Sir Steve Redgrave was one of the best rowers in history. Apart from the amazing fact that he won five Olympic gold medals for Britain in five consecutive Olympics as a endurance athlete, he also won nine world championship gold medals, two silver world medals and two bronze, one at the Worlds and one at the 1988 Seoul Olympics where he doubled up in the coxless and coxed pairs! What a lot of people do not know about Steve is that he was a product of being in the right place at the right time.

Redgrave's first stroke of luck was attending a comprehensive school in Marlow where he was fortunate enough to have an English teacher, Francis Smith, who was a member of the Marlow Rowing Club. Smith invited Redgrave and his three friends to come down to the boat house to try their hand at rowing. Steve, who is dyslexic and, by his own admission, not a good student, excelled at rowing. From the very beginning, his four dominated their competition. At the time, Redgrave, in a single, was so good that he would get bored racing other juniors. To make it more interesting for him, Steve would not actually row full pressure for three quarters of a race, but just paddle down the course, before turning on the burners and blowing away his competition!

The second stroke of luck for Steve was that Marlow was also where rowing coach Mike Spraklen lived. Spraklen is notorious in the rowing world for training his athletes too hard. Redgrave just ate it up! At seventeen, Steve left school and began rowing full time. He was so good he joined the Senior National Sculling Squad who were training out of Spraklen's back garden, which was beside the Thames. Redgrave would have been selected for the 1980 Moscow Olympics had it not been for the Junior rowing selectors insisting that he race at the Junior World Championships held in Hazewinkel, Belgium. They desperately wanted a junior crew from Great Britain to win a medal and Redgrave and his partner, Adam Clift, were odds on favourites to win gold. However, the crew were beaten into second place by an East German boat. Redgrave was so disgusted at his performance he threw his silver medal into the lake!

Over his career, Redgrave continually challenged himself by trying the impossible. For example, he would double up in the coxless and coxed pairs events at the Worlds! Not only would he have to qualify for the event by being the British national champion in both boats, he would also have to race the events back to back at the world championships. On a number of occasions, this meant that as soon as he had raced in one boat, he would have to immediately switch into the other boat, row down to the start and race again, against his rested competition!

It was not all plain sailing for Redgrave during his career, however. Apart from the niggling injuries he had to contend with through out his time as a rower, Steve was diagnosed with ulcerative collitis in 1992 and with diabetes in 1997. Just as he did with his competition, Redgrave was determined to dominate his illnesses and not let them affect his rowing performances. They became part of his "training" that had to be dealt with in order to win.

In retirement, Redgrave has transitioned very well into a motivational speaker and head of various charities. He is an inspiration to those who had the privilege of sharing the river with him and to those who look back at his legacy as an exceptional rower and living legend.

William Weaver responds:

 Good rowers can be considered great only if they have mastered the single. I don't remember if Redgrave won the single at Henley, but I'm more inclined to attribute greatness to oarsmen like Lange, Muller, Kolbe and Karppinen who showed they were not only strong enough, but technically brilliant enough and mentally tough enough, to win the single. The pair is possibly the only shell as technically challenging (if not more so) than the single, but the meat lays with the toughness of being a single sculler.

If you're ever in Philly I'd be happy to host you at Fairmount or Vesper for a row and a beer; both clubs have bars — one great part of rowing in Philadelphia! Just don't visit during the winter — I've done my fair share of rowing in December and January and have suffered from frostbite twice, so I'm done with that!

Chris Cooper says:

 I'm also a rower, though not active at the moment. Did 6:21.6 on the erg at CRASH-B in 2008, which was only 0.7 seconds off the world record for my age group (55-59 HWT), set in the same race. But I'm not very good in my single, having taken up the sport only recently. There's a long learning curve! Last year I convinced my mother to try the erg, and this year she turns 80 and is hoping to set a world record in her new age group, or at least take first place.

I haven't rowed in Philly, but I paddled there for several years on their world-championship dragon boat team, which is composed primarily of ex-rowers. The river is a beautiful place to row or paddle, but only when it isn't freezing.

Sam Humbert observes:

Chris Cooper rocks! His ~6:20 time (in his late 50s!) is equivalent to ~1:35 500m splits. Wow! My 38-yo trainer, who's a longtime weightlifter and quite fit, can do 1:35 for a single 500m — then he's toast. Me, at age 48, and moderately fit, 1:45…



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.



Victor and Laurel have written of their fondness for old books, in part because of their good literary craftsmanship — grammar, usage, vocabulary. Today I read my younger son a comic, Spiderman vs Doctor Doom, from 5 October 1963. I read him old comics often — they're an excellent vocabulary-stretcher for a seven year old, and he stops me several times per page to ask for clarification.

Here are 80 words I pulled from just that single issue:80 words



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.



 I have been reading the autobiography of Marion Davies lately and she has a quote from Hearst that "make sure that the youth like it, and the rest will take care of itself." I am wondering if youth oriented stocks, Google et. al., perform better than others or whether the ratio of price to age of average employees or executives might be a better indicator than P/E. I would be interested in other youth oriented stocks, other than the toy companies, or readers' thoughts on this trickle-up theory. In particular, Hearst didn't like "kissing" in movies, as kids 12 and under hated it, and he especially didn't like it when Marion was involved in such activities in any way, though from a reading of the book, with her giving up her career ultimately so she could take care of the great man, she seems to have been perfect in her role.

Russell Sears replies:

Today I ran a 20k run (12 miles) with an young hopeful marathoner, Jerry Faulkner. He was taking an easy day and I was running hard. He had recently switched coaches an his new coach has him running much higher distances per week, longer hard days, an only picking key dates to race. Much more like I used to do.

After hearing him talk about his training and his coach, it dawned on me why you are seeing a surge of young USA guys finally having a chance at medaling… it's the availability of coaches now. For guys like him, a recent college grad with potential, but an unproven record, living on a shoestring, 20 years ago few coaches were available… When I was starting, comp race entries and free or cheap shoes where available from local specialty running store for the local champs. Now the coaches are seeing the benefit of comping a young local kid with potential, since coaching is bigger business than just schools and colleges. Becoming a personal trainer has gone beyond just the weight lifting guys, obsessed with making a living with what they love. The new coach sees helping the young guys out as their way of staying connected to the action in the sport as well as generating a buzz about their business.

But much credit must be given to the youth of today also… 25 years ago, I would not have thought of inviting a deteriorating 45 year old on a 12 miler… Plus they are much more aggressively seeking those coaching/mentoring relationships than I ever did… Part of why thrived after undergrad school was because I enjoyed calling my own shots in training. But experimenting without supervision often caused me to learn my lessons the hard way… blowing up.

So it may be both: "if the youth like it" is necessary for success but "the rest" have to be part of the potential of the company also.

My hypothesis  is: take the standard deviation of the ages of officers of a company, or the board of a company. I would suggest the CEO if both the CEO/president or chairman of the board age counts twice. Regress this with the standard dev against 3 or 5 year returns and see if they are correlated.

Steve Ellison adds:

This credo appears to be a central operating principle of the advertising industry. Just this week, I received a phone call from a man conducting a survey about television. The first question he asked was my age. It was also the last question he asked. When I responded that I was 46, he said, "Thank you very much for your time." I was not surprised. I already knew that I was an "undesirable demographic".

Sam Humbert complements:

And it's a timeworn idea in ladies' retailing that women will buy clothing aimed at the demographic ten years younger.. Probably there's a Zeno's Paradox in there somewhere.

Steve Leslie extends:

Vic has brilliantly raised a magnificent subject to discuss and debate and I hope that the thread continues onward and upward. As with all stocks, timing is important. With respect to "concept stocks," buys and sells are critical to a speculator's financial success. These are not grind 'em out stocks that move 8-10% a year. You have to be ready to buy and ready to sell. I know it sounds like a cliche but it is imperative here to remember. Even the great Apple was overpriced at $220 but offered value at $120. A good exercise is to examine Apple vs Microsoft and look to the esprit de corp or their raison d'etre for insights. The great thing about Apple is that Jobs came in and had the vision to discern what the consumer wanted. He went outside the box with the iPod. It was the same with the computer, the Apple brand always had the slickest, fastest, coolest best stuff around. But they were not content to sit on the computer. They were looking for more innovative concepts and other worlds to conquer. He listened to what his legion was telling him. Part of the struggle with Microsoft's stock having gone nowhere in five years is that they are now sitting on their dominance with the operating system. Although very profitable, throwing off massive cash, their stock is not embraced like Apple's. They could have done the same or similar things as Apple but did not transcend the culture. An insight into their mindset is their recent attempts to purcase Yahoo. I am totally flummoxed why this deal has not been done. Who's to blame: Yang, Ballmer, Wall Street, the lawyers? The deal may ultimately be done but at what cost? And at what price? Final suggestion: One company that merits study is Garmin, the leader in GPS hardware and software. Much too early to purchase in my view, but that view could change.



Even though Immelman, won this mornings Masters by three strokes it wasn't without a few quick heart beats.

His preshot routine looked a tad nervous through out, however it gave him just what he needed, at a time when maximum anxiety wanted to play with his mind.

The most telling moment for traders however was the lay of his ball after his drive on the 18th fairway. The previous three holes hadnt been kind, and after he drilled one up the middle on the last hole he must of thought the worst was now far behind him, and victory was his. However as is the case more often than not, this is a journey until the the very end, and his ball came to rest( in the middle of the fairway) in a large divot! How his heart must of sank. This Green Jacket and with most outcomes really wanted in life was going to come, if at all, kicking and screaming. Well now the rest is history , he spoke with his caddie, talked about yardage, looked at various shot options, then years of experience held out and he drilled his second shot onto the dance floor, and victory after two regulation puts was his. The comparisons with trading , that is holding risk steady, take smart options and having a well defined pre trade routine are Im sure self evident, but there maybe no better sport to compare with then 18 holes of golf.

…. as I watched it , I thought of the John Dalys of the world, and the OJ Simpsons and believe that it is by far the better option, to not be the most gifted athlete, but be the one who has worked his fingers to the bone every step of the way, and all those life experiences will deliver in the end, and make you in more ways then one, all the better for it.

Sam Humbert adds:

My takeaway was a bit different. Browsing the morning newspaper, the spin was that Tiger had failed — after #11, he coulda/shoulda converted the 'energy' from his birdie into a back-nine run…

From NBC sports:

Even Woods seemed baffled by it all, just as he had been all week. Woods might have been the only player at Augusta National who wanted the wind to blow, but when it, did he couldn't take advantage of it.

This strikes me as analogous to the after-the-fact market commentaries on Bloomberg et. al. that are so often ridiculed by the Specs. In fact, Tiger shot ~5 strokes better than the average of the other leaders on Sunday, and, had he been fewer strokes behind coming into the day, would have been lionized by the media his heroic effort, shooting par on a very tough day, as others crumbled, capped by a clutch put on #18 to seal the victory, yadda yadda. .



CovelThe Complete Turtle Trader: The Legend, the Lessons, the Results: Michael W. Covel, Collins, 2007

Mr Covel needs no introduction to DailySpec readers — he's remarked at length about Chair on his site, and vice versa. A few asides: GM Davies (!) is quoted at length on pg 99 [with attribution to DailySpec]… On pg 102 there's a discussion of quasi-Turtle Lucy Wyatt, who years later found her way to Chair's trading room, and shared some colorful stories about the proclivities of the trend-following greats… The Turtle trading "philosophy" and rules are discussed at length [as they are on the web also]; hint: buy twenty-day highs…

A smattering of highlights (with minor elisions), to give the flavor:

p  17/ Dennis told Willis, "If you're buying wheat and it's strong and the beans are two lower and the wheat is five higher, why don't you sell the soybeans instead of selling the wheat you bought?" It was a very sophisticated insight. In fact, buying "strength" and selling "weakness" short still befuddles investors.

p  18/ Dennis's attributing his height and weight as the reason he was successful is not the full story. There was more to becoming a millionaire by 25 than being "six foot something" and three hundred pounds plus. Even with excess weight, his peers described him as having cat-quick reflexes on the trading floor.

p  27/ Dennis knew the Turtles were "dumb stumps" and that the only reason they bought into everything was because he had made $200m. If he said "On Monday, you will buy the S&P when it's up exactly 35 ticks no matter what," all the Turtles would have gone over a cliff to follow orders. One Turtle said that when a guy has made $200m and he says "You can walk on water," people are going to say "Okay, I can walk on water."

p  45/ To those who saw them up close, Dennis had the capacity to make an observation in an instant that would take someone else weeks of painstaking math to figure out. Even Eckhardt marveled at Dennis's knack to intuitively see "it."

p  48/ One Turtle gushed in awe that Dennis still had the "balls" to execute that trade "when they were dumb, deaf and broke": "They were going the wrong way and for Dennis to just totally cover and totally reverse was amazing."

p 102/ All one Turtle could remember about Lucy Wyatt was that she was always doing her nails. Mike Cavalo said that Wyatt had been Eckhardt's girlfriend.

p 102/ Everyone knew Mondale was Dennis's guy. Dennis started going around the table asking everyone who he was voting for. One by one they all said "Mondale." They were his guests, and he was one of the richest guys around. However, when it was Gordon's turn he said "Gary Hart." Gordon knew he had just upset the trading king of Chicago.

Rich Dennisp 126/ Keefer, who thought Dennis deserved a Nobel Prize for his real-world work in harnessing volatility in his trading models, lamented the allocations aspect of the program: "You've got somebody that's got an awesome trading system and he's following really rigidly good protocols about trend trading, and then he just literally blows it up on asset allocation."

p 129/ It was over. Dennis sent a fax telling the Turtles that the program had been scuttled. Dennis, who was managing money for clients, too, had two public funds with Michael Milken's Drexel Burnham Lambert. They closed down with big losses.

p 130/ Dennis himself simply declared he was retiring. He announced he would move full time into political causes. He wanted to take the wind out of what he thought were efforts to make "liberal" a dirty word.

p 131/ Lawsuits soon followed as former clients in the Drexel funds argued that Dennis had deviated from his own rules. Eventually, US District Judge Milton Pollack agreed to a settlement in which nearly 6,000 investors shared $2.5m and got half of Dennis's trading profits over the next three years. Under the settlement, Dennis and his firms did not admit any wrongdoing.

p 133/ In the book "Market Wizards," author Jack Schwager softened the blow to Dennis's tough times by entitling his chapter "A Legend Retires." Schwager's Dennis chapter became a cult classic.

p 150/ Dennis staged another remarkable comeback. It would take him through most of the 1990s. Many investors were gun-shy about another Dennis comeback. In an effort to allay client fears, he assured everyone that his infamous discretion, his inability to not personally interfere with his own rules, had been eliminated. He said the computer was his new friend.

p 151/ In some ways, Dennis was a technophobe in the middle of the Internet revolution. He always said he could not program.

p 151/ Within a few years, Dennis was out of the game again. On September 29, 2000, Dennis Trading Group ceased trading and liquidated customer accounts. Burt Kozloff, an investor in Dennis's current fund, laid out the painful truth: "Dennis Trading Group was -50% down in June."

p 152/ While it was no solace for Richard Dennis, the moment when clients pulled funds from him in the fall of 2000 was a bottom for trend-following traders. Dennis's clients had panicked at the bottom and paid dearly.

Michael Covel clarifies: 

I did not have the opportunity to speak with Lucy Wyatt for my book, but I have talked with her extensively since its release. "Quasi" seems an incorrect description. She was a Turtle.

Dean Parisian recounts:

X Shaped DeskI was a salesman at Drexel Burnham Lambert in the 1980s and had clients in those RJD funds. The prospectuses put together for the RJD partnerships are to this day, the absolute finest, nicest, best-crafted marketing pieces produced. If ever there was a glossy, colorful marketing brochure this was it! One thing I will take with me to my grave stands out. In one of the calls that Richard Dennis gave to the Drexel brokers as to why his funds were being hammered and shuttered, he said, "the markets were behaving irrationally." Memory tells me they were designed to liquidate at a 50% drawdown and it wasn't more than a few weeks later that the markets he traded the funds in had reversed and skyrocketed upward. Only the lawyers made out big but it was the most equitable general partner / limited partner arrangement we had ever seen. Just another reminder to any brokers pitching partnerships to never forget the old saying, "on day one of a partnership the generals have all the experience and limiteds have all the money, on day two the generals have all the money and the limiteds are left with the experience."

Jim Sogi offers:

Jim SogiThe Complete Turtle Trader by Michael W.Covel is an interesting tale of volatility in the trading and careers of Richard Dennis and his Turtle traders in the thin style of popular financial journalism. Vic and Laurel, Covel and the Turtle traders have had disagreements over the issue of trend following, however, I believe that there is more to the Turtle and Eckhart/Dennis systems than Covel discloses. He seems to have oversimplified the Turtle systems down to the two simple trendfollowing systems S1 and S2, systems that have been disclosed and sold years ago.

I discount those two specific breakout systems — they have not worked in the recent past on equity indices. See Linda Raschke's Turtle Soup pattern. Whether they worked in the mid 1980s I have not tested. Covel's failure to note the systems' failure in equity indices in the recent past and the implication that these systems might still be effective is very unfortunate for poor readers who might be mislead to lose more than they have any right to as a result.

There are more similarities between the Eckhardt/Dennis systems and Vic and Laurel's ideas than many who follow this dispute seem to understand. The similarities of Richard's and Vic's careers are more notable than their differences. Both came from modest backgrounds. Both undertook to give back to the community and to other traders. Both saw huge successes and notable drawdowns. I am struck by the launch to success enjoyed by those mentored by both Richard and Vic.

Richard Dennis used the scientific method, using empirical data and tests of hypothesis with computer models to create trading systems. Reading between the lines, it is apparent that the remaining successful Turtles use other systems and appropriate testing to create trades. Covel misses the significance of this most important point. The Turtles' money management alone might have proven a key element. Unless a system is profitable, money management merely postpones the eventual ruin. However the statistical analysis of money management is a necessary part of proper trading as our friend Dr. McDonnell shows in his excellent book

Steve Leslie writes: 

This encompasses so many things that have been discussed on this site for the years that I have been visiting it. My top ten list of what I learned from Mike Covel's book:

10) Those who are willing can be taught almost anything.
9) Great people want to help others achieve great success.
8) Success in business requires tremendous concentration. Outside distractions must be avoided.
7) Sometimes it is best to leave politics to politicians.
6) Everyone fails at some point in his life. The true winners rebuild after their failures.
5) To put on a trade when everything is going against you requires character and commitment.
4) Rules are rules. Stick to them.
3) Adapt with the times. Be willing to be malleable.
2) Always leave yourself outs. Never commit everything to one position or to one person.

And the number one lesson:

1) The market is bigger, stronger and badder than you. Always respect it for the beast it is.



DailyLit, from David Lamb

February 22, 2008 | 1 Comment

I'm sure many DailySpec readers are familiar with free online "bookstore" DailyLit. Not too many books in there, but free (good) books are always a good thing. For instance, right now I'm reading Random Reminiscences of Men and Events, the autobiography of John D. Rockefeller. I hope he'll allow the reader to get into his great mind.

Sam Humbert adds:

As valuable as the texts: the exegetic notes from earnest readers..

TomM says: One of the good things about Moby Dick is that the chapters are modular — that is, you can read one chapter without have read any of the others (though your appreciation of the plot may be diminished). My vegetarian aunt was thus able to skip the chapters which detail whaling, and which turned her stomach.



The lazy man's Boston weekend family getaway — from my notes, based on a spur-of-the moment trip we took, Friday afternoon to Sunday morning. We did no planning, no driving around town, and almost no walking…

Before leaving, visit Hotwire to pick up a room at the brand-new Intercontinental at the spooky-cheap rate of $129/night. My family decided it was the most splendiferous hotel they'd ever stayed in (and, importantly for my boys, the beds had long cylindrical decorative pillows ideal for pillow fights). The hotel is a shimmering glass palace loaded with granite, limestone, dark wood, brushed metal. High ceilings, posh restaurant, buzzy bar. But beware the $39/night parking charge.

The "waterfront" rooms (facing a ship-channel, at the site of the Boston Tea Party) are costlier, but we loved the evocative (for Ken Smith, anyway, since they face the Federal Reserve tower a block away — would be good inspiration for a graf or two for his site BernakesFed.Com) west-view rooms, which overlook a construction site with lots of heavy earth-moving equipment — free entertainment for the boys, right out the hotel window.

If you check in early enough, visit the Children's Museum — a quick walk across the bridge from the hotel. It's only $1 on Friday nights. Otherwise, visit on Saturday, after a good workout and swim at the Intercontinental's beautiful spa/gym, followed by brunch at Flour Bakery a block from the Museum (or, if Flour is packed, nearby are Finagle-a-Bagel, Au Bon Pain and Panera)

After the Museum (which is well-designed to appeal to kids as old as 10), stop at Barking Crab across the street for an early dinner, before the Saturday night rush. The swordfish with gnocchi is a good bet for the grown-ups, as are the burgers for the kids. Or, if more ambitious and eager to visit a landmark, walk north a few blocks to the Legal Seafood by the Aquarium, or over to Durgin Park.

Optional extension: Saturday (or Friday) night, drive out the Mass Pike a few exits to catch a Harvard ice-hockey game — We saw them beat nationally-ranked Quinnipiac; next weekend they play Yale and Brown.



RonaldI sat down yesterday in the most beautiful McDonald’s in the world, having entered only because I heard a gringa step out saying so. I ordered a large fry for a buck and padded past the McInternet stations to a one acre, indoor, open-sky garden replete with flowers, birds and, of course, a seven-foot Ronald McDonald sitting on a wood bench in Antigua, Guatemala. He is a statue perhaps because the place is so stunning. I sat next to him and between fries got to thinking about individuality within modern travel stacked up to the old ways, my heyday in the 80s and 90s, when I ventured for 6 -18 months at a time and eventually combed the globe. In those pioneer days, I went streamline under a daypack, wore one set of clothes into the cold shower to launder, and was forever fidgety about what lay around the next bend, traveling as a lone wolf.

However, in the past six weeks of vagabonding Central America, I’ve tripped across two other such travelers, a Dutchman programmer who’s visited 100 countries, and a handicapped Asian gentleman on the Latin road for a year. They are pretty much the only first-world humans I’ve spoken with in six weeks, though I glanced up at hundreds more such as those stuffing their faces around Ronald. The new brand of tourist lugs heavy suitcases on wheels along a string of destinations recommended by the Lonely Planet guidebooks, making ant trails around the Earth. They enjoy repeated comforts and speak of the next cold beer and hot shower. I thought only the USA was becoming effeminized but have learned in the past month-and-half that it’s true for the entire first-world youth. They are passive, emote rather than think, travel in romantic pairs, and shoal when possible. They prefer socializing to reading, s-x to learning, emotion to thought, and speak in low lisping voices. The reasons for this shift in psyche over two decades, I think, are the consent to psychology and sensation. The bitter cures are objectivity and travel as in the old days.

Sam Humbert adds:

A related oddity: In Timisoara, Romania, the only remaining artifact of the 1989 Revolution is the damage visible above the McDonalds on Piata Victoriei in the town center.

A revolution in Romanian city sightseeing

We walk through Piata Victoriei (..) Above McDonald’s is a spray of bullet holes; one bullet went through the window of the apartment of Adela’s friend Corina and punctured a paperback book. (..)



Lion KingKnowledge in the past was passed by the senior members of communities to the younger generations in a slow and steady flow of traditions, experience, culture.

This role is less and less evident in the Western world today. Parents and grandparents tend to lead their life getting the most out of it for their own pleasure and satisfaction. I sense less dedication and commitment to transmit the famil'sy and the society's values to the next generations. I do not intend to be negative. It is a change, however, that is impacting our lifestyle and it is caused (at the same time) by our life style. Both parents go to work to make ends meet and/or to fulfill their expectations. They may not have enough time to dedicate. Children and teenagers have started to make use of the network to find answers to questions. Usable knowledge may comes from a virtual (but real) mass of humans who interact and share information through chats and blogs. Some blog the most private details of their youth writing very personal diaries to get some type of support from unknown readers. Also children have started to live their virtual life in the network. Virtual characters websites are an example.

Values proposed as the basis of the interaction are those of the website developer. Values are also broadcast by the latest TV series on the fanciest TV channel. Media are powerful vehicles to develop knowledge through sharing of information, but the direction in which knowledge and education is developed has to be based on values, that cannot be provided by the network or a TV channel. It has to be based on something more individual than global, more private than public. Family members cannot and must not be replaced in this role. The family must fulfill a role that is given by given by mother nature. As a father, I wish I were able to transfer to my girls the best part of myself, as a man.

I wish to transmit the story of our family, what my dreams were when I was a child and what has become of them now.

I wish to let them understand my mistakes and how we can learn from them. I wish to share with them my hopes and future endeavors.

I wish to discuss with them what I see right for their future.

I wish to observe them and help them exploit their talent.

I wish to help them be happy about their life and positive.

I wish to learn and understand their personality and to respect them.

I wish to invest my time in their future.

I wish to try and answer their questions. As they grow up, I expect these questions to become more and more difficult.

It needs preparation, it needs commitment, it needs love.

This is what I wish for next year.

Sam Humbert extends:

Old Grand-dadI got to thinking about Dr. Pezzutti's wise words yesterday, on my daily constitutional, in this case through a 200ish acre woodland park a few miles from my house (Vic and Laurel have written often of the benefits of a quiet walk-in-the-woods, and I've taken their sage advice).

Since I'm in the woods often, I've discovered all the local teenage drinking/smoking hideaways. Yesterday I noticed with dismay, at one of these gathering-spots, a bottle of Bacardi Razz — a fruit-flavored rum-based product that tastes like flavored cough-syrup. I can't imagine voluntarily drinking this stuff.

For how many generations past, in affluent Fairfield County, have the underaged sneaked off with a bottle of Early Times or Old Grand-dad (or other dignified, respectable drink) to indulge in the timeless ritual? And where are their parents now, to educate them about what is meet and right?

Frank Corberts advises:

Sam, I can only conclude by your narrative that you, in fact, tasted from the bottle of Bacardi Razz that you found at said party spot. Are you in the habit of sampling random liquors found in the wilderness? If so, I believe that some bars may offer the dreck of unfinished beverages for a man of your distinction. You may wish to thank your stars that the teens had not substituted some more nefarious mixture in the bottle — say, Green Dragon.



In my postal mail today I noticed an incoming holiday card with a stamp — "real postage" printed at home, bearing an image supplied by the sender. A cute idea, as an alternative to photo holiday cards. It's a bit late this year, but I'll try it next December.



NinjaNinja Warrior, a Japanese television show, was playing incessantly on one of the cable channels when we were in the Caribbean a couple of weeks ago. Great fun for both kids & adults. Contenders (some of them real athletes, Olympians & etc.) try to scramble across an obstacle course without falling into the moat below, while a breathless hysterical announcer (whose comments are printed as subtitles, in a sort of ESL English) encourages and heckles them. To get the flavor, run the "Top 5 Wipeouts" clip on the site.

Michael Ott adds:

My favorite show along that vein is Most Extreme Elimination Challenge (MXC), which airs on Spike TV.  It's an old Japanese show that has been re-dubbed by comedians who make fun of the participants.  They come up with hilarious names and preposterous occupations while the contestants do ridiculous stunts.  It's a fun way to waste half an hour. My favorite contestant name is Mahatma Running Bear, who is half Indian and half Indian.



Absolute Perfection of CrimeThe Absolute Perfection of Crime by Tanguy Viel, New Press, 2002

I'll leave the final judgment to Tim Melvin, SpecList crime-novel expert (and my copy is on its way to him), but I had great fun with this Americanesque noir novella from a rising young French author.

Viel sets this story of a small-time crime family in an unnamed coastal city (one might guess Marseilles, though the author is from Nantes). "Uncle," the aging Don, on his last legs, agrees to a plan presented by Marin, the leader of the next generation of the family, to knock off the Casino. It's a "bigger" job than the clan has tried before, but Marin convinces Uncle it's foolproof, the "absolute perfection of crime." The book is narrated by Marin's reluctant sidekick for the heist.

Of course, something is bound to go wrong, and it does. In the ensuing chaos the characters' specific agendas come to the fore, each against all. The final chapters wrap up the loose ends, as events, many of them cleverly foreshadowed earlier, converge.

A snippet –

Soon, Uncle insisted, you'll wake up rich, proud and happy. And the word "casino" was churning through our guts, at Uncle's place, in the car, across the bridge, back at Marin's, that phantom idea behind my narrowed eyes and grimly set lips, because it wasn't for us, the casino, not for the likes of us. People like us, Marin, we operated a notch lower.

Well, maybe we were wiseguys, maybe there was something frightening in our faces, and maybe at one time people in the city were scared of us, of our criminal expertise, our black jackets, maybe we could have kept cruising the shady neighborhoods grabbing any dirty money left lying around, but one thing was certain: the casino — the only way to deal with that was to drive by with our heads down.

As for escaping it, though, we knew we might as well buy a ticket for Argentina, when we'd already said yes through our silence, according to the time-honored rule in the family whereby a shut trap was a signature on the dotted line…



There have been comments from analysts recently about changing correlations, for example, this from Morgan Stanley:

US Equity Derivative Strategy
Getting the Best and Worst of Correlation
October 09, 2007
By Peter Polanskyj, Christopher Metli

Correlation between sectors remains high: Correlation among the various sectors of the S&P 500 remains elevated on average, although off the peaks of late August/early September. Among sectors, recent short-term relationships have in some cases differed meaningfully from longer-term relationships.

Correlations among single stocks within specific sectors are a mixed bag: Several sectors have seen correlations among their constituents drop to relatively low levels, including Healthcare, Food/Beverage/Tobacco, Technology, Media, Software, Consumer Services and Food/Staples Retailing. Several sectors have continued to be highly correlated on an absolute and relative basis. Financials are prominent in that landscape.. Full text

Three years ago, Dr. Castaldo commented that changes in correlation may relate to changes in volatility, due to technical reasons and not to changes in the underlying stochastic process. More recently, an article by Harry Kat at City College of London referred to some of the same research around changes in correlation.

In the spirit of "know your tools" (and correlation is an important tool), these three papers seem most often cited:

Pitfalls In Tests For Changes In Correlations

Brian H. Boyer, Michael S. Gibson and Mico Loretan

Evaluating "correlation breakdowns" during periods of market volatility [pdf]

Mico Loretan and William B English

No Contagion, Only Interdependence: Measuring Stock Market Co-Movements [pdf]

Kristin Forbes, Roberto Rigobon

Boyer, Gibson, Loretan (BGL) make algebraic and empirical arguments. They create two randomly-generated series, x and y, with a correlation coefficient p : 0<p<1, and show that the correlation coefficient of a subsample of the two series is proportional to the overall p, as the variance of the subsample is proportional to the overall variance of x. That is, as the volatility of x increases, so does correlation between x and y. Here is a graph that is one take on the overall argument. The graph shows how both volatility (measured as sd of x) and correlation vary together over two randomly-generated and positively-correlated series (x and y).

Bruno Ombreux adds:

I have been reading generalist books on statistics written by biostatisticians and social scientists. As a rule, they don't like correlation coefficients. Since these coefficients are symmetric/non-causal, they are useless in advancing scientific knowledge.

In finance too, some people don't like correlation coefficients. See for instance these two articles by Embrechts and Alexander [pdf] . They are making points that are in addition to the ones in the links you kindly provided. Some issues are very ivory-towerish: elliptical distributions or joint covariance stationnarity. Others are more down to Earth: extremes creating "ghost effects" in coefficient estimation.

Anyway, the consensus is that correlation coefficients are not a panacea. Actually, it is better not to use them. If one absolutely wants to use them, rank correlation is not as bad as linear correlation. I feel the first article is dismissing rank correlation a bit too fast on the grounds that analytical complexity hinders further mathematical derivations.

What to use instead of correlation? Both articles are promoting their modern alternative pet method for measuring dependencies (copulas and cointegration, respectively). I prefer instead to follow the social scientists' suggestion and build regression models. The nice thing with regression is that assumptions are clear and easy to check. When assumptions are violated, there is a whole slew of more complicated regressions that can be applied.

Phil McDonnell suggests:

To use regression instead of correlation is misguided. They are the same! After all the square of rho is the same as R^2 from the regression.

Bruno Ombreux counters:

Yes, but isn't there more information in regression than in correlation? R-squared only gives the proportion of Y explained by X. The regression coefficients together with their standard errors add more information.

In addition, correlation is symmetric: cor(X,Y) = cor (Y,X). X and Y are playing the same role in regard to any possible explanation or causality. Whereas the regression of Y against X is not the same as the regression of X against Y. These are two regressions lines with different slopes. These create a difference between X and Y, there is an explained variable and an explaining variable. Then adding a time dimension one can introduce causality, like Granger causality .

I think that regression contains correlation but it is not the same concept.  Regression is a procedure that examines a number of different statistics, checks residuals, reformulates the equation if necessary.

Sam Humbert comments:

Another correlation quirk, from Rene Carmona, "Statistical Analysis of Financial Data in S-Plus" Springer-Verlag 2004, pg 99:

"Problem 2.4 This elementary exercise is intended to give an example showing that lack of correlation does not necessarily mean independence!"

Carmona defines X as N(0,1) and shows that Y, a simple function of abs(X) (thus entirely determined by X) with mean 0, variance 1, is uncorrelated with X.

A did a quick R-script to demonstrate; every run will have a slightly different result, but X and Y are always ~0 correlated -

X<- rnorm(100000)

Y<- (abs(X)-sqrt(2/pi))/(sqrt(1-(2/pi)))


mean(X); mean(Y)

var(X); var(Y)


Sample run -

> X<- rnorm(100000)

> Y<- (abs(X)-sqrt(2/pi))/(sqrt(1-(2/pi)))

> cbind(X,Y)[1:10,]

X           Y

[1,] -0.7878436 -0.01665691

[2,] -0.4779746 -0.53069754

[3,]  1.3390446  0.89772859

[4,]  0.3362482 -0.76580698

[5,]  1.3081312  0.84644648

[6,]  1.1859110  0.64369580

[7,] -1.6717642  1.44967611

[8,] -0.3082874 -0.81219113

[9,]  0.5582608 -0.39751106

[10,] -0.2235637 -0.95273902

> mean(X); mean(Y)

[1] 0.001646453

[1] -0.00657469

> var(X); var(Y)

[1] 0.9952368

[1] 1.004244

> cor(X,Y)

[1] -0.001873391


Also, Carmona does a good job of introducing the copula (mentioned in Dr Ombreux's post) as a generalized correlation, and, earlier in the book, nicely motivates kernel density estimation as a generalized histogram, a tool for exploratory data analysis.

At an S-Plus seminar I attended 7ish years ago, Carmona, one of the instructors, spent much time on the copula. Soon afterward, the concept became "famous" via the work of Dr Li  and others.




"Leading Change ," John Kotter, HBS Press 1996

 I'm not an enthusiast/ connoisseur of business books, and have little basis for comparison of one versus another, but "Leading Change" came highly recommended to me, so I gave it a read, and found it well worth the time.The book is breezy/ PowerPointy in format. Kotter outlines his "Eight-Stage Process" for initiating and executing radical change in ossified organizations,

  1.  Establishing a Sense of Urgency
  2.  Creating the Guiding Coalition
  3.  Developing a Vision and Strategy
  4.  Communicating the Change Vision
  5.  Empowering Employees for Broad_Based Action
  6.  Generating Short-Term Wins
  7.  Consolidating Gains and Producing More Change
  8.  Anchoring New Approaches in the Culture

A few memorable/critical points from some of these,

1\ A sense of urgency is critical, to overcome the gravitational pull of inertia, complacency, comfort-zone, ain't-broke-don't-fix. Most change initiative fail at this early stage, because the urgency of change isn't broadly understood.

2\ A guiding coalition must include top decision-makers. Often initiatives are turned over to internal visionaries/ young Turks, or outside consultants who lack the gravitas to force through painful but necessary decisions, and to keep the organization focused.

4\ The change-vision must be communicated relentlessly. A few mentions, or even a few dozen, in the company newsletter or similar channels is insufficient. The key metric is: what percentage of all communication, including day-to-day, involves the change-vision?

6\ A multi-year change-vision won't succeed without small victories every month/ quarter/ year. Lack of visible successes will open the door for office-politicians/ obstructionists/ revanchists to badmouth and undercut the change-initiators.

Also Kotter frequently discusses "management" versus "leadership", which he's written about elsewhere. Roughly speaking, "management" is about the situation as of 2007, "leadership" about what can/ should be the situation in 2012.

I've seen Kotter's change-initiation dynamics play out over the past 2- 3 years in the experiences of a friend who sought to change each of three different organizations in which he was active: a for-profit firm, a non-profit, and a civic group.

One of his initiatives was a success; the urgent need for change was well-communicated, leadership got on board, and the organization is now much stronger. Another was mixed — some progress, jury is still out. The third was a failure; complacency wasn't replaced by urgency, the change-vision was under-communicated, top leadership never truly signed on — and the organization disintegrated.

All in all, a good, fast read, and one of those books that offers some possibly life-changing bullet points.



CanadaCanada dollar at parity with $US… Lots of products, such as books, have the price listed in $US and $Canadian, based on old exchange rates. Buy products in US, rent van, take them to Canada, return them. Rinse and repeat. Consumer goods arbitrage increases market efficiency by forcing producers to stop being silly about their pricing.

Jason Schroeder adds:

eBay is a Canadian's best friend. Of course, the customs dudes are profiting from that arbitrage themselves. Getting goods across the border is taking a rather long time. Getting packages from the UK, on the other hand, is faster than in country.

Gabe Carbone remarks:

There was a topic paper done by the economist at one of the Canadian banks in the past couple months on this. He listed off the top goods with arbitrage opportunities.

Sam Humbert extends:

A cross-pond arb I stumbled on: I bought a copy (UK version) of "The Seven-day Weekend: A Better Way to Work in the 21st Century" by Ricardo Semler, for a couple of dollars at a yard sale, and have been skimming it. I was curious to see how its AMZN reviews looked, so I checked AMZN/US, and was surprised to find the book is rare and valuable,

6 used & new available from $66.46

Then I noticed that at AMZN/UK, it's a penny + shipping,

58 used & new available from £0.01

A project for Prof. Haave: Buy all 58 UK copies and eBay them in the US..



 By reading the biographies of great people, I learn much about how our world has been shaped, gain insights into how they thought, and through this find avenues for self-improvement.

My favoritie biography is Memories of My Life by Francis Galton, and no matter how many times I read it, I always come away more thoughtful, amused, and creative. Above all, there is a feeling of calmness and awe that comes from knowing that a person of his genius, wisdom and versatility actually existed. Galton wrote this biography at the age of 86 and it is as fresh to me as Tom Sawyer.

In broad outline, it shows the development of his contributions in the fields of geography, medicine, meteorology, photography, electricity, anthropology, psychology, statistics, heredity, and forensics. Some of his most notable contributions include the invention of correlation and regression, weather map composite photography, fingerprinting techniques, twin studies (in eugenics and genetics), and a handheld heliostat for signalling over long distances.

Almost every page of Galton's book has an example of one of his ingenious inventions, contributions, or observations on life. His insights are so great and his interests so broad that almost anyone who reads the biography will come away wanting to follow up and re-examine some insights that Galton gave that are applicable to his or her field.

I will concentrate on some insights I gained into the markets:

1) The influence of rhythm. Galton writes about the influence of rhythmic gestures in creating mass behavior, after noting how famous preachers and politicians of his day were able to influence people by personal (vocal) ascendancy. He offers the story of a college classmate who with the mere movement of a glass was able to drive assembled students into an ecstasy of enthusiam. He concludes that:

"Human senses when rhythimically stimulated by certain exact cadences are capable of eliciting overwhelming emotions not yet sufficiently investigated."

I find that market practicioners when stimulated by certain opinion leaders can fall into similar overwhelming emotions. The stimulation is heightened by the rhythmic movement in prices that accompanies the gestures. Since there are innumerable influences on markets, and an emotional reaction to one opinion leader or another is likely to lead to excess, the job of the market practicioner is to find when the rhythmic movements have run their course, and then profit by the excess of enthusiasm.

2) Positions of stability. Galton was the first to systematize the use of finger prints, as a note in the book from Bertillon confirms. Galton writes that there are quantum differences in the patterns that fingerprints show, that are similar to the different genera in nature. He notes that these patterns could not have come from natural selection but must have come from internal conditions of the structures in the hand. He generalizes the finding as such:

"The number of positions of stability in each genus must be limited, There are limits which if they can be overpassed without disaster would require a new position of stability."

He points out the analogy of the quantum leaps in fingerprints between leaps and whorls and relates it to the question of the importance of mutations versus small improvments in the theory of evolution, and he points out that these questions also arise in the fieldd of glaciers, which are formed by a succession of refreezing and crunches… in other words by successive conditions of stability of state.

What are the levels of stability in markets that correspond to these refreezings and crunches? Laurel and I have often proposed that round numbers often are positions of stability to which markets tend to move with inordinate frequency. I beleve this holds true for the 100s in the Dow Jones, the 10s in the S&P, and the previous close in any market. By testing the paths that markets take when near these numbers, we can develop insights into when disaster or equilibrium is more likely.

3) The influence of Visionaries. Galton notes that there are always visionaries subjected to fantasies that have no place in the real world. Usually the visionaries are laughed at or subjected to reality checks that discredit them:

"When popular opinion is of a matter of fact kind, the seers keep quiet as they dont want to be thought mad. But let the tide of opinion change, and grow favorable to supernaturalism, then the seers of vision come to the fore."

Most of the market visionaries in ordinary times are subject to a similar process of reality and discredit. Those who constantly posit a big decline in stocks, are subjected to the reality of the 10% a year drift over the last 100 years, but let a month or two come along with a decline, and these visionaries come out of their lairs with all reasonable safeguards broken.

SlicerNo discussion of anything written by Galton is complete without remarks on the ingenuity and sagacity that leaps out of everything that Galton touches. On one page you can find his index of boredom, measured by counting the number of fidgets, and on another a contrivance for sending telegraphic signals through the use of needles mounted on each other. Other pages include a discussion of how to divide prizes among the top three contestants in a competition, how to cut a round cake on scientific principals, or a way of measuring how horses gallop. The appendix of the book enumerates 192 of Galton's inventions and papers and offers an overview of how he developed most of them.

Memories of My Life has a freshness and decency of spirit, and is an illustration of how amazing and creative the human mind can be. It has insights into most scholarly fields, and advice and examples of living a good life on almost every page. I highly recommend it as a source of rejuvenation and growth, and as a reminder of how far the human mind can travel.

Pitt T. Maner III adds:

The collected published works by Galton are available at Also, according to Wikipedia, Terman estimated Galton had an I.Q. near 200, or about as high as it gets. How would he have fared in today's academic environment? A free thinker such as he would be quite controversial nowadays, Victorian England's somehow being more accepting of individual genius and eccentricities. 

Vitaliy N. Katsenelson notes:

Google allows you to download the book for free. Here is why: "It has survived long enough for the copyright to expire and the book to enter the public domain. A public domain book is one that was never subject to copyright or whose legal copyright term has expired." On the top right-hand side click "Download PDF" ( 8.5mb) and you are ready to go. Thank you, Google!

Sam Humbert notices:

Nass#m Tal#b discusses Galton, The Bl#ck Sw#n, pg. 244 –

Sir Francis Galton, Charles Darwin's first cousin and Erasmus Darwin's grandson, was perhaps, along with his cousin, the one of the last independent gentlemen scientists — a category that also included Lord Cavendish, Lord Kelvin, Ludwig Wittgenstein (in his own way), and to some extent, our uberphilosopher Bertrand Russell. Although John Maynard Keynes was not quite in that category, his thinking epitomizes it. Galton lived in the Victorian era when heirs and persons of leisure could, among other choices, such as horseback riding or hunting, become thinkers, scientists, or (for those less gifted) politicians. There is much to be wistful about in that era: the authenticity of someone doing science for science's sake, without direct career motivations.

Unfortunately, doing science for the love of knowledge does not necessarily mean you will head in the right direction. Upon encountering and absorbing the "normal" distribution, Galton fell in love with it. He was said to have exclaimed that if the Greeks had known about it, they would have deified it. His enthusiasm may have contributed to the prevalence of the use of the Gaussian.

Galton was blessed with no mathematical baggage, but he had a rare obsession with measurement. He did not know about the law of large numbers, but rediscovered it from the the data itself. He built the quincunx, a pinball machine that shows the development of the bell curve. True, Galton applied the bell curve to areas like genetics and heredity, in which its use was justified. But his enthusiasm helped thrust nascent statistical methods into social issues.

Denis Vako extends:

Another confirmation of the positive linear growth rate in economic activities of civilizations can be found in the works of Fomenko, whose main conclusion was that there never was such a thing as the dark ages, lost civilizations, abrupt destruction of technological and material achievements and there never existed an age of barbarians or renaissance. The history of human civilization, Fomenko indicates, is the positive linear growth from one invention to another, with one discovery on top of another, it is an almost evolutionary process, always onwards and upwards.

Hence I propose that the 10% drift was not only for the last 200 years, but rather at least for the last 800 years as covered by Fomenko.

Steve Ellison adds:

I am not familiar with Fomenko's books, but I just started reading The Renaissance by Paul Johnson. Mr. Johnson says that much more innovation occurred in the Middle Ages than in the Roman Empire. The Romans had many slaves and resisted labor-saving advancements because they feared unemployment and social unrest would result. Conversely, medieval Europe had a shortage of manpower as Christianity phased out slavery. The Black Death made the labor shortage more acute. There was great incentive to develop and deploy labor-saving technology. Many watermills and windmills were built. Medieval mariners, lacking Roman galley slaves, greatly improved sail designs, making possible larger ships that could sail much greater distances.

"Thus in the later Middle Ages, wealth was being produced in greater quantities than ever before in history" (p. 13).

Denis Vako comments:

I have never read Mr. Johnson, but at a first glance this paragraph looks a little too smooth and ideal. Renaissance, black death, middle ages these are interesting titles … but on my second thought may be they relate to real history as much as bear or bull markets labels relate to the market?

Does one really know at the time if there is a bull or bear market?

Presumably we now have better decision making tools than throughout history — databases and computing power to process and categorize knowledge — and yet the only answer we can give to the above question is no, one does not know for sure! But we can say what it was after the fact, right? — July and August was a bear market in stocks.

but then someone may justly ask: a bear market for whom?

Isn't it strange that now, in the present, after the fact, with all those great tools, it is not easy to define what really happened in the market in July and August, yet when it comes to history it is all so clear?

Suppose the market goes up 100% over the next 5 years, then July-August will be called "a minor interruption of galloping bull market"; if the market goes sideways perhaps it will be named "the beginning of maturing top formation"; and yet if it falls 50% it will be named "the start of the vicious bear market."

Anatoliy Fomenko concentrates first on time: he shows the difficulties and limits, and the proofs by calculation, based on planetary movements, then instead of 'feel good' story telling and emotions, he goes for logistics of language, weapons, fighting methods, writing style, coinage, prices and taxes, dress, burials, transport, communications, food and food supplies, buildings and building tools, climate, terrain.

He said that essencially all history is re-written from original chronicles … many of which have vital parts missing.

On mass infectious diseases he says that

"Once it was determined that people were dying from an epidemic, they were entirely exterminated in their localities by the army — all killed to save the healthy, as medical preventive injections and quarantine as we know it now was not known back then, the decision was made simply to kill."

Why the hoax, why the fake and cuo bono of historians? He indicates that too.




This is comforting!

Years back, I worked with Monroe Traders, but they didn't do mortgages (although I see they do now — I'd assumed they perished along with Quotron and Telerate). We needed "yield books," which were slowly replaced by mainframe computers…

Sam Humbert adds:

Hard to imagine why anyone would buy a machine such as the Trader II that's hard-wired for certain security parameters, given that Wall Street is forever manufacturing new-and-improved products. Wonder who their target market is — clearly not bulge bracket or hedge funds.



Iron WorksCouple of BBQ spots in Texas, from a recent quickie trip:

Goode Company BBQ in Houston was essentially unchanged from my last visit 20ish years ago. Get in line, grab a Lone Star or two from the ice chest, make your way to the counter, rattle off your meat and sides order as fast as you can, get your plate of food 15 seconds later, grab a slice of pecan pie, check out, walk outside to the picnic tables. I got brisket, and the wife/kids chicken. This is what we always order; the kids don't especially like BBQ, and at best they'll nibble on a drumstick. Brisket was good, not extraordinary. Sides were tasty. My wife rated the pecan pie the best she'd had.

In recent years Goode has morphed into a casual dining empire; on the same block on Kirby is now found Goode Taqueria, which features TexMex, burgers and a few grilled entrees. Like Goode Company BBQ, it was bustling with locals. My family actually liked it better than the BBQ restaurant, especially when the manager graciously replaced the cheeseburger and fries my seven-year-old dropped on the floor. I ordered the pork chop, which was fantastic, big, tender, juicy, fresh off the grill.

Goode also runs a seafood house, but I didn't get to it.

In Austin we visited Iron Works, on the south edge of downtown. It proudly proclaims itself Dubbya's favorite BBQ spot (as attested by wall-mounted notes to the owner from the then-Governor). Tough to imagine a restaurant back home in bluestate USA boasting of an endorsement by Dubbya. The restaurant in housed in the former workshop of Fortunat Weigl, a well-known (and widely collected) ironworker. We got in just before the rush, and ordered the same spread as at Goode Company, with much the same result: good, not extraordinary, brisket, reasonably good chicken, tasty sides.

Austin locals told me The Salt Lick, southwest of the city, was a must-visit, but regrettably I didn't have time.

Cole Walton writes:

Being a native Houstonian and fellow BBQ lover, I feel qualified to comment. First of all, Goode Company is decent, but in recent years has become a little too commercial/touristy for my taste. Your wife is correct — the pecan pie is by far the best item on the menu, followed by the chopped beef sandwich.

On your next trip to Houston, I recommend stopping by Luling City Market on Richmond right off 610 for a big helping of their brisket and potato salad. Make sure to slab a bunch of sauce on your brisket because nothing beats the homemade BBQ sauce Luling serves up out of old Tabasco jars.

Also, for the best ribs in town, try Pizzitola’s BBQ on N. Shepherd. Hands down, this eatery, founded by former Aggie Jerry Pizzitola, serves up the best ribs in town. If you go later in the day, make sure to reserve a banana pudding right when you sit down. Rumor has it they are made fresh every day by Jerry’s mom. Homemade or not, I guarantee it will be some of the best banana pudding you have ever tasted.



PatrickI learned a new trick that can be used by retailers on eBay this week. They ask you for feedback on the transaction, including in their note that 'we will do the same for you.' So you may not like how the transaction went but may avoid commenting because of the possibility of getting vengeful comments back from them. Another issue is in whether it's worth returning items which cost very little. It's really not worth the postage, packaging and hassle of returning low cost items.

So I figure that with more expensive items people are more likely to return them and complain. What this probably means is that the ratings for retailers who sell only low cost items may be positively biased. So it's probably worth checking the average price of their entire shop before buying anything.

Sam Humbert replies:

There's a time-limit (90 days, last I checked) after which eBay won't accept feedback. So if you're eager to flame a seller, send the negative feedback (90 days - 5 seconds) after the transaction. The seller won't be able to retaliate.

Also, you can use the Toolhaus site, or a browser plug-in, to quickly display only the seller's negative/neutral feedback. That's all you really care about anyway.

East Sider notices:

Speaking of eBay: Two on the aisle, $1.8m to open!

Mike Desaulniers explains:

Don't laugh! That parking is two blocks from the Delano. Vintage BMW drivers take note!



Vegetarian skeuomorphy — e.g. "Tofurky Roast" — why? Aren't vegetarians at peace with vegetables qua vegetables?

Laurence Glazier observes:

One assumes the aliens observing us still fear the cooking pot should they send missionaries.

James Wisdom writes:

It’s also a question of texture — while the whole vegetable universe certainly offers a wide variety of textures, many vegetarians still posses a yen for a meaty texture to masticate. Tofurky in particular has a certain chewy texture that no vegetable can imitate.

There’s an all-vegan Chinese restaurant in our neighborhood that features a huge variety of faux meat with varying results. We’ve had meat-eaters to the restaurant who have been literally amazed by the Pepper “Steak” and the “Pork” in the Hot & Sour Soup. But I must admit that the “Shrimp” Toast is a far cry from even faux crabmeat.

Furthermore, some flavors aren’t a great match for veggies — the one that comes to mind is “Buffalo” - both Boca and Morningstar have faux-chicken products that feature “Buffalo” flavoring (one nuggets, the other a patty) which are personal favorites. Perhaps I lack creativity but it’s hard to imagine “Buffalo Eggplant” or “Buffalo Corn”.

Mr. Albert replies:

As a long-time vegetarian, I am usually satisfied with non-meat food not looking like meat. But occasionally, especially at BBQs, with hamburgers and hotdogs, I want to eat what everyone else is eating and especially to partake in all the fixings. So at these times, I'll want a veggie burger or tofu dog.
That said, tofurky has always seemed extreme and too ersatz to be good. But who knows, maybe they captured to dryness of turkey perfectly. 

Scott Brooks explains:

TurkeyProper turkey is not dry — it is succulent and moist and the favor explodes with each bite!
It's all in the feeding, gathering, handling, preparation, accoutrements.

By the way, think about this logically for a minute: Turkeys eat vegetables and we eat turkeys — therefore, turkeys are simply a great delivery system for vegetables. Since we've cleared that up, you can go back to eating meat now! You can thank me later.
Feeding: Put out good food plots, with lots of clover and alfalfa for the turkeys as well as milo, soybeans, and corn. That will provide lots of nutrition for the birds and also attract bugs, which turkeys love to eat.

Gathering: I'll make this simple:
Me: Cluck, cluck.
Turkey: Gobble.
Me: Cluck, cluck.
Turkey: Gobble.
Me: Bang!
Handling: Grab the bird, throw him in your knapsack. Go behind my Morton Building, take a sharp knife, cut the breast skin away and peel it back. Carve out the breast meat. Take it inside and wash it in cold water to remove feathers, dirt, etc.
Preparation: Cut it into small very thin pieces and let it marinade in a balsamic garlic mixture for a few hours. Heat up a wok. Put butter in the wok. Add balsamic vinegar, garlic, and onion powder. Throw in the thin strips and quickly remove them just before they are finished. If you've sliced them thin enough, they will continue to cook on the cooling plate.
Accoutrements: Fresh corn on the cob. A tomato, red onion, crumbled bleu cheese salad covered with balsamic vinegar. Add the fresh fish your kids caught that morning from your pond, fried up in corn meal. Make cheesy mash potatoes.
Dig in! That meal will cure anyone afflicted with vegetarianism!



1915 DodgeAt the farm-market in Greenfield Hill today, a restored 1915 Dodge pulled up, and as the wife browsed the corn and tomatoes, hubby gave our family a quick tour of the car.

What struck me was how close the user-interface is to today's. Gear selection was via a floor-mounted shift-lever on the driver's right, with gears 1-3 and reverse in an H-pattern. The gas/brake/clutch petals were arranged right-to-left on the floor. Steering was via a hand-controlled wheel. Round tick-marked analog gauges indicated speed, RPMs, electrical current, oil pressure.

Essentially, today's UI is unchanged from this setup (excepting the automatic transmission, popular with Californians who need a free hand for the cell phone). The driver of a 1915 Dodge could step into a modern auto, nearly 100 years later, and operate it immediately.

When I remarked on this, the owner told me that in the years just before 1915, there was widespread experimentation with user-interfaces in the auto industry, and the 1915 Dodge's layout was the design that "stuck."

The QWERTY keyboard comes to mind as a parallel. And I wonder if the computer GUIs of 100 years hence will still involve overlapping windows, icons of running programs at the bottom, pulldown menus at the top, left-click to select, right-click for context menus…

Arthur Cooper adds:

The experimentation period is illustrated by the autos in the collection of the National Auto Museum in Reno NV. It's definitely worth a visit.

Alan Millhone writes:    

I have a four-door 1948 Chevy that needs restoration. The motor is frozen (not original, a re-built Sears six-banger). The car is an antique, which makes me one as well — '48 is my birth year!



 One of the qualities by which a client rates his bank or broker on is the ability to work things "quietly" — execute an order in a discretely to achieve a good fill. This is because participants are generally unaware someone out there has a buy or sell order and won't strive to squeeze you. In that respect, anonymity is a good thing.

Yesterday I was booking a hotel on a website, and came across a variation of this, where top hotels are willing to unload inventory at knockdown prices, but they do so "anonymously" through an intermediary website. They want to sell a few extra rooms, but don't want to publicly quote the price because it will impact their pricing power.

I considered going with one that offered a reasonable rate and gave general details about location and specs of the room, but at no time before paying would I know they name of the hotel. It mightn't sound like a big deal, but if I were handing over a few hundred Euro, I'd like to know more about the premises. In the end I didn't pull the trigger — I went for somewhere a bit more expensive, where I knew what to expect.

Afterwards, I thought about it and asked whether I lost out on a good deal and whether this anonymous selling is a good idea and will succeed. My own view is it won't, because hotel rooms are among the most expensive transactions people make regularly on the Web, and travelers are quite risk averse when booking. They want reassurance — number of stars, brand name, location — before paying, and are quiet skeptical about descriptions (I can tell you from experience there is nothing regal about the "Royal Hotel" in Tipperary town).

Moreover, the hotels are over a barrel, because if an anonymous five-star hotel is offering rooms at 75% off, people think it can't really be that good, of there is something fishy; and if they are only slightly under a similarly priced but known hotel, people will pay that slight bit more to avoid uncertainty. So they are also looking for information in the price.

Sam Humbert writes:

When I've used PCLN for hotels, I've gotten, broadly speaking, good value for money. Generally there's been a reason a particular hotel traded cheap-to-the-curve — construction noise from building a new wing, or the pool's closed for repairs. Also I've found desk-clerks exude bad juju when you check in/out on a PCLN reservation — they don't view you as a "real customer" who's loyal to their hotel brand.

Craig Mee adds:

Reminds me of a friend who was a manager of a world-renowned hotel chain. Two things he told me –

1. He told his hotel counter staff never to give poor service, even if there are discrepancies with the bill and customers are disagreeing. What he said made perfect professional sense, "once you're committed to not charging the customer for the said amount from a business standpoint wear it on the chin and be as nice to that customer as any other." Then he added quietly, "besides, it's usually the cleaning staff taking liquor from the mini-bar, not the patron."

2. Specials are special on the menu for a reason; don't go near them. They usually jazz up something that is "on the way out."



 I take the subway to work daily. While not the most prestigious means of transportation, it is definitely in my case the most practical, economical, and time saving. I happen to live three subway stops from the beginning of the line.

By the time I catch the subway, it is usually full with no seats available. Sometimes, I am in dire need for a seat to get a little nap, especially if I am caught trading overnight. An hour nap can do wonders in my case.

Out of this need I become more creative about finding this precious vacant seat. Knowing that the previous two subway stops to my own have only two sets of stairs closer to the front end of the train, I started walking all the way to the opposite end in hope that most people will go for the closer compartments. This is in fact the case except oddly enough that the farthest compartment is always packed.

My reasoning in this case is that most people play the same game I do hoping for the precious nap and seat. However, three cars away from the far end seems to be day after day the optimum solution to this game. Now that I choose the optimum car successfully, sometimes I still am not lucky enough to get a seat unless one of the passengers gets off the train.

I start analyzing the passengers’ profiles trying to figure out which ones are likely to get off the train first to sit in his or her place. This is not an easy task but some knowledge of the city and behavior can do the trick. For instance, I stay away from all people over 30 in business suits as chances are that they are headed to my same destination. Once this category is eliminated, I try to eliminate all university students by guesstimating their ages simply because four out of five universities are located downtown (at the end of the line) so the odds are clearly not in my favor there either. I try to spot two age groups. High school students and under since parents most likely prefer to send their kids to nearby schools so it is unlikely that this group will travel all the way downtown for schools. Also, the elderly group is most likely not traveling far either. This whole process usually takes few seconds since I usually get lucky enough to get a seat before we reach the next stop.

This process is very similar to gaming the mistress although I admit it's never this straight forward with her. Incentive, incentive and incentive. I play the market for monetary profits and only profits. I don't care what philosophical reasoning a speculator would give you a la George Soros; the bottom line is that it is all about the monetary reward. It is all about the nap in the case of my subway trip.

I always try to figure the line of least resistance in speculation, the car with the fewest passengers. This is usually the road least followed by the public. In search for prosperity, I have to copper the public play at all times (by going to the opposite end in the case of the subway), but sometimes the simple contrary play is not good enough to win the game. A little tweaking is often needed. In the subway example I had to go to the third car from the opposite end and not the last since some smart passengers figured out the "simple" contrary play by going straight to the last car.

Timing is also a very critical factor and can make all the difference between a win and a loss. In the case of the subway one has to process some information and position oneself accordingly in a few seconds before reaching the following stop. Flexibility is also a key to successful speculation as no fixed system will beat the market forever. In the subway example, my game plan is different on the way back home since a different crowd is taking the subway at that time.

Ever-changing cycles also plays a great role in this game. The last car was full as the public got wiser and I am sure the third will be one day and a new game plan and system will have to be developed.

Knowing who you are playing against is critical to any speculative game as is the case of the passengers' profiles of this subway. An extensive knowledge of the markets you participate in is essential to your success as is a knowledge of the different subway stops and what they represent to different passengers.

I will end this post here as I reached my subway stop and have to vacate my seat for the next player.

Sam Humbert comments:

In my Manhattan years, I'd often give up my seat to a person of gender or age. For me, the psychic pain of sitting whilst a pregnant woman or pensioner is standing outweighs the benefit of sitting down. Often I'd get the fish-eye from my fellow New Yorkers — they were silently thinking "he must be mentally ill." I'd sometimes make eye contact and explain "I'm not originally from New York," and this would calm them.

Craig Mee adds:

Watching commuters pile into the tubes in London, there is sheer brawn! Doors open at the station and boom, some people are fixed on the destination, i.e., empty seats and God help anyone getting in there road. Funnily enough this is usually concentrated to a certain gender. Some people like to try and muscle markets around too!

Chad Humbert adds:

 1. Watch for mothers with small children. Sometimes a child will scurry, and the mother will have to leave her seat to retrieve him. Voila! Open seat!

2. The elderly are often slow. I've found I can often simply beat them to the open seat by walking somewhat faster. If I'm careful, I can make it appear that I passed them inadvertently. "Oh, were you going to sit here? I'm sorry! Do I need to move?" Most of them want to be polite, and they insist that I keep the seat. Copper the elderly.

3. I've found that the handicapped seating rules are rarely enforced, and when they are, it's just a small fine. I pay that fine many times over with the extra trading profits I generate from feeling refreshed after a nice nap.

Yishen Kuik offers:

Mr Saad's comment on how the farthest caboose is not the optimal choice because of gamesmanship, but rather some not so inconvenient caboose reminds me of a well known behavioral finance game.

Ask 100 people in the audience to pick a number between zero and 100. The winner is the one whose number is closest to two thirds of the average.

Eggheads will zero in on zero, but that answer merely demonstrates deductive abilities without canniness.

People with a more limited appreciation of convergent series might pick 33 instead, based on the assumption that the average will be 50. People able to think one more step ahead might pick eleven. People able to think one more step in the convergence series might pick nine, and so on.

The real challenge of the game is to guess the distribution of this gradient of deductive powers among the audience and weight one's answer accordingly.

e.g. If you think half the people in the room will guess 33 and the other half are extremely bright but guileless and will guess zero, you should guess eleven.

So perhaps if the challenge is given in a lecture room at MIT, guess one (zero is pointless because of the likely pot split). If the challenge is given to the general public, guess between ten and fifteen.

Philip Tetlock, whom I'm reading currently, reports that the most common winning answer is thirteen.

Barry Gitarts contributes: 

 Here are a few of my subway gaming experiences as they relate to the market.

Gain an edge by counting - I use the grip mats markers to note where the train doors open when the train stops, so next time I will be standing there well in advance of the train arriving. This prevents others from being the first in the door. This takes several observations, because the train never stops in exactly the same spot, but it’s remarkable how close to the doors you can be. Standing on different parts of the platform to observe which cars are the emptiest helps in figuring out which car you would want to focus on.

Work harder then the next guy and be prepared in advance - Even if you are the first in at your door, there will be others coming into the same car through other doors, competing for the same seats as you, this is why you must start looking for empty seats through the windows as the train is still pulling in so you know exactly which seat you need to go for, instead of walking in, looking around and then going for a seat. Those two seconds are the difference between sitting and standing.

Know the relationships between markets - I find that sometimes, especially during rush hour, it makes sense to take a different train one stop away from your destination so one can catch the transfer one stop before the mob boards.

Capitalize on the public fears long after the threat is gone - Unlike Mr. Saad, in my case the last two cars are the emptiest, because the train I take starts in a more unfriendly part of the city where people wouldn't want to be caught sleeping in the last car, so when the train gets to midtown, every car is packed like sardines except the last two which are near empty.

George Zachar strategizes:  

As someone who sits most of the day in front of screens, my subway priority is not getting a seat but minimizing total transit time. I have a mental map of where the stairs are at my destination, and maneuver to get closest to the doors that will open nearest to my exit route.

Market lesson? Different players have different goals. Absolute or relative return? Style box restriction? etc. 

John Floyd adds: 

 I spent one of my school day summers as a messenger in Manhattan. To increase efficiency I learned the exact subways, waiting positions on platforms for door openings, and the correct cars to place me near an exit that would easiest to get me to my destination. I did this for as many of the routes I traveled as possible.

The numbers of possible routes in terms of subways, exits, etc. are myriad. The proper choice allowed me to be the first off the car and up the stairs, oftentimes placing me right inside the building I needed to reach. This was an added benefit as I avoided the often hot, humid, and crowded streets. I would estimate that this on average increased my efficiency by 20-30% at least. Conversely when I rode my motorcycle across the country I looked at the map once in the morning to get a general idea on the direction I wanted to head and roads I might want to take and then just drove. My efficiency of time probably dropped by 50% but my efficiency of pleasure went up by equal.

When traveling now I try to use the time to read, listen to books on tape, or use the time as a period of thoughtful reflection. I do this mostly because I find it most productive for me given I do not find the sleep comfortable or useful to me in modes of transport. I can understand others find it as a useful battery charger that allows them to be productive later.

So I would extend the logic and say that while the goals –profits, learning, etc., may be the same, the path and methods to getting there may be very different. I think another important point is that one needs to decide and focus on what works best for them, as it may not be the same as what works best for others. 

James Sogi comments:

 We don't have subways here in Hawaii, but I try to find the best time to find uncrowded waves for surfing. The best bet is to take my boat to spots such as the nearby national park that has nice waves, but only with a long walk and even longer paddle which weeds most out. The boat takes me to the front row spot and a short paddle, with refreshments waiting.

The other method is to go right after lunch, but before school is out and before workers get out. That seems to be the old guys’ slot, and usually only one or two old guys like me are left still surfing.

The other odd thing, is that even if its crowded, many in water can't see where and when the wave will form and break. If you calmly paddle to the spot where the wave will form as you see it coming over the horizon before anyone else realizes where or when it will come, you will be right at the right spot as it breaks without paddling and catch the perfect wave with a single stroke without effort at the perfect spot while all the crowd is scrambling around trying to catch the wave in the wrong spot.

This of course takes about 40 years water experience and have obvious market application as well. Study of the bottom, which many in water don't bother looking at, triangulation of shore navigation aids, like palm tree lined up with volcano peak and far point, and timing of the waves and sets all help find the ideal entry point. I guess it’s like standing at the right spot on the subway platform.

Another method if the waves are small, or really big, is to use a big board. All the kids ride short boards and only have one board, so if the waves are mushy they can't catch rides, or if the waves are big, they can't catch rides, and with 12 different boards for each micro category of waves it’s easier to catch the nice ones. So really good equipment helps.

Another method is to exercise and train even when the waves suck, so when the waves come, you are in great shape and can charge while the kooks are gasping for breath. Of course pros like Shane Dorian exercise all day long lifting weights, and after surfing five hours, swim around Tavarua Island twice. Geeze.

There are a million ways to beat the crowd. The last one is move a million miles away. The market still reaches here in about 89 milliseconds. 

Victor Niederhoffer extends:

These posts on how to get a good subway seat are a fine pyrotechnic display of native ingenuity. Presumably many of our readers, in their days as poor shavers, also had to apply these techniques to finding parking spaces, especially if they lived in urban areas and didn't want to pay $50 a day for a garage. What I'd like to ask, however, is how these ingenious delectations could be applied to getting a seat in the market. When someone is forced to get out at an unfavorable price, how do you know it's coming, like on the subway, and how can you take his place at a very favorable position to you? One hint is to study Michael Covel and his gurus.

Allen Gillespie replies:

In my experience, a sign of an open seat in the markets frequently presents itself when everyone sells a stock from news on a single company. A recent example is the retail selloff following SHLD's news — only to have WMT, HD, and retails sales numbers lead the market higher a few days later.

Questions I always try to ask myself in those situations:

1) Is the news company-specific or general?
2) Is the bad news the result of good play by a competitor?
3) Did the valuation make the news appear more important than it really is?
4) Which companies have future catalysts? 

Hany Saad contributes:

A fund manager using a trading system that has been losing for more than three consecutive reporting periods is usually a good bet, especially if the majority of fund managers trading the system fall into the switch trap by moving to a different system (usually a very thorough read of the fund prospectus is necessary in this case). They usually give up on the first system at the exact wrong time when it is on the verge of a big win, falling into what Rob Bacon warned against in his wise words "beware of the switches", leaving a seat wide open for the wise observant player.

The same reason I wager that trend following will make a killing next year with the only reservation being that it should be on the long side. 

Barry Gitarts adds:

I have tried to predict who would get up on the train, but such efforts have usually been futile. Instead I stand ready, knowing that anyone could be the next person to get up and I'll be ready to run for the seat. Of course this works better standing in the part of the car where there are fewer people, since there will be less competition for that seat when someone does get up.

In the market, this is like predicting the next big selloff. I can't predict when it will come, but I can be sure I have sufficient reserves for when the opportunity presents itself. As in the subway, this may work better where it is less crowded, and in stocks/markets with less media/analyst coverage. 



 I had a chance to read an advance copy of An American Hedge Fund, by Timothy Sykes, about his experience as a very young trader and his hedge fund start up. It is the story of a college student who made money on over the counter buy back stocks very quickly, leveraging on short-term market inefficiencies in a very speculative and volatile market. The book made me think about the following aspects of trading:

  1. A trader's ability to adapt to changing market conditions is the key to successful trading.
  2. While many praise foresight, they mistake incredible luck for incredible intelligence.
  3. A speculator succeeds when he/she is able to identify and take advantage of market inefficiencies.
  4. Trading books usually ignore the evolution of marketplaces.
  5. Traders pick up on any consistently successful strategy until it lasts before the cycle changes again.
  6. Short term trades that turn into long term situations often become the source of financial and mental agony.
  7. Sometimes you need to accept defeat and move onto new opportunities.

Sam Humbert adds:

I also read a proof of Mr. Sykes's self-published (why self- rather than Wiley-published is another thread) book on the plane back from Chicago last week, and here's my back-of-the envelope: I liked the book better than I'd expected. It's a fast and breezy read, and had a pleasantly candid and enthusiastic tone. Mr. Sykes comes across as an eager, hard-working, observant market participant with good hondling sensibilities.

Several of his trading ideas, though generally not original/unique to him, are well-presented and explained. The one negative is the long digression about a private-equity situation that didn't pan out, which distracts from the main narrative flow. But I guess those are the facts he had to work with. For a market veteran, it's best read with an empty mind, without preconceptions such as 'what the heck does a 20-year-old know?' and can be enjoyed as such. 

Eric Falkenstein remarks:

Sounds fascinating. I would accept some overestimation of skill vs. luck, but generally many big money situations involve people's being in the right place at the right time — and the recipients aren't morons. But I couldn't see where to buy this book.

Tom Alexander writes:

I also had the opportunity to read an advanced copy of Mr. Sykes's book. I think there are several lessons here. Mr. Sykes sent me a flattering note requesting I review a copy of his book. I accepted; flattery works really, really well on my old ego. While I have not had the opportunity to read it yet, my wife found it very readable and illuminating from her lay perspective.

Mr. Sykes is self-publishing his book, allowing him to keep a much higher percentage of the profits. The downside is he has to do his own marketing. He seems to have very effectively figured this out by using viral marketing and the wonders of the Internet to spread the word through blogs.

It is nice to see entrepreneurship alive and well. 



 A Look At U.S. Home Price Performance in 20 Markets charts the historical year-over-year monthly percent change in the actual home-price figures for the 20 cities that S&P/Case Shiller tracks.

Sam Humbert writes: 

The key phrase is "severity of the declines in home price appreciation" — not "declines in home prices." By that logic, if home prices are unchanged year-to-year, it's a "severe decline."

Reminds me of Washington budgeting — all discussions of "cutting" the federal budget revolve around declining second, third, and fourth derivatives of dollars/time, not reducing the actual dollars.

George Zachar replies:

Yes, in fact, there's a tutorial being conducted by the press on how to selectively report and present data to drive down economic confidence. So far polling data indicate it's working.

Roger Arnold counters: 

A rose by any other name…

Most markets are now showing negative price appreciation. No matter how you count it that is a price reduction even before adjusting for inflation. Bottom line is that in both nominal and real terms home prices are falling, late pays/defaults/foreclosures are rising, underwriting guidelines are tightening, and availability of credit as a result is decreasing.

All indicators are that pro-cyclical real estate and credit contraction is accelerating. The question is whether or not it has reached a stage of self-reinforcing, i.e., tipped over the fulcrum.

To date the trend has been slow, steady, and transparent, much more so than I was counting on at this point. However, the events unfolding in the subprime space today may very well be the precursors to and immediate catalyst for MBS ratings downgrades to sub investment grade.

There has been enormous pressure placed on the ratings agencies to act more concurrent with market conditions. It is debatable as to whether or not that is their function but Allied Capital, a large buyer of the lowest grade subprime tranches, liquidated their portfolio in such months before that market began its sudden consolidation earlier this year.

A good argument has been made that the rating agencies should have seen what was coming regardless of what the capital markets were doing. With the movements today, those rating agencies now have their own potential legal liability issues to contend with should they not act soon.



I was really surprised to see how much Robert Bacon's book goes for on Amazon now, making my purchase of a copy, way back when, the single best trade I've made in many, many, many years. I'm talking about on paper of course, since I wouldn't dare attempt to book any profits from the trade. I would only sell it after the book price crashes and bottoms, and I desperately need the money just to try and get back to even at Aqueduct, late in December, just before they cancel the remainder of the card due to snow.

Sam Humbert writes: 

As Kevin remarks, it's becoming tough to find copies of Bacon at reasonable prices. I believe it's a case of inelastic supply (it's out of print) meeting expanding demand (~100% driven by our readers). A similar case is an obscure technical book from 1974, published by that I buy whenever a copy turns up on Amazon, Abe, or eBay.

Generally, engineering books from the 70s would sell for near-zero, but it's a nice keepsake for me. The Dedication is to my father, who worked on the book and died before it was published. So I'm the entire market for that specific title. 



I see your colleagues are trying out a new verb this morning –"quicken"


It has a nice Elizabethan feel to it, as if the newswire were running in 1580 — "Horseshoe prices quicken in early London trading."

Nigel Davies remarks:

Nothing could have prepared them for…the quickening.

George Zachar extends:

 Headline composition is the only widely used form of constrained writing I'm aware of. You specifically write to space, not word count, syllables, etc.

In the days of hot type you had to remember arcane counts corresponding to the width of each character, both upper and lower case. The mark of a great headwriter was the ability to hit the exact length needed, with something catchy and relevant.

Writing headlines on deadline at newspapers trained me to cycle through my mental thesaurus efficiently. This makes composing ordinary prose a relatively easy task.

Headline writing as a vocabulary drill for kids? I may try this at home. 



 I often wonder why the public can be repeatedly misled by forecasts that are consistently wrong, and by forecasters that have no raison d'etre. I believe the underlying reason is that we are brought up to be insecure, and we look to others for the sources and solutions to our problems, rather than looking to ourselves.

Such forecasters as the weekly financial columnist, can be consistently wrong, (he has been bearish every week since the Dow was at 800), and yet be among the most revered and respected forecasters of all. For an answer to this, I turned to Harry Browne's book, Why the Best Laid Investment Plans Go Wrong.

I always start with the Humble Pie with Whipped Cream, on p.43, where Browne points out that the archetypal forecaster looks for anything in his forecast that happens to have the vaguest resemblance to the ultimate outcome, and then tells you in subtle ways that "he told you so" or "it was so clear from this or that indicia."

Browne reviews the yearly self-evaluation of an investment adviser, who might be prone to using levels and ranges as his weapon for misdirection:

He almost always seems to have been around 87% right … He usually cites some examples that turned out to be wrong – "I was a bit too optimistic about the high in gold, I said 450 when it was actually 406." You can see that he's being more than open and honest, and he demonstrates that his talent and even his standards tower far above yours and mine … Any man who's wrong 13% of the time, and who's that close when he's wrong must be a genius … When I check, however, I find that his original forecast was "Gold's high will be between 450 and 500," and this was made when gold was already at 406. So he missed the high by 15% and failed to note that gold actually ended the year at 350, down 15% from his forecast.

For many years, I have believed that there is little correlation between the past record of an adviser or manager and his future success. Too often, adviser get good results with small amounts of money, but the market loves to let you make a small amount of money, just to encourage you to then raise a larger investment to lose.

I believe that the period of 2000-2002, where advisers and managers made money by being hedged or net short, was a period that was particularly detrimental to investors, in that it has led so many of them to stay with those who were relatively successful in this period. These managers and advisors have lost their investors so much more money in the subsequent period, when the markets have doubled, than the amounts they made their investors when they initially began investing.

I try to eschew from forecasts on this self improvement, mutual education, deflation of ballyhoo, forum. For one, I know how fallible I am, and second, I am cognizant of the principles of ever changing cycles, (Robert Bacon.) If we did forecast, many very potent readers might mistakenly believe that what we have to forecast is better or worse than average, and in either case it would be detrimental to all concerned. Also, I would find it hard to make a forecast where I didn't have a position, because I trade often … and if I did have a position, my position could be helped along by my communiqué. Furthermore, when I got out of the position, I would be hard pressed to be so fair and honorable that I would let all of my readers extricate themselves before I did, to my disadvantage.

Of course, if I were an innocuous type, and was prone to forecast without having a position, then I would be subject to making absurd calls, without possible economic feedback, and could possibly be wrong as consistently as the weekly financial columnist, or others of his ilk. I would never know how much damage and harm and loss my forecasts might cause to those poor souls who actually placed any reliance on them.

Harry Browne's book is a treasure trove of insights as to how one can watch out for being misled, and I recommend it highly. I also encourage all of you not to rely unduly on forecasts in the future.

As an afterthought, while considering this question, I couldn't help but notice that the Fake Doctor might do well to refrain from making so many forecasts in future. His former economics forecasting company was not well known for its accuracy, and recently he has been involved in an orgy of forecasts on such things as interest rates, the extent of reserves in the earth, and the likelihood of gains in the Chinese markets.

Browne lists several criteria for evaluating the likelihood of a forecaster to stand out from the crowd, such as talent in the field, and expertise. Other caveats, like the self interest they might have in their forecasts, the ability of those who follow them to extricate safely, and the likelihood that their own expertise in areas like geology, or Asian activities, might not be greater than average, should be considered also.

Riz Din writes:

Judging by the content in much of the media, there certainly seems to be an education of insecurity taking place, well beyond the realms of the financial forecaster. Combined with the tendency to focus on the shorter-term and not to cultivate the big, broad outlook, these are good conditions in which the pessimistic forecaster can flourish. I also wonder whether their is an evolutionary component that plays a role in this game, since the average human is a risk-averse individual.

Regarding the Fake Doctor, in March of 2004, he commented on exchange rate forecasting that,

…despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin. I am aware that of the thousands who try, some are quite successful. So are winners of coin-tossing contests.

He is obviously now paid to have a view, but I wonder whether he really believes it.

Sam Humbert comments:

To all the good arguments for abstention from forecasting, I'd like to add: publicly touting one's views leads to psychological lock-in ('getting married to a position'), because changing one's mind and dumping a losing position will result in a loss of face, in addition to the (perhaps less costly and painful) loss of dollars.

Riz Din adds: 

Adding to Steve's point, the problem of 'lock-in' of public forecasts may be exacerbated by the fact that much time and money is often spent generating a forecast and thesis. From the sell-side, creating a unified thesis across research departments is no small feat, and new data that are coming days and weeks may be judged less on their own merits than on how they can be interpreted to fit with this thesis, i.e., going about things backwards. I'm guessing the ability to turn on a dime is a valuable advantage to the likes of Soros and other nimble macro players.

On a separate note, I recall when I was working in the prediction business. It would be about a month or so before the start of a new financial year when clients would call asking for various forecasts for the year ahead, sometimes even further out. I'm sure many of these folk knew better, but they did it any way. They had spreadsheets to fill in.

It reminds me of story about the general who told his team of weather forecasters, "I appreciate being informed that your forecasts are no better than random, but please keep sending them on, as the army needs your predictions for planning purposes."

Charles Humbert extends:

There are three classes of money managers:

1) If your edge is unreliable, or modest to nonexistent, then your best approach is maximum publicity. If you're good at promotion this may lead to much greater benefits than you will derive purely from money management.

2) If your edge is positive but not spectacular, you should try to manage OPM. In this case a little bragging is part of the game; but it must be done with discretion. The goal is to be credible thus attracting investors and increasing your earnings in direct proportion.

3) In the rare case where your edge is outstanding, shut up and trade. If at all possible trade only your own money. Resist the temptation to make your brilliance visible to all. Always keep in mind the goal, which is to last as long as possible before the competition catches up.

Trading is a cutthroat business. If you make it easier for your opponents you eventually make it harder for yourself. The only reason for making public forecasts is to feed your ego. But those who deserve it most are the least well-served by such promotion. 

Nigel Davies writes: 

One of the tactics that can be used for nobbling a tournament leader is to congratulate him on his fine performance and asking what the secret is. The self-consciousness and commitment induced by a reply can take them out of 'the zone' with a bump. Not that I'd use anything like this myself, it's just something to watch out for if one is in the lead.

I think a similar effect can be at work when players write books. Besides making them a target should they publish anything too valuable, there's a certain inflexibility that can be induced by the 'lock-in' affect of going to print. 

J T Holley contributes:

There needs to be if not already a study of the "Power of Anonymity".

It is the spirit of the AA program and one that Mr. Bill must have suggested or he saw this same powerful principle in its possession.

Having quit smoking numerous times, I know that I tried I didn't lick it until I remained anonymous about my intentions. The minute you tell people they will ask you when you bump into them, "still cravin'?" "want to smoke?" "how you doin'?" Even with their good intentions the first thing you do is start thinking about smoking and it simply fuels the fire. Maybe this is why you shouldn't share speculation positions as well.

Doing a quick count I can think of very few times where I've gone out and said something in the touting category and come across a winner. Yet being the anonymous I have risen to the occasion and accomplished magnificent goals. Card games and betting are the horrible exception because one must always be vocal with intentions and can never be silent.

If you look at the risk/reward of touting vs. non-touting it seems so unaligned to me. Even if you tout and succeed then you still lose it seems. You are disliked, set up to be the "one" to knock down and most of the time left doubting the outcome or feeling a Nietzschean withdrawal. Does touting burn unwarranted energy and power as well?

The anonymous one walks freely and has the power. Think of sports when something great happens and the comment is "who was that guy?" This years Masters is a good example.

I think anonymity has got to be the most powerful principle next to compounding.

Anthony Tadlock remarks:

It seems that forecasters and others with the most bearish and pessimistic outlooks don't actually own any stocks and generally never have.

Steve Wisdom replies:

I especially like these standard tropes from bear newsletters: "We advise you to liquidate all stocks," and "We advise you to take profits on stocks now,"… Begging the question: ‘What stocks? If I believed your newsletter, I'd have sold all my stocks years ago.’



Pick up almost any popular economics textbook, and you'll find a rash of examples of how ingenious math can illuminate, as well as anecdotal examples of how you the public are getting screwed, and why the free market doesn't work as well as intervention. A typical book, I currently am looking at The Economics of Information by Ian Molho, but any of Krugman's or Stiglitz's texts would do, is replete with topics such as adverse selection, asymetric information, auction manipulation, bargaining problems, bidders colusion, cartels, cheating, coordination problems, contract credibility (boiling in oil, credibility, rationing, game theory), dominance, nash equilibria, pooling, signaling, imperfect information, private information, interested parties, job market screening, non-truth telling, moral hazards, immorality, lying, overbidding, principal agents problems, lemons, reputation effects, risk aversion, ripoff models, search costs, free riding, legal rights to silence, the crossing problem, trading delays, tactical voting, welfare losses, and winners curse.

John Lott has written a book called Freedomnomics that shows that almost all of these market imperfections are figments of the academic professors' imaginations. The free market has an incentive to solve all these problems, there are enormous incentives for businessmen and individuals to behave honestly, and competition is constantly working to give the consumer a better price and quality for his buck.

Furthermore, Lott shows how seeming differences in prices that consumers receive are a proper adjustment of the market to differences in costs and utilities of consumers. Here are some examples:

 Gas prices for self service versus full service gas stations are much lower for economy gas. The reason is that the consumer of economy gas spends more time and buys less. The same applies for wine prices at restaurants. Real estate agents get better prices for their homes than their clients by a few percent — the reason is that they make the improvements that are more likely to raise value. Insurance companies refuse to pay for Lojack, a tracking device that a manufacturer can hide — the reason is that the devices don't reduce costs because the cars are usually stripped before they can be found.

The second chapter of the Freedomnomics gives numerous examples where reputations insure that businessmen and politicians keep their word. The reason reputations work is that there are incentives for purveyors to keep their word — "The potential loss of profits stemming from the loss of a good reputation keeps business honest as long it is concerned with future profits." You might think that politicians won't care about future profits when their terms expire, and this is what economists call the 'last period problem.' Politicians however want to pass their reputation on to their children, and also seek other jobs where their previous honesty is important.

John Lott shows that incentives develop to give the customer a fair deal in almost every environment — "Incentives work to create a complex and fascinating process of markets evolve to solve cheating problems without government intervention." The classic example of this, (exhibit A in every economics book), is of asymmetric market information and the lemon principle in used car buying. A new car loses almost one third of its value the second it is driven from the car lot, based on the lemon principle. The underlying reasoning is that the seller knows more about the car than the buyer, and so the buyer assumes there must be something wrong with it, which is why the seller wants to get rid of it, and so the seller is punished with a lower price.

This story has so much the ring of truth to it and is so in vogue, that it has been good, with a little math team stuff, for a Nobel Prize or two. No one seems to have considered how come companies such as eBay haven't tried to solve this problem, until Lott came along. Lott found that in actuality a few days after a new care is bought, it sells for about 3% less than the blue book price, and some used cars, like their counterparts among aircraft, actually sell at higher prices than when new. Furthermore, extensions of the idea show that the lemon theory doesn't get the price of cars held for a year right either, and that truly they should have lower prices because of usage and obsolescence, not information asymmetry.

Freedomnomics takes about 50 of the commonly accepted ideas about the failure of the market system, and shows that in each case the market has solved the problem or that government intervention has made the problem worse. Lott points out that the value of reputations is paramount for a company, and that the competition to maintain a good reputation solves almost all the areas where a naive economist might think that the consumer gets cheated. The thing that protects the consumer is not the intrinsic honesty of the firm, but the reputation a firm seeks to maintain. The importance of a good brand name, and the asset that it represents can't be overestimated.

The third chapter of Freedomnomics is the weakest, but it covers a thousand examples of government intervention in areas like eminent domain, efforts to counter the free rider problems (such as in pollution), flood insurance, rescue services, and many more. Lott gives many great examples of how private enterprise solve these problems much better than governments can.

One good example is that polar expeditions funded by private sources had many less fatalities and made more discoveries than government funded expeditions during his sample period. However, Lott has a convoluted argument concerning diversified stock holding to explain some of his finding, that looks to be based on flimsy and weak evidence, and selected anecdotes. The same goes for his attempt to show that concealed gun laws are the main deterrent for crime — Dr. Lott lectured on this subject at the Junta, and I found his regression results completely overdetermined, the estimates of the effect very weak, with a high uncertainty, and generally based on too few observations in a few selected states. I am also critical of his argument that woman's suffrage is the cause of much of the increased government that we have experienced during the twentieth century.

It is amazing to see however, that John Lott has encapsulated in a few hundred pages, all the reasons that the free market does work, and repeatedly destroys the arguments of Freakonomics and most of the calls for intervention that we find in empirical studies and common sense economics.

At one point in his book, Lott offers the following summary:

"Countries that stuck with the free market have prospered. The reason is that the free market is based on the pursuit of economic self interest. The market acknowledges that peoples' behavior is largely determined by incentives. Allowing people the freedom to improve their own economic conditions helped to make society wealthier."

Riz Din replies:

I don't believe the free market offers solutions to all of life's ills, but I welcome questioning, inquiring thinking that challenges the orthodox prescription of how things should be run.

Glenn Escovedo remarks:

Readers might enjoy One-Armed Cowboy, a book about E. L. "Slim" Pond, a famous cowboy here in South Texas who happens to be my second cousin. 

Sam Humbert corresponds: 

As a follow-up, Chair asked me why I didn't worry about lemons when buying cars on eBay (one last year for myself, one this year for the corporate fleet). My off-the-cuff thoughts were: 1) Quality is much better than in years past so the overall incidence of lemons among late-model low-mileage (say, <50,000) cars is now quite low, and 2) The shift to leasing over the years has reduced the incidence of adverse-selection, because many (most?) cars now "automatically" find their way to the for-sale lot after three years, regardless of quality. 

Art Cooper replies:

1) Wouldn't quality be closely related to car make and model as well as low mileage, so that one would wish to restrict eBay purchases to models with a reputation for low incidence of problems?

2) If leasing is the cause of a diminished relative incidence of adverse selection, shouldn't one purchase only from vendors who sell leased vehicles (in addition to others), and not from individual vendors who are unlikely to sell vehicles that had been leased? 



Computational Ecology

"It turns out that circuit theory shares a surprising number of properties with ecological theory describing animal movements and connectivity," said Brad McRae, NCEAS project leader. "We can now represent landscapes as conductive surfaces — with features like forests and highways having different resistance to movement — and analyze connectivity across them using powerful circuit algorithms. Unlike standard conservation planning tools, these algorithms simultaneously incorporate all possible pathways when predicting how corridors, barriers, and other features affect movement and gene flow over large areas."



 Fat March, a reality-TV program currently in production (based, as usual, on a similar UK program) passed through Westport yesterday with no fanfare. The premise is to take several persons of size on a Bataan march from Boston to Washington, record their sufferings, and the survivors win prizes (and lose weight!).

I happened to pass the crew, on my bike headed eastbound, as they walked westbound on Beachside Ave. We crossed near Imus's beach house. As I approached, the soundman waved his arms wildly at me, but I couldn't tell if he meant "naff off, you're ruining a Kodak moment" or "hey, swing by for a photo op." Since I was looking dapper (yellow jersey/ yellow bike) I assumed the latter, and did a quick 360 around the group, calling out "good luck!" to contestant Will Millender, who returned a cheery grin despite his obvious distress — flushed, and sweating profusely, although conditions were ideal, shady and 70 degrees.

Those at points south (Darien, Greenwich, Larchmont, etc.) might expect to see the entourage soon.

Alan Millhone laments:

They will do whatever it takes to drive up TV ratings at overweight people's expense.

Mike Desaulniers remarks:

Speaking of Boston, where the March kicked off — from today's WSJ:

Last year, the Boston area counted at least 1,210 doughnut shops, or one for every 5,143 residents — five times the national average.



It occurred to me the other day (and probably years ago to those more astute than I) that the broad shift of assets into ETFs has the second-order effect of raising demand for stocks. An investor thinks $1 in a mutual fund is "the same" as $1 in an ETF. But in fact the ETF is (by definition) fully invested, whereas the fund might be 5% in cash (because of liquidity needs, or just because the spirit so moved the fund manager).

Something like $300-400b of new money has flowed into EFTs since the 2002 market bottom; 5% of that is $15-20billion of marginal extra buying, equivalent to buying all of SUNW.

From Yishen Kuik:

As a tangential point, daily shares traded on the NYSE Group have doubled from about 1E9 in the 1st week of 2000 to about 2E9 today. During this period, the SPX has been largely unchanged, the NYSE Comp (new method) has gone from 7000 to 9400.

As an aside, I assume all trades on crossing networks show up as prints on T&S and thus are captured by metrics such as NYSE Daily Shares Traded. If someone knows better, I would love to be educated.



If you agree with a contrarian, are you then both conformists? — Bill Bradle



 At lunch today, the semiologists in our office were puzzling over this photo, the centerpiece of a multi-page Obama hagiography in the current issue of New York Magazine (a glossy lifestyle-porn publication for affluent suburbanites).

The obvious religious tonality — "Obama Transfigured Before His Disciples" — must be intentional. The triptych format; the halo of light above him; his elevated position; his posture; his disciples gazing upward, hands clasped prayerfully.

Note the disciple seated on the right (yes, the Palindrome) — Judas, are we to think? Or Doubting Thomas? Poised to de-fund unless he sees "proof" in the early primaries?

Victor Niederhoffer comments:

The Palindrome looks like he's thinking about a chess problem.

Clive Burlin adds:

When I saw the picture, my first thought was: "Ha! That's what being uber-rich gets you, a chair to sit on while the riffraff have to stand!"



 Yesterday clocked in at 3.8 inches of rain in Westport. The local rivers are all the highest I've seen. The Aspetuck is pouring over Old Redding Rd at Easton Rd, unprecedented in my memory. The cascades above the swimmin' hole on the Saugatuck (which some Specs will recall from our outing at last year's SpecParty) are roaring like Niagara, and the swimmin' hole itself, normally placid, is boiling whitewater.

A lamentable waste — since it's only 45 degrees, homemade rafting trips are right out, unless one braves it in a wetsuit. Would otherwise be a perfect day to hang out the "Gone Raftin'" sign and take a trip down the Norwalk, the Mill, or even the Aspetuck or Saugatuck.



I'm looking for a book or paper that will help me think about trading and building trading systems from a fresh perspective. I am not looking for a trading book. I am looking for something that tackles a big question in a big way.

Three examples:

  1. In his notebooks, Da Vinci tackles learning to draw by thinking about and exploring straight lines (linear solution).
  2. In The Timeless Art of Building, the author integrates art, flow and aesthetics into architecture (gestalt solution).
  3. In Notes on Programming, Alexander Stepanov talks about knowing when a program/function/algorithm is correct (correct solution).

I have found that the way to get better at what I do is to choose a path, incrementally improve until the delta improvements become too small too matter (or be interesting), and then find a new path and start the process all over again. The book I'm looking for will help me find a new path.

Russ Herrold writes: 

In scanning this piece, it refers to TAOCP by Knuth,

1. Knuth, Donald E. "The Art of Computer Programming," Volumes 1-3 Boxed Set, 1998 Addison-Wesley Professional (1998), Edition: 2, Hardcover, which I too have used for years (decades) as my polestar (I have a set for the office and a set for home); but times change, and my coding partner has convinced me that I also needed to look more broadly, and see more modern approaches. As he spent over a decade attaining his Computer Science PhD, and teaching along the way, I tend to listen to him in such matters. Also the code inside are an expression of "the software engineering techniques [which he, Bill Pippin] used to control program complexity [as Stepanov also mentions early on]. Those techniques extend the implementation work done as part of [his] doctoral dissertation, "Optimizing Threads of Computation in Constraint Logic Programs," in particular by demonstrating a non-trivial instance of the single-tree pattern, whereby all singleton types are parameterized and then stratified by their binding pattern.

If you think: "wow, that sounds dense", and you read C++, take a moment and read the headers and the code. Bill recently wrote a roadmap to reading it.

The 'single tree' and its (relentless) application to the problem and space we are addressing (exploring the conflicts between the theories trusted by fundamentals investors, and the practical results observed by technical traders in reality [a favorite topic of this list] — Bill and I each started as Nixon Era Economics wonks in Washington DC, in the era of the now forgotten religion of Chicago School monetarism) is a really _big_ and non-trivial system. But perhaps not a formal work per se. Yet…

Each of the following either looks at a 'big question' area, or apply a method to solve a non-trivial (big) question. Reference to trading and investing are tangential.

2. Skiena, Steve S. "The Algorithm Design Manual" 1998,and 3. Skiena, Steven "Calculated Bets" 2001. The first is a more contemporary yet sound algorithms (tying to the mention of provably correct" solutions) work (with a fine bibliography), and the latter just plain thoughtful and fun.

4. Cormen, Thomas H "Introduction to Algorithms, Second Edition" 2001. This is the modern leading work on algorithms, but appallingly dense; I recommended the Skiena works first, as I find them more approachable.

5. Hofstadter, Douglas R. "Godel, Escher, Bach: An Eternal Golden Braid." It is one of those books one should take a month to read, and which has delighted me with new insights for twenty-five years each time I re-read it (another delightful bibliography).

6. Aronson, David R "Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals" 2006. Not as to trading, but it applies scientific method in thinking about our trading beliefs.

7. Mehrling, Perry "Fischer Black and the Revolutionary Idea of Finance" and 8. Black, Fischer "Exploring General Equilibrium" 1995. This delightful pair being what I feel will be the reference biography, and the last work, as to unanswered questions, of this major 'counter' taken from us too soon.

This personal library inventorying tool has finally solved the desire I had for a tool to feed an ISBN, letting it gather and retain the rest. Also recommended.

Sam Humbert adds:

Perhaps too obvious to mention are the Tufte books. I got a lot out of his first book, The Visual Display of Quantitative Information, and sequentially less from the later volumes (much as I found food for thought in the Expert's first book Dynamic Hedging, but less in his later writings).



 My five-year-old daughter (now in Kindergarten) inquired this evening as to how money is made. She was clearly not asking about how people get jobs, or where money comes from, but how people (or companies, as she is familiar with them) actually cause wealth (in an abstract sense) to be increased in the world around them. And she clarified that she was not specifically interested in how I make money.

Perhaps there are thoughts on how to answer this question? Besides people having jobs, she knows that I trade things, and that kids her age have been known to set up lemonade stands, and she often grasps quickly all sorts of complex ideas about people's behavior as well as simple economics.

Sam Humbert remarks:

When my younger son was five, he offered this bit of economic analysis after tagging along with Mom on a series of shopping errands, and noticing that at every stop she gave the cashier some money, then the cashier handed her back some change: "It's good that you get change! That way, you never run out of money!"

Rod Fitzsimmons Frey writes:

Wealth was created from imagination and energy. Since there is no limit to the way creative and energetic people can increase the value of the things around them, there is no limit to wealth. It is literally created by the human spirit. 



 The best coffee is Arabica. You guys drink the worst coffee. I'll bring some good Kona stuff out when I come next.

I got a sampler of eight different international coffees with the new iRoast 2, in green bean from Mexico, Peru, Timor, Sumatra, Congo, Panama, Nicaragua, Guatemala, and a few others. I'm not sure if it's what they're trying to sell or just trying to get rid of, but none held a candle to fresh roasted homegrown hand-picked sun dried Kona Coffee. Most were bland. Peruvian was about the best of the bunch, but still rather bland. Some were close to undrinkable. Sumatra tasted like dirt, Panama very bland, Nicaragua very bitter, and Peru mellow, good to mix 10% with 90% Kona.

Sam Humbert asks:

Why does anyone voluntarily drink "flavored" coffee? I'm having a cup just now, because "hazelnut flavored" beans were all we had on hand in the office today. But I feel like the high-school stoner who's so desperate he'll smoke roaches. The stuff tastes like something the EPA would send HazMat-suited guys out to Jersey to detoxify.

Who buys it? Is it a ladies' drink? Would appreciate insight.

Yishen Kuik adds:

A coffee importer once told me that the flavoured coffee industry grew out of a desire to use cheaper robusta beans and yet avoid the inferior aftertaste that caused manufacturers to prefer arabica. But then flavoured coffee took off. 

J T Holley writes: 

Having earned and financed my college education working at various coffee shops such as Mill Mountain Coffee and Tea in the Roanoke Valley, and Food For Thought in Missoula, MT, I can tell you very few [buy flavored coffee]! Most coffeehouses have pots of coffee lined up on the counter of some sort for self pouring. The ratio to the best of my knowledge on refilling those was around 5 to 1 compared to regular coffees of many varieties.

Not that what you drank was good but there are two ways to flavor coffee. I have utilized both ways. One is with a horrible flavored oil and the other is via bottled syrup. The oiled way is to roast a rather cheap Columbian bean and then mix the oil and coat the beans (like applying chemicals to kill weeds). The other is much better and that is having an individual cup of coffee and adding a shot of flavored syrup. This seemed less toxic to me even though both are probably the same.

I witnessed very few people other than women that would order flavored coffee. Espresso drinks would be the exception to that. I would classify flavored coffee along the lines of 100 cigarettes. We used to joke that those extra long 100's were for people that like to ash not smoke. They don't smoke the cigarette they simply puff to be able to "ask" so they look sleek and sexy or something. Same with flavored coffee drinkers I've witnessed. They don't drink coffee like you and me, they sip and end up throwing half of it away in those plastic lined trash cans that weren't made to hold liquids!

My experience in the Navy taught me something about coffee as well. Cream and sugar were rarely added to a cup on my ship. Your sexual orientation back in the early 90s when I served was questioned if you had a stir stick in the cup. It was taunting or hazing thing on my ship. Words were slung at you in humiliating ways and made a man either quit drinking coffee altogether or go with the straight black cup of coffee to avoid the hassle.

It's amazing how psychological warfare works. I drank my coffee straight anyways so it wasn't a bother to me, but literally saw fights break out. Can't even imagine what would've come about if someone would have brought their own International Flavored Coffee onboard.

On a lighter note, I spent 6 to 8 years of my life roasting and serving coffee in all of its varieties. I have to confess that it is amazing how much caffeine is abused and that literal addicts consume the beverage. The mark-up on a cup of coffee from raw bean, to roasting, to brewing and serving is utterly amazing to me as well. The shops that I worked in did absolutely zero advertising as well, another fascinating fact of the coffee business.

Pitt Maner adds: 

I hate to think of the abuse one might get for using the following, but based on a crude experiment it does seem that cold brewing makes for a smoother (some say lack of) taste.

With respect to Nicaragua there seems to be a fair amount of variability in the taste of the coffee. The best coffee growing region is up around Matagalpa and Jinotega in northern Nicaragua.

The Nicas seem to like to drink it black with a fair amount of sugar.

Problem with all coffee though seems to be how long it has been sitting on the shelf. You don't always get a "born on date" on the package. Of course you can pay $9 a pound for some of the brands that are sealed with nitrogen gas.

I know of someone who actually was marketing small discs that you put in your coffee maker to flavor the coffee of your choice. Better living through chemistry indeed. 

Pamela Van Giessen writes: 

The Irish coffee flavored stuff is the worst. My mother served it to me once when I was visiting. Being sleepy I didn't focus on the malodorous nature but the second it hit my taste buds I literally spit it out. Thankfully we were outside. I think that stuff was made for older ladies. 

Scott Brooks writes: 

Chicory is a plant that I use in my food plots to feed and attract deer and turkey. It is highly desirable, palatable, and nutritious to deer and turkey as well as many species of birds, and other assorted animals.

Gordon Haave adds:

I am a big chicory fan. The only kind to get is Cafe Du Monde. Every other kind I have tried is terrible. That being said, I don't know that it mellows the flavor, unless the underlying coffee is much more harsh than regular. I drink it with sugar and cream. 



 I wrote a few months ago about simple ways to handicap games such that children are competitive with adults heads-up but this week I found the shoe on the other foot.

We got my son Remote-Control Soccer for his 9th birthday. He'd requested it for months, and now I understand why: he beats me like Rodney King at this game. I just can't get the hang of it.

We've played three times, with scores: 11-0, 11-0, 11-1. And the 1 was an own-goal by my son.

So now I need to find a way to handicap him, rather than me. Maybe he can use ordinary batteries for his shoe, and I'll use alkaline.

Scott Brooks adds:

Make it a great learning experience for him. Since the teacher always learns more than the student, have him teach you how to become a better player. Tell him in advance what to expect — that by teaching you how to be a better player, he will in turn, become a better player. His overall understanding of the game will improve. He will have a more skilled opponent to play against and will thus be challenged and become better. And finally, his wins will be much more satisfying, as it is always better to beat a worthy opponent than it is to beat someone you know you can whip. 



Boyz II MenBoyz II Men to hedge funds

Dennis Ross, composer and producer of the 1980s multi-platinum R&B group Boyz II Men, is understood to be readying a long/short equity fund for launch this summer. PBGB Fund is expected to begin trading with $20 million and to focus on US technology and biotech stocks. Ross has worked with the likes of Michael Jackson and Usher…

George Zachar conjectures:

Par Bonds Got Bling
Paid Boyz Get Booty
Portable Beta? Got Blunts!

Mike Ott adds:

Plan: Buy Google, Baby!
Please Buy, Going Broke
Post Bond, Got Busted



Here is a handy utility worth a look: TwiEngine. It fetches both Google & Yahoo! search results and presents them in a split-screen format. It is in the spirit of DogPile and the other old-school metasearch tools, but confined to the two engines currently in widespread use.

However, it's a shoestring operation (he uses he uses — presumably to save $50 or so) so it will probably fail under traffic as word gets around in the weeks to come.

Alston Mabry adds:

I'm trying out TwiEngine, and noticed that Yahoo search produces lots of cheesy websites that were set up just to capture web search attempts and then hit you with advertising. Some of them even automatically redirect you to specific sites.

Google filters these out, but in the process also filters out some valid links. Having not used Yahoo in a long time, I did not know about the endless supply of sites returned on any given search.



 I was asked by Laurel why I think that out of the clear blue sky we've had two days that were larger in magnitude than any of last for years. My immediate response was they can't take it down permanently so they wish to have a violent move so that they can let it to go back to where it's going to be without losing money and making everyone panic.

The violent moves are the ones that always come when it's going the other way. When they want to take it one way, they keep you in. It is sort of like the frog that's put in cold water that is gradually heated up. They couldn't take it down the way they did last year in May because they don't have the Israeli war and the increase in good faith in their hip pocket. So they had to do in one week, much earlier and sharper, what they accomplished in three months. That is to say a doubling in volatility and a decline of 90 points, because they can't keep it here with stock returns 11 or 12 percent and bond yields just 4.5 percent.

The stuff about sub prime is part of the dynamic nature of capitalism. These companies get compensated for accepting risk. Some years they win and some years they lose. Their return is probably like ours, with a nice little something for the risk they take. We can only expect the sage to say something like it's terrible that so many take risk like that when there are only certain insurance companies who are genetically programmed to take it at double the rates, taking account of the complete likelihood in their rates of total meltdown, like this should be. And it's terrible that there's a derivatives market that allows those who don't wish to take such risks to offset them, as these companies have so much risk. But of course all this must be tested.

Laurence Glazier adds:

The Sage did make some interesting remarks to his favorite CNBC interviewer Liz Claman. For example that it was wrong for him to be paying a lower rate of tax than his receptionist and that the very significant rise of the market is in the long term inevitable and born out by history.

I enjoy the Sage's interviews, something warming there. CNBC has many good points. I like the literary asides from Mark Haines. He often quotes Poe, "the tintinnabulation of the bells," during those August ceremonies. 

Sam Humbert remarks:

The Sage has spent his entire career sedulously arranging his affairs to minimize taxes — and now bemoans paying too little? This brings to mind the boy who slew his parents, then pled for clemency because he was an orphan.

I would have awarded extra points for 'artistic merit' if the Sage had made these 'interesting remarks' in Pinch's famously untaxed newspaper…

Vincent Andres adds:

From a violence specialist: "La force d'une armée, comme la quantité de mouvement en mécanique, s'évalue par la masse multipliée par la vitesse." ["The strength of an army, like power in mechanics, is the product of the mass by the velocity (speed of action)."] Napoléon I



 I have written before about meaningless statements in finance, like "overdue correction." This sort of thing is not unique to finance, however.

Someone flipped his Mustang over the median and ran into a truck in Oklahoma City today. I am watching the news right now. The police say "speed was a contributing factor." Well, isn't speed a contributing factor in every automobile accident? How does one car hit another if speed is not a contributing factor? I suppose that if a car were parked precariously on the wall of a parking garage and the wind blew it off and it fell on to a car below that speed would not be a contributing factor, but that's about the only example I can think of.

What they mean, of course, is that excessive speed was likely what caused the accident, i.e., the idiot was doing 100mph around a turn and lost control. But if so, why not just say that?

It reminds me of the two years I spent on a federal grand jury (one or two days per month). A DEA agent was before the grand jury telling us about a drug bust, and he emphasized that the suspect had a "saleable amount" of cocaine.

I asked him what a saleable amount was. He said "He had X grams, and that is enough to sell." I said "But isn't any amount of cocaine a saleable amount?" He said "Well, he had X grams."

I said, "I understand, it's just that you didn't say that he had 'an amount' of cocaine. You said he had a saleable amount. I am trying to determine what the cutoff is for a saleable amount. If he had the tiniest amount on the eraser on a pencil, would that be a saleable amount"

He said, "Well, yes, you can sell any amount of cocaine."

And I said, "Well, that is my point, the phrase 'saleable amount' has no meaning, and you just use it for effect."

He started to say something, and then the Assistant US Attorney stepped in and stopped my line of questioning. Something also happened when I questioned the definition of "packaged for sale" when it comes to drugs. In short, unless it is scattered on the floor, it is packaged for sale.

Craig Mee replies:

I recently drove with my father. He has much driving experience, though he hadn't been on a highway for quite some time. With me in the passenger seat, he was tailgating cars at 100kph, not something he has normally done. The perception of distance and safety for him has obviously been impaired, as has sensing trouble with cars braking in front of him.

The relationship to the market is this: Having a good understanding of trading and knowing what needs to be achieved may be fine. But diminishing perceptions and feel for the market may interfere with results over time and might lead to a major disaster if not detected early.

My father also recently mentioned to me that life and death situations which he narrowly avoided in his youth, and did not think too much about at the time, had recently come back to haunt him in the shape of dreams and waking up in cold sweats.

Being on guard and aware of changes taking place is paramount.

Nigel Davies adds:

Consider how someone knows he's driving too fast. Speed tolerance varies greatly from one person to another. For me it's when I feel tired after the journey because of the stress. My body's telling me I wasn't fully in control. Of course, here in the UK there are so many speed cameras now that it is difficult to get so stressed without losing one's license.

Can this be applied to markets? Are constant feelings of market-related stress due to "lack of control" an important message from our bodies? 

Sam Humbert notes:

From After the Race, in James Joyce's 1914 collection Dubliners

The car ran on merrily with its cargo of hilarious youth. The two cousins sat on the front seat, Jimmy and his Hungarian friend sat behind. Decidedly Villona was in excellent spirits, he kept up a deep bass hum of melody for miles of the road. The Frenchmen flung their laughter and light words over their shoulders and often Jimmy had to strain forward to catch the quick phrase. This was not altogether pleasant for him as he had nearly always to make a deft guess at the meaning and shout back a suitable answer in the teeth of a high wind. Besides, Villona's humming would confuse anybody: the noise of the car, too.

Rapid motion through space elates one; so does notoriety; so does the possession of money.



Goldman May Have Ousted Citigroup as Market Indicator, WSJ Says

March 13 (Bloomberg) — Goldman Sachs Group Inc. may have taken over from Citigroup Inc. as the best indicator of U.S. financial companies' health, the Wall Street Journal reported.

It's at the heart of the recent boom in bond sales, increasing use of derivatives, growth of hedge funds and buyout activity, the newspaper said.

Todd Harrison, the founder and chief executive officer of, says what happens to Goldman shares on any given day is a good indicator of what's happening to the market as a whole, the Journal said.

This story, though lacking quantification, suggests many avenues of research. For example, what is the best predictive market indicator, which market is most correlated with others predictively, and, when certain relations hold is it bullish or bearish?

Sam Humbert adds:

I made a file of daily prices, from 2000 to now, of SPX and the usual brokerage suspects — GS C MS MER BSC LEH — and wrote a quickie R script to display the correlation matrix of daily contemporaneous log-changes, broken down by year.

"As advertised," among the brokers, C was the most correlated with the SPX every year from 2000 to 2004, whereas GS has been the most correlated, by far, in 2007 to date. My script/output follows:

> Data<- read.table('f:/BROKERS.txt',header=T)
> head(Data); tail(Data)

31-Dec-99 1999 12 31 5 1469.25 94.19 38.76 71.38 41.75  42.75 21.17
3-Jan-00  2000  1  3 1 1455.22 88.31 36.88 67.50 40.31  40.13 19.77
4-Jan-00  2000  1  4 2 1399.42 82.38 35.27 62.81 38.78  38.69 18.59
5-Jan-00  2000  1  5 3 1402.11 78.88 35.45 60.13 36.72  37.44 17.50
6-Jan-00  2000  1  6 4 1403.45 82.25 37.80 61.25 38.19  37.94 18.22
7-Jan-00  2000  1  7 5 1441.47 82.56 38.02 63.28 38.41  38.06 17.75

5-Mar-07  2007 3  5 1 1374.12 190.00 49.25 71.64 79.97 144.50 71.12
6-Mar-07  2007 3  6 2 1395.41 197.37 50.58 73.55 82.10 149.00 74.23
7-Mar-07  2007 3  7 3 1391.97 195.59 50.22 73.89 82.21 149.37 73.90
8-Mar-07  2007 3  8 4 1401.89 199.94 50.50 75.41 83.25 152.06 75.75
9-Mar-07  2007 3  9 5 1402.85 201.70 50.33 76.00 82.95 151.98 75.83
12-Mar-07 2007 3 12 1 1406.60 202.60 50.36 76.06 83.49 153.15 76.55

> Date<- 1:4
> Diff<- cbind(Data[-1,Date],apply(log
> lapply(split(Diff[,-Date],Diff[1]),function(m) round(100*cor(m)))

SPX 100  59  66  62  60  53  62
GS   59 100  59  79  71  61  73
C    66  59 100  62  60  60  65
MS   62  79  62 100  80  69  78
MER  60  71  60  80 100  69  78
BSC  53  61  60  69  69 100  76
LEH  62  73  65  78  78  76 100

SPX 100  75  81  77  75  78  77
GS   75 100  72  85  82  80  84
C    81  72 100  78  73  76  77
MS   77  85  78 100  82  83  85
MER  75  82  73  82 100  81  82
BSC  78  80  76  83  81 100  87
LEH  77  84  77  85  82  87 100

SPX 100  79  83  83  81  80  81
GS   79 100  78  88  85  83  89
C    83  78 100  77  76  74  75
MS   83  88  77 100  87  83  88
MER  81  85  76  87 100  82  85
BSC  80  83  74  83  82 100  87
LEH  81  89  75  88  85  87 100

SPX 100  83  84  82  84  77  77
GS   83 100  77  81  82  81  80
C    84  77 100  77  76  72  72
MS   82  81  77 100  83  77  75
MER  84  82  76  83 100  75  75
BSC  77  81  72  77  75 100  82
LEH  77  80  72  75  75  82 100

SPX 100  72  77  70  72  59  64
GS   72 100  53  75  76  71  75
C    77  53 100  58  56  50  51
MS   70  75  58 100  79  65  70
MER  72  76  56  79 100  65  74
BSC  59  71  50  65  65 100  73
LEH  64  75  51  70  74  73 100

SPX 100  65  60  56  76  63  67
GS   65 100  45  63  67  64  72
C    60  45 100  49  56  42  43
MS   56  63  49 100  64  56  57
MER  76  67  56  64 100  66  70
BSC  63  64  42  56  66 100  73
LEH  67  72  43  57  70  73 100

SPX 100  72  64  77  70  73  73
GS   72 100  49  78  78  80  82
C    64  49 100  52  49  51  47
MS   77  78  52 100  74  78  77
MER  70  78  49  74 100  77  79
BSC  73  80  51  78  77 100  85
LEH  73  82  47  77  79  85 100

SPX 100  88  77  84  76  78  78
GS   88 100  71  87  82  79  75
C    77  71 100  74  68  69  61
MS   84  87  74 100  89  85  78
MER  76  82  68  89 100  89  86
BSC  78  79  69  85  89 100  83
LEH  78  75  61  78  86  83 100



 I picked up "Skeletons on the Zahara" after it was mentioned in passing on DailySpec, and it turned out to be a most enjoyable read.

As per the Amazon blurb, "Dean King refreshes the popular nineteenth-century narrative once read and admired by Henry David Thoreau, James Fennimore Cooper, and Abraham Lincoln. King's version, which actually draws from two separate first person accounts of the Commerce's crew, offers a page-turning blend of science, history, and classic adventure." The book is a compelling page-turner, an extraordinary story of survival against overwhelming odds. Perhaps even a better yarn than Shackleton because the crew struggled against Man as well as Nature.

Capt. Riley and his crew set off from Gibraltar in 1815, on their way back to Connecticut, and through a combination of bad weather, bad navigation, and bad luck, missed the Canary Islands and instead ran aground at Cape Bojador on the edge of the Sahara. On going ashore, they soon were swarmed by nomadic Arabs who, as was the custom in the area, looted their money, provisions, and even clothing. The Commerces swam for their lives, back to their grounded ship, but lost one crewman to the Arabs. Then they launched their lifeboat, hoping to make their way south to sub-Saharan Africa, away from the desert Arabs. But in a few days they were overwhelmed by hunger, thirst and sunstroke and had to land at Cape Barbas, a couple of hundred miles south of Bojador, even farther from 'civilization.'

After a long struggle to climb the sea-cliffs at Barbas, the Commerces find a bleak landscape with no sign of water or vegetation, and realize they'll be dead of dehydration in a day or two unless they find water. Wandering, they stumble on a group of Arabs at a well, who give them water, but then, as per custom, take them as slaves. After fighting among themselves, the Arabs divvy up the Commerces, one or two to each 'master.' Much of the book describes the Commerces' subsequent wanderings through the desert as slaves of the Oulad Bou Sbaa tribe. A good indicator of the privation and suffering they endure: Capt. Riley's weight drops from 240 to 90 pounds during his travails.

The sailors are traded several times as the tribes folk crisscross the desert. Early on, Capt. Riley is exchanged for a blanket, and remarks that he's worth substantially less than a camel, as seen by the Bou Sbaa.

The Commerces' only hope is to convince the Arabs they have connections in Swearah (modern Essaouira), a seaport outside Morocco (modern Marrakech) where the Western nations had consulates. The notion of ransoming "Christian slaves" captured by pirates or taken from shipwrecks was well-established, and gave rise to a fascinating economic structure, as described by King:

"In this way, in an agonizing peristalsis, the Sahara slowly yielded Christians north one territory at a time, the nearer to Swearah the higher the price, with the medium of exchange switching from bartered goods to cash at Wednoon, on the edge of the desert. On the Sahara, the French merchant Saugnier was traded once for a barrel of meal and a nine-foot bar of iron, and later for two young camels. He was sold twice at Wednoon, first for $150, then for $180. Seamen with him brought $50 to $95. Robert Adams of the Charles went in the latter range, once for $50 worth of blankets and dates, and a second time for $70 worth of blankets, dates, and gunpowder."

Eventually Capt. Riley and a few others are purchased by a trader from the north, Sidi Hamet, more sophisticated and cosmopolitan than the Bou Sbaa nomads. King cleverly opens the book with a prologue from Hamet's perspective, describing his participation in a massive caravan from Wednoon to Timbuktu in 1812, led by a trader named Sidi Ishrel, that went awry after failing to find any water mid-desert:

"When they arrived in Haherah, the news spread like flying sand to the back of the caravan, reaching many of the men before they had even set foot in the much-anticipated valley: There had been no rain in over a year. Haherah's famous wells were dry. (.. ) Sidi Ishrel marshaled them together in teams to remove sand and stones from the old dry wells and mine them deeper. For five days the teams dug in unison, but still found no water. Sidi Ishrel concluded they had no hope of salvaging the caravan. The could only try to save themselves, so he ordered all but three hundred of the best camels to be slaughtered. They would drink their blood and the fluid stored in their rumens, and they would eat and dry the meat. (.. ) Thirty elders selected the camels to be spared, and the slaughter of the rest began. (.. ) In the heat of the moment, they began to quarrel. At first they only brandished their scimitars threateningly, but it was as if death must beget death. Once the crescent-shaped blades clashed, friends joined friends. There was no escaping the feverish battle that resulted. (.. ) In their fury, some of the men murdered Sidi Ishrel. More than two hundred others died that day. The survivors drank their blood." 

Sidi Hamet sees in the "Christians" a chance to make back his losses from this caravan, money he owes to his father-in-law, a powerful local warlord. Capt. Riley convinces Hamet he has a wealthy friend in Swearah, though in fact Riley has never been there, and suspects there are no Americans in the town, and fears the British consul will be hostile to Americans in the wake of the just-concluded War of 1812. His only chance is to give Hamet a generic letter "to his friend" that reads as if he and his sailors are British, and hope it falls into the right hands. He writes:

"Sir: The brig Commerce from Gibraltar for America, was wrecked on Cape Bojador, on the 28 August last; myself and four of my crew are here nearly naked in barbarian slavery: I conjure you by all the ties that bind man to man, by those of kindred blood, and every thing you hold most dear, and as much as liberty is dearer than life, to advance the money required for our redemption, which is nine hundred and twenty dollars, and two double barrelled guns: I can draw for any amount, the moment I am at liberty, on Batard, Sampson & Sharp, London — Cropper & Benson, Liverpool — Munroe & Burton, Lisbon, or on Horatio Sprague, Gibraltar. Should you not relieve me, my life must instantly pay the forfeit. I leave a wife and five helpless children to deplore my death. (.. ) My present master, Sidi Hamet, will hand you this, and tell you where we are — he is a worthy man. Worn down to the bones by the most dreadful of all sufferings — naked and a slave, I implore your pity. (.. ) I speak French and Spanish. James Riley, late Master and Supercargo of the brig Commerce" 

It's unclear whether Hamet believes Riley, and several times he emphasizes he'll slit Riley's throat in an instant if he discovers he's lying about his "friend." But now Hamet and Riley have a shared interest in delivering the Commerces to Swearah, and they set off together on an arduous journey though various provinces controlled by greedy warlords eager to steal any "Christian slaves" who pass through.

I won't spoil the fun by giving away any more of the plot. Read it and find out!

The author spent time in the Sahara "on foot and camel" while preparing the book, and his familiarity with the remote locations visited, and harsh conditions endured, by the Commerces shines through. And King writes with elegance and fluency. Altogether a wonderful book, great fun.



 In my town, the realty mavens were shocked by last year's $25 million print for the Phil & Marlo house, per NY Times:

"New In The Neighborhood Herbert M. Allison Jr., the chief executive of TIAA-CREF, may have taken a big pay cut when he left Wall Street, but he can still afford to live in rarefied company. In what may have been the most expensive home purchase ever in Westport, Conn., Mr. Allison, who was the president of Merrill Lynch until 1999, bought a waterfront estate from Phil Donahue and his wife, Marlo Thomas, for $25 million. The couple had put the 7.7-acre property on the market last year."

But in this week's paper I notice a new listing, of a property very similar, and not clearly better than (e.g., on a smaller lot) the Phil & Marlo house — for $38 million!

I thought at the time Allison was getting a good deal, despite the "all time high" aspect (I doubt any home had traded higher than the teens in Westport before). His lot is subdivisible into three (as is the new listing, as it happens) so he was paying $8 million per building lot — cheap'ish for prime waterfront.

Probably some kind of lesson in all this — "anchoring," as Twersky might say. Hard for buyers to imagine paying $25 million for a home when their perception was "anchored" by prior sales in town. By breaking free of that bias, and bravely "being the high," Allison is up $10 million or so on his purchase (assuming the current listing is tradeable anywhere close).



 From "Starbucks spent more money on employee healthcare in 2005 than it did on coffee beans."

Maybe Peter Navarro should write a sequel: "If It's Raining $$$ in Chappaqua, Sell Starbucks."



This morning, offlist, a trader asked after the etymology of "bucket shop." says: Nineteenth century; originally US, meaning "a shop or bar selling alcoholic drink from open buckets," the drink therefore being of questionable origin.

Wikipedia says: A "bucket shop" in its original format was a shop with a counter under which was a bucket. It offered a high rate of interest on clients' deposits, took money in, put it in the bucket, and when someone withdrew their (sic) money, would take capital and income from the bucket.

But surely the right answer can be found in one of the old-time Wall Street books. Any insights from List scholars?

Alston Mabry writes:

From H. S. Irwin, Legal Status of Trading in Futures (1938):

Bucket shops accepted customers' orders and funds but did not execute the orders on any exchange. Rather, they simply bet the customer would lose and kept the customer's money when they did. If the customer won too much, the bucket shop would simply fold its operations and move to a new location.

Comparative Analysis, John Hill, Jr.; Gold Bricks Of Speculation (1904):

The term "bucketshop" as now applied in the United States was first used in the late 1870s, but it is very evident that it was coined in London as many as 50 years before, when it had absolutely no reference to any species of speculation or gambling. It appears that beer swillers from London's East Side went from street to street with a bucket, draining every keg they came across and picking up castoff cigar butts.

Arriving at a den, they gathered for social amusement around a table and passed the bucket as a loving cup. The den soon became called a bucket shop. Later on, the term was applied, both in England and the United States, as a byword for reproach, to small places where grain and stock deals were counterfeited.



I enjoyed Larry McMurtry's quasi-biography Crazy Horse despite its shortcomings — it's a bit scattershot. It's from the Penguins Lives Series, and I also admire Penguin's creativity and ambition in bringing out a series of brief biographies written by literary authors rather than historians/biographers.

The life of Crazy Horse has an ephemerality akin to that of a great religious figure. Little documentation of it remains and so McMurtry had to do some scrabbling to make a book of it. A similar venture is poet Robert Pinsky's vividly-imagined Life of David, which I'm reading now.



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

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

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

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

– Jack Tierney 

Scott Brooks comments: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I've never forgotten that.

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

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

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

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

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

Kim Zussman adds: 

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

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

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

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

Sam Humbert comments:

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

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

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

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



From 'The Brother,' adapted by Eamon Morrisey from the writings of Myles Na Gopaleen, and originally staged at the Peacock Theatre, Dublin, in 1974.

The Workmans Friend

When things go wrong and will not come right,
Though you do the best you can,
When life looks black as the hour of night -

When money's tight and hard to get
And your horse has also ran,
When all you have is a heap of debt -

When health is bad and your heart feels strange,
And your face is pale and wan,
When doctors say you need a change,

When food is scarce and your larder bare
And no rashers grease your pan,
When hunger grows as your meals are rare -

In time of trouble and lousey strife,
You have still got a darlint plan
You still can turn to a brighter life -



EUR/USD, by Craig Mee

January 18, 2007 | 1 Comment

A quick observation …

Since the start of 1995 through 2006, the opening week of the year in eur/usd has been the extreme (HIGH OR LOW) for the year nine out of 12 years … Will ‘07 follow this suit?

Tom Downing comments:

This looks pretty nonrandom to me notwithstanding the arcsine effect.

Define S as the number of years (out of 12) in which the min or max falls within the first week … In 10,000 simulated 12 year periods, here is the distribution of S when price changes follow a standard normal distribution: (mean 0, standard deviation 1):

S       N        Prob       Odds

0     988     0.0988     10.12
1     2504   0.2504      3.99
2     2984   0.2984      3.35
3     2145   0.2145      4.66
4     951     0.0951     10.52
5     324     0.0324     30.86
6     86       0.0086     116.28
7     16       0.0016     625.00
8     1         0.0001    10000.00
9     1         0.0001    10000.00
10   0         0.0000      NA
11   0         0.0000      NA
12   0         0.0000      NA

In only 1 of the 10000 simulations did at least 9 years of the 12 have a min or max within the first week.

If you assume some sort of drift (for example, since 2002 euro/$ mean = 3.3 pips with standard deviation of 68 pips/day), the probability of having at least one first week min or max increases, but the probability rapidly drops off after S=7:

S       N         Prob      Odds

0     579      0.0579    17.27
1     1814    0.1814     5.51
2     2789    0.2789     3.59
3     2460    0.2460     4.07
4     1473    0.1473     6.79
5     628      0.0628    15.92
6     210      0.0210    47.62
7     44       0.0044     227.27
8      3        0.0003    3333.33
9      0        0.0000      NA
10    0        0.0000      NA
11    0        0.0000      NA
12    0        0.0000      NA

Another approach would be to estimate the probability of observing a first week min or max in any given year (conditional on a price change distribution), and then calculate the probability of having at least 9 successes out of 12 trials under binomial distribution.

Vincent Andres adds: 

EUUS_W.DAT : column = OPEN 02/01/1995-25/12/2006

1995 1.2040  1.2040   1.3422   0.0000
1996 1.2740  1.2250   1.2837   0.0097
1997 1.2400  1.0556   1.2406   0.0006
1998 1.1091  1.0762   1.2085   0.0329
1999 1.1756  1.0098   1.1830   0.0074
2000 1.0133  0.8352   1.0256   0.0123
2001 0.8956  0.8437   0.9472   0.0516
2002 0.9016  0.8613   1.0100   0.0403
2003 1.0225  1.0225   1.2184   0.0000
2004 1.2352  1.1790   1.3444   0.0562
2005 1.3313  1.1709   1.3576   0.0263
2006 1.1854  1.1834   1.3353   0.0020

Read more here.

Sam Humbert adds: 

I took a quick look at this as a finger-exercise. Below is R code with some user-tweakable parameters, currently set to roughly mimic Tom's work (though I took a clean-room approach; didn't use Tom's code as a base). The idea, as suggested by Tom, is to find the "probability of observing a first week min or max in any given year," which is "Prop" in this R script, and turns out to be .177 (I'm sure Dr. Phil or others could find a closed-form solution) and plug this into the binomial, thus chopping out an order of magnitude of computing. The results I get are almost exactly Tom's, so either his work is correct (as usual) or he/I made the same mistakes.

Days<- 252 # Biz days in a year
Year<- 12 # Number of years
Week<- 5 # Biz days in a week
Sims<- 10000 # Number of sims
Data<- apply(matrix(rnorm(Days*Sims),Days),2,cumsum)
Prob<- round(diff(pbinom(Year:0,Year,Prop,F)),4); Prob<- c(Prob,1-sum(Prob))
Odds<- round(1/Prob,2)

Days<- 252
Year<- 12
Week<- 5
Sims<- 10000
Data<- apply(matrix(rnorm(Days*Sims),Days),2,cumsum)
Prob<- round(diff(pbinom(Year:0,Year,Prop,F)),4); Prob<-
Odds<- round(1/Prob,2)
     S          Prob      Odds
1      12    0.0000     Inf
2      11    0.0000     Inf
3      10    0.0000     Inf
4      9      0.0000     Inf
5      8      0.0002     5000.00
6      7      0.0016     625.00
7      6      0.0088     113.64
8      5      0.0352     28.41
9      4      0.1023     9.78
10    3      0.2113     4.73
11    2      0.2948     3.39
12    1      0.2492     4.01
13    0      0.0966     10.35



A Spec much wiser than I pointed out that Hillary has drifted back down "to support," to 50/50 odds of taking the 2008 Democratic nomination. The thought is that the media want to sell papers, and the ideal level for her to trade is 50, the point of maximum uncertainty, maximum gamma — thereby maximum interest. When she was in the 40s and needed a boost, the media fell in behind her "I'm a centrist" meme. And when she rallied to the 60s, the media unleashed a barrage of Obama puffpieces, causing her to stumble. 

If I were a Tradesports bettor with nothing else to guide me, I'd go with the a priori thesis that she will homeostatically be pulled to the 50 level by the media for another year, and can be "range traded" thusly.   




1/10/07 Momentum

The drop in the price of crude picked up in early Tuesday morning trading with the low below $54 a barrel. This caused selling by chartists and the bearish sentiment increased. As I looked at my positions, the losses grew, and even though natural gas was holding up, the portfolio took it on the chin. It's not the first time, and I'm patient. [Read more here]

Eric Ross comments:

I'm a bit confused. Why would one trade oil futures/gas futures when one could invest in "oil drilling/gas wells" and pull in a far better return for his buck? Risk/Reward … it makes sense to own an actual "piece" of oil/gas real estate than bet on futures. But what do I know, I'm just surrounding myself with some of the biggest oil/gas families in Texas.

Andrea Ravano adds: 

I cannot understand the logic behind the performance of oil companies such as Total, Exxon, Eni, Conoco and others alike: the market always bids up the stock along with the price of oil. If the companies make money by transforming crude oil into other products, why should their profit grow along with the increase in price of their main raw material? I understand that inventory pricing can make a big difference at $70/barrel vs. $50/barrel, but I'm sure there must be a better explanation for the case. Oil experts, please be patient with my ignorance.  

Stefan Jovanovich comments:

I am not an oil expert but am fortunate enough to know a few who tolerate my persistent ignorance. Their opinion is that the stock market presently values energy companies - including those that do not own oil and gas properties - as proxies for the oil price itself and does not value the companies' profitability at all. Those of us who remain unprofitably long in oil & gas & refining stocks keep hoping that the industry will someday be viewed as an actual business, but we may have to wait a lifetime or two. When Hubbert's Peak theories were first popular (in the late 70s), a friend from New England asked my wife, who was working for Getty at the time, and what she would do for a job when the oil ran out. The notions that petroleum is somehow peripheral to economic activity and that it should and will be replaced easily by an alternative seem to be two adult fairy tales that get told again and again.



Is this the best trading book of the past year?

No, but Blink by Malcolm Gladwell generated more ponderable and testable trading ideas for me than any other book in recent memory.

Blink is about how intuitive decisions are made. The book is composed of a series of scientific case studies, each of which brought an 'Aha! Trading' moment for me. The cumulative sum of these ideas easily filled a couple of notebook pages, the study of which will fill and influence months of work.

One example the book shows is how a simple, small factor algorithm surpassed ER doctors in determining if a patient was actually having a heart attack. The conclusion was that the judgment of ER doctors was affected too much by information.

As traders and market researchers, we are continuously confronted with too much information, and we usually end up going down paths like 'If (this and this) Then…' or 'If (this or this) Then…' but we rarely go down paths like 'If (this is not present) Then…'

That type of twist, from 'and/or' to 'not' is precisely what made Blink so interesting for me: the ideas it generated were more revolutionary and perspective-changing than evolutionary.

Sam Humbert comments:

…a simple, small factor algorithm surpassed ER doctors in determining if a patient was actually having a heart attack. The conclusion was that the judgment of ER doctors was affected too much by information.

I've been thinking about this lately. Since this fall/winter has been warm in New England, I've been out on my bike at least once a week. And I need to dress properly, given the winter temperatures and the self-generated windchill from riding reasonably fast.

What I've found through trial-and-error is that I'm better off going to and dressing based on a mechanical system (40s = jersey + 2 fleeces, 50s = jersey + 1 fleece, low 60s = jersey + windbreaker, high 60s = long sleeve jersey etc., adjusted for unusual wind or rain). Then I am by standing in my driveway to "see how it feels."

My subjective markings, it turns out, are prejudiced by ephemeral factors (sun is behind a cloud, a gust of wind blows through) and also by preconceptions ("it's winter, so it should be cold and windy," "it was warm yesterday").

I've sometimes gotten darned hot or cold by dressing by "how it feels," but I'm never too far off dressing by

Rod Fitzsimmons Frey adds: 

I'm glad that others got good things out of Blink! I thought it was one of the most deceitful books I have ever read. Perhaps I judged too quickly (blink!) and read the rest through a negative filter, but I thought it was an anti-intellectual defense of emotional intuition over careful rationality.

As a remedy I suggest Think!: Why Crucial Decisions Can't Be Made in the Blink of an Eye by Michael LeGault, as a fast-and-dirty response, or The Closing of the American Mind by Allan Bloom as a much deeper criticism.

Dr. Aronson addresses the ER physicians example (or something like it) in Evidence Based Technical Analysis (around p.42). He cites many studies that show that human decision making is very effective for linear and sequential problems and hopeless for configural thinking. When faced with configural problems, humans tend to reframe them into linear or sequential problems. Often this works, but for some things (like medical diagnoses), it is disasterous. It was a much more satisfying analysis of the issue than given by Gladwell.

Nigel Davies adds:

One of Bent Larsen's favorite expressions was 'long think, wrong think.' I think there's a lot of truth in this. Many people seem to tie themselves in knots by thinking too deeply and by considering so much information that they simply confuse themselves. But there's a paradox here in that good intuition requires mastery of the medium concerned, and that requires extensive testing, revising and doubting of one's conclusions.

I'd suggest that it's easy to play a blinker, but it's hard to play a master who can blink.



Q: A problem I seem to be having when I play hold 'em is that I am chip leader by a lot, but then somehow it always seems my chips disappear, as was the case in the last tournament I played with my friends. I know the basic rules of what the chip leader should do, like being aggressive and betting a lot. But it seems that every time I do this, I eventually lose all my chips.

Jim Sogi responds:

As we come to the end of the year, the issues of risk and return and performance metrics are of great interest. Absolute dollar returns, yield and risk measures are the most important measures. Diebold said risk is a part and parcel of return, and understanding the type of risk as measured by the new measure of realized volatility is key. He mentioned that other forms of risk are as important as market risk, but are less discussed, such as operations risks. Here is where performance metrics enter. Thank you to erudite specs for great contributions on the subject, In studying performance metrics the issue of the relationship between such things as return and Sharpe or Sortino ratios arises. What is the sweet spot in a particular market cycle to achieve high returns and high Sharpe ratios or high Sortino ratios? What is the performance metric that has the greatest effect on maximizing the 'sweet spot'? Dr. Phil mentioned that a high percent win/loss has a very high leverage effect on yield and risk measures. he trade off is average gain per trade drops. Chair advises to hold longer and go for greater average gain, but the price is larger drawdowns. Diebold said that the Sharpe itself is a time series and will vary across the cycles. How can one adjust trading parameters to maximize metrics for varying market cycles? In other words how does one milk the maximum out of the current market, and how does this change as cycles or days changes. Can one boil this down to expected yield targets for a particular volatility regime, day, hour? How many percent, points, days, weeks, hours should one stay in the trade or use as goals to get the maximum expected utility? This will all vary according to preference as discussed under the Bayes Utility hypothesis, but within the preference, what is the best key to maximum utility for maximum return, and lowest risk? This relationship should be able to be quantified and to act accordingly, as athletes do to win. How would this relationship be quantified? It appears to be the relationship of more than just one metric.



Last night I visited the local EB Games store with the idea of picking up a few DVDs for my kids. While I was there I took a look around at the videogame equipment, immersed myself in the state of the art, which is currently Xbox 360, PS3, and Wii. It appears PS3 is the 'it' game right now, and is selling out. Amazon says: We are currently out of stock. Allocations of the PS3 have been very limited but we are working with Sony to secure future allocations. We will send email notifications and provide updates on the product detail page as well as in the customer discussions on the this page when we have availability. At the EB Games store, several parents had glommed onto the salesclerk, hoping he had tips on where to get a PS3. Then one parent said she'd heard the local Circuit City was "getting a shipment of 17 units in Monday morning," and the chatter turned to how early (5am, 4am, 3am?) to get to the parking lot to camp out pre-open on Monday for the privilege of buying a toy that costs more than a computer. For a second I thought (hoped?) they were joking, but soon realized they weren't. In a rare display of good sense (that didn't even require my wife's kicking me in the shins) I refrained from joining the conversation. Had I chimed in, I'd have offered:

Forget the Wii/PS3/XBOX360. Instead, write on a piece of paper: My gift to you: every week of 2007, all 52, I will walk with you in the woods on Sunday afternoon at [around us, Brett Woods, Devil's Den, Lake Mohegan would be appropriate] for an hour. We'll look at the frogs and turtles in the summer, the deer and turkeys in the winter. And for the entire hour, I'll listen to you, with my full attention, and without offering criticism, advice or suggestions. Then, tear up the piece of paper (your 12 year old would think it's some sort of trick anyway) but commit fully to it in your heart. And on Christmas day, tell him you have a special gift, but can't deliver it until next year.

Mike Desaulniers adds:

And for the entire hour, I'll listen to you, with my full attention, and without offering criticism, advice or suggestions.

As a gift, this is technically cheating, because, of course, this is when you get the most back from them. But they don't realize that.



My best friend is a true Hawaiian master waterman with 50 years experience in the water. When we go out and push the envelope on the far corners of the deserted parts of the island by boat and canoe, he is the best. Whenever we go into the water diving he always brings a spear, and before he goes in he always sticks his head in the water with his dive mask on and looks all around for sharks that might have been watching us. Before getting into 'deep waters' which are abound in the markets in the multitude of niches, it is a good idea to take a real good look around. There is some deep water and big sharks around, straddles that ought to go up but go down 50% in a day near expiry, 4-9% spreads, Vix futures that trade one price each day and have huge gap and traps, strangles that ought to go up but go down with the square root of time, all when equity futures rocket up one percent in 20 minutes. Not quite like the textbooks say it should be. Its wild out there. You option book-runners must have your hands full.

Al Mabry comments:

It might be better to think of the "market" as a huge regatta, with multiple dimensions of distance (sprints, 1500m, 2000m, Head races, etc.), experience (high school, college, elite, masters, etc.), and equipment (fours, eights, quads, singles, etc.). So, if you want to take on G0ldman Sax at their own game, that's like rowing in the heavy eights at the Worlds. But you can also win a national championship coaching a women's lightweight four.

Sam Humbert adds:

Along similar lines, I read a children's science book with my boys last night that said house cats use litter boxes because their relatives, the big cats, are very fastidious about burying/hiding their scat so as not to alert nearby ungulates, who might pick up the scent and quickly make themselves scarce. In Sogic terms, the thought would be "where do G01dm@n et al hide their traces?" I have some thoughts on this (albeit inchoate and disorganized; unworthy of mention) from day-in, day-out praxis in the derivatives markets. A subject for an essay one of these days.

Jim replies:

Steve, Do you remember the Lone Ranger and Tonto, or Broken Arrow? They would come across tracks in the dirt and say, "3 men on 4 horses were here 3 hours ago, and they were riding fast to the East." Or Daniel Boone would look down and say "Big bear was here yesterday with cubs traveling west. Just ate berries and salmon, so will not be hungry." It would be great to be able to read the tracks or the scat … How.



Dec. 8 (Bloomberg) — Scott Davies, a principal in Harrington Park, New Jersey, slept on the roof of his school after students there read 10,000 books, the Hackensack Record reported.

Davies promised to spend a night on the roof if children at the school for grades kindergarten through 8, read 10,000 books, the newspaper reported. Davies told the Record he had expected the children to meet the challenge in warmer weather.

Sam Humbert comments:

Life imitates art. This idea — wacky stunts by the Principal if the students achieve a goal — was probably inspired by Dan Gutman's popular Weird School series of chapter-books.

Principal Klutz was hanging upside down from the school flagpole! He kissed a pig on the lips! He painted his bald head orange! And now he wants to bungee-jump off the roof of the school, dressed like Santa Claus!



Programming languages are cool. Love them. Like them. The most important languages are Prolog, ML, and Haskell. The best ideas are represented there. The problem being that people imagine that somehow a language makes programming easier. It does not. But the hope remains. The major abstractions are function calls, garbage collection, exceptions and objects. Once one leaves the safety of the fire, there are language features like monitors, first order types, first order functions, functors/module systems, dynamic scoping, unification (Prolog only), annotations and then one gets into the really rare toy features. Way back when, garbage collection was considered a toy feature. (The chip provides the number, operation and memory abstractions.) The language exists for the writer, not the computer. So many language features are written with the expectation that somehow the author's task is made easier. In order to do this, the features have to be "different" (orthogonal) rather than just syntactic sugar. Reducing keystrokes is nice in the beginning but the real power is doing stuff that simple keystroke reduction cannot do! Like creating functions at runtime. Or creating interconnected packages of classes and objects at runtime by inserting meta-parameters of types and data. (Macros on steroids.) Features like that permit one to not have to create all the support code to make it happen in your own way. One can look at the source code and go "oh, this is what is happening" as the language demarcates the parts that truly vary and the parts that are simply different! A handy library can do all this work. But then the library better be a standard library so that it is not just some other pile-o-junk with suggestive function names. So the difference between a well developed library and a language feature is minimal. In fact, the only language feature that cannot be implemented as a function is short-circuiting AND and OR… C++ has too many language features. (Arguments ensue). And C has so few it is amazing that is all one really needs. But without their standard libraries for string manipulation, I/O, POSIX compliance, etc., these languages would be nothing but curios. I really want to spend my time writing in ML, the funkiest. It is has great libraries but not enough to keep me from having to write library wrappers. Haskell provides the highest meta-abstractions I know of but it is not widely used so its practicality is lessened (but oh, one can show how smart one is by orchestrating amazing meta-programming abstractions to make the compiler write the program for you). Prolog is prolog, if the problem is expressible in prolog there is no reason not to use it, the debate rests on whether anything useful is expressible in Prolog… In conclusion, the best advice find tight library functionality and stay close to C/C++/Java. C# is more marketing than stable. Behemoth libraries get spooky. If you are trying to write web services, then Ruby-On-Rails is way cool. But if you are hankering for a real server, then C/C++/Java are mandatory. Java servers are freakish mounds of code to the uninitiated. A good old C server was demonstrable in 200 lines but the expectation of servers has increased infinitely since the Internet Bubble!

Sam Humbert adds:

A good, practical intro to Haskell has been rolling out on Mark Chu-Carroll's blog. The tone of it isn't "for dummies," but it's clear and direct. Even I can make some sense of it. Haskell is arguably the most important of the newer (i.e., non-Lisp) "functional languages". It's kinda-sorta like Python visually, and has some similarities to R, which has itself been accused of being a functional language.



The following is from Gary Becker and Richard Posners' Blog. It is a piece by Becker on Milton Friedman, who sadly passed away this month. [Read the NYTimes Obituary]

I will not dwell here on what a remarkable colleague he was. However, I do want to describe my first exposure to him as a teacher since he enormously changed my approach to economics, and to life itself. After my first class with him a half-century ago, I recognized that I was fortunate to have an extraordinary economist as a teacher. During that class he asked a question, and I shot up my hand and was called on to provide an answer. I still remember what he said, "That is no answer, for you are only restating the question in other words." I sat down humiliated, but I knew he was right. I decided on my way home after a very stimulating class that despite all the economics I had studied at Princeton, and the two economics articles I was in the process of publishing, I had to relearn economics from the ground up. I sat at Friedman's feet for the next six years– three as an Assistant Professor at Chicago– learning economics from a fresh perspective. It was the most exciting intellectual period of my life. Further reflections on Friedman as a teacher can be found in my essay on him in the collection edited by Edward Shils, Remembering the University of Chicago: Teachers, Scientists, and Scholars, 1991, University of Chicago Press……

To conclude on a more personal level, I was most impressed by Milton Friedman's sterling character–he would never soften his views to curry favor–his perennial optimism, his loyalty to those he liked, his love of a good argument without any personal attacks on his opponents, and his courage in the face of prolonged and virulent attacks on him by others. I cannot count the number of times I participated with him in seminars, nor how many visits my wife and I shared with Milton and Rose, his wife of almost 70 years. Rose, a fine economist, would not hesitate to differ with her husband when she believed his arguments were wrong or too loose. When I spoke on the phone with him last Monday, he sounded strong and a bit optimistic about his health, even though he had just returned from a one-week hospital stay with a severe illness, an illness that a few days later took his life. Although his ideas live on stronger than ever, it is hard to believe that he is not here. I can no longer seek his opinions on my papers, but I will continue to ask myself about any ideas I have: would my teacher and dear friend Milton Friedman believe they are any good?

Sam Humbert adds:

I also like these vignettes from Ben Stein:

When I was a Columbia undergrad in the early '60s, Friedman taught there for a year and was a good friend to me. He even used applied statistics to save me from romantic desperation when I was worried about replacing a girlfriend. If there were only one right woman for every right man, he advised, they would never find each other. Another time, he stopped me from crossing against the light on Broadway and 116th Street, telling me, "Why risk your whole life to save 10 seconds?"



Over the holiday my family and I played a board game we've played many times before named Balderdash. The game is pretty straightforward. A dealer pulls a card containing several categories … a name, a date, an acronym etc. The entries are almost entirely unknown to the players. The goal then of each player is to make up a trivia fact that is believable to the other players. These fake facts are added to the real one and read by the dealer to the table. Points are awarded for picking the truthful fact, as well as getting other players to pick the one you conjured. The dealer scores by convincing the other players not to pick the correct one. This got me to thinking about the markets, life and bluffing specifically. When prices change, people wonder why. The truth is always that the supply/demand relationship has changed, but there are many people willing to fill in the "answers". What are the motives of those supplying the answer. In the game, one of the strategies employed is to pick the answer that you made up in an attempt to convince other players to do so. Do market participants ever do this? Generally, the more believable the fact you make up, the better. But sometimes, a preposterous answer works wonders. People simply can't believe its made up. When several answers have equal believability, the ludicrous answer stands out. The players almost talk themselves into believing it. Do we ever talk ourselves into things we know are bold faced false? When I was the dealer I always read the true answer somewhere near the middle. I know that in any list, the first and last thing a person hears sticks in their mind. Is the first explanation given for a market move the one that will be believed going forward, even when a better truthful answer comes along? I would like to hear more about bluffing from your readers.

Sam Humbert adds:

Santa brought us a game called Blokus last year, and, as mentioned by Tom Ryan, kids are eerily capable at it. Like Checkers and 9-Ball and (circa 1982) Space Invaders, it has a beautiful simplicity that hides much depth. Also, Blokus can easily be 'handicapped' by a simple rule such as 'adults must play their pieces from smallest to largest' (i.e., starting with the 1-square piece). I like to play the kids even-steven, subject to a some such simple constraints or rules-changes, but I find that not all games lend themselves to this. (Though many do: e.g. at Go Fish, I play level with the kids if I enforce on myself 'wait one full turn before asking for a card I just picked up!') Another great game to play with kids is Mille Bornes, though it seems not to be as widely circulated nowadays. They do make a new version, but I bought a 1970s set for a few dollars on eBay. It is self-handicapping because the kids gleefully gang up on Dad, taking delight in fixing my wagon again and again… until they get close to 1,000 miles and need to turn their attention to each other.



In a land far, far away, almost thirty years ago, I worked on a mainframe with hundreds of terminals, and it occurred to me that I could write an OS script to enable users at different screens to have text conversations with each other. As perhaps the only person in the building with any interest in so doing, when the script was finished I had to test it by informing colleagues that I had written an AI program. When they typed the appropriate command at the prompt (on teletype printers I think rather than screens) they would be presented with two options — Psychology or Polite Conversation. By this time I had disappeared to my own console ready to don my Freudian or friendly hat. Not everyone guessed immediately what was going on and some polite conversations or analyses were able to develop — I was eventually quizzed by my boss who I suspect was not entirely unamused. Ten years later, it was the birth pangs of the Web and bulletin boards were already popular with techies and those with access to equipment at work or school. I set up a math group on one of the UK boards and set a programming puzzle that seemed of technical as well as philosophical interest — to write some code (in any language) whose output is the same as the code which drives it. I think someone solved it by using a print file command where the said file was suitably set up first — if I ever set this poser again I must be sure to exclude printing files. Thankfully the web came along and now one has to be truly original to be original. I love the way we all act as synapses and what used to take years can now happen in a day.

Sam Humbert comments:

"To write some code (in any language) whose output is the same as the code which drives it" is a well-known idea, at least nowadays. This is called a Quine, after the philosopher W. V. Quine.



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

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

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

Alston Mabry Replies:

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

Russell Sears responds:

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

Steve Leslie adds:

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

Jay Pasch replies:

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

Daniel Flam replies:

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

Steve Leslie replies:

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

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

Daniel Flam adds:

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

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

James Sogi replies:

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

J. T. Holley reminisces:

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

Russell Sears suggests exercise:

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

Pamela Van Giessen laments:

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

Nat Stewart adds:

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

Professor Gordon Haave replies:

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

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

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

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

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

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

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

Sam Humbert responds:

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

Professor Gordon Haave replies:

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

Stefan Jovanovich responds:

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

GM Nigel Davies responds:

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

The President of the Old Speculators Club:

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

Roger Arnold replies:

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

Jim Sogi adds:

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

Steve Leslie offers:

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



Daisy May's BBQ USA | 623 11th Ave | At 46th St

Daisy May's is, according to Zagat's (as quoted by the restaurant) the "Best BBQ in New York City," and proprietor Adam Perry Lang has appeared on Oprah, in the NY Times, etc. He originally sold BBQ from a pushcart, and, in the spirit of a Yiddish folktale, did well enough to open his own store!

We stumbled on it by serendipity, but would have sought it out anyway, "had I known" it had such a pedigree.

The food is good, in general, but expensive'ish. Mr. Lang eyeballed my family and graciously selected about the right amount of food for the four of us, saving my having to order item-by-item.

The brisket was excellent, and the chicken was good, though the pulled-pork sandwich was loaded with slaw that blended with the pork into a sloppy, and not so appealing, amalgamation. The sides were the strongest point, creative and well-prepared.

But I am not sure about the whole Gestalt. In my NYC years, BBQ was about kitsch. I think of places like the divey Brothers BBQ in Greenwich Village (before it moved to a bigger, airier space) where the food was an afterthought. BBQ is an immigrant cuisine in NYC: comfort food for homesick "immigrants" from the heartland who have come to the Big City to grab their main chance. It that sense, it is like Indian or Korean or Puerto Rican food.

But Daisy May is earnest, not kitsch. Mr. Lang is proudly a "Daniel Boulud-trained chef" (!?) and uses ingredients like sel-de-mer (?!) in his cooking. And given his earnestness, the food should somehow, maybe, be better than it is.

The atmosphere was picnic tables in a high-ceilinged room with big-screen TVs overhead tuned to Country Music Television — the night I visited, a NASCAR retrospective. But NASCAR on the TV is no substitute for real NASCAR chatter in the dining room, and there was none among the grab bag of hipsters, families, tourists in attendance. Ersatz, yes, but not kitsch. Somewhere in no man's land.

J.T. Holley adds:

My family has a pet hermit crab and we utilize sel-de-mer for its sustainability. Flip upside down its shell, fill it with water, mix in a little sea salt and it is like cat nip for the old Pincher. It is good to use near and after the molting process.

Also, I forgot the name of the establishment but the BBQ was fair to middling at some joint near Broadway. The cornbread was made with a touch of sour cream, which is one of my favorites.



Taking Out the Cane

September 25, 2006 | Leave a Comment

A recent article from The Times, noticed by Sam Humbert, and another from Pearsons Magazine dated 1901, found by Ryan Carlson.



ABC NEWS Sept. 18, 2006 Would Americans Buy Cars From A Company Called 'Gord'? Times are so tough in the American auto industry that the country's two biggest nameplates have actually talked about a massive combination. Reports out of Detroit suggest that GM and Ford had discussions about the possibility of a merger or alliance.

Ford and GM merge
Money-losing "synergy"
From Carly's playbook?



Life for woman who BBQs husband and feeds him to tigers

The Thai woman who arranged for her English ex-husband to be barbecued and had his remains scattered around a tiger sanctuary was jailed for life today. Mr Charnaud had divorced Pannada because of her gambling debts and had been awarded custody of their son Daniel, now seven. (.. ) They tried to shoot him with an antiquated long barrelled musket but it backfired. They then beat Mr Charnaud to death with iron bars and a lump of wood. The killers placed his body on an already prepared charcoal barbecue then cut up his cooked remains and spread them around the tiger reserve. (.. )



Sept. 6 (Bloomberg) — Hewlett-Packard Co. is being investigated by California's attorney general to determine whether the company broke the law in discovering the identities of board members who leaked confidential information to the media. (.. ) Fiorina, who was fired after more than five years, said her ouster came after she had a "fundamental disagreement" with board members about management changes they sought. In October 2005, she criticized unnamed directors for providing details of discussions that took place in January of that year to the media. "When confidential board conversations become public and what should stay inside the boardroom goes outside the boardroom, then a very important bond of trust is broken," Fiorina said in response to a question after a speech at the Massachusetts Institute of Technology on Oct. 7.

The boardroom antics
at HP never end. It's
like she never left.

She threatened Deutsche Bank,
and table-hopped at Davos.
Carly's "bond of trust"?

HPQ's leakers
forgot the obvious choice.
Dude! Use a pay phone!

Sam Humbert adds:

A coup in progress?
She's hearing whispers from her
hair and makeup guy.


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