as the practice of religion, heteros-xuality, opposite-s-x marriage, military service, citizenship, firearm ownership, private property rights — and scholastic, athletic, or workplace achievement through competition. Many of these things are staples of "redneck" life.

3. The fact that America is currently at war (or at least militarily engaged) on multiple foreign fronts. As you've just learned, this has major "redneck" ramifications.

Basically, my overarching point in devoting so much ink to "redneck" America is to show just how integral to the American fabric (and economy) these people are — no matter how distasteful that fact may be to many who are now front and center in the mainstream media. And indeed, many Whiskey & Gunpowder readers who rendered feedback on the first two parts of this series wrote in with their own positive anecdotes and affirmations about the shunned, yet vital majority these pundits call "rednecks." But a few criticized me for not painting the whole picture of this huge segment of Americana.

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