Ever since the CFA exams I have noticed a tendency for Wall Street research to deteriorate. A Gresham's Law appears to be operating. The articles like the white shoe one I mentioned are chock full of seemingly sapient stuff that are scientifically flawed amid reference to Shiller p/e data with their 10 year averaging and data when no earnings were reported etc. They refuse to take account of interest rates and use technical analysis and charts for suggestive but random conclusions. It is sad to see this deterioration as literacy increases as predicted by Nock.

Alston Mabry writes: 

I find that if I'm really serious about an individual ticker, one of the few places where I can get at least trailheads to research is the earnings conference call, not for the company's answers but more for the analyst's questions, assuming there are analysts on the call who are at least somewhat skeptical. Not that I dig into individual tickers that much anymore.

anonymous writes: 

Vic's point of Gresham's Law happens everywhere, but especially in situations where there are credentials given that appear to have value. IMO the CFA society exists (as does the CMT) primarily to enhance the status of its anointed ones (for a price), and for the side benefit of providing income to the society heads.

Al is right: There is no original thinking and virtually no research. But there is a benefit to us thinking ones: If all of what passes for research is bot-written drivel, released over some time period, a case can be made for trends to exist based on the gradual release of the drivel. That would support the contention that what really drives certain markets is momentum and sentiment.

Never complain about the weaknesses of your opponents; exploit them.

Allen Gilespie adds:

In an effort to defend free thinking CFAs from the white shoe firms, I have attached and included a link to my most recent annual analysis on the Dow Jones Industrial Index built on Ben Graham's method's with an added modern twist and nod to Richard Russell in a world of QE. I have also include my white paper on Bitcoin, Banking, and Bernanke in a World of Monetary Chaos from 2013. Prior year reports available to those with a Bloomberg under DIA US equity. Given that the economy now includes industrial businesses and network/software type businesses like MSFT and V I think there is a delta between book value, average ratio and earnings methods due to network value theory and excessive monetary inflation. I am calling this new valuation framework my Gold, Bitcoin, Dow Theory whereby one bitcoin plus one gold coin = one Dow share. Obviously, figuring out the key ratios is key, but in short, the theory is that gold and tangible book on the Dow should trade on a ratio. There will then be the goodwill book value which gets measure by crytpo, so in combination they will equal the value of shares in fiat. In short, there is value but that value is dependent on the value of money, assets, earnings, and interest rates. We live in a world of fiat, hard, and crypto currencies. In short, I think QE is the same as John Law effort to demonitize gold but then cryptos broke out - you can inflate values but the market will find a way to make proper measurements. I have started making all price targets in dollars, gold and bitcoin equivalents - when money is mispriced it is hard to know the value of anything and all secular bear markets are the result of a breakdown in the monetary system (greenbacks - bi-metal system - gold standard - Bretton Woods - Quasi-Free float - Crypto) - bear just don't understand how they play (sometime values decline (deflation) (1929-1932), sometimes they inflate (1966-1982) so nominal prices hold but you loose purchasing power, and sometimes you hyperinflate your values go up but you gotta find a better currency (cyrpto).

The Dow Jones Industrial Average - Fintrust Investment Advisors

Bitcoin, Banking and Bernanke - Fintrust Investment Advisors

Rocky Humbert writes: 

Spurious correlation. The first CFA exam was administered on June 15, 1963 to 278 men and 6 women. In 2017, the pass rate for CFA-I was 43% out of 189,000 candidates. The average starting salary for most CFA's is under $100k.

See page 55 of From Practice to Profession: A History of The Financial Analysts Federation and the Investment Profession

"CFA Says Pass Rate for Level 2 Climbs to 47%, Highest Since 2006"

Russ Sears writes:

While I agree with much of what Rocky states, what appears to be missing from the thread is that the motive for much "rresearsh" is often CYB (cover. your. behind) Designatona helps but the real cause and effect of such proliferation is litigation and regulation.

Gordon Haave writes: 

I'm a CFA and I agree with Vic and Jeff. Almost anything written by a CFA is formulaic and uninteresting.

I get an email once a week from the CFA society linking to all the things on Seeking Alpha that were written by CFA's and they are almost universally worthless.

Rocky Humbert writes: 

Wait a second. The hypothesis proffered by Vic was that "ever since the CFA exams I have noticed a tendency for wall street research to deteriorate. A greshams law appears to be operating."

We are in agreement that virtually all of the research is unhelpful or rubbish. But it is incorrect to to attribute this to the CFA exam or to suggest that this is anew phenomenon. At the very least, it is due to the fact that customers of wall street firms do not pay for the "product." And the price of the product has finally converged to the value. Do you remember Henry Blodgett? Mary Meeker? That was 20 years ago. This isn't news.

Additionally, back in the early 1990's and long before the front-running scandals, David Silfen formed an internal prop group to invest based on GS analyst research. The results were abysmal and the group was disbanded. 

Russ Sears writes: 

While I agree with much of what Rocky states What appears to be missing from the thread is that the motive for much "rresearsh" is often CYB (cover. your. behind) Designatona help but the real cause and effect of such proliferation is litigation and regulation.

Paul Marino writes: 

I agree with you Russ, but in a world where you can pay to know if Fed Powell likes his morning egg hard boiled or over easy I'm a little over easy myself. Bernanke was an oatmeal man. This is Flexionic activity written by Gov's and the Operator's will take every advantage over the common man.

Allen Gillespie writes: 

In an effort to defend free thinking CFAs from the white shoe firms, I have attached and included a link to my most recent annual analysis on the Dow Jones Industrial Index built on Ben Graham's method's with an added modern twist and nod to Richard Russell in a world of QE. I have also include my white paper on Bitcoin, Banking, and Bernanke from 2013. Prior year reports available to those with a Bloomberg under DIA equity. Given that the economy now includes industrial businesses and network/software type businesses like MSFT and V I think there is a delta between book value, average ratio and earnings methods due to network value theory and excessive monetary inflation. I am calling this new valuation framework my Gold, Bitcoin, Dow Theory whereby one bitcoin plus one gold coin = one Dow share. Obviously, figuring out the key ratios is key, but in short, the theory is that gold and tangible book on the Dow will normalize and the delta goes to crytpo, so in combination they will equal the value of shares in fiat. In short, there is value but that value is dependent on the value of money, assets, earnings, and interest rates. We live in a world of fiat, hard, and crypto currencies. In short, I think QE is the same as John Law effort to demonitize gold but then cryptos broke out - you can inflate values but the market will find a way to make proper measurements. I have started making all price targets in dollars, gold and bitcoin equivalents - when money is mispriced it is hard to know the value of anything and all secular bear markets are the result of a breakdown in the monetary system (greenbacks - bi-metal system - gold standard - Bretton Woods - Quasi-Free float - Crypto) - bear just don't understand how they play (sometime values decline (deflation) (1929-1932), sometimes they inflate (1966-1982) so nominal prices hold but you loose purchasing power, and sometimes you hyperinflate your values go up but you gotta find a better currency (cyrpto).

anonymous writes: 

David Simon made a related point to all this with regard to journalism. (He worked for the Baltimore Sun before writing The Wire.) As seasoned journalists who knew their beat were replaced by cheaper fresh faces who can still write words, skepticism and quality deteriorated.



 TL;DR: Tax-Cuts actually raise tax revenue, especially from wealthy. Increase in debt during Reagan years was Congress outspending the increased revenue, not the effects of the tax-cuts.. Happy to see Sowell writing again.

"Tax Lies for the Gullible":

One of the painful realities of our times is how long a political lie can survive, even after having been disproved years ago, or even generations ago.

A classic example is the phrase "tax cuts for the rich," which is loudly proclaimed by opponents, whenever there is a proposal to reduce tax rates. The current proposal to reduce federal tax rates has revived this phrase, which was disproved by facts, as far back as the 1920s — and by now should be called "tax lies for the gullible."

How is the claim of "tax cuts for the rich" false? Let me count the ways. More important, you can easily check out the facts for yourself with a simple visit to your local public library or, for those more computer-minded, on the internet.

One of the key arguments of those who oppose what they call "tax cuts for the rich" is that the Reagan administration tax cuts led to huge federal government deficits, contrary to "supply side economics" which said that lower tax rates would lead to higher tax revenues.

This reduces the whole issue to a question about facts — and the hard facts are available in many places, including a local public library or on the internet.

The hardest of these hard facts is that the revenues collected from federal income taxes during every year of the Reagan administration were higher than the revenues collected from federal income taxes during any year of any previous administration.

How can that be? Because tax rates and tax revenues are two different things. Tax rates and tax revenues can move in either the same direction or in opposite directions, depending on how the economy responds.

But why should you take my word for it that federal income tax revenues were higher than before during the Reagan administration? Check it out.

Official statistics are available in many places. The easiest way to find those statistics is to go look at a copy of the annual "Economic Report of the President." It doesn't have to be the latest Report under President Trump. It can be a Report from any administration, from the Obama administration all the way back to the administration of the elder George Bush.

Each annual "Economic Report of the President" has the history of federal revenues and expenditures, going back for decades. And that is just one of the places where you can get this data. The truth is readily available, if you want it. But, if you are satisfied with political rhetoric, so be it.

Before we turn to the question of "the rich," let's first understand the implications of higher income tax revenues after income tax rates were cut during the Reagan administration.

That should have put an end to the talk about how lower tax rates reduce government revenues and therefore tax cuts need to be "paid for" or else there will be rising deficits. There were in fact rising deficits in the 1980s, but that was due to spending that outran even the rising tax revenues.

Congress does the spending, and there is no amount of money that Congress cannot outspend.

As for "the rich," higher-income taxpayers paid more — repeat, more tax revenues into the federal treasury under the lower tax rates than they had under the previous higher tax rates. That happened not only during the Reagan administration, but also during the Coolidge administration and the Kennedy administration before Reagan, and under the G.W. Bush administration after Reagan. All these administrations cut tax rates and received higher tax revenues than before.

More than that, "the rich" not only paid higher total tax revenues after the so-called "tax cuts for the rich," they also paid a higher percentage of all tax revenues afterwards. Data on this can be found in a number of places, including documented sources listed in my monograph titled "'Trickle Down' Theory and 'Tax Cuts for the Rich.'"

As a source more congenial to some, a front-page story in The New York Times on July 9, 2006 — during the Bush 43 administration — reported, "An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year." Expectations, of course, are in the eye of the beholder.

Stefan Jovanovich writes: 

With defenders like Sowell, "conservatives" don't need any enemies. Tax cuts don't raise revenue; how could they? You said that taxes would be "cut". As Sowell finally explains, marginal Tax RATE cuts raise revenues. But they do so precisely because they do reward the rich. That reward is the price to be paid for making the country as a whole richer. To pretend otherwise is fatuous.

Lower marginal tax rates work because they reduce the incentives to cheat, especially for the rich. If you are only saving a few hundred basis points, there is very little reason to pay your lawyers to do tax planning - er, legally cheat. If the return is thousands (basis points on your overall tax rate, not dollars), that is an entirely different matter. The Reagan tax rate cuts were effective precisely because they gave the rich a reprieve from the Ford-Carter reforms that had made the high marginal tax rates real. Throughout the 50s and 60s the Roosevelt era Rates of Socialist confiscation had been invisibly moderated by the wonderful loophole of non-recourse financing tat the 54 Act allowed. But that all changed with the 1976 Act - which brought Venezuelan tax rates to bear and persuaded some of the rich to ignore their lawyers and play audit roulette by committing outright fraud. 



 Bridgewater just published Dalio’s 61 page treatise on Populism.

In summary, populism is…

• Power to the common man

• Through the tactic of attacking the establishment, the elites, and the powerful

• Brought about by wealth and opportunity gaps, xenophobia, and people being fed up with government not working effectively, which leads to:

• The emergence of the strong leader to serve the common man and make the system run more efficiently

• Protectionism

• Nationalism

• Militarism

• Greater conflict, and

• Greater attempts to influence or control the media

Stefan Jovanovich writes: 

“In the period between the two great wars (1920s-1930s) most countries were swept away by populism” has to be one of the great howlers of all time.

The political parties and leaders which held and gained power in Britain, France, Italy, Germany, Austria, Hungary, Romania, Greece, Spain, Portugal, Belgium, the Netherlands, Finland, and Poland were all dominated by imperialists whose policies assumed that the nation took priority and that acquiring greater territory was the ultimate goal of warfare itself. There were exceptions among leaders and nations - Leon Blum, the Czechs, the Norwegians, the Swiss and Swedes; but these people had no control over events.

Mr. Dalio should stick to counting his and other people’s money and leave history to us paupers.



“Your own man” lives by Jeff Greenfield regarding Sessions. Politics aside, I chuckled at the eternal NYC playground rules as seen on DailySpec forever and still believe in myself.

Stefan Jovanovich writes: 

Jeff Sessions had no choice if there is going to be even a pretense of “legality”. He cannot investigate himself any more than Senator Cruz could pretend that he was a natural born citizen; a person cannot, under the common law, be the only person who examines his own testimony.

What Mr. Greenfield has not considered is the fact that, having recused himself, the Attorney General is now free to order his deputies to make a complete investigation of “foreign influences on the Presidential campaign of 2016″. He can insist that the scope of the investigation be as broad as possible in order to remove any chance of bias or favor to him.

The Watergate investigation worked precisely because Nixon and his fools for lawyers kept trying to limit the scope of the investigation and thereby narrowed it to only the Watergate burglary. Senator Sessions is not a fool; neither is the President, at least where litigation is concerned. Senator Schumer may want to investigate “the Russians”; the actual investigation will be sufficiently broad that the Democrats will wish the Senator had kept his NY playground smarts to himself.



Two Professors at the University of Washington are developing a course based on BS detection. The syllabus has some useful reading in the links.

Mr. Isomorphisms writes: 

I'm skeptical that professors can teach students how to recognize bullshit. This used to go under the name "critical thinking", which is what liberal education has claimed to teach for a long time.

Education levels are now higher than ever before; is there less bullshit or better critical thinking about it, than in decades past when education levels were lower? Why not?

And why is "big data", among all other bullshit, such a powerful buzzword today?

The Decline & Fall of IBM by R X Cringely has partially answered my questions about why a former economic keystone has abandoned all reason and now churns out cognitive "analytics", which I'm sure we can all agree does not make sense or exist.

"IBM tells the customer what to do, not the other way around" is Cringely's description of the dancing elephant. A partial answer to the obvious follow-up questions is that (as Herb Simon noted 50 years ago) the dynamics of large organizations/ teams are what drive output, not "market" forces as normally construed. Your promotion does not depend on whether the customer likes your work, but whether your boss's boss does. "Cognitive" and "behavioural" are good signals of bullshit.

It's fairly clear to me why Facebook and Google are funding the big-data-analytics-machine-learning movements: They're monopolists with large ad revenues and special share classes; they don't get punished by their shareholders for weird hires (eg, Ray Kurzweil).

There is a compelling case for the self-driving lorry, but really Google X is doing whatever it wants; that one or more of the blue-sky projects could theoretically benefit shareholders at some point is not the reason any of them are funded.

IBM, FB, and GOOG then hire academics who otherwise have no useful skills out of their universities, thus driving demand for machine-learning academics. Since (unlike in traditional scholarship–say the study of pre-Islamic poetry in the Arabian peninsula) having written good papers is less important to GOOG than the ability to commit clear code, and since their screening process is itself derived from academic bullshit (whiteboard exams asking about algorithms & data structures), they create demand for bullshitters with certain characteristics– a pipeline of demand for big-data machine-learning bullshit. See Laszlo Bock in the NYT or Steve Yegge on his blog almost a decade ago. These do not work — but the questions are already written, and everyone else is doing it. That's my personal theory.

Further questions:

- how does university-professor recruitment like the above differ from other examples of industrial research over time — Xerox PARC, Bell Labs, JPL, Salomon, etc?

- when will this all end?

- what will the HBR write about next?

- what "actually" teaches people to think critically?

- are science and mathematics classes antithetical to critical thinking? (I notice mathematicians are incredibly bad at critical thinking. Pascal made a related comment in his 1664 memoirs. Further comments could link Soviet scientism to poor critical thinking skills.)

- why did "big data" and "algorithms" (literally translated: ways of doing things) catch on among all the other kinds of bullshit in this particular zeitgeist? (My answer: we live in a scientistic age where money and technology have replaced religion's former role, eg in providing moral guidance– see for example the prelude to "The Right to be Lazy" )

Pepper White's interesting book Learning to Think at MIT recounts that interaction with industry is what "makes" M.I.T. a success. Though engineering companies may be bullshitting themselves in this requirement, asking for a higher degree before an experienced engineer can move up in the company drives experienced engineers into M.I.T. as they try to skill up, brand themselves, and raise their salary.

The contact between professors and managers-to-be is what brings real-world knowledge into M.I.T., as well as research money/contracts to do real inventive work for major engineering firms, when the master students do get those management roles.

So, another question:

- why is the interaction between "silicon valley" (broadly construed) and academia leading to "productive" interchange? This book –out of a university press, P.U.P.– mentions a 1982 essay and I'm sure, besides Orwell's famous essay on political bullshit, we can find innumerable screeds against lying and bombast going back as far as we would like.

A salient feature of the analysis of bullshit, to me, is that Universities do put out some of the most informed, solid, truthful, and well-researched books, as well as the bullshit everyone is surely familiar with, be it from finance academics, machine-learning academics, or cultural theorists.

It would be too easy and quite wrong to say that business professors, ML professors, economists, or cultural-theory professors are full of shit–even though we can observe credible causal mechanisms and a wealth of examples of people holding such posts, who are routinely full of shit. The answer has to be more complex.

Orson Terrill writes: 

Isomorphisms asked what teaches critical thinking skills. Rigorous symbolic logic with all the proofs, like that seen in any solid discrete mathematics course, and a hard study into philosophical logic, which has much of the same content, but without flowing into set theory, and instead has a hard look at fallacious thinking via the many fallacies.

Isomorphisms replies:

A distinction between "broad logic" and proofs is an important one. Most mathematicians lack common sense (logicians and PLT theorists even more so), and most forms of argument have not been formalised within logic. For example centuries passed between St Anselm's ontological argument and Gödel's formalisation of it within modal logic. Lawvere, an avowed communist, attempted to formalise Hegel over a century after Hegel's death. If you want to argue that proofs make one wise, you'll have to contend
with the inventor of category-theory's communistic views.

The people who impress me with their critical thinking ability often display a study of history (not necessarily a college major or war buff). Some professional anthropologists–Lumonier, Malinowski, Chagnon–have impressed me with their critical thinking. (Although of course academics of any stripe often get sucked into their irrelevant peer-only backwaters. Anthropologist backwaters just happen to be leftward of business professors'.)

Method acting, like art crit, subjects the student to painful critiques of their performance. To advance a thesis, it seems like hitting people where they care–their religion (philosophy class), their pocketbook (trading), their creativity (art & acting)–making them see they were wrong where it really mattered–may be part of the key to improving students' critical thinking. The things that students don't care about–their required essay about some boring book, a proof of a fact/about an object they never inquired about–don't seem to have any impact on the core person.



Can anyone point me to research regarding Futures settlement price vs closing price and subsequent returns in a volatile market environment? I would like to see if settlement is more important (due to margin) during periods of high volatility which I foresee over the next few weeks. I'll try some back of the envelope tests over the weekend.

Bill Rafter writes: 

We have tested many possible prices for importance with regard to generating signals (e.g. momentum, sentiment, etc.). In reality the only price you can guarantee for testing execution in retrospect is the settlement (subject to slippage), followed by the opening (greater slippage). But for signal-generating capability we tested highs, lows, midranges, etc. We also tested subsets, such as the ability of using lows to indicate up/down, vs. highs to indicate up/down. Nothing beats the settlement. Specific to your question, if the settlement differs from the last sale, take the settlement. "There's a reason why it is the settlement."

With regard to stocks we also tried VWAP. Same conclusion.

We also tested to see if the futures settlement influenced cash, or the opposite. In virtually all cases the futures dictated to cash. That conclusion suggests that cash can be manipulated by some clever futures transactions, which of course has happened. Certain markets were famous for it (eggs comes to mind). Anyone who has ever manipulated a market will tell you that you wait until the end of the day and pick your spots (i.e. low liquidity).

If however you are doing some "fuzzy" work, you might explore using something other than the settlement or close. That is, suppose you just needed a qualification as to whether a market was "up" or "down", without regard to actual changes. Consider the following: "The market was up all day, but closed slightly lower." Was it up or down and how do you code for that? This is not esoteric BS; it makes a difference.

The above is the benefit of our own testing. I am not aware of any academic work in this area. It seems too mundane a topic. A cash v. futures settlement thesis might be interesting but the conclusion would be anti-flexion and we know how that would be perceived.

Larry Williams writes: 

Hold on…

In reality data providers have something they call the closing price. That's what we get when the market closes and that stays in our data until about an hour and a half, sometimes two hours, after the markets open in the afternoon when they change the closing price to the settlement price.

You have to be very careful because there can be a wide difference between the closing price and the settlement price. Unfortunately we don't have the settlement price until after the market is open when we have already begun trading. So most trading systems are developed using the official settlement price because that's what is in the historic data but for signal tonight after the market closed we don't get the settlement price until after trading has begun.

Whoever said the life of a trader is an easy one did not look into closing prices.



 If memory holds, home runs are a bullish market indicator and for 2016 we are on record pace right before the All-Star break. Congrats to the Orioles for breaking the June record for team homers. At this rate they could become the all-time HR team beating the late 90s Mariners.

Just as media-chatter of the league's dominant pitching and the ill-effects of the defensive fielding 'Shift' on game play, the ever changing cycles come back to roost.

Ball go far: Hitters mashing home runs at near record pace

Happy and safe 4th to all!



Any injection of liquidity will look like a feeble effort by a central bank to fight off speculators.  The engineers of this one will claim it is inflationary if they can make their gold go higher.
It was impressive that even though the odds were so close for the brexit vote, that the money with more to move behind it was so lopsided on the wrong side. The engineers fooled those folks watching the gambling sites and BP curves while betting on their historic success rates.
Since this was the most bet upon political item in European history, it is likely it will move around for a while so that the winners are not determined yet.  Max pain is needed for the other side.

Paul Marino writes: 

I'm sure the pound drop has helped but still stronger than I would have expected. Along the lines of the Chair's French Revolution rally during the guillotine days. 



 Tesla's bid for Solar City should be interesting. SCTY is up 20%. I wonder if Chanos will roll his short over to Tesla.

Gordon Haave writes: 

It's impossible to know which companies shareholders are getting screwed, but with this massive conflict of interest where neither board can really expect to be acting faithfully, you can be assured that one of the companies' shareholders is getting a raw deal.

anonymous writes: 

Hypothetically, if SCTY was an Enron, then was this not a masterstroke in staying off the regulators? If there were no public shareholder or lender losers then there is nobody who is going to sue. They all got paid out at a premium. That action was far cheaper than a defense Musk would have had to have worked to defend his main entity. He paid cheap early without settling with regulators or losing his reputation. He also looks to have hurt the man who had it in for him.

Now Musk can turn around and sue for not knowing what he just bought and recoup some of the premium he paid. That will pay his costs when the shorts go after him again. He gained time and space.

Maybe the Chairman figured it right that shorting is a losing game that will lead to an early grave. Musk's server will not have email on it but Solarcity's will. I doubt you can sue for shortsale profits that you did not rightfully earn due to Musk's actions. There will have to be a roll as suggested.

Paul Marino writes: 

The lesson for me is to not short bad credits like SCTY during a bull market in playgrounds where billionaires like Musk play unless you have Chanos' AUM.

anonymous writes: 

I think the lesson should be "don't bet against those with fat wallets". The short game is not one about logic or company earnings, but about supply and demand for outstanding shares. A few years ago we saw a similar scenario play out between those shorting OPK and Phillip Frost, a very wealthy majority owner of OPK. Frost won.



Here are the 25 companies in the S&P 500 that are domiciled outside US, from DB research. It's interesting to see future performance vs. the rest of S&P and if the new tax inversion laws have any traction in tampering future gains. I quickly looked at the charts and didn't see anything immediate aside from Allergan's deal breakdown.



I solicit DailySpec members to write one interpretation of the phrase "ever changing cycles". Let's see what gets compiled.

My favorite one line description of what ever changing cycles are reflected most in is that the correlations of no contracts remain the same, they keep changing and often in gradual non erratic "tendency". (No please don't kill me, I didn't use the equally vague word 'trend', but only said tendency).

I also request, our generous host, the chairman of the list, and the one who coined the phrase ever changing cycles, helps elicit as many responses as he can and then shares with us his own notion of the mystical ever changing cycles.

Gibbons Burke writes: 

Two words: random walk. 

anonymous writes: 

Are the cycles ever changing?

I'm not certain, I think the cycles are always there but they get accentuated from one time to another. It is what causes them that is the great mystery which has caused me to pound my head into the wall many times late at night. That helps, occasionally I get a glimpse of something going on that is causing this.

However no clarity yet on that point.

Paul Marino writes: 

Mr. Mac, the most practical thing that you ever did in your life would be to shut yourself up for three months and read twelve hours a day at the annals of crime. Everything comes in circles – even Professor Moriarty. Jonathan Wild was the hidden force of the London criminals, to whom he sold his brains and his organization on a fifteen per cent commission. The old wheelturns, and the same spoke comes up. It's all been done before and will be again.

- Sherlock Holmes

The Valley of Fear
, Arthur Conan Doyle

I see ever changing cycles inside the big cycles, demographics, interest rate regimes, etc.

The President of the Old Speculator's Club writes: 

The inability of law enforcement to police the streets effectively provided Wild with the perfect conditions in which to build his new business. Victims of theft generally had little chance of getting back what was stolen from them, let alone catching the thief. Through Wild's new service, however, owners of lost or stolen property could apply to him for help in recovering their possessions for a fee that fell below what it would cost them to replace the objects. His business proved to be extremely popular.

Wild benefited from this policy by collecting a fee every time he was able to prosecute a criminal. His office, then, essentially served as the de facto "Scotland Yard" of the day. Jonathan Wild, the man supposedly responsible for clearing the streets of criminals, was in point of fact the head of a vast criminal empire and a well-oiled criminal machine. Wild's Lost Property Office was actually a clearinghouse for stolen goods that members of his own organized gang had themselves acquired. The thieves he apprehended, supposedly for the good of the community, were fall guys; they either belonged to rival gangs, or were members of his own gang who had tried to double-cross him, quit his business, or ceased to be more valuable than the 40-pound reward given by the government for capturing and convicting a criminal.

This new [Transportation] Act gave judges the option of removing felons from the streets and jails without having to take away their lives in the process. As a side benefit, the Act seemed to offer help with the American colonies' desperate need for cheap labor. Settlers in America faced the problem of securing labor at a cheap enough price for them to grow their businesses, mainly because anyone who had sufficient means to make the trip overseas from Great Britain to start a new business in America had no intention of working for anyone else…convict transportation killed two birds with one stone: It rid the Isles of unwanted criminals and provided cheap labor for the American colonies.

A provision in the draft of his Transportation Act aimed specifically at curtailing Wild's organized criminal activities. This provision made it a crime for anyone to take a reward for returning stolen goods to their owner without at the same time capturing and giving evidence against the thief. Failure to turn in the criminal could subject the person taking the reward to the same punishment as the thief, assuming the latter was ever caught. This provision was so clearly aimed at Wild that the Transportation Act also became known as "The Jonathan Wild Act."

Since the Transportation Act made it a crime to collect a reward for returning stolen goods without turning in the perpetrator as well, Wild shielded himself by using transported convicts to return stolen goods and collect the reward from their owners. Returned convicts not only provided Wild with protection from the provision in the Transportation Act aimed directly at him, but if they ever tried to betray him, he could easily turn them in for a large reward, and they would receive an automatic death sentence.

From Bound with an Iron Chain (The Untold Story of How the British Transported 50,000 Convicts to Colonial America) by Anthony Vaver



 When I was a young man I had all the boldness to be a great trader, but was lacking in skill, tools and talents, yet I made some pretty serious money at this trading stuff.

Now as an older man with skills, talents and tools, I find the easy money is more difficult to come by.

Boldness usually trumps brilliance is the best answer I have to this.

Jim Sogi writes: 

Before when you had nothing to lose, it was easier, because you could only gain. When you have more to lose and less time to make it up, it feels different. Also, weren't you smarter and didn't you know more when you were younger? I know I was, or at least thought so at the time. Part of it is never having failed. It takes a couple failures to show you, oh, yeah, maybe I'm not so lucky and not as smart as I thought.

Gary Phillips writes: 

I remember Cher telling Barbabra Walters in an interview, that there was nothing positive about getting older. However when it comes to trading, the one advantage to being old(er) is that one has a long-term perspective of the markets. Now in my fifth decade of trading I have come to the conclusion that it is not boldness that trumps brilliance but creativity. Einstein himself placed much more emphasis on intuition, imagination, and a "feeling for the order lying behind the appearance" than intellect. Trading opportunity mean different things to different people, but over the years these opportunities have adapted to current market conditions and paradigms. Information technology and the internet has accelerated that process dramatically. Information is no longer arcane; it's on 0 Hedge, Twitter, ad infinitum. Ironically, the repetitive dissemination of information renders it uninformative.

Paul Marino writes: 

I've found the market mistress is at her flowering best by making enough small players a lot of money quickly to keep itself going with fresh meat through wall street bar lore (now internet) like the 25 yrd old analyst who made $60k on GOOG options on earnings day, after buying them three days prior for $3k, etc.

To really be in the mix daily at any level for a long time and survive puts one in the highest echelon like most on this list. To gain the great heights of the the likes of the Palindrome you need a survival instinct on par with the highest of humans. I have read that Soros would exit a big position if it gave him a lower backache which was his pivot point to survival.

I get a neck pinched nerve type feeling like I slept wrong and that is my body's stress sign to me that there is too much information to digest to make a rationale decision so just fold and reload.

Survive. You're of the fittest just reading this.

Gibbons Burke writes: 

In the words of the venerable John Hill of Futures Truth, with a classic North Carolina twang in the saying of it: "No speculator dies rich. A trader who dies rich has died before his time."

Larry Williams writes: 

I so disagree with John on this point. Lots of speculators went to the great mystery wealthy, and at the right time.

Speculators are not losers. Gamblers, thrill chasers and rest of that ilk pose as speculators but are no such thing.

Gibbons Burke replies: 

I agree, but could not pass on the opportunity to quote John, whom I admire. His delivery of that line is classic, and still rings in my ears.

My contribution, which is similar to your point, is this rule of thumb for distinguishing a spec from a plunger: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.

That is, a gambler, consciously or not, willingly plays a game he knows is stacked against him, so at some level he is willing to lose his stake. His rewards for doing so are non-monetary. Specs are more mercenary. They do not play a game where they have no reasonable positive expectation before they place the bet. They play to win, but sometimes pay the price of risk.

Boris Simonder writes: 

Perhaps it was just "easier" to make it as trader back then, quite a different landscape from now. If you lacked the skills, how does boldness explain that you made serious money, or differently put, at what point was it not pure luck as oppose to boldness?

Rocky Humbert adds:

Methinks that there are at least two different questions here. The first is whether the markets have gotten more difficult over the past 30-odd years. The second is whether a particular individual's ability to harvest market opportunities improves/declines with age.

It is plausible that the declining abundance of "easy" market opportunities resembles the world records in sports.  Sports records show asymptotic declines. This is conjecture and cannot be easily tested.

As to an individual's abilities, there is no doubt in MY mind that is less "easy money" today than 30-odd years ago. For example, 30 years ago, trading the bond/futures basis/switch and the gold carry trade (vs libor) and the backend tender arbs were all "easy" ways to earn decent returns without taking much (if any) risk. These trades are long gone and nothing has taken their place that is accessible to someone with just a phone and a calculator.

Additionally, 30 years ago, the risk free rate was ~8 percent. Hence one had 800 basis points with which to buy optionality without risking permanent capital. The implied volatilities of assets were not much different then than today. So that 8% was "free money" to a speculator. With the risk free rate at 0 percent today, EVERY trade requires risking permanent capital. I believe that this makes speculation more difficult psychologically, if not also practically. (Academic economists will highlight several flaws in this theory. But that doesn't mean it's wrong.)



 As the baseball playoffs begin next week with teams still alive or at least home field advantage being at stake this late in the year, I've considered what makes a good team or player over a period of time or a season. The colloquial term for the highest talent is known as a 5 Tool Player. This is a position player (non-pitcher) who possesses singular athletic and intellectual talent allowing them to hit above average, hit for power, run for speed (in the field and running basses) and the more defensive attributes, throwing arm and fielding.

I see today that MLB's statistical team has found the 8 five tool players for this season. It is a simplified yet seemingly important way to view a period of time arbitrarily. As they state:

"Let's lay out the rules. We identified the following five Statcast™ thresholds as stand-ins for the five traditional tools, and sorted by only the players who have had at least three qualified recorded data points in each of the five areas. That's not the same as being above average for an entire season, but that's not the point; we want to see the players who are blessed with the capability to do these things at all, and three times over six months didn't seem too much to ask."

Hitting: Batting exit velocity of ≥ 110 mph

Hitting for power: Home run distance of ≥ 425 feet

Fielding: Route efficiency of ≥ 98 percent

Throwing: Throws of ≥ 85 mph

Running: Top baserunning speed of ≥ 21 mph

The Statcast™ "Five Tool Players

Mike Trout

Andrew McCutchen

Carlos Gomez

Yoenis Cespedes

Lorenzo Cain

Hunter Pence

Ian Desmond

Marcell Ozuna

I disagree with certain aspects of what they were measuring. Exit velocity seems more tied to power than straight hitting but I digress. This rationale seems important for viewing individual markets and the speculator population.

What traits create the Five Tool Speculator?



Commodity fallout has put a lot of pressure on Glencore recently. Their CDS spreads have widened greatly over the past few months.

For the spec-listers who are of the commodity bent, how may this distress affect commodities?

Not that Glencore is involved, but when Lumber hits a 52wk low Thursday and new home sales were up 5.7% in August, released on the same day, I wonder if company specific problems are causing the dislocation.

Of course China is slowing. But I am more interested in Glencore.



 I remember the 80s real estate boom. There were systems for buying no money down. Flipping real estate. There were 10% months. People leveraged investments. People bought with balloon payments. Then Volcker started tightening. Imagine having Treasuries at 14%. Lots and lots of people went bust, got caught. Lots of foreclosures. No more financing. No one could refinance at 17-24%. The long term average interest over the millennia is something like 4-6%. The cycles are very long. The Fed tightening cycles continue for quite while.

Paul Marino writes: 

This was from March but has stuck with me since and sort of guides my thoughts on rates. Basically, Bernanke doesn't expect the Fed Funds rate to rise back to its historical average of 4% in his lifetime. That is a long time at low rates and basically non-existent inflation for that to occur.

"At big-ticket dinners, a blunt Bernanke sounds theme of low rates"



Paddy Power, the Irish/UK bookmaker, has their current odds for the 16 election. With Hillary leading at evens odds and presumably she will stay close to this over the next year when will market participants react to her beating the drum on raising short term capital gains and how may that play out to benefit flexions and DC real estate in the guise of wealth redistribution?

anonymous writes: 

Stock Trader's Almanac 2016 sneak preview:

ONLY SIX ELECTION YEAR DECLINES GREATER THAN 5% SINCE 1896 Presidential election years are the second best performing year of the four-year cycle, producing losses of greater than 5% in only six of those thirty years. Incumbent parties lost power in five of those years. Five losses occurred at the end of the second term. FDR defeated Hoover in 1932 and was re-elected to an unprecedented third term as WWII ravaged Europe. Election year 2016 marks the end of the incumbent party’s second term, increasing the probabilities of a weak year.



 "James Simons Interview- Numberphile"

He changed his profession because of the St. Louis distributor.

Charles Pennington explains:

A helpful colleague alerted me that the business about the "St. Louis distributor" starts around minute 44:00. Short story is that Simons found himself the owner of a computer company of some sort in St. Louis, then was faced with having to have meetings with the "distributor from St. Louis", which he finds distasteful.

Stefan Martinek writes: 

Some interesting parts:

28:30: "Trend is an anomaly in data"

29:30: "There are no elaborate equations, some sophisticated math in the area of the last part – how to min. volatility of the whole"

It would be great to see a track record and run it against some benchmarks.

Paul Marino writes: 

Thanks for the video, Rocky.

Is it bullish or bearish that he wasn't chain smoking cigarettes throughout? Has he quit? I find it fascinating how people smoke when it doesn't compute with their life like doctors, firefighters, billionaires. 

Anatoly Veltman writes: 

It seemed half-way through Jim pulled something out of front pocket, and then (I speculate) came an editorial cut. Is your query due to personal experience? I, for one, wouldn't ask that on this site, although I was awestruck with the same thing in this clip.

I had the good fortune to sit on Jim's right shoulder during a five-hour (you immediately know it was ethnic Russian household) lunch. I was so uncomfortable because I haven't had one puff in 30 years so I asked, "Jim, I thought American males didn't smoke?" Jim didn't take more than two seconds to repartee: "you know, you're right on the whole, but the lower classes still do". Later he was less apologetic: "I just enjoy cigarettes too much to stop". I'm a little dumbfounded in this clip Jim credited his dad with bankrolling his investment debut. Can someone pinpoint the minute Jim commented on Madoff? I missed the sound bite.

Paul Marino writes: 

I had heard that he was a chain smoker for decades, still smoked as of last summer.

Not trying to demoralize him, I smoked for years myself, it is a tough habit to break, but in New York you're surprised by the type of smoker as I had mentioned earlier plus the city's war on tobacco, sugar, etc. At $13 a pack I guess you need to be a billionaire or doctor to afford to smoke these days here. 

anonymous writes: 

You could always tell when Simons was at a math department tea by the smell of cigarette smoke. No Smoking allowed in university buildings, but who is going to tell that to the guy who built the place?



 I was looking at this interesting take on the CAPM as it pertains to mutual funds from Stanford University over the weekend. They used mutual funds for their study but I found it promising that they use a fund's fee changes in the study.

"Assessing Asset Pricing Models Using Revealed Preference"

We propose a new way of testing the validity of an asset pricing model. Instead of following the common practice in the literature which relies on moment conditions related to returns, we use mutual fund capital flow data. Our study is motivated by revealed preference theory: if the asset pricing model under consideration correctly prices risk, then investors must be using it, and must be allocating their money based on that risk model. Consistent with this theory, we find that investors' capital flows in and out of mutual funds does reliably distinguish between asset pricing models. We find that the CAPM outperforms all extensions to model, which implies, given our current level of knowledge, that it is the best method to use to compute the cost of capital of an investment opportunity. Perhaps the most important implication of our paper is that it highlights the usefulness and power of mutual fund data when addressing general asset pricing questions. Mutual fund data provides insights into questions that stock market data cannot. Because the market for mutual funds equilibrates through capital flows instead of prices we can directly observe investors' investment decisions. That allows us to infer their risk preferences from their actions. The observability of these choices and what this implies for investor preferences has remained largely unexplored in the literature.



 As I continue on my arduous journey for selecting and also constantly keeping traders at their A-game, I was wondering if Vic, Brett or others on the list have any experience with how Sports Psychology could be used with Traders.

A competing athlete goes through pretty much the same psychological challenges that a trader goes through…and I was wondering if any research had been done on this subject.

Mental training helps athletes perform more consistently, find the zone more often, keep a winning streak alive, and learn how to think well under pressure. Or, as one sports psychologist put it, mental toughness is "the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances." As psychologists debate the roles of genetics, environment, and learned skills in determining mental toughness, they do agree (along with athletes and coaches) that high levels of mental toughness are associated with athletic prowess and success. In fact, mental toughness (or "grit") may be the defining factor between finishing at the front of the pack and not finishing at all.

Any thoughts from Specs would be welcome.

Victor Niederhoffer writes:

One would turn to Galton as one should on most areas involving human faculty. The key to athletics success is the sports gene. A key to trading success is intelligence. I would also look to the circle of friends, colleagues and influencers that a prospective employee has. Is he benevolent or a hoodoo. Beware of the hoodoo, and stay with the ones that create benefits for those associated with them.

John Netto writes: 

Sushant. I would read Market Mind Games by Denise Shull. It's excellent and will be a nice resource on your journey. Good luck.

anonymous writes: 

Ability to learn from and then put losses behind them. The inevitable mistakes being made are then analyzed, learned from, improvement sought, and then move on without negative baggage and lament about what could have happened.

Longevity. Injury, early retirement, or large losses do not afford one the ability to succeed.

Independent thought. A Zen like ability to follow one's own methodology and ideas in a non-conformist fashion, yet to balance with the ability to absorb appropriate outside information

Simple hard work. The will to stay out on the field longer than anybody else. Think Jerry Rice, Marcus O'Sullivan, Patrick Kane, Michael Jordan. 

Brett Steenbarger writes: 

Frankly I think the best writing on the topic is your account of your racquetball career. I agree that mental toughness is important, but all the toughness and repetition in the world won't be helpful if a person is working on the wrong things. I continue to find that good trading makes for good psychology just as often as the reverse.

Larry Williams writes: 

The mark of all greats is the ability to come back from behind.

Hernan Avella writes: 

From Handbook of Sport Psychology. Gershon et al.

"Personality traits like dispositional self consciousness, reinvestment and trait anxiety have been associated with predictors of performance failure. Research has also demonstrated that giving athletes practice at dealing with the types of attention demands that performance pressure induces can reduce sill failure when the stakes are high. Also, that preventing athletes from acquiring the type of explicit knowledge that pressure may exploit to begin with may also help to quell the negative effects of stress at high levels of performance."

Paul Marino adds: 

I had a long discussion today with my father regarding choosing the humble person over the boisterous kind of person in any of of life's dealings, from the dry cleaner or barber to your doctor or broker. I tend to get less agitated around the humble and have an easier time speaking my mind. If my physician was loud I might not tell him as much about my life and habits as I should. It's what works best for you that counts, like in any system, trading or otherwise. "Know thyself" may be the best known and least used maxim of all time. 



At what point in the day do stocks reverse direction? The Chair mentioned after lunch. In theory it should be when there are more buyers than sellers, or the momentum of buying over whelms the downward pressure of sellers. Traders, like many other organisms, tend to move in herds, or try to follow. Whether it follows through to a reversal, like just now, or whether it is a head fake prelude to further drops is important to distinguish within one's time frame. It is important to catch the turn at the cusp rather than after confirmation when it is probably too late to capitalize efficiently. The data can signal those points in real time but there seem to be about 3 or 4 things or more going on at once in terms of forces at work or data streams to consider and factor in. It seems also to be a computational capacity problem and data flow issue. That's why I've always thought a 3 dimensional approach would be helpful.

The other big problem is to weed out the big trend days and not get caught under the falling knife. One thing I use to try weed out those trend days are the 10:1 updn signals that Marty Zweig talks about as signals, but not in the same way.

Kurt Sprecht writes: 

Untested on my part, but if the morning has been somewhat variable (i.e., no large increase or decrease at the open which holds in a tight range), there often is a reversal during the Eastern time zone lunch hour. My apologies for lack of specificity or corroborating data. 

Paul Marino writes:

My insomniac tendencies have noticed liquidity changes at the 3am euro open for S&P globex. Really starts at 1 am but by 3 is when it gets over 5k volume per 5 minute bars as Europe opens. An anonymous smart speclister had mentioned a couple months back the different openings in the FX throughout the day. I concur and see it in the S&P too. 1 am, 2:30 am, 3 am, 8 am, 9:30 am, 11:00 am, 1:30 pm, 3:50 pm, 4:05 pm, 8:00pm.

Paolo Pezzutti writes:

I find Paul's observation very relevant and I have noticed that at least some of these time of discontinuity have regularities. The activity picks up some minutes before. There may be predictive value in it but likely very short term.

anonymous writes: 

In response to "traders move in herds": You have the herd, yes, but then you have the cliff. More and more "optimal execution" algos for firms running large money are actually designed to spot the short term herd and use that to get into positions in the opposite direction. I'm under the impression that this has become extremely prevalent in equities, and is the main cause of much of the new normal price movement characterized by many traders as having "lack of follow through". I've recently used the understanding of this characteristic in my own design of algos with good success. (I am a discretionary, short-term hedge fund trader and newly turned quant).

anonymous writes: 

There is a lot of variation between markets. As we know, futures and equities are very different beasts. Even between equities there are large distinctions. In the less liquid stocks I like to accumulate intermediate to long term positions in, I have found that the algorithms that exist to exploit small orders (what appears to be Market makers blocking competing orders) and accumulate position algorithms are extraordinarily stupid. The only issue for the trader is, if you note this and take advantage of it systematically, it is almost certain to be some form of criminal act. As we have seen, the manual trader is not allowed to exploit or beat the dumb algos of big firms. One other thing I have found is on certain days it seems that relatively small aggressive orders can change the trend of the day as (it seems) some algos look for others to establish a bottom level that amazingly they then seem to defend and even accumulate from. Note this is not really short term trading stuff, more notes I've made when buying my list of stocks. 

anonymous writes: 

This trader has the questionable habit of buying at the highs and selling at the lows to see what kind of (paper) is around. I've never been able to follow the herd, instead I try to re-direct it in my market.



 A recent post by Tim Melvin noted that Baltimore may be a shit hole, but it's our shit hole. That of many of us on the list. Even if we no longer live there, we identify with it. The glory of Fort McHenry. The commanding of Johns Hopkins. The ignominy of Bankruptcy Tower. The notoriety of Payoff Row. The poverty and lack of hope for a better life in some places in the city. And of course, The Block. Once two blocks (go figure), it's now not even one. Maybe that's the effect of being right next to the police HQ. Add in a dysfunctional education system in the city, the three decades of the departure of industry and the conversion of the town to a bedroom community for DC (in part), and you have a shit hole. I'm sure that some (many?) may contest that conclusion, but try contesting the elements leading me to it.

In the 1960s and early 1970s, if one were to hear a screaming crowd at Memorial Stadium, 33rd Street, Baltimore, chances were good that it was Sunday and the Colts were playing at home. The stadium was usually sold out. It was the era (the "Diner" era—and the Hilltop Diner really did exit, across Reisterstown Road from the Crest Theater—providing relief from the infernal Baltimore summers—and Barcelona Nut Shop) when Colts season tickets were inherited and valued as much as a car or a prized bottle of Lafite or Mouton. It was the golden era for the Orioles, but they did not commandeer the attention, the love the Colts did.

But all of that changed in 1979, specifically June 22, 1979. Edward Bennett Williams had just bought the Os and was complaining about the lack of enthusiasm (and attendance) by the good people of Baltimore. Maybe the team should move to Washington. Lots of interest in DC. and it took forever to drive back to DC. By his chauffeur. The BCPD tailed him once and clocked his trip as 45 minutes, not much more than from York, Pennsylvania (Birdland North) to the Grey Lady of 33rd Street It was the night of the birth of "Orioles Magic," which eventually had an accompanying song (until "You can do magic" replaced it for when relievers entered the game in a tight pitching situation during the early 1980s).

So 1979 wasn't shaping up to be a great year for the Os. Until June 22, 1979. On that night, in the bottom of the ninth, with one on, Doug DeCinces homered to left field. Anyone in the stadium that night will surely remember it. The roar of the crowd was deafening, and the stadium didn't really begin to empty for at least 15-20 minutes after then. Carley Eckman's call (I was listening on a transistor radio, not unusual for someone in the bleachers, not far from the orange and black "Here" flag) was memorable, too. Objective calling of the game flew out the window that moment. The entirety of the Orioles team greeted DeCinces at the plate (for DeCinces, the hit became, at least in part, redemption; it's hard being the position successor to a baseball legend, the "human vacuum cleaner" aka Brooks Robinson), making for an award-winning photo. The next day, a Saturday, that HR was the talk of the town. The following Monday, discussions around the water coolers and over coffee included at least some mention—and often much more—of the HR. 1979 wore on, and the Birds flew high. No one expected much of that team. There were few dominant players, and it was the rare season when Jim Palmer was out of sorts during the season. The World Series that year found the Os against the Pirates, losing in seven games with the final one at home. It was the last time that a visiting team won the series in seven games.

The night of May 29, 2015, also a Friday night, may go down as the renaissance of Orioles Magic. The game was a hard fought pitchers' dual. Gonzalez had pitched a good 8 innings for Baltimore, giving up only one run—earned. Going into the ninth, the score tied, at 1-1, Darren O'Day, a journeyman pitcher who had become the Os middle relief/setup man, came in, proceeded to give up back-to-back hits and promptly loaded the bases with no one out. A situation pregnant for a hit and an RBI to take the lead. But that wasn't the script that was followed on that Friday eve. What followed were two strikeouts and the final out of the inning, a grounder by Elmore to Machado for an unassisted out at third. O'Day had thrown 24 pitches that inning. 24 (or was it 25?). One inning. That's a lot of pitches. For that final out, the crowd was on its feet and the Camden Yards reverberated with cheers and stomps. The bottom of the inning found Os on 1st and 3rd with 2 down. JJ Hardy, an infield specialist with a batting average south of .200 (Orioles faithful will recall Mark Belanger as having somewhat better production at the plate, which isn't saying much), strode to the plate and promptly hit a single to left field. It was all that was needed. Somewhere between 1st and 2nd, after the winning run had been scored, the Os mobbed Hardy as the sellout crowd registered its approval.

The night felt like that of June 22, 1979. One of those days when many in Birdland can recall where they were when DeCinces homered. Will the Magic reappear? The excitement? Hard to say. Let's revisit it in a month. This year's Os are hardly dominant in just about any position on the field, save maybe Zach Britton as a closer. Jimenez is having a good year, and compared with 2014, a great one. But that's about it. And the Os are in 3rd place in the AL East as a result. One game under .500 and one game behind the Yanks. Who ever would have thought that a third of the way through the season the pace would be set by a team one game over .500. At least the Birds have the best home record in the division. So the team has its work cut out for the next three months—not to violate the first rule of holes for the next month as it gets its act together and the, in a reprise of last year's performance—rise to the top.

We've had some discussions recently about the decline of baseball in the US, and yes, the sport has had its troubles. But it's always managed to find a champion and grittily renew its place in the national entertainment firmament. Babe Ruth, Cal Ripken.The sport is shaking off the self-induced haze of the steroid era. And the helicoptering of kids doesn't auger well for a rebirth of the national pastime, which has indeed become passed time. As the country struggles economically with a recession possibly looming over the horizon, with dysfunction in DC and political sex scandals seeming to be the order of the day (I don't recall them being this common, but maybe it's like FDR's wheelchair, no one ever reported them)—the latest being inappropriate touching by the pre-political life former Speaker of the House (does it much matter that it was pre-political life?)—it must have been some serious touching to merit a $3+ million payoff—the country needs to rally around something. As President Snow observed, hope is the only emotion stronger than fear, and while complacency is the rule on Wall Street for the moment, there's some fear being voiced by those with memories of times before ZIRP, of times when interest rates actually ascended, not declined. Memories of the early 1980s. With deflation the concern du jour of the NFL if not the BEA, it may be baseball's time to shine again.

So, in Baltimore, is it Orioles Magic, 2015 edition? We'll see. As for the moment, it's to be savored. Go to war, Miss Agnes! Let's go Os!

Play ball!

Stefan Jovanovich writes: 

This notion of baseball's "decline" is entirely a construct of the Fairness Police. There is now, in fact, far greater "diversity" (sic) among the players of Major League Baseball than there ever has been; the only problem is that the darkest-skinned players are more likely to be Cubans than American blacks. Measured by money paid to the players (baseball, unlike football and basketball and hockey, does not have a hard salary cap), valuations for franchises, television revenues, ticket sales, and concession revenues, these are the best of times. And, regarding the play itself, Buck Showalter is right: "this is the Golden Age". 

Paul Marino writes: 

Here is a great video of the great player for the Buccos, Andrew McCutchen, making some little kids' life last night when playing in San Diego.

Would love to see Pitt make a run at playoffs again, but in a tough division with the best organization in the league St. Louis playing .660 ball, almost a clean + .50bps win % over entire MLB.

anonymous adds: 

I hated the fact that the Giants had to play Pittsburgh for the wild card; they have a wonderful ball park and a really great organization and they are all around good guys. So, clearly the plan for this year is that the Giants beat the Dodgers outright and the Bucs have their wild card game on the road.

Having your loyal fans cheer for you can be a tremendous handicap when it is all or nothing. The Giants have been lucky to be the road team in their "Big Games". The last 4 times they have won the World Series - 1954, 2010,2012,2014 - the deciding game was in the other guys' park. The one time it was at home - 1962 - they lost even though they had Willie McCovey at bat and the winning run on second base and he absolutely smoked the ball - right into the Yankees' second baseman's glove.



 I read a terrible story about why children are abandoning baseball from Forbes based on a WSJ story of same title.

Stefan Jovanovich comments: 

Baseball was never the "default" sport for young children. The ball is damn hard and a good one has always been expensive enough to be worth stealing. It was the sport for "grown-ups" that you could hope to play when you got big enough to keep up. Until then, you would play catch with your family adult (thanks, Mom) and use a tennis or rubber ball to pitch and hit with your neighbor/brother/sister, using the barn/garage for a backstop. It took years of those repetitions before you could even hope to play well enough to keep up with the men and have it actually be baseball. The game flourished in all the places where men played the sport and let children join them. That is why it still flourishes in all the places where men and their children play it together for fun– the American Southeast, the Dominican, Cuba (although that is dying), South Korea, Japan. Little League was baby-sitting and adults pretending to teach the game instead of simply showing how it is done out on the field against each other. 

Paul Marino writes: 

 This story lends no credence to the fact that southern states play baseball year round vs more northern regional leagues and the population disparity between the two. Baseball is a regional sport on all levels, pro on down vs football and basketball which are national sports.

Also, this article makes no reference to global, specifically lat-am baseball which is a religion in places such as Cuba, DR, PR, etc. last I checked Puerto Rico is part of the U.S. Unless they default on their munis. Plus immigration will lead to a generalized balance in players against the author's "the Great Recession no-baby meme" which has had us all feel poor as humans since they state red the meme. I can tell you my family and friends in their 20-30s are having babies, just a little later in life.

The article would have been more relevant to US if distinguishing the lack of African Americans choosing basketball and football over baseball. White kids will always play baseball at one point or another out of love of the sport or parental pressure to do something where you can't get too hurt. 

Stefan Jovanovich replies:

If Paul means that baseball is "regional" in the same sense that hunting/shooting is "regional", I agree. But the notion that "white kids" will play baseball at one point or another because of "love" or "parental pressure to do something where you can't get hurt" seems to me very far off the mark. No one in their right mind "loves" baseball; it is so relentlessly demanding that it has minute-by-minute failures. There is no room for the fantasy of "we are the champions" that football (American and world) and basketball allow. The best teams in baseball have won-loss records that would disqualify them from the Champions League or the basketball or football playoffs; and the home-away advantage is trivial (52-48%) while, in the other sports, it is nearly overwhelming. It is like chess; you either have the addiction or you don't see the point.

None of this says anything about the game's popularity as a spectator sport. People now love going to professional baseball games more than at any time in the past because: (1) compared to basketball and football ticket prices, it is still a very cheap date, (2) it is like visiting the old amusement parks like Elich Gardens - you can stuff yourself silly while walking around and you don't really have to watch the game, and (3) unlike almost all the other public spaces in American cities the parks themselves are not dumps. Coors Field in Denver, which is a delightful place to see a game even if the altitude makes the game itself seem like a parody, is the 3rd oldest baseball park in the country. Only Wrigley and Fenway are older. 

Paul Marino adds: 

I should clarify "love" as in the love a child has for a player and that gets them interested in playing, the other love is the kind I had where I played for 15 years and got into the minutiae of the game over time.



 Yesterday was the anniversary of the tragic 1906 San Francisco Earthquake (Mag: 7.8 EQ)

Dr. Lucy Jones, a USGS Seismologist (@DrLucyJones) tweeted an interesting fact surrounding the aftermath: "The greatest growth [earthquakes] in Los Angeles was the ten year period after the 1906, while San Francisco shrank"

This has my mind racing on trading ideas for testing. If you figure Earthquakes as single financial instrument and SF & LA as two separate markets with similar securities and something like security volatility as earthquake magnitude (my first guess approximation, there are probably better indicators, perhaps security liquidity.) Which of these would you think are worth testing for similar outcomes:

Various Central Banks maneuvers- Perhaps we're seeing it now as the US Fed unwinds and ECB picks up QE.

WTI vs. Brent

S&P vs Dax or UK or Asia

Currencies- take your pick.

Not a commodity expert so hard to decide there. I would consider gold but it seems universal.

Would love to hear of your thoughts and please feel free to call me out for Ballyhoo.

Enjoy your weekends.



anonymous writes: 

 On or about the 8th March this year I posted a piece on the site that may help clarify your initial thinking on what to test.  ( if you want it sent direct to you please advise ).

Amongst much else, there are two types of waves involved.  So called P -  and S - waves.  ( Wikipedia has a reasonable description of both ).

They P waves travel in the direction of the energy propagation whereas the S waves ( or shear waves) travel in a perpendicular fashion.

One starting point is to consider P wave as movements within and between the same type of markets ( SPU, DAX, NIKKEI) and S Waves as subsequent/coincident moves into unrelated markets. 

The key is that P waves show up first on the seismograph. There is no Mount St. Helens eruption without a P wave but there are plenty of P waves without Mount St. Helens eruptions.

One reads much about the precursors to major things/ events/ phenomena.  They almost invariably focus on only one side of the distribution (ie the crash scenario in markets). I believe the trifling ( yet cumulative /additive) information available in research papers should be used for predictions of melt- ups AND melt downs, not merely the downside.

Paul Marino replies: 

Thanks for the quick response, will certainly track down your post. I totally agree with you at the one-sidedness of looking for the crash as opposed to the melt up and its ramifications elsewhere in the system.

I'm looking at it from the SF side where things stabilized and grew and the calling signs for fut growth there were reinforced by the "event" moving along to the other markets. As Vic says a forrest fire clears the underbrush for future growth and a firmer ground.

I see it as a value with growth opportunity in the initially affected area, SF, and not so much looking for future crashes although you could hedge/pair against the trade by going against whomever is along the fault line thereafter as an idea. 

anonymous writes: 

What grew in the 10 years after the San Francisco earthquake (God's work) and fire (largely the work of the stupid U.S. Army) was construction, development and population in Los Angeles, not "earthquakes". Los Angeles largely owes its pre-eminence in California to the effects of that boom and San Francisco's literal downfall. 

Pitt T. Maner III writes: 

Related to the San Francisco discussion, I wonder how the recent dramatic changes in depth to groundwater in some areas of California might change the odds over time.


"Researchers proved that the Hayward Fault, which stretches through largely populated areas in the East Bay as far south as Fremont and as far north as San Pablo Bay at Richmond, actually touches the Calaveras Fault, which runs east of San Jose. There is an estimated 14.3 percent likelihood of a 6.7 magnitude or greater earthquake along the Hayward Fault in the next 30 years and a 7.4 percent chance on the Calaveras Fault, according to the U.S. Geological Survey. "The smooth connection between the two faults means that an earthquake could quite easily break both faults at the same time, making for a substantially bigger and more destructive event," said Roland Burgmann, campus professor of earth and planetary science and co-author of the study. "Deeper in the Earth, we find small earthquakes that clearly define where the connecting fault is.""

2. Average time between ruptures

A interesting list of earthquakes in California



Just as Daily Spec is starting to present financial data in sports-statistic-like terms, Bloomberg has announced that it will use its analysis tools on sports.

Robert Smythe asks:

Can someone explain briefly the chart at the top of the page? What do these numbers mean? USB?

Alex Castaldo says:

These are the price moves in S&P futures and in Bond futures on the given day. (Sorry about the ugly abbreviation USB, the full word US Bonds did not quite fit the allotted space). In each case the nearby futures contract (currently March) is the one we use.

The price change for bonds is quoted in points and thirty-seconds of a point, as is traditional in Bonds. So for example on January 12 bonds rose by 1 point and 20/32, and this is shown as +1.20.

As Paul Marino notes, the whole thing is inspired by sport scorecards that show the recent wins/losses for a team.

The four colors are based on who wins and loses on any given day. A Red ink day is when both Equity and Bond investors lose, while Green is when bond and equity prices both go up. The mixed cases are: a warm orange color when the environment was favorable to those who take equity risk but unfavorable to those who avoid equity risk (i.e. bond investors), a cool blue when stock prices went down and bond prices went up (sometimes called a flight to safety or flight from risk day).

We hope you find our calendar interesting.



Robert L. Bacon lives! As always. Look at how many respectable NFL teams have QBs who didn’t start much in college. Less chance for injury and longterm gains if you have the talent. Joe Flacco, Mark Sanchez, Eli Manning, et. al.

I could expand a little on it; this Sports Illustrated article from Peter King reflects on the subject better than I can. The form is moving.

“I count six passers 25 or younger — Ryan, Flacco, Sanchez, Stafford, Trent Edwards of Buffalo and Green Bay’s Aaron Rodgers — as players with exceedingly bright futures. Ten years ago, the only sure thing under 25 was Peyton Manning … and the draft class of 1999 (Tim Couch, Akili Smith, Donovan McNabb, Daunte Culpepper, Cade McNown, Shaun King) was on track to be awful, even with McNabb and Culpepper in it.

I can think of a few reasons. Colleges are a better incubator for pro quarterbacks today, in part because they’re playing more pro-style spread schemes (and the NFL is copying some college spread stuff too); the NFL is using more shotgun snaps too, and that allows young passers to see the field more clearly on passing downs. There’s also been a lot of cross-pollination between college and pro football recently.”



I often say you can't appreciate one market without taking into consideration the backdrop of impacts and effects of other markets. No better illustration of that than last week's action. Here are some indicia:

TA-25 / VIX tableThus, Tel Aviv 25 broke 1000 and VIX broke 30, both for the first times since Mar 16, a nice four month anniversary.

Oil had its greatest one week drop in history, down $16 from from $145 to $129. Its previous record decline was $9.60 in the week ending Nov 30, 2007.

The S&P had its first up week of the previous seven, after spending the longest time in the last 25 years without a reasonable X day maximum.

Bunds, down 1.27 points on Friday 7/18, had their second greatest decline in history, exceeded only in Dec 2001. Corn dropped 20%, and most other grains and metals fell at least 10% on the week.

In short, there was a complete changing of the guard, and fulfillment of long frustrated dreams across the board. What other highlights did I miss?

Vince Fulco looks at the foreign policy scene:

Speaking qualitatively, if we change the term "frustrated dreams" to "frustrated pursuits", the extreme hardening of Iranian and Western positions the last few weeks with the then bolt from the blue US actions to meet in Geneva over the weekend and establish some base level of diplomatic representation within the country constitute a promising, albeit fragile reversal of trend.

Paul Marino adds:

Much as Vic and Laurel believe Fed members and the like have access to the information three days or so before reports are released, someone, somewhere knew the US would sit down at the table with Iran, albeit briefly and deadlocked. Oil knew of this well ahead of time. 



The White StripesI start out every year in my 401k with 75% S&P Index fund and 25% cash. I wait for major down days to redeploy the rest of my cash. My first five percent buy move was in the February selloff and I'm doing so again this morning. I try to deploy all my cash by year-end. With investment restrictions due to the bank I work for, I am limited in my speculation, but this system has worked well for me over the last five years.

After reading the site for years I'd like to share my favorite song to play on market days like yesterday: We're Going To Be Friends, a great Beatlesque tune by The White Stripes. This song to me represents the greatness of what is around the corner in life and the markets, for those who appreciate the beauty of continued learning. I listen to this during any market downturn. I just can't tell if the market mistress is Suzy Lee or the teacher. Anyway, I am optimistic. 

J.T. Holley adds: 

 The last Friday of the month is 401k day across the land in most plans. Such a sweet day today for the public to enter!

I like to strum a six-string and sing songs to my kids like I was Raffi. But when I have spare time I pretend I'm Jimmy Page. Jack White of the White Stripes is truly a genius, a producer and musician (not just guitar). They don't come along too often like him. He pretty much does all of this on his own, with the help of a single drummer.

Icky Thump is their newest album and the Icky is one of the best singles on the album. Reminds me of Led Zepplin.

White also produced Van Lear Rose for Loretta Lynn a few years back and helped her win a Grammy. Unbelievable, ground-breaking music.


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