Aug

23

 WASHINGTON

Mon Aug 22, 2011

3:39pm EDT(Reuters) -

Goldman Sachs Chief Executive Lloyd Blankfein has hired Reid Weingarten, a high-profile Washington defense attorney whose past clients include a former Enron accounting officer, according to a government source familiar with the matter.

Full article here

Aug

21

 Aug 19 (Reuters) - U.S. technology company Apple is now worth as much as the 32 biggest euro zonebanks.

That reminds me of my day trader buddy that told me in 2002 that Broadcom's market cap was bigger than all the gold stocks he just bought for buy and hold. I asked him a few years later how it was working out: "Great, if I would have held them."

Aug

8

 Between and betwixt all of the market volatility, there was an under-reported litigation development on Thursday — which can both explain some of the volatility in the financial stocks AND can explain BNY/Mellon's decision to impose a fee on parking cash. This development could be a game-changer for the capital markets. (Bigger than Spitzer going after AIG for example.) During the week, the New York Attorney General sued BONY/Mellon for breach of fiduciary duty as trustees/custodians! (I suspect almost nobody noticed this.) They are the largest custodian in the USA.He's seeking penalties and restitution.

The issue at hand relates to their role in the 8+ Billion settlement with BAC (which was on the rocks already). HOWEVER, that the AG would sue a trustee/custodian (at all) and under these legal principle is a game changer — that could have repercussions for the way the entire capital markets function — and the costs of being a custodian/trustee. Being a trustee/custodian has always been a sleepy business — where you collect a couple of basis points — and fill out forms. To the extent that trustees/custodians now have billions of dollars of liability changes the landscape forever.

Jim Lackey writes:

Someone posted a chart Friday of Preferred stock index or ETF. It was down near 2% and the posted yields on some of these things are near 7%…. like ISEE after the '09 bank lows. There was one other hick up in April 2010. It was calm seas until Thursday. Friday am looks like get me out now orders. 

There are only a handful of global custodians — and when the stock market is gyrating, it's different to discern the chaff from the wheat. However, I believe that the AG's interfering in private litigation under these legal principles is just as shocking as BNY/Mellon's charging a fee for holding cash. The timing of both announcement, I believe is not a coincidence. IMHO this litigation was by far the most bearish development of the week.

Aug

5

It's strange that traders work so hard for days during calm seas to make 5 or 10 pointers, yet they always fear at any moment that a twister can kick up a dust storm and destroy the month. Yet, in a panic a trader gets lucky and is up 10 points in 10 minutes, or up 20 on a random number generated news story, and you almost have to reach through the data feeds yourself to get the guys to sell.

It must be why some fighter jets have 2 men in the cockpit and race car drivers are totally dependent on their spotters and radio.

Aug

4

Traders are so convinced it's all rigged so we get this comment from a chartist.

"Can you believe this is the low of the day.. that can't be a coincidence."

SPX Low 1,234.56

Jul

21

1:28pm| The New York Times report was written by veteran journalists Carl Hulse and Jackie Calmes. The paper appears to be standing by them, despite denials from all sides.

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1:25pm| Carney says report that administration informed congressional leaders that a "grand bargain" was near "is incorrect." Says discussions going back and forth..

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1:25pm| A spokesman for Eric Cantor tweets: "To be very clear: @GOPLeader Cantor is not aware of any deal or aware that any deal is close."

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1:24pm| Carney says he "will not address current negotiations and the parameters of them." Won't comment on whether tax reform, entitlement cuts still on the table.

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1:23pm| NBC News: White House Legislative Affairs Director Rob Nabors seen waiting outside Speaker Boehner's office..

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1:22pm| NBC News is reporting OMB Director Jack Lew was spotted going into Senate Democratic lunch..

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1:21pm| Carney: The suggestion we are close to a deal is incorrect."

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1:20pm| Carney: "There won't be a deal until there is a deal… Not having one now doesn't mean one won't be reached… We are cold-eyed realiists to the challenges to reaching a deal." 1:15pm| Carney says "We are not there, but we are hopeful we will get there." Says White House confident a $3 trillion to $4 trillion deal can still be reached.

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1:12pm| White House Press Secretary Jay Carney has started his briefing. Updates to follow.

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1:11pm| More from White House Press Secretary Jay Carney: "there is no progress to report but we continue to work on getting the most significant deficit reduction package possible.” He added:”Talks are ongoing over the phone and in person at the staff level and above."

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1:10pm| The New York Times appears to be standing by its reporting, tweeting again: NYT NEWS ALERT: Obama and Boehner Close to Major Budget Deal, Officials Say.

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1:09pm| Sen. Tom Coburn (R-OK) says Gang of Six deal can't be passed by Aug. 2 deadline. He wants Cut, Cap, and Balance to be the final deal.

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1:08pm| The New York Times has posted their report here.

Read the whole thing here.

Jul

19

 I still ride/race little kid BMX bikes. My buddies get a kick out of the fact I don't show up for 6 months and blow past them down the straits with all the jumps. I get a kick out of the kids. "You don't look that old"… On the feeling old front, it takes forever to recover after vigorous exercise. We must force ourselves to just ride. I got out almost every day and never feel like riding. Most days it's a lap around the neighborhood with the little ones. Once a month or so, hit it hard. You will feel great. If you hit it all too hard, feel sick, after an hour or so you feel awesome. I feel like a kid again.

On the roadie bike front, I have never been a roadie. My dad would not allow me to ride one of those "bikes with those stupid skinny tires that can get caught in a drain and you do a face plant".

Yet, road bike training is one of the best ways to train to race MX motorcycles. Try to ride a long duration with a high rollout gear on a BMX bike and you cant average more than 15MPH. A road bike you can really fly. The new breed of mountain bikes are awesome. They have the Urban series that is a BMX frame, Fox shocks so I can ride long distance and still ride down stairs and jump over anything. Nashville is a blast to ride downtown. I am going at 6am.

If you don't ride much or for a long time your butt needs to get into bike shape. Nothing gets more sore than your hind end. It takes 2 weeks. Also you do not use your hamstrings much or at all riding bikes. It's imperative to stretch them anyways. After B ball or a run you can always feel your tight hammys. After vigorous bike riding you can't. But your quads get stronger so there is a ying and yang. Stretch them our or your lower back will hurt like all hades. It's not your back!

FOOT DOWN is a great game to play in the drive with your kids to learn bike skillz. Mark off a box where if you leave, go over a line your out. We play drive way to drive way. You ride and try to make the other riders put their foot down. You're not allowed to touch or grab. It's not good for 5k road bikes in case some one does hit your wheel. I knock all the kids in the neighborhood out. I can pull in front of them stop, hold my brakes and still balance for a minute or I bunny hop out of a jam.

We can teach - 3 year old kids how to ride bikes. They can race at 4 and for sure by school age. For years we took the cranks and pedals off the cheap walmart 12" wheel bikes and let them scoot around. A few years ago our BMX buddy starting this company. Of course he has little show races about 30 yards on some part of the track and it's cute.

 Kids don't ride bikes much anymore. I encourage every kid to ride a BMX bike or buy a MX trail bike if they are not interested in team sports. The biggest group of racers used to be 11-14 year olds. Now, not so much as both parents are forced to work and can't bring their kids to the races. Our biggest group of new racers is 5-8 year olds. That is the time where kids cant dribble, hit or catch a ball that great. Also that is about the time where mom has second child, a new baby in her arms as the little grommet is out there racing their new bike.

There is something to economic numbers/jobs and sport participation. I noticed the same thing in the 80's. It was a wicked recession back in the day and dad didnt work much and if he did it was out of town for a boiler repair job 4-6 weeks working 7/12's. So we never went with out. Yet once the economy picked back up the amount of racers attending the big races dropped off. I see that again now. People say, that is because the economy is so bad. I say, naaa it's because people are going back to work. They need to make some cake. Many men were out of work during the recession. Americans said, fine, screw it, I am going racing with my kids.

Now it's time to start to "get back ahead of the game" I hear that a lot lately, and it's an attention getter. Dad said that so many times. I can tell you one thing for sure. It's very difficult to be a sprinter after you hit around 40. In BMX racing we have Vet Pro and its 30. I complained for years it should be 35, best 37 and over. I see a few guys still in pro ball in their pate 30's. I didnt lose much sprint speed from 28 til 38, but I lost a ton of power at 39. Yet endurance sports can be played forever. My wife as most female runners do got better with age. All my X Motocross buddies are back racing. They had some vintage class the 50+ guys raced and my buddies started there. Glad I didnt fall back into that. They are all now on Brand new Honda's and Kawasaki's racing Nationals. Oh it's not that I can't or I am scared of injury. Perhaps that's a problem. Naa, the real problem is it's costly and I'd spend time away from my little girls. My son is Mr. highschool football and escaped the racing addictions. I'd hate to take my little girls (who do race BMX) to MX races and have them want to be a girl pro. Yes, now a days there are awesome young women that are professional MX racers. They are fast!

Check out Ashley Fiolek.

Jul

19

 Have the dept of treasury's statements ever not been a theatrical farce?

Ken Drees writes: 

I was taken in by the hushed tones of interviewer, Steve "lies" man, the dimmed lights, the Maria Bart dusky set, and the hunching closeness between the two — I thought it was a soap opera. I thought either a kiss was coming or an unannounced visitor was going to enter stage right.

I mean if Obama doesn't get his tax hikes we are gonna get it — screw the seniors, scare the markets with a down day after the t secretary gets in your face on fin tv (lesson here), and all the other drama that this market is trading about. I mean monday morning theatre!!!!!!!

Is this the norm? Maybe this is not a meal for a lifetime –but it's surely market popcorn. 

Jul

12

 Suddenly, after all these years they can not use the 5000 - 10,000 workers. Even if (which is usually total BS) the average comp was 100k and they did save a billion.

Goes back to my 10 year discussion we have had on this list going back to INTC and Andy Grove's mumbo: "America doesn't produce enough engineers" Yeah, that will work for 15 bucks an hour.

Read the full article here:

Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.

Jun

15

 So some more "how's business in the heartland" observations. I needed some new tires for my trailer and ended up at a truck towing/repair shop in southern, IL last week. Had a lengthy talk with two individuals, one (Randy) who was the owner of this shop and two others. The other was a stock broker turned truck driver for whom I have no name. Randy's observations (with a grain of salt, since it was 10pm and he struck me as someone who likes a good story…)1) Truckers are keeping their trucks longer. He attributed this to distrust in the new diesels which are designed to meet new emissions requirements. The new designs have proven difficult to maintain and expensive. He is doing a booming business repairing the old ones and "deleting" the emissions from the new ones (think back to the introduction of the catalytic converters). Those who want their new engines "improved" have to sign a waiver that the vehicle will be used for racing…. I suspect it maybe because the truckers can't get financing..

2) Randy's towing business is booming to the extent that he is turning away "road side service" contracts that would cut into his margins. This of course drives some of his repair business. The booming towing business would seem to indicate that the operators are delaying preventive maintenance until the trucks break as well.

3) The stock broker/trucker moved from Wall Street to the freeway in 2002-2003 to get away from the stress of dealing with clients. He is an owner operator under contract with one of the large brokers. He lives in Florida and is home about 1 week a month, though he mentioned taking loads to specific locations to visit his friends. Plenty of work, plenty of money to be made.

4) Also spoke to a tow truck operator who says the new Ford diesel pickups are dying like flies on the freeway. This is a new engine specifically designed by Ford to meet the new emissions standards and it is not doing well. Ford has done very well in the heavy duty pickup market in recent years (F350/450/550) and if their new engine does not hold up, it will affect their standing.

5) My observations about truck vs car traffic are holding up. Long distance traffic (inter city) is predominantly commercial/truck traffic. The hotels that are busy seem to be catering to the contractor/temporary worker market. The big trucks are definitely driving slower than the have in the past. I think I've only been passed twice in the last 2 days by a semi.

Jim Lackey writes: 

The important thing for Nat Gas as a fuel to work is stable nat gas prices. Fleet managers cant have the Nat gas go from 4-16$ back to 4$. All the new supplies LNG to CNG and the new transportation ships and lines are all nice. There is a need for just in time supply. Storage is a problem.

Yes! Nat gas works great as a fuel for cars and trucks. The problem is going from the pipe in the ground and compressing and filtering the gas at home or at the fuel stations. I looked into it for hobby use and it's a no go for me in the garage, so far. The fuel tanks to run a gasoline and nat gas system take up too much room unless you have a big SUV/ truck. If you're solo Nat gas it's then a round trip 300 mile only vehicle.

Westport technologies WPRT and FSYS Fuel system solutions are my idea for investments if this tech ever took off. It didn't. UPS and other fleets use WPRT at 10k a click for LA garbage trucks and 50k for long haulers. The costs would pay off if you had a route like UPS USPS and wanted to invest in the fueling station and systems to run all your tools..forklifts, trucks to tractors.

I am unsure on the delivery costs for LNG to CNG via trucks like they deliver fuels today. It only made sense to me to use the normal Nat gas lines, but then it needs to be compressed and water free. I don't want a CNG tank at my house. Perhaps when all my kids are driving and I own a fleet, Ill buy a Nat Gas compressor and build a shed refuel station. I do not want to burn down the house.

The Germans and Detroit Diesel spent a fortune in the emission tech. Mercedes and BMW use it in their small diesel car engines. Here is the gist.

Cummins, Detriot Diesel and all the engine makers had to deal with how to comply with the new rules set in 2007. Most bought new trucks right before the financial crises..so it was a double hit to production. In New Ford F series trucks the new engine is a 2009 design.. Cummins (for light trucks) is 2007, so lets say they have many of the bugs in the electronics, fuel and mainly the exhaust systems worked out.

The auto makers spent a fortune on Hybrid tech.. That is the gate way to fuel cells.. the cars are powered by electric.. The truck makers spent a fortune on clean Diesel tech. It's a hard lobby job to get all to say let's go nat gas.. even if it makes perfect sense..therefore don't look to free markets for solutions even if nat gas trades at a huge discount per BTU..

On Ford F-250-350 breakdowns…

The old school Ford 7.3 Powerstroke was the engine that went a a half a million miles. The new school Electronic fuel injection 7.3 to the mid 90's was even better with electronics and intercooled turbos.Ford made an awful 6.0 diesel in the 2000's that few liked. The 6.4 was the new engine for the 2008 rule change.. apparently it wasn't a good engine either.

The new Ford 6.7 'scorpion"is a killer engine. However all diesel truck engines suffer from soot clogging up the DPF.. This is how and why new trucks break down.. If you notice a new truck there isn't black smoke out of the exhaust.. here is how that task is accomplished.

"DPF Filters require more maintenance than catalytic converters. Ash, a waste product of burning away the soot during regeneration, builds up on the surface of the filter and will eventually clog the pores. This increases the pressure drop over the filter, which when it reaches 8 pounds per square inch (55 kPa) or higher it will cause a significant increase in NOx emissions and fuel consumption. Regular filter maintenance is a necessity."

and check out how this works.Regeneration is the process of removing the accumulated soot from the filter. This is done either passively (from the engine's exhaust heat in normal operation or by adding a catalyst to the filter) or actively introducing very high heat into the exhaust system. On-board active filter management can use a variety of strategies:

1. Engine management to increase exhaust temperature through late fuel injection or injection during the exhaust stroke
2. Use of a fuel borne catalyst to reduce soot burn-out temperature
3. A fuel burner after the turbo to increase the exhaust temperature
4. A catalytic oxidizer to increase the exhaust temperature, with after injection (HC-Doser)
5. Resistive heating coils to increase the exhaust temperature
6. Microwave energy to increase the particulate temperature

All on-board active systems use extra fuel, whether through burning to heat the DPF, or providing extra power to the DPF's electrical system, although the use of a fuel borne catalyst reduces the energy required very significantly. Typically a computer monitors one or more sensors that measure back pressure and/or temperature, and based on pre-programmed set points the computer makes decisions on when to activate the regeneration cycle. The additional fuel can be supplied by a metering pump. Running the cycle too often while keeping the back pressure in the exhaust system low will result in high fuel consumption. Not running the regeneration cycle soon enough increases the risk of engine damage and/or uncontrolled regeneration (thermal runaway) and possible DPF failure.

Diesel particulate matter burns when temperatures above 600 degrees Celsius are attained. This temperature can be reduced to somewhere in the range of 350 to 450 degrees Celsius by use of a fuel borne catalyst. The actual temperature of soot burn-out will depend on the chemistry employed. The start of combustion causes a further increase in temperature. In some cases, in the absence of a fuel borne catalyst, the combustion of the particulate matter can raise temperatures above the structural integrity threshold of the filter material, which can cause catastrophic failure of the substrate. Various strategies have been developed to limit this possibility. Note that unlike a spark-ignited engine, which typically has less than 0.5% oxygen in the exhaust gas stream before the emission control device(s), diesel engines have a very high ratio of oxygen available. While the amount of available oxygen makes fast regeneration of a filter possible, it also contributes to runaway regeneration problems.The new big truck buying push….

As of December 2008 the California Air Resources Board (CARB) established the 2008 California Statewide Truck and Bus Rule which—with variance according to vehicle type, size and usage—require that in-use diesel engines (in California) be retrofitted, repowered or replaced in order to remove at least 85% of particulate matter (PM) emitted from diesel engines. Retrofitting the engines with CARB verified diesel particulate filters are one way to fulfill this requirement.[1] In 2009 the American Recovery and Reinvestment Act provided funding to assist owners in offsetting the cost of diesel retrofits for their vehicles.[2]

Jun

7

International Paper (IP +3.34%) said it would pay $30.60 a share for all of Temple - Inland's (TIN +42.36%) 108 million shares outstanding. The deal represents a 46% premium to Temple-Inland's closing stock price of $21.01 Monday.

Just when it looks like the markets are doomed, companies pay a high price to acquire their cohorts, which we have all seen before in bull mania past. Yet how common has it ever been to spend so much, and that the acquirers stocks goes up as well as the company purchased?

That doesn't seem bearish for stocks.

May

30

 One has to wonder why this whole "college is a waste of time" meme has suddenly become so prevalent. Is it because so many people have trouble with college loans? Too many writers who have nothing more to say about O's birth certificate?

Thinking one can predict the future based on what one does in the present is a persistent human foible. For sure a lot of kids go to college who don't need to. But is this truly something new? Would anyone sensible make a decision based on what they read about this subject? Unfortunately some probably will.

It remains to be seen how employers of the future will react to resumes that state "I am really smart but I didn't go to college because I read online that it was BS; but I really am smart."

One of my kids is 1/2 way through college and the other is just entering this fall– and I don't spend any time at all thinking it's a waste of time or money; it's been a path to prosperity in my family where none of the previous generation had any education past high-school (if indeed they finished that at all).

On the other hand my wife and I went to CUNY at a time where the cost was $35/semester. That's not a typo.

But I still wonder what's behind the impetus to discredit higher education?

Ken Drees writes:

I get the vibe that the intent is more of a cost justification issue. You don't send a kid to college who gets middle of the road grades and majors in marketing anymore. The job market out of college is poor and will continue to be poor. College now will set you back serious money as a percentage of household income and there will be serious debt burdens on the student and parents upon graduation. You can't put the college payments on the credit card or the home equity loan anymore.

I believe that a college bound child needs serious career planning up front, which is tough to do since kids sometimes do not know what they want to do prior to going off to the higher education arena. Like the union bubble which is feeling the backlash from the debt riddled state pockets empty reality, colleges need to step back, cut back, stop the pay raises–else enrollment is going to crater and the pie shrinks.

Victor Niederhoffer comments:

 A college education will always serve as a signaling device to employers and partners and parents that one is capable of being admitted under highly competitive circumstances and then has the fortitude to stick with the program, and finish the requirements, and the moral fiber not to have been kicked out. The signaling will always be of value and the rate of return from college should stay relatively constant.

Russ Sears comments:

Very similar qualifications could be said about homeownerships, commitment to paying a mortgage and good citizenship of being a good neighbor. When a persons limit to leverage has no bearing to what they could reasonably expect… many with nothing to loss will gamble with somebody else's money. This of course creates a bubble in some areas where there will be large oversupply of X degrees. For instance everybody will think in 2022, "what were they thinking taking forensic science and $100 grand of loans?"

The problem is when you use the argument that is it "should" be worth it to argue that everybody has a "right" to upgrade there lives. Further when you grant this "right" to any 18 year old capable of getting a high school degree you are bound to get many that should not have been given this privilege without working a few years and tasting responsibility. I still believe orginially there was a segment of responsible people that were granted sub-prime loans. These people however, proved to be the exception to the rule when everybody was given this right.The difference may be that those youth that are the sharpest will see the "bubble" within these areas and avoid them.

Could we be looking at the class of 2011? on a resume and subconsciously think what a deadbeat?

James Goldcamp writes: 

 I agree with chair's analysis of the signaling value of education, but one also wonders at what cost. I would find it hard to believe the return on invested capital has not gone down with both greater real costs and general degree (volume) inflation over time. It occurs to me that a rigorous self study program with standardized tests against which one could be compared might provide some lesser but nonetheless valuable signaling vehicle at 1/20th the cost of the current college education. Interestingly, one hire we had years ago was more known for his perfect SAT than his multiple Ivy degrees.

Thomas Miller writes:

This anti college education and anti home ownership "debate", seem to reflect a negative attitude that is growing in this country. The theme seems to be "dont even bother to go to college or strive to own your own home. it's not "worth it." just give up and settle for less." Of course college education or home ownership is not for everyone, but those that propagate these defeatist platitudes, (especially the ones that do it on internet blogs read by a large audience), are doing a great disservice to young people. "just settle for less" is not the attitude that made this country great. A generation ago, many that chose not to pursue college could get a decent job with benefits and be fairly sure of being able to retire from that job. There are very few of those jobs available now. The gap between those with a college degree and those without will continue to widen.

Russ Sears comments:

 I believe those that are "anti" college are saying take more risks start a business instead.

And for those that it will not turn out for the better, it's not good government to guarantee the loan. More responsible decisions will be made if they have to compete for access to loans like anyone else.

Ralph Vince replies:

I cannot speak for others, but I am not advocating a "give up," or defeatist attitude here. I speak with those who have children of college age frequently, as well those who ARE of college age frequently too. One of these day, I'm going to stop speaking to people who don;t take my advice (most people are incapable of taking advice, we simply have to learn things the hard way, and usually more than once)

I hear an awful lot of talk from all of these people that a college education is necessary to enter the American job market, as though it were a ticket to the dance, a means to an end as it were.

(I should point out in full disclosure I do not have a college education. I am self taught. When I decided I should learn math, I started with algebra, geometry, trig, analytic geometry, calculus, topology…..eventually stochastic differential equations, which is used (with near exclusivity) to model prices with (a nice target for a math track for someone interested in the markets, but I find these methods model prices with a degree of reality akin to Oz modeling Kansas). When I wanted to learn literature, I started with Homer, then Virgil….through to the 1950s. Of course one cannot study everything and anything, you have to make selective, intelligent decisions (which is where talking with others comes in) and someone must WANT to dispal their ignorance (and this is the key attribute, the acknowledgement of our ignorance and a desire to overcome that — whether formally educated or not).

The last time anyone ever asked me about my educational background was probably when Reagan was running against Carter.

So when I look at what people are learning, and WHY they are learning it, I DO come away in MOST cases with a "Why bother with that?" attitude.

So once we acknowledge that there are two reasons for edication:
1. To dispel our ignorance, and ultimately, to study material we are passionate about, should have such good fortune, and
2. To make ourselves, personally, a marketable product (i.e. posses a marketable "trade," be it electrician, brain surgeon, or truck driving certificate)

people can make better decisions. Unless they are fortunate enough to be a trust fund kid, they need #2. A mere college degree does NOT provide that — this is a wives tale that floats about America wherein a lot of money is being wasted in its pursuit.

#1 is a luxury — one must have the good fortune of finding what fires their jets at a young age, aside from pornography, and find a way to pursue it. If they have the resources and time, college is the way to go. If not, anyone with a spark and a modicum of resourcefulness will find a way to pursue it.

I've spoken of this before. The number of persons from the 2000 census to the 2010 census is up 20%, the number of households, nowhere near that amount. Clearly, in the not-so-distant future, either much housing must be created or much work must be done to convert the "cul-de-sac development" McMansions into 2 and three household homes. What young person is a yeoman plumber out there, or plasterer? Not many, certainly not many over the past 10 years — but it is the fastest track to acquiring #2, above, for most.

And most need #2. Not everyone needs #1, and if they have that luxury, nothing will stop them from pursuing it. But the notion of borrowing a lot of money for a ticket to a dance based on some parent's misguided model of reality (Oz!) is something the educational institutions feed on, benefit by and play to.

Jim Lackey writes:

 College is the time to meet your mate, your equal. For the fortunate men, it's  the better half you spend life with.

In your college years, there is only so far you will go…. Either to fake it, to fit in/get ahead or rebel against, to get off easy and/or explore the adventures of danger. The gist is how you act when no one you know is looking. Sin may resurface later in life. For certain people, the hypocrisy of life will rear its ugly head. If a married couple knew each other during these years of growth and uncertainty it's near impossible to argue later the lack of full disclosure prior to marriage.

A grievance can always be resolved. A slight, an imaginary hurt, the lack of full disclosure–the "I thought I knew that person". That person will hate you til the day they die.

My guess that is how/why bitter divorces ruin families… vs the much higher than average success rate of current marriages from my anecdotal evidence of family, friends and cohorts that married some one they knew from school.

Jeff Sasmor writes:

Good article on "What's a Degree Worth" :

What Are You Going to Do With That?

For the first time, researchers analyze earnings based on 171 college majors

By Beckie Supiano

Tuition is rising, the job market is weak, and everyone seems to be debating the value of a college degree. But Anthony P. Carnevale thinks these arguments are missing an important point. Mr. Carnevale, director of the Georgetown University Center on Education and the Workforce, has argued that talking about the bachelor's degree in general doesn't make a whole lot of sense, because its financial payoff is heavily affected by what that degree is in and which college it is from.

Now, new data from the U.S. Census Bureau sheds light on one big piece of Mr. Carnevale's assertion: the importance of the undergraduate major. In 2009, the American Community Survey, the tool the bureau uses to collect annual estimates of population characteristics, included a new question asking respondents with a bachelor's degree to give their undergraduate major.

After combing through the data, Mr. Carnevale says, it's clear: "It does matter what you major in."

Laurence Glazier writes:

After the signalling provided by college qualifications, the deliberate undertaking of full-time employment may signal the willingness to allow creative fruit to wither on the vine. A shibboleth of perspective. So many wait for retirement (which may not come) to allow vent to such aspirations, but the law of the farm dictates regular irrigiation throughout a lifetime.

To this end there would be much benefit to all if full-time work became less the norm. The end of government subsidy of unsound housing loans would reduce the pressure on people to suppress their finest qualities.

The Harry Potter books emerged not in spite of the writer's modest circumstances, but aided by them.

David Hillman writes:

Very astute observations.

A laborer can be trained to dig a ditch to a certain depth. A monkey can be trained to dance to the organ grinder's tune. Even a plant can be 'trained' to grow in the desired fashion. But few of the former are, nor neither of the latter can be, trained to *think* and creatively problem solve.

One might speculate that emphasizing skills, specialization and technology in educational curricula and employment qualifications may be the culprits.

While a college education being increasingly available only to the affluent because of financial considerations is, indeed, an issue, perhaps another of our chief concerns should be that we are creating a nation of people who are trained, rather than educated.

Kim Zussman writes:

The "education ruins thinking" argument has value, but simply looking at dollars a college degree pays more than just HS diploma. BLS stats below shows increasing income with formal education: about $400/week more for college grads - which of course does not include harder to value assets like volume of learning, tutored critical thinking, facility of life-long learning, status, access to better mates, good memories, signalling, etc.

One would need about 10 years of the additional (median) college grad salary to pay for 4-year private degree (ignoring taxes). Would the degree be worth it if it took 20 years to pay off?

Unemployment rate     Education attained        Median weekly earnings
in 2010 (Percent)                     in 2010 (Dollars)

1.9%            Doctoral degree            $1,550
2.4            Professional degree         1,610
4.0            Master's degree             1,272
5.4            Bachelor's degree         1,038
7.0            Associate degree           767
9.2            Some college, no degree           712
10.3            High-school graduate           626
14.9            Less than a high school diploma       444

8.2                     All Workers                        782

Note: Data are 2010 annual averages for persons age 25 and over.

Earnings are for full-time wage and salary workers.

Source: Bureau of Labor Statistics, Current Population Survey

Rudolf Hauser writes:

The question of a rate of return on a college education is not that easy to measure. For one, it will vary greatly on the college attended both by cost and quality of education. It would also vary greatly by the course of study and how much a person actually learned as opposed to just getting by and having fun. Even taking account of these variables, it is not an easy question to answer. The math is a simple discounted present value calculation, but the inputs are something else. For one, the attributes of those attending college and those not attending will differ. Those with an interest in learning and working hard, more personal discipline and more ambitious are more likely to be attending college than those who are not. Those people are more likely to earn more than the group that does not go to college even if they had not gone to college. So while the value of the education is the difference in what they earn in the future compared to what they could have earned had they not gone to college, one cannot just assume the latter is what those without a college education currently earn. In addition what is actually earned will not be a single average or medium figure but will have a wide distribution around it based on good or bad fortune, who you know, and countless factors beyond one's control. Costs while being educated in addition to direct costs of tuition ,books include difference in living costs relative to what they would be had one not gone to college and opportunity costs of lost potential earnings from working rather than going to school. Then there is the question of how much of the difference is due to signaling as opposed to the value of what was learned and contacts made during school. That is real but could change if the marketplace found alternatives to such signaling. If lower education had more strict criteria for graduation and grades the signaling value of a college education might lessen as employers had more confidence in that and prior work experience. The cost of loans may also vary, so that how the education is financed will matter a great deal.

In addition to monetary economic measurement, there are other benefits that might be gained. Meeting a spouse has been mentioned by list members as one such benefit. Learning about many areas and learning how to learn, may enrich one's life as a person, contributing to the value one has to society and family and to one's personal richness of life and happiness. But if prospects do not turn out as one hoped, it can also lead to unhappiness. The question then is how much one wishes to pay for these other potential benefits or negatives (i.e., the probability of disappointment). Some areas of study such as general liberal arts, might be expected to have a higher risk of low or negative economic returns than more specialized fields, but specialization runs risks if those skills become of less use to society.

 
On a personal level, I do not believe it make sense to send a kid to college unless they are actually going to work hard to learn. If not, it might be best for them to work for a time and see how difficult life can be without a college education. Often they may then go to college and actually make the most of it rather than going at a younger age and goofing off.

I might also add that education need not be in the classroom. The time spent learning on one's own is also education. One need not attend college to learn. It might not have much signaling value but it certainly helps in many areas. The cost is the value of the time spent either in terms of the value of one's leisure or economic opportunity cost.
The ability to learn might be enhanced by a formal education. One of the things I would advise a person attending college to learn is how different disciplines think. The way a lawyer thinks about problems, the way a scientist does, the way a creative writer thinks , the way an economist thinks differ and are specialized in some ways that takes a time to learn. The first course in microeconomics is difficult for many students, for example. The more ways of thinking one understands, the broader ones ways of understanding the world, understanding other people and in solving problems. Some of the great innovations come from taking of advantages in knowing something about other areas of learning that provide insights into the problems in your area of interest.

David Hillman writes:

Ok, then, I meant the focus to be on the point of training versus education. If it requires more updated or timeless references than those to the 20th Century, so be it, and I beg pardon.

(1) Backhoe operators are *trained* to operate them, but there are many instances of heavy equipment being stuck because the operator failed to *think* about the application.

(2) Musicians can be *trained* to play an instrument, but without a proper foundation, i.e., *education* in music theory, history, etc., while the music may be technically correct, it is often dry and mechanical, uninspired and with an 'off-the-shelf' feel.

(3) An air traffic controller can be *trained* to direct aircraft, but when an emergency arises, he/she must *think* of how to resolve it, not unlike,

(4) A 9-1-1 operator being *trained* to follow protocol, but when that protocol does not apply, hopefully, that individual may be capable of *thinking* of a way to prevent loss of life.

And, what of entrepreneurs like you and me? How can one be *trained* to brainstorm an idea out of thin air, then take it from the drawing board to reality? But, one can certainly be educated broadly enough to think creatively, make connections, take calculated risks and solve problems. Even in strategic planning, one can follow a plan, but the successful execution of it requires feedback from the real world and adjustment, which requires the ability to think, not just the ability to follow an SOP manual.

Clearly, a liberal arts education is not for everyone and the rise of tech schools and alternative forms of education and training should be applauded. For those who require training, the more well-trained they are, the better off will be all of us who depend upon their services. But, one should not necessarily depend upon them to do anything other than the job for which they've been trained, nor to be able to *think* creatively when faced with a situation or event for which they have not been trained. Trained mechanics may depend upon a diagnostic computer and trained line cooks upon a recipe, whereas a great mechanic might 'feel' a rough idle and a great chef might improvise a dish. The latter two have the ability to think and create, some of which is natural, but a good deal of which may also come from an education.

Nor is a college education always the right thing for someone at any given time. There are plenty of examples of individuals who failed to perform well in college as a recent high school grad, but did stellar work 'going back to school', my own being one of them.

Some eschew those who are 'too educated' as being 'troublesome' precisely because they can think. However, if I knew nothing of one's natural intelligence, and had to choose, I'd probably go with the educated over the trained.

That said, neither education nor training has much to do with 'smarts.' For that, you either are, or you are not. Some of the dumbest guys I've known have had PhD's, but so have some of the smartest. Likewise, some of the least educated have been the smartest and most capable, but there have been many that are dumb as a box of rocks.

As someone once told me, "it's better to healthy and rich, than to be sick and poor." I'm kinda thinking it might also be better in the long run to be smart and educated, than to be dumb and trained.

Stefan Jovanovich writes:

David is right. If there is any fault to his argument, it would lie in his optimism about the capacities of higher education. But, then, my cynicism about schooling comes from having literally grown up in the business and from being a 2nd generation academic bum. (There are not many fathers and sons who share the distinction of having gone to graduate school in English literature solely because they had no better idea of what to do and the GI Bill would pay for it.) School, like most things, is what you make of it. My difficulty is that "education" is now what "national defense" was in the 50s and beyond; an open-ended appeal for more money that is always justified in the name of some higher good that is incapable of being questioned.

Jeff Rollert writes:

I concur with Ralph, and if you believe in the concept of singularity, then a repetitive answer method is most likely to be replaced by a machine.

For me, I believe that standard problems will have standard solutions already applied to them before I'm even aware of the problem. So if one were to find employees who where good at sensing/finding the "unknown-unknowns" then they would have to have a non-standardized approach - in other words a non-academic approach.

Lastly, in a logic sense, how can something be a "value" but still be "expensive"? Aren't these mutually exclusive?

Tim Melvin writes: 

We have dealt with both sides of the college issue here in the past few years. My daughter on her quest to be the world only libertarian teacher had no choice. To teach you must have three degrees and credentials. She has on semester left and has pulled a 4.0 throughout. She may have learned some basic teaching techniques she did not know but the general education element was lost on one who reads like her. When I look at the top 10 majors in US colleges I have a hard time seeing what we are producing except middle managers. Teaching and nursing are the only to that offer a truce vocational choice. I would love to have had four years to study literature, but I question the employment value of the degree itself. The top tier schools may be different but is seems to me that our universities are teaching fixed values and information, not how to think. How to think has to be either installed by your parents or learned on your own. I cannot see where this can possibly be worth the cost today. Perhaps Colonel Depew can add a though on this but I think teaching the young to read the Great Books Curriculum would go farther than the current middle management factory that are most schools today.

I never went to college. Truth be told I dropped out of high school at the enthusiastic recommendation of the local authorities. What education I have I obtained from between two covers in the style of Louis L'Amour– I suggest that book as a manual on learning to think by the way. I read constantly when I was a kid. My mother was wise enough to let us read anything we wanted regardless of content. If there was something we didn't understand she made us find the source material to explain it..and this was back in the day when Encyclopedia Britannica was still the source of knowledge not the internet. I have continued to read ravenously all my life. I read anything and everything. I have found that even fiction often contains lessons for life and can be a source of knowledge. As an example, I read two or three of Robert Parker's excellent Spenser series. Great detective books, but read a few and you will learn two or three good quick dinner recipes, several literary quotes worthy of further research and how to win a fight. Many of us on the list have followed the chair's lead and studied the great lessons of Monte Walsh, Don Quixote and Patrick O' Brian. Randy Wayne Whites Doc Ford novels often contain insights into the biology of floridian waterways and the everglades. Knowledge is everywhere if you know how to think. I fear today's world of standardized testing and assembly line universities may not be teaching that valuable skill.

Think about this. The two greatest innovators and business men of the past thirty years both dropped out of college. Some schools may be worth the price tag. I suspect most are not.

My son on the other eschewed school in favor of making a few bucks. He discovered he had a real talent for and love of business. Within six months or so of going to work at Boater's Worlds he was managing one of the top producing stores in the company…at the age of 20. We talked about school and he told me flat out "I can't see the value of spending the money. I have two MBAs working for me now because they can't find jobs that pay enough, and my part time staff includes a phd in English." He moved on when the Ritz family folded the chain. His former district manager brought him over to his new company and he is moving up the rank there. He just undersands the art of working hard and making money. He may need a few accounting classes some day but four years at some state university would have been a waste of time and money.

We need more thinkers who have a passion for knowledge and more curious explorers and fewer managers and chair holders. That's on us as parents as much as the schoools. If our children go onto college make sure they know how to think and the univerisity allows them to do so.

Stefan Jovanovich writes:

Dropping out can be useful even for scholars. Peter Green (the #1 biographer of Alexander the Great) did it.

So did Eddy's favorite professor who didn't teach art history.

Eddy's most treasured legacy from 4 years at Cal was giving Professor Jacobson the recording of her version of the Super Mario tune. He had heard her play it on the UC Carillon and wanted it for the ring tone on his phone.

Dan Grossman writes: 

Found this interesting blog post by Steve Sailer proving the value of higher education:

 A column on a new Gallup Poll asking "Just your best guess, what percentage of Americans today are gay or lesbian?"

"The mean guess was a ridiculous 24.6%. Only 4% said less than 5%, which is probably the best guess.

Polling companies seldom ask questions on which people can make obvious fools of themselves, since those can raise questions about the value of opinion polls.

Looking at the demographic crosstabs, it's evident that low intelligence people were most likely to wildly overestimate the percentage of homosexuals: 53% of people making under $30,000 annually said that at least 25% of the population was gay, and 47% of those with no more than a high school education. 43% of Democrats versus 24% of Republicans got the question wildly wrong.

In general, people are terrible at estimating or remembering demographic statistics. A 2001 Gallup survey, right after the release of 2000 Census results, found that the average American estimated that 33% of the population was black and 29% were Hispanic. That adds up to 62%, but who's counting? Not most people.

In that 2001 survey, nonwhites estimated that 40% of the population was black and 35% was Hispanic (adding up to 75%). In contrast, people claiming postgraduate degrees estimated that 25% were black and 24% Hispanic (only about double the Census numbers), which proves the value of advanced education."

Apr

20

 1. "There is no such thing as easy money"

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

[An example supplied on April 18 by Mr. Rogan: "The Reason For Geithner's Weekend Media Whirlwind Tour: White House Learned About S&P Downgrade On Friday" (zerohedge )]

3. It's bad to try to make money the same way several days in a row

4. Markets that have little liquidity are almost impossible to profit from.

5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

6. The market puts infinitely more emphasis on ephemeral announcements that it should.

7. It is good to go against the trend followers after they have become committed.

8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you'll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

10. A meme about the relation between today's events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

11. All higher forms of math and statistics are useless in uncovering regularities.

Mark Schuetz comments: 

A point about # 2: This one might be fun to try to rigorously measure and test, looking at price movements in the time leading up to and including certain announcements (knowing this type of thing has been shown by list members before, but usually it's more descriptive instead of measured). Is it possible to show which types of announcements are more often known by participants beforehand as opposed to other types? Also, if certain participants are informed ahead of time, how far ahead of time do they know and in which way will they "front-run" the announcement (there can sometimes be many different ways to make a position on one economic statistic) ?

Victor Niederhoffer replies:

Certain participants know it and they react to it, and you can figure out which announcements are go with and go against——-but but but. The pre and the post regularities are always changing vis a vis the flexions and cronies and their nephews.

Ralph Vince writes:

What a great post. Thanks Vic. I certainly must second points 1 and 11, the bookends….and they have me thinking…

1. There is no such thing as easy money

This is so true, in the markets, in everything. Those who happen upon money where it DID come to them easily, it seems, as a witness, have had it very fleetingly. In my own case, although I am supremely confident in the profitabliity of what I am doing, in practically any market, in virtually any "regime," doesn't mean it's easy. It works like clockwork and is incredibly painful and distressing. It would be so much easier to simply sell buckets of blood."

11. All higher forms of math and statistics are useless in uncovering regularities.

Certainly in a post-'08 world, quants are out of favor, and for good reason. Most anyone I know who DOES make money in the markets, does so with very simple, robust techniques. Having considered going to quant school, and studied a good deal of it, I finally came to the conclusion that they are simply working with "models." Models of how the world behaves. unlike hard sciences like Physics and such where you can perform a test, come back a year from now, perform it again and get the same results, you don't have this in financial modeling. And I think this is where the quants have fallen short. Models are NOT reality, and they never got down to the bedrock, the reality of what his game is about. Of course it had to fail, and in a large way, at some point. A good rule of thumb is that if I need a computer, if it isn't simple enough to do in my head on the fly in the foxhole after I have been awake for over 100 hours, I can't use it. 

Jim Lackey writes: 

About point # 10: It takes no time at all for the information to spread. Yet how many times have we acted, lost a bit, recovered, then seemingly too much market time expires, and we close out a position. We say "awe everyone knows that it's priced in." The meme is then repeated for the 57th time and on a low pressure day, month, or year and then, kaboom!

Of course, I can think of the few times where we missed a huge score, being short YHOO in 2000 or selling some short in 2008. Yet there are hundreds of low magnitude fantastic long only ideas that we forget about. I look back 6 months later and say wow look at that beautiful rise, what happened? It went up very small, day after day, and only buy and hold would have worked.

Alston Mabry adds:

 12. One should not make one's analysis more precise than one's actual trading could ever possibly be.

13.
If the rational mind has not determined the parameters of a trade, then upon execution, the lizard brain will decide.

14. Never go on vacation with open trading positions.

Or, zooming in:
<click> home

<click><click> to lunch

<click><click><click> to the bathroom 

Paolo Pezzutti writes:

One could test how the stock market reacts to good (very good, wonderful) or bad (very bad, terrible)(a sort of matrix) news when the news is released and after some time. It might help build a strength indicator. Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Alston Mabry comments:

Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Chris Tucker adds: 

Stick to your guns, but realize when you are wrong. Easier said than done. Good ideas can lead to conviction, but only experience can strengthen ones resolve. Forget the last trade, look to the next. Try, try, try to learn from your mistakes, but also from your wins.

Anton Johnson writes:

15. When correlations among many typically disparate markets become high, one should reassess leverage and seek novel opportunity.

Jeff Rollert writes:

17. Sell side liquidity is an inverse function of cell signal strength and micros0ft patch frequency, especially at lunch time.

Rocky Humbert writes:

The First Law of Rocky – In every "macro market" (indices, bonds, commodities), all prices WILL be seen at least twice. The only unknowns are: (1) how long it takes and (2) how far prices go, before the price is re-visited. This Law is true 99.999999999% of the time.

The Second Law of Rocky – Rocky always keeps his calculator precision set to two decimal places. Any trade that requires more precision than the hundreth decimal place, is a trade that Rocky leaves for smarter participants

Jeff Sasmor writes:

About Jeff R's # 16:

16a. Never go to the doctor when you have a profitable position as it will reach its maximum profit and reverse exactly at the time that you enter the doctor's office.

Happened to me yesterday…

Ralph Vince comments:

With regards to the First Law of Rocky…."Unless it is a new high, that price has already been seen before."

Victor Niederhoffer adds:

Beware of using hard stops as it's bad enough that the floor can always know your physical hard stops.

Jay Pasch comments:

No wonder over-leveraged daytraders always lose as they are required to deposit a hard stop with their leverage, along with their hard earned money…

Ralph Vince adds: 

Despite numerous posts on this thread, it has not been opened up beyond Vic's original 11…

T.K Marks writes:

Aristotle felt the same way about drama, posited that it could be comprehensively reduced to 6 elements. And any additional analysis would by definition be but variations on those original half-dozen themes:

"…tragedy consists of six component parts, which are listed here in order from most important to least important: plot, character, thought, diction, melody, and spectacle…"

Jim Sogi writes:

Always be aware of and consider current market conditions and how they might affect or even negate your prior analysis.

Even the the weather forecast says sunny, if the clouds look dark and the wind is blowing, stay home or dress warm.

James Goldcamp writes:

One good anecdotal rule I've found that works for investing is that the market that causes you the most psychological pain, revulsion, and visceral response from prior bad investments, or overall perception, is probably currently the best opportunity since others may also have a similar overly pessimistic view (or over assign risk premium). This seems to be especially true for post calamity emerging markets, high yield bonds, and fallen growth stocks (tech). If for no other reason, this is why I think stocks like Citi and the West Virginian's company are good buys now (and perhaps government motors and Russian stocks).

Ralph Vince comments: 

 Thinking on this a great deal the past 24 hours, I think I would add one more, which is to me the most important of them all perhaps, or at least tied with #1 and #11. And that is that most people have no business being here. They don't know why they are here, and, if pressed, can only give a sloppy, struggling answer. "I'm here to make money." "I'm here to improve my risk-adjust return," or some other nonsense.

They are here for action– whether they know it or not, whether they acknowledge it or not. The market is a magnet for gamblers, a magnet for those who compulsively seek out the very action she puts out. People are here because they want to feel they have one-up on the masses, the system, or that they are not as inadequate as they suspect. The very proof of that is their utter inability to instantly articulate their criteria in specific terms. Absent that– they're in a bad place.

They're looking for girls in the wrong dark alley.

It makes no difference how well-capitalized the individual is. The world is full of guys with $10,000 accounts who will lose it all and then some, and full of guys with very fat checkbooks who will lose all of it equally as quickly, in similar fashion.

They still think it is about what you buy, when you buy it and when you get out, facets that have nothing to do with what is going on here (which is specifically why mathematics, simple or higher-order, fails in this endeavor; people are applying to aspects they mistakenly think this thing is about.)

If you examine institutions, they may be equally as clueless as to what this thing is about, but they have one big up on the individuals– they have a specific, well-defined criteria in most cases about what they are in this for, what they are willing to do to achieve something very specific.

Most individuals– of all gradations of wealth– can't, and that's the red flag that they here for all the wrong reasons.

Jeff Rollert adds: 

Amen. If it doesn't hurt a little, you're wrong.

Dec

13

 After Sunday services it began to snow. We spent an hour at the store, and when we came out there was a thick layer of ice on the windshield. In an hour conditions changed from 65mph to 20-40. The whole family was in the mini van so I had to take it easy. Also to complicate matters, it's much easier to drift and drive with rear wheel drive and a longer wheel base vehicle. I was stuck in the mini van with a Floridian wife that fears "black ice".

Of course the kids that it was a total blast. My teenager thought it was boring vs. driving a sports car, and even the big full size van is a blast to drive in the snow. I taught him last winter and we had a blast.

The most dangerous conditions are ice and wet leaves. It's when we go from wet to seemingly dry looking pavement then ahead where there is snow. Snow is easy to drive in vs ice. It's the transitions, the shift change from dry to wet to non salted ice to snow covered.

I was attempting to show the wife that on ice it's near impossible to move at all on a grade. As we all know overpasses are the worst. Yet it's safe to proceed at 20-25mph keep the motion in motion, since you can stop in a reasonable amount of time and the turn at 8-9 mph was a safe crawl, but what ever you do do not pump or slam on the brakes even with ABS. Look where you want to go, and like magic you usually end up where you're looking in a panic.

On wet pavement when it turns to black ice and you are blind to the transition, simply keep the motion in motion. Don't brake, do not over correct, do not panic. Once the vehicle is straight, you can then very lightly brake or coast reduce from 40 to 20 and gain ability steer, enough to lane change and coast, then brake enough to turn from 25 mph max ice speeds to the 9mph corner speed. Yet snow has very good traction. You can rock it 25-40, and use controlled throttle to turn stop smoothly so that the ABS doesn't even kick in.

At every transition in our 10 mile trek there were crashes just over the next peak or the next corner. I demonstrated how and why it all works after and during all the transitions. The wife was always in a panic state, especially when I was at 35-40 mph in the snow. My point was if the traction is good, the kids will drive 50, the people that know how to drive in snow will go 40, so you are in more danger crawling at 20 mph with people braking and turning to pass. Just look ahead for the transitions. Way ahead. I said, look, what if we lose control and spin, I can land a 747 on this HWY. There is no one behind us. There is zero risk. A big fast curve on dry conditions you could take at 200 mph+… I didn't even slow and she held on for dear life. In the big white I can take that at 65mph and drift it..in a rally car all wheel drive I could take that at full throttle at 120.

One block from the house they missed a spot with the salt truck. It was down hill so I idled the van at 3-4 mph…"what are you doing now?" You can't see this? It's pure ice. My street..brick mail boxes line the road…kids at play in the yards…pure ice and there will be no more driving today as I can't get back up the hill out of the hood with the rear wheel drive fun vehicles.

It's the mouse with one hole trade.. There's no escape route even at 5mph, even though the snow covered roads 1 mile from the house are a pure joy to practice sliding, drifting, regaining control. It's great for the teenager and my wife to learn on. Snow covered parking lots are perfect! "Now you decide it's too dangerous to drive more today!" It's not too dangerous to drive today…it's to dangerous to drive in our neighborhood. "We need an all wheel drive vehicle" Yes dear. "All wheel drive with computer controlled traction. You can drive through anything." 

this video is exactly how we learned to drive as kids..in a huge open lot and let it rip.
 

Dec

13

 Since the Chair mentioned Dr. Shinya three times in the past 24 hours, (as a humble omnivore) I fell compelled to point out that the counting here doesn't pass the "smell" test. Given the subject matter, failing the smell test is serious, indeed!

Chair wrote: "dr. shinya would also recommend based on his personal completion and examination of 400,000 colonoscopies with dietary data on each eliminating all dairy, and meat from diet…" He also pointed to the wiki link.

Wiki actually reports that Dr. Shinya has performed approximately 300,000 colonoscopies and, since his breakthrough in 1971, has performed a colonoscopies every 20 minutes.

Let's do the math:

1. Dr. Shinya is now 75 years old. He performs 3 procedures per hour for 8 hours per day (no lunch or rest), five days per week, 52 weeks per year. That's 24 procedures per day; 120 procedures per week; 6,240 procedures per year. This is improbable, but let's continue the arithmetic.

2. Let's assume that he has never taken a vacation; never gotten stuck in traffic; never played a round of golf; never taken a sick day; never given a speech; never done anything at all except perform colonoscopies FOR THIRTY-EIGHT YEARS. I feel sorry for his family, yet even so, that is "only" 237,120 procedures.

The only way one can get to 300,000+ procedures would be to assume that he is performing colonoscopies for 365/7/24….and if this is true, it raises even more serious concerns about his judgement.

I am skeptical about taking advice on ANY matter from a person who has spent the last 38 years looking into peoples' colons to the exclusion of every other activity. The saying goes, "To a hammer, everything looks like a nail." Dr. Shinya takes this aphorism to a deeper level.

Jim Lackey adds:

From medical student forums online

"Hi theremy, chief resident said in private practice he'd be able to do 35-40 Gas/colons a day easy on a 9-5 list with an efficient OR setup. Has anyone seen this being done. He said when hes's done with his residency he could pull in 15-20Gs a day doing just gas colons. sounded a little outlandish.

thanx."

"A single person can do 30 -40 scopes per day. I am telling you…..a majority of scopes are screening scopes, and take 5 minutes……the next pt is in and you can easily do 5-7 cases per hour. I have seen this. It is a very busy day, and do not forget, like a surgeon, GI doctors do not scope every day. Usually only 1-2 days per week. 25-30 is very easy to do in a well functioning private practice. Get out in the real world, out of academia, and you will see this for yourselves..Breaking upwards of 40 scopes requires lots of committment and a very good functioning clinic….But 30 is easy for a good colonoscopist……"

"As an anesthetist, I am joining a private group this summer which covers a GI group. 30-40 colonoscopies is indeed very doable. More than a few groups I interviewed at were involved in this, as it is very lucrative for anesthesia as well the GI docs. These places are very efficient, and need to have a very good phase II recovery protocol in place. Some GI docs still sedate themselves, using an opioid plus a benzo. However, it takes time to titrate to effect safely, and recovery may be up to a few hours in older patients. The centers doing 30-40 cases per room per day uses an anesthesia staff, and use, for the most part propofol only. 50-100mg of propofol iv, is sufficient for most colonoscopies with no other meds given. A good colonoscopist is done in less than 10 minutes, often 5 from the time the scope goes in. The anesthesia bill is separate from the GI docs bill, so once the GI doc sees how efficient this is, how much happier the patients are, and mostly how much cash they are raking in, they love having anesthesia handle the seadtion. It can be a very nice way to offset non-insured patients and can boost an anesthesia practice's income tremendously. Typical reimbursement is 500-1100 in the greater NYC area."

It's "possible" and more likely he's the Henry Ford of the procedure. Hades, you can show up to one country, hit one hospital, and have thousands waiting for the scope. He was the innovator. But the mean seems to be about 775per year a week and 16 per week per Dr. who scopes 2 days a week…for profit. In the US of A.

So I see what you're saying– a local Dr group barely can do so. The only reason I believe it was in the Military you can line up 3,000 men and a few Docs and medics can perform assembly line of so many procedures in less than a full day– it's wild…and if youve ever seen a mash unit… a full blown surgery unit in the middle of the desert…then you know it can be done. Luckily I only needed stitches, but the level and the ability is amazing. Doctors are trained to work 24-36 hour shifts so pulling 5-12's and supervising a team…. Think "chief surgeon" not local private practice.

Victor Niederhoffer writes:

To my credit the last time I visited with Dr. Shinya, I subjected him to a withering cross examination to verify the 400,000 colonoscopies he claims in his books. He gave me a enumeration, and then dismissed me with "I have to see patients. I can't waste my time with people who don't understand medicine." I have always found that the worse the bed side manner of a competent Dr., the better he is at curing. I believe this the case with Shinya.

Rocky Humbert writes:

I have no personal knowledge of Dr. Shinya — but these sorts of claims are eerily similar to the sorts of results reported by Madoff.

Even Shinya's response to Vic's cross examination is reminiscent of Madoff's response to the SEC field investigators.

Consistent, remarkable, implausible performance/results that defy logic or reason … and which improbably persists for years…should cause one to raise one's antenna. This is true in every field of endeavor. (And I'm an optimist!)

Nigel Davies writes:

I read Dr Shinya's 'Enzyme Factor' but found Dr. Servan-Schreiber's 'Anti-Cancer' much better and more thorough on many levels. As a clinical professor of psychiatry who was diagnosed with brain cancer, he undertook extensive investigations of cancer mechanisms and how food/lifestyle can prevent it developing. All of us have cancer cells in our bodies but this disease tends to develop in favourable 'terrain'.

Please note that I've not been diagnosed. But a quick look at the odds makes a convincing case to adopt certain measures in the interest of attempting an extended life span. This is very chess btw; Nimzovitsch, prophylaxis and forcing them to take carry you off to the netherworld kicking and screaming.

Nov

18

These polls drive me nuts, and I used to ignore all news when at best.

Mr. Vic sent a note about 1pm Tuesday a few off the lows, and the response was "what bearishness?". Markets move much faster now a days, yet the gist is the same.

So everyone was right! It wasn't a bunch of bearishness. It was a lack of bullishness.

After Hitting 3 Year High, AAII Bullish Sentiment Plunges By Most In 2 Years

Submitted by Tyler Durden on 11/18/2010 09:21

For a stark demonstration of market momentum euphoria look no further than the AAII weekly bullish/neutral/bearish sentiment. After hitting 57.56% in the week ended November 11, the highest since 2007, bullish sentiment plunged by 17.56%, to 40.00%, the biggest drop since January 2009, and the fourth biggest shift in sentiment since 2006. Alas, this is the kind of bipolar sentiment shift that will accompany a market in which everything continues to correlate with near precision to the dollar, and in which no bad news matter until they matter, and from all in buying the mood shifts to relentless selling…

Nov

11

 In Flanders Field

by John McCrae

In Flanders Fields the poppies blow,
Between the crosses, row on row,
That mark our place; and in the sky,
The larks, still bravely singing, fly,
Scarce heard amid the guns below.
We are the dead.
Short days ago,
We lived, felt dawn, saw sunset glow,
Loved and were loved and now we lie,
In Flanders Fields.
Take up our quarrel with the foe
To you, from failing hands, we throw,
The torch, be yours to hold it high.
If ye break faith with us, who die,
We shall not sleep, though poppies grow,
In Flanders Fields.

Check out this site about the VFW Buddy Poppy Program in honor of Veterans Day. Give a few bucks, and hang it off your rear view mirror.

By the way, another Moe, Richard (who served in the House), is the author of the best unit history from the Civil War. It is about the First Minnesota.

Sep

7

67 CamaroSafety caused a change in driver behavior. My 1st vehicle was a full size Chevy van as my dad knew I would wreck or race any car. My 3rd car was a 67 Camaro and was so dangerous I had to drive it slow.

The cars of today are so safe we do not realize how fast we are traveling. Turn off the tunes, books on tape, and roll down all the windows. The cars are so safe and quiet today, stick your head out the window at 45 mph, or look down at 70mph and wonder what it would feel like to hit the street at that speed falling off a motorcycle. It's fast. But today the cruise set at 74MPH ticket free interstate travel feels like we are barley crawling along. I must do 88MPH to get me to pay attention to detail vs. falling asleep on a long drive.

I hate mandates but some of it sure worked for cars. I'd say Germany was the best place to drive. They have two deals we need to adopt. Much stricter driver training. Much stricter speeding laws fines for speeding or crashes and you're certain to stick to 100K's or 62 int he zone or lose a months Army pay. That and with lights that turn yellow before green– Get ready set GO instead of me honking my horn at your Ipod playing kids but to go on the green light.

2cnd thing Germany has is when it makes sense for me to got 100MPH. Yes it's safe if you're focused and do not have cup holders. I see roads here in the US that I can land a 737 Jet on them, no traffic 5 lanes and its posted 55mph. Stupid. 55 is for junk roads. MPH range needs to be 69-74. Post it up 70 MPH and 75 and over is 500 fine…if you can afford it cool, if not you pay.

Also please do away with drunk driving. Let's just make it a rule. Medicine or not– one beer, one drink– you can't drive. No more 2 beer rules designed to raise revenue for the courts. You drink you drive no more. Period.

Aug

31

 The only thing I learned in my study of weather for markets was my race car computers for engine tuning.

Barometric, water vapor and temp were the same "ratio" as I think Mr. Ellison pointed out I calculated wrong from zero degrees from absolute zero. It was the same ratio of change, and I just learned my complaints on hijacks were luck on the dual halt of INTC last Friday that was a new one for me 2 halts in 20 minutes and the frustration hit limit up. And now that I look at it I guess I must wait for every semi to preannounce as BRCM took out Friday's lowski today.

Better lucky than good and looks like the hijack saved me. I will be more careful about my complaints of rigged markets. ha.

Aug

31

a nobel prizeThis whole news release game is silly. The market is gun shy ahead of announcements and the book drops to nothing guaranteeing a crazy move. The reaction seems always to be behind the form. The info is stale and old. The news producers of course want attention to sell copy.

The consensus game is silly, asking a bunch of economists who can't really seem to get much of anything right or agree on much to give a guestimate of data that is adjusted, manipulated, dated, gathered in questionable means… When the actual number is above or below the guess, oh my! Then what does that really mean?

Each participant in these games has a utility, each has a relative ability to achieve or execute, and each has relative urgency and importance. These are some of the criteria used to evaluate the relative utilities. The real trick is to define the issues in such a manner that the weighting of utilities is predictive. This adds to statistical analysis of past data in that it incorporate the forward looking functions of the markets and its participants. One set of Asian traders from one part of the world trading night shifts where a small order can move the market 1/2 a percent. You have the Europeans taking over early morning with different motivations. You have Bernanke, the flexions, the white shoes, the machines, the slipper crew each with varying abilities to move the market, varying urgencies and connection to our markets, and varying self interests. Weighing these has info in a scientific manner. It was scientific enough for a Nobel prize.

Jim Lackey writes:

It has always been this way for as long as I can remember… Now when it's a stock, no one seems to mind if options say + or (10%) and after the newzi comes out earnings or otherwise the stock rallied 9%…and no one seems to miss the 1/2% moves pre/post 10am numbers as vs fed moved they were nothing and vs 2008 2-3% moves it's easy to game.

All you must do is want to own it. Sell puts in a stock cool you own it 10% lower. I buy 955am cool I buy my 2nd lot 1/2% lower 1002 am. If I didn't want to won it in the first place madd lack buys his 2nd lot trying to trade out of a loss. Let me tell you how stupid this is. but also feels so dumb with a cut and run after a 1/2% 5 minute loser.

My wife shouldnt have married a gambler…but mr Vic gave us the get the joke of all of this. A mouse with one hole is quickly taken. Figured the 1st we'd have an out even if we had to buy 1000 at the close. 

Aug

27

 Nice timing on the INTC news and reports from Jackson Hole… Nice halt "gee thanks". Not sure if it was straight flexion con or I just got hijacked from mobs or… both.

Let me be more explicit:

A few semis were making highs before Bernake text. BOOM INTC gets halted then Bernake text. I had zero leverage and was down 2% in one tick. SNP rallied 5 off the lows and the stocks fell more…yikes.

Come on after all these downs then INTC opens after the halt not down much after all of intc down days. Then it's a mad dash for those to cover. SNP goes back up on the day. Too many tech stocks that were up on the day were still down.

By the time SNP is up 5 nazz comp only up 5 or 1-1. Then finally 11am boyz come in and buy indexes and nazz goes 2-1 up vs spx and all is back to pre hijack highs.

Good thing I know exactly what to do.if I had to think about any of it for 4 tenth of a second I'd be called out on strikes looking.

Aug

27

4 tenths of a second to hit a fast ball.

Look at BRCM broadcom vs. SPX.Open prices to 10AM newsi period. BRCM goes up SPX down.

Then look at that move… good times… As my daytrader buddy just told me "at least you're not short" and certainly my wife will say "at least you didn't lose AGAIN!"

Goodness gracious. I sold down to sleep level. I am shaking my head rubbing my eyes…thinking goodness..It's all the big leagues 90+ mph pitches with good movement, now a days… I'd hate to be a new kid coming up to A ball stock trading in this market today.

Have a nice weekend. Weather broke here in Nashvegas. It's beautiful riding weather. Almost time to hit the dirt track.

Aug

16

Dracula's castle in TransylvaniaI know we don't trade off feel around here… but this is creepy. if I close the blinds it feels like a dark cold, full moon night with the backdrop of Frankenstein's castle in Transylvania. I'd feel a lot more comfortable giving it the old full swing for fences in stocks here if the freaking bonds were not up more than a full point over open prices.

I see the Dow 30 yields more than 10 year. So I see the DOW techies INTC under 20 and CSCO post earnings lows rally the best, but their cohorts are being dragged along at a pace that feels like a retreat slow and steady vs. a hasty defense.

It feels like Kobar towers in '91 when a 500 pounder went off in my AO and we saw the shock wave, dawned our gas masks, and you could hear a pin drop. Total silence.Yet we all know full well the war will be won, and if bonds drop big we will be trading 1100 before I can say cease fire… but I dunno if this is just the start of the air war and the G day or ground war will be in 6 weeks with a full armored assault that lasts 100 hours bonds at month lows and stocks at highs.

Seemingly the same propaganda on defensive positions in markets– a well dug in enemy, tank traps, rings of fire, the mother of all battles weeks later an an entire army destroyed in 100 hours… "if mountains and oceans can be over come anything built by man can be over come… defensive positions are monuments of the stupidity of mankind" –Patton movie

Vince Fulco comments:

Right on, brother… but what fake action will the bots necessarily create before a meaningful base is found…The subtitle to Blade Runner resonates here, "Do Androids Dream of Electric Sheep?" 

Aug

4

Pimco's El-ErianIn several recent essays, Pimco's El-Erian et al claim that reversion-to-the-mean investing will be less compelling in the months/years ahead. Even if one accepts that the US economy will experience slower growth, less leverage, and more regulation, his arguments may be tantamount to endorsing primitive trend-following and saying "this time and every time is different."

He writes; "…, investing based on "mean reversion" will be less compelling. Even though flatter distributions with fatter tails have means, the constituency for mean reversion investing will shrink as those means will be much less often realized in practice. A world where the realized return rarely equals the expected valuation creates a bigger demand for liquid, default-free assets; it also lowers the demand for more volatile asset classes such as equities.

He continues: "… frequent "risk on/risk off" fluctuations in investors' sentiment are here to stay. Investors, based on 25 years of rules of thumb that "worked" during the great moderation, thought they knew more about the distribution of risk than they in fact did. This led to overconfidence during the bubble. The crisis reminded investors that these rules of thumb are less useful, if not dangerous.

He continues: "….With declining confidence in a reliable set of investing rules, markets have become more susceptible to overreactions to daily news and are, therefore, more volatile. Just think of the number of triple-digit days in the Dow. Moreover, because of the complex and broader involvement, real and perceived, of governments in the economy, separating policy signal from noise, and execution vs. intent, has become as important as – but harder than – forecasting the macro data. Third, tail hedging will become more important. An understandable consequence of the crisis is less trust in diversification as the sole mitigator for portfolio risk. We are already seeing increased investor interest in tail hedging, though the phenomenon is still limited to a small set of investors."

My reactions:

1. If the markets experience risk-on/risk-off gyrations, that is the very essence of mean-reversion. (i.e. one should be greedy when others are fearful.) If the constituency for such trades are smaller, it should mean that the surviving participants realize out-sized returns on smaller position sizes. (Exactly the opposite of his conclusion.)

2. If he believes that the systemic tails are larger, "hedging" the tails simply moves the risk from one market participant to another market participant. Absent a directional speculation, if the hedges are correctly priced, there should be no incremental return achieved from hedging which cannot be achieved by sensible asset allocation/position sizing. We've known for years that S&P puts are systematically overpriced relative to calls. Is he claiming that this is no longer the case?

3. Once it's conventional wisdom that we are in a world of everyday fat tails, asset valuations should embed this risk premium, and the phenomenon should self correct. Otherwise, using a slow, primitive trend-following methodology which captures ever bigger fat-tails should produce out-sized returns.

I would be most interested in other's thoughts on his three quotes and my observations. It seems to me that some of his thoughts are contradictory. While the Pimco folks are obviously self-interested, it should be possible to analyze these concepts while ignoring their bias.

Jim Lackey writes:

Mean revert as in 2004 to 07 being levered 14-1 as in no downs greater than 10%… Umm no… so again it's the definition of what "is" is… or forget leverage as that's a function of predictions and max draw downs etc…

How about the fact that we are seeing streaks that have never happened or only happened in 2002, 1933, '34 or all the time in the 19th century. It's been going on since the first shot across the bow Feb 2007. But that's just short term trading… are you talking investing? Then he's dead wrong as the current meme is long term returns are Zero and all I see and hear is "range this adjust for inflation that's a loss" or as usual in any business for a time all rates go to zero…and the get the joke is…that's why so many are tarpitudes and Flexions they need govie contracts rules and regs to profit. So sad.

P.S. I asked the machine tool trader at BMX last night if it's the same trading with Koreans all good vs trading with GE. He said yes but GE is even worse now that it is the government. I said oh come on, you talking bailouts or what. He said no it's like trying to get paper work and all approved to do a trade with the government. Reminded me of in the Army attempting a "lateral transfer" as my tank had an extra M-60 we could use an extra M240 same machine gun one right one left hand feed. It took us forever to get the supply SGT to get the paper work and I found a guy in the Infantry unit that wanted the trade at the mess hall. It took months. But years later the govie got smart and it's all M240's now a days. ha.

Jim Sogi comments:

Mean reversion is too broad a term. The time needs to be specified. The market has multiple time frames and it may be mean reverting in one while trending in another. It is one thing to do mean reversion at 1 hour, and a different trade all together to hold for 4 years in the same vehicle. It is necessary to define the time frame in which there is a claim of reversion or trending, or as Kim notes, positive or negative correlation. 

Aug

3

 Meanwhile the S&P has a 2 point range as of late.

So last week for the first time in years I saw big huge whales buying a few stocks. These guys were so big they did not give a…. Anyways the S&P would drop 4-5 handles and the stocks would rally. I mean really move big caps to no junk. So on this day we are very long these stocks. My buddies are cackling what if snp drops to 1100. I said so what 1100 will fail, it will do 97 and back through, who cares, these type of stock buyers unless we drop 30 today it is in every one's best interest they close at highs.

I am not BSin', 5 minutes later a fed head says Deflation. Boom. The S&P is sliced 1000 and stop run city. Ut oh.

What did the stocks do? They ripped right back up and new highs. Wow. Markets chill buyers calm down. End of day all is looking good, we can close 1100 down on day. if we have a tiny down day we will do excellent. My buddy says unless another fed head says… BOOM DOJ comes out and says ORCL has issues. All tech falls apart. It killed the close. Buddy says I wish these fed guys would just shut up or wait til after the close to talk. I said naaa. I wish they would get their friends and family long so they can talk bullish intra day.

One of the stocks was not strong long term but last week it was a rockstar…RIMM. So today all the pre market chatter was RIMM and goodness, what is with the sheiks and rimm job. Maybe it's War with Iran– close down all internet. I laughed and said maybe or perhaps the sheiks are long AAPL and they are @299

I guess you had to be there.

Aug

3

I am quite skeptical that nowadays it is enough to be a good programmer to make money on Wall Street. A very famous trader recently said in this regard that what is and will always be important is understanding human nature. However, it seems that successful programmers want to strike deals that give them the possibility to share profits and retain the ownership of the code they write. The companies they work for make $100K a day when they may be paid $150K a year. It is an intellectual property problem. When competition increases in high frequency trading, margins will decrease and programmers might want to go back to the old "safe" way they were paid. Sometimes I have the doubt that it is enough to have a piece of spyware, which can monitor information from programs that use certain protocols to make big money. A hacker could monitor someone's trades dropping a sniffer and intercepting trading programs. It would be a sort of real-time insider trading. A modern version of an old, and "sure", way of making money.

Read more in this article.

James Lackey comments:

Stick a trading sheet with a programmer's name on it with a 500k daily loss and see if he wants to enlist in the traders training program or go back to his desk. Ha. It's easy to target shoot but it's harder when they are gunning for you.

But Tony C on here years ago thought he discovered Spyware on his quotes from Enron. Drag your mouse cursor over the quote and see if HFT lifts their 100 share penny offer.

 Charles Sorkin writes:

I've often suspected that something like Tony C's situation happens in the options market. For instance, I can't tell you how often I've entered limit orders on an option with limited activity, and I get "pennied," so-to-speak.

For instance, consider a market for an equity call option that is quoted as $2.50 - $2.80, for a few hundred contracts on both sides. I enter a limit order to sell 10 contracts at $2.70, making the market $2.50 - $2.70, hundreds x 10. Hardly a second later, the market updates again, to something like $2.50 -$2.65, hundreds by 10. GRRR!!!!

Somebody/ something steps in front of me, on a contract that potentially has hardly any open interest, and very little activity in the whole series, perhaps with the expectation that I will lose patience and hit the original bid.

Very frustrating. Sometimes I pull my offer, and watch incredulously as the quote reverts to it's original level.

Jul

29

 Recently I have posited that the market to an inordinate degree shows the main attributes in its daily moves of the most vivid sports game that has not been used. I would add to this that during each hour the market is likely to move to the rhythms and dynamics of the most likely classical music being played on a classical music station in home town, for example the former WQXR in New York, in full knowledge that these programs are often selected 2 months in advance, and noting that I was a subscriber to same when I was 12 years old.

I am adding to my list of mystical encampments and predictions that the fortunes of Apple and Lady Gaga will follow a similar arc in the future, and as soon as the Lady loses her luster, or a substantial base of her gay support, Apple will be ready to nose dive.

Do you feel that because of these ideas that I should resign my post as chair of Daily Spec which is designed to deflate bally hoo, or is this just a symptom of that predilection that old men such as the sage and the fake doc have to maintain their romantic aura?

Ken Drees writes:

Lebron James' Cavs win over the bulls to end that series correlates to the spy top (04/27/10). That was the zenith of his career in Cleveland. They were then going into Boston on a full tank of expectations. The last game (as a cav) in that series marked a secondary top 08/13/10–then the melodrama begins. His great choice to go to Miami did not mark the low but was the midpoint of the latest rally—he is losing his market moving mojo–his ability to focus the market energy . So now he has lost his core fan support like lady gaga at some point will lose her core fan base. No, I don't think the Chair is that off-kilter.

Popular culture icons somehow bleed into market consciousness.

Vince Fulco writes:

I've long thought that the culture has moved into a greater phase of bally hoo, perhaps a derivative of the Romans' 'Bread & Circuses'. We are now just starting to realize or are being forced to understand that flat incomes, poorly funded retirements and insufficient skills in the aggregate set against historically outsized obligations are a recipe for disaster. Fighting falsehoods would seem to be a necessity of survival and good investing for the long haul. Moreover, one has great opportunities to choose from post deflation.

Jim Lackey shares: 

Actually no. AAPL has talent and is'nt just a fad or a show. Not sayin' that the Lady doesn't have talent, but if and when I see her write and produce tunes for others and sing Jazz, then she will be an AAPL. But no! No I did buy AAPl in 2003 when Mr. Eyerman stood right here on list and said buy it now. Jobs is back, and Itunes is brilliant. It's been a ten bagger since, which is what got me to tell the father in law naaa na na no this Xmas as he was on visit to Music City and toyed with his new Iphone all week. He's a MD and a tech freak and he said, "you know what, I don't need a PC or internet at home anymore with this"

It's not CSCO when it was on the way to a trillion dollar market cap in year 2,000. It's post crash now. Also it's no shorted up fad stock, but yes it's a fashion device an ipod in all 3 colors for different outfits. If I had to guess its a DELL circa late 90's. It never crashed and burned until much later in the tech wreck. It just stopped going up and in these markets AAPL must trade 299.75 but not 300. ha. 

Craig Mee writes:

Just like Seinfeld had the bravery to sell the high and knock back the 10Mil for a tenth season, (one of a tiny minority who do) maybe the gagas and apples should too. To keep up the product development and create new bizarreness no doubt gets harder and harder with everyone hot on your tail. Im sure income changes, say for Seinfeld, from shows to marketing, but he has been smart enough to cut and run, and keep the value. A lesson for us all. 

Marlowe Cassetti writes:

The chair has touched on a point of interest that has bothered me. I don’t know about Lady Gaga, but Apple’s climb towards the top of market valuation appears to be inline with the phenomenon of a bubble. Yes, I understand that we cannot declare a bubble until it bursts, but let’s look at the facts:

There are some 47 stock analysts that cover AAPL, all but two have either a buy or a strong buy recommendation. It is the darling of the market. Its market cap is approaching $ ¼ trillion and at the rate it is moving it is on its way to challenge Exxon Mobile Corp. XOM produces stuff that the world needs, AAPL doesn’t produce stuff that the world needs just what they like to have, until something else strikes their fancy.

It reminds me in the 1980's when people couldn't buy enough Wang stock. You hadn't arrived if your office didn't sport a Wang word processor. The bubble will burst when the last fool buys in at a nose bleed price.

Thomas Miller writes:

 Sometimes one's instincts or gut feelings can't be counted or explained but you feel its true. Probably based on years of different observations made subconsciously. A trader may feel strongly a market is about to break without being able to explain exactly why, because subconsciously they have seen patterns many times before. Considering the source, I wouldn't immediately dismiss this as ballyhoo. Instead of resigning, further testing is called for.

Steve Ellison comments: 

Mr. Aronson noted in his book that it is no fun being a skeptic and that the scientific method leaves deep human yearnings unfulfilled. Facts are often tedious and dull, but stories are captivating, which is why people who have bought into a narrative continue believing it even when presented with strong counterfactuals. "Story stocks" have always been prominent in bull markets.

 

Marion Dreyfus writes:

A new study reveals that people are at their angriest on Thursdays. Thus, perhaps deals might better be made on Friday, when people are delightfully anticipating the weekend, or Monday, when they are somnolently reviewing the events of their past free-time indulgences.

interesting … We have been doing product development on a tool to gather data, and do reduction for self-introspection to find and permit prediction of cyclic true 'more productive' highs, and 'down in the dumps' lows.

Jim Wildman comments:

I've been thinking a lot about rhythms. I've noticed on the treadmill at the Y that people tend to fall into step with each other. Being on treadmills, this is easier since you can be running at different speeds, but the same step count. It creates an interesting effect when the treadmills are on a suspended 2nd story as it was at the last gym. I've wondered how many people it would take to collapse the floor.

This study seems to indicate that there are (at least tendencies towards) rhythms in 'group' emotions. What other rhythms are there and how do they affect me? How do they affect the markets?

Vincent Andres adds:

Here is a good paper on this topic of frequency coupling

Some more infor:

Steven Strogatz

Steven Strogatz's publications

A good book

TED video (look at the part on fireflies, near the 10th minute on metronomes (1st historical notice by Huygens), near the 13th minute and the bridge (not Tacoma … but not very far !)… in fact the whole video examples are interesting). 

Easan Katir writes:

In a year when Paul the Octopus correctly picked 7 consecutive wins, well-documented to the world, when the underwater plume in the Gulf of Mexican Oil matched the plume of gritty ash from Eyjafjallajokull, and the rig explosion coincided with the April market top, who can say anymore what is mystical and what isn't. Lead on, Chair! Lead on!

Craig Mee writes:

Looks like Schumacher should of stayed off the track, as HIS value, now may be plummeting: "For all his greatness, he never knows when to give up. He is a shadow of his former self," added hugely experienced former driver David Coulthard" Ouch!

Jul

26

Ray Irani Top Paid CEOToday's WSJ summarizes the decade's top 25 earners among CEOs. While there are many variables which affect CEO compensation, investors should note the troubling absence of any obvious relationship between long-term stock performance and CEO pay. For students of free enterprise and tax policy, there are many questions raised by these findings. Other studies involving the entire S&P 500 universe have shown similar conclusions.

Thought experiment: would the stock returns have been any different if the CEO compensation dropped a "0"? (i.e. $400 million -> 40 million)


comp million$

stk return

leh

457
1.1

nvr
451
1.6

dell
454
34

cdnt
481
51

csco
393
71

iac
1143
78

ctywide
529
81

capone
568
86

tgt

342
101

clp
358
137

nbr
518
141

c
361
143

fst
385
148

qcom
437
192

utx
448
253

yhoo
490
279

oracle
1836
317

sbux
358
333

ftx
332
479

fnf

430
548

unh
469
707

oxy

857
974

aapl
749
1171

chk
332
1179

xto
351
3559

Jim Lackey writes:

There are big list of tells we can use:

1. Dollar a year man. Quickly moves to slash burn and sell the company to no benefit of current holders. Look to the last job/ company he held and where the old management team is. That's where the assets are going.

2. X company man. GE six sigma. Look for them to run the company into the ground with focus on cost cuts firing the bottom 10% "creating shareholder value". Meanwhile their competitors are hiring all those fired with a contact or client book and quickly signing deals. Making money vs reducing costs.

There are many others and to "get the joke" one must watch "Charlie Wilson's War".

Jul

23

Hard to believe that it has been almost 30 years since "The Road Warrior" movie (Mad Max 2), a classic of the dystopian genre and coinciding with DJIA 800 ranges. The show The Colony, starting next Tuesday the 27th, on the Discovery Channel has a bit of that Mad Max/Andromeda Strain post-apocalyptic feel.

I just hope the poor geology professor with no practical skills makes a good showing and can at least find some water–coming from Arizona State.  She probably knows a bit of geohydrology. Did not see Season One, but this looks entertaining:

What would you do in the wake of a global catastrophe? Even if you survived it, could you survive the aftermath?

Season Two of THE COLONY introduces viewers to a new group of volunteers with differing backgrounds, skills and personalities, to bear witness to how these colonists will survive and rebuild in a world without electricity, running water, government or outside communication. Over the course of 10 episodes, the colonists - who include a construction foreman, teacher, carpenter and auto mechanic - must work to utilize and strengthen their exploration, technology and survival skills in ways they've never had to before.

Ralph Vince comments:

This, culturally, is AMAZING to me. A few weeks back I had an extended discussion with a group of very bright guys all in their early 20s — a candid discussion about their perceptions. A few very revealing things:

1. They are all very upbeat, economically, on a personal level. They feel they are smart and educated and will do fine even though they expect things to dissolve, they believe their formal education is their life preserver.

2. They all hate the boomers and consider them the "entitlements" generation — they regard the ones who were mostly their parents, the ones they refer to as "The greatest generation" as deserving of entitlements, but the boomers NOT entitled. Very interesting — I couldn't get to the logic of this other than we, the boomers, "screwed everything up, did nothing as a generation, and have a grotesque (to them) sense of entitlement to us".

3. They all, universally, expect things to decay, eventually, one way or another, into this MadMax anarchist future. When I would press them on this one, with things such as "Well you were saturated with these types of images growing up of the future, can't you foresee a less dark one, a more optimistic one?" They all universally agreed that "There is no other way the future can work out." Fascinating. Absolutely fascinating. With housing now more affordable than it ever was to any of the boomers — with borrowing at interest rate levels never before seen (and long rates banging around 4% !!!) and a protracted, decade-long-already contraction, the thought of a major up move over the next 15-20 years was something they could not possibly conceive of.

Vince Fulco writes:

Would note the release of the movie "Book of Eli" on DVD recently follows this post apocalyptic meme. Also has a fairly strong underlying theme of Pogo's "we've seen the enemy and he is us."

Pitt T. Maner III responds:

When will the post-Boomers give up on the end of "The Road " ideas and swing towards the "On the Road " themes again? Cyclicity. 

James Lackey comments:

One posits (as Mr. Vic did with movies and baseball) stock returns or better said premiums ratios are higher during futuristic movie and tv times.. see 60's twilight zone and late 90's everything was deep space futuristic.. then post crash it was all cop shows and today perhaps its true on the mad max which came in when the rust belt was dying post 70's Opec deals.

One does not say that its different this time. In my day Generation X was deemed stupid, spoiled and lazy.. It was a cultural and economic shift and we didn't know what to do, but the second we figured it out everyone I know ""just did it" hence the Nike slogan "just do it".

It's good to see the young beat up the old on the net, but quite respectful in person. I have a great deal of respect for my Son's buddies and all the BMX kids we train. Their only problem is over specialization and the quote above shows that in their belief their credentials will be their savior.

I do not agree they despise the boomers… I'd rather think we like to think or say that as Gen X ers for a revenge trade.. No Gen X er believed for a minute SSI [Social Security] would work out so for the Gen YZ kids to even think about it at all is a big joke..Ive never heard about it once…matter of fact if any Old BMX racers bring up the 3 sins of talking about Work Marriage or Politics at the track the kids ride off… the older adult pros age 18-24 say it flat out and crack me up "I can't handle this drama, I am gonna go talk to the girls" These kids today are "awesome". 

Ken Drees comments:

TV has recently been and still now is based on these themes "biggest loser" "bachelor" "dancing with the stars" "angry biker building show" "rock star real life" "idol" "top model" "fashion designer contest show" '"hell's kitchen" "next iron chef" "tattoo shop people" "dangerous fishing boat" "man in the wild" etc—a lot of contests, makeup, high energy, tears, people being eliminated, emotive overkill, action with real life injuries. All of this started with "survivor"–which is pretty much over–except they have a Spanish version of it on the Latin channel that I just flipped over yesterday so that trend must be in the last hurrah phase.

 But these themes are lottery like–taking a chance to make it to the top–be the one who can outlast the competition and the make it all the way. So maybe that consciousness seeps into markets–can we survive another day, the odds are against us but I feel the magic. A big cross section of age groups are relating to these shows—I personally got hooked on Hell's Kitchen–something about the angry language that I try to keep under control and watching that blond haired man just let his anger spew at those inept cooks. Then you get into the finalists and start rooting for a favorite —like horse racing.

Survival in a post 401k smashed world, surviving unemployment, etc.

 Kim Zussman comments:

1. They are all very upbeat, economically, on a personal level. They feel they are smart and educated and will do fine even though they expect things to dissolve, they believe their formal education is their life preserver.

2. They all hate the boomers and consider them the "entitlements" generation — they regard the ones who were mostly their parents, the ones they refer to as "The greatest generation" as deserving of entitlements, but the boomers NOT entitles. Very interesting — I couldn;t get to the logic of this other than we, the boomers, "screwed everything up, did nothing as a generation, and have a grotesque (to them) sense of entitlement to us.

Ralph please send our apologies for screwing things up for them. Ask them not to see "Avenue q", because exactly as Mr.s Rogers and Henson told them - and it is statistically remarkable - they really are all gifted, special, and specially equipped to make this a better world.

Sorry too about our house that you've been eyeing; its 20% upside down because of those college loans, and the one for your first car. At least there won't be any estate tax on it. And remember to hang that Ivy diploma proudly in the latrine - you never know when it might come in handy.

If you decide to get more education - forget about cloud quantum computing gene sequences. Go get your CPA, with emphasis on forensic accounting, and take some classes on retrieval of deleted emails, cash-tracing, and banking in the Bahamas. Also get certified to sell the plastics of the future - insurance.

Big shame about that 401 account. We were, as always, worried about you when they went below 700 and we sold everything. The good news is we got back in at 1200, so please work hard so your earnings propel it to the 12,000 you deserve.

About that screw-up: We were taught something like 2008-2009 was more unlikely than an asteroid collision. However now that the problem has been corrected, you have nothing to fear. Please tell your boss to deduct the maximum for your retirement account, auto-deposited in one of the index ETF's on the first of each month. Add to it on the taxable side too. More is better - buy as much as you can while you're young. Find a good ETF that will go up. If it don't go up, don't buy it.

Sorry about our health. We've been doing cardio for decades, so we're not going to MI like Opa or stroke like Oma. And we floss every day, so there won't be any need for chemo. But we did think to get long-term care insurance, and though you're mad hope you will pick nice nurses for us, and bring a case of Ensure now and then.

Alan Brice Corwin writes:

I've also recently had discussions with a large group of twenty-somethings, but I came away with a different impression. This may be a sampling or a context problem. They may have been less candid towards my generation because they were looking for money for their projects

The main difference in my encounter is that most of these people had boomers for parents. While most of our parents were in their early twenties when we (boomers) were born, their parents were often in their thirties and forties when they were born. There were a few with younger parents, but not very many. (We refer to our parents as the greatest generation because they beat the Nazis and the depression, but who are they referring to and why?)

In fact, I noticed a lot of sympathy for their boomer parents. Several of them noted that their parents had worked hard all of their lives and had expected to retire soon, but are now looking at having to work into their seventies or eighties. There was a general feeling that they would not allow this to happen to them. They would take care of their retirement needs while they were still young.

The main resentment that I encountered was that I was able to get my education for free. They don't think social security will be there for them, but they were young enough so that wasn't really a concern. The idea that someone could go to college for ten years and have money in the bank at the end of it was simply mind-boggling to them. People with full scholarships all the way through told me they had forty grand in debt after school.

I also detected less regard for their formal education among the group I talked to The pretty much all had college degrees, but they regarded their life preserver as their skills at seeing what was needed and building something to meet that need. Several told me that their college education was only good for getting a crappy job for a big corporation, and they had no interest in that.

One point of similarity I noticed is the sense of impending decay. One young man told me that he thought we would see a thousand bridges fail in the US in the next ten years, and that no one would step forward to maintain them. He said he saw no inkling of the common sense of purpose that must have existed when the roads were built. He further pointed out that the infrastructure needs were far greater today because there are now so many more people, but China and Dubai seem to be the only places where they are actively working to build a modern infrastructure. He said we have a 1900 model railroad system and a 1950 highway system (I didn't point out that the interstate highways weren't built until the late fifties and early sixties).

There was a sense that they would never have the life their grandparents had. This same young man said that his grandfather went to work for a company right out of college, worked for them for thirty five years without a layoff, and had been retired and playing golf on a generous pension for thirty years. His grandfather had bought his house for less than ten thousand dollars, and three years ago he could have sold the lot the house was on for nearly a million dollars (not any more).

Another thing I noticed was that almost everyone they idolized in business was a boomer. As you might expect with a group that was more iPhone app developers than anything else, Steve Jobs was far and away the person most admired. Eric Schmidt of Google was another favorite, but ranking way behind Jobs.

Marlowe Cassetti writes:

Wouldn't it be great if they were to make a new reality program based upon the Turtle Traders experiment. All the intrigues of students from diverse backgrounds competing. Ah, the high drama. I bet some of us Specs might be so inclined to view a few episodes. Am I right?

Lars van Dort comments:

Actually the BBC had a program called 'Million Dollar Traders' last year:

"Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund. Can they make a killing?

The experiment reveals the inner workings of a City trading floor. The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead.

The traders were selected in spring 2008, before the US credit crisis gathered pace. The successful candidates were chosen, trained and dispatched to their specially created trading room in the heart of the Square Mile. Among them are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper.

The eight novice city traders struggle to ride the storm as stock markets around the world go haywire. Some of them take big risks, and others lose their nerve in spectacular fashion."
Episode 1:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56317671
Episode 2:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56321444
Episode 3:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56337345

I quite enjoyed it.
 

 

Jul

20

sales of iphone 4Of all the canards, snares, delusions, and misinformation about markets designed to put the investor on the wrong foot, to increase the flow and likelihood of resources from those at the bottom of the web to the top, surely one of the most destructive is the idea that sales are more important than earnings, an idea that seems to have the market in its grip. The reaction of IBM to an increase in earnings above estimate of 8% and sales below estimate by 6%, with the stock dropping 5% is just one horse from that dump heap.

Same thing happened to General Silo when it announced great earnings but sales declined. Must make all these proud CEO's shake their heads in disbelief when they tell their boards that they can't believe that the stock is down when they're doing so well, and their every sale is at a profit and they are only selling profitable products rather than just selling anything they can to get cash.

Indeed, the first item reported now from the traditional income statement announcement is the sales number versus the corresponding quarter, and the surprise factor of sales. Compilations of companies that beat the bogey for sales are now almost as numerous and useless as those for earnings.

Sales are the easiest thing in the world to manipulate. From economics, the buyers have a demand curve for a product, with alternate uses and utilities for it. The marginal utility of each additional unit decreases. At a low price, they will use it and buy it for many uses. For example, the traditional explanation in Heyne where water is used for plants and baths at low prices but only for drinking at a high price.

From a practical standpoint, every business person knows a million ways to increase sales at the expense of profits. you can sell to bad credit risks. You can dump inventory at close to cost. You can offer discounts for bulk orders or pre orders. You can reduce the price and ask your customers to store it for a rainy day or some other use. You can sell to a wholesaler or distributer instead of the ultimate customer, especially for a price. You can justs turn over your product to your customers with a "I'll take 5% on this. Just enough to keep me going". Or you can produce a higher quality product with better terms and tell the customers what a bargain they're getting by taking it out of your hide. Or you can buy a division or company to expand sales, or work off your inventory to change the number.

Indeed there's no item in the expense or revenue side of the income statement that can't be manipulated to increase sales. From a value standpoint, the stockholders desire an increase in wealth, not an increase in sales. What gives them wealth is earnings, not sales.

Okay, where do all these crazy reactions to sales come from? There must be some academic study, doubtless done with retrospective data that shows that sales provides information. And some earnings aggregator sellers must have shown that sales is a important signal with data from one of the retrospective data files that are so misleading and cause so much havoc. Or perhaps there was one period with a turning point where style investing based on sales had some information value.

Of course, companies are very smart, and it's so much easier to manipulate sales than earnings because you don't have to have the complicity of the accountants or move one item on the balance sheet to never never land to change sales. So even if sales were once of reasonable signaling value, now they will be changed in cycles in the typical Baconian way, and of course the public will be behind the form even more than usual.

But in the interim, what a fantastic opportunity to take advantage of this ridiculous malarkey and the reactions of stocks thereto.

The funny thing is what must go on before the release of the income statements these days. The insider and the outside flexions for the big companies must keep the earnings in the hip for a few weeks on a need to know basis only with smug satisfaction that they have beat the guidances they gave out to the analysts and the favored institutions and that they have pulled the wool over the eyes of the accountants to a reasonable degree to pull the earnings into the right territory. Then the horrible realization must come that they forgot to run a sale of buy that division before the quarter occurred and the sales numbers actually show something below the bogey must arise, and their smug satisfaction turns to the agonizing thought that even though business is great, they're going to have to do a lot of explaining to the board as to why the stock is down. 

Paolo Pezzutti comments:

There are also other ways to try and increase sales and earnings at all costs. Apple is in my view the last example of a company which is struggling to keep up growth prospects at all costs. And the bigger the company becomes the more difficult it is. The problem of the antenna of the iPhone indicates that they did not give enough time to their engineers to test and make sure technically it was all fine…because of the hurry to come out with something new as soon as possible. Eventually, however, this approach to customers might painful. Hopefully they understood. 

Ken Drees asks:

Do consumers get conditioned over time that products need fixes and patches and it's just the way it works in tech– so no problem–send me a carrying case and a patch and we love Apple just the same?

Plus, Apple prices their new stuff way high on debut and people can't get enough of it and then they lower prices to get sales goosed–which pisses off the early buyers yet they seem to forgive next time around.

Also, what is your general opinion on dividends? In my market lifetime, dividends were always poo-poohed and shunned as a way to lose capital. Friends in business always reinforced that concept the putting money back into the company was more prudent. However in my father's lifetime dividends were an important investment consideration and if the dividend was solid or not, or if it grew each year and thereby showed business health. High dividend taxation rates affect investor sentiment about holding div paying stocks. The repeal of tax cuts in Jan will hike div tax rates. I wonder how retired people structure their investments to throw off income these days–bonds don't pay much, energy patch only real div sector that comes to mind.

You can't fake a dividend. 

Rocky Humbert comments:

Ken: You are correct in all of your statements about dividends. However, while you cannot "fake" a dividend, you can "cut" a dividend.
The interaction between dividends and taxes, dividends and management stock options, dividends and corporate cash balances/reinvestment are well understood. Also understood is that fact that a substantial portion of total market returns can be attributed to REINVESTED dividends.

Notwithstanding this, whether you cut a pizza into 8 slices or 7 slices doesn't change the size of the pizza. However, if you have eight friends over for dinner, serving 8 slices makes you look like a good host. Whereas serving 7 slices makes you look like a miser. This illustrates nicely the investor preference for dividends from time-to-time. If you don't ever have friends over for dinner, it shouldn't matter….

One thing that is poorly appreciated– and which I encourage you to consider– is the relationship between dividends and the "duration" (to use bond parlance) of an investors' stock portfolio. Here's an example: If you buy the 7-1/4% treasury bond of May 2016 at a price of 129, the duration is 4.9 and the convexity is 0.29. Whereas if you buy the 2.625% of April 2016 at a price of 103, the duration is 5.32 and the convexity is 0.32. So, the lower coupon bond has more duration and convexity even though it's a slightly shorter maturity date and has essentially the same Yield-to-Maturity. I'm sure the quants out there will find fault with this analogy, but I believe there's a similar effect in stock portfolios.

Jim Lackey comments:

No they are not Mr. Vic.. mid quarter updates– TXN or IBM or any of them– say all good, and why stocks gap so much is insider selling and we all know it. It's not all that bad as they raise the full year outlooks and TXN book TI bill ratios fall as a certain handset maker is on the ropes. But the joke is now vs 99 they can contract out manufacturing and ramp up and down production so fast all the old school book to bills or updates are well, perhaps useless. But a few still have their own factories, and if they buy new fabs from Klac LRCX or Nvls… I don't know how it's bearish in the time frame your looking at, but AMAT is all in Solar and that reminds me of used car sales, and one guy on the internet who went to a solar show and he said it reminded him of used car salesman and I thought good! Perhaps some sales will get done.  

Stefan Jovanovich comments:

Samuel Butler scandalized his readers by suggesting that the banking system of Britain had replaced the C of E as the national church. I think he would have been bemused to find that the language of finance has now become completely theological, that wisdom takes expression in the form of discussions about "decent" returns on capital, etc. I know Butler would have laughed out loud at the discovery that in the 3rd millennium mankind had reached the point where money itself could only be discussed in terms of its moral meanings and the words "sinister" and "deflation" could seem perfectly compatible usage in a single sentence.

From Mr. Butler's pen:

"MANKIND has ever been ready to discuss matters in the inverse ratio of their importance, so that the more closely a question is felt to touch the hearts of all of us, the more incumbent it is considered upon prudent people to profess that it does not exist, to frown it down, to tell it to hold its tongue, to maintain that it has long been finally settled, so that there is now no question concerning it."

" I do not mind lying, but I hate inaccuracy."

"Life is the art of drawing sufficient conclusions from insufficient premises."

Those of us who do own companies - not just as thought experiments but as our accursed fate - truly envy Rocky his ability to find answers in the current MBA Book of Common Prayer; what we see on the street in California right now is that the only current action is being handled by the Lackeys and the few other over-traders who have never had the luxury of being able to ignore the current bid. Everything else is talk combined with (1) belief that the "cycle" will somehow continue as the Emperor peddles along on his imported energy-saving machine and (2) a desperate eagerness to get to the next meeting with the representatives of the official church.

Jul

20

There were two sins that would result in an immediate termination at the prop shops. One was holding a leveraged loser and not showing up for work–the O'Hare trade– you go to the airport and call the office to see if you're blown up or not. If so they boarded the plane.

Next was "but its a great company." If anyone ever said that about a stock they were caught long in they were fired faster than….Never since I have read about the markets on my tank in 91 desert battles have the "valuations" of certain stocks in the sector all kids love– tech– never have they been so "cheap."

Now don't get me wrong the 2002 strategy of buying INTC in the teens and selling it over 20 has worked. And no I am not talking the 4 months post LEH when the world was coming to an end. I mean now a normal non panic time vs any other time when the waters were no hurricane force winds. I have never heard so many traders say, "but it's a great company and it's so cheap"…and I respond get the joke or you're fired.

Jul

18

ChinaMy nine-year-old son Jonah and I have been playing chess a few hours a day. I never thought I'd enjoy playing chess as much, but I do. In fact, over the past year I’ve probably played more chess than in my whole life. I win every game! When I win, I win. When I lose I win – seeing your son (your student) beat gives you an enormous satisfaction as a teacher. In fact, I never thought I'd enjoy losing so much. Jonah has this quality that I need to nurture in him – he never gives up. Even a game that is a clear loser for him, he plays till the end. What a great quality to have in life!

I am also enjoying seeing my four-year-old daughter Hannah grow up. We have yet to find an activity we both enjoy doing together (other than hugging to death), but we'll get there. She has almost learned how to ride a bike without training wheels; maybe we'll do cycling together. They’ve been going to a summer camp that is half a mile from my work and six miles from our house. A few times a week, while I tug Hannah in a bike-stroller, Jonah and I ride our bikes 30 minutes to the summer camp, through the park.

I envy my kids; they have the pleasure of spending time with their grandparents. My grandparents lived thousands of miles away from me – I saw them once a year for a few weeks and that was it. My wife's and my own parents live just a few miles from us. My father's house is a block away from my office; I stop by a few times a week for breakfast before I go to work.

My father gave Jonah a 50-state quarter collection for his birthday. Now, every day before Jonah goes to sleep, he and his grandfather spend half an hour on Skype learning about each state; and once they are done with a state, Jonah puts the coin at the proper place in the board. They also play a game of chess on Skype chat.

I gave a presentation last week at the Value Investment Seminar in Trani, Italy (here is a link to the PDF). I strongly suggest you visit their website in a few weeks, as it will have presentations and videos. It was a terrific event; I learned a lot.I spoke about China, Japan, and our favorite stock idea: eBay. I changed the title of the China presentation to “China, the Mother of all Grey Swans” (instead of “Black Swans”). A while back, when I shared this presentation with my readers, I was corrected: China is not a black swan, because a black swan is a rare, significant, and unpredictable event. However, the consequences of what is transpiring in China and Japan are for the most part predictable (especially if I am writing about it). We don't know when they will play out, but they are predictable.

Nassim Taleb, one of my favorite thinkers, who brought the black Swan to life in his books Fooled by Randomness and The Black Swan (I like both books, but Fooled by Randomness is my favorite, plus, it is by far an easier read than Black Swan), solved my dilemma with China by creating a new swan: "grey"– a rare, significant, but predictable event (though the timing is still unknown, or perfectly known only with the benefit of hindsight.)
I spent a few days at the seminar discussing and debating China with some very smart folks, who stirred up some random thoughts.

What really amazes me is how people who would not trust the US or European governments to do their laundry, have unconditional faith in Chinese government involvement in its very complex economy.

The Chinese government brainwashes its people the same way the Russians and Soviets brainwashed theirs: by controlling and censuring media. So I understand when Chinese people who live in China speak highly of their leaders – they are brainwashed (I have experienced this first-hand). However, I am amazed that the Chinese government has been able to brainwash people who reside outside of China.

No, an economy in large part controlled by the state is not superior to ours. Greater control over their economy allows the Chinese government to pull the economy out of recession a lot faster than in the democratic countries, but there is no free lunch. Their actions will just lead to greater excesses and imbalances down the road.

It seems that as Westerners we have an inferiority complex when it comes to Asian cultures. Chinese uniqueness is praised today the same way Japanese superiority was in the 1980s. I even remember reading Russian newspapers in Russia, in 1989, praising the Japanese work ethic and their unique culture and spouting predictions of the continuance of Japanese dominance. I can only imagine how the mainstream press in the US was caressing Japanese uniqueness in the late ’80s, especially as the Japanese were invading (buying) Times Square and the State of California.

What is very interesting about it is that today all those Japanese cultural advantages are looked upon as disadvantages. For instance, “saving face” did not allow Japan to deal sufficiently with failed companies; their economy was full of semi-dead, zombie companies, which did not allow the healthy ones to prosper. Their employment-for-life system that was praised to the heavens during the Japanese golden age is now killing productivity of the economy. I recently read that 12-17 million people in Japan are employed who should not be employed (for an economy of 120 million people, these are huge numbers). In other words 12-17 million Japanese show up for work every day and receive a paycheck, but add little or no value to their employers.

Back to China. Even if the Chinese are harder-working and more entrepreneurial than Americans and Europeans, that doesn't mean the laws of economics are somehow suspended in China – they are not. The Chinese economy was geared for high global growth, while now much lower growth is in the cards. The excesses created by 14% of GDP being “stimulated” into the economy through a fire hose have led to significant overcapacity. It will take time for these excesses to be dealt with, even in a country full of super-hard-working people.

A friend asked, “But what about Singapore; its government plays a significant role in the economy, and Singapore is thriving.” The clear answer: government can only succeed in running very small and relatively simple economies. Let me give you this example. I have a game on my iPad called Flight Controller – my kids love it. The point of the game is simple: you are an air-traffic controller and your job is to land planes. Planes come in three colors, red, yellow, and blue, and each plane has to be landed on the runway matching its color. The objective is not to have mid-air collisions. I can land ten planes no problem, twenty gets more difficult, and forty I cannot handle (Okay, I played the game a few times). The same is true for economies: the more complex the economy the more difficult it is to be centrally planned.

Government is not and never will be an efficient allocator of capital. It empowers bureaucrats, which in turn leads to corruption, which further misallocates capital. The size of the bribe or strength of the personal relationship decides the flows of capital instead of the invisible hand that funnels capital from low to high uses. (A side point: Singapore is one of the most uncorrupt countries in the world; this may explain in part the government’s success. China is not Singapore; it is infested with corruption).

I often hear that you have to go to China to understand it. But tourists who go to China don't see the real China, the same way that tourists who go to Moscow don't see the real Moscow. I was in Moscow a few years ago, and I was impressed by how clean and beautiful it looked; in fact it didn’t look much different from the center of Brussels. Of course, I was only in the center of the city, where you see fancy restaurants, gift shops, museums, theaters, etc.

I went to see my college friend who lives in the real Moscow – I saw a very different picture. The second you veer off the main road, it turns into pothole hell, and the streets are anything but clean. My friend lives in a nine-story apartment building that has not been painted in decades; paint is peeling both inside and outside. Interestingly, most of the sides of the buildings that face large streets in Moscow and in Murmansk (the city where I spent all my Russian life) are usually painted, but the sides that face small streets have not been painted in generations.

My friend – a lawyer – and his wife and kid have to live with his mother, as they cannot afford to live on their own. But you won't see this Russia if you are a tourist visiting Moscow. People who visit China even multiple times harbor an illusion that they understand it – they don’t. In fact they so overwhelmed by its grandness that they stop being rational in their analysis.

I keep thinking about the possible consequences of the Chinese overcapacity bubble pop. It is relatively easy to understand what will happen in Japan: deflation will quickly turn into hyperinflation as government is forced to print money to service its debt and social obligations. They'll announce and may even execute austerity measures, but those will be a decade or two too late. The Japanese yen will likely decline, though maybe not right away, as Japan owns a lot of US dollars and may be forced to sell them.

The Chinese situation is far more complex. China has tremendous overcapacity, but overcapacity is deflationary. It will drive prices for commodities down, and prices of Chinese-made goods will likely decline as well. Demand for industrial goods will collapse, pushing their prices down. But China will also have to deal with a lot of bad debt and will likely have to print money to do so – which is inflationary.

The popping of both the Chinese and Japanese bubble economies will lead to higher US, and likely global, interest rates.

Japan, as the title of my presentation suggests, is past the point of no return. Internal consumption of its debt will likely turn negative very soon. Its post office, which includes a postal savings system that was historically one of the largest buyers of government debt) announced recently that it will be a net seller this year. The situation is out of the Japanese government’s hands. It will probably not be able to intervene in the economy for much longer, so rates will rise and there will be little they will be able to do about it.

China is different from Japan. Its government is trying to slow down lending, but at the same time we have started seeing news of possibly another multi-hundred-billion-dollar stimulus over the next few months. The Chinese government’s actions are the wild card that will determine the duration and the magnitude of the bubble pop – the longer they intervene, the more dire the consequences will be.

Jim Lackey writes:

Why is it that the Soviets lasted some decades and you think China is going to self destruct after 1 decade? Are you guys serious? So the Olympic track builder comes to Nashvegas… we are building a new track and paved the berms. He told us about Beijing and the Olympics. He built the BMX track. So a dump truck so overloaded with hot pavement wheel stands up the hill– yes, front wheels off the ground…

A chopper comes in takes the bucket off the truck flys it to location 100 meters and set sit down. 50 some 50 Chinese kids come running out shovel hot pavement in a ballet and make a perfectly paved berm. He said it was wild to see. Mean while 4 of us did it on half the time with one sub load dump truck a rented bobcat with 1-10th the labor and guess what. In the USA the labor was free! We all volunteered to do it for the love of the game.

Jul

16

Charlie BrownIt's nice to see after 7 up days the ramp in to the close. Who knew the G's would be so newsy. GOOG down the usual after reports, but the GS settlement, and yeah, we couldn't figure out how in the world the SPU was up for the hard 8, but GS provided the newsiness. But in the end as usual, the last minute the down day is tiny by 415. But if we can't trade over 1099.25 just like the lows weeks ago of 1002 ish– if we do not get the opportunity to play the round number games….ugggg! Charlie Brown. To all my bookie friends…have a happy and healthy expiry.

Mr. Lackey clarifies later:

I did not wish to imply the last hour move was good or bad, or brag that I was not short. What I meant is it is nice to see the markets are fair and the firms that bought the 4x normal last minutes blocks of a million or so shares are now in the black some 4 million bucks. Perhaps the SEC can use their half a billion fee fine and new regulations and power of finreg to see if anyone had knowledge of the settlement as it's all a fair game. 

p.s. glad all that mumbo is now over with. 

Jul

15

winnings from a NL Poker gameStocks are much like no limit these days… you have one or two 10 minute bars to decide to go all in risk all or fold.

Vince Fulco writes: 

Phenomenal observation. It's a function of fake liquidity. You've got to pick your spots wider and expect the reactions to be more severe in both directions. I read somewhere the other day the theory that folks are pricing in too much tail risk. Is this what happens when an economy is built on sand?

Jeff Watson writes:

Interesting comparison of stocks with no limit poker. While the risk of ruin approaches 100% in NL poker, I wonder what the risk of ruin would be in the stock market, especially with short term trading. I suspect that it would be higher than one would expect, with the vig, mistakes, and just being wrong factored in. 

Jim Lackey writes:

No…anyone is capable of "not taking risk" and to see people brag about not losing is hilarious. No profits either, at least none to brag about vs. some indexing. To make real money you have to take real risk. Period. End of story. 

Rocky Humbert comments:

How return is related to risk is a subject worthy of extended discussion, and I don't have the time to launch that thread right now.

However, I want to note that Fama has backed away from his early work that pioneered the model that the two must go hand-in-hand.
I for one do not accept the proposition that one must take large risks to have large returns and this distinction is a key difference between gamblng and investing.

This is a fascinating subject… I hope others will contribute. I have a plane to catch.

Jeff Sasmor comments:

"To make real money you have to take real risk period end of story." Yes!

Isn't the ultimate metric whether or not you make money? If you are good at scalping the E-mini SP on a 5 min chart and make money doing that then IMO it trumps the issues of risk and vig. Personally and IMO, and I know that most here will disagree (except maybe Jim) scalping has the lowest risk albeit with more vig (vig is pretty cheap these days at $4/round trip for the Emini SP and since one Emini SP ~= 500 SPY it's much less vig than the ETF). I don't even factor commissions into my thinking anymore.

But longer time frames are more comfortable for most people - and yes the vig is proportionally less but one downside among many is that you're much more susceptible to your own emotions about getting out of a losing trade (or a winning one) - and that's an additional term in the vig equation.

With computers (Skynet) running the show these days you can get your "head handed to you" no matter what time frame you're using. They seem to love chaos and high volatility, sort of like the Shadows in the old TV show Babylon 5; or for real sci-fi nuts - the eddorians from the Lensman space opera series. Or for others: think of computerized Sith.

Jun

25

Dr..the day trader like a cop-er must file a report. Its not like the s&p and gold are hooked or gold would be 1080 or the s&p back to the highs.. Nor is the Dow an Nikkei and thank goodness we didn't go to 9700 today..not that the last full moon in May at 1070 want the bottom unless you had a 2% stop your really found the bottom under 1050..yea we just did 1130 but hope the next full moon shortly isnt the same 1170ish.. even if Dr copper is the new meme.I must point out the Dr did point out Bonds short and cost of carry wasnt the best idea cant remember when the short bond meme was around but I am certain the 30 yr future was no where near 125..one twenty five!It's known around the shoeless shop to be called Dr lack after I made a dumb trade which was…my Phd is losses. So Dr Copper made me laugh today. (as this entire post is a get the joke we are all happy to be alive this week)
and hope vic laughs because I still do when he wasn't pleased with my carelessness at times and Mr Vic always said "please never" the words for many days in a row is Magnitude please.

There was another good lesson "one must always wait" and that is why computers are so much better than day traders, computers do not get tired. What a week. I am shot, will the computers make another push? Are the programmers tired?

Word of the day was "dipsy doddle" and oldie but a goodie..

talk about old posts 2007 Mr roger said wait to refi you'll get 4%.. 4.62 today wowski. lack

Ps to the jokester lack, what does he got? Okay I got a meme for you AAPL is the opposite down with up and up with downs.. when it's close to a new hi lo intra day, do the opposite in the rest of your NDX stocks..(works for 5 minutes) or I have a much better idea take the NDX off your screen.. AAPL is now 20+% of the index and there is 7 kids in the NDX pits in Chicago and its all useless…and as Usual Tommy Ryan and Me are the last to get the joke lack

May

7

The range for May 6, 2010 was 1168.75 to 1056.00 on the S&P futures.

On Tue, Apr 13, 2010 at 9:05 AM, James Lackey wrote:

Would one of you big fish please buy, sell, or short the markets
please? The movement and ranges are too small. The joke around here is
day traders can't even find a way to lose money…much less make.

Dear Lack, this proves that the round trip distance to G-d is 23 light-days ( assuming v(prayer) = c ) 

Apr

14

from the show Deadliest CatchI pulled this off wikipedia, deleted a couple and changed the order as I've had 50% of these gigs, and let me tell you, no way in Hades is any finance gig remotely as demanding as being in combat. You might feel like you're gonna die, you might financially, but physically– no way. Not even in the parking lot of the ballpark. Fear of death is really no big deal when your a kid. Yet the fear of others death due to your mistakes…goodness, soldiers are one thing, but construction– we've all seen guys get maimed or die. Cops and firemen run into buildings while we, the civilians are escaping. But I do find bike courier more fun than stressful, but I am a racer. So a package on time vs. getting run over by the bus or taxi isn't any worse than the semi finals at the grand nationals. Just another lap .Never been a fisherman but that deadliest catch deal crabbing in Alaska. Wow those dudes work. One slip and you're a dead fish. lack

Soldier.

Construction work

Freight Handling (cargo, loading dock, trucks, aircraft, trucks).

Soldier.

Logger.

Oil Rig Worker.

Bicycle Courrier.

Foundry Worker.

Firefighter.

Fisherman.

Apr

13

 Would one of you big fish please buy, sell, or short the markets please? The movement, the ranges are too small. The joke around here is day trader's can't even find a way to lose money much less make. No way can the bookies and mistress allow this to continue. Or maybe they can… I hear in 1994 the markets were too slow to trade. That was before my time, so I have never seen this before. Kinda like 2008. Never saw that before either. Ha.

Vince Fulco adds:

Thought it was a hoot earlier in the week when Interactive Brokers lowered FUTS commissions unilaterally for us small, aspirational specs. When was the last time brokers obliquely sent the message 'please trade'? Just a matter of time till we get a relative vol shock; the ecosystem as laid out in EdSpec requires it.

Mar

17

I hope it hasn't been missed but the music and markets have gone from Complex improv/jazz to rock and roll (more rhythm and lack of melody) to pure primal dominated by beat tracks and poetry (rap) and that is where we are today– all strait forward rhythm beats and street cred rhymes, the blogger ghetto prose, day after day after day.

Mar

12

Your average Wall Streeter, faced with nothing profitable to do, does nothing for only a brief time. Then, suddenly and hysterically, he does something which turns out to be extremely unprofitable. He is not a lazy man.

Fred Schwed Jr.

Feb

27

AKio ToyodaPerhaps someone can educate me, but an astute friend writes to me that Mr. Toyoda gave a very contritionate diplomatic apology to the US. It seems from the bleachers to me that the problem with making an abject monkey and whipping boy of the big Japanese auto maker is that there is retaliation. It's like raising the tariffs that started World War 1 to me. Surely there is something better to do than bash the Japanese who make cars so much safer than we do, and whose customer satisfaction is so high. Do we really think that this kind of thing helps…

Alan Millhone replies:

I'm on my second leaded Nissan and find them to be a very solid auto. My dealer says Nissans are "Bullet proof" in terms of reliability. You are likely right in your assertions concerning Mr. Toyota. All of us need to learn to get along and be supportive of each other. Likely more mortgage troubles loom and under reported unemployment figures and troubled banks to haunt all of us in the near horizon. I feel my rentals will come back from the dead like gangbusters as folks will not be able to muster required higher down payments to purchase the American dream of owning a home.

Dan Grossman writes:

I would guess the truth of the acceleration for Toyota is something like:

1. We don't know what it is.

2. It may be nothing (mostly driver's error like Audi, maybe a floor mat or two, and for the rest very minor statistical happening of 2 in a million cars, can't reproduce, can't scientifically identify).

But if Toyota said that, all hell would break loose, "The American people will not stand for this" and all kinds of Congressional and Transportation Dept posturing.

So they have to apologize again and again, and recall all the cars, and "fix" the defect that they really have not been able to identify.

I know nothing about auto mechanics, but that's my guess.

Pitt T. Maner III comments:

 So if it turns out to be electronic what would this lead to? Would the onboard computer come from another country?

Dave Gilbert, a professor at Southern Illinois University automotive technology department found a design flaw in the electronic system, which prevents the vehicles onboard computer from “detecting and stopping certain short circuits that can trigger sudden speed surges.” As a result of the onboard computers failure to detecting and stopping the short circuits, the computer does not record an error code; and doesn’t activate the system that is designed to shut off the vehicle’s power and put it into “limp home” mode. Therefore there is no way to trace back to the original issue after an incident of sudden acceleration, which has led Toyota officials to continue dismissing accusations of electronic malfunctions. A Safety Research & Strategies advocate stated, “The system is fallible, in fact, it’s got some really troubling design strategies that are employed by Toyota that appear to be outside the norm. And their system clearly has design strategy that has a very slim margin of safety.”

James Lackey writes:

Toyoda has been apologizing since he took the job.

1. Cars break.

2. All cars have defects.

3. All car makers do cost benefit to recall or not to recall and if not to recall why pay for the redesign.

4. All Toyota's problems are from truck losses. They top ticked a new truck line in 2005.

5. F and T both use the same hybrid brake tech with the same feel problems. T was based, F wasn't. Proof there is drama, but why?

6. Toyota employees– so many Americans, it's funny. They wasted trillions of Yen with GM and no one could even come up with an argument not to close the factory of the future in California. We just wondered what took so long for GM to go bust and Toy to quit.

7. See INTC keeping AMD around.

8. Japan and Korea love to argue. Hyundai and KIA are in Alabama and making and selling cars. Watch Olympic speed skaters and you'll understand the battle.

9. In the 80s the Japanese feared a traders tax so they assembled them here.

10. The pedal in question is Indiana manufactured. The Japanese pedal worked fine. Some one is in huge trouble.

11. Toyoda, if like the last Ford CEO named Ford, wasn't much of a car guy. His job is PR. Last year he spent all him time apologizing to the Japanese investors for a financial loss at #1.

Akio Toyoda?

Born May 3, 1956 (1956-05-03) (age 53) Nagoya, Japan Nationality

Japanese Education Faculty of Law, Keio University MBA, Babson College

Occupation President and CEO, Toyota Motor CorporationEnd.

It's a preannouncement silo earnings, dump all bad news and all recalls/problems at once. It's a blizzard. Notice all the car guys (GM F Chrysler/Fiat Honda KIA/Hyundai Nissan Daimler BMW) keeping their mouths shut. It's not that they are being nice and humble, they all have their problems. My dad called me today on a car electrical problem. It's hard to test over the phone. Then I thought, hey where were all the mechanics at the hearings and on the news tape? The people that work on the cars can tell you every single problem and fix per model, if they can't the dat recorders can.

Feb

8

My locally owned lumber yard is feeling the recession. Normally they are open Saturday 8-12 and workers usually work 49.5 hours per week and some of that is overtime pay. Effective today they will close on Saturdays and workers are on a strict 40 hour work week. I heard some grumbling this morning from workers there. I told them to live with it and be glad they have a job.The 'stimulus' will never reach the little guys where it could really be used to stimulate and help small businesses grow and hire more workers.

James Lackey comments:

So let me get this straight. After the worst downturn since the great one.. Now they are doing layoffs? Now, when lumber prices are on the rise enough for a Home Depot upgrade today? Or did they just realize with unemployment very high there is no need to pay overtime? Or is the get the joke a bad hedge?

An example is a LETTER from a SELF MADE MERCHANT TO his SON, LORIMAR "you been in the packing business long enough to know it only takes 30 seconds for a bull to lose his hide; if you believe me when i tell you they can skin a bear just as quick on 'Change you wont have a Board of Trade Indian using your pelt for a rug during the long winter months."

"Because you are the son of a pork packer you might think you know a little more than the next fellow about paper pork. There is nothing in it. The poorest men on earth are the relations of millionaires. When I sell futures on 'Change there on hogs traveling to dry salt at the rate of one a second and if the market goes up on me I've got solid meat to deliver, but if you lose the only part of the hog you can deliver is the squeal" pp 193-94.

Feb

6

 Toyota is sure it's a pedal problem and not drive by wire. This reminds me of my dad's not liking the feel of two springs on the throttle stop the NHRA mandated. I said "Um, dad, if the throttle sticks on this 1,000 horsepower bad boy…" "I'll shut it down, son." "Not if you're sliding sideways, pop – leave the heavy duty springs on the carb…"

Anyway, drive by wire must be 100,000,000 times safer than an old throttle linkage when a motor mount breaks. Everyone who ever owned a Lincoln Town Car knows what I mean. That was the clunking sound you heard when you stepped on the gas. The engine falling back down into place. You shouldn't have let your grandson drive the car on spring break. Push hard enough the engine rises up and the linkage goes to WOT and won't shut down.

I forgot all about Ford's cruise control WOT wide open throttle problems they had for a decade. Moisture would get into the cruise control box, short it out and any random time the car would go to full throttle. They had to admit the problem was real after a few Secret Service agents ran their cars into trees at the White House. So now I am cracking up that Toyota's problems are now good for Ford.

Yet I am not laughing about the Lexus floor mat deal. Even if it's just the mats. (Lexus hasn't had a pedal recall) What you're saying is if you drop a newspaper, your new iPad, or a bottle of Coke while driving, the rebound on the pedal is so weak (no two springs. or very strong rebound mechanism that NHRA mandates, that my dad and everyone must hate the feel) you're at full throttle trying to slap it into neutral and holding an ignition switch/button for three seconds to kill the engine.

So now I am like the old curmudgeon who says all new tech is bad because kids can't write an essay, just a paragraph. The oral tradition was lost to the Gutenberg press. All hope for a strong memory is lost with Google search. No one will know how to parallel park once drive by wire is in all new cars. I can hear my dad now… "First they made it so you couldn't work on a car without computers, now you can't drive with out one." ha ha.

Ford blamed the floor mats for years.

Feb

4

Steve Mcqueen in BullittMy dad made me practice a few times turning the ignition off while driving the car at age 13 or so. It was at the race track parking lot. It never happened in the race cars as we had toe clips, but in the past decade some genius decided to get the kill switch close enough to 5 point harness, neck restraints and all the extra roll bars and padding they have today.

Only time I screamed "turn the key off" was when we worked on the 500 CID crate motor street car, a '67 corvette with a tri power (3 deuces). My buddy had the old tri power carb book and went to task rebuilding them for me. I let him drive the car. In a freaking neighborhood he shifted into 2nd and stood wide open throttle and when it pegged the rev limiter I knew the throttle linkage was stuck. I was reaching over to turn off the key as we were balls out ready to run off the end of the road into a freaking house. He turned off the key pushed in the clutch and we coasted to a ez stop. He said "sorry about that/" I said "hey jerk off, let's not test things in the neighborhood," my goodness.

What freaked me out was the 911 call where the cop and his family were blazing down the HWY @ WOT and his brakes were on fire. He was on 911 in a panic. How in the world didn't anyone say to shut off the damn engine.

I did see on the internet a motor trend guy say kick it into neutral or push in the clutch then get over and shut engine down. Yeah, so you can still use power steering and power brakes, but man, it's stressfull to hear an engine pegged against the rev limiter as you do it. And what if a kid threw it into reverse on an auto trans (race cars have reverse lockouts)? My goodness, just shut er down.

So this weekend we had 5" of snow. I taught the teenager not to panic while engine is pegged against rev limiter while in park. Taught him how to power slide, do doughnuts with real wheel or front wheel drive cars. Taught him anti lock brakes and with out. It's fun locking up brakes in snow turning wheel then let off the brakes and the car will turn, spin– what ever you need.

We ran out of time, but the best to learn is parking a car like the blues brothers. Do a 180 from 30 mph and land perfect into a curb parking spot. The other is the James Bond: as fast as it will go in reverse, spin the wheel to spin car in forward position, let off brakes and shift into proper gear and end up going perfectly strait under acceleration. That, my friends, took us 15-20 hours of practice as 16 year old kids, first in the snow them on pavement to perfect.

Only thing I haven't done is drive a car on 2 side wheels for a bit. Never really wanted to till now. I saw the X motocross racer jump the rally car on New year's. That's rough on the back.

Anyways flats, blow outs, catching the edge of the road at 70mph in the rain…stuck throttle. Don't panic and do not ever stand hard on the brakes. Look where you want to go and you will auto steer the correct way. Relax, kill the engine and coast to a stop. When you kick a car into neutral on auto trans as long as you dont depress the button on the shifter it will never go into reverse. So practice. Idle down the street, turn off the key and slap, yes slap, the shifter into N. Turn hard, no power steering, you can do it. You get 2-3 brake assists with the vacuum reservoir. Relax. You can steer and stop with out the power on…muscle it.

Feb

2

FDRThe pension problem in this country is a time bomb that is set to go and will likely either cripple the nation or be one of the final straws that breaks our back. Remember, pensions are backed up by the PBGC..

James Lackey writes:

I fear to quote history as a non-expert here and never ever want to imply predictions… the devalue-ists vs. the deflationists battles have always been apart of post crash, post war debate. Here we have choice of soup–the depression expert vs. the non computer using inflation expert with an American idol caught in an argument on how to restore past glory. With the people caught in the panic and demanding answers.

After Baldwin talked Churchill back to the Gold Standard they all realized prices were too high, so they had to subsidize (bail out).

Before FDR devalued, he cut govie pay and military pensions.

Pick your author on how good bad either path is/was…

Not sure if tea party baggers know how volatile these adjustments can be when the markets solve problems. Hey, wait, yeah they do. It's the NASDAQ.

Stefan Jovanovich writes:

I don't think American history offers many clues to what will happen next for jobs and incomes because there are no precedents for a country where half of the income went to teachers, government employees and people whose private sector jobs exist only because of regulations (lawyers, accountants). I don't offer that as a political statement, only an observation that we no longer have a situation where Keynesian deficits can produce more demand by creating government jobs whose workers buy things with their paychecks. We already have that economy now, and the multipliers from government borrowing and spending are now 0 or less than 0, not positive.

In terms of the dollar and its future value measured against other national currencies, I think you are right to draw lessons from the 1920s and 1930s; because that was the last time that ALL the world's trading nations devalued their currencies against gold and against each other. But that offers no clue as to how far the United States and others will go in taxing and restricting investment capital flows. The Great Depression became great because all the countries shifted to mercantilist currency and trade policies at the same time. As much as trade flows have fallen because of the GFC, the decline is nothing compared to the death spiral that occurred between 1930 to 1933.

Vincent Andres comments:

(Unfortunately) I completely share Scott's opinion.

Our states (we) have generously accorded overvalued pensions based on optimistic/erroneous previsions, (and this resembles _very closely_ to the subprime problem, where today's distribution of houses was based on tomorrow's expectations about their prices.) We thought we were able to build our present houses and our pensions by picking in the future, in the future of our kids, because as everyboby knew, trees were able to grow up to the sky.

The recurrence (in the mathematical sense) was build on the recurrence, but now we see the recurrence changing direction, trees are not growing up indefinitely; what will we do with our promised houses, promised health, promised pensions ? all those things paid by picking money in a infinitely rich future.

There are many excuses for those miscalculations (and not having know a war is probably the biggest excuse) which really made those systems function exactly as a Ponzi scheme. Today's worry is that we are unfortunately at the point where the Ponzi scheme explodes.

We live in interesting times–I also completely agree, on the other hand, looking a bit on the history side, this is not as dramatic as a WWIII.

In France (at least) WWI has seen its young generation slaughtered, while the elder were far less concerned (at least they were not slaughtered).

I wonder if our young generation would accept such a sacrifice? Such endebment for our houses, our healths and our pensions. (Maybe the massive mind-destroying we applied on our children will help them to not understand what we have done? Those days, our French government, like every 2 or 3 years is picking from Pierre's pensions to reverse to Paul's pensions (Pierre is in the private sector and Paul is in the public sector as for each reversal)  just around 5/6 billions, nothing to become nervous, and, in fact, nobody seems annoyed, so, as far as today, it seems to work fine). But even those reversal, really –theft–, will not indefinitely be enough. One can only be amazed when one sees that, on one hand, farmers are committing suicide, silently, without revolt, while in the same country, state employees are retiring at 50, having spend 20% of their life striking and with such miserable results. How is such a thing possible? What mental ascendancy is at work to obtain such passivity/resignation, unconsciousness of the horrible injustice of the situation?

… Yes, the coming period will probably be interesting. My hope is also that things will happen with a minimum of violence, but, in a form or another, I doubt our irresponsible generation will escape the hour of truth.

Jan

7

 One of the only times left today in our busy world for families to spend alone in close proximity with each other is in the car. Now that families eat out more and kids are being rushed from one practice to the other, traveling to school, games or activities.

My family also often take a 13 hour trp one way to Grandma's in the car. My kids and I spends more time together than I ever did as a youth with my Father including nightly meals.

But cars are not conducive to heavy discussions. While often my wife and I use this time to get caught back up to, what is happening in each others world; this generally has not been the case for the kids. Rather than bonding its time, it has either been a time to bicker or ignore each other for the girls (girls 11 and 16). Fighting, or stopping a fight,especially in a car while driving is probably one of the most distracting dangerous things you can do. We have a strict, no fighting in the car rule. I often say, "Unless it litterally is worth dying for…I do not want to hear it."Like many our family car is an SUV. It is now equipped with a plethora of mobile electronic devices that would make the early James Bond's car seem boring. Judging from the small screen DVD players, cell phone conversations, game boxes, and I-pod you see on the road, ignoring each other seem to be the alternative many families choose.
So in the past year I invented a game we call "the imagination game". The rules of the game, as we play it is every body has a chance to think of a topic they would like to hear the others imaginary story about. Then everybody listens to the story until it is finished. And then someone else's turn to either tell a story of the same topic or think up a new topic an asks someone else to go.

The girls love it. The oldest girl ups up and shares her feelings…something I think is pretty amazing for a 16 year old. And the youngest loves having the floor and chance to ham it up. It has probably changed my relationship with her the most. Because, like her Dad, she is a severe introvert. This allows her to express herself like an actor, or artist with a layer of protective detachment. But also because she now looks for chances to go to the hardware store or other trips just with me, so we can play.

I try to draw from my childhood daydreams and works of art for my topics. Some typical topics may be:If any book you read came to life what would it be? Which character would you be and which character would the rest of the family be?
If you could invent anything what would it do and how would it change the world?

If you dug a hole in the back yard and found something amazing what would it be and how did it get there?

If you could buy anything what would it be and what would you do with it?

What movie would you like to be real? What character would you like to be?

Etc.

Jim Sogi adds:

JSI found one of the best times to talk with the kids (when they were kids) was while driving in the car. They had a long commute to school. When the other kids in the car pool were in the car, they chatted away, and I got to hear about everything going on. Its a good non-confrontational situation since you are not looking at them, so they don't feel on the the spot and tend to open up more. It was a good time to raise things away from the rest of the family as well. The gadgets in the car might tend to discourage this nice talk time.

Jeff Watson remarks:

MotuMy son and I always had an agreement that he could decorate his room anyway he wanted from kindergarten on. He had a rather eclectic style of decorating, and his room (in surf-rat style) still reflects who he really is, not the Classics Scholar he wants the world to see. We always had an agreement that I'd come into his room every day, ignore the putrid mess, and we could have any discussion and he would have total immunity for anything he divulged. I heard a lot of things, but as my word is my bond, never punished him for any transgressions he revealed. Ultimately, the real lesson he learned was that he could trust me, that I was on his side, and it's better to be a good citizen than an outlaw. Since we live at the beach, he's run into many eclectic characters, has had to grow up early, and has seen many things that might not be age-appropriate. I've always played the role of "Ward Cleaver," and have provided guidance without hovering, but encouraged him to make his own rational choices. The result of our laissez faire parenting is that my son will tell me anything, won't lie to me, and will make and listen to rational analysis. I'm willing to let him go off on tangents (with a rope in hand to bring him back to earth), and I provide a safety net, so he has security which will give him courage to spread his wings and fly. So far, so good, but he's 21 and as a parent I will still worry about him until he's 80.

Jeff Watson, surfer, speculator, poker player and art connoisseur, blogs as MasterOfTheUniverse.

Jim Lackey writes:

LackMr. Jim, we all talk to kids on the way home from school or best, after sports practice when they can think without emotion. Long drives are greater than 3 hours but less than 8 hours or 500 miles. Brutal drives are 8-13 and 14 and over hours is pure torture. My brother and I call it "seeing fireflys".

The imaginary game sounds cool. We have a million BMX/MX miles and the 500 mile 8 hour drives are good for books on tape.That Turkey day Thunder run to Fla to see family, 13 hours, my wife had fun with "Sundays at Tiffany".  I said OMGauche a romance novel Jenn? It was, weird… an imaginary friend comes back to romance her.

One trip the BMX kids groaned one AM when I plugged in a murder mystery. "What is this, a book? No!…Let's listen to music!" The next rest area/stop the kids ran back to the van to listen. One trip a book had 30 minutes to go and everyone wanted to hear the end of the book before race practice. I've also used "cliff notes" books on tape for those Victorian classics that I would never read. We are talking Pride and Prejudice here. Which reminds me, my 8 year old girl is on Dickens. Last night after dinner she mentioned England, living in London. Yet our discussion was cut short with that pesky tech…1$ redbox movie the TV and DVD player and Cloudy With A Chance Of Meatballs. Cute story. The kids read the book. Only thing I got out of it was, "See, she is playing dumb blonde" which is one of my pet peeves and I tell my girls to "please never play dumb blonde." Yet do practice your southern drawl and lay it on thick during negotiations. Which was another spec list meal for a lifetime we learned here. Wish I had the ability.

Dec

14

The Blind Side

The Blind Side is one of those movies that makes life worth living forever. What other such movies, plays, music, literature would you put in that category?

Vince Fulco replies:

Movies:

The Road to Perdition– everyone who participated in it was at the top of their game from writers, actors (primary & secondary), producer, director, cinematographer, musical director. It made for a polished period piece with tons of emotionally charged moments and an unexpected ending.

Boondock Saints– obscure, independent type movie; very novel story telling seen both by the vantage point of the perpetrators (Irish Mob in South Boston) as well as the talented detective trying to unravel a recent flair-up in gang on gang activities (Willem Dafoe). A great example of the grey areas in life; i.e. if you are using extreme violence against a rival gang to protect one's innocent neighborhood residents, are you a saint or sinner?

Gandhi– A masterpiece in so many ways, no more needs to be said.

Laurence of Arabia– ditto.

I am a sucker for underdog movies where the lead character rises from his own self involvement and selfishness to sacrifice everything for the greater good. Not 'Laurence'–obviously his striving for personal greatness led to its own extraordinary achievements but as I get older, the accomplishment of creating these complex, grand movie projects is inspiring in its own right.

Books:

 Shogun by James Clavell

Anna Karenina

Two monumental undertakings by the authors which fully develop their characters and keep the reader engrossed from cover to cover. As for the latter, although it has been years, as I recall, the ability to interweave multiple complete stories and have them entertaining and believable was sheer genius.

music:

Anything by Yo-Yo Ma and separately Tan Dun.

Nick White responds:

 Martha Argerich's rendition of the first movement of Rachmaninov's 3rd Piano Concerto with the Radio Symphonie Orchester Berlin and Riccardo Chailly conducting.

Her magisterial expression of the full range of human emotion in this performance is, in my opinion, unparalleled in any other work.

Thomas Miller adds:

Miracle on 34th Street and It's a Wonderful Life. Both made shortly after end of WWll. Still immensely popular 60 + years later.

Jeff Watson writes:

"Surfing for Life", is one of those special movies that makes one want to live forever. That's the movie that deals with all the old people who still surf well into their 80's.

James Lackey writes:

Cinderella Man (2005) …. Crowe as Jim Braddock is a good one. Invincible 2006 Wahlberg plays Based on the story of Vince Papale, a 30-year-old bartender from South Philadelphia who overcame long odds to play for the NFL's Philadelphia Eagles in 1976..

Ironic, I watched It's A Wonderful Life with my kids last night. What cracked me up is my quest to please my wife.I  remember 10 years ago when my boy was 4, I said "you're a bad boy" she said No no no what he did was bad, he is not bad. Ever since I have been working on my syntax to get the exact same point across with out damaging my own kids for life. ha.

Yet in It's A wonderful life the mom calls her sons idiots. It cracked me up as she was kidding sit down and eat you two idiots. The druggist smacked little George Baily around for being lazy. Baily tells the biggest backer and connected man in the county off countless times..turns down a 10x salary increase because he knew it wasn't best to sell his beliefs for money, but all the while hating his town his nickel and dime business where he cant profit much by helping others. He complained all along..which was hilarious "trapped"

Man on Porch: Why don't you kiss her instead of talking her to death? George Bailey: You want me to kiss her, huh? Man on Porch: Ah, youth is wasted on the wrong people.

George Bailey: Merry Christmas, Mr. Potter! Mr. Potter: And Happy New Year, In Jail! They're At Your House Right Now!

George Bailey: [yelling at Uncle Billy] Where's that money, you silly stupid old fool? Where's that money? Do you realize what this means? It means bankruptcy and scandal and prison. That's what it means. One of us is going to jail - well, it's not gonna be me.

Mary: I feel like a bootlegger's wife!

Stefan Jovanovich writes:

 It's A Wonderful Life is certainly popular now, but it was a bust at the box office when it was released in 1946. Its flop effectively ended Capra's career. The actors - Jimmy Stewart, Donna Read - went on to further success; but the plot reminded people of the bank runs of the pre-War era (hardly a happy memory) and they stayed away in droves. The Best Years of Our Lives was the hit that year; it was (among other things) about a banker who returned to work from the war and decided to lend a farmer money, not about depositors clamoring for their money back from an over-extended S&L.

Nick Procyk adds:

I would second Cinderella Man and Invincible.

March of the Penguins is a true-life movie about a group of emperor penguins that survive the harsh polar winter, breed, search for food — all captured in amazing photography.

Eight Below is another heartwarming movie based on a true story about a guide and his eight sled dogs. The guide is driven to reunite with his canine friends after they were stranded in Antartica during the brutal winter. It's a wonderful story about friendship, courage, and faith.

Riz Din writes:

 The Rocky films, all of 'em. I guess they just caught me at the right time. The first is the best, and Balboa doesn't even win the final bout. His victory is of another sort. The rest of the series works on several levels. You have both the quality of the Rocky films and Stallone's actual career ebbing and flowing with the ups and downs of Rocky's character. The score is everyone's 'go to' music when they want to get pumped up and motivated, the dialogue is wonderful, the characters memorable, and there are many lessons that can be drawn from the storyline, both good and bad.

From the first film:

Rocky: I been comin' here for six years, and for six years ya been stickin' it to me, an' I wanna know how come!
Mickey: Ya don't wanna know!
Rocky: I wanna know how come!
Mickey: Ya wanna know?
Rocky: I WANNA KNOW HOW!
Mickey: OK, I'm gonna tell ya! You had the talent to become a good
fighter, but instead of that, you become a legbreaker to some cheap, second rate loanshark!
Rocky: It's a living.
Mickey: IT'S A WASTE OF LIFE!

John Lamberg writes:

Life worth living forever? Well, none of the following make that cut, but my favorites are:

Hans Christian Andersen's works. (The Little Match Girl is perhaps the saddest story I ever read, and it stuck with me since childhood. We'll see if Gregory Maguire's "Matchless", a re-imagination of the story compares.)

Holst, The Planets

Bodysnatchers (original)

Forbidden Planet (not for the acting or script, but for Dr. Morbius' secret)

Vincent Andres adds:

The Last Kings of Thule - Jean Malaurie, about ordinary heroes

Many of Giono's books, eg Regain - J. Giono (in french onl)

Many of Pierre Magnan books 

Dava Sobel's Longitude

Order Out of Chaos by I. Prigogine

L'imprévu by I. Ekeland (in french only)

Des rythmes au chaos by P. Bergé, Y. Pomeau, M. Dubois-Gance, 1994.

For pointing an interesting trail, Deep Simplicity: Bringing Order to Chaos and Complexity by John Gribbin.

The Foundations of Ethology by K. Lorenz 

Studies in Animal and Human Behavior  by- K. Lorenz

The First Three Minutes: A Modern View Of The Origin Of The Universe by Steven Weinberg 

Mon oncle d'Amérique by A. Resnais (in French only)

Oct

14

"Frankly Speaking" from Frank Rosenthal.

Q: Why do you insist that a player can't beat the casinos? Is it the math or some other factor that draws you to that conclusion? I've spoken to several bright players who swear that you're wrong. Would you care to comment? Eddy Rocco. Elgin, IL.

A: It's a no brainer — and you can take it to the bank. Can a player get lucky and score? Absolutely, happens every day. However, as I've stated before, the casinos will grind you down, and eventually send you and the "bright players" that you referred to, all the way to Death Valley, on a one way trip! Case closed.

Frank Rosenthal had a pub in Boca down the street from our daytrading shop. He was fun. We watched Tyson lose his first fight and Mr. Frank was busy micromanaging the girls at the pub to "get those boys another beer."

None of us ever asked him the movie "Casino" questions… I guess that is why he talked to us at length about playing the sports book. 

In the movie there is a scene where Mr. Asia leaves with millions from the casino. So they do whatever it takes to get him back in.  They fake the plane being broken down, so Mr. Asia comes back and plays baccarat but at 10k a hand vs his usual 100k limit… and the gist is when he wins Mr. Asia isn't looking at it as winning 10k it's losing 90k.

Ace Rothstein [the name of the character modeled after Frank Rosenthal in the movie]: "In the casino, the cardinal rule is to keep them playing and to keep them coming back. The longer they play, the more they lose, and in the end, we get it all."

Oct

11

I find these Nock quotations strangely up to date and can only wonder how Nock would feel today.

"Many no doubt remember the "new economics" hatched in the consulship of Mr Coolidge, whereby it was demonstrated beyond question that credit could be pyramided on credit indefinitely and all hands could become rich with no one doing any work. Then when this seductive theory blew up with loud report in 1929, we began to hear the economics of scarcity, the econ of plenty, notions about pump priming and disquisitions on the practicability about a nations spending it self rich."

"Ever since 1918 people everywhere have been thinking in terms of money, not in terms of commodities and in spite of the most spectacular evidence that this thinking is sheer insanity. The only time i was ever a millionaire was when I spent a few weeks in Germany in 1923."

"Money does not pay for anything, never has, never will. It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services."

" No one is has seemed the least aware that everything which is paid for must be paid out of production, for that there is no other payment. Another strange notion pervading whole peoples is the state has money of it's own and no where is this absurdity more firmly fixed than in America. The state has no money. It produces nothing. Its existence is purely parasitic maintained by taxation."

"The sum of my observations was that during the last 20 years money has been largely diverted from its function as a mere convenience, a medium of exchange, a sort of claim check on production and has been slyly knaved into an instrument of political power."

"The inevitable consequences are easily foreseen; one not need to speak of them; but the politician, like the stockbroker, can not afford to take the long term point of view on anything."

[From Memoirs of a Superfluous Man, by Albert J. Nock].

Stefan Jovanovich draws the parallels further:

The leverage in the stock market came from the call loans; in our present crash the leverage came from the CDOs and MBSs. In both cases the source of the demand for the loans themselves was the imbalance in world trade, and the refusal of the country wanting to manipulate the exchange value of its currency (the U.S. then, now China) to let exchanges in monies flow as freely as trade in goods and services. However, for Nock to write in the 30s that "money has been largely diverted from its function as a mere convenience" is a breathtakingly willful distortion of American political economic history. The debates between the parties after the Civil War were about little else than the subject of "money"; why else would William Jennings Bryan have become the first political celebrity in our history simply for merging Christianity with the "money question"?

Jeff Watson adds:

Albert Jay Nock influenced me more than any philosopher, Ayn Rand included.. I have assembled a collection of downloads of some of his better works for your enjoyment.

Sep

22

LackBlame innovation for driving profits to zero. Then come the crises, the deregulation or re-regulation and the destruction of an eco system. The net result is the tipping point, a cascade, a rapid rise in temperatures and pressure, then a meltdown of the core. Then the speculators have all "been there done that" and know what to do next time we park the car in a dimly lit parking lot. Get the joke, and the joke is: a private transaction in a dimly lit lot may be more free market and profitable than on any low fee exchange today. Risk? Aaah to me it is about the same. Let's take a look.

Crash of 87..Innovation: portfolio insurance and program trading.. Crash. Regulation.. Brokers must answer phones.. scandals.. re-regulation.. electronic orders must be filled automatically by SOES. Outcome, eco system breakdown.. Small brokers swoop in, drive the profits from spreads and the ripping off of customers at open and close to zero.

Tipping point: Innovation..Electronic ECN networks to manoeuver around the brokers' market making systems..Brokers must now deal without side source of liquidity. Brokers stop making markets in tech stocks..focus on Investment Banking to fill demand of a viral marketing boom. Demand for Tech IPO's and the internet. Prices rise to ponzi-esque levels, pushed up by a mutual beneficial exchange..day traders, the small private specs want high prices, sellers are banished, brokers benefit from high prices to bring investment banking biz… and crash..

Regulation.. to save day traders and small specs from themselves..big brokers with a regulator in their pocket demand rules to protect themselves from evil speculators.. which drives out most small brokers.. The innovators, the small brokers with ECN's are sold to the big brokers.. they see orders first, shut out small specs, profits dive to zero.

Small specs go to work for old friends at hedge funds that now control ECN's with big brokers.. High frequency trading is born.. Innovation: computers now have the power to be programed to run faster than an army of fast fingered day traders..Old day trading firm's managers now work for hedge funds programming and operating auto X ECN's and markets. Servers are moved geographically, like day traders once moved themselves, to get fastest access and flash quotes.

The other half of the day traders (self employed small specs) attack the next slow moving system in need of reform and drive profits to zero, real estate transactions. The 6 percent broker fee and 5k closing costs, 4-6 weeks to close is driven to 48 hour no fee, no doc fast movers. Profits off transaction for slow movers are driven to zero. Once again the only way to profit is to drive the prices of the underlying product to uneconomic levels. Hot products are not IPO's but the new condo developments and CDO's…Prices crash, brokers and private specs once more driven from the markets.

Scandal forces change.. the last of the hold outs, the former NYSE big man that held an ironclad grip on the specialist regime, made too much profit for some. This PR blunder destroyed the specialist system. The merger of ARCA and the NYSE seat members was one of those inside jobs where everyone in the trading community either laughed or said good. "Those damn specialists have been robbing me for 2 cents a share for 50 years." Oh but wait.. Lets go back to 1987! Was it the specialists that didn't answer the phones or do the best job they could..or was it the Nasdaq early electronic markets? Free, low cost, open access markets have a risk.

Of course, brokers' management find they can't "make it up on volume" off equities. NYSE is spun off with the Arca ECN. Investment banking dries up after crash, once again look to innovation..First is the logical boom, just like last time, its off RE and CDO's..But wait there is more. Why not invent a new tracking stock like they did to satisfy the tech boom's demand. Let's do commodity ETF's.

Its a win-win situation, the pension funds can diversify without being ripped off by those nasty speculators in the pits. Once again electronic volume soars, transaction profits are driven to zero.. and the only way to profit is to send the underlying up to uneconomic prices..oil and many commodity-prices go parabolic during the great recession and financial panic extremes, then, of course, as usual, crash.

Here we are! What a fair system! Yikes! Anyone can have direct access to any market for a low fee, get a transaction and fill price in under one second. How wonderful! Except for the fact now information travels so quickly, from Shanghai to London, NY, San Fran and back to Tokyo and everyone in between has fast access. The split second any new information is let out, all quotes and prices disappear. Uh oh, what if everyone was electronic with all the same information in hand?

Wouldn't the market now be efficient? Sureeeeeeee until the liquidity pump is shut down, then boom. Once again it's like the 100-year old books, where J.P. in a top hat must step onto the exchange floor and say no worries all the money you need is on hand at a reasonable rate. Problem is there is no exchange floor. The banker in chief must go on 60 minutes TV news show to say all is well. So many are on the same side of the bets now that the funds target rate is zero and they have an asset purchase backstop! "WOW..this is just like back in nineteen hundred and" is the quote.

If we have 150 of our closest buddies standing shoulder to shoulder would we make better, quicker decisions? Is pit trading beneficial to the markets' eco system?  Perhaps not, but I can tell you first hand, we would all be much braver.

The markets have changed forever. These seven month, 7 week, 7 day in a row random runs are nothing new. They are in the 100 year old books when a few big global banks controlled the markets. We are now in the new era of electronics, rapid fire trading and information. Okay that is not new, what is new is now everyone has all of the above.

Which makes it an illusion of control. The few control too much of the money flows. Few have reserves, there is no profit on transactions. There is no back up for the system when the few the proud the elite turn off the spigot and the illusion of liquidity and control vanishes.

Hey, its all good here, we went from 6 cents a share 30 years ago after fixed commissions,  to 2 cents a decade ago..to now 1/2 cent a share fees all in, on stocks. That is fantastic reduction in the cost of doing business. Only problem is we need others to trade with and against.  A small spec and trader could always come and go as we please. Problem is now everyone thinks they can.

Aaah don't worry we have the federalies as a back stop say the bankers.. Oh boy just wait, until a few big specs find the time to break the central bank…then the forest fire that can't be extinguished.. and finally in 100 years the full cycle, the eco system is restored..and those without license and government inside contacts will again profit off mutually beneficial exchanges for a reasonable fee above zero..the salesman and specialist will return.

I imagine some dude said about the same things in 1939, after the telegraph, telephone, RCA tech boom and bust and government intervention..or the 19th century RR boom… or..

However our never ending quest to reduce costs drives all profits to zero, we kill one another, watch the boom, the bust and the Man left standing is always the government regulator. Their blue ribbon panel on market reforms is the final 'get the joke'. The government never becomes efficient.. so it was much better to pay that broker or pit trader his 2 cents after all…unless you prefer to trade with the Feds.

Jul

23

An interesting query is "given that x% of the companies reporting to date have beaten estimates in earnings report season, what is the expectation to open from various paths?"

To date according to Bloomberg, 136 of 500 sp500 companies have reported and the market cap weighted change is -7%, 104 of 136 were positive surprises, 8% were exactly on target, and 15% were below target. Out of the 136 reporting , the estimate was within 2 cents of report on 38 of 136 occasions. (That 28% are so close is very good as an aside and belies the canard that earnings estimates are wildly off mark).

James Lackey writes about his trading experiences:

The expected change to open is exactly the spread or vig from the bookies. Never since I began as a stock day trader have stocks been as clear cut and dry as now: too many on one side of the book. Years ago I made fun of my best friend as he had some "inside tip" that IBM's earnings were going to be worse than expected. The day before I said "hey buddy, I dunno what you think can happen but IBM already preannounced bad earnings". The stock gapped up, went strait up and killed him.

IBM went strait up again this quarter, and Google strait down. You want to blame it on guidance? Then look no further than YHOO: bad outlook, gap down and strait up.

If we really look close at the ecosystem and food chain, AAPL can't possibly outperform, even if they always sandbag… Boom …Wow!, "what a great company", they managed to sell thru and manage a higher cost of short supply flash.. everyone knows flash prices are up here, comes SNDK up big on the month after hours up to down on "outlook" which of course is good as the 3 trillion cell phones that Nokia and MOT can't give away for free as everyone wants a smart phone loaded with flash… but of course the semi industry has so much idle capacity ready to come on line at a moments notice… the SNDK or TXN don't have a chance after a rally into earnings.

Not that anyone is ready to spend 300 for a notebook, 800 to 2k for a new PC loaded with the new and improved 2nd try windows 7… but do not tell that to those who are short INTC… strait up as that is all about margins and inventories and once again AMD is there only to keep the FTC and EU off INTC's back, billions in fines aside.

Just when 7 up days "was enough" for the nazz, HGSI went from 4-14 on a world cure and the bio index went limit up. So many stocks that trade by appointment went up 10% on that day.

One wonders how anyone can ever use the markets in a snapshot for signaling..credit default swaps at the lows were quoted..and markets led by China are quoted today. "CAT and China " can't continue, our biz publication writer notes.. "oh, how well the managers managed, they saw all of this comming after the LEH shutdown of global commerce". They sure did cut costs by shutting down plants, firing 10-20% of work force and holding on to the well trained 80% by 30 hour 4 day work weeks.

I am waiting for the China boss to show up at the US chamber of commerce and argue "we need each other" like the US rep in England after the panic of 1907.

On another subject, twitter is the only available feed from the BMX World Championships in Australia. We have one man from our team racing pro. Another 13 year old from my old town in Fla won 3-3 motos and is now the World Champion.

Over on facebook my brother in Fla, my bmx buddy I race from Australia, and many others are commenting on the quick up loads of pictures and videos from the racers' families. An old pro chimed in with a video we all know, from the movie ET. That's him in the BMX chase scene. Later he founded Haro bicycles and put Murray, Schwinn and almost put Huffy out of Biz before he sold all. Turns out his post was for a lesson in humility. It was a Hot LA day he had to wear a hot outfit and a ski mask for filming. He said he was hot and almost blew it "due to his arrogance as a kid" and all these years later his comment was "thank goodness I didn't blow it".

Meanwhile all these kids that have ideas put pencil to paper, then hire a Chinese firm for production. The profits they generate they spend on what they love, racing over in Australia. Yet somehow, this is bad for the Chinese to sell so much and not consume enough.. and everything is bad for America..because the kids are fat, spoiled and not industrious. Except for the dozens we are all online with all night.

Lord knows how many Americans are online now, with passion pursuing business for pleasure and profit. Americans? Wait how many kids around the world are chatting, thinking, learning, working together on passions and projects that will result in a mutual beneficial exchange of trade. Next time you see that kid on his phone texting, he might be working a deal with China.."these kids today" are working on the future..Meanwhile the old school traders are comparing todays industrial production to 1932, the trillions in unfunded pensions and the end of medical tech advance due to lack of incentives and price controls on Obamacare.

Two quotes come to mind.. (1)Its easier to spot today's problems than tomorrow's innovations.. (2)Predictions are difficult especially when they involve the future. I have always been a blind optimist. However, the problems we face higher taxes and regulations and price controls make it much more difficult than after the crash of 2002 to get back to new highs..So maybe it takes 10 years vs 5 last time..but if we say "never" take a good look at all those kids texting and unable to hold a conversation without a smart phone in hand..They have contacts in China. Do we?

Jun

2

J RobinsonWhat can we learn from baseball that is applicable to markets?

In looking at how to hit for Aubrey, I focus on posing and gaining potential energy by moving the back foot back or lifting the right foot up before hitting the ball. Also holding the head directly at pitcher, and the trigger point. Also following through the ball with the bat following it on a line before snapping up. I don't know anything about baseball but all this seems applicable.

Please augment. We have quite a few experts on baseball who read this site and the All-American also.

James Lackey replies:

They don't teach you to lift your foot up anymore when you bat. You use a wide stance, and you pivot your back foot towards the pitcher and snap your hips. Some teach you to pivot your back foot on the ball of the foot, with you front foot on its heel while swinging, and you end the swing with your feet pointing to the pitcher. My son's 11-12 year old hitting coach had a hard time retraining my kid. He cut a 1" piece of PVC pipe the length of his shoulders made him stand over it and do a zillion swings to get his front foot down before he could snap his hips. We were all taught to keep your elbow up, use a narrow stance and step into the pitcher.

J.P Highland comments:

Being able to choose the pitchers we want to face gives us a great advantage over baseball hitters. The Nymex's pitching rotation is my favorite. They like to intimidate batters with lightning fastballs but their stuff suits my swing, as opposed to the tough off-speed pitches ES has mastered that have victimized me so often.

James Lackey adds:

My kid was born with a cannon. I knew it at age four when he threw me a hardball. By 10 he could throw from the fence to the catcher. He was a good pitcher at 12, but his coach would always yell at him over the top when he lost control.

Now what I do not quite get is that his football coach yells at him at practice to quit throwing a baseball. It's how quick you release to give the defenders a chance to attack. My son explained to me how it works, but I still do not get the mechanics.

The only good thing to report is I have never been his football or baseball coach only dirt bikes. So naturally he loves team sports.

Tim Melvin writes:

I'm not a much of a pitcher as I have a noodle for an arm and always have, but in the excellent baseball book featuring John Smoltz and Mike Mussina we learn that speed, location and deception are the keys to successful pitching over time. I am not just talking about power speed either. The Nolan Ryans are the one off Soros and Buffets of the baseball world. The ability to vary speed and move the ball around are the key to long term success.

I shall leave you all to draw you own market conclusions as there are many that leap to my mind.

Scott Brooks comments:

Good pitching isn't about overpowering batters and striking them out, it's about throwing the ball so that the batters make bad contact, and then letting your fielders do their job.

Stefan Jovanovich writes:

 Albert Pujols does both old and new school. He has his right foot turned 45 degrees towards the pitcher, the right knee bent slightly, the hands held back and high (at the top of the strike zone), the right shoulder held above the left, with the bat vertical. When he unloads, the left foot and hips do a quarter turn, the right shoulder drops slightly as he throws the bat at the ball, and the bat stays level to the ground for the full travel across the plate. In 4 days against the Giants he made one bad swing: when Matt Cain threw him a 1-2 slider down and away. He absolutely ate Barry Zito alive even though Zito now has game back and had no trouble at all with the rest of the Cardinal lineup. Theoretically, you could throw him changeups and curves down and away; but, when Lincecum tried it, by the 2nd at-bat, Pujols was hitting doubles down the line in right. It was like watching the Yankees try to pitch Williams inside (with his long arms and height, he should have been vulnerable) and watching him take the ball early and park it in Ruth's pavilion. Yo-Yo Ma with a pine bow.

Pitt T. Maner suggests:

This article which I quote from was interesting in light of an optical illusion I had seen a few days earlier on the internet. Many years ago I had read stories of knuckleballers who had pitches where even they themselves were not sure of the ball's pathway to the catcher's (often oversized) mitt.  This story has a bit of that mysterious, "unhittable" pitch reminiscent of Plimpton's April Fool's hoax:

"DiFelice grips the ball across the seams, like a four-seam fastball, and tilts it so his middle finger rests along the red stitching. He squeezes the ball with his middle finger, raises his index finger and throws it as he would a fastball. The result is confounding: The ball spins like a fastball and moves like a slider, and the optical illusion it plays on hitters allows him to get away with throwing an 82-mph pitch the batter knows is coming."

And here is the optical illusion (best illusion of the year in fact).

How would you learn to hit such things? Would you need to learn to selectively ignore information coming from your eyes?

Phil McDonnell writes:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

The real reason for the foot lift is that it enforces a good weight shift. When the foot is lifted all of your weight is on the back foot by necessity. This allows the weight to start on the back foot and shift to the front foot. The weight shift adds power to the swing by starting the twisting motion of the body and the hips. Fundamentally the power is generated by the centrifugal motion of the bat. The center of that motion is the twisting of the hips and body.

There is another subtle but important aspect to batting. That is the need to have a good follow through. The key is the hands. If you do an imaginary swing with your hands you will see that when you fully extend your left hand in a follow through that your right hand cannot stretch out nearly as far as the left (for righties).

This compels two types of follow through motions. The first kind is simply to break the hands. The follow through continues with only the left hand still holding the bat as the right hand is released. Reverse for lefties.

The other type of follow through involves a roll of the wrist. Basically the right wrist rolls over the left as the bat passes to the left of the body. The object of either finish is to keep the bat moving even after it is in contact with the ball.

The one follow through technique that is bad is to keep both hands on the bat without a roll. If you try it you will see that you get a hitch in your swing just about when the bat handle passes your body.

One little known, but good exercise is to simply swing a light bat 50-100 times with your left hand only. The left hand is an important hand for guiding the bat. The left tricep is the important muscle for this motion. This exercise is best started pre-season because it often leaves the tricep sore after the first few times.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Jeff Watson adds:

 With much ado regarding the merits of different pitching styles, and the physics of different type of curves, knuckelballs, fastballs, and sliders, I'm surprised that nobody has brought up the pitches of Gaylord Perry and Joe Niekro. Perry allegedly did wonders with a spitball, and when the heat came to tough for him to bear, he replaced spit with Vaseline. Perry was constantly hounded by umpires his whole career, and had to develop different methods for hiding his illegal substances after the 1968 ruling regarding wiping the mouth before a pitch. The spitball was one of those pitchers that made the ball seemingly disobey the laws of physics, and was hard to hit. Perry and pitchers of his ilk had deceptive moves down to a science, and whether they threw a spitball or not, the batter was never sure. The market has shown similar characteristics in the past and present, where following the rules is winked at. Certain reports are released early by officials to their friends, and nobody really says anything. Naked short selling was allowed until it was apparent that there would be a possibility of the whole financial sector going to zero. The market players just had too much of an advantage over the public and the rules had to change, much like they did in 1968, and much like little things like the height of the hill being modified from time to time. Even after the rules are changed, in baseball and the markets, people still try to cheat. Niekro was caught red-handed by the umpire after he was searched for an emery board, and it flew out of his hand onto the field. That was one of the classic moments of baseball.

Stefan Jovanovich responds:

 Niekro used a piece of emery board to scuff the ball so he could get a better break on his curve. That was what he was throwing away when he was caught. Perry used perspiration from the back of his neck to load the ball so his sinker would have more drop. (He would take off his cap and run his pitching hand over the back of his head and down to adjust the top of his jersey). Baseball, being like the SEC, had and still has elaborate rules that are utterly useless in terms of actual cheating on the mound. For example, the pitcher cannot go to his mouth while standing on the mound (automatic ball to the batter; balk if there are men on base); but he can still walk off the mound and lick his fingers all he wants. However, since saliva doesn't work nearly as well as sweat (which is much heavier because of the salts and dries more slowly), the anti-spit rule itself is pointless. The spit ball was outlawed was the one where the spit the pitchers used was loaded with chewing tobacco.

The idea that pitchers used vaseline is a media urban legend. There is no question that the stuff could be useful; but you would need a towel boy with soap and a basin of water that you could go to between pitches so you could clean off your hands. However, since the batters - who are always looking for an explanation for their inevitable failures - never figured this out (not being particularly concerned about hygiene), Perry and Early Winn and others always made a great pretense of using it. Perry still does; but you can hardly fail to notice the twinkle in his eye whenever he gives his seemingly evasive answer to the latest interviewer.

In my next life I want to hit against the pitchers on Dr. Phil's team. Everything he wrote is wrong. The knuckleball wobbles because it has no gyroscopic balance. It has no gyroscopic balance because it has no spin. The pitch is thrown with the ball held by the nails so that when it leaves the hand there is no friction with the skin. The trick is in holding the ball with the nail of the thumb; that is the part of the grip that defeats most people. (This is why nuckleball pitchers are fussier than manicurists about their nails; they want them trimmed so that they perfectly fit the curve of the ball.) The pitch is called a knuckle ball because when you have the proper grip the knuckles all stick out on the pitcher's hand. That also makes it instantly noticeable so there is no deception whatsoever about what the pitcher is throwing. If the ball has any rotation at all — even the magic reversible one from the "sail effect of the seams" that Dr. Phil has discovered, then the pitcher is in for a world of hurt because the pitch becomes a batting practice fastball (think Tim Wakefield pitching relief against the Yankees in the playoffs). All the other pitches Dr. Phil mentioned — the palm ball, fork ball, split finger — do have spin; they have to because the pitcher has to control their location. The knuckleball and the true 95+ mph fastball are the only two pitches where the pitcher can say "here, hit it" and not worry about where he or she throws it. (Some day some bright woman is going to learn how to throw a knuckler!) What the palm ball, fork ball, split finger all do is change the velocity. By holding the ball against the palm or jamming it down between your fingers, you lose some of the whip from your release. The circle change has the same effect; by holding the ball with all 4 fingers, you lose speed while keeping the same arm action. The cut fastball that Pitt posted about earlier is different; it is like the screwball. You are throwing the pitch with the same speed as a fastball but with a different rotation.

Phil McDonnell remarks:

 Curve balls really do curve. There are many proofs of this but the simplest is the center field TV camera where the resolution is too poor to show the spin, but the curvature is obvious. If the viewer cannot see the spin then it is difficult to explain how it can be an optical illusion.

Basically the curvature comes from the spin of the ball. The easy way to remember is that the direction that the front of the ball is spinning is the direction of curvature. A pitch that is thrown with a right to left spin will curve to the left. A pitch that is thrown with a down and to the left spin will break low and away.

The spin exerts a small orthogonal force on the ball as it speeds toward the plate. This force is governed by Newton's equation:

Force = Mass * Acceleration

Note that the last term is the acceleration not the speed of the sideways movement. The ball actually curves at a faster and faster rate. Thus the most deceptive part of the curve occurs right at the point where the batter swings.

The knuckle ball is a bit different. The idea of a knuckle ball is no spin. What happens is that the seams act as little sails that catch the passing air causing curvature in one direction or another. Naturally the seams also cause a very slight rotation of the ball until the another seam comes around. The effect is that the ball begins to curve one direction and then as the seam changes it actually begins to curve in a new direction. From the batter's perspective the ball can appear to wobble. Other times it can fly off in one direction or another in a strongly curving manner. Even the pitcher does know what it will do. The knuckle ball is not the only grip that results in no spin. Others can be the fork ball AKA split finger fast ball and the palm ball.

Another deceptive use of these no spin pitches is that they can be thrown just like the pitcher's fast ball. If the batter has previously timed the pitcher's fast ball then he will likely start his swing based on that timing only to be fooled by a ball arriving slower than expected. So even if he is not deceived by the wobbles of the ball he may be swinging too early or need to hold up his swing and lose critical power.

In many ways these change up style pitches are reminiscent of the deceptive action of the seemingly dead market last Friday which suddenly exploded to life in the last seven minutes of the trading session.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

George Parkanyi comments:

In pick-up ball where it's pretty easy to hit, I choose the direction I want to go by adjusting my back foot. If I want to hit to the opposite field because I'm being played to pull the ball, then I'll drop my back foot further away from the plate, which turns my torso to slightly lag my swing and "point" the direction of my "power" through to the opposite field. If I want to hit to center I line up parallel to the plate, and if I want to pull the ball, I move my back foot closer in toward the plate. If you connect well with the ball, it will go in the direction of your set-up. Against a professional pitch, I think I'd be happy just to touch the ball — perhaps even just to see it.

Dean Davis writes:

The most critical thing you can teach Aubrey is to avoid moving your head forward (toward pitcher) in the process of moving from a loaded position to the striking the ball. This is often the result of a hip shift which moves weight to the pitcher side of center (this destroys a hitter's power). The timing of hitting a baseball is difficult enough without ceding an advantage to the pitcher by destroying his stereo-vision by moving your head forward.

If you can get him to solidly place his stride foot slightly closed (closer to the near edge of the plate than the back foot), before he starts his swing (done by merely rotating the back heel low to the ground until pointing away from the pitcher), you will avoid him having to relearn the swing when he gets to a select/traveling/high school team later in life.

The Texas Rangers pitchers are taught to throw the circle change where they are attempting to "throw the O" (the circled index finger & thumb) at the target (pushing the index finger down to close the O at release). This means that their middle three fingers are are pointing at one of the dugouts as the shoulders are square to the target. That exaggerates the screwball spin and drop. Index finger should lay across the seam.

I teach my pitchers (age 11 & up with longer fingers) to have the same grip (floating the the middle finger off the ball if possible, substituting the ring finger for stability), throw it like a fast ball (the hand is more behind the ball when coming over the top) and emphasize the index finger pressure through release. They get the same screw ball action and drop as the major leaguers (to a lesser degree). When thrown by a righty to a righty (or lefty to lefty), it is a devastating "out" pitch (thrown on a X-2 count). My pitchers love to see the hitter "corkscrew" into the ground trying to make any contact.

Here is an interesting interview with Mike Basich (gave up record breaking HR to B Bonds) about how pitchers cheat (he names names!)

Steve Leslie contributes:

A great lesson that one learns from baseball pertaining to the markets is in the area of hitting. There are many different types of hitters those who are contact hitters for example and those who are home run sluggers.

Many consider Ty Cobb the greatest hitter in the game. He had a lifetime batting average of .367 over 24 seasons. This is the highest career batting average in the major leagues. He also had 724 doubles 295 triples and 117 homer runs. Through that whole period of time he had but 357 strikeouts. He also stole 892 bases. With the exception of his first season in the majors he never batted below .300 and his peak performance was in 1911 with 248 hits and a .420 average. He also held the batting title 12 times with 9 in a row. Ty Cobb forcused on what he did best which was hit the ball, put it in play and as a result of this dedication maintained a productive career that lasted a quarter of a century.

After his retirement, Cobb was a very wealthy man having been advised by executives and others in the Detroit area how to properly invest his money. He went on to invest in stocks and was a major stock holder in the Coca Cola company.

The lessons for the investor is that success in the markets is a lifetime pursuit. It is showing up for work every day and dedicating onself to the task at hand and utilizing the particular skills and they have been blessed with. Ty Cobb had a very productive and successful career because he concentrated on what he did best and he did it very well. Year in and year out .

Phil McDonnell admits:

Yes, I did pitch for Cal in the PAC-10. We actually won the conference when I played although only slightly due to my minor contribution. Since that time I coached about 50 kids in Little League. Of those, five players were drafted into the Major Leagues for a total signing bonus of about $5 million. Somehow that does not seem random to me.

The wonderful thing about the markets and baseball is that everyone thinks they know all about it. There are many ways to skin the cat. Perhaps I can arrange some batting practice against one of my ex-players next time they visit the A's or the Giants.

With respect to the back foot weight shift, we can do a simple thought experiment. Lift your back foot into the air and try to swing. Did that swing feel powerful? The fact is the weight shift from back to front occurs whether you are conscious of it or not.

The fingernail ball is something I have never taught. However I have never had to pull my starter for a broken cuticle, nor have I ever needed to smuggle an emery board out to the mound for emergency fingernail repair. I have coached the circle change. It is an excellent and easy to learn off speed pitch. My technique is to circle the two fingers in an OK sign, the the three remaining fingers are used to throw a weak pitch. The spin is the spin characteristic of a screwball (curves to the right). But the pitch does not curve because the spin is too weak and the speed is too slow. It is simply an off speed pitch.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Stephan Jovanovich replies:

Heck, Dr. Phil, with my eyesight I couldn't tell you from one of your former prodigies, let alone see the ball. I stopped playing ball at 18, after I went to the Phillies organization pow-wow and met the three catchers they already had in the system and compared the sizes of their hands to mine. The only talented pitcher I ever caught blew out his arm in AA in Odessa; he was from Guatemala, and he had the same stuff Mike Cuellar had. He would have been a marvel. I know enough about the bonus baby mania baseball went through to be unimpressed by the "about $5 million"; it is one of those factoids that is like Clinton's 100,000 new cops - wonderfully round and purposely vague. Hell, even with my puny hands and Molina family footspeed, I was offered $10,000. If you want to post your stats and the stats of your magic kids, I will be more than happy to eat crow and buy you and your camp followers each a bottle of bourbon. Until then, let's call it a draw. You still don't know anything about hitting, but there are few people who do. As for pitching, I would still recommend to the List that they send their kids to Dean's camp, even if his players have never been offered a stick of chewing gum by a scout. He knows far more about this than you or I do, and he lacks your cocoa puffed ego and my bad temper. Neither is a good temperament for teaching people. But - last shot - the most important reason to trust DD (listen up, Lack!) is that he clearly has no interest in any of the kiss-ass rituals that have turned so much of "organized" baseball at the junior level into a game of "my daddy knows your daddy" (out here in the Bay Area it has become even worse than it is in soccer).

Phil McDonnell suggests:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Charles Pennington demurs:

Potential energy does not have a "direction". Why do batters start with the bat held up high? That's potential energy that ends up contributing to the kinetic energy of the swing, when the bat is low.

Let me add that the pitcher lifts his front foot in an effort to throw the ball fast in the horizontal direction.

Stefan Jovanovich notes:

Randy Johnson did it — at age 45. He became only the sixth left-hander in baseball history to win 300 games in a career. And, like Teddy baseball's final game and last home run (at his last at-bat), it happened while the world was looking elsewhere — before a tiny crowd on a rain-sodden field. Pure Brueghel.

Jun

2

 What would the impact of a strong economic employment report be? One dares to contemplate.

James Lackey answers:

The DC fear trade. I'd like to believe that another round of foreclosures or the always predicted disaster in commercial real estate is factored like GM vs LEH, but god forbid if the men get cut off from DC and have to go it alone. Just the fear of abandonment will cause the blizzard of double dip recession stories in the hopper to be front page news.

Rudolf Hauser replies:

I have no idea how the market would react to a favorable employment report this Friday both because I do not know what overall market expectations are or the question regarding recovery potential vs. inflation issues. However, with regard to your comment on inflation and the quantity theory of money, my view is a bit more complex. What is inflationary is the creation of money in excess of the demand therefor at a non-inflationary economy. The demand reflects not only the level of real output, the existence of near money substitutes and their degree of moneyness, inflation expectations and general fear levels, etc. Those fear levels probably are an important factor here. When fear diminishes the higher level of the quantity of money outstanding, which might have been consistent with no or negative inflation during the crisis, could become inflationary. An additional factor to consider is that the pressure to get rid of inventory and to bring in revenues to avoid making difficult decisions such as laying off long-term employees might drive prices below the point of long-term profitability. There would have to be a rebound in such price declines to levels of real profitability before real output potential could be realized. What is the more serious risk is that the government's policies might reduce the real growth potential of the economy with the result that the same growth in money that might have been non-inflationary in an economy with the prior incentive structure and level of impediments to economic growth and full employment would now become inflationary.

Jun

2

 Vic Niederhoffer writes: A query as to why doctors work 24 hour shifts sparked by a thread on the importance of human knowledge as compared to physical assets as a reason for economic resilience is answered here:

It's the same for the Cleveland Clinic where my Brother in law did his residency. When a family member had brain surgery the irony is he went there. I asked my father in law MD "why" we have this system and he called it "slave labor" and worse than his Army stint and VA duties 40 years ago because of the debts kids now have to take on.

After an hour of thinking about it, I said "yes, but the economic effect is to restrict the number of Dr's and surgeons, and it drives up wages. Then he went off on an Insurance and Medicare tirade, and he ended telling me he tried to talk his son out of the family business.

Then I had an MX injury that drove my thumb into my hand and shattered it. They said it was rare because it took a ton of force, literally, to cause that injury. I was laughing at the bill and doc said most anywhere in the world you would have never gained back full use of the hand. The doc went in with a scope and the focused scan to wire guide and pin the shatter back together. 6 months later I was riding. I was amazed. He said "yeah, in other western countries you would have lost full use and grip. In Russia you would have been a gimp for life." It's amazing the new technology.

In the Army you can go 100 hours with cat naps, and you can go weeks on 4 hours of sleep and not see ghosts. I imagine some of the training is from such disasters, so as to be prepared for triage with a few hundred or thousand wounded men, where it takes a few days of work to go from the near dead to the slightly wounded.

If I am ever in a 50 car pileup its good to know Docs int he ER can work 24-36 hours strait to get the job done.

May

19

I noted the steady rise in gas prices in my area (+20 cents) when I fueled up this morning. I'm wondering if there is a formula out there that shows the effect of (stimulus) to (oil speculators) = (higher pump prices) and the effect on the (market)? Is the steady rise in petrol devised by the government to force the implementation of their more fuel efficient vehicles plan? $3.00 a gallon regular will be great this summer to force many to stay home and further drag down the travel industry, etc. Likely this will be a good summer to spiff up the gas grill and do some serious bar-b-q in one's back yard.

At what oil price per barrel will Mr. Pickens make his return to TV?

James Lackey writes:

If it wasn't for oil speculators you'd be driving a hybrid and paying 15-20% more for you car for the past decade. Oh wait… that's the new mandate. Don't worry, with all the govie rules we will let the Chinese have all the cheap coal and cheaper than hybrid deep sea oils.

Wait, there is more! If you have four friends, you're taking two cars. The hybrid to make 36MPG fleet wide average will never seat five comfortably at 3250 pounds. Or you'll pay a huge premium for the few big cars and small trucks that will be built. It's quite an average and all the car guys are behind it since they can produce an average fleet at gasp… a profit… just wait until the car industry is profitable, OM goodness cars will cost a fortune. Good luck getting parts for old models.

May

16

PreaknessDo horses and stocks have something in common? I note talk that Mine That Bird might like a muddy track to get that edge over the other horses running. Is the study of the racing tabloids like the study of stocks? Is the jockey viewed like the CEO of a company you see promise? Is horse betting like placing a bet on a stock to perform well? What can the market trader learn from what leads up to the actual race?

James Lackey comments:

Oh hell yeah. The poor track conditions give the lesser funded teams a chance to win. When it's easy for everyone to make a mistake, its easier to capitalize.

When conditions are perfect, the markets are in a beautiful, high pressure, low wind, sunny up day, only those with unlimited capital can outperform. Unless of course we juice it.

The markets today are seemingly much improved vs. the Katina flooded out race track from last season. Yet vs. most years, it's quite sloppy. A good chance of rain at any moment, and when the sun does shine the humidity is miserable, the track is sticky and its difficult to breathe. It is a perfect situation for the fast movers that can adapt quickly.

Yet, one must be very careful going for a victory. One false move, the hole closes, we must get off the horse quickly, or come up lame. Run an amateurish race, you can run the horse into the ground.

May

9

 The news pundits are flummoxed by the up market despite their dribble of bad news. They loved to say market down on "bad news" with the knowing nod that their news caused the market to go down. But now they look silly saying market way up day after day on our continuing dreary bad news dribble. Like the End Of Worldists, they can deny reality and say, "Oh, it's because the news is less bad, that it's going up." Doubtful.

Something else is at work.

However even the quants are having a tough go of it, even as data turn bearish, the market goes up, and keeps going up.

James Lackey writes:

I haven't seen a real number on the table here there or anywhere in so long I feel like a kid at a bucket shop buying on bad news because, "It goes up on bad news" but what are you gonna do. No one alive has seen what happened last year. We went from "it's like 1933" to 1973, now 2003 and we are "never pulling back again" "generational lows"… in the blogs in the only number I can find lately these things usually last just over 40 trading days… which is a good biblical number, after the 666 lows… and similar around the campfire handed down through the generation lessons. Question: what stocks are up the most? "Who cares? It's the junk and everything is up" Autos..? Are you kidding ? Well, the autos left standing of course.

Oh the love for Fiat and Ferrari, they are cool dudes. However Chrysler, Opel what else are they trying to take over for free? I love them, but I dunno who in the world is going to lend money to them to run their business. Perhaps the UAW can sign up some laid off Wall Street bankers or a venture capital man. ha.

Apr

27

Is the problem incentives? Naa, it's regs… let the Dr's become specialists and advance the medical arts and profit in the free markets… let the Nurses diagnose and prescribe for the flu (bird, pigs, or other wise) under the utility regime, as all deserve cheap common care… Yep its step here is a quick script…. or as usual say "yep your arm is broken, not cracked…. go see the orthopedic Mr Lack and see if he wants to do surgery or not".

In some states, NPs admit and follow their patients in hospitals. Some NPs work in emergency rooms evaluating, diagnosing and treating patients with lacerations and fractures. In 10 states, NPs can open their own clinics and offices, in 27 states they are required to work in collaboration with physicians, and in 11 states they are required to work under supervision of a physician. The American Academy of Nurse Practitioners defines Nurse Practitioners as licensed independent practitioners who practice in ambulatory, acute and long term care as primary and/or specialty care providers. They provide nursing and medical services to individuals, families, and groups according to their area of practice/specialty. In addition to diagnosing and managing acute episodic and chronic illness, they also emphasize health promotion and disease prevention, incorporating teaching and counseling of individuals, families, and groups as a major part of their practice.

Stefan Jovanovich writes:

What? Have people licensed to practice medicine who actually know how to treat illnesses and wounds? NEVER! Our medical expert, Eddie the Eagle, who wants to join Lack's ortho practice, has kept her parents entertained during her too infrequent visits home with the stories she has heard from the surgical residents. The best from this last visit was the one about the fate of the patient who stopped breathing just after being delivered to the ER. The two residents on duty were, by mischance, both on their way to becoming Gurus of Public Health (no doubt you will see them at a podium some day assuring the TV cameras that TwineFlu is not yet a pandemic). The crisis was averted when one of the Residents ran out to the ambulance in the parking lot and got the EMTs so that someone could actually revive the poor sod.

Mar

25

 Do we need to pay for a paper on this to see the results? Every 13 year old boy up to grown men know this…well, let me put it this way…the only reason "boys" do anything is for women.

Are people more risk-taking in the presence of the opposite sex?

Patrick McAlvanah Federal Trade Commission, Bureau of Economics Journal of Economic Psychology

This paper investigates whether exposure to the opposite sex induces greater risk-taking in both males and females. Experimental subjects evaluated a series of hypothetical monetary gambles before and after viewing pictures of opposite sex faces; control subjects viewed pictures of cars. Both males and females viewing opposite sex photos displayed a significant increase in risk tolerance, whereas the control subjects exhibited no significant change. Surprisingly, the attractiveness of the photo had no effect; subjects viewing photographs of attractive opposite sex persons displayed similar results as those viewing photographs of unattractive people.

Mar

22

Is there a form for the typical market? Does it have a shape, a proper way of conducting itself? Is the form for a week regular enough to defy randomness or better yet to be predictive in any way? Is there a form corresponding to the a b a form of music in markets? How does rhythm and volume of sound enter into the picture? Those are the questions I'm pondering this after reading a great book on the walking bass by Jon Burr.

Thomas Miller writes:

I have always believed the markets are similar to musical pieces. A rhythmic sideways market lulls many into relaxed state only to burst higher or lower in mighty sudden crescendos, and a rallying or declining market moves in musical waves with mini crescendos noting momentary tops or bottoms. I wonder how many successful traders have musical backgrounds? Music and mathematics are universal languages and convey the messages of markets. I regret not having more formal training in either.

Newton Linchen replies:

I always thought "Metamorphosis IV" by Philip Glass to be the perfect "market music", not only by its crescendos and decrescendos, but by its impression of regularity (Philip Glass is known as the father of "repetitive music"). Nevertheless, its changes in tempo and volume (strength) gives a rhythm almost fluid. And there's a part of "explosion" (volatility) where the fast-pace is in order — without loss in harmony or structure. I always thought of moments of "trading range" of market going aimlessly followed by a explosion in price upwards or downwards. And it's kind of sad melody remembers us of the majority who only find losses in the markets.

James Lackey comments:

Yeah it's been brutal awful market music. Reminds me of all the VIP mumbo parades, changes of command formations, and dress blue parties I was forced to attend in the Army.

0300 with the Dax open its reveille. Then we all form up into one huge cluster in the parade grounds stand for an hour then "the stars and stripes forever" plays with a government official on the mic saying how far we have come our history and how they are committed to Change "us" with too many last hour's "retreat."

Then with so many brutal last hours "to the colors" reminds me of Flag detail after the close then the discussions with old Colonels passed over, that didn't want to go home to family asking "the kids" new soldiers over a 5pm coffee what we wanted to do with our lives "when I was your age and if I could do it all over" then every few nights after Chow we get "Washington post march" the tune used most in movies to sound off patriotism and how if we all work together, after the next bailout everything will be back to the normal American way… Then back at 7pm "Auld Lang song" to the Nikkei open.

I have noticed over the years my music tastes intra day trading go with the market flows, Baroque, Jazz, Fusion, and when the market is rockin', new alternative rock.

I am in a bad way when all music sounds awful, like Army band music. I would rather listen to the hum of the ceiling fan and as of late the birds singing to the open windows..and to my surprise, spring has sprung and a lawnmower engine sounds more inviting than the music of the markets. ha.

The U.S. Army Band Ceremonial Music Guide

Legacy Daily responds:

 When the Soviet Union collapsed, I witnessed the creation of foreign exchange markets and also of stock and other types of markets in Armenia. These images are very vivid in my mind. When I read about people trading on Wall Street (I mean before the exchange building was even a consideration), I can see how that trade took place, because I participated in similar trades in a few of the streets of Yerevan (different places of gathering for different markets). That experience always overrules the charts, the derived statistics, the counts, and all the jargon that I hear daily.

Does the market have a form, a proper way of conducting itself? This question brings up the picture of the crowd dealing in foreign exchange (with the usual guys leaning against their usual trees) against the typical crowd dealing in real estate or stocks or stamps or coins. Of course each market has its form, its unique characteristics, its shape, its place, its rules. Each market has its rhythm, its language. I have not had the opportunity (and never really wanted) to participate in the floor trade at the NYSE or in the outcry system. But having seen the seedlings in their early stages of germination, I only see supply and demand and the various factors that affect these.

In this digital age, it is easy for one to go long bonds and short stocks or long XOM short CVX without ever realizing that the market for every single security represents a unique gathering of those who run the market and those come to the market. If I had to put this picture into something related to music, I'd imagine a choir of professional singers that sing a particular song we recognize. At some point, we join in singing in our heads and then at one point begin to sing out loud thereby changing the overall experience of everyone around us until we move on to the next choir singing a different song. Could one be successful in singing with multiple choirs all at the same time? Can we really understand the market for the SDS and SPY which are derived from hundreds of unique markets with their tunes in addition to their own market creating noise at the same time? What about the noise from the "gold" room affecting the singing going on in the "dollar" room or the other way around?

When it comes to commodity markets, I remember the fruit and vegetable market where some of the sellers would sell what they had grown and the others would sell what they had bought from those who couldn't or didn't want to travel to the market. Does that have a music? If you have ever been in a similar market, you'd recognize the buzz, the "singing" of the man selling his delicious watermelon, and the aroma coming from the area where peaches are sold.

The big question - is all this random or is it predictable? There is nothing random to it, yet it is completely unpredictable. The market makers operate in a very normal expected way, yet those who come to the market act in ways I cannot anticipate or predict. The only elements visible are my own instincts, wishes and desires which happen to approximate those of the people who go to the market very well. Imagine you have a phone to your ear that is connected to a line on a speakerphone where hundreds of people are talking at the same time. What do you hear? Noise! Can you find patterns and conversations in the noise, in some cases yes. Are the conversations and patterns going to repeat? In some cases, absolutely ("How are you today?" is typically followed by "I'm well thank you." or some variation of that) I'd like to be convinced that they could be consistently reliable but then again if that was feasible someone would have already found a way and would have proudly advertised that "past performance does not guarantee future results" does not apply to them.

Jim Sogi writes:

One constant regularity of form in music is the return to the root or home base. I think the market tends to have a root or home for each of its pieces. Recent root seems to be 800. Prior jump on Fed had to return Treasury plan to resolve. 800 was a big theme earlier in the year as well. Now we are in the contrapuntal mode, as Bach would play it doing it from the reverse. In a larger sense, it all satisfies the craving for symmetry and resolution.

Often the craving is frustrated creating a tension. Music is all about emotions on different levels, as is the market. Musical gaps are one of the greatest sources of tension. We still have this Monday gap right below created by maestro Timmy G and the trillion dollar blues. Too much tension and disruption of rhythm to make good music.

Feb

6

 Sooner or later, Free Markets uncover the true value of assets. I don't think this law can be argued to any legitimate extent, so long as Free Markets are kept free.

As a soon to be married man, my friends across the country have decided to make Las Vegas the bachelor party destination taking place over the middle weekend in March. I have been to Las Vegas four times over the last year and change - October 2007, March 2008, August 2008, and December 2008. The decline in overall business activity has been dramatic over this time period for the obvious reasons plaguing the overall global economy, mainly an evaporation of liquidity and wealth destruction. Perhaps only in financials has there been poorer performance and a market cap destruction greater on a percentage basis than in the leading casino names - LVS, MGM, BYD, WYNN, etc.

The action in the casino shares is a good reflection of the fundamental decay of the business. The market has been working here perfectly, but I am wondering if something else is going on. Las Vegas is an interesting place. There are hundreds of thousands of good people there for sure. They show up to work, they provide good personal service, they cook delicious meals, they offer amazing choices to the consumer, they go to church and temple, etc. But the main component to the economy there surrounds around Deception. Deception in the form of free rooms, free drinks, free private jet travel (it's tremendously tempting), free golf, free entertainment, free Armani shopping sprees, etc. But, all of these efforts are to deceive you into sitting down at a table game so that you part with your money. Just because something is legal does not necessarily mean that it is ethical. Yes, gamblers are cautioned to bet with their heads, not over them, etc. It is also common knowledge that odds suggest each game is designed to take the gambler's money. The gambler sits at their own risk, etc.

Las Vegas even deceived the market for a while. The astronomic rise in shares into October 2007 was symbolic of the market buying into the concept that Las Vegas had transitioned itself from a gambling destination to an entertainment/resort destination. Credit Ratings went higher for every star or diamond the megaplexes received in service ratings.

But alas, the market has finally woken up after it's liquor-filled weekend at the Wynn. Though there are similar elements, the Deception of Las Vegas is different from the Deception of the Market, unless of course your trading station has women in skimpy outfits parading around you, "Coffee, Juice, Soda….", or worse, "Cocktails, Beer, Champagne…..".

James Lackey comments:

Feb '91, Saudi Desert,  15 minutes after we arrived in our left hook stage… BBC reported some new peace deal in the works. I reported it to my commander.. He looked at me like I was the sucker at the tables. "Lack we didn't bring all these tanks out to the desert not to kill them all"

Same for Vegas. and if you wish to remain married……………………………………

Feb

3

The touchdown interception in the last second of the first half, changing the score from a likely 10-14 to 17-7, immediately brought to mind whether sports imitates the market. And of course the mistress had already thought of this going from -1/2% at 350 to +1/2 % at the 415 close on two occasions in the last 10 years, and the reverse on four occasions. In each case, the mistress gave the final outcome the next day, to the side that had the 3 50 advantage. perhaps to make it more realistic I should have reported 1150 to 1200 reversals.

Jim Sogi comments:

Don't forget the bad calls being reversed and changing the outcome. And the multiple fakes out of the hike. It just needs to fake one defender out to work. The full field reversals, like the 100 yard interception, feel like recent markets. Even at the last minutes of the game or quarter.

James Lackey adds:

As the regulators throw too many flags.

Gordon Haave responds:

I was thinking about the game in terms of stupid behavior that people engage in, over and over again. In football it is the "prevent defense. Teams play great D all game, then in the last five minutes shift to "prevent" defense, where they take out linebackers in favor of more backfield players. All it ever does in prevent the team from winning. This is why the endings of games are so high-scoring.

In the markets, people do all sorts of things to prevent them from losing lots of money, which only insure that they lose the game. Such examples include most of the technical rules, and the dollar-cost-averaging.

Scott Brooks replies:

What Prof. Haave is saying about dollar cost averaging is true if someone has a lump sum to invest. In that case, unless he thinks he can time the market, he should go all in. American Funds had a nice piece on this a few years ago showing two people who invested a lump sum each year. One did at the market high, the other did it the market low every year for a long time. Of course the person who invested at the market low each year got the best return, but the one invested at the market high still got an exceptional return.

However, DCA is not a marketing ploy for the masses, it is a salvation for them. It encourages them to invest on a monthly basis and be in the market each month no matter what the market is doing. It allows them to invest without worrying about the highs and lows of the market. It gives them peace of mind to invest when times are bad. It, quite literally, gets them excited about investing when the market is not so good.

DCAing is very important to Johnny and Sally Lunchbucket… even if they don't know it!

Also, Kurt Warner has been to three Superbowls. He's lost two and barely won one (see "The Tackle")

In both cases where he lost, it was the defense that let him down. I can't say for sure, but I believe it was the "Prevent Defense" that was at fault. In the case of "The Tackle", a porous defense came within 1 foot of losing the game as the clock ran out.

In each of his three Super Bowls, he played against one of the most highly rated defenses in NFL of that year. He and the offense did their job and scored enough points to win.

Kurt Warner should have three Super Bowl Rings in his collection instead of just one. Unfortunately, his defenses let him down.

Phil McDonnell adds:

The reason Dollar Cost averaging works is because it benefits from volatility. Individual stocks are more volatile than the averages so we would expect it to work better on the 30 individual Dow stocks than just on the Dow average itself. The fatal flaw in any strategy is that one needs to invest in stocks that do not go down. For DCA sideways is OK, it will actually make a little money. But if you put all your eggs in the Enron basket you are still broke, DCA will not save you.

About half of the returns of all the stock markets over the last 100 years are due to DCA. Reinvestment of dividends is a form of DCA. The average return in prices has been about 6%/annum. The dividend yield has been about 3% overall. So one would think that the returns if dividends are reinvested will be about 50% higher. In fact dividend reinvestment outperforms by 100% because of the subtle contribution of DCA.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Jan

4

In the times of Madoff and Isreali wars, baseball comes to mind…

Hank Greenberg's brilliant quotations and play after his war duty is quite impressive to me. All aspects of his self discovery and play should be studied in depth. I am sure others have said it before but he said it best: "baseball is a game of percentages stacked against you."

I've never heard "against you," but as a hitter or trader nothing could be better stated. His return in 1945 after being worn by war both psychologically and physically, then with out play or training for 4 years, was difficult and inspiring. I loved his first homer in July of '45. All his teamates pulled a joke on him and ignored him when he came back to the bench. He didn't know how to react and when he sat down they all burst out laughing and congratulated him.

Dec

30

 It's my contention that except for the move from 9/19 or 9/26 to 10/10 when the S&P moved down from 1248 to 1216 to 890 (with 843 low that day — thanks for the macadamia nuts that day to my friend who visited), it was a normal year with everything behaving in a very orderly fashion. Nothing regular happened those two weeks and no one who follow the ecological nature of multiple time series fomented around here could have predicted this. Yet, according to some, they got it (especially for their own account but not their big public funds). What models from other fields, what insights might they have to offer? There is one field I'm thinking of particularly that I don't like to mention as it's like religion, and not fit for discussion until you die from it.

Victor Niederhoffer adds:

I believe that chronic inflammation is a major cause of reduced longevity. Such inflammations occur in markets, and produce responses that can lead to the replication of the wound in a market and spreading by the blood and lymph systems to other markets. When the inflammation is not cured quickly, and the natural defenses against it don't work, a situation such as the 25% decline in 2 weeks in early October can occur. Quantification of the inflammation process can lead to a longer life on this earth and the markets.

James Lackey writes in:

J ChambersWhat did we miss this year? We ignored the internal combustion engine or rotating assembly of the Bond markets. It was easy with your experience in buyouts to see Chambers's paying a million per engineer on buyouts as silly. It was a good investigation of yours that showed how the secret silo society always managed to beat by a penny on earnings to unleash their insider sell or buybacks to cover the non expense option incentive expenses.

But what happened in debt land… frankly I had no clue. Some of the tactics used in Structured Finance were no better, but over all worse than giant size penny stock scams. It was a simple pump and dump debt scheme that became a huge meme supported by Washington on Wall Street, so large that even the originators were caught with inventory… It was so bad that even the day trader's tipoff "Goldman was a seller!" was taken down in the vortex.

Seemingly no one believed the mark to market rule for all would ever become the law of the land and stand. After all, the bankers knew that if everything had to be marked the entire system was insolvent. Texas hold em meets the NY and DC rule makers. It was a good bluff, but they went bust. So they get new backers and are right back at the tables. The tournaments are simply moved to new casinos.

Don Chu observes:

“If a man should happen to reach perfection in this world, he would have to die immediately to enjoy himself.”

-Josh Billings

Dec

27

 Bernie Madoff is all over the news and other than the recent suicide of an investor who lost it all for himself and family and a few named high profile celebrities most of us don't have a face or name of the many victims as yet. As a Christian, I have been praying for Madoff and for all those he swindled. Last week my Sunday school teacher of several years left our church. The class voted to have me take over for her. Tomorrow as part of our class discussion I am going to poise the question of how the class as Christians feels towards Mr. Madoff and how they feel towards his victims? Mr. Madoff will have to live with what he has done. I fail every day, and not really my place to judge him. My heart goes out to all those who invested with him out of total trust and that he was getting them fantastic returns. Perhaps in that situation one turns a blind eye towards asking too many questions that perhaps the SEC should have been asking long ago about his firm?

James Lackey writes:

Probably because very few know the very rich or the closed society that lost all. I am ignorant of that clique but inquired around its six degrees of separation.

Its not schadenfreude, but relief to traders. Men that risk for a living know it's impossible to profit without risk and max drawdowns some 100% above advertised, which is the get the joke of the year as the entire Sharpe ratio risk management diversification was a scam and we all knew it. There was never any oh how can they do it, they must be so smart. Why can't we figure out how to profit on 90% of days, never lose much and have stable returns?

That is the silence of the lambs. Most are guilty, except the Specs, who talk only about losses and are always very upfront. We take very high risk, and that was a bad word for years. We were made fun of… "you're going to blow up"…

Well, you'll never profit without taking risk. You'll never know its a panic until you're in it, and if you stop yourself out at every whiff of a panic you're guaranteed to never make a dime over a decade. Now they know all the low risk returns were a scam.

Now back to speculating for a living.

Nov

21

 It was the Big Three's mistake to agree to pay health care 20-30 years ago when that system was rigged. It was a bad bet. Labor costs are focused on because they are variable… but look at fixed costs. Toyota has made the most mistakes in the past five years, all combined. Look at Tundra in Texas at the exact top in 2006, and the new Alabama plant.  "Highlander, wait, $4 gas. Let's make Prius, wait, $2 gas. Let's not build anything."

There are too many cars produced at too good a quality globally for anyone to make profits without a subsidy. Toyota is subsidized by Japan and Alabama and Texas… Car prices in real dollars have fallen for a decade. New car tech and quality is simply amazing… I laugh my tail off as if some "pent up demand" will do it, when the "get the joke" people are about to realize all new cars now last 10 years + 150k miles EZ.

The financial and media morons who know nothing about cars, production and ruined Finance in this country are all calling for pre- packed BK for the Big Three. That is like stealing the NYSE. Gimme Jeep, Buick and Ford Trucks and I can build a Toyota-killer and pay the UAW all their dues. (Of course, I would have to revamp the dealer network but that's a state issue.)

Never in the history of Autos has a BK or restructuring weaker players into a new consortium (even with state concessions) worked… See Packard or Studebaker or AMC.

There is a good paper written in 1958 how America will never build a profitable small car. Honda has given it a go under the Model-T concept, you can get an Accord as long as you can only choose the color…

The most difficult restructuring has already taken place. It's called Visteon for F parts and Delphi for GM… all the rest of this talk is about a few guys running around feeding robots and about Health Care and Pensions.

David Higgs adds:

Slow down, you're going too fast. Who hasn't said the auto industry was headed for a three-way-crash? What was the story with the german VW Beetle — wasn't it designed due to financial issues there long ago, and hasn't it been one of the best get me from A to B cars ever? The sad thing about the autos is, like all other financial disasters we feel at the moment — greed under the hood.

Nov

14

F & SOver and over again, we see the market moving in trepidatious concert with the father figure of the moment. It used to be the fake doc and then it was the scholarly economist chair, and now it's the former chair of the white shoe firm that maintains the Chinese wall with its former colleagues. On past occasions it's the Sage, and every now and then, a big executive like the head at Intel or the basketball player from Conn.

What's particularly damaging to the market is when these people bow. The spectacle of the Intel chief bowing and begging forgiveness I believe forever tarnished the aura of high p/e deservingness that his company with 59% profit margins might have deserved. The news that the former white shoe chair knelt in front of the chair of the Democratic party and begged her to pass the bail out bill was the death warrant for the market for a time. And now that he changed horses in midstream and gave up on buying mortgages directly, a position he had previously begged for, "based on a different set of circumstances" was the death knell for the market.

The trader has the Dostoiyefskian tendency to feel guilty about their activities from the time they were small. And they wish their father figure to be strong and not to kneel. When these figures regain the respect of their kids by being strong, maintaining the stiff upper lip, etc., we can expect a much better market. How would you quantify this and what other instances of kneeling as a bearish indicator have you seen?

Anatoly Veltman writes:

You mean like when Chancellor of the Exchequer raised discount rate 9/16/92 three times (from 3% to 7%), before rolling it back to 3% by the end of the same day… and recognized that ERM snake was in fact beheaded?

James Lackey replies:

The return of the dipsy doodle is a good start. The most damaging current meme is that the markets are at fault…  and market prices do not forecast. "Free markets need help and regulation from governments," The dog is chasing its tail. Government regulations are what cause markets to come up with crazy schemes to avoid the previous market patches, in Microsoft terms, a "hot fix."

A more direct answer is price discovery. Once we all figured out too many prices were rigged they panicked and traders bought as usual. Then when the father figures changed the rules to bailout their kin, we went on strike. No traders, no liquidity for the markets. Now the prices are caught in the crossfire of the Hatfield-McCoy feud. Do not blame the hired guns.

Art Cooper adds:

Obviously the market and economy respond positively to strong leadership, as this relates directly to human emotions (animal spirits) which are so essential a part of Main Street economics, finance and the financial markets. Hence, the Great Depression market responded positively to a strong leader who declared that "The only thing we have to fear is…fear itself," even though his economic policies were in fact counter-productive to recovery (see Jim Powell's "FDR's Folly").

Kim Zussman interjects:

The child is racked with disorienting insecurity when they first witness their parents own uncertainty, indecisiveness, and fear. Now the children are being dragged by their mother to a new daddy with undetermined rules of discipline, while being told that the last daddy was really an immoral fraud.

It's hard growing up, especially with a fickle mother.

James Lackey writes:

I listened to Santana's show tour warm-up in 2002 or so. Later that evening he was on an interview, local radio, and was describing his so called comeback. His rebirth was through collaboration with new young artists. His quote went something like, "I wanted my teenage kids to know dad can jam, and how the system works, sure they saw my old awards and shows from back in the day… but to a teenager..it's now that counts." The gist was, the only reason he did the work was to prove a point to his children… boom… the return of a father figure.

J.T Holley writes:

Highly apropos, like all great literature, call me crazy if ya'll don't see it that way, this has been written in William Golding's Lord of the Flies.

Kids abandoned due to crash from adults.

Ralph pleads with Piggy about Simon's death: "You were outside, Outside the circle, Didn't you see what they did" (paraphrased).

Piggy before his murder: "Which is better? Law and rescue or hunting and breaking things?" (paraphrased). Then the rock falls.

Kids rescued from abandonment and panic/chaos when Ralph looks up at Naval Officer (adult).

I guess the big question right now and maybe one that Golding proposed is who is going to rescue the naval officer and his boat? In other words who saves the adults themselves?

Now substitute War, Atomic Bomb, Ralph, Jack, Simon, Piggy, Naval Officer, Naval Ship with traders, investors, banks, citizens, government, and politicians.

Kevin Eilian writes:

Before it became a quote dejour by Mac and others, R*bin's upper lip, bone straight poker face, "the economic fundamentals are strong,"– you believed it. He made sure he did, too, as his net worth was tied to white shoe IPO.

James Sogi says:

Demographics is the counting of the "father figure" issue. We saw the effect in the aging of Japan. Now we are seeing the aging of America. The rest of the world is quite young, averaging something like 15 years old… Many of our parents are sick, old or dying or died. There is a changing of the guard. The boomers are retiring. America is aging and gaining weight. Though America "the great white father" is kneeling or brought to its knees, the emerging world will rise in its place over time. I would watch this trend over the long term. The world is becoming multicultural. Witness, O witness, the non white majority in California.

Russ Sears adds:

I have been thinking for the last few weeks that all of this could have been avoided if the investment bankers had learned a few lessons on risk management from a mother of a smart, curious two year old or a teenage boy. You can't just tell them no and then ignore them once they've moved on and not still expect some experimention to happen. The alerrt mom always seems to have an instinct, before the father, when silence is a clue they are into something or when the truth has been stretched. How the mother always is prepared to contain while still delighting in their first taste of chocolate cake or discovery of girls and love. The good mom has the sense to help them limit these new found divine obsessions, before they ruin their mental and physical health.

Nov

14

 My lawn guy is losing his house due to foreclosure. He's quite bitter about being misled about mortgages and the real estate market, and blames the "Fat Cats" for setting this up to steal from the little guy. He refuses to take any responsibility for his actions, and says it's not his fault.

I went over to his house about 2 years ago and was surprised that a lawn guy could live in a beautiful 2400 sq. ft. house, with pool, in a premier gated community where the houses were going for $450K at the top. That same house is selling for ~$190K, if it can sell right now. I asked him if he used the services of a good real estate attorney to vet the deal and walk him through closing. He said that he didn't think he needed an attorney. He needs one now, as he's filing for bankruptcy.

As I value rational thought, I decided that the less said, the better, and didn't comment or make any judgments although I thought to myself how stupid he was. As for the personal bankruptcy, I find that unconscionable.

James Lackey writes:

It's nice of many to hold back judgment until after the fact. The only guy I know to do full disclosure and warn them good in Florida was my brother. One day he made a comment to me and to our friends at the BMX track in Feb of 2006 when another construction buddy was bragging about open land being bid up from 5k lots to 50k. It was where we rode our dirt-bikes…waaaay out there. By May I was gone to Nashville, and that was me, after being here arguing how good it was for everyone to be able to own a home from 2004 to '06, which is true, but as always, the get the joke is at what cost. Florida had many boom to busts and the lead movie in 1929 was the Marx brothers Coconuts making fun of land speculators in Florida. As for personal BK a bit of humility would be prudent. If anyone ever has a sick wife or child a couple million in medical bills and lost wages from taking care of family make it a certainty. But GM should build better cars to compete with others that have workers with national healthcare plans and more prudent savers.

Adam Robinson adds:

Adan RA question has arisen as to whether the typical little guy who bought a home was duped or blameful. This wasn't a case, in my opinion, of caveat emptor on a colossal scale.

Given the extent of the bubble, countless "little guys" were securing mortgages on properties they could not possibly have afforded in the past. Even if the lending institution had glossed over, if not misrepresented, the risks, as Alan points out, surely these new homeowners must have realized this change of affairs. Since there was no commensurate change in their own wealth or earning capacity, the sudden change in their fortunes could only be attributed not to their efforts, but rather an unexpectedly favorable turn of events — in short, good luck.

It is natural, of course, to be giddy perhaps to be the beneficiary of such great fortuity, but to expect that luck to persist, or to be without any actual or potential hidden costs — worse still, to resent it when their luck turns bad, or "the catch" in their boon to become painfully clear — suggests a level of credulity about the world, if not the physical universe, that can only be described as stupidity.

Adi Schnytzer replies:

Most people on earth are probably indeed stupid! Remember, in my family's past, I have this image of a man saying to his family in Eastern Europe in 1938 or so, "let's get out of here; I have visas and we have the money." No one wanted to know, and only he survived. No absence of innocent stupidity then or now. I'm of course not comparing the two situations in any other way. And then there are those funny surveys that ask people to name the President, Treasury Secretary, etc. and the results are incredible.

James Lackey chimes in:

Florida is pretty big…saying housing should do X when the state is in 2 climates and 2 different time zones is a tough call especially since the wealth is concentrated in 2 counties, one is Manhattan South and the other is the other side of the world to the North Side of Chicago, and one doubts there are any connections to Washington, DC and if your going to be a land holder you better be back by the full faith and political rigging of the Washington boys. I was a kid from the S side of Chicago but the only place I ever really liked was Boca Raton. Even though the West Coast are Chicago people…but in all of Florida it's hard to make friends in the business of stocks as every other guy you meet is running a scam.

PS. St. Joe is not the biggest land owner in Florida, not even #2. Think bigger.

Jul

10

I personally believe that the Uptick Rule should be reinstated or large money pools will be created to drive stock prices down on selected companies.

Alex Forshaw replies:

Why do you find it ok that speculators drive prices up, but not down?

Sam Humbert counters:

I will show you an article, the subject of which was how CNBC was unknowingly complicit in the fall of Bear Stearns. You might find it informative. 

Jason Goepfert says:

So one of the largest investment banks and securities traders in the nation was taken down because traders didn't have to wait for an uptick to sell short? It didn't have anything to do with the fact that they had bitten off way more than they could chew and should have been deleted as on ongoing concern? That seems a little fanciful to me.

There were hundreds of stocks that were taken off the uptick rule for a couple of years prior to July 2007, in a trial balloon run by the regs. They studied the trading patterns on those stocks extensively compared to those that were still subject to the rule, and found little difference in trading patterns. The rule was not lifted by whim.

With penny pricing, it doesn't take much to get an uptick in a stock. If a large fund(s) really wanted to take down a company, the uptick rule makes no difference. They would just buy a bunch of shares, get the stock on an uptick, then short the hell out of it again. Or buy puts, or any of the other derivatives they have available.

The stock would go to zero whether the rule was in place or not. See Enron et al.

Blaming the uptick rule is lazy.

Sam Humbert  comes back again:

Marty Whitman of 3rd Ave Value Fund has issued a statement in effect also blaming the elimination of the Uptick Rule as one of the factors that the bear raid on Bear Stearns was successful.

I agree with Marty Whitman.

As to driving prices up versus driving them down, there is a difference. Quickly falling stock prices can cause a panic which could cause money withdrawals from some stocks such as brokerage and banking firms, which in turn can cause bankruptcies and job losses. 

Dylan Distasio recalls:

The fact of the matter is that uptick rule was easily avoided prior to its elimination through the use of married puts aka "bullets." When I traded intraday (before the SEC essentially eliminated this use of them in 2003), we used to use them on a daily basis. 

Gibbons Burke also disagrees with the uptick rule:

If all the artificial barriers [such as the uptick rule] are removed the knowledge that stocks are more susceptible to bear raids will temper the irrational exuberance that lofts stock prices far beyond their real value, which causes them to correct just as dramatically.

Wall Street is institutionally bullish, and it extends even to the press covering the street, so support for the uptick rule is understandable, if not reasonable and rational. For example, I know from personal experience that Dow Jones requires all employees to sign agreements when they're hired on to never ever sell short, or be effectively short with options. No one on the entire staff of the Wall Street Journal has any interest in or ability to benefit from stocks going down. It renders the Journal a tout.

Mr. Albert has the day trader's perspective:

1) the nasdaq 100 had no uptick rule for quite a while before the general repeal

2) S stocks on the Nasdaq, certainly the most subject to bear raids as they have much shakier financials and tend to be story stocks, never had an uptick rule since I began trading in 1996

3) none of the SHO pilot stocks was more volatile than the comparable non Pilot stocks (in need to find the acedemic reference but it is there). IMO the specialist system (not the uptick rule) was a stabilizing force in the markets so now we have more vol

James Lackey has seen it all before:

All you get from more rule making, margins, uptick or program rules etc is bigger gaps at opens and closes. Restrict intra day moves and the energy must be transferred somewhere else. 

Steve Leslie updates:

Yesterday the SEC announced that they were selectively reinstating the uptick rule for Fannie Mae and Freddie Mac. Why just those two stocks? I have no idea what this accomplishes other than a symbolic gesture. Could you imagine commodities having a limit up or limit down rule for just corn or beans? Couldn't they just raise the margin requirements for borrowing stocks ? As usual governments are late to the party. Back in 1987 the Government began looking at computerized trading and the use of collars. Of course this was after Oct 19th debacle. Look at Hurricane Katrina and see the government in action during a crisis situation. And yet there are still those who try to tell the public that the government is the solution to its problems. The bankrupt LA Times had a front page article arguing for government intervention in the financial markets, especially subprime. Politicians' cliches include "we can't drill ourselves out of the oil crisis and it is the speculator who is the cause of the problem." They are the ones who need to be ratted out and summarily chastised and shot. And then they use trite phrases like "We need to send a message to these oil companies and the speculator that they are going to be reined in." And then they hold a hearing in front of cameras, ask mindless, rehearsed questions formulated by their aides and attempt to project themselves as informed. Yet they expose themselves as what they truly are. Robots, empty suits whose prime objective in life is to get re-elected and retain their cushy phoney baloney jobs. And Nero fiddled while Rome burned. I think I will go outside and get a breath of fresh air.

Jun

21

During the past week the public has been hit by bad news about the economy and the geopolitical situation. I could not find a single positive event in the news. Even potentially good things have been presented from the negative side. Some examples: 1) The Saudis announced an increase in oil production; 2) US considers starting to exploit their resources more fully (apart from environmental considerations); 3) China increased the price of gasoline. Eventually they were presented as bad news: 1) The Saudis have declared this many times and moreover we really do not know how much oil they have left in their reserves. 2) Oil from Alaska could contribute very little to reduce US import dependence. I even heard that 3) in China this measure could increase demand; and in any case Chinese consumer behavior takes a long time to adapt to new situations. On the other hand other, potentially more negative,  news had an impact on oil prices. Israelis a month ago exercised to bomb Iran facilities. The problems in Nigeria could disrupt extraction. Alternative energies are still a long way ahead. Then we are hit by news about the credit crisis, mortgages, frauds, a plunging housing market, growing deficits.  Skyrocketing inflation is putting at risk emerging markets growth. Food prices and climate change are going to bring instability and famine in many areas of the world. The free trade era may be nearing an end amid food and growth concerns.

The stock market is going to retest last January lows. Earnings forecasts are negative. Recession is behind the corner. Consumer sentiment is at its lows. Terrorism is a threat and the situation in Afghanistan can only get worse and at best it will take a decade to be solved. Similar comments for the operations in Iraq. I find all this quite discomforting. In this climate, it is impossible for the public to build their own map of opportunities and risks if news is so unbalanced to the negative side.

Sometimes I really wonder if it is possible for someone or a group of people/interests to design and implement these information campaigns. Military info ops are nothing compared to what we see on TV and read on newspaper and the internet these days!

I have seen more than one recession in my life. It is always the same pattern.

On the other hand, I remember during the dot.com bubble, every company announcement was the demonstration that a new era had begun. Every bad news was interpreted as uninfluential in the powerful flow of innovation and creativity of the internet revolution. Of course it was not like this.

Now we confront our decision making process with the oil bubble, the weak dollar, the unsold inventory of houses, inflation and so on. I do not want to be positive at all costs. The long process of growth started after WWII brought improvements in many parts of the world. I understand that new elements could arise at a certain point to undermine what for us is now given for granted: a continuous seamless improvement of our conditions. But I really do not think this is the case now.

Between the lines we need to able and read the key drivers for continued growth and development in the next years. "They" are simply making it difficult for the public to see them and make sound investment decisions.

Vince Fulco reviews the events of Friday:

The bears could not have scripted a better one for quad witching if they had hired Hollywood writers for the purpose.  It all revolved around six negative words in the headlines, though the reality was more nuanced:

1) DOWNGRADE- of the monolines the prior night which has been discussed ad nauseam by fixed income and equity analysts alike for months (whoops 5 notches). What happened to efficient markets and discounting of information?

2) WAR- Israeli war games over 3 weeks old, in plain view of most neighboring countries. Comes on the heels two weeks ago of politically motivated utterances by a minister re: war's inevitability which caused selloff and recovery in numerous instruments.

3) PRE-RELEASE- Newswire "reports" unsubstantiated rumours that Mother MER will pre-release. This is after days of repeated number trims and caution by early/late street analysts to the bulge brackets' plight.

4) CREDIT WATCH NEGATIVE- Rating agencies NOW waking up to the reality of >$4 gas and fleets that are inefficient and unsound. Not to mention finance arms run amuck.

5) QUAD WITCH- Primary TV program reporting OT1H "look out for increased vol today" and OTOH "the day isn't as important as years past due to traders spacing out their portfolio changes".

6) OFFERINGS- After weeks of endless capital raises among the big boys, the regionals start to hit the accelerator shortly after being "outed" or "goaded" by GS and (in repeated attempts) by Fed and Treasury.

Tailor made IMHO and a sight to behold given SPUs were only down 4-5 points at 5:00 am. Although it involved numerous random events, sure has a deus ex machina feel to it.

James Lackey writes:

1. Keep in mind it is an election year. 91 saw similar doom and gloom. After the fact Clinton inherited a booming economy and could raise taxes.

2. Dem Sweet is a lock. Taxes are going up without a vote. Best way to have taxes lowered on the rich would be a wicked recession.

3. Global warming green meme is a rise in taxes, a whole new regime of taxes and carbon credits. The quick way around this is to Jam up all energy prices as high as they can get them. No politician can raise energy taxes when even electricity bills go limit up.

The counter argument is now being formed. At the barber shop this am Newsweek or one of the rags had "Global warming is a Hoax". Yet on Fox News on the TV next to the news rack they had Dow at 3 month lows, Energy at highs, stagflation. Ill be looking for a new barber shop without the TV.

May

13

The legend is that before big hurricanes and natural devastation in the Carolinas, a gray man appears . What is the gray man that appears before big devastations in the markets? I propose that yields in bonds going up a plethora is one such gray man, a throwback to the bond vigilantes, and there are stock vigilantes and gold vigilantes. The whole subject calls for quantification as I return from the Carolinas.

James Lackey replies:

When my dad first moved to Fla in 1987, we thought the silliest thing in the world was riding out a Hurricane. Why not just load up the van and head to Atlanta? That is what we did at first. But after 12 years, 12 false alarms and a few close calls you think you can ride out the storm. Then in 2004 Hurricane Charlie taught us a lesson. We both laughed after the fact describing our attempt to ease our fear, "I don't think the heavy stuff will come down for quite a while". Caddy shack conversation. Boy did I feel like a moron, trading until the last minute when my internet and power failed, risking the lives of my babies. The storm was predicted to hit 300 miles N, it took an abrupt right hander over Sanibel and wiped out Punta Gorda.

To get the joke of the Gray man ask yourself, do we try to avoid panics and disasters as traders or to profit from them? My view is that after a few years in the markets we become far too brave.

Sam Humbert asides:

I wonder if the Palindrome's perfervid media tour in support of his new book is an attempt (old/young lion?) to push aside the Derivatives Expert's claim to the "I foresaw 2007" meme-space. Note how the Pal stresses that his analysis goes back to the Reagan years, i.e., pre-Expert.

Jim Sogi reports:

The current 20 day average S&P500 futures range is 17 points. Over the last 14 years, periods when the average range was above 15 fell in or before retrospective bear markets, and below 15 within bull markets, using overlapping periods, and have like intermediate outlooks. The higher volatility periods, above 15, lasted nearly 1000 days at a time, and the low vol regimes, under 15, a bit longer and compose nearly half the time series. If this data sample and regime and cycle repeats forward, the current higher volatility regime is perhaps not over and does not bode particularly bullish over the next month.

Russ Humbert contributes:

It may be the gray man that causes people  to flee in Carolina, but it is "the golden parachutist" in banking which sent my feet scampering.

May

3

Jim Lackey

REDMOND, Wash. - May 3, 2008 - Microsoft Corp. (NASDAQ: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo! Inc. (NASDAQ: YHOO).

Paying 5X sales makes sense for a media company? The only other one that baffles me is calling amazon a tech company. The entire techie list is cluttered with either media or commodities, like chips or software that is bundled but offered for free elsewhere.

I am not a techie. Yet I see what the kids are playing with, video. The free MSFT XP downgrade is the joke of the year. Yet I see so many bullish on MSFT, which is wild in the first place, but how in the world did it make sense to buy YHOO? Why did MSFT fail or did they fail in the media/e-mail markets. How can you fail giving things away for free?

I don't have a Linux machine. We still run XP here. I am not anti-MSFT. I notice how many have moved back to XP WM type file systems on many of the sites we use for music and video. Frustrated by the never ending paying/renting of songs, constant reloading of rights for the hand held music players I shut down the Napster. It was great, just sick of it.

I just dug out a box full of old CD's. funny the CD's date from my Army days in 91 until 2002 when file sharing/renting downloads began to work well. Anyways I remember back in 99/2000 ripping CDs to the PC and trying to rename or move files up down load them etc. Oh yea, like back in the 80's making mix tapes.

Hades, I've had my win update off for a while now. So I have media player 9 on this machine. What a breeze. I just went through 25 CDs in a couple of hours, made all sorts of play lists. Its not that its that much easier vs Win NT or 2000 years ago, it's just faster.

So in the past 9 years what has been created? Everything that was dreamed and promised in 1999 is here. Nothing new really, it just works now. Vid-edit file sharing Utube hand helds cell phones, 3g and GPS.

I know "they" say tech stocks have never been a better value. Well that's because there is nothing new. Yes all the toys are better and cheaper. Yet how will they command a premium in the future? Tech traded at 100X earnings a decade ago for today. Today is here. Why are some trading 2-3 times the present for today? Nostalgia pricing?

Yea I understand the branding and all that Jazz. That is why GOOG failed at video and bought U tube. Yet "tech" was futuristic. It was a computing story. A making people lives better story. No doubt there will be some more improvements but the big picture seems to have been played out.

Well one great internet idea left. High speed WiFi the entire country.

Mar

30

No CountryWith moves in the first hour of trading on several occasions reaching half the yearly average move in prices, limit moves in the agricultural commodities happening almost one in two days, and volatility in stocks recently showing that a 2% daily change is average, the fifth biggest brokerage saved by just a hair from going under, and Fed infusions to preclude a market meltdown a la 1907 and 1929, it's apparent that the market is no longer for old men.

I've developed a few indicators of this. One being the 90 second, two point move down in Bunds on Friday ("in den Keller gerauscht"), down five points at the time for the week, shifting the decks for $6 billion in value from those with the stops, and the 14 days of 1% or more moves that we've been running each month in stocks, the daily moves in soybeans of limit up or down 10 of the last 20 days, the half-hour declines of 15 points in S&P at the end of the trading day and the frequent air pockets in all markets with 25% of margin moves in 30 minutes.

James Lackey recounts:

For the past month, for all the big up and down opens the total sum of only about 10 points. The problem isn't the open, its the the open to lunch. One day this month the S&P had a glorious comeback to close the day up 48 after a down 15 pointer, but that was a tough 28 point up open pullback to buy. An up open-12:00 had another big up day of 53, sell that big up open of 23 and you missed out. Often the down moves closed down for the day and the ups, up.

If you didn't catch the open or jump on an up open for the open-12:00 you missed many a move. Worse, buy a down open after down days and you get pinned to the mat. That is nothing new for March. How about a double dipsy doodle failure? Friday was miserable.

Janice Dorn writes in:

These movements may be related more to psychological state than to age. Those in their sixth and seventh decades know best when to be in and when to stay away. It looks like there are a lot of novice traders,  likely of every age, suffering from manic-depression, who are unable to hold positions for more than 10-30 minutes, and whose moods vascillate from sheer depression to euphoria in fairly rapid sequence. I don't know how to test this other than the types of mail I get every day from traders. They want "in on the action" in the "hot commodities" and don't have a clue what they are doing.

I got mail from someone the other day who had never traded real money and has to go to the back room of a store owned by his cousin to watch the markets since he does not have high speed connection at home. He told me that "some big firm" in the east wanted to hire him immediately and give him $2 million to trade. This was based on his paper trades that showed that he could make 0.4% a day scalping.

I think that we may also may be dealing with increasing emotionality and overconfidence among traders, for a number of different reasons, including instantaneous worldwide communication. Add to this the relentless and shameless promotion by futures and commodity trading services and firms, and one has a recipe for at least part of what often seems to be an incomprehensible, violent and volatile mess.

Usually when someone says "I've never seen anything like this before," it means he is losing. In the past months, it is becoming clear, in a number of commodity markets, that we really have never seen anything like this before.

Nigel Davies proposes a remedy:

Perhaps the more mature speculator should head for Mauritius where the stock exchange is open from 9am to 12.30pm. This leaves plenty of time for hot tea before the open and it finishes in time for lunch. And then one can have a nice game of checkers in the afternoon.

Alston Mabry comments:

J BardemThe scene that gets shown over and over is where the hit man goes into the gas station and tells the old man to call the flip of the coin. The hit man explains how the coin has been traveling all these years to come here at this moment for this decision. The old man, bewildered, asks, what am I gonna win or lose? Everything.

Which strikes me as an interesting metaphor for what many investors have experienced in the last year or so. That coin is all the things you didn't know about, that were coming your way: the mortgage derivatives, the borrowed money, the margin calls, the collapse in home prices, the volatility, the troubles at Bear. One day a guy walks in the door and says, "Call it."

Gregory van Kipnis adds:

My take on this provocative film is along similar lines, but without the comfort of an apparent opportunity for a decision. For me the "hit man" is pure evil that may come your way and give you the sense you have some control (chose heads or tails), or that the outcome is probabilistic (50/50), when in fact the outcome is predestined, it is all fate made to look like a game. Notice the line, which comes close to the end, when he appears in the wife's bedroom. When asked why he was there he says you were doomed when your husband didn't accept my offer to trade the money for your life. I got him, I got the money and now I getting you. Then he adds, 'this is all I can do for you.' He gives her the appearance of control with the offer of a coin flip. She refuses. The rest is left to your imagination.

James Sogi opines:

Big SurfTruth is, we have seen this before, the consecutive afternoon drops — right at the bottoms of July and August during 2002, before some big rises. Too few to be robust, but as precedent. But it seems the micro action is slowing down. Like Friday, quite odd. 2-3k on the bid and at the ask. I think the sides are starting to equilibrate. Ranges and gaps are dropping.

In the surf lineup, I'm the oldest guy out except for Makalwaena Bob at 72. I see lots of teens and 20s out. Fewer in their 30s and 40s. None after that. They're strong and careless about danger. They talk about silly kid things. I've seen many of them drop out of the surf lineup: weight, beer, kids, job, drugs, lack of interest, injury, arrests. Its good to still be out there after all these years. It's a different perspective. Its hard to stay in shape and strong and flexible. The speed is down. I try to be in the right spot at the right time. Wait for the nice sets. Avoid getting caught inside. I keep an eye on the horizon, the weather, the buoys, the tides, satellites and can be there when the waves and conditions are right. I like having nice equipment to fit the conditions. I see many parallels in the markets and trading.

Mr. Albert reports:

Here are a few recent qualitative observations from an equity day trader:

1) The speed of price changes is way up and the 'noise cloud' around price is much expanded.

2) The change is volatility from one day to the next is dramatic.

3) Stocks often trade very hard in one direction and then stay there without much of a reaction.

4) My 10 mbps line is compressed to ~1.5 mbps and pinging Yahoo times out for three iterations at the open.

Jan

25

One good up day… One reversal day… One "good date" night and an "O" sure does not make up for all the reprehensible behavior in the markets… Price fixing, rigged deals… Fed emergency rate cuts… It does remind me of all of the old books about 19th century financial markets…

Hey, on Monday night let's say 3am when we were limit down… who do you think was in there buying? Yes and .25 off the limit I am sitting there long too much, thinking am I really this nuts to hope or think we really are going to get an emergency Fed cut? What the hell kinda trader is that?

No that is not why I bought… But why I sold… I had no idea how much lower it would have gone once the limit came off later in the day, maybe not much at all, 10 SNP points for a joke on the Stop Boys. Yet, what I do know is we all should have had that opportunity to find out… the limit down deprived us of that.

If it falls below 1255.30 later this year… every point it does falls below, all the pain you take, blame the Feds for the bailouts, not me. If they let it fall this time, the next time we start buying before the old low and "hope" for a panic or a new low to buy more from the stops. No, next time down I'll be there commenting… "where is your bailout now. Don't ask the traders for help."

It wasn't this time that upset me so much… Hades we are down 20% in a few weeks. I am long anyways. Yet for the past many months how many stupid plans and bailouts have we had? You all know damn well years from now we are all going to look back and say, that wasn't good. 

TODAY: MBIA, Ambac Likely to Get Bailout, UniCredit Says

MBIA Inc. and Ambac Financial Group Inc., the biggest bond insurers, are likely to be bailed out to avert worsening credit-market turmoil, according to analysts at UniCredit SpA.

AIG Bails Out $2.2 Billion Nightingale Finance SIV

American International Group Inc., the world's biggest insurer by assets, will bail out its Nightingale Finance structured investment vehicle, according to Moody's Investors Service.

Bank of America Plans $6 Billion Preferred Offering

Fed 75BPS Emergency rate cut more to come next week (yea, right!) Bernanke to Cut Rates Further, Faster to Buoy Growth

Citigroup Trial May Double Enron Creditors' Payout

Don't forget the 150-200 billion stimulus package!

And don't forget the treasury department Super SIV.

And Subprime mortgage reform and price fixing!

Jan

5

A back of the envelope count of the last handful of downdrafts and bounces. The New Year drop was about 92 points.

Downdrafts & Bounces

James Lackey adds:

Triple jumps are the most dangerous, "decision makers" in dirt bike racing. Triple bottoms in trading?. The theme/meme from the home builders was "2007 was going to stink." Only good thing I can say about trading so far in 2008 is "we have all year" and it's much better to come back in racing then to crash on the last lap.

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