Christopher Tucker recommends:

Boyd: The Fighter Pilot Who Changed The Art of War, by Robert Coram

John Boyd, or "Forty Second Boyd", had a standing bet against any and all comers at the Air Force Fighter Weapons School at Nellis AFB in the fifties that, beginning from a position of disadvantage, he could out maneuver and defeat any opposing pilot in air combat in less than forty seconds. He was never beaten.

Boyd knew in his gut that he had stumbled upon a very deep principle of combat and it took him years to finally articulate it, one of the results of which is the OODA loop. (Which is much more complicated in practice than simply Observe Orient Decide and Act.)

His theories led to a complete rewrite of the curriculum at the Marine Corps Amphibious Warfare School and the development of the Marine Corps Maneuver Warfare tactics.

He was also the originator of the energy- maneuverability theory which revolutionized combat aircraft design and the way pilots think about controlling their aircraft.

Great book, not particularly well written, but tons of practical ideas.

Stefan Jovanovich points out:

A recent paper on Boyd's OODA Loop

Abstract: The concepts of the late US Air Force Colonel John R. Boyd have influenced military thought in profound ways, from the design of modern fighter aircraft to the tactics used by the US Marine Corps in both Gulf Wars. This paper describes the best known aspect of his strategic thought, the OODA “loop,” and how practitioners in war and business can use the loop to implement a framework that has proven successful since the time of Sun Tzu.

A reader adds:

The article briefly mentions Japanese samurai defense concepts. The part of Musashi Miyamoto's Rin Go No Sho I like for trading is the part about attacking while running away.

It seems as contrarians, a lot of the time you are running away, but attacking at the same time. In a combat situation, the pursuer's mind is set on attack and his attitude is forward, then has a hard time adjusting when the escapee turns suddenly and attacks, creating confusion and hesitation.



those who know about music: it is well known and accepted that beethoven couldn't multiply and couldn't dance. yet he wrote many pieces with complicated rhythms like 13/12 in the Appassionata. and many other unusual rhythmic pieces - how could this be? wouldn't he have had to notate such pieces? and wouldn't that require a very high degree of mathematics?

Laurel Kenner responds:

No, musical rhythm is not like, say, linear algebra. It’s even different from multiplication. Beethoven was a master of syncopation. He probably didn’t get dancing lessons. 

Christopher Tucker comments:

A lot of mathematics can be done without the use of numbers and their operators.  A lot of it can be done visually without ever mentioning numbers and I think it is safe to assume that the same applies for auditory - tempos, rhythms, scales, finding notes that are all in the same key without having to think about it in a way that is normally associated with doing math. 

Peter Krupp adds:

We all have an innate sense of rhythm, to a higher or lesser degree, which can be developed. I was fortunate to have studied for a few years with a professional pianist who was a student of Artur Schnabel, one of the great Beethoven pianists of the 20th century. She played and demonstrated many of the Beethoven sonatas and had me listen to many of Schnabel's recorded performances. Not once did she count out the rhythms or do any sort of mathematical analysis. She demanded "feeling & sensing" the rhythm. I never developed the pianistic skill that she had. I played for my own pleasure. My first love was science and mathematics but prior to her tutelage I lacked awareness of music as a sensory-based art. My experience with her completely changed that outlook.

An historical note:

Statistics of Mental Imagery
Francis Galton (1880)
First published in Mind, 5, 301-318.

Laurence Glazier writes:

The inspiration comes ready made. The composer has to write it out. A steady rhythm is a social construct. The blackbird and nightingale know nothing of it.

I am just now orchestrating Andaluza by Falla, and have been removing a beat from some of the bars which sounds more natural to me.

Had Beethoven actually used the time signatures which came, maybe, to his mind, there would have been resistance from the players. He had enough trouble anyway getting people to play well.

A corollary - the not dancing is helpful, as that would have predisposed the mind to a steady rhythm. However you can be sure of his math prowess.

Nils Poertner writes:

the use of the trampoline (the mini-rebounder) can be a very useful tool on the aspect of re-learning rhythm.

it is probably the case the vast majority of the population these days has got some aspect of blockage or a lack of sense of rhythm - and also learning disabilities - except they don't perceive it that way.

here is good old Ray Gottlieb (former eye doctor from Rochester, New York- who inspired me with his work):

Attention and Memory: A Stress-Point Learning Approach

James Lackey adds:

Army marching singing cadence they are very good at every task as the US Army tells you what to do, how to do it and even explains why.

Anyhow it was 1% that CAN'T dance. It's a heck of a lot lower than all think.



 The first in the two volume autobiography of Asimov is perhaps the best I've read.

If you like to learn, or are from NY, this is a personal eyeopener.

The second book in the series, after he landed on Easy Street, is boring.

"In Memory Yet Green: The Autobiography of Isaac Asimov, 1920-1954"



 As AG correctly notes, most military "news" is very, very old information. But it sometimes seems to take its own sweet time about arriving where the world of money is concerned.

"Beautiful Day For A BONE Flight"

"B-1B Deployments"

Chris Tucker writes: 

So these aren't Bones, but BUF's. (Big Ugly F**ckers), other wise known as B52's. But it's a cute story. And I made up the call sign.

Around about twenty four maybe twenty five years ago. I'm a fresh, new radar controller at ZNY. I'm getting "seasoning" time, working the radar on my own, in full command of the sector, but with a highly experienced old hand sitting next to me in the radar hand-off position (sort of like an assistant) to keep me out of trouble. Happily, the old hand on this particular day was one of the best, most naturally gifted air traffic controllers I've ever had the pleasure of knowing. And I've known a few. His name is Dominic.

We are working the Yardley Sector, Sector 55, a busy and complex departure sector that blends southwest bound NY Metro departure traffic from EWR and LGA area airports with west bound and northwest bound JFK departures from the south east. At the same time, we descend BWI and DCA arrivals from the northeast through the departures and sequence the bunch. It's a fun sector to work, some people don't like it because, and I'm serious here, the angles are funny. You have to understand aircraft types and decide, long before they cross, who is going to be on top in any merging situation. We love Boeings - they climb fast. We hate Airbus - they don't.

So I'm working my tail off and I have this great big gaggle of traffic in the southwest corner of the sector, everybody is crossing and I've used almost every single altitude available to me between Flight Level One Eight Zero and Flight Level Two Eight Zero (essentially eighteen to twenty eight thousand feet). I'm waiting for a few pairs of planes to deconflict so I can climb every body and ship them over to the next controller, so my attention is focused (too much so) on this area. A departure checks on the frequency off of LGA, up in the northeast corner of the sector, level at one seven thousand, itching for higher. Standard stuff. So as I'm dragging my eyes up towards him I've already begun speaking: "U.S. Air Seven Forty One, New York Center Roger. Cliiiimb aaaand (eyes not yet there) maiiintaaaaiiiin." And Dominic explodes with a resounding "NO!!!" Aah. Yes. Now, very nonchalantly, I say "U.S. Air Seven Forty One, disregard. Maintain One Seven Thousand. Traffic, twelve o'clock, four miles, opposite direction, a flight of nine B52's in the block, Flight Level One Eight Zero through Flight Level Two Zero Zero". "US Air Seven Forty One roger - we weren't going anywhere - we heard him!"



 Le Carré is a wonderful author and I have repeatedly enjoyed his George Smiley books, especially the Karla Trilogy which begins with Tinker Tailor Soldier Spy, a fictional account of the operation to root out the Cambridge Five, including the Russian mole whose character is based on the traitor Kim Philby.

The second book, the Honourable Schoolboy, in which Smiley attempts to rebuild a devastated British Intelligence Service by gleaning information from those operations that the mole had actively suppressed, takes place in southeast Asia and gives a very realistic glimpse into the utter insanity of the conflicts raging there. (the wiki page on the Honourable Schoolboy has an interesting glossary of intelligence service jargon which le Carré employs profusely throughout the novels.)

The final and triumphant Smiley's People finds our hero called out of retirement, once again, to tidy up the murder of one of his former agents. His investigation puts him on the trail of his Soviet nemesis, Karla.

All three books are spellbinding page turners. But, but, but, my absolute favorite adaptation of them (with the exception of the Honourable Shcoolboy whose subject matter was extremely unpopular at the time), is a pair of BBC mini series (here, and here) starring Alec Guinness as Smiley. Guinness is riveting and the stories unfold like a blossoming flower. Simply fantastic, I can't recommend them enough. (they can also be found on youtube, here and here).



 There are thousands of drones out there, and the newest technology makes them incredibly easy to fly. Most large drones now have the ability to remain a preset distance from the transmitter, so they won't collide with the operator. Most have a gps based one touch RTB (Return to Base) button that will bring the damned thing back if you lose sight of it. The little ones are an absolute kick in the pants to fly, and hexacopters even more so because they can spin with amazing rotation rates (quite a spectacle when they are lit up).

My son's latest has a radar altimeter and he can program a ceiling into it, so it won't go higher than the tallest doorway and get stuck to the ceiling. It does flips with a single touch to the controller (which is any smart phone - just an app) and attaches to a hydrofoil for fun in the pool.

The little ones are great indoors, but pet hair is anathema to them. Outdoors they will suffer in any sort of wind, and remember, if you go above the treetops, wind speed increases dramatically.

You can start small, really small for under $20: (we have four of these).

I highly recommend extra rotor blades and a cage, bundled here with spare motors for $5.

EDF (Electric Ducted Fan) quads are nice because the rotor blades can't hit anything. This is a fantastic beginners machine, if you want to buy ONE machine, this is probably it .

This one is slightly next level, requires some skill, ~$60

Serious fun is FPV racing (first person view), there are thousands or amazing videos, here's a quick one.

If you want to shoot semi pro or pro video, start with a DJI Phantom 3 or 4.

And for fun here is an absurd video of a human flying drone.



 Everyone talks about the weather without defining 'warm' and 'hot' and applying a scientific plan to deal with it.

Yesterday Sunday was a 'warm' day in Slab City, CA. Warm by my definition means the ambient temperature is above the body temperature. One must move and breathe expertly to cool the body. Examples are volitional or subconscious control to move blood to and from the cool and warm body parts such as the skin, bone marrow and internal organs; and breathing in a manner to cool the air in route to the cool and warm lobes of the lung. A seasoned person who can do these things in outdoor activity is only 'warm'. My shirt left in the shade yesterday was too warm to handle comfortably, but shirts don't have the capacity to train themselves as the human body does. I've been out in the desert for fifteen years working up to the harsh summers by driving the car with the heater on full blast and the windows up, and by exercising gradually into the high temperatures. Yesterday it was 120F at 7pm in the shade of the town thermometer.

When it gets what I call 'hot' then I cannot brag so much. This is when even I can die on a leisurely walk without shade. Yesterday I was able to walk 4 hours with 10 lbs of ankle weights and no water. However, the 'hot' days are coming when it will be impossible for me, and I believe for anyone on a sustained basis. 'Hot' is another quantum leap that occurs when the body can no longer shunt blood and breath inside the body to cool itself. Outside resources are required to exist during exercise such as shade, water, and rest periods. Hot c occurs at about 120F or above depending on the breeze, alkalinity of air, elevation (we're 120' below sea level here in Slab City), and haze above a basin that acts as a magnifying glass of the sun's rays. The 'hot' days are coming in August and you may still be active outside using a baggy full of ice inside a hat that melts through a pinhole, drinking warm water (increases the rate of absorption), and resting ten minutes each hour in the shade.

There was a stream of bicyclers and walkers yesterday from Slab City along a 3 mile stretch to the little store that was sold out of water and nearly out of ice. The people thought they were suffering, but the hot weather is on the way.

Chris Tucker writes:

Stefan J. recommended Essentials of Sea Survival by Golden and Tipton recently and I cannot praise the book enough. It has a very thorough and scientific discussion on how the human body retains and sheds heat and the physical consequences of each.

Pitt T. Maner adds: 

My worst experience as an environmental geologist was working in 95 degree South Florida heat, 80 percent humidity, in modified level C with a full-face respirator, fully enclosed in impermeable Saranex.

Young and not overly cognizant of proper heat stress avoidance procedures, my teammate and I would saw cut through cement and then twist and turn a hand auger to collect soil samples to about 4 feet while a nearby gear testing unit engineers went through throttle up and throttle down torture tests.

It was a taste of what the upper circle of hell might feel and sound like. A couple of red devils with pitchforks were all that was needed.

We soon figured out that we could get fully dressed in our PPE and survive in our suits for about 30 minutes at midday before our gloves pooled with sweat and the level of perspiration inside our masks reached our lower nostrils and began to fill our chemical resistant boots.

We tried hard to avoid the feeling of claustrophobia but a surge of panicky adrenaline paid a visit once or twice a day to both of us.

Getting smarter (by trial and error) on the second day we began working earlier in the morning and wore cheap ice vests with pockets for those cool containers you can freeze over and over in the fridge. Each morning session lasted about 3.5 hours and then we weighed in on a scale (usually I was 7 pounds lighter by then) and headed of to an early lunch and rehydration. After and hour or so we would head back for a quick session to get in another 2 hours in the afternoon.

My teammate and I did this for 5 straight days. On Friday we collected our last samples , filled out the chain of custody and lab task order sheets and shipped the samples coolers to the analytical laboratory. Off to 7-11 for water, Gatorade, and 2 cold beers (wasn't a good idea).

For the next week I felt like I was battling the flu. The accumulation of heat stress and environmental stress each day sapped energy–there was no real training effect–there was a breakdown and exhaustive effect on the body and mind.

Fortunately after about a month the symptoms went away.

So if you are doing heavy work outside in high heat conditions you need to not only be physically trained but also aware of the how insidious heat stress can be. Best to know what the health and safety guidelines are on the matter too and take the advice of experienced medical personnel. Hydration, sitting down and resting, getting out of the direct sun, etc. etc. And for the amateurs a buddy to come along or at least someone who knows where you are and when to expect you and/or radio or smartphone at hand. 

Best regards to the desert dwellers. 



 This weekend brings us the first America's Cup qualifying race in New York since 1920.

But the players aren't what they used to be. These ridiculously fast hydrofoil catamarans are not the sleek and graceful mono-hull thoroughbreds of the 20th century, but lean, super high tech and monstrously powerful machines that crash through the water at speeds that regularly exceed 30 knots. Capsizes are common , dramatic, and in 2013 proved deadly.

As a tribute to this weekends races, a little history on some of the technology involved. Patents by Emmanuel Denis Farcot in 1869 lead to work by Enrico Forlanini, which inspired Alexander Graham Bell and his partner Casey Baldwin to design several hydrofoil equipped craft, including the HD-4, which, in 1919, set a world marine speed record of 70.86 mph that held for ten years.

Hydrofoils have been in use and improved regularly for over a hundred years, but were not practical in sailing vessels until the advent of carbon fiber materials which provided the necessary strength with very low weight. This technology has added fresh excitement to the sport and culminated in a world sailing record of 51 knots by Alain Thébault and the crew of his dream child Hydroptère in 2009.

The other part of the speed equation is the use of fixed wing sails which can drive a foil equipped multi-hull at almost 3 times the speed of the wind which makes for such thrilling racing. The problem with wing sails is that if they are prevented from swinging in a complete arc around the mast, it is impossible to de-power them in a strong gust. This is the case with the AC45 class boats used in this years Cup, which have shrouds and a jib carrying fore-stay that limit the motion of the wing and that is one of the reasons we are seeing so many of them capsize.

I am excited about the seeing them attack the course this weekend, races 1 thru 3 start at 2pm today, Saturday May 7th at Brookfield Place. Races 4 thru 6 start at 2 pm tomorrow, Sunday, May 8th.

For details see the America's Cup website or consider a special Circle Line spectator cruise.



I'm reading Stefan's recommendation, Essentials of Sea Survival by Golden and Tipton, and it is a gripping read.  As I'm not a Kindle reader, I had my wife hunt it down in paper and the only library that carries it on Long Island is, of course, the Montauk Libarary, home of Frank Mundus, the inspiration for Quint. The book briefly mentions a couple of other incidents that I've read about before.
If you enjoy harrowing, real life tales of the sea and especially of sailing, than I must highly recommend Derek Lundy's mesmerizing account of the '96-'97 Vendée Globe single handed solo race around the world, Godforsaken Sea: The True Story of a Race Through the World's Most Dangerous Waters.
One of the many stories within is about Tony Bullimore who capsized in the Southern Ocean in 52°S 100°E and survived five days up to his chest in icy water within his overturned vessel.  See a reenactment with actual footage of the rescue (~6 min).
Another even more amazing tale is that of the rescue of Raphaël Dinelli by former Royal Marine and fellow competitor Pete Goss.  In 70 knot winds and thirty foot seas, Dinelli capsized and his mast crashed through the deck of his yacht like a straw through a fountain drink lid.  After the boat righted itself, it was full of holes and slowly began to sink. He stood on the coach roof in freezing waters for 24 hours while Pete Goss, hearing of his emergency, turned back into the face of the storm and sailed to find him.  Goss sailed for two days to Dinelli's location, suffering constant knock downs (boat rolled to the horizontal with masts in the water), when he finally got there he couldn't find him. Meanwhile, the Australian Air Force had located Dinelli and dropped a life raft which he promptly crawled into ten minutes before his boat sank completely.  An Air Force plane helped Goss find the raft and he managed to get Dinelli aboard safely. Goss recieved the Legion d'Honneur and the MBE for his efforts.
Goss' narrative of the race and rescue is also a fantastic read.
Video of Pete discussing the incident with photos.
"I'm not a naval gazer, I don't have to find myself, I'm not a tortured soul, I just do it 'cause I enjoy it.  And that sometimes disappoints people."



 The CME site says, "The CME Group Market Data Platform (MDP) disseminates event-based bid, ask, trade, and statistical data for CME Group markets and also provides recovery and support services for market data processing. MDP 3.0 includes the introduction of Simple Binary Encoding (SBE) and Event Driven Messaging to the CME Group Market Data Platform. Simple Binary Encoding (SBE) is based on simple primitive encoding, and is optimized for low bandwidth, low latency, and direct data access."

This sounds like a compression algo. Music is decoded into MP3, to lower bandwidth. I heard an interesting article on NPR about someone who analyzed what is missing from an MP3. Turns out quite of bit of interesting and valuable information that makes music more beautiful is dropped. They claim the full data can be extracted, but I'm concerned. It will cause a lag and delay. I use tick and execution data in my work. I am guessing there are players that can get full uncompressed data. I am concerned the compression will alter the true nature of the trades, their times, and other info. I use DTNIQ who says they can decode the packets to full data, but why do I doubt this? Who will benefit from this?

Anyone else have a take on this?

Jeff Sasmor writes: 

I was actually at a conference where the group that developed MPEG audio presented. Interesting place - Mohonk Mountain House in New Paltz NY; well worth checking out, it's iconic for a number of reasons. I think it was the IEEE ICASSP conference at the mountain house where I first heard about MPEG audio.

But I digress: MPEG audio is what's called perceptual encoding. The (basic) concept is that you can remove information that people won't hear anyway and they won't be able to tell that it's not there.

It's not the same as the sort of compression used when you zip a Word document. As you suggest, there is a delay due to decoding it, but it's short and generally not relevant for a typical use case.

Compressing a stream of 'ticks' is probably very different. There's a lot of repeated data time-domain-wise so you could use something like run-length encoding (which is sort of what IB does) although I'm sure it's more complex than that. As you suggest, one would want something that has low time latency in the decode process. Happily, it's much simpler to decode than encode for most types of data compression AFAIK. But there would be some delay. But it's most likely lossless.

Finally, I have read and find convincing the idea that an uncompressed data stream of tick data would overload the data transmission channel for any name that had any serious volume. If you're co located at the exchange or pay for a private fiber connection to the exchange it could be fine but not over the retail Internet. Even forgetting about the data rate you'd need to store it as it came in without overrunning buffers and the buffering itself would cause latency.

So if you have $$$$$$$$$ and an IT department you could make uncompressed work but probably not otherwise. But as the encoding of this sort of data is probably reliably lossless it may be less of an issue than you're thinking of.

My 2 cents.

Chris Tucker writes: 

If you are a person that enjoys nature, Mohonk has a very particular and endearing charm. Summer is nice for the family–swimming and hanging out at the lake, walking trails with amazing views–try the trail up to Smiley's Tower for incredible views of the Hudson River Valley. Autumn is spectacular as the trees change, cool nights on the veranda wrapped in a sweater and parked on an old rocking chair are delightful.

There is excellent golfing. But my favorite thing about the place is that it is ensconced in the heart of the Gunks. The Shawangunk Ridge is a focal point for serious rock climbers from near and far and I've spent some very memorable times there, including an utterly bizarre encounter with an Apache helicopter that must have been practicing popping up from behind a cliff. I could see my reflection in the pilots visor. Scary close.

If you enjoy mountain biking, I can HIGHLY recommend the nearby trails (relatively easy) at Lake Minnewaska. The views from Gertrude's Nose are breathtaking. Lake Minnewaska was home to two grand Catskill hotels until the seventies, but they both burned to the ground. See some interesting history here.



 Adrian Bejan gave a great talk at last night's Junto. You can get a good feeling for the content by watching his videos. This one uploaded by Duke University is almost identical to his talk last night with the same slides. The ideas presented are very interesting and WELL worth a half hour of your time.

Other similar talks:

(TedX Bucharest 2010, 20 min)

(TedX Mid-Atlantic 2012, 15 min )



 There have been hundreds of fights over time and these are the most memorable:

1. 1988 Sir James in Huntington Beach‏

In 1988 I was living in Huntington Beach, CA doing demonstrations on the beach and under the pier in preparation for my attempt to break 100 inches of concrete at the Ed Parker National Karate Championship. I was in top shape, and had a buddy, Joe, who was small and got picked on. He came up to me one day to report that some guys at a beach party had disrespected him. I hopped on the back of his moped and we rode into the party. I got off and there were no words. They knew why I had come. Two guys came flying at me and I dropped them with a left and right to the chins using their own momentum to knock them out. Two more came and I forward jabbed them in the faces knocking them out. Two more came and I spinning back kicked one in the face and in the same motion back fisted the other, and both were knocked out. They started calling me, Sir James, and one of the six reported, 'Sir James is a dangerous man. He knocked six of us out in 13 seconds.' Actually there was a seventh who came on slowly, alone. He had some boxing skills and we fist fought. He had speed, but I was a little faster, so I slowed down and took a few blows to see what he had. Every good martial artist should to take strikes to know what his opponent is made of, and out of respect. I kept him in it for a long exchange, backed him up against a wall, and said, 'You are one touch youngster' and he hit me in the face drawing blood in the corner of my mouth. I liked that, and walked away from him, but the Sir James name stuck.

2. 1984 Graniteville, SC

In 1984 some local toughs called the Moss brothers catcalled my sister in the Graniteville, SC market parking lot and wouldn't leave her alone. When I came on the scene she was in near tears with two of the brothers on the lot and the oldest in their pickup. They were rough guys, but not gangsters and probably were picking on sis to test me. Sometimes I think people started fights with me just to watch the performance at the price of getting their asses whopped. One came up to me and said, Rambo (my nickname in the south), what are you going to do if I hit you with this bat?' I said, 'Hit me and find out'. He reared the bat over his head and I threw him the pitch. It was a spinning back kick to the chest with so much force he flipped head-over-heels and landed out cold. His brother was moving forwarded but hesitated, and I whirlwind swept him with a spinning squat with one leg out taking his legs out from under him. I helped him up and asked, 'Want to go again?'. He shook his head. I walked to the oldest brother in the pickup and asked, 'Do you think that was a fair fight?' He said, 'Rambo, there is never a fair fight with you,' and rolled up the window.' My sister swooned, 'Oh, James!', and I became friends with the Moss family after that. You have to defend family but can't embarrass someone in a small town and expect to ever relax. It's better to make friends of your enemies after you beat them up.

#3 1985 CCI in South Carolina‏

Central Correctional Institute (CCI) in Columbia, South Carolina was a dangerous place in 1985, especially for me. I had a rep as the toughest guy in this oldest Confederate prison in America. The main hall was called Death Tunnel with several cell blocks on both sides. I had just come out of Metal Shop into the Tunnel and two guys came at me. One was holding a 16" pipe and a 7" knife and the other had murder in his eye. For them to have those weapons here must have been a setup by a guard who either wanted to see a good fight or to have me killed. There was a guard standing next to me as the two advanced, and I asked, 'Well, are you going to do something?' He was frozen with fear, so I eyed the PR4 strapped to his hip which is what the correctional officers call a swivel baton that martial artists call a Japanese Tonfu. I was an expert with the Tonfu. The guard saw me eyeing the baton in his holster, and said, 'Rambo, don't do it', and as he spoke I grabbed it and faced the killers. The one with the pipe and knife muttered, 'Rambo, we're going to beat your ass and kill you.' As he swung the pipe I thrust the Tonfu out from under my shoulder in a fake strike and did a spinning back kick into his solar plexus that knocked him ten feet back and he lost both saddles and dropped the knife. I knocked the knife out of the way with a foot. He got back up with the pipe, and i said, 'You'd better do it quick 'cuz the cops will be swarming in thirty seconds.' He swung and missed, and I stepped in and hit him with the baton with a series of serious strikes. There was blood all over, so I wiped off the baton, slid it back across the floor to the guard (so I wouldn't be accused of attacking him), and the cops were all over us. We were surrounded by inmates chanting 'Rambo' who explained to the cops what had happened. They dragged the attacker away with a broken jaw, orbit, fractured skull and missing some teeth, and his partner had fled. The guard got fired, and I never got bothered again at the prison.

4. 1994 Corcoran Shoe Scopaletti

Corcoran State Prison in CA was called the 'most troubled state prison in America' by the *Los Angeles Times* when I was there in 1994. It was more trouble for me as a sexual offender because the Brand Aryan Brotherhood was murdering sexual offenders right and left. You cannot house convicts and sexual offenders in the same facility and have peace. Over a period of two months, of the Brand had eased into a relationship on the SHU (Special Housing Unit) yard where we would slap each other on the shoulder and do the prison routine of walk and talk around and around the yard. One day, I sensed something in their mannerisms that was suspicious; it had been a set up. They took a killers' stance around me like a pride of lions. One named Dennis 'The Mongoose' Scopaletti clapped me around the shoulder, and I felt a sting in the front of my neck. It spun my head and I continued into a spinning back kick that caught Scopaletti in the temple that crashed into a cement pillar. Blood and gray matter oozed out, and he sunk to the ground flopping like a fish, already dead. The other three ran away into the razor wife. Alarms sounded, red lights blinked and I started to get pelted from the wall by wood bullets. A Big Bertha block got me in the leg, and I knew the next shot would be live, so I lay still on the ground while the responders surrounded me. They dragged the Mongoose off and the guards got me up and asked me if I was alright. I said, 'Yeah', but was having trouble swallowing. A welding rod I hadn't noticed stuck in my neck, so they walked me like Frankenstein to medical where they pulled it out and sewed me up. The yard camera had caught it all, and the guards said I was safe now because the Brand had sent their best man the Mongoose to kill me and he had failed.

5. James Doc Holiday

Had I known that James 'Doc Holiday' was the General of the Black Guerilla Family (BGF) and leader of the Symbionese Liberation Army (SLA) when he patted my ass and said, 'Welcome home, boy', our fight might have lasted more than one second. When he started that in the shower room I finished it with a foot in his temple and he went down out cold. Three guards rushed up, asking. 'Do you know what you just did?' 'He started it, I finished it.' I said. 'Gather your clothes, one ordered. They slapped on a K-10 Red Bracelet on my wrist that is the most sensitive custody. I was crowned 'King of the LA County Jail' by the inmates, guards and staff. It was 1978 and I was only nineteen. Doc Holiday and I made up in High Power maximum security but in every facility I entered after that someone wanted to test the 'King'.

6. 1992 Rolling Pin at Ely, Nevada

‏When the California prisons (CDCR) couldn't hold or protect me any more in 1992, they transported me to Ely, Nevada State Prison. That warden wasn't happy with the responsibility because I was a marked man as a celebrity martial artist and sexual offender. Soon after the transfer, two Aryan Warriors came at me with a typewriter rolling pin and screwdriver. As the rolling pin crashed the back of my head I spun into high caps and hit the Warrior four times with my elbow in the face. In that instant, the other stuck the screwdriver in my forehead at the hairline. I backed him up against the wall as a wave of guards rushed us. Now they made we walk the gauntlet between the guards and the jeering convicts who might have it in for me. The screwdriver was jiggling up and down as I did a sidestep on my own blood through the hallway to the clinic. They unscrewed the driver, and then put me in solitaire. I was so mad I kicked the door until the walls started cracking and the hinges bent out. The guard screamed for backup, and they had to torch the door open. The warden called California and told them, 'You come get this guy. No cell here can hold him!'

7. Sixteen Officers Down‏

In 1978 at the LA County Jail third floor chow hall a guard smacked the back of my head for no good reason. Guards do that to get themselves in hot water so the rest of the guards can jump in and beat up an inmate. The guard smacked me and said to, 'Hurry up,' and I went off verbally. In seconds, my buddy Virgil Kim and I were surrounded by five shouting guards. They didn't count on the backbone of Virgil Kim, a Korean who was an expert in open hand Karate. Back to back, we fought the charging guards until the Goon Squad arrived with their nightsticks, shields and riot gear. That made it even until one dropped his nightstick. I grabbed it and hit them so fast Virgil's eyes were spinning. Then I tossed him the nightstick and he beat the ones nearest him. We used their shields and helmets, passing the baton and hitting them with everything in the chow hall including the coffee pots. Sixteen officers were down! Sergeant Bullis and Brother Gerald, the Catholic chaplain, came in quietly and approached us with palms raised. I had great respect for both of them, and when Bullis said, 'Calm down, and this won't happen again,' I believed him. We piled all of the riot gear next to the unconscious cops, and Virgil and I got our pictures taken wearing their black helmets, and the officer who slapped me got fired.

8. Mexican Standoff‏

Unit 3100 in LA County Jail is called the 'soft block' and I was there as a first time offender of any law of the land and had not yet been declared 'dangerous'. This was my first and last fight in a soft tank because, after it, I would go on to knock down James 'Doc' Holiday and the third floor chow hall 'Sixteen Officers Down' and from then on be housed in special units because either I was dangerous or someone dangerous was after me. But in 3100 in 1978 I was minding my own business in the day room when six burley Mexican's decided to test me. They walked up and said, 'We hear you're good. Let's see how good you are!' I always give people like them a chance to walk away, an out, so I replied, ' Are you sure?' The response was two advanced from the front and two from the back, while two stood at ready. I always take care of what's behind me first, so the ones in front can watch and have a chance to leave. I saw the ones in back in my peripheral vision and used Bruce Lee sounds like, 'Ooh! and Hah! to distract them. I took them out in one motion with a kick to the chest and leg swept the other. I spun, and did the same with the ones in front. The two others had just seen poetry in motion, and didn't want to be the next stanza. I helped them up, asked them if they wanted to play it again, and they said, 'No Mas!' The test was over and we became buddies. You never hit anyone in the face who's trying to test you or establish a pecking order because it's more of a handshake than a fight.

9. Brush at Wasco

In Wasco State Prison in 2009 an inmate came at me with a toothbrush with a razor blade fixed in the handle. He was out to brush my teeth, waving it in my face to intimidate me. I asked, 'Are you sure you want this? I don't want you crying about it later.' He raised the razor, and I right forward kicked his shin. I usually defend against prison weapons with a kick because it would have to hit an artery to do any damage. Then I follow up with punches. My kick broke his tibia that stuck out through the skin like a splintered stick, and then i closed with an elbow across the face that knocked him out. They call assassins like this 'Torpedoes', but he never touched me.

10. Chinatown Street Fight‏

In San Francisco's Chinatown in 1981 I was contacted to fight the ranking world street fighter, Jimmy Tenaca, a Japanese from Seattle, in what the Japanese sometimes call *Kumite*. The modern version of this is Ultimate Fighting where *Kumite *often takes place inside a ringed area similar to that of a boxing ring. In this case, they led me at dawn into Chinatown where the shops were closed on both side of a street that was blocked off, and no cops. It was illegal, high wage street brawling. Tenaca was ranked #3 on the street fighting circuit and this was my first fight. He was cocky and muscular, known for his hand and foot speed. I was a backwoods, self-trained and also known for hand and foot speed. We were surrounded by about 130 people including many Japanese Triad in their sleeved shirts and old Chinese gentlemen smoking. Dozens of kids perched on the shop roofs as Tenaca and I did the pre-fight bow and moon-sun hand-in-fist 'handshake'. He instantly moved in with punches and kicks, while I dodged his attack to observe. I saw he was a traditional fighter trained in a dojo, so I took a free style position. I began throwing punches and kicks using mainly Wing Chun for close combat. My blows landed hard on his arms and shoulders causing him to wince. The Chinese in the crowd murmured to acknowledge their impact and the kids on the roof clapped. After three minutes of exchanges, Tenaca waded into me with hands held high, and by a fluke he raised one to throw a punch just as I released a front snap kick that went under his arms into his advancing chin. Down he went, but not out. They stopped the fight as I walked away the winner out of Chinatown with $7000, I was invited into the USA street fighting circuit but it wasn't my style. I only fight for defense or to aid a victim. It will sound strange, but my best techniques are lethal and can't be used in street fighting. I didn't want people to know what I could do, and wished to remain a free spirit.

Victor Niederhoffer writes: 

What's your opinion on how the former 'world's greatest martial artist, escape artist, and psychic fared with fists.

Jim Sogi adds: 

I've been reading a lot of Lee Child's Jack Reacher series. It's pure pulp fiction, but surprising captivating book after book after page after page. Great mystery also.

Jack fights a lot, street fighting. He uses the head butt, which people don't expect, and the forehead is strong against the nose, and eyes.

He also does a lot of low kicks the the knee, and elbows to the face, and punches to the solar plexus. Punches to the face often result in broken hands so are not effective.

His motto is get your revenge in first, and don't fight fair. Of course he's 6'5' and 250 lbs which makes the punches more effective.

A great guy, I really like him.

I question some of the reverse and spinning kicks the guy talks about in Vic's post. Such kicks in reality are much too slow, and give the opponent way to much time to kick you in the balls while your legs are up in the air. Real fighter don't use high and spinning kicks. It's movies stuff.

Anton Johnson writes: 

Hi Jim,

Thought you might enjoy this video clip, even though it may be a set-up.

Jim Sogi replies: 

In a real street fight the idea is to incapacitate the attacker instantly and permanently, then walk away quickly and not gloat over the attacker.

People think "put up the dukes" and picture Bruce Lee high kick and don't expect the low fast kick to the knee. A big low kick to the thigh can prevent the attacker from chasing when you run right after also.

If you train and can do it size wise, broken finger by hitting attacker hands with a weapon is good. Some sort of weapon is also helpful and advised. Timing is important, don't wait those first beats, strike first.

Now I'm too old for that type of thing anyway.

Trading lessons abound. Strike first, strike hard. Don't necessarily wait for regular hours. Hit and run.

Chris Tucker writes: 

An old friend, Mike, was Marine Force Recon–astonishingly huge guy–arms bigger than my thighs, was hanging with some friends from Seal Team 2 in Honolulu, stepped out of the bar with one of them and headed down the street. A huge Samoan dude hails them from an alley "Hey Bra", "yeah??", "why don't you give me your wallet now?" Mike reaches back for his wallet, winds up and slams this guy in the chin with a roundhouse. The Samoan, a head taller and even larger than Mike, touches his chin and smiles down at him. The Seal, a medic and only 170 pounds wet, gently pushes Mike aside and says "Let me handle this". He steps in front of him and darts past the Samoan, slamming a wicked kick with his heel into the side of his knee, putting him down instantly, screaming in pain. "I told you to let me handle this stuff, you big dummy".

Ralph Vince writes: 

But the problem with a kick, a rear kick or a sidekick is they need to pretty much be standing still. It's very difficult to do if someone is moving around, at least for most mere mortals or fat guys like me.

I've given a lot of consideration to the idea of "getting out of there," after a confrontation, or during it, or if there are multiple attackers. I think you have to stick around, no matter what, and I think there are a number of reasons for this. (I had an episode, a possible entanglement, just last night, that I thought might be trouble, late night in Buenos Aires, with the wife, and the thought occurred to me).

Assuming you are NOT the aggressor (and old fat guys like me never ought to be), then you have to consider several factors, all of which suggest you need to stick around the scene after a problem.

For one, you're probably captured on video somewhere, so if you leave, there's video not only of you, but that you left, which is not something innocent people should do. Secondly, there is a good chance you will be with a female, and a good chance she is in footwear not conducive to getting out of there. Third, I'm too old to run away, and not much inclined to no matter what the younger aggressors might have in mind. Of course, this is why you always need to have multiple, non-redundant weapons with you (and an extra clip of ammo. Look, if you have to shoot someone, and stick around, and you better, they likely have friends, or family nearby, and they may be armed too).

But then there are situations like last night, where you cannot be carrying weapons, and you're at a tremendous disadvantage, especially against potentially multiple aggressors.

Hydrick had some interesting stuff in that post. I think he mentioned something about not being afraid of other boxers or grapplers or martial arts kinds of guys– and you never should be, at least in my opinion. Those are different sports altogether than a real fight. They need their footwear or their clothing or whatever to be comfortable, and they are used to certain rules, etc. If you look at someone you can get a pretty good idea of how they would fight, based on their build and physiognomy. Just because someone has a lot of boxing in their background doesn't mean they have an advantage in a real fight.

For example, it's not uncommon to see a lot of boxers move into a position down and to the outside of their opponent in a sort of "crouched" position, with, if the two opponents are right handed, has the crouchee with his left hand almost against his tummy, his right hand up, not unlike the very popular-of-late "shoulder roll" position, the latter being far away, the former where the aggressor wants to get inside.

But that position (and I contend there are only 8 positions your head / body can viably be in in any fight and have a chance, and most people quickly get out of position) will get you biffed in a real fight where kicking occurs. Instead, someone who wants to get "to the outside: of his opponent (again, assuming two right-handers) is to step in with hands high, left shoulder snapped down towards the right hip, and not waste time in their (whereas the crouchee does want to waste time, he really cannot be hit with any force down there, and he can skooch out if necessary, but this all falls apart in a world where kicks are coming and the fight is usually over in a few seconds).

So there's really not a lot to fear in any opponent, as long as you've decided you're going to hurt him and stick around, and if multiple people, you aren't going to have to encounter more than two or three of them, and most of them are without a clue and not looking for a fight really (which is why they are in numbers), even if you don't have a weapon on you.

So, I've kind of come to the conclusion that it's a bad idea to leave. Best to stick around and tell the cops how you were being attacked, and that "It's probably on video," and be able to live with myself.

John Floyd writes: 

This is pretty standard kick called "kansetsu geri" or "joint kick", it takes some practice for getting the right power and timing but is very viable, and in this case if the Seal really wanted to hurt him there were at least a dozen other things he could have done, one would be a "toho" to the carotid artery or "nukite" right through his eyes, there are also many techniques that allow death to occur slowly over several days to avoid immediate implication of the attacker, but the best advice though is just avoid these situations if you can.



 David got home from his two year church mission on June 10th and is off to BYU-Idaho in the fall. Abbey has graduated high school is embarking on her life journey.

Hunter is off on his mission next year after he graduates. Lydia will still be home for a few more years.

We figured this would possibly be our last chance as a nuclear family to go vacation together. So I surprised everyone with a few months ago by announcing that we're taking a 2 week Mediterranean cruise.

First of all travel.

The St. Louis airport is kind of rat hole. Very old and drab.

We flew out of STL to Toronto on a small plane via Air Canada. The plane was cramped and uncomfortable. On top of that, it was hot. VERY HOT. They kept turning the air vents off. Not a very good flight except I sat next to a nice women (the family was not able to sit together for this part of the journey).

We arrived in Toronto late Friday evening and it was like stepping into another dimension. The airport was modern and comfortable and looked alive. I was very impressed. The only down side was the bathrooms. They were not very clean. But outside of that, it was a delight to wait in the Toronto airport.

We then boarded the Air Canada flight to London Healthrow. It was a big plan, but not huge. seats were 3 3 3 in coach. I was going to upgrade to business class, but with a family of 6, it was a bit pricey for my lower middle class frugal south St. Louis upbringing to swallow.

So I settled for upgrading to exit row seats for the boys (the girls got regular seats and did just fine).

I have to say it was nice being able to stretch my legs out. Also, having the head rests that have the sides that close in and hold your head stable were nice too. The seats were a bit hard and the only thing that kept me from getting more sleep on flight was the fact that my butt kept waking me up from the hard seat.

The stewardesses were really nice and a bit more international than we're used to in the states. But it was pretty interesting talking to people of such diverse backgrounds.

I managed to get around 3 - 4 hours of broken sleep on the plane, so I felt pretty good when we arrived in London.

A few observations about the flights.

1. The bathing habits of some passengers left a lot to be desired.

2. The parenting habits of some passengers left a lot to be desired. There was this one baby that cried and fussed all night on the plane. It turns out, he wasn't a baby, but a toddler. The reason that I learned this is because the crying would get closer and closer, then further and further away as the parents let the screaming crying fussing child run around the plane while they did NOTHING to stop the child.

Luckily, the child was far enough away so that it never got too bad for me where I was sitting. If I had been sitting closer to the child, I'm sure I would have done something or said something to the parents. I can guarantee you that I would I have made sure the parents were awake the whole time if they insisted on letting their kid run around screaming and fussing. Yes, believe it or not, the parents were actually sleeping most of the time all this was going on. (I went back and checked as I was looking to give the parents either assistance or a very dirty look…or even a few words of "encouragement").

Once we landed in Heathrow, we disembarked into a modern looking airport and friendly staff.

The wait for customs was a bit longer than I expected. But it wasn't bad.

Once out, we found our cruise line and loaded up. They said it was an hour to 90 minutes to get to South Hampton. It was a bit over 2 hours and it was, by far, the worst part of the travel day..sitting on a cramped bus with a bunch of exhausted people who hadn't bathed or brushed their teeth in at least 24 hours wasn't too terribly bad. The worst part was the fact that the exhaustion of not getting enough sleep in the last 24 hours was really setting in.

However, even through all of that, nothing was going to take away from the excitement of taking my family on this wonderful trip.

Once on the ship, we decided as a family that we were going to stay awake till a normal time, get a good nights sleep and be on local time to fight off jet lag. We were pretty successful in our endeavor to stay awake….until we ate dinner. As we sat there eating, we made plans for what we were going to do all evening. The kids wanted to do the flowrider, Gwen and I talked about a show…a few of the wanted to "yonder" (a family word for exploring the ship and wandering around)…all good ideas…until we got our belly's full.

As dinner progressed and our belly's got full, all we could think of was the blissful release of sleep.

By the end of dinner, Gwen and I gave up on the plans to go out that evening, and headed back to our stateroom. We figured we'd sit on the balcony and watch the stars and waves go by. The kids decided to "yonder" a bit, but only lasted about an hour (at least that's what Gwen told me…because I didn't even make it onto the balcony.

I slept from 9 pm till 7 pm the next morning…the most I've slept since college…and it felt great. One more good nights sleep and I think I'll be good to go.

In the meantime, I'm gonna relax, get a massage and maybe take in a show with the wife.

One more day at sea and then we hit Gibraltar.

We hit ports in Spain, France, Portugal, Italy and England. I think two ports in each country. I'll update the list as to observations as I am able.

Bon Voyage for now, I'll check back later!

 Day 1:

We left Southhampton, went through the English Channel and then into the Sea of Biscayne.

Made friends with random people at meals. Sat with a couple from Wales. He works in IT with Unilever, I don't recall what she did. They talked about how Brits get much more "Holiday" than we American's do…at least 6 weeks.

They also gave me a breakdown of the UK and what was ok to call someone from the UK. Being from Wales, it was perfectly ok to call them English or even British (though they preferred English). Apparently, the Scot's and the Irish do not think of themselves as English and can be offended if you refer to them as such. They are, apparently, a fiercely independent lot.

We met a small group from the Isle of Wight at our Muster Station. Very pleasant group who went out of their way show a little kindness to us (letting us out ahead of the crowd as they were in wheel chairs and/or blind…so they got first shot at the exit area…and let us go ahead).

For dinner, we met a couple from Manchester who were very talkative and interesting. She was a retired postal worker and he was a semi-retired "weight station operator" who had his own business verifying the scales at weigh stations on the highways.

The couple from Manchester were very interested in asking us questions about our children and America. They wanted to understand the gun culture of America. They had both grown up in the day's prior to the prohibition on guns and remember having guns in their household.

Their impression of America from the MSM was that it was a semi-wild west with shootings all the time. Of course they suspected that it wasn't that way at all as they had been to America a few times and never saw a single gun while they were here.

The variety of people on this ship is amazing. One might expect such multiculturalism from the crew (and they are), but the passengers are from all over the world. And the best news is that most of them seem to speak at least a little English. We've no problems communicating with anyone…well…almost…

It takes a while to pick up on the accents. Even when speaking with someone we share a common language with, I'm finding that it really takes concentration on my part to sift through some of the thicker accents. Couple that with strange phrasing and colloquial words, and it can be a bit of a task at times picking up on the message that is being communicated.

Makes me wish I had watched more Monty Python or Fawlty Towers when I was younger.

Well, it's after 1 am here, so I'm gonna call it night and try and report more tomorrow. Hopefully, I'll be able to have some financial conversations about local economies to report on soon.

Chris Tucker writes: 

One reason youngsters tend to scream aboard aircraft is failure of their inner ears to equalize to the pressure change. Typically, when cruising in an aircraft above 28,000 ft, the cabin is pressurized to about 10,000 ft. above MSL. This is why your ears pop when climbing or descending. If you have a cold or any inflammation in the sinuses or inner ear, then some cavity within might have some air from sea level pressure that can't escape, creating blinding pain in the skull. An old trick to remedy this, quite effective, is "hot cups". Many older flight attendants will instantly know what you mean if you ask. They will take two small paper or foam coffee cups, stuff a napkin in the bottom, soak it with boiling water and then place them over each ear. It will frequently (not always), provide some relief.



 Ken Jenning's book Maphead: Charting Weird World Geography is a wonderful read, especially if you are into maps and even if you aren't. It introduced us to Geocaching, which is a worldwide phenomenon now, a real treasure hunting experience that the kids love.

The book is good about addressing the true lament of all geographers–geography is NOT just about maps, although he goes into some detail about the market in high value antique maps and the incredible acts of fraud and vandalism that tarnished one of it's best known dealers when Edward Forbes Smiley III was caught stealing from Yale University's rare-book library.

The book is a very quick, fun read and filled with interesting trivia, such as where is the worlds largest island on a lake on an island on a lake on an island.



 On December 20, 2011, at 9:38am, Jeffrey Buckalew, a successful investment banker and pilot, departed Teterboro, NJ bound for Atlanta in his Socata TBM 700 turboprop along with his wife, their two children, a business associate and the family dog. By 10:05, they were all dead.

The NTSB declared the probable cause(s) of the accident to be:

The airplane's encounter with unforecasted severe icing conditions that were characterized by high ice accretion rates and the pilot's failure to use his command authority to depart the icing conditions in an expeditious manner, which resulted in a loss of airplane control.

Happily, I wasn't working that morning, but I worked that sector for 25 years and the controller who was working the aircraft when it went down is a friend of mine.

The accident highlights a couple of issues that are highly relevant to trading. First, the threat of complacency which can lead to a failure to recognize that a dangerous situation is developing, and second, the need to take action to correct the situation immediately. We must be vigilant and nimble.

This excellent video by AOPA's Air Safety Institute gives a thorough discussion of the accident and its causes. I was particularly keen on the last two minutes or so (transcribed below) and it's insights. In the first paragraph, replace the word aircraft with "systems" and aviation and flying with "trading" and you can see what I mean.

Sometimes experience harms more than it helps. Rather than making us more vigilant, it can lead to a sort of comfortable complacency, not only about the dangers we face, but about our own capabilities and those of our aircraft. Complacency is arguably aviation's most common vice, and one of the hard truths about flying is that it's sometimes punished with extraordinary severity.

The pilot of N731CA was in the clouds for a total of approximately five minutes. Roughly two minutes passed between his first indication to ATC that icing was a problem and the beginning of the final plunge.

It takes time for the human mind to spin up when suddenly confronted with a problem. It takes time to recognize that things have changed and process the idea that an extraordinary response is called for. All during that time, part of the mind is fighting against the new reality, arguing "stay the course".

Two minutes isn't much time, but it's enough time. Enough time to make a decision, declare an emergency and reverse the climb. Or, just push the nose over and worry about ATC later.

Or at least, that's what we'd like to think. The truth of the matter, which is that two minutes really isn't much time for someone who is surprised, conflicted and almost certainly frightened, is decidedly less comforting.

Anatoly Veltman writes: 

Yes, there is an adage that biggest losses come immediately following biggest gains. It's also possible that big gains may follow big gains. My explanation is that what brought the initial big gains was the increase in volatility.

Gary Rogan writes: 

So if either big losses or big gains follow big gains what is one supposed to do after big gains?

Stefan Martinek adds: 

Theoretically, we should de-leverage and adjust for volatility (I assume our initial position was volatility normalized). Practically, doing nothing and ignore some vol. spike usually does not hurt as much as believed especially for long vol. strategies. Exit/adjustment is therefore different if strategy does well in storms or if it is killed by storms. Some trading storms are good.



 Mr. Sogi has posted some very informative things on understanding snow pack and avalanche likelihood.

Here is an interesting article on the science behind avalanches and some recent technological advances in avalanche survival: the avalanche airbag backpack.

This second link is a one minute video of an actual avalanche survival: Snake River Float Avalanche Airbag Save.



 Excerpted from Smarter Every Day:

I never thought I'd see diesel for $π again! Oh, and gas under $2 is cool to. Thank you, geopolitics. The Saudis are keeping production high. There could be several reasons for this. The main reason is thought to be that they want to maintain control of the major oil supply infrastructure. If the price of oil goes too high, others will be able to make money selling it, then these competitors will be able to build up their own infrastructure. The OPEC nations are making an investment in their future by trying to kill future competition. They kill future competition by never allowing it to grow in the first place. It's a pretty interesting economics problem if you ask me. You limit FUTURE supply by flooding PRESENT supply. Whatever their reason for doing it…. it's pretty clever.

Gibbons Burke writes: 

I don't think the Saudis could do this sort of thing on their own without it serving some other political rationale which serves some sort of United States strategic interest. It would be too nakedly an act of economic war on the U.S. oil producers whom are providing enough supply for the U.S. To become more self sufficient for oil needs, even to the point of becoming a net exporter.

The only way the Saudis could make this happen is if they had the approval of the White House, and the White House couldn't and wouldn't attack its own domestic producers unless it had a treasonous animosity to its own corporate energy producing infrastructure (which it seems to have), and could justify allowing the Saudis to squeeze our balls in the name of doing the same thing to Boris Putin for his Ukranian hegemony and intransigence.



 I have been thinking about the origins of stealth aircraft. The theory was developed using unsung ideas from a Russian scientist.

"How Lockheed's Skunk Works Got into the Stealth Fighter Business"



 I liked the conclusion of this article:

"I predict that if we continue implementing Common Core, average students will drop out of math as early as they are allowed. Even math-bright students will hate math. Tutoring companies will proliferate to serve wealthy families. The educational gap between rich and poor will widen. If we want to destroy math and science education in this country, keep Common Core."

Ed Stewart writes: 

In my opinion a lot of the need for "change" is very likely driven by PC motives, which is why when it is looked at logically from a mathematics perspective it makes no sense. My guess is (using an example from article) it was hoped that allowing calculators for everything and allowing an increased use of "cheat sheets" would open up math for more equal distribution of supposed talent.

In terms of pace when I was in school we did have an accelerated math program but one had to test into it with an IQ test. The notion that a curriculum can be designed that can shuffle through all kids to be "above average" is part of the problem. It is a lack of realism.

I strongly disagree with the author that non-college kids are necessarily sent to dead-end jobs while college kids are not. Reality is working in a cube with a degree is just as much a dead in job as others, particularly in the outsourcing era where such work has been massively devalued. The notion that keeping ones hands clean is always better is just a bias. Guys who get involved in a field that actually builds something or is otherwise productive such as Natural resources will be better off vs. a twin of equal ability shuffled through the "college" program. And clearly many who see that opportunity follow this different track. Charles Murray is right we'd be better off admitting college is useless for all but the relative few - making it more accepted for people of even moderate above-average ability to go right into a job for training.

Stefan Jovanovich writes:

The need for "change" in education is driven by nothing more than the same financial incentives that operate in all markets where the customers are not the actual users of the product. Even military contractors have to deal with the fact that at some point the soldiers, sailors, airmen and marines have to use the weapons; and, if they don't work or work well, people get hurt, and then the survivors get mad and resolve to get even. Elementary and secondary public education in America has no such feedback mechanism. No school keeps data on the future trades and incomes of their students; in fact, in the name of "privacy" (that Federal Constitutional right that first trimester unborn children lack but the rest of us have), schools are prohibited from collecting and keeping such data. So, in education, "change" happens not because of any customer demand but because of the incentives it offers to the people who manage and create the changes. Every curriculum change means more money for the creators of the curriculum and, far more important, more paid time on and off time for research studies, training and conferences - all of which guarantee time away from the nasty children.

It does not matter whether or not the change works for the customers; indeed, there is a real incentive for the change to fail because that has invariably meant that more money, not less, should be spent on schooling. (Er, sorry, not "spent", "invested")

P.S. There is no evidence that public "job training" works any better than classroom education in the academic subjects; "job training" is another field where the government pays the money and the customers' feedback is completely ignored. The roughnecks who are getting semi-rich in North Dakota right now learned their trade from the informal apprenticing that comes from having an uncle in the oil bidness.



 There are a number of texts on single handed sailing, which speak to the effects on being becalmed on a sailors nerves. It may surprise some to know that long periods of being becalmed are more dreaded than fierce storms by experienced offshore sailors.

Since many traders work for themselves, I wonder how many are able to handle a lack of action without unintentionally selling volatility.

Many a lake sailor has learned this lesson and got caught with too much sail up when the weather changed abruptly.

I'd observe the Chair's courts provide such an outlet.

Chris Tucker writes: 

 When I sailed from Honolulu to Berkley in the late eighties we suffered from exactly this problem. There is a semi-permanent high pressure system that usually sits between Hawaii and California  and in order to sail back to the mainland you have to go around it. This means sailing northward from Hawaii for some time and then turning east towards the mainland once you've gotten around the northern edge of the high. The temptation is always there to make the turn. You are, after all, not sailing in your intended direction and there is a tremendous amount of psychological pressure to make the turn. After a while we found ourselves behaving like a bunch of kids in the backseat: "Can we turn yet? Can we turn yet? Can we turn yet?" And of course, we turned too soon and were becalmed for 17 days of our 27 day voyage. I saw the Pacific Ocean flatter than any pond. You had to put your face right down against the water and look along its surface to see the 1/2 inch tall swell.

We also dealt with some fierce weather and parted several sheets and lines — all of which had to be replaced to prevent the sails from being ripped to shreds. The top of the pilot house was fourteen feet above the water line and we were taking green breakers right over it. I had to replace the outhaul on the main, riding the boom like a rodeo cowboy in the middle of this. Exciting to say the least. I have to admit that shinnying up the forestay to gasket the jib, with the stay rotating in huge arcs and trying to fling me bodily into the sea while the bottom dropped away from below us and then screaming down the face of the wave to bury the bow in the trough - this - this was exhilarating and I've rarely felt more alive. The doldrums on the other hand, they were their own kind of hell. But I did find some of the most solidifying inner peace I've ever known during that time. So completely different sides of a coin. Looking back it seems that a tremendous number of miracles chained together have kept me here still breathing on the face of this rock. It is a wonder, an absolute wonder that I'm still here.

We were in a 56' ferrocement (yes - a concrete boat) 86 ton ketch. She was a very slow beast of a tub but quite roomy and comfy with a stable helm. There is nothing like the sea (except perhaps a bare rock face several hundred feet up) for pure clarity. 

Craig Mee writes: 

Work out your plan and the surrounding environment early, then plan to reassess in x hours or if the wind conditions change. Shut out any thoughts by fixing the radio or doing onboard work. Just like with trading, shut the monitors down, set call levels and work on some project management. Don't give the gremlins and hoodoos freedom to run wild.

Calm markets are worst after you take a hit and have lost ground and the agitation is there to move p and l to previous highs. The fact that markets delivered opportunity previously is directly correlated to the loss of opportunity currently. So vigilance and attention to detail should be at their highest. I wouldn't argue at this point to downsize positions until you play back into form.



 The Golden Ocean, O'Brian's first novel of the sea and first of two about Commodore George Anson's incredible 1740 expedition to harass the Spanish off the South American coast. 

Of the five ships that set out on the voyage, only one completed the it, Anson's flagship Centurion. Of the 1,854 men who left England, only 188 returned. The squadron met with horrific weather off Cape Horn and men died by the score from Scurvy and injury. At one point Centurion was burying six men a day. It is a tale of unmitigated disasters, unlooked for deliverance and unbelievable, almost incalculable success.

The book is a prelude to the Aubrey - Maturin series, of which so much has been said on this list, and you can see O'Brian here developing the methods that he used in that wonderful series. In his second book about this expedition, The Unknown Shore, which is about the Wager Mutiny , and which I have yet to read, O'Brian sews the seeds for the friendship between Jack Aubrey and Stephen Maturin as midshipman Jack Byron (a real person) and surgeon's mate Tobias Barrow serve as prototypes for that pair.

The Golden Ocean
begins with young Peter Palafox, son of a poor Irish parson, leaving home to join Centurion as midshipman, never before having seen a ship. Peter and his traveling companions are on their way to Cork so he can take passage to Portsmouth. Along the way they stop in Derrynacaol to attend a horse fair. I thought this piece fitting as a jaunt to the Meadowlands approaches:

Derrynacaol: it was two full days' journey from Ballynasaggart to Derrynacaol, far out of the country of Peter's knowledge, but they were to try to reach it in a day and a half, for the great horse-fair was held at that time of the year and it would have been the world's pity to pass by without seeing anything of it. They would arrive in the afternoon of Wednesday if they travelled by moonlight, and they would be in time for the races. 'It is the race they call the Town Race that we must see,' said Liam as they went up the white road of Slieve Alan, 'for that is the great race and the town gives a silver bell to the winner.' 'Are they very fine horses, Liam?' 'Are they very fine horses? They are the best in the world, my dear, fit for Julius Caesar or the Lord Lieutenant, and there is half Ireland lining the course and cheering the winner. Why, even the worst and the last creatures that run there would be like a comet in Ballynasaggart and it would put the mock on Cormac O'Neil's brown gelding, the ill shaped thief.'

'I wish I could ride in a race like that,' sad Sean, who was up behind his uncle for a rest from the road.

'Pooh,' said Liam. 'A great long-boned, tick-bellied slob of a thing like you? Those tall and stately magnificent horses would bend to the earth. No indeed: unless the gentry who own them are as light as may be they have little jockey-boys who weigh no more than an owl. For they are mad to win this race, do you see? And not an ounce will they carry that they can spare. It is not only the honour of bearing the bell away, but each gentleman pays five guineas to enter and each lord ten, and the winner takes all — and there are side stakes too, and the betting: but I'll say nor more of that.'

'And why will you not?'

'Because it's there is the evil side of racing. Did his Reverance never tell you how wicked it is to gamble? And do I not tell you it is foolish as well, and I the best judge of a horse in the County Galway, if not in the whole of Connaught, whatever Cormac O'Neil may say. No: it is a fine and laudable sight, the glorious creatures, and then there is the piping and the dancing; but the betting and the wickedness–there's folly for you, and under his Reverance's command there will be none of it; nor any truck with the thimble-riggers and the common coney-catchers. And while I have it in my mind I will warn you against the pick-pockets, or they will certainly steal the teeth out of your head. Indeed, they may do so even then, for there was a man from Dungannon who had the wig snatched from his poll in the hurly-burly by the winning post, and he holding his pockets with might and main; which I had from his aunt in Dungannon itself: so if you have any money or valuable thing upon you at all, give it to me and I will carry it in the purse, God shield us from harm. For you cannot conceive of their wickedness.'

Now I will not ruin the story entirely for you, but if you know anything about O'Brian's writing, well, you can guess what it is coming.

I highly recommend the book, it is easily as exciting as any of the Aubrey-Maturin books, just as well written and filled with period and geographical detail. The Audible version is not narrated by Patrick Tull and so is diminished in that regard, however, the story is so compelling that one soon get's over the fact and is swept up into the action.



 A look at last night's highly enlightening talk by anesthesiologist Keith Smith and co-founder of the Surgery Center of Oklahoma, who spoke about the tremendous cost of health care and how he is profitable while charging one fifth to one tenth what traditional hospitals charge for the same procedures. He is an advocate of free markets and price transparency and publishes prices for procedures directly on his website. This is a good article about his work.

Smith explained how insurance providers make more money repricing claims than they do collecting premiums. Incentives are in place for the insurance carriers to seek out the highest cost providers.

He explains it like this on his blog:

Nobody talks about this one: PPO repricing. You see, some PPO's (actually all of them I think) charge PPO repricing fees. This means that if the PPO pays $10,000 to a facility for a surgery or hospitalization that the facility charged $20,000 for, the PPO, by virtue of having "repriced" this procedure or hospital stay, gets a percentage of the money they" saved" whoever was paying the bill…usually no more than 25%.

"Wait a minute," you say! "You mean the PPO collects the premiums, then maximizes their profit by ratcheting down the payment to the physician and facility but also makes a percentage on the difference between the beginning and ending bill amounts? So the higher the bill is to start with, the more they make?"

I was amazed to learn that surgeons can perform the same procedure at Smith's Surgery Center and at the hospital across town and get paid more for their work at the Surgery Center than they do at the hospital.

Smith is disgusted with the fact that the current healthcare system is a syndicate or cartel that rigs the system and is bankrupting us in the process. He explained how Obama Care is only going to make things worse. However, he ended on a very positive note stating that the government does what it always does and screws things up so badly that the system will collapse on itself and people will find new ways to save on healthcare.

Smith ended by paraphrasing Camus and reminding us that

"The welfare of the masses has always been the alibi of tyrants."

(the actual quote: "The welfare of the people in particular has always been the alibi of tyrants." - Albert Camus)



 War story from an old air traffic control vet:

A controller is working at an old scope, laid horizontally with shrimp boats as target markers. There are assistants ("A men") standing around moving the boats to keep them over the appropriate targets. As a target leaves the sector, the boat is removed and the call sign that was written on it with a grease pencil is erased and replaced with a new one as a departure enters the sector. The radar is old broad band, so the targets are very large near the sensor (antenna) and get smaller as they move further away. When it gets busy and the New York airports are pumping 'em out, sometimes a single broad target will resolve itself into two or three separate airplanes. So the departure sectors could get extremely busy, identifying and separating airplanes.

This old vet is telling me a story about one of these "departure pushes" and explains how difficult it was to be busy when using shrimp boats. Controllers tend to become extremely focused when working busy pushes, and this time was no different. The old vet, "O", we will call him, finally gets up, rubbing the back of his neck. He tells the guy next to him that it was so strange, he kept feeling that his head was being pulled down into the scope throughout the push, it was the damnedest thing. The other guys laughs and says "that's cause the A men were using your tie to clean the boats!"



 I'm feeling inspired today by the camouflaging ability of the cuttlefish.

The cuttlefish uses an ingenious approach to materials composition and structure, one that we have never employed in our engineered displays," said coauthor Evelyn Hu, Tarr-Coyne Professor of Applied Physics and of Electrical Engineering at SEAS. "It is extremely challenging for us to replicate the mechanisms that the cuttlefish uses. For example, we cannot yet engineer materials that have the elasticity to expand 500 times in surface area. And were we able to do that, the richness of color of the expanded and unexpanded material would be dramatically different. Think of stretching and shrinking a balloon. The cuttlefish may have found a way to compensate for this change in richness of color by being an 'active' light emitter (fluorescent), not simply modulating light through passive reflection.


'Parker is an Army reservist who completed two tours of duty in Afghanistan, so using the cuttlefish to find a biologically inspired design for new types of military camouflage carries special meaning for him. Poor camouflage patterns can cost lives on the battlefield.

"Throughout history, people have dreamed of having an 'invisible suit,'" Parker said. "Nature solved that problem, and now it's up to us to replicate this genius, so, like the cuttlefish, we can avoid our predators."

"In Search of Nature's Camouflage"

Chris Tucker writes:

This 5 minute video has astounding footage of cuttlefish, octopi and squid blending into their environments.

The octopus footage at the end is particularly amazing. But I thought the squid was fascinating as it kept its warm cuddly colors on the side of his body that faced the female and the other side of his body colored to warn off other males and it flips as he swims to her other side. It's definitely worth taking the time to watch.

"Ted Talk: David Gallo Shows Underwater Astonishments"



 Here am I in New York City, no time for longer philosophy right now, but quick observations. After talking to friends in recent days, left and right, all ages, NY TX IL …. I'm not sure the real problem is left vs right or statists vs libertarians or socialists vs capitalists, etc.

Because all those worldviews have deeper roots…

Here is what strikes me as possibly the REAL issues…

1. Emotionally driven public policy. (Holy Moses, there is a homeless man, somebody give him some money now! Raise the minimum wage! Ok, problem solved!)

2. A public that is illiterate in arithmetic (not math) and afraid of it, of data, of statistics.

3. A public with no education in economics, even the most basic understanding of how prices clear markets and how that is just as beautiful as dinosaurs and butterflies.

Of course I am saying it's a failure of our k-12 education system.

Its not socialist teachers…I see little evidence of that though of course some exist but I don't know that the students believe them….it's teachers and students piling up over the years who were never shown these things (analysis, rationality, economics) in the first place. It's a problem of curriculum balance. Every grade schooler probably knows how to recycle and figure their carbon footprint. And how to "give back."

I also think there is a real gender gap in these items, especially the emotion point for many women voters. Perhaps not unlike the gender gap in science and technology.

Or something along those lines…you get my drift….


Gary Hoover


Chairman/CEO Bigwig Games, Inc. Play Hard and Prosper

Chris Tucker writes: 

Here is a video of the talk Gary gave at the Junto, almost verbatim.

Richard Owen writes:

Mr Hoover should add John Lewis in the UK to his list of impressive department store business models. Great talk.

anonymous writes: 

I also enjoyed Gary's talk very much. Seems the historical mechanism for success in retailing has been increasing quality while reducing price. I have been wondering about this lately with respect to healthcare. Along the lines of retailing, in the wake of the recession my patients seem more sensitive to cost, and they don't want to be "nickled and dimed".

Over recent years in my periodontal practice, I have reduced fees, increased service, and do many more things without charging. Despite loss in local employment (Amgen layoffs, etc) and increasing competition, we've stayed quite busy. However like some of the retailers, our profits are down. Presumably by keeping fees low we have preserved market share.Some of my nearby colleagues take a different approach. Since their busyness and revenues are down, they raised fees - as if this will compensate for lack of demand. They are still not busy, but they do have patient flow and stay in business.

Recently I did some grocery shopping at a local supermarket I usually stay away from, which is a small chain known for high prices. One bag with a few items (including Chilean Sea Bass) cost $126, and I vowed not to come back. While in the market I saw several patients from my practice who looked very happy to be shopping there. Like many in our community, these were affluent people who don't need to budget for groceries. Perhaps they obtain status by paying extra to go to an expensive fancy grocery? The exact value of health care services is much harder for the consumer to judge than groceries. Perhaps my high priced colleagues are aiming for this demographic, and are willing to sacrifice market share. And if so, status-spending is a different twist to supply/demand.

Gary Rogan writes: 

 It is well known in high-end retailing (or actually retailing of any "prestige" products) that raising prices often increases sales. The function of prices is to communicate information about quality in that world. How can any self-respecting "prestige" buyer think highly either of themselves or the product if it's priced like cheap junk? I don't like people who think better about themselves when they pay more, but that doesn't change the reality of what sells at the high end. 

Rocky Humbert adds: 

Shopping in our local over-priced "gourmet" market last weekend, I noticed some brilliant-looking Chilean Sea Bass for $29/pound. I didn't buy any. I noticed an in-store special for Starkist Tuna for $0.99/can. I bought 15 cans. What are the lessons here?

1. It is arrogant and foolhardy to make judgments about other market participants and their motivations. The market and the economy works because participants have different preferences, values, and information. The vendor wants to know, and big corporations spends billions to shape the preferences. But they really don't and can't without unintended consequences. I didn't buy the Sea Bass because I was making a Paella. I bought the tuna because one of our cats is on a high-protein diet and at 0.99/can, the tuna is substantially less expensive than gourmet high-protein cat food!

2. Shaping customer preferences is not the same as offering a product that consumers want in a shopping environment that consumers enjoy. The couponization of consumers and the recent experiences of JCP and Sears illustrate this point well. My Lexus dealer offers an oil change for $50 whereas the Jiffy Lube charges $30. Lexus can take 3x as long as Jiffy Lube. Where do I go? Surprise! I go to the Lexus dealer because the waiting area is more comfortable, they treat me better, they have "free" coffee and danish; they give me a "free" car wash; I can do work while waiting so it's productive; and it's a generally more "enjoyable" experience. What is my enjoyment worth? Do the math. Are other people there because they are making a statement about "being seen" at the Jiffy Lube? Who knows. Product differentiation occurs at many different levels. But overall, it's rational and derives from utility curves.

3. I find that many people who have missed this stock rally (and I wish I had been more aggressive) rationalize the opportunity cost by thinking that the people who participated are "wrong". The rally has been "engineered" by the Fed. The long term fundamentals don't support the expectations. It's going to end badly. The Nikkei didn't go anywhere for X years so the S&P will do the same. Blah blah blah. I think the real story and lesson is that making value judgments about other people is not a productive exercise. Not in business. Not in the markets. And not in life.

Gary Rogan adds: 

 My favorite example of a case where judging motivation is easy comes from one of the behaviorist books I've read where a lady who owned a boutique in New Mexico had a display case of handcrafted Indian jewelry that wasn't selling at all. Once, preparing to go out of town she left a not to her assistant instructing her to mark down the jewelry with a suggested percentage. Due to her poor handwriting, the merchandise was substantially marked up instead of down, and to the owner's surprise almost completely sold out in just a few days. I will arrogantly (but not foolhardily) assume that the marginal utility of the jewelry came from the high price and not the suddenly changed quality or usefulness.

Rocky Humbert responds: 

Mr. Rogan, we both agree that there are many such examples of what you describe. Brands and pricing and intangibles matter. However, the academics often argue that these consumer preferences demonstrate irrational or gullible or other behaviors that are not "efficient" or not "optimal." My point is that the underlying supposition that "optimal" or "efficient" is a universally accepted, static, independent variable, is questionable at best, and misleading at worst. . If you voluntarily partake in an activity, you are getting "value" from it. If the activity is transactional and involves a seller and buyer, then both participants are getting "value" from the activity — or they would not engage in it. To the extent that the transaction is "zero sum" financially does not mean that some other intangible value is not being created. An observer might just not understand what the value is. It's all about personal utility curves.

An observer watching me decline the $29/lb Chilean Sea Bass and buying 15 cans of $.99 tuna would reach a very different conclusion than the truth. An observer wondering why any particular individual decides to shop at Whole Foods, Trader Joes, or the local A&P will similarly come up with questionable conclusions. (I'll bet that the person who started this whole thread doesn't shop for food regularly! Spending 60-90 minutes every week in a supermarket can be a huge chore and one of the attractions of Whole Foods is its environment and presentation.) Sure you can buy the same diamond on 47th street as at Tiffany's for a fraction of the cost. Is it the status of the blue box? Or is it the certainty and comfort of the buying experience? Or is it laziness? Or something entirely else. Countless examples of this.

Gary Hoover writes: 

 The books about marketing luxury and super luxury goods list many techniques which are the opposite of standard marketing wisdom for mainstream products. These include creating product shortages, ignoring negative reviews and keeping them off your website because you only want to talk to your advocates, raising prices to create status appeal etc.

While a walk down Fifth Avenue or other luxury districts worldwide might make you think otherwise, luxury goods are still a relatively small part of the economy. Neither BMW nor Daimler-Benz are in the world's top ten vehicle makers in units, though their dollar revenues rank them higher (especially due to Daimler's big truck and bus operations).

But the luxe segment has grown dramatically in recent years.

Nevertheless, the real dollar volume rests, like the last hundred years, in serving the huge and growing global middle class. Those companies have to pay attention to "old school" rules like price elasticity and great product availability and distribution.

In walking stores in New York the last few days, I was intrigued by the volume done by Swiss Chocolatier Lindt, with multiple Fifth Ave locations, who now drives their product through mass merchandising outlets like the drugstore chain, apparently without ruining product quality or perceptions thereof.

Amanda K comments: 

 Gary (aka Free Market Liberal),

As a female libertarian who has worked in the tech field for years, I definitely see the gender gap in both areas. I suspect that there is a higher percentage of people in tech that are libertarian-minded than other fields. Is it because they are more logical? Because they spend a disproportionate amount of time surfing the web for good ideas? I don't know. Even my female scientist friends reject small government… and they are supposed to be so logical! Of course, they are paid by the government so they may be a bit biased:)

Warning – Politically Incorrect Paragraph (or PIP) below:

I suspect that many of my girlfriends voted for Obama because he is handsome and youngish, they are more easily guilted into voting based on ethnicity, it's cool to vote Obama, to vote against him is to admit that they were wrong the first time around, and Mitt Romney is a plastic man – there is nothing to latch onto. In other words, they vote for emotional reasons.

There may be another issue in addition to the three issues you outlined:

4) A public that has abandoned basic moral principles. For example, if everyone recognized that it is wrong to steal, then it would be obvious that asking the government to steal in order to give money to the homeless guy is also immoral. Schools would be a symptom, not a cause of this problem.



P.S. – ENFPs and INTJs are the most likely to be libertarian with 5% chance each. The only letter in common is N: Intuition. One of the Myers Briggs websites contains the following statement as part of the description of an N: Sometimes I think so much about new possibilities that I never look at how to make them a reality. Sound like any libertarians you know? ;-)



 While it is impossible to state the exact cause of the crash of Asiana flight 214 at San Fransisco International Airport on July 6th, 2013, and catastrophic accidents always have more than one contributing factor, one can speculate a bit.

The facts so far indicate that the aircraft was below its target approach speed or Vref of 137 knots for the last minute or so of the flight and the speed was decreasing all the way to impact. See flight data from Flight Aware here.

Why is this important? Pilots need to maintain control of the energy state of the aircraft. Too much airspeed on approach will have the aircraft generating too much lift when it approaches the touch down zone and the aircraft will glide down the runway and land too late to stop before the end of the runway. Or, the aircraft will simply be too fast to stop prior to the runway end. Escape from this situation is simple - since the aircraft is generating so much lift and is fast already, the pilot can execute a maneuver called a "go around" and simply apply thrust and take off again. So an excess of energy is usually only dangerous if the pilots insist on continuing with the landing. But a lack of sufficient energy is incredibly dangerous and must be avoided to ensure a safe landing - this is managed by keeping the aircraft at its target approach speed. A lack of speed is deadly because it leaves the pilots with no buffer - no extra energy to use to escape from a tricky situation or a mistake of some sort.

The target approach speed supplies the aircraft with some key abilities, first and foremost is the ability to maneuver. The aircraft needs sufficient speed for the control surfaces to be effective - the ailerons and rudder need a certain amount of airflow over them to work. Speeds significantly below the reference speed may place the aircraft in a nose high pitch attitude that may result in a tail strike, even if everything else is done correctly. But the key in this incident is that a proper speed gives the aircraft the ability to generate sufficient lift to arrest or reduce its sink rate simply by applying back pressure on the elevator controls - pulling back on the stick. But if the aircraft is too slow, pulling back on the stick will not stop the descent and will eventually result in an aerodynamic stall - the wings will cease generating lift and the aircraft will begin sinking even more rapidly than before.

Whether the aircraft actually stalled is not important, what is key here is the inability to arrest the descent. The pilots of Asiana 214 attempted to recover from this situation by applying thrust. The problem with thrust is that it takes too much time for the engines to spool up to speed and then transfer that energy into the airframe - many seconds sometimes and in this situation, so close to the ground, a couple of seconds is not enough, you need an immediate response. Another thing about the target approach speed is that the engines are not idle, they apply thrust all the way to touchdown and are more readily available to provide lift if needed.

The news has made a great deal of noise about the absence of a key piece of instrumentation - the Instrument Landing System or ILS  for runway 28 Left. The truth is that while having the Glide Slope portion of the ILS available is very helpful, it is not necessary AND, the glide slope for 28 Right may have been available, which is for purposes of vertical guidance, identical to 28 Left. See one of the published visual approach procedures to 28L and 28R here to see the dual ILS localizer beams projected east into the approach flight path:  Personally I doubt that any pilot on approach to 28 Left would use the glide slope for 28 Right as the ILS would display lateral flight path information (Localizer) that is misleading and incorrect.

 Glide path information can be obtained in a number of ways, including the shape that the visual appearance of the runway takes in the pilots field of view — this is something that pilots acquire with experience and an experienced pilot gets a real feeling for when something isn't right. This is a major focus in one of the best books about flying ever written: Stick and Rudder: An Explanation of the Art of Flying by Wolfgang Langewiesche. Another, and this was almost certainly available to the pilots of Asiana 214 and I suspect that they were using it, is something called a PAPI or Precision Approach Path Indicator which is a system of lights that appear to change color depending on your position on, above or below the prescribed glide path to the runway. In any case, it appears that the aircraft was established on an appropriate glide path for most of the approach, however as its airspeed bled off, it was unable to maintain the proper descent rate and in the last few moments it descended below the glide path and then into sea wall prior to the runway threshold.

Okay. Every professional pilot knows all of this and much, much more. So what happened? The news has highlighted the fact that the pilot at the controls is new to the Boeing 777 and was being supervised by an instructor pilot. I have heard that this was the instructor pilots first trip as an instructor in this aircraft. The flight is a long one and fatigue may have played a role. It has been said that culture might have played a role — an unwillingness to point out something important and perhaps obvious to another pilot for fear of insulting him. There may have been an over-reliance on technology — trusting that the auto-throttles were maintaining the target airspeed — highly possible. But I'm not so sure. Even if auto-throttles are utilized, it remains a CRITICAL duty to maintain awareness of airspeed — airspeed has to be monitored constantly, in all phases of flight.

So how do pilots monitor airspeed? In this picture of a primary flight display, on the left you can see the gray speed tape. As the speed changes, the tape scrolls up or down and the current speed can be viewed in the black window in the center. In this example, notice the magenta number 250 above the tape and the magenta pointer to the right of the current speed window. (The pointer is commonly referred to as a bug.) This means that the pilots have selected a target speed of 250 KIAS (Knots Indicated Air Speed) AND since the bug is aligned with the current speed window, the aircraft is AT that speed. When the speed of the aircraft moves away from the selected target speed, the speed bug will move up or down with the tape — away from the current speed window. So this gives a very good visual indication to the pilots of where the aircrafts speed is in relation to the selected target speed. Also, the airspeed tape will display an amber band that signifies an area of unsafe speed. (In the example picture, an amber or red broken band is visible, displayed on the right edge of the tape at 265 KIAS and above — indicating an unsafe speed that is, in this case, too fast). Okay, so the pilots were flying a visual approach. In this case, the pilot flying may be mostly "Heads Up" — with his eyes looking out the windshield. But the pilot not flying is required to monitor the approach and will spend a lot of time "Head Down" — with his eyes directed at the instruments and is required to alert the pilot flying of any deviations from target airspeed or flight path.

So what happened? Why weren't the pilots aware of the low speed situation? In my opinion, there was probably something going on in the cockpit that distracted the pilots from monitoring instruments for key pieces of information, specifically, airspeed. Distractions on the flight deck are not new to aviation, they have been a major cause of concern for years and years.

So much so that in 1981 the FAA enacted FAR 121.542 and FAR 135.100 to help curb the number of these accidents. Commonly known as the "sterile cockpit rule," these regulations specifically prohibit crew member performance of non-essential duties or activities while the aircraft is involved in taxi, takeoff, landing, and all other flight operations conducted below 10,000 feet MSL, except cruise flight. (Click here to go to FAR 121.542 and 135.100.)

(above quote from here)

And from the same NASA ASRS Directline article cited above:

The most habitually cited offense was extraneous conversation between cockpit crew members.

It is therefore my guess that a distraction of this type may very well have been the root cause of the accident. Time and cockpit voice recorder tapes will tell.

Additional Notes:

1. Excellent article about Lessons Learned and a slightly technical discussion on some of the pitfalls of using the auto-throttles in the Boeing 777 at Flying Magazine:

2. Another mildly technical and well written article about the accident at

3. Discussion of cognitive factors associated with distractions (the side bar titled "Task Management" is of particular interest.)

4. Technical data about SFO airport (including links to published approaches)



 Yesterday we were payed our yearly visit by a large Cicada Killer who promptly dug a huge burrow in the yard and stocked it with prey within minutes of its completion. These wasps are really gigantic and scary — although they are not supposed to be aggressive towards humans it is difficult not to flinch and run. So far I have allowed the critter to stay.

The Cicadas are everywhere this year and they make a tremendous racket. But my kids are not so keen. They put the hose on the burrows and think they may have drowned them out. One of the problems with letting them be is that each year the young will return to the same place and dig even more–and they make a mess of the lawn.

I found this article quite fascinating "The Cicada Killers Are Coming".



 I was washing the dishes today and thinking about the plumbing in my house. When we bought this place seven or eight years ago, it was a dump. Cracks in the foundation, termites, even rats (yes — hard to believe, but true). There were small trees growing in the gutters. The previous owners left crap everywhere. The light fixture in my daughters room consisted of a single bulb in a socket with the wires simply hooked over and dangling from the wires in the ceiling box. Every single drain in the house leaked — when I removed the p-trap under the kitchen sink it crumbled in my hand. The sheet rock on the soffit over the kitchen sink had been removed, exposing the horizontal cast iron drain pipes that had visible and botched patching attempts that leaked onto the kitchen counter. Christ.

The main soil stack had a ten foot long crack that you could slide your hand into — there were signs of raw sewage on the basement floor. The yard…well, let's just not go there.

Before I could get a contractor in to do the renovation, I had to make the place safe to live in — because we were going to have to be there during the process. I was discussing the litany of problems with a coworker who did construction on the side, telling him I needed a plumber immediately. He smiled and said "No, no, no. No you don't. Drain plumbing is easy. Go rent a chain pipe cutter and remove the cast iron yourself - -it's simple, just make the pieces small because its heavy stuff. Then buy a how-to book on PVC plumbing. Again, it's simple and MUCH cheaper than a plumber. Map out what you need, buy extra elbows and fittings and when you screw up, cut it out with a hack saw and do it again. Simple. I promise."

Now I had a mentor years ago — still a good friend, but far away now, who somehow managed to instill in me a willingness to find out how to fix things. I'm a curious cat anyway so maybe easier for me then most. He owned a small business and did all of the maintenance and repairs on his vehicles himself. Big trucks, not semis, but big enough. Replaced the engine on one of them in a parking lot in the middle of a knock down, drag out Oklahoma rain like God is pissed at you personally storm. The guy had work to do and he needed the damned truck. There was something about that that I just loved. No freakin' excuses. If it had to be done, it got done.

 So when we moved into this dump, I mean place, we put most of our stuff in storage and I shipped the wife and kids off to her mother's for three days and prepared to get dirty. Removing the old cast iron was, in fact, easier than I could have imagined — and fun too. It was very satisfying to hear it snap with a resounding CRACK! Don't get me wrong, it was disgusting in a way that is hard to imagine, but I'm not afraid of filth. So, good, done in about an hour, and I cut the remaining soil stack straight and pretty as you please five feet above the slab in the basement.

I pulled all the toilets up and began by setting the closet flanges (the first piece of plumbing under the toilet that connects to the drain pipe). From below I then mapped out what pipe and fittings I needed to get to the stack, fiddled and tinkered, cemented, joined and plumbed my way all the way up through the roof and down to the basement and joined the whole thing to the remaining iron stack with a rubber Fernco coupling. I only botched two or three joints and it was not a problem to cut 'em out and do 'em again. It took me three days — most of that time looking up, rubbing my chin and thinking — maybe four or five hours of actual labor. I was so damned happy with myself that I didn't want the real plumber to come replace it when the time came to move the soil stack into the exterior wall (it was in the way of the new kitchen).

I tackled several jobs — dug down to the footing and repaired the crack in the foundation wall with a hammer and chisel and hydraulic cement inside and out and on the exterior set a 4' x 4' sheet of cardboard whose flutes were filled with pelletized bentonite to make a water impermeable barrier. (Think clumping cat litter.) Basement has been dry as a bone ever since. I sistered the rotten floor joists with 3/4" plywood and some heavy bolts, cut out and replaced portions of the mud sill and plate, replaced the water heater and learned how to sweat copper pipe from a book. The list goes on and on.

The point of all of this, is that when I tell most people, they are simply amazed. "How could you do all that?", "How come you know so much about plumbing and electrical stuff?", "Aren't you scared to mess with the wiring? What if something goes wrong?" And I can see their points, what do you do if you get in over your head? And the answer is to do the thing that I was trying to avoid in the first place, pay a professional to come set things right. Yes, sometimes the only alternative is real, hard earned, specialized experience or skill.

 The thing is — people are afraid to fiddle with stuff they don't know about or understand. Okay, I get that. But the thing that really bothers me, the thing that Robert Pirsig so eloquently expressed in Zen and the Art of Motorcycle Maintenance is that when you press people a little about that, the awful truth is that most of them don't WANT to know or understand. They really just don't wanna know. Or can't be bothered. That bugs the crap out of me. (This book, by the way, is not about motorcycle maintenance, it's a deep philosophical exploration of values — and it reads like an adventure story.)

Look, if you need brakes on the car and don't want to pay someone an arm and a leg to do them, then you have to acquire some basic knowledge — absolutely — if you screw up badly enough you could kill someone. But brakes are simple. They are SIMPLE to replace. But you have to get dirty, gain a little knowledge, maybe even THINK for a few minutes and then DO THE DAMNED WORK. And most folks just can't abide that. It's too much trouble. What if I screw it up? I don't like using a jack, what if the car falls? It's too dirty. It's tooo much work.

In Zen and the Art, Pirsig tells a tale about his companion's motorcycle. The thing has some valve chatter and, as was common on bike engines back then, the valves needed shimming. Not that hard at all, and look, here's an empty soda can — the aluminum is EXACTLY the right thickness to make shims — I'll take care of it here and now. But his companion would have none of it — he was afraid something would get messed up. Afraid. Just afraid. Pirsig goes into this in a very deep way that I can't hold a candle to and I cannot recommend this book highly enough to anyone involved in any endeavor that requires peeking under the hood, a little rolling up of the sleeves and some elbow grease. Perhaps trading especially.

Now get back to work.

(Some quotes from Zen and the Art)



This spectacular photo of a super cell that spawned a tornado about a minute later that touched down in Broken Arrow, OK was taken last night with an iphone from beneath a car with no special lighting or effects. Photo by Brian Ring (He gave explicit permission to use this photo on Daily Spec as long as he is properly credited)

The well formed wall cloud is quite spectacular. The photo is indicative of the defining characteristic of super cell thunderstorms - a Mesocyclone or rotating vortex of upwardly flowing air which can be detected using algorithms in Doppler Weather Radar which search for a Hook Echo.

Unlike the devastating F5 tornado that struck Moore, OK last week, the tornado produced by this cell less than a minute after the picture was taken was only an F1 and caused very little damage.



 I admitted I was powerless over my affliction to taking small profits.

I made a decision to turn myself over to the care of those who affably might help me as God has helped others.

I made a searching inventory of all the losses I have taken.

I admitted to other human beings especially the spec list the nature of my wrongs.

I am ready and willing, but perhaps not able, to remove these defects.

I humbly ask all my supporters and friends to help me remove them.

I have enumerated the many millions that I have lost and beg forgiveness from those I could have helped had I not had this affliction. My family would be a very wealthy family and would not have to worry about such things as homes and educating their kids had I not succumbed.

I promise that I will make amends to them except when doing so might lead me closer to the grave and a nondescript and economical old age home.

I will continue to take an inventory of my lost profits and exacerbated losses, and when I transgress I will admit it. Readily.

When I jog, and have a peaceful moment, I will meditate on my past transgressions.

I will share the awakening of my profits, if any, with my colleagues so that others afflicted with this ailment can practice the principles necessary to correct.

And I will count. If this affliction manifests itself in day of week effects, than when the two day move is down seriously and the one day move is up, there should be a rise the next periods. I find of the 152 most similar events in the new millennium, the average decline the next days is -0.05 %. When the two day move is up seriously but the one day move is down, there should be a decline. I find the average move the next day of 132 such events is 0.03 %. I find similar random results for intra day manifestations of this terrible affliction. So I will meditate and count some more. 

Russ Sears writes:

An integral part of the 12 steps is accountability. You don't slip off the wagon because you don't want to have to admit it to the group and your accountability partner. Further, you recognize the triggers and you call the accountability partner to talk you down from the ledge.

In October in Canada, I attended an Enterprise Risk Management Conference where several heads of large Risk Management Departments talked to the group. It appears the regulators have adopted a system of 3 level of "challenges". That is they document times risk rules were broken and mistakes were made, either unintentionally or by bad processes at 3 different levels.

The first level was self or departmental reporting. The second level was outside department but internal to company (either internal controls or internal customers) and the 3rd level was external auditors. Each level was expected to have some "challenges" and write up how to improve them, and give a degree to how material or risky the error was. The right number of challenges and the degree of rogue risk was determined. Too little challenges or no serious violations were considered not taking risk management seriously.

The problem is, however, that this only prevents errors or rogue risk happening at the lower levels because it is a top down approach. But most companies fail because of strategic risk. Often in hindsight it is clear the strategy was guaranteed to make money short term in exchange for taking on crippling unavoidable long term risk.

This became clear to me when the Citi Risk Manager talked…The preamble to the "dance while the music is playing" quote played in my head.

They knew the housing market was a bubble ready to burst… But they also knew there was massive bonuses to be made before it struck and destroyed most of their company's equity.Nobody at the lower level was allowed to "challenge" their strategy, no matter how clear the fraud was to these lower level people.

In short, there are some risk rules that should never be broken, no matter how high you get. These may change as the circumstances dictate but they should always be defined. Allowing everyone to hold you accountable should be part of the any trader's 12 steps.

Chris Tucker adds: 

Is there a twelve step program for traders that habitually get out too soon?

(20 minutes to close): "Daddy will you play with me?"

"Umm, give me a couple minutes honey" says he. "Let me sell this first."

He groans but dutifully closes all positions. "What are you selling?" He makes a half-hearted attempt at explanation. Then heads outside for frisbee and badminton.

Then comes in an hour later and berates himself in disgust.

He never called his sponsor so there was no one there to say "Just hold it 'til the close bud, you can do it!"

He makes dinner all the while promising that he'll do better tomorrow. That he'll call his sponsor. That he'll keep at least one contract open, even if it kills him.

And he wonders, deep down, if he really can. Or is it going to go on like this forever.

Rocky Humbert writes: 

Mr. Tucker's whimsy is actually a profound question which is not easy tested:

Over a trading career, which is better: Exiting too early or exiting too late? Over a trading career, which is better: Buying too early or buying too late? (for a long only investor)

I would argue that for most fundamentally-oriented investors, the true killer is buying too early. I believe there are mathematical underpinnings to this. Perhaps other have a rigorous analysis of this problem. I've never seen this debated on the Dailyspec.

Ralph Vince writes: 

I think it depends on how you size your way in. I find I am infinitely better to be too early — on exits as well as entries. But I scale in, gingerly, one toe into the kiddie pool at a time. But this is, essentially, entering and entering on limit orders, whereas to be late at both ends, is essentially entering and exiting on stops.

I'm very interested in your thought process as to why that would be more advantageous.



 "Noisy Cicadas Come Back to Life After Years Underground":

(CBS News) If you live on the East Coast, fair warning, you're about to be invaded, but it's not the zombie apocalypse. It's actually an invasion by billions of creatures coming back to life after being buried since the 1990s.

In one of nature's great mysteries, the Brood II cicadas are expected to appear en masse along the East Coast this spring, which is a ritual nearly two decades in the making. The bugs will make their presence known with a buzzing racket that's been compared to the sound of a New York subway train.

"Brood II is a periodic cicada that hatches out every 17 years," said Craig Gibbs, an entomologist at the Wildlife Conservation Society's Queens Zoo. "The specific thing about these 17-year cicadas is they are going to be a very dark colored body. They have really bright red eyes, and they also have bright red wing veins."

For the New Yorkers interested in Cicada Tracking there is an event tonight at
Brooklyn Brewery (it seems to be sold out but other events are shown and Staten Island Museum has several events

Also, music inspired by Cicadas.

Chris Tucker writes: 

One wonders if there will be a coincidental increase in the population of Cicada Killers– a frighteningly large (although non agressive) wasp that burrows into the ground, captures Cicadas and lays its eggs in them.



 It has been a while since the dailyspec discussed the potential for mayhem in the Straits of Hormuz. So far, the greatest threat to American interests has come from our own Navy. It has been nearly 4 years since the USS Hartford collided with the USS New Orleans. The "accident" injured 15 sailors; the repairs to both ships cost over $100M.

The folks at StrategyPage just reported some of the details of the accident report:

1. There was no one supervising the sonar operator when the collision occurred

2. The sonar operator was not, in fact, looking at his screen at the time but talking to a fellow crew member

3. The ship's navigator was not plotting the ship's course but "doing something else, while listening to his iPod"

4. The officer in charge failed to raise the ship's periscope to scan the horizon before the ship breached the surface

In total there were 30 errors in procedure.

Chris Tucker writes:

Complacency and sloppy work are very difficult to control after they have taken hold of a work group. The proper place to kill them is in early training. People who are responsible for large numbers of other peoples lives and/or for highly valuable property need to be trained in active vigilance early in their careers. Unfortunately, safety is a boring topic to most — it lacks the intrigue of the higher mission, it lacks the luster of fancy technical gadgetry, and because it is something that has to be practiced with diligence day in and day out, at all times, it is difficult to keep at it.

But safety and its execution is absolutely essential to any complex operation. Organizations and systems that require precautions have to inculcate a culture of safety and then impress it into their people regularly. It can never be treated as a one off training item and then checked off as completed, it has to be pressed, again and again and drilled into the subconscious so that it comes automatically. Active surveillance, much like active listening, is a skill that requires practice to master.

I suspect that in the crossing of an active shipping lane like the Straits of Hormuz, that submarines use active sonar, but I have no idea how frequently they ping. Probably on the order of once every two or three seconds, much more than that and there is insufficient time to capture reflected signals without interfering with them. The point is that an operator, especially at a time that requires extra vigilance — like surfacing, needs to actively direct his attention to his equipment and scan for threats at least once every three seconds.

While this sounds easy enough, it requires a great deal of will and energy. Distractions constantly compete for attention and need to be reduced. Again, training is the only way to control this and create an environment that rewards attentive execution of duty and punishes the creation of distractions and sloppy behavior. I suspect that if the navy chose to drill procedures in vigilance and active surveillance as often as they train for emergencies or attack maneuvers, the frequency of these incidents would be dramatically reduced.

P.G writes: 

Excellent stuff on complacency, but "culture of safety" might be too strong a goal for any place in the military. It's true that the Navy is the service where war most closely resembles peace. Most naval ships in WWII saw only a few hours of combat over the years' duration. Day-to-day operations were quite similar to peacetime ops, with the environment (including friendly ships) being the principal enemy. But the few hours of combat were the whole point, and it seems to me that safety must not be so deeply ingrained that it cannot be easily discarded when the necessity arises.

Paolo Pezzutti writes: 

Western navies nowadays are dealing with decreasing budgets, changing operational scenarios and threats, issues in recruiting and retaining the professionals they need. All these factors are tightly linked. The level of ambition of naval forces is questioned in terms of requirements and capabilities needed. The threats is different from what it was at least two decades ago and attention is growing mainly for maritime security tasks. Hard to justify expensive investments to develop complex and futuristic weapon systems. For sure maintaining the fleet efficient and effective is tough at times when navies are struggling not to reduce numerically their fleets below critical thresholds. Recruiting highly skilled professionals and most of all retaining them is also critical. They need to find a motivating environment that meets their expectations. Innovation and technology are allowing the reduction of manning on board ships and submarines in order to achieve the compression of operating costs. This is also introducing risks because each member of the crew has more tasks than in the past to perform and no redundancy. On the job training and management of emergencies are issues to deal with. More focus over the past years is on modelling & simulation to train crews ashore although any sailor knows that these solutions cannot fully replace experience gained at sea. Some have questioned the extent of manning reduction that was envisioned as acceptable only a few years ago based on lessons learned developed on new constructions. The quality of training is key as days at sea spent each year tend to decrease. Incidents are the expression of this situation. Training concepts and processes have to change and adapt rapidly to this environment. As budget and personnel decrease, this is the challenge of this decade. 

An interesting sidenote about, "Stick close close to your desks and never go to sea, And you all may be rulers of the Queen's Navee!":

The object of Gilbert's satire is not so much the person of publisher and politician W. H. Smith as the system that in essence de-professionalized command positions in the British armed forces, and promoted those with wealth and political connections rather than military ability. Thus, Gilbert was in effect attacking the long-standing aristocratic tradition of purchasing commissions. Instead of "serving a term" as a midshipman (which was the conventional route leading to officer status and ship's command), Sir Joseph has taken a strictly political route to the Admiralty.

Russ Herrold writes:

A former officer (here: identified as JG) from the US Navy who served in submarines inter-lineates replies to the article you linked to:

Sub commanders are under a lot of pressure to keep their sailors from leaving the navy (JG agrees). But the long periods submarine sailors spend away from their families creates pressure to get out and take a civilian job close to home. (JG agrees) The submarine sailors are very capable, and highly trained, people. Getting a better paying civilian job is not a problem. So sub captains try to keep the crews happy. That often leads (JG: Bull Shit!) to lax discipline. (JG continues: just lax discipline with this command)

Interestingly the article's remarks about generally available better substitutions employment were not addressed in the initial comments back to me; in following up privately, JG thinks the author is over-stating the substitution opportunities …

But then that makes for a more urgent article, then, doesn't it?

Chris Tucker adds: 

My whole point is that these people are professionals and should be behaving like professionals. They are in positions of responsibility and need to act as such. There is a tremendous amount of self validation that comes with knowing that you know your business and that you act accordingly. People that understand this arrive at work with their heads held high and don't just talk the talk but actually walk the walk. They don't feel entitled to anything unless they've earned it themselves. This is the kind of behavior and path to self esteem that needs to be engendered. It is not about safety, per se, probably a bad choice of words on my part. It's about being a professional, about being an expert. And about wanting to be those things. It's about knowing what needs to be done and doing it properly, correctly and without fail.



As the S&P 500 futures hover around the 1500 mark I am reminded of the "Cleared for the option" which gives a pilot the option to do a full stop landing, stop and go, touch and go or low approach or missed approach…

From the handbook:

1. The "Cleared for the Option" procedure will permit an instructor pilot/flight examiner/pilot the option to make a touch-and-go, low approach, missed approach, stop- and-go, or full stop landing. This procedure will only be used at those locations with an operational control tower and will be subject to ATC approval.

Richard Owen writes: 

Let us say a small prayer for the hungry equity broker who's volumes were down 30% last year on an already tough year and wish him much whipsaw, turnabout and retracement around the top. His commissions will be deserved sustenance and emboldening for 2013.



I was skiing in Vermont recently and as is usual for skiing in the northeast, the slopes weren't as deeply covered with snow as one would wish. When one attacks a steep run in these conditions, it is guaranteed that the center of the trail will be bereft of snow — thin cover is the term we use euphemistically to indicate ice and rocks — mostly ice though. When this happens, there can usually be found some snow piled on the edges of the trail, it having been pushed there by previous skiers who made all their turns in the center, their scraping edges clearing it away off of the underlying hardpack and pushing it to the sidelines.

Skiing in such conditions can be done, but not without incurring greater than normal risk. And it is usually not as satisfying as skiing using the entire available path whose deeper, more sweeping turns are somehow more satisfying and which provide greater control. But under these conditions, staying in the center is deadly so advanced skiers will stick to the edges of the trail, making all of their turns in rapid succession on what is in effect a trail only two or three feet wide. This means that turns must be small in degree and therefore must happen very quickly so as not to allow the tips to remain pointed straight down the hill and therefore incurring excessive speed. This kind of skiing requires conditioning, linking extremely rapid turns is exhausting and one must not attempt this when fatigued as the resulting inability to really push hard and dig can be catastrophic. It also requires some nerve, for one, keeping near the edge puts one in dangerous proximity to the treeline (or the edge of the abyss -as the case may be) and one slip at high speed and it's all over. And it means high speed, even while carving one edge after another in succession, the lack of available surface on which to gain traction means keeping the tips pointed perilously close to straight down the fall line. Mistakes at these speeds tend to have greater than normal undesirable consequences.

As I enjoy the speed, I will make one or two runs in these conditions just for the thrill of it, but this kind of tight skiing in a narrow and steep path requires tremendous concentration and loses it's appeal rather quickly. I will spend the majority of my time on tamer runs with more snow, even though they may be more crowded, so I can make the more gratifying, longer, carving turns that I prefer.

Jeff Watons writes:

That's just like surfing big waves vs small waves.I am not comfortable in the brutal conditions Mr Sogi San surfs on an every day basis. In those conditions, I will look for the rip current to get outside, paddle and make a bottom turn, and ride it in. Like typical Sunset. I don't stay out very long as I did when I was younger when it is big. But if the waves are 2-3' overhead, I'm good all day long. I'll still find the rip to make paddling out easier, but I'll attack the wave harder. But some of the very best days are those waist-chest high waves where you cruise on a long board, and catch the glide. However, during calm conditions I have suffered the greatest traumas while surfing. Broken vertebra, herniated discs, tendon and ligament damage, broken nose, etc. Somehow, being relaxed while it's calm is more dangerous then when it's big. Or maybe I'm more careless when the waves are small, and a bit reckless thrown in for good measure. Carelessness happens in the markets also. You start taking your profits for granted. It's humming along nicely with all your positions in the green, then wham, the Mistress gets a little PMS(no sexism intended) and throws the whole system off balance or upsets the cart, and your account suddenly needs a tourniquet. The lesson here is to keep your guard up at all times.

Jim Sogi writes:

 Just back from backcountry skiing in the Eastern Sierras. The conditions were snow that was about a week old, with very cold temperatures, and no wind. The sun made a crust where solar energy hit, so the powder stashes were hidden on north facing aspects where there were old growth trees. The cold had dried out the snow making it sparkle and soft and creamy sugar which was excellent for skiing.. Though it had not snowed for over a week, in the shade, on the north facing slopes shaded by old growth pine where the sun did not affect the snow there was beautiful sugary soft powder. It took some doing finding these niches and some hiking to get there and fighting some pesky brush at lower elevations. No one else seems to have discovered these hidden stashes of nice powder. This reminds me so much of the markets, when even in less than optimal conditions, there are hidden stashes of unridden goods. It takes understanding of the underlying processes that create and destroy snow, the equipment and will to get there, and the ability to ride those conditions. Its surprising in such a huge mountain range that only in such limited conditions would there exist such fine skiing. The last day, new wet snow came and turned everything into the famous Sierra cement.

Laurel Kenner writes:

I took Aubrey to our favorite ski place, Telluride, a couple of weeks ago. A drought was on and the mountain was brown, but the resort's snow-making machines had been at work since November and most runs were open. A few patches of grass were visible in some popular places — enough to send a skier head over heels in the old days. The new equipment was somehow able to ride it out, although caution was still warranted. That strikes me as like the market; if you're well-equipped enough with margin and numbers to ride out the rough patches, you can still do well in adverse conditions.

Steve Ellison writes: 

I ski 10-15 times per year and encounter a wide variety of conditions. Light is an important factor. An overcast sky causes what skiers call "flat light". I slow down in flat light because the lack of shadows makes it hard to spot irregularities on the surface until one is nearly upon them. Dense fog is even worse. I have been in fogs in which I could not see the trees on either side and momentarily lost track of which way was down.

I like fresh snow, but there can be too much of a good thing. One day right after a 2-foot snowstorm, I started down my first run and fell on the very first turn when my outer ski caught some snow. I pushed off my hand to get up, but my arm sank into the snow all the way to my shoulder. It took a few minutes of wiggling and maneuvering to get back on my feet.

Wind is another factor. The Sierras sometimes have very high winds, which blow loose snow off exposed areas. The result is alternating ice and soft powder (in the spots in which blown snow settles). Going too fast at the transition point can result in a fall. On one traverse I often ski, I use moderate wind to my advantage by letting the wind slow me down as I ski into it with no effort on my part.

Duncan Coker writes: 

When backcountry skiing which Mr. Sogi describes another key element is the approach. There are no lifts, so you hike uphill for every turn you will make downhill. It can be exhausting, but also very rewarding and you get to know the terrain including snow pack, the location of rocks, couloirs, tree wells, cliffs and the grade. After enjoying the view at the top you can descend focusing mainly on execution, making some nice turns. Skiing the steeper, untouched terrain has more dangers but is more rewarding.

I love the surfing analogy of "never taking the first wave" alluding to the dangers of being tempted by the first big wave in a set, after a lull. In skiing there are times when it is better to take pass on a run as well. Condition may appear good, but dangers are still there. Ultimately though we all have to "drop in" at some point for whatever activity we are pursuing, and taking some risk is certainly worth it.



 Driving a motor car or motor bike is probably the best analogy I can think of for trading.

Start, Stop, traffic lights, dogs and cats on the road, cows, give way signs, t intersections, signs saying "kangaroos for next 50 kilometres ahead–and that is just in the first few 100 metres of leaving home– and then when you hit the express way, and consider yourself in the clear, there may be road works, or fog, and unsighted hazards ahead.

It's very rare you can enter an express way…of start to finish, or finish a journey uninterrupted.

It is our jobs as traders to close down all risks as they appear, in whatever form, to cause minimal bumps and bruises to ourselves. Problematic situations will appear when you expect OR when you least expect them, and when you do get uninterrupted runs, you appreciate them, since it is what you have planned for, but see less often than one may hope for.

Be flexible, bend like the tree, always give way when on the road, and when you hear the sirens move top the left and beware of trouble ahead.

Peter Tep writes: 

"Be like water" - Bruce Lee

Nice post Craig. I liken trading to Bruce's Jeet June Do methodology– using all the skills we have to move forward and strike the opponent down.

What worked yesterday may not work tomorrow. Especially with the presence of HFT, SMSF, central bank presence.

Chris Tucker adds: 

If one were to "always give way when on the road" in NYC, one would never get anywhere. Cabbies will eat you alive if you let them, they will try to force their way in front of you and then look at you as if you are a criminal when you fail to yield.

Yes, always giving way is a much less stressful way to navigate, but there is no victory in it!

Jeff Sasmor writes: 

Depends on how aggressive you want to be and what sort of car you are driving. If you are driving a beat up car and honk and go, they give way. I speak from personal experience on both sides of that transaction.

Jim Lackey adds:

Look where you want to go. Do not look where you don't want to end up. In a slide, if you look at the wall, you'll run right into it. If you look ahead down the race track it's amazing, you'll auto steer and correct your way out of the spin. In a crash, hold on, and do your best not to get hurt and head for the pits for repairs.

Last night during the 200 MI trip from the hill outside of Birmingham, AL, the transmission cooler lines on my BMX van broke. It must have been a sight as trans fluid was all over the engine trans and back of van in a cloud of smoke. Good thing we didn't have a fire. You know what I did? I eased it back to the pits. I exited, dumped some fluid into the trans and made it home. This AM all fixed.

I froze my tail off shooting weapons for 12 hours in the Bama country with my Sisters family. They have more weapons than anyone I know. My son did the walk balk with the AK-47 and I burst out laughing as another teenager was taking some hot brass as they ejected from the chamber. I told the kid to move. Good fun safe day. I can still hit a 300 meter tager with a .22 rifle 2nd shot after 20 years of no practice. Okay, it wasn't 300, but simulated as a 4" target X meters away…bing…

My nephew made the comment, all these weapons are so easy to use it's ridiculous. Yeah, that is how and why there are 10 year olds in the militia in Africa. The only reason I shot at all was the current news flow. I really have no interest in firearms. After shooting the 150MM main gun and killing tanks at 4,000 meters on the move, with F-15's as cover and the Apache on my 6 and MLRS destroying 1k by 1k boxes at a time… real war is reprehensible. All the arm chair warriors really need to tone it down a bit. The only comment I agree in the past 4 weeks of talk was Professor Stefan with his Bellini. If you want to put on the show of defense, that is the smartest idea I have ever read. Those shot guns are world class and perhaps I'd buy it from him. I own no weapons.

I am still thawing out after 13 hours outdoors then the 3 hour drive home then the work this am. My water heaters theromcouple died.. Lowes and HD are useless! Ugh, Ace hardware has all the parts they are amazing, but after inspection my buy American just bit me… Standard brands, made here in TN, has a special thermocouple. I asked the local heater man if he'd be kind enough to drop one off in my mailbox. He said sure, but the clerks said they have to charge me 69 bucks for the Sunday trip. I can wait a day. The part is 14.99. I can do it myself. It's already apart.

I am a man. The ladies must have hot water now. Ill sacrifice my McDonalds budget for Jan and have my man stop by. Perhaps he will find another problem as well.

Back to Carz racing and trading… it's not the one big edge that makes a champion…it's the 10,000 little things all done perfect that adds up to a big edge. The biggest edge of all is the drift over 100 years. After two crashes and a dozen panics the past 12 years, I find it hard to believe that buying every panic with prudence over the next decade will not produce a fine profit. 



This is an interesting article on kayfabiation, negotiated choreographs rehearsed falsity as a substitute for failed reality as a model for deception that occurs in the markets. 

Chris Tucker writes: 

This is a very good discussion of kayfabe on Wikipedia which posits a comparison with the Fourth Wall in theater.



 One wonders what that interesting personage would say about our inability to defend the Libyan compound and the amazing staged efforts of the militants to overcome 4 or 5 lines of our defense including the charted airline from Tripoli.

Chris Tucker writes:

Upon boarding the shuttle at LaGuardia bound for DCA yesterday I heard a very distinct, deep, German accent coming from the first row of seats, which could only be coming from one person. I looked down and saw Henry Kissinger chatting with his neighbor. For some reason I had forgotten that he was still living and was a bit taken aback. He looked quite old but in good spirits.

Vince Fulco writes: 

I am into the early chapters of Lone Survivor, a book written by a Seal Team member re: his early 2000s experiences in Afghanistan. I had no idea how hamstrung the boots on the ground were by rules of engagement (ROE) made thousands and thousands of miles away from the battle. He attributes these unrealistic rules to the direct loss of 3 of his squadmates. It parallels the stories of cruise missile operators with OBL in their sights. Regrettably they were unable to fire unless they received approval from then POTUS Clinton who was more worried about his own selfish pleasure with Ms. Lewinsky.



 Saturday morning we were in Ridgefield, CT with friends whose property backs up on a large system of horse riding trails. It is charming somehow that the rock wall at the back of the property is also the boundary between New York and Connecticut.

As we sat enjoying a cup of coffee, we heard a tremendous baying and presently a large pack of dogs came running toward us and continued along the trail as it ran parallel to the rock wall on the far side. After a few moments a great number of horsemen appeared, posting in their saddles as they trotted along the wall looking for the dogs. There must have been thirty or forty riders, many of them just children. I wondered if they were actually hunting foxes– there are quite a few farms and clubs about that still do– and I couldn't help but peer into the woods half expecting to see Jack Aubrey come careening around the corner on his great bay gelding. It was a lovely little interlude and the kids thought it amazing. Took us back in time quite completely.



 memories of that day hover nearby
looming just out of view
obscured dimly by the murk
of everyday life
vague images of aircraft
a pain so deep, so overwhelming,
that one wonders if it can possibly
be born.

only the passage of time
brings anything approaching comfort
and somehow we manage
we carry on
but there is still a wound
a hole
someone is missing
a father, a mother, a child.
not forgotten



 It is interesting to note that Friday the 6th of July, the SP closed at 1351.80. And Friday the 13th July SP closed at 1351.70 . Similar proximities occurred on 2/10/2012 and 2/03/2012 at 1327.30. Headlines in the media such as Bloomberg state: "US stocks gain for week, erasing losses".

I am drawn to look at such things as rank correlations and inversions in such books as Kendall on rank correlations to study this with a view to reducing the ability of the market mistress to relieve one of funds.

Chris Tucker asks: 

Is the options market in ES, SP, SPY and component stocks large enough to pin the S&P?

Anatoly Veltman writes: 

Alas, it should be treated solely as market trivia, of no predictive value. I wouldn't worry about newswire's interpretation; I'd be more worried about optimized coding interpretations. How should researcher classify daily or weekly delta? E.g, is change of mere .10-.90 on SP500 trading 1350.00 = no change, or should some percentage threshold classify as a change rather than unchanged? Percent change makes more sense for longer-term (years) of studies. The levels near 666 should normalize different delta than levels near 1576. I guess that levels of interest rates might also have impact — but we've been relieved of this variable issue for a couple of years hind and hence by the true Libor fixers.

Victor Niederhoffer comments: 

One is often involved in things too trivial or microscopic. Indeed that is what was said to me 50 years ago when I started counting eighths in individual stocks in my undergraduate thesis–a count that set off a field that one is told has not been entirely fruitless. Thanks for the firm guidance.

Anatoly Veltman replies: 

It's interesting that 25 years ago I was taught that the less observed the security is — the better the technicals! In that regard, one-eighth 50 years ago might have been more predictive than .90 delta in e-mini today. We're in the age of battle of the black boxes, the most successful of whom manage to relieve us of funds the moment we start over-relying on a particular minor indicator.



 A question was raised after Tyler's talk at the Junto this month about how to inculcate conscientiousness and someone suggested that perhaps a good business might come out of attempting to train people to be more conscientious.

I suspect that this might be difficult as, in my opinion, being conscientious requires more effort than many people are willing to exert. There will always be a portion of society that gains from the output of others as it is simply easier than doing the work oneself. Or perhaps this segment, the loafers and slackers, simply excels in other ways - perhaps they are particularly good at getting others to be productive in their stead or perhaps they are good at stealing or siphoning off the productive output of others.

I noticed this recently at the beach while observing seagulls. There was a group of seagulls actively pursuing their dinner by spending time hunting and pecking for clams and mussels in the shallows. Members of this group would search long and hard and eventually find something to eat and then spend time carrying their food to some altitude and dropping it onto the pavement to crack the shell so they could get to the meat inside. All this time, another group of gulls, instead of hunting for their own food, would spend their time actively harassing the "working" gulls, chasing them when they were carrying food and making every possible attempt to steal their supper. These gulls only resorted to hunting for their own food if they were unsuccessful at absconding with the hard earned production of others. But I noticed that some gulls were so good at stealing that they never resorted to doing their own hunting. No surprise there.



 Next week my 10 year old daughter takes her first sailing class. She will be learning in an 8' long Optimist. Now the Optimist is a sprit rigged pram (a dingy with transoms fore and aft - a flat bow and stern). I was trying to recall the difference between a spritsail and a gaff rigged sail and began snooping around the web for the answer. As I read along, relearning the difference between a Barquentine and a Barque and a Fully Rigged Ship my mind wandered a bit - okay the Barque is square rigged on the forward masts and fore and aft rigged on the aftermost mast, the Barquentine is fore and aft rigged on all but the foremast, the Schooner is fore and aft rigged on all her masts. Now what is the name of that small triangular sail above the gaff rigged sails on a schooner? So I go to the Wiki article on Schooners to find out and something catches my eye. What … Holy Cow, the sample picture is of the Regina Maris (which is odd because I remember her being a Barquentine). Now I've come across this name a few times. Most recently I recognized her because just before her demise she berthed in Greenport on eastern Long Island. But I knew her name before..why? I do a quick search and find a blog and as I scroll down I come across this amazing photo showing a skysail and a moonraker above the royal. But she is also wearing a studding sail! (Which is extremely cool if you've read the Aubrey/Maturin series by Patrick O'Brian.) But that doesn't answer my question.

I scroll down a bit more and stop, transfixed by a photo of the cover of a book that I have owned for twenty years but not read in as many. The book is in a box in the attic and I will have to fish it out after I write this. As I stare at the photo I remember how much I loved reading this book. It spoke to me as I was going through some of the same growth of character as the author at the time and it touched me again and again. The book is called Tuning the Rig by Harvey Oxenhorn and it details the authors physical and spiritual journey aboard the Regina Maris, bound for the arctic to study humpback whales. While I was dealing with my own fears, Oxenhorn was dealing with the fear of having to go aloft and reef the mainsail like this — notice that the men in the photo are reefing the lowest of the sails on the foremast — there are at least three, probably four sails above them. Reefing the royals might put a man a hundred feet above the deck — when he WAS above the deck, in weather a topman can expect to look down and frequently see nothing but the roiling sea. Doesn't sound like much fun to me either.

I highly recommend this book to anyone interested in the sea and sailing — it is beautifully written and gets deep into the working of the vessel. But it is much, much more than that. This book is a soulful and heartwrenchingly honest self assessment written by a young man as he learns how to become a grown man. A fantastic journey.



 I'm reading Trading as a Business by Charlie Wright. Pretty good book profiling the evolution from discretionary trader to systematic trader. One of those books where I found myself laughing at having been down the paths. More trend following oriented but I think it is a pretty good synopsis of the systematic world and he covers some bases that added value in terms of elements to consider in one's trading (or at least mine). Decent set of checklists.

Do systematically inclined speculators recommend similar books (besides Victor Niederhoffer's and Larry Williams books).

Also, Tradestation seems to do most anything a trader would want in terms of trend following testing. I have never used it though.


George Parkanyi writes:

The only flaw I find with systems is that they immediately stop working as soon as you try to use them. I think people need to do more research on fading systems.

Christopher Tucker writes: 

Where's the "like" button on the Speclist?

Steve Ellison adds: 

Yes, even systems I developed myself stop working when I try to use them because of data mining bias. Even if there legitimately is an edge, some component of the good backtesting performance is better-than-average luck. 

Leo Jia writes: 

The word "enlightened discretionary" is very appealing. The reason for it, I guess, is because of the word "enlightened" more than the word "discretionary". Everyone hopes to be enlightened in someway. Being enlightened seems to be a spiritual consummation. But I guess that is not the first and real reason why people are after being enlightened. The real reason is that it is mystic and mostly unattainable. This coincides with a human nature of always craving for what they don't have, which is among the reasons why most people are persistently unhappy.

I feel preferring discretion to system is quite illogical. Aren't whatever rules one uses as a discretion by nature a system? It perhaps is not explicitly sketched out, but it by all means is a system of rules that resides in one's head. Couldn't that be phrased and then programmed? I agree some are not very easy. But are they really impossible?

Gary Phillips writes: 

I've been doing this long enough to instinctively know what works and what doesn't. I only need to look at my P&L for empirical confirmation. If in doubt I just try to see the market for what it is and not what it appears to be. One needs to understand market structure, liquidity, and price action and develop a framework for analyzing the market, somewhere between bottom-up & top-down lies the sweet spot. This allows you to see the market in the proper context and provides you with a compass, which will keep you from feeling lost and will show you the way.

Craig Mee writes: 

Aren't ?

Hi Leo, you probably could say "whatever rules one uses as a discretion by nature is a system", but a system may not have the ability to load up once the move kicks (obviously it can be programmed) but at times the opportunity may appear intuitive, and  a trader can do that on relatively short notice, whilst keeping initial risk limited.

Interesting, Gary, the issue with systems seems to be at times data mining against price action and structure which gives strength of understanding. The HFT may work on massive turnover, low commissions and effectively front running, and unless you have those edges then it appears difficult to succeed from a data mining basis (and relatively scary trading something that you don't effectively understand from a logical point of view). However classifying a markets structure, and working off 3-4 premises no more, (as I believe more would allow any edge to be diluted across a range of options), and the ability to leverage once on a move, appears to be something you can work with. This is purely from a hands on execution basis, no doubt the pure programmers can weigh in.

I remember speaking to a guy who professionally programs for others… (admittedly a lot of retail), and we were talking about what are the laws in place for him to not front run me after developing a system I gave him…and he was like "mate, to be honest (probably insinuating "dont flatter yourself") 97% don't make a dime." That was certainly probably expected I suppose, but to hear it in technicolour was confronting and I was surprised he said as much.

Gary Phillips writes: 

I really don't believe that discretionary trading today, is any harder than it used to be. The emotional aspects, and risk management, have essentially remained the same. Methodology is different, because algorithmic driven HFTrading has forced intra-day traders to change from momentum chasers to mean reversion traders. And as you stated, there are countless global/macro concerns as a result of the financial crisis and continued global easing. So, it does demand a broader universe of knowledge, and revamped techniques and benchmarks, but it still boils down to identifying what is truly driving price and how it is being driven. 

I guess this is what gives you the elusive *edge*. But, as we used to say the *edge* can sometimes be the *ledge.* That being said, trading doesn't have to be about being right or wrong the market, or predicting where the market is headed in the next moment, hour, day or week. Trading can be nothing more than a probabilistic exercise, and a trade nothing more than a statistical data point - the next event in a series of events governed by the statistical random distribution of results.


Kim Zussman writes: 

"Trading can be nothing more than a probabilistic exercise, and a trade nothing more than a statistical data point - the next event in a series of events governed by the statistical random distribution of results."

One would suggest that trading is a waste of time if your historical or expected mean are random.



 In the Franklinian spirit: My computer in my car went out; quote at dealer $2000. Forget that. Price at on line junk yard for same part $100, and $150 to install. My wife cracked the rear view side mirror in the other car. Dealer quote $550. Price for same part at on line $39. My body shop guy put in on in ten minutes, no charge.

They're ripping you off, and there are much much cheaper alternative out there. Time to deal with it is even less than hassling with dealers.

Chris Tucker comments: 

There is another issue related to this as well. Most people are terrified of doing any serious work on their own vehicles, either because they don't want to get dirty or because they are afraid they won't be able to figure out what to do or how to do it. Auto mechanical issues can be very intimidating. But there are tremendous resources available today that can make even the most daunting task much easier to complete.

The power window on my truck stopped working a few weeks ago and I took the door apart to see if it was something obvious. No such luck. There is a thick plastic sheet that covers most of the inner workings and I was very hesitant to pull it off as I wasn't sure how to get it back on securely. And I had no idea what to do once I got it off. So I did what most DoItYourselfers do these days — I turned to Youtube. I didn't just find out how to replace the motor and associated mechanism (its a contraption called a regulator that raises and lowers the window) - I found very detailed troubleshooting advice and diagnostics. In addition I found a complete step by step video of the removal and installation procedure on my exact door. Several of these videos are made by part selling companies and I managed to locate the part through one of them cheaper than I was able to find anywhere else.

I have always changed my own oil but when my mechanic failed to secure the bolts that held on the brake caliper on my last car I decided I should do my own brakes. There are some things you MUST know to work on brakes, but you can find them all easily online. Working on your own car can be time consuming though, especially if you have to learn a lot about the repair - so I will tackle some jobs and defer to my mechanic for others.

Jim Sogi adds: 

Youtube is a great resource. I learn complicated guitar parts by watching folks play it on video. I found a reference for a famous international guide for a recent ski mountaineering trip to the Alaska glaciers on you tube. There is stuff there that is current and informative, in addition to all the garbage.  



 It's amazing how smart the public is, and how ridiculous all the experiments of the expert's breakfast friend are that duplicitously show how irrational the public is when confronted with contrived situations with deceptive self serving to the academics answers. They always sense when someone knows what he's talking about and pay attention as they did to my lessons from hard ball squash, giving more responses than any other of my posts except the one about Lady Gaga and what she can teach us about the idea that has the world in its grip.

Okay, I have to give some more lessons from the one thing I know about.

7. Never hit a soft drop shot. The opponent will be able to get there near the end of a game and kill it. It's especially bad near the end of a game, when the opponent will run for anything, do or die. Lobs are sure losers near the end of a game also for the same reason. Don't ease into your positions. You'll only get filled when it breaks out, and that's the only time that the opponents will certainly have the weather gauge. And don't arabesque into trial positions in small markets just to get your feet wet as the Pelicans at the top of the pyramid will always eat your bait, as they don't allow outsiders to dine at their expense, especially when the resources are limited.

8. Don't try to win the point with the same shot over and over. Your opponent knows when they run you up to the front right, on your rightie forehand that you are going to hit it cross court. If you happen to catch the perfect angle so that your opponent can't intercept it, and belt it down the backhand wall, for sure it was luck or he'll try harder the next time and you will lose the point. Always be ready to return the straight drop to the right side wall down the wall instead. Please don't try to make money from the market the same way two times in a row. How foolish do you think the adversary is to allow you to take his chips twice in a row. He was only setting you up for the big kill. Most people have a very good memory of what happened the last time, especially if it was a vivid loss. They are so angry that they will put their resources against you the next time, without hesitating to take billions of bail out money which they have received, or use costless loans from their past, current or future cronies at the Fed to go against you.

 9. Please learn from racquetball and jai alai how to hit a proper backhand. The swings of the racquetball players on the backhand, very nicely memorialized by the Hobo are infinitely better than the squash swings. They have 5 separate torque in there to give it exponentially more power than the placid Philadelphia, old boy English swing. And the Philadelphia swing is 10 times more powerful than the ridiculous backhand that the old Harvard players were taught in the hard ball game with the slice backhand with hardly any backswing, and no torque at all. I shudder at how high a % of the games I lost came because of the weak Harvard backhand I was taught and was too foolish ever to change, possibly because the only one that could beat me was Sharif. Martie Hogan's backhand in racquetball was a thing of beauty and since that time, it's been improved upon every 3 years or so by the next generation of racquetball players. Pedro Baccalo had the best backhand in squash which he learned from jai alai, and he could hit it 5 times harder than any other player because of all the torques in it. Learn from these improvements instead of watching the placid, effete swings of all the old time squash players and as far as I can see, the current crop of Internationalists. Okay, for crying out loud. The best lessons in markets and any field come from the borders where it meets another field. You'll learn more about markets from studying checkers or ecology or statistics or sports betting than you will from all the books on markets combined. Study the greats in other fields, e.g. Bronstein, or Armstrong or the Globetrotters to see the secrets of winning in markets.

The first six lessons:

I often get asked to talk to kids about the good old days of squash when you could make a point with a sharp angled shot and a long point only lasted 30 seconds. At a recent occasion talking to Hopkins kids I tried to relate the lessons of squash to wider endeavors. While doing it, I found myself in a dream world where flashes from markets, life, business, and school, circled around, crossed over, and fed back on each other. Since this is the one subject I know about, I thought it might be useful if I turned the tables and tried to think of the lessons that I learned from squash and how it relates to markets.

1. The game is always changing. Who would have thought that hard ball squash would now be as dead as squash tennis, or court tennis. There were once 2,000 court tennis courts in France before the revolution, but now say 10 in the world. There were once 10,000 hard ball squash courts in the world. Now, hardly any as they've all been converted. The markets you are trading now are likely to be very different from the ones you'll trade in 25 years. The rules and equipment will have changed. Electronic speed and international standards will replace manual method. I find it hard to believe that the things I traded 10 years, ago, foreign exchange, bonds, options, are no longer viable for me. How many others will find this out to their cost if they don't prepare for it.

 2. The officials, the rule making body, the association in squash, will always be like most such associations a body devoted to maximizing the power, perks and profits of the officials. Time and again, they stood in the way of professional play on the grounds that it would weaken the amateur spirit of the game, the English way of stiff upper lip, poverty for the serfs, and noblesse oblige. If you wanted to be successful in squash, it was very important to stay in the officials' good side so that they wouldn't keep you out of the good spots and good tournaments, as they so often did to me and Gardner Molloy, and countless others. If you want to be successful in the markets, be sure that the rules are not stacked against you. That you will not receive margin calls so that the officials can take the other side against you, that the members will not be able to get the edge on you thru access to unlimited capital, flexionism, and self serving decisions like those that arise when you go to arbitration on an Exchange, where the referees, and judges are invariably chosen by the exchange itself. How can you expect them to rule against their friends and cronies.

3. Counting and record keeping are crucial. A good squash player, should know exactly where the ball will land, when he hits any shot, given his current position on the court, the angle of the wall he aims for, and the velocity of the shot. You could work it out by geometry given starting with the angle of incidence equaling the angle of reflection. Very few players take the trouble to figure it out, or even think about it. How many good market players don't know what the expected volatility is on their trades given how fast and the direction it's been going in the past?

4. The first blow is half the battle. The player that gets ahead by 2 or 3 points is inordinately likely to win the game. The importance of a good start and good preparation are paramount. Bronstein once waited 2 hours before deciding on his opening move while the clock was running. The first blow in markets is still crucial. The expectations are much higher when the first x minutes are up compared to down.

 5. One of the keys to winning in squash is never to stretch. When you stretch you can't hit a hard shot, and you're limited in where you can hit it, so you're opponent can always anticipate perfectly where the shot is going. The other side is that you should always take the extra step so you'll be in position to hit any shot. It's so enticing to stretch because it saves you the step and enables you to get the ball in play but so certain to lose to losing. How many time do you stretch in markets. Put on too big a position, take a regularity that only has happened 3 of the last 5 times and run with it? How often do you end up leaving yourself vulnerable to an adversary who knows exactly how extended you are, and come into full force against you? Certainly one of the worst errors in markets.

6. I could never figure out why Sharif Khan had a winning record on me. He was sure to make at least 5 errors a game, and had a weak backhand that turned over the ball whereas I could go a whole match without making a single error. Then I realized he was the only person that could make 7 winners a game against me, where the ball bounced twice before I could touch it. Then I realized that what he did was to take every shot on the half volley. He worked off my power so that the ball came back at a higher velocity. He also didn't give me time to set up to return the ball. Most important though, by violating the stricture we had learned to wait and make the opponent commit, he prevented one from anticipating his shot and tucking in to retrieve it. Since that time Agassi and even the more loathsome sportsman Connors have pioneered using the half volley in tennis to beat players with much better equipment than they in tennis. Nowadays it's de rigeur in tennis.

Taking it on the half volley in markets means not waiting until the afternoon to put your positions on, not waiting until every market that 's a pilot fish for your market is in the right direction, not waiting for the announcements to reduce your uncertainty. If you want to speculate you have to speculate. Only the house can wait and grind you to oblivion. Taking it on the half volley in markets is getting in way before the pivot has occurred, way before the trend has changed. It's the secret of success of great players in racket sports and markets. Come to think of it, it was the secret of success in handball also.

The old time handball players are so much better than the current ones. Why? For one they hit the off the wall with deadly precision. Artie had a fantastic off the wall shot, and somehow his football killed arm was able to miraculously get back to its youthful vigor when he hit it. He always said that Ralphie Adelman was the best because he could hit everything off the wall for a killer. I now see that Martie Hogan is espousing standing in front of the service line on each shot in racket ball as the key to success there. Some day someone will teach the handball and racket ball players of today that the off the wall killer is key in games and markets.

Chris Tucker writes:

Point 5 is the similar to using power tools as I mentioned in "On Taking Down a Tree":

Never extend your reach beyond what is comfortable. Using a tool at more than arms length puts you in a position that prevents you from reacting quickly if something goes wrong. It puts undue stress on you and the tool. It removes whatever leverage you have on the tool. It also prevents you from "feeling" properly through the tool. When using a power tool you receive signals about the material you are cutting and the nature of the stresses on that material. You can always tell when a branch is about to go if you are listening carefully to the tool. That feedback is denigrated by reaching too far or by using only one hand.

When developing skills you must, occasionally reach beyond your current level. This is different from overextending your reach. But it is important to do so incrementally as overstepping your bounds too egregiously can result in devastation and trauma. Taking small steps into new areas or higher intensity or greater complexity allows you to learn while remaining close to your comfort zone. Yes, you have to reach in this sense, but you want to do it in such a way that you don't destroy yourself in the process. When you push yourself in this way you also expand your comfort zone and your skill set. This can be the translated into taking on larger size, increasing leverage, having more trades on at one time, or introducing new instruments to your repertoire.

John Floyd comments: 

 I think Ari would say, "you should set goals that are constantly reaching further, but attainable, then gradually keep moving forward. If you have a stumble then pause and evaluate why. If you set a goal too far out of reach you may be faced with disappointment at not getting it".

Charles Pennington writes: 

Steve Sailer has a nice illustration of the problem with some of Kahneman's questions.

Apparently the following background information is NOT supposed to convince you that Jack is more likely to be an engineer:

"Jack has a B.S. degree from Purdue. At work, Jack wears a short-sleeve button-front shirt with a pocket protector full of mechanical pencils, just like most of Jack's coworkers on his floor. Jack always wears a tie clasp to keep his necktie from getting smudged by the blueprints when he leans over a drafting table. Jack's favorite line from Shakespeare is, "The first thing we do, let's kill all the lawyers." In fact, that's the only line from Shakespeare he knows. Jack wanted to name his firstborn son Kirk Spock, but his wife wouldn't let him."

David Hillman comments:

From Forbes' "Five Leadership Lessons from James T. Kirk" (applies to lone wolves and markets as well) :

“You know the greatest danger facing us is ourselves, an irrational fear of the unknown. But there’s no such thing as the unknown– only things temporarily hidden, temporarily not understood.”

“One of the advantages of being a captain, Doctor, is being able to ask for advice without necessarily having to take it.”

“Risk is our business. That’s what this starship is all about. That’s why we’re aboard her.”

“Not chess, Mr. Spock. Poker. Do you know the game?”

“‘All I ask is a tall ship and a star to steer her by.’ You could feel the wind at your back in those days. The sounds of the sea beneath you, and even if you take away the wind and the water it’s still the same. The ship is yours. You can feel her. And the stars are still there, Bones.”





It is the oddest coincidence that on one of the rare occasions that you write to the list I am in the midst of a discussion with another (new member- neophyte to investing/trading) about the use of your bands. He is new to technical analysis and likes the ideas behind your bands. I mentioned to him that you are on the SpecList and he was intrigued. My question for you is simply: What is the best reference for him to learn about using your bands? Is it your book? (stupid question I know — but perhaps you have discovered someone else's ideas that you particularly like).

John Bollinger responds: 

Hello Chris,

The best introduction is still my book, even though it does need updating as I have extended the BB body of knowledge substantially since then.

Odd that you should mention discovering someone else's ideas that I particularity like, as Ian Woodward has been an inspiration to me over the past couple of years. He has just turned 80 and is still going strong. I can think of many analysts half his age who haven't a quarter of his current creativity. His work with Bollinger Bands is very interesting.





 I am researching and reviewing my contact with hats over a not uneventful life. I am considering their value, their uses, their symbolic significance, the great people I know who have worn them, the hat corporation of America I bought as my first trade, the hat that Tom Wiswell always wore to prevent sunburn and cover up baldness, the hat that Shane wore that made him an icon, the hat that the accountant in Monte Walsh wore that Hat Hendersson just couldn't resist noting was just right for a pistol shot, the hat that I wear now to show my respect for those previous, the man I called Hats H.  because he always had a million different conflicts of interest while working for us. The importance of a hat outdoors in the West to shield from rain, sun, and the elements. Et al. What value do you see in hats these days? What anecdotes? They seem to have gone out of style because of the automobile. You don't need protection from the elements any more. Also they're hard to store. How do they relate to markets?

Alan Millhone writes:

Mr. Millhone

Dear Chair,

I remember well the hat Tom wore. The ball cap I wear has a board on it (see picture). The Market trader might wear such a hat to remind them to look ahead and make the right moves (trades).





Sam Marx writes: 

On the subject of "Hats". I am reminded of the aversion that John F. Kennedy had to hats and the picture that has stayed in my mind, since 1961, is of his carrying and not wearing his hat at his inauguration. I believe it was his attitude that caused the downswing in hat wearing in the U.S.

Tim Hesselsweet writes: 

 Seems like a good example of ever-changing cycles. The hat has been making a comeback for the last several years. Kate Middleton has become a popular figure and she frequently wears hats. Upscale department stores like Saks now carry a large selection of hats as well.

Alston Mabry responds: 

Yes, but…mens hats are a different dynamic:

Look at this photo of mens hats at a Liberty Rally in Columbus Circle, 1918, and mens Hats at the Horse Races 1920s style, and 1950s Men with hats.

Scott Brooks writes: 

When I graduated high school, the guy who measured my head for my mortar board said, "Young man, I've been doing this for 35 years and you have the biggest head I've ever measured".

 As a result of my freakishly large cranium, hats rarely fit me. I wear one from time to time, but only out of necessity, and occasionally for functionality.

Necessity is when I need to keep my bald head from burning in the sun or freezing in the winter or dry in the rain. Never under estimate the insulating and protective qualities of hair.

Functionally is because I need a hat when I hunt to keep the sun out of my eyes when I'm scanning for game, peering through my scope to place the cross-hairs on the shoulder of my intended quarry, or placing the aiming pins of my bow in the middle of said quarries chest cavity.

I avoid hats otherwise as I can rarely get one big enough to fit. If I wear one too long, it gives me a headache. Therefore, when it comes to trading, if you see me placing a trade while wearing hat, fade my position as I'm likely making a losing trade because my mind is clouded by the hat that is squeezing my brain all to tightly.

Pete Earle writes: 

I wear a hat, and have for seven or eight years. When I began to wear one, I expected to be lightly razzed by friends; that not only didn't deter me, but never occurred. Instead I've received unexpected compliments, and over the last few years other have seen a higher frequency of hat wearers in Manhattan, Washington D.C., and even when I'm down in Auburn and Atlanta.

Christopher Tucker writes: 

The grandfather of my best friend from college was one of the kindest and most sensible men I have ever met. He was a traveling sales rep for the John B. Stetson company. The man always had the best (the absolute BEST) hats.

GAP Capital comments:

 Born and raised in Chicago, so "hats" remind me of only one person…Dorothy Tillman!!!

Anton Johnson writes: 

"By some accounts, Christopher Michael Langan is the smartest man in America……….he has a fifty-two-inch chest, twenty-two-inch biceps, a cranial circumference of twenty-five and a half inches–a colossal head, more than three standard deviations above the norm"

Esquire article on "The Smartest Man"

Alan Millhone sends another photo:

Here is Tommie Wiswell with his trademark hat tilted back.  Might also been used to keep
overhead light from his eyes while he focused on the many boards.














Russ Herrold writes: 

 I am traveling, and so cannot conveniently post, but I placed orders this week for a new Stetson, a couple of Fedora designs, and some other … I forget …and have in my car, for the conference I am at this weekend, easily 5 or so, which I use both for their protection of my head from the cold, and also so I can 'do some branding' work in the community the conference represents (I also have other 'branding' in my clothing, and appearance), such that people I deal with, who don't know me by sight, can recognize me anyway.

Marion Dreyfus adds: 

I think I am fairly well known as a hat person, and have been since I wore unusual chapeaux /to synagogue and school when 12 or 13.

Aside from style and stating an individualistic aspect, I think a hat harks back to a gentler, more mindful age, perhaps 100 years ago. It also keeps the head, inside of which are all these excellent ideas and scenes for a better tomorrow and a niftier evening today, comfy-cozy. Hats also show, oddly enough, respect. Hatless men in the 1970s were declaring their freedom from the mindfulness of suit and hat, and perhaps we are the poorer for having abandoned hats.

They also keep milliners in funds, and milliners I went to grad school with in the early 90s were aghast at the drop in hat-wearing citizens, alleviated only by temporary crazes or fads that fade as swiftly as they arise.

As a biker, for me, even mild days produce a breeze when one is on that leather seat, and a hat prevents sunstroke and sun in one's eyes as well as too much wind over one's head.

In the Orthodox world, wearing a hat connotes one is married, so it may be foolish of me to wear hats, because i communicate a status I do not currently entertain. But i do like the fashion and focus statement being made by wearing a lid, many of which, actually, i create myself.

Finally, one can maintain a superior air of mystery in a hat, which is impossible to the same degree in a hatless state.

Alan Millhone adds:

What really amazes me on hats are the clods at football games I attend who don't remove their head cover when the National Anthem is played.

Ken Drees muses:

 The baseball cap trend: rappers wearing the caps askew, wearing caps with logos of designers and companies, wearing caps for status/advertising, caps as gang signal, wearing caps in restaurants/indoors, wearing hoodies in lieu of caps, caps as fashion, caps on backwards, caps with brim curved just so, it all has to do with being cool. Lebron James wears Yankee cap to Indians games–it's all about me, fool.

Gary Phillips writes: 

"Wearing a cap backwards is a baseball fan tradition that started with Yankee fans. It wasn't because they liked Yogi Berra, either. The Yankees and Red Sox have a century-old rivalry. A group of young guy Yankee fans, around 1980, took the train up to Boston to catch a couple of games. Boston fans are loud and boo other teams. The young Yankee fans were seated in front of loud Bostonians. The New Yorkers didn't want to start an altercation, but made statement. Those guys turned their Yankee caps around backwards to show the Bostons that they were Yanks fans and proud of it."

Anton Johnson writes: 

On baseball's rally cap superstition:

"A rally cap is a baseball cap worn while inside-out and backwards or in another unconventional manner by players or fans, in order to will a team into a come-from-behind rally late in the game. The rally cap is primarily a baseball superstition."

And hockey's Hat-trick.

Victor Niederhoffer writes:

It would be nice if this worked in the market. But then the adversary could always tell if you were weak or strong, especialy if signals could be reflected from the hat. I was surprised to see that in all the uses for hats I have collected, including flopping the rump of your horse, and fanning a fire, and collecting water from a stream or the rain, I did not see many variants of using it as a signal to get a cab or alert a Native American that a interloper was near, or to collect bets, or to conceal a salt shaker. This latter is particularly effective in the west because to ask a man to remove his hat is akin to a date with boot hill. 

Gary Phillips adds: 

 Surely not a hat, barely a cap, let us not forget the kippah or yarmulke. The Talmud says that the purpose of wearing a kippah is to remind us God is the Higher Authority over us. He alone is Lord of Lords and King of Kings. When we pray and worship with our heads covered, we are saying that we are in total and complete submission to the will of God Almighty now and forever.

I was recently in the hunt for 2 of the crocheted variety for my 2 and 4 year olds to wear to school. My elder son demanded that the kippah be white with a blue Magen David. The synagogue gift shop was unable to fill our order, so I turned to a higher authority - E-bay. As J. Peterman would say, it is 6" in diameter — one size fits all. Handmade in Israel with a *very small* fine stitch. The yarmulkes are from Israel and are made by people who have made Aliyah; low income and handicap people, generating income to make a living.

I grew up and observant Jew until I had my first taste of bacon and blondes, and I never looked back. However, I now find myself lighting the candles, saying the hamotzi, and making Kiddish on Friday nights… Nice.

Jim Sogi writes: 

 A hat is essential in Hawaii to keep off the sun, rain and wind, to keep glare out of your eyes, and at night on the mountain for warmth when it gets cold. There are different hats for different situations. A baseball cap is good all around since it keeps the sun off your face, stores easily, can be worn in a car and is cheap and stays on in a brisk wind. A good brim hat is good to keep the sun and rain off the back and shoulders as well. A nylon hat is light and can be washed. A waterproof rain hat is good for extended rain, and a light nylon brim is good for hot sun. A small brim bucket with a strap is worn in the water while surfing to keep intense sun at bay for hours in the water, and to stay on in the surf. A knit or fleece watch cap is good for boating at night or sleeping in the cold. A helmet is good for sports to protect the skull from boards, rocks, trees and impact. The Original Buff is an adaptable piece that can be worn as a hat, scarf, or facemask. A balaclava is good for winter conditions and can be used as a hat, or face mask in windy conditions. I must have 20 or more hats.

As with all equipment, each type of hat is specialized for specific conditions, and there is not one that is good for all conditions. As with markets, its good to have specialized systems and rules for the differing conditions or cycles and no one rule is good in all conditions but must be tailored to match the expected conditions.

Rudy Hauser writes:

I do not wear a hat indoors with the exception of trains and planes or if there is no good place to put the hat. If there is a draft from air conditioning it helps to keep me from getting a headache. But more important is that unless I just want to hold my hat in my hands there is no good place to put it. I prefer to read, not hold a hat. I once made the mistake of putting a Panama hat in the overhead rack in a plane. The motion of the plane bounced it around enough to ruin it. That gives me little choice but to wear it. If I have a hat without a brim, such as my winter hat, I can a do take it off aside from trains which are not that warm.

Bill Rafter adds: 

 Glare, particularly from lensed overhead lights or high-hat floodlights can cause headaches and eyestrain. That can easily be counteracted by wearing a baseball cap or other large-brimmed hat indoors. I have kept one at my desk for decades.

For years I noticed that whenever I saw a certain actor & director, he was always wearing a hat, even indoors. Then I saw him entering a food emporium at a ski area and he removed his hat. I immediately understood why he always wore one — his particular baldness aged him at least 10 years. So his vanity choice was either a wig or a hat, and he chose the hat.

Hats indoors also provide a level of anonymity for those who do not want to be recognized in an airplane or robbing a bank.

My first "real" hat was a Homburg, which was required for one of my college jobs: pallbearer.



 Here's the long awaited black box transcript of what happened during the crash of Air France Flight 447. So many kinds of errors, combined with irrational thinking, false data, no data, and misconceptions caused this plane to splash. The parallels of the last few minutes of this flight are very similar to the thoughts and actions of that moment when a trader is digging his own grave. This transcript is worthy of much detailed analysis and discussion. I'm sure that the analysis of the transcript can better help speculators upgrade their worse case scenario plan.

Chris Tucker, air traffic controller at JFK, responds: 

 I have recently discussed this incident with a USAirways check captain. There are several problems– the first appears to be poor or insufficient training– partial panel operations are a part of the core instrument flight training curriculum– this is basic stuff. Figuring out which instrument or instruments that are unreliable is not that difficult. The other instruments combined can give a clear picture of the aircrafts situation. See a nice lesson plan in partial panel operations here.

 The second and most glaring problem to me is the disconnect between the two control sticks. Airbus uses a side mounted joy stick instead of a forward mounted control column with yoke. In most aircraft, the other pilot is always aware of the position of the control column because as the other pilot makes adjustments– his own column moves in synch– he can see it. So if the pilot in the left seat is pulling back on the yoke, the right seat pilot is aware of it and if this is the absolute wrong thing to do (as was the case here) he can bring his expertise to bear and help fix the problem. But that is not the case with the Airbus, and in this situation the pilot not flying was completely unaware that the pilot flying was holding the stick back.

The way this system is designed, in my opinion, is insane. The pilot not flying has little idea what the flying pilot is doing unless the flying pilot informs him– which should be mandatory in a situation like this.

It occurs to me that the even though all of the information necessary to fly the aircraft safely was right in front of them, that these two pilots became scared, very scared and stopped thinking properly. This is a big problem and it can only be addressed through training. Any pilot can tell you that when the aircraft stalls the immediate response is always to lower the nose and add power. Always. This is a part of training that should be done so thoroughly that it is imprinted on the student permanently.

So why did Bonin persist in holding back the stick? I find it difficult to believe that a pilot in a heavy, long haul international aircraft is so unfamiliar with his planes systems as to not understand the difference between operating in "normal law" - where the onboard computers will not allow the aircraft to stall– and "alternate law" where the computers will allow this. This is critical knowledge and I doubt their training regimen permits them to forget it– even if operation in "alternate law" has never occurred in the past. But something prevented them from believing that the aircraft was stalled– regardless of the blaring and continuous stall warnings.

I cannot say why this pilot behaved as he did, but I can say something that I say to all my trainees on the radar. "The best possible thing to do with the time available to you is to think". From this one premise you can elicit behaviors that will promote it. I like to wait until the trainee is very, very busy and say "stop talking– just stop for a few seconds and look at the situation and think about it. You have plenty of time to do what you need to do." It is my understanding that when you are talking you are not thinking– so we try to reduce the number of clearances, try to combine instructions, keep the chatter on the frequency down. Stopping and trying to think about the situation, even in the midst of chaos, is the best thing you can do to fix it. Why this didn't happen on that flight deck is beyond me. 



How to quantify similarities between such "mountains" [i.e. price charts] ?

1) Decide trailing periods and criteria to be used - YTD performance > X, last 5 year performance > Y, etc
2) Build universe/database of similar companies for each year
3) Build correlation table to confirm
4) Build composite model
5) Look at forward if-then test

In my experience, the bearish case on high momentum names, frankly any name, is best fundamentally analyzed as a move from Blue Oceans to Red Oceans and along with general market trends. Blue oceans situations tend to be P/E unconstrained, consistent growers, etc but once we move into the Porter world of Competitive Strategy then P/E becomes constrained which leads to compression. Generally, there are subtle clues - RIMM announced a move into consumer markets where AAPL played- so the business market was saturated - NFLX CFO left when the stock was below $200 on its way to $300. They started focusing on cost strategies, changing the story from new subscriber adds. I haven't followed GMCR that closely - but is there a competitive threat that is changing the marketplace - are they experiencing a strategy change - that's the key question.

Solar existed on subsidies granted by bankrupt governments, so it has to compete with more economic alternatives. Hence, the president's loan issue.

Stocks have to compete with bonds, so stocks crashed in 1929, 1987, 2000, 2008, etc

EK lost to digital photography.

My worst mistake ever came from Able Labs - a generic drug maker - had 26 NDAs pending, huge margins and a new lab in NJ - problem: small reference to litigation in the SEC filings that later turned out to be because they were getting their margins by diluting the drugs - stock went from new high list to opening down something like 86%, where I sold before watching it go to $0 in 30 days. Subtle clues. They are really important if one is making the bearish case.

in reply to Victor Niederhoffer's comment:

Strange similarity  between those two [NFLX and GMCR] to a person who looks at it as
two mountains of different heights with similarly looking crests
relative to the peak.

Query. How would one quantify similarities between such mountains?
And once quantified, what is best way to see the predictive value of
such similarities. I am reminded of the cotton traders most famous
trade. He noted that 1987 looked similar to 1929. then he knew it was
going to have a crash. The drunk man saw the same similarity and started
out long that Monday, and then sold. Between the two of them, they were
enough to trip the portfolio insurance to sell.

Query. How ridiculous can you get without quantifying the two
questions I asked? I say it wasn't that similar to 1929 as compared to
other years. and also that the ones most similar to a given few years of
bearishness, in the past, the less is the relation between past and
present. i.e. no predictive value to start.

Gibbons Burke comments:

There is another model which incorporates a similar gradual buildup with no appreciable change, then catastrophic breakdown, like the straw breaking the camel's back. A simple model is dropping grains of sand onto a surface. A pile builds up. With each grain the pile gets higher and higher, in an orderly fashion and is stable, until the angle of repose gets to a critical point, at which the next grain of sand sets off an avalache. Similar but subtly different. The concept is known as "self-organized criticality", and I suppose it may have some relevance to how bubbles build up and then collapse:

Christopher Tucker writes: 

See also Slope Stability Analysis Methods:

A similar criticality phenomenon is Flashover:

(quoting the wiki - )

A flashover is the near simultaneous ignition of all combustible material in an enclosed area. When certain materials are heated they undergo thermal decomposition and release flammable gases. Flashover occurs when the majority of surfaces in a space are heated to the autoignition temperature of the flammable gases (see also flash point). Flashover normally occurs at 500 °C (930 °F) or 1,100 °F for ordinary combustibles, and an incident heat flux at floor level of 1.8 Btu/ft²*s (20 kW/m²).[1]

another is Phase Transition: (from )

A phase transition is the transformation of a thermodynamic system from one phase or state of matter to another.

see also Crystallization:

see also Nucleation

see also Vitrification

Gibbons Burke responds: 

I was lucky to be in the right place at the right time to capture a flashover in a fire near my home (in 2006) in New Orleans:

 Stefan Jovanovich comments:

The sad fact is that the firefighter community still has no agreement on how to deal with flashover risk. They have not even settled on the question of whether to use a wide fog or straight stream!!!!!

The best teacher I ever had (an instructor at the Navy's Damage Control School in Philadelphia), said that the Navy were the only firefighters who had figured out how to do something besides spray and pray - i.e. use foam to suffocate fires and inert gases to secure the fuel lines - and even so there was a fatal tendency to believe that all you needed to do was get a big enough bucket. He pointed out to the class that the greatest risk of the Forrestal fire turned out to be the water from the firefighting itself, which almost capsized the ship and washed away the retardant foam.



 Some interesting excerpts from the North Atlantic MNPSA (Airspace) Operations Manual, Chapter 13 - Guarding Against Complacency

13.1.3 It is therefore essential that crews do not take modern technology for granted. They should at all times, especially during periods of low workload, guard against complacency and over-confidence, by adhering rigidly to approved cockpit/flight deck procedures which have been formulated over many years, in order to help stop operational errors from being an inevitability.

and my personal favorite:

Always remember that something absurd may have happened in the last half-hour. There are often ways in which an overall awareness of directional progress can be maintained; the position of the sun or stars; disposition of contrails; islands or coast-lines which can be seen directly or by using radar; radio navaids, and so forth. This is obvious and basic, but some of the errors which have occurred could have been prevented if the crew had shown more of this type of awareness.



 This Ted talk from Misha GLenny "Hire the Hackers " iis a HUGELY important piece, if you are on the fence about watching it allow me to recommend that you do. Forget the title, the subject is much larger. Thank you Anatoly for bringing it up.


We are at the beginning of a mighty struggle for control of the internet. The web links everything and very soon it will mediate most human activity. Because the internet has fashioned a new and complicated environment for an old age dilemma that pits the demands of security with the desire for freedom.

And what do you know? Nobody else does talk to the hackers. They're completely anonymous as it were. So despite the fact that we are beginning to pour billions, hundreds of billions of dollars into cyber security for the most extraordinary technical solutions, no one wants to talk to these guys, the hackers, who are doing everything.

…where we have a surfeit of technology in the cyber security industry, we have a definite lack of, call me old fashioned, human intelligence.

see also Anonymous and this speech by Misha Glenny.



 September 11, 2001

It really was a remarkable day. I remember stopping on the sidewalk on the way into work to just look at the sky, it was crystalline and incredibly blue. Beautiful. I stepped into my place of business, a large room about the size of a football field, very dark with the constant hum of electronics and various sections filled with radar scopes. I work at the New York Air Route Traffic Control Center, NYARTCC or New York Center as we say. I had no idea that this day would turn out to be the most terrible and memorable day of my career. I had been lucky so far, dodging bullets by not being on duty when Avianca 52 went down in Great Neck, Long Island or the explosion of TWA 800 or the suicide/mass murder of EgyptAir 990. But not today. The pilots were particularly chatty that day, constantly commenting on how nice the city looked, how clear it was. It was a CAVU day. Ceilings And Visibility Unlimited.

I was plugged in and working sector 55, a radar departure sector that encompasses airspace to the southwest of New York City from 14,000 feet to 28,000 feet and I was working quite a few JFK departures westbound, several NY Metro departures southwest-bound and some arrivals into DCA and BWI that had to be descended through the climbing departures. I was getting a bit busy and asked the controller working with me to "point out" an aircraft to the sector above us (sector 42) so I could climb the flight into his airspace and basically get him out of the way. My coworker called and then hung up, incredulous, saying sarcastically "He won't take the point out, he says he has a hijack". As the controller working the sector above us had a flair for drama we didn't take him seriously and I remarked "Get a real controller over there".

But it was true. American 11 had turned off its transponder and had turned south over the Hudson River toward New York. The transponder transmits a 4 digit code along with altitude and position information so our computers can track the flight and we can see its altitude and speed. Although the flight had turned off the transponder we still had a very solid "primary" (radar reflection) target visible on the scope. So we could still see what we believed was AAL11 heading south toward New York, but we had no idea what its altitude was.

At some point I remember calling Huntress, the Northeast Air Defense Sector to give the position of the target that we believed was AAL 11. "Where is he?" the military controller asked. "About ten miles west of LaGuardia, right over the Hudson, heading south, its a strong primary target". "I'm sorry, where? I don't see him". I gave up and hung up the line. The target was gone. We did not know then that AAL 11 had crashed into the World Trade Center. A few moments later some aircraft on my frequency that had just departed JFK asked me if I knew the south tower was on fire. There was a huge column of smoke they said. Later, after listening to the tapes, we discovered that one of the pilots on my frequency had said "Maybe its that American you guys are looking for" but I hadn't heard what he said. All we knew for sure was that he was no longer on the radar and that simply meant that he was very, very low. We assumed (for some reason) that they were flying low and down the coast and headed god knows where. Someone said that a small twin engine aircraft had hit the World Trade Center, but it never occurred to us that it could possibly have been American 11. No way. Not in your dreams bud.

As this was beginning, UAL175 checked on with the controller working sector 42 and told him that they had heard a suspicious transmission on the prior frequency in Boston Center's airspace. But all eyes were on the target that we believed was AAL11. As we focused on the target, trying to figure out what was going on, the facility chief entered the room with a phone in each ear and his deputy beside him. They stood behind sector 42 and talked quietly but I was too busy to hear any of their conversation. While everyone in the room was staring at this target tracking toward New York, I heard a voice behind me say "Hey, there's an intruder over Allentown" This meant that there was a target that we call a "Mode C Intruder" that the computer wasn't tracking. Then we noticed that the computer track for United 175 had separated from its target so we assumed the intruder was UAL175 and he was showing up as an intruder because someone on the flight deck had changed the transponder code to a code that the computer couldn't identify. The intruder climbed briefly from 36,000 feet or as we say Flight Level Three Six Zero (if I recall correctly) and then as it passed over Allentown, PA it began descending and turning left to the south.

Someone said "watch this guy" to me but I was already watching, I had entered the 3321 code that the aircraft was now squawking on its transponder into to make its target appear brighter on my scope. As the target continued turning and descending I became increasingly concerned about two aircraft that I had under my control, both heading southwest and climbing. If the intruder continued the left turn and descending at the same rate it looked like they would get very close. But it was impossible to tell which way to move the traffic to get them out of the way. If the intruder turned rather tightly than he would come north of my traffic, if the turn was wide he would come south of them. As it was he turned head on into both of them.

Before the intruder had finished the turn I had issued a traffic call to both of my climbing aircraft: "Delta 2315 and USAir 542, traffic, one o'clock, one five miles turning southeast and descending, we believe it is a hijack and we don't know his intentions" (please keep in mind that these are my recollections ten years after the event and I don't have transcripts of my tapes available, but the essence is exactly as it was that day). Still, I had no idea what the intruder was going to do. Would he continue turning? Continue descending? I had to assume yes to both of these questions and it began to look as if he was heading for New York City, but for what purpose? Was he an emergency we speculated? If so it must be a dire one. No pilot would turn off course or descend without informing us first. This was crazy. We were thinking hijack but just weren't sure. Delta 2315 was level now at FL 280 (28,000 feet) and USAir 542 was about five miles behind him and leveling off at FL 260. I called the traffic again, "Delta 2315 that traffic is now one o'clock, ten miles, turning opposite direction and descending rapidly. It looks like he will be directly in your face. Take any evasive action you deem necessary." "Roger" came the reply. I called the traffic to USAir 542 again and he asked me a question that I didn't hear correctly. I thought he said "Is that the guy at our one o'clock?" and I responded "affirmative", but we later determined that what he actually said was "Is that the Delta we are following at our one o'clock?" which was not the case, I wanted him to look for the intruder that was turning head on.

By now I was becoming extremely concerned. The tension in the room was palpable. Several people were staring in disbelief at my scope as the events began to unfold. When the intruder was about 7 miles from Delta 2315 and pointed directly at him and about 1,500 feet above him, I turned both aircraft, shooting off the clearances as quickly and as clearly as I could: "Delta 2315 turned left IMMEDIATELY heading two zero zero" The pilot responded with a "roger" that sounded just a bit too nonchalant for my current state. "USAir 542 turn left IMMEDIATELY heading two zero zero". The intruders target was now about five miles from Delta 2315 and closing at right around 1,000 miles per hour. I again called the traffic to the Delta and waited to see the turns. I watched in horror as the two aircraft converged at 28,000 feet. "GOD F#&KING DAMNIT" I shouted as I jumped out of my chair, screaming at the scope. Dead silence. I could hear people breathing across the room. Shit. This was it. It takes twelve seconds for the radar to update. That was the longest twelve seconds of my life. I was focused so intensely on the radar that I thought my eyes might pop out of their sockets. Finally the targets both appeared after having passed each other by about 2 miles. But at that time it seemed like you couldn't fit a sheet of paper between them.

"USAir 542 is responding to an R.A." said the USAir pilot as he began descending, responding to an onboard collision avoidance device called TCAS. Sh*t. "Christ I'm sorry about that sir, I really thought he was going to hit the Delta", I said apologizing to the USAir flight that had come almost as close as the Delta. As it turns out, we suspect that the hijackers aboard United 175 must have heard the TCAS alerts as well because they briefly stopped descending and actually climbed to about 28,300 feet, 300 feet above the Delta. But as soon as they passed they began descending again and rapidly. This is when USAir 542 began descending as well to avoid the conflict, but the turns I had given earlier ended up doing the job, but much, much too close for comfort.

By now I was a nervous wreck and we all watched United 175 descending toward New York City. We wondered, clutching to hope, if he really might be an emergency and not a hijack and was just trying to get the aircraft down on a runway, any runway. We wondered aloud if he was trying for Newark as he was pointed right at it. "Maybe he's shooting for the 4's at Newark??" (Newark has two runways called 4, a left and a right) "No", Jimmy B. said, "He's too high and too fast". We watched as the target clipped off the miles, twelve seconds a hit. (We call each subsequent target presentation a "hit"). He was descending at five thousand feet a minute. Then six. Then seven. Unbelievable. Things were beginning to feel surreal. This wasn't actually happening was it? Yes. "Maybe he's trying for runway 4 at LaGuardia?", someone said. "No", again from Jim. "This guy is going in" And we knew. They were going to crash the plane into the city. They were pointed right at lower Manhattan and we knew it. "Two more hits" said Jimmy. "One more" And then he was gone. We had just watched a commercial airliner deliberately crashed into New York City. It didn't take long for the tears to come. There was confusion, fear, wild emotion. But we still had work to do.

I vectored aircraft on course, climbed some, descended others, I don't remember really. I remember choking back tears as I issued instructions to several pilots and talked with some about what had just happened. At some point the supervisor asked me if I needed to get up. I nodded emphatically and was relieved by another controller.

As I walked out of the area and passed the watch desk I heard the Operational Manager in Charge screaming into the phone: "I don't give a shit what they do, just get them in the air NOW!!" Must be scrambling fighters I pondered, feeling distant and disconnected. I reached over his multiple CRT's and grabbed the cigarettes out of his shirt pocket. He never noticed.

The rest is history. The controllers in my area, area B, were sequestered with a priest and a psychologist in a conference room for a while, and someone would pop in occasionally with the latest news. "The south tower just collapsed" No f#$king way I thought. They kept popping in with more bad news, bomb threats, more hijackings. I couldn't take it and got up and walked out to smoke one cigarette after another. The controller sitting next to me had just lost his best friend who was working at Windows On the World. People were in tears, everyone was afraid and angry. Unbelievably angry.

At one point they gathered us up, the controllers from Area B and we made written statements and a recording. They brought this big old reel to reel recorder in and passed around a microphone asking us to give our version of what we saw. Four or five people had already spoken when they discovered it wasn't recording and we had to start over. Later, a Quality Assurance Manager destroyed this tape and there was a bit of conspiracy theory going on about it. But this is nonsense. The tape was destroyed because the manager knew it was counterproductive and embarrassing. Not embarrassing to the FAA, but to us personally. Many people were crying, several facts were stated incorrectly, it was just a mess. And they had all the data they could possibly need with the voice recordings of all the transmissions and all of the radar data. Not only was he within his rights to destroy the tape, it was actually in his job description. Was it right? I'll leave that to you to decide. But I can tell you from first hand experience that the contents of the tape that caused such a flap were totally innocuous.

So that is what I experienced on 9/11. I hope it gives some insight, it is definitely a harrowing tale. Below are some statements from my coworkers that I retrieved from the national archives. I was unable to locate mine on the website, although I have a hard copy of it myself. I would really liked to have been able to provide a transcript of my voice recordings from that day, but I was told I have to go through a Freedom of Information procedure and just didn't want to bother. More government red tape is all I need.

Several weeks (months? who knows) after the event I spoke with a reporter over the phone about that day and he wrote a story for the Hartford Courant. A few days after it was printed he called me again with a strange request. A reader had contacted him and wanted to speak with me, could he share my number with him? I said sure and the gentleman called. Apparently he had been a passenger aboard Delta 2315, a circuit court judge for either the U.S. or Connecticut, I don't remember. But he had called to thank me. "For what?" I asked. "For saving my life that day", "for doing your job" and we talked for hours. I think he saved my life that day.

This is dedicated to all those who lost their lives that day, especially the pilots, crew and passengers aboard American 11 and United 175.

Also, please note that much of the information on wikipedia about these two flights is incorrect, but only mildly so.

Christopher Tucker

September 9th, 2011



 I just finished The Mighty Atom. It was a delightful read as well as educational on several levels.

Chris Tucker adds: 

This reminds me of a passage in The Psychology of Risk: Mastering Market Uncertainty, by Ari Kiev, M.D., (John Wiley & Sons, 2002) pp. 39, 40: 

Commitment is an example of what Joe Greenstein, a circus strongman in the early years of the twentieth century, believed was necessary to overcome what he called "impossibility thinking." He believed in a Life Force that we all have but fail to activate because we are constantly thinking, "I can't do that. I'll hurt myself."

According to Greenstein, the little voice in you - that instinct for preservation - does not give us an accurate picture of our capabilities. We all have mental and physical abilities beyond our own estimation, but to realize them the mind must be deconditioned from impossibility thinking. Only after this deconditioning does it become possible to do what you will.Greenstein believed you could do almost anything if you applied your mind and body to the task with enough diligence. The critical step to take is to overcome the instinct for self-preservation, which inhibits action. To do this, he believed, it is only necessary to become totally focused on the event at hand, with no reservations and fears of anything untoward happening. In traders, this instinct shows up in the form of such things as mental accounting and loss aversion.

Nothing could more vividly illustrate the importance of belief in a favorable outcome without reservations or fear than the large number of people who were able to run sub-four-minute miles *after *Roger Bannister broke the magic four-minute mile barrier on May 6, 1954. Until that time, the four-minute mile was no longer a vain, exaggerated dream but an attainable goal that could be reached by any runner who was capable of overcoming the pain, adversity, and anxiety involved in reaching it. Once the barrier had been broken by Bannister, the event itself suddenly became relatively easy. By the end of 1978, as many as 274 runners had broken through the "magic, impenetrable barrier."

Kiev then progresses into an interesting discussion about the nature of commitment. Highly recommended book along with his Trading to Win: The Psychology of Mastering the Markets, John Wiley & Sons, 1998



I have recently been considering the angle of ascent as a predictor of subsequent movements as part of a general consideration of the principles of conservation of momentum apliccability to markets. Here's one approach.

Consider all moves during a week of 10 to 20 full points i.e. 1% in s & p

.                  number of obs  move the next day     sd
.previous Wed
.to Friday
.up more than 10     44            -2                   13
.up btwn 5 and 10    27            -1                    9
.up btwn 1 and 5     14             0                    0
.-5 < sp <0          11            0                    12
.sp < -5              9           20                    22

There would seem to be some small evidence that for weekly moves during the 1st 10 years, given that the move during the week was between 1 and 2%, the algebraic speed of ascent in the last part was negatively correlated with the move the next day. The approach has many bifurcations and variations and might be interesting to the physicists in our audience.

Chris Tucker writes: 

Angles are important in aviation, we use quite a few. Pilots differentiate between angle of climb  and rate of climb. Best angle of climb will provide the most vertical gain over a specified distance, which is handy for clearing obstacles like trees off the end of a runway. Best rate of climb will gain the most altitude over a specified period of time. Not the same thing.

Angle of incidence, a fixed value, is the angle between the chord line of the wing and the longitudinal axis of the fuselage and is not to be confused with the all important angle of attack, the angle between the chord line of the wing and the airflow through which it is travelling. Lift generally increases with angle of attack to a maximum point, the critical angle of attack, after which it decreases because the laminar flow of air over the wing begins to separate from the surface of the wing creating a stall condition. (Nice illustration and mention of tennis and golf balls here.

A serious stall involves a complete loss of lift and often results in a spin and frequently ends in tragedy, as in the loss of Air France Flight 447  and the most recent fatal crash in the United States, Colgan Flight 3407.

The thing to consider in aircraft when looking for a superior rate of climb is high thrust to weight ratio and light wing loading. Pilots can cheat, however, by accelerating during level flight and trading this kinetic energy into a single burst of high speed climb. This is known as a zoom climb and I have suggested the use of this maneuver on occasion to convince pilots to penetrate a layer of severe turbulence if the layer is thin enough and there is smooth air above. It is critical to have current and accurate information about the turbulence before attempting something like this. The important thing about a zoom climb is that it is unsustainable and is bounded by the amount of available kinetic energy. Military fighter aircraft, with extremely high thrust to weight ratios need not be concerned with this as they are capable of sustained and extreme vertical speeds. But they burn an awful lot of fuel in the process.

(Sorry for all the links, when I start talking about flight I tend to get carried away….) 

Pitt T. Maner III writes: 

Played tennis one night many years ago under the lights with a commercial pilot from Nevada who had a naval aviation background and he described the difficulties of landing a jet on an aircraft carrier under low light conditions in fairly rough sea. What he described was having to concentrate, I think, on the pitch, roll and yawl and coordinate it with the similar movement of the carrier flight deck—lots of variables in a short time window and positional awareness. Very harrowing procedure in difficult conditions (it sounded nightmarish, and one for only the most experienced pilots) and he used the term "bought the farm" several times to describe pilots who had crashed in such circumstances.

What was interesting was a technique he described as powering up and down so as to maintain control and complete the landing. Too much power and he would overshoot and too little and he would stall out or not make the deck. It sounded like revving an engine. Short bursts of power on and power off.

Is that a technique that is taught or does that come from experience and feel?

By coincidence it is the 100th Anniversary of carrier landings. Even with the technological advances pilots must very skilled:

"On Nov. 14, 1910, Ely ignored storm clouds and took off in a spindly aircraft from the USS Birmingham, which sat in the waters of Hampton Roads. It was the first time an aircraft had ever lifted off from a ship.

A photograph freezes the moment in time that Ely became airborne. Yes, that would be him, dropping toward the water.

The flight came perilously close to failing. Ely dove toward the water to gain speed and pulled up, but not before his wheels and part of his propeller struck the water. The aircraft climbed into the air, rattling with damage. Steering with his shoulders — aircraft of that day were built by bicycle makers, and were steered by leaning — he managed to land on the beach at Willoughby Spit.

Then in January 1911, Ely closed the historical loop by landing on the deck of a ship. This time, the event was in San Francisco and the ship was the USS Pennsylvania.

Later that year, Navy brass became convinced to give these new-fangled flying machines a try, and put in the first order for aircraft. That makes 2011 the official 100th anniversary of naval aviation.

Many events are planned for next year, but the Navy will get a head start on the celebration come Friday, with a celebration and a display of older aircraft. Coolbaugh's replica is closer to the aircraft that Ely landed out in San Francisco in 1911, as opposed to the one that took off from Hampton Roads a few months earlier. Still, he had hoped to fly his aircraft off the deck of the USS George H.W. Bush as a tribute to Ely's first take-off."

Here is the wiki for Eugene Ely.

"It's a dangerous job" 

And an interesting video here.



 Here is a very interesting article and a quick read:

As a culture, we continue to undervalue and even demonize rest and renewal—to our collective detriment. Sleep and rest are the first things we're willing to sacrifice in the name of getting more done, even if the consequence is doing it poorly. Too many employers evaluate their employees by the number of hours they work rather than by the real value they generate. The archetypal hard worker still arrives at work at dawn, stays into the evening and brags about getting by on 5 or 6 hours of sleep. Far better to get sufficient sleep, arrive later, leave earlier, and take intermittent times to rest and renew during the day. You'll pay better attention and do better work, but you'll also be more productive, because you'll get more done in less time.

Pitt T. Maner III writes:

This concept is in use by the NBA too:

" Some N.B.A. teams have received an education in the art of napping from Dr. Charles Czeisler, the director of the Division of Sleep Medicine at Harvard Medical School and chief of the sleep medicine division at Brigham and Women's Hospital in Boston.

Czeisler, known in the N.B.A. as the sleep doctor, has consulted with the Boston Celtics, the Portland Trail Blazers and the Minnesota Timberwolves about the virtues of receiving enough sleep. Napping was a significant piece of the tutorial.

Czeisler said he thought that N.B.A. players needed more sleep than the average person, about nine hours a day. Typical N.B.A. games end about 10 p.m., and with showering, eating, interviews and unwinding factored in, many players do not get to sleep until much later. If they are traveling to the next city after a game, they may arrive at their hotels after 3 a.m. There may then be a morning shootaround that requires getting up by 9 a.m. or earlier. Who wouldn't want a nap?"

(At the moment Lebron's power siesta, however, is outdoing the Celtic power nappers.)

Check out the Harvard Sleep Medicine Website also: (with mention of air traffic controllers also –and interesting points made about tired, young texting teens).



 Let us augment the Zacharian situation which I used to call a Finnegan where you look at the screen and a price is too terrible to contemplate because it's ruinous to you, and then you realize to your utter delight that the price was a misprint on the screen, and you're whole, and not losing at all, but …. by the end of the day or week, the price you feared actually turns out to be worse than you feared and you lose even more. Such a situation occurred in conjunction with the flash crash of May 6 when the price of 1060, which was ruinous for individual stocks and S&P was there for a second, but then it rose 8% in a day, and then Zachar predicted it would go bak there after it rose 100 points.

Okay, two other situations deserve a name.

You look at the screen, and you smile. Your market or stock is way up you think. But then– "Oh no," you were looking at the wrong market. And your thing is the only one that's not good or up if your long. That happened to me with my Rimm and Vix today. I see a market way up. I smile. Oh no. It's not Rimm, it's Vix that's way up.

What should this be called. And what about the variant where you have a price in mind to get out, and then you go to shave or take a call from a non-agenarian, and the price is realized, but by the time you can enter the order it's not there any more. And it never gets back.

A related situation is that you're out of office for a second, and you hear an announcement. The economy is very strong. However, bonds are down because of the crazy idea that a strong economy is inflationary. But that's causing stocks to go down. Okay, you're losing money on your longs. The market is crazy right? You grit your teeth and go back to take a look. Amazingly the bonds are way up however. WHY? Because stocks are way down. In other words, you lost on stocks because bonds were going to be down, but they actually went up when stocks went down, so you lost for an opposite reason.

What are the proper names for all these? And what variants of these type of things deserve a name?

Peter Earle writes:

The one where you look at the screen and smile– perhaps that moment is best termed an "Eastwood", a "Harry", or a "Dirty Harry", or being struck with/by (a) "Sudden Impact", as demonstrated by the relevant portion of this scene: first from 0:18 to 0:51…and then from approximately 1:05 to 1:13.

Chris Tucker writes: 

The last situation could be referred to as a "Cyclone", not for the storm, but in honor of the Chair and the iconic roller coaster of his youthful digs at Coney Island. The Cyclone is terrifying, filled with thrills, dips, lunges and jerks. And people keep coming back to plunk down there hard earned cash for more.

Very nice short history of the park at Coney Island here.

Vince Fulco writes: 

The Cyclone seems most apropos. What is it about Mr. Market's ability, esp. with these leveraged ETFs to give you a nice gain but not hit your target price and then revert back to your cost in an instant (many multiple percent away and seemingly not to be seen again in the near future with the new info) then turn within pennies and return you back to profit mode testing your temperament so mightily? The silver ETFs have acted like scalded dogs the last few days.

George Zachar comments: 

The Coney Island Cyclone was the signature thrill ride of my youth. I've ridden it well over 100 times.

What's always fascinated me about it, is how the experience varied with one's position in the 12 rows of seats.

In the very front, with the center of gravity many feet behind you, the visual danger signs led the acceleration by a couple of seconds, giving you the sensation of hanging over a cliff.

In the very back, my favorite spot, the acceleration came before you could see the rails dip, so it would catch you unawares and whip you sooner/faster than your mind anticipated.

Also, at the start of the right turn off the NW corner, the right-front wheels would leave the track for an instant, making first-time riders wonder if they were destined to die on Surf Avenue, in the shadow of the D train.

Alston Mabry writes:

The one where you're out of the office for a second, and hear an announcement– It's called "duck season".

The followup is too good to leave out: "Pronoun trouble".

Craig Mee writes:

About the one where "it's even worse than the mistaken price you mistakenly thought was your" :

I thought you were going to say, Victor, if after getting heart palpitations at the first incorrect reading, just by the fact you had done this, it's better to get out of your said stock now anyway, as you've brought bad karma to the trade.



 I had the privilege of working on civilian projects at the former Roosevelt Roads Naval Air Base in Puerto Rico back around 1998 and had the opportunity to work inside of a Seal area.

They are an extremely impressive group of guys, and the ones I talked to were nice fellows. It was common to see them up early in the morning running mile after mile of steep hills with a heavy duty Camelbak on their shoulders in 90 plus degrees and 90 plus humidity. They did lots of calisthenics (pull ups) and some evidently trained on rowing ergs. The level of physical and mental training and discipline was amazing.

The following link gives an idea of what it takes for a youngster to become a Seal.

One can only imagine what it takes to become a member of Seal Team 6.

Chris Tucker writes:

An interesting Air Traffic Control option, Air Force Combat Controllers usually accompany SEALS on active missions that may require air support.

Combat Controllers train in all fashions similar to other Special Ops team members and are authorized to call in air support and air strikes. They must have thorough knowledge of available aircraft types and capabilities and available weapons systems needed to get the job done. Cool job.



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

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

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

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

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

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

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

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

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

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

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

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

Mark Schuetz comments: 

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

Victor Niederhoffer replies:

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

Ralph Vince writes:

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

1. There is no such thing as easy money

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

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

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

Jim Lackey writes: 

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

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

Alston Mabry adds:

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

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

14. Never go on vacation with open trading positions.

Or, zooming in:
<click> home

<click><click> to lunch

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

Paolo Pezzutti writes:

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

Alston Mabry comments:

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

Chris Tucker adds: 

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

Anton Johnson writes:

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

Jeff Rollert writes:

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

Rocky Humbert writes:

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

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

Jeff Sasmor writes:

About Jeff R's # 16:

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

Happened to me yesterday…

Ralph Vince comments:

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

Victor Niederhoffer adds:

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

Jay Pasch comments:

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

Ralph Vince adds: 

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

T.K Marks writes:

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

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

Jim Sogi writes:

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

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

James Goldcamp writes:

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

Ralph Vince comments: 

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

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

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

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

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

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

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

Jeff Rollert adds: 

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



 Last weeks Junto was interesting, Greg Rehmke spoke about Charter Cities  the Hanseatic League and work done by Paul Romer.

It was a very informative talk and there was a great deal of discussion. The talk centered on the economic benefits of a small (not national) economic zone similar to Hong Kong or Singapore with limited regulation and low taxes in order to create incentives for economic growth and prosperity. He referred to them as "Global Cities". One very interesting side point raised by a member of the audience was that the attraction to cities of members of rural populations usually meant that those who migrated toward cities were moderates and this migration left radical elements in rural areas unchecked, leading to the proliferation of fundamentalist ideals throughout rural areas in Byzantine, Middle Eastern and Caucasus states. My take was that "moderates" meant those looking to improve their lot and therefore seeking and unafraid of change, leaving those elements not interested in change, improvement or the future behind. I found that idea particularly fascinating.



 I know that there have been posts not long ago on great books for kids regarding business. My seven year old son has been showing a keen interest in the idea of business and particularly in entrepreneurship. I was wondering if readers of this site might share the names of books or other resources that might assist me in fostering this in his development. The kid wants to make money!

Mark Schuetz writes: 

Hate to bring up a touchy subject, but I think it would be fun for kids to read about Buffett starting out. Definitely an interesting story about how he went from a paper route, to repairing pinball machines, to buying and renting a house, and so on, and SAVED money the whole time instead of spending it. It doesn't even have to be Buffett– maybe a kid could relate more to reading about famous businesspeople/investors when they were young and how they developed even at a very young age. It could inspire kids to think about more current ideas for themselves (very few will be interested in repairing pinball machines).

An editor writes: 

When I was a kid I really enjoyed the book The Toothpaste Millionaire about a 6th grader who starts a business selling toothpaste and becomes very successful. 

Victor Niederhoffer recommends: 

Self Help by Samuel Smiles, The Incredible Bread Machine, The Little Red Hen, Letters from a Self Made Merchant to his Son, by Lorimer.

John Floyd adds:

Toothpaste Millionaire

The Girl Who Owned a City

Gibbons Burke adds: 

This is an oldie but a goodie: The Richest Man in Babylon by George S. Clason. Many meals for a lifetime in this book.

Another good one for personal development skills helpful in business is Og Mandino's The Greatest Salesman in the World.



Here is a great review of the fabulous UK Maker Faire.

Chris Tucker writes:

I LOVE Maker Faire!!

The Bay Area one is May 21, 22; Detroit July 30,31; New York Sept. 17, 18 at the New York Hall of Science



UPDATE 1/31/2011:

Contestants Summary:

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

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

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

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

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

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

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

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

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

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

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

Contracts Summary:

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

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

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

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

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

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

Victor Niederhoffer wrote:

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

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

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

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

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

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

David Hillman writes: 

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

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

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

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

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

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

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

Market direction picks are wanted:

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

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

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

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

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

Bill Rafter adds: 

Suggestion for contest:

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

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

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

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

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

Ralph Vince writes:

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

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

I'm going to sit and do nothing.

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

Gordon Haave writes: 

 My three predictions:

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

Dollar ends 10% stronger compared to euro

All are actionable predictions.

Steve Ellison writes:

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

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

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

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

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

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

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

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

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

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

Jan-Petter Janssen writes: 

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

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

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

Vince Fulco predicts:

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

Additional points/guesstimates are:

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

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

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

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

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

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

Potential negatives:

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

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

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

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

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

Mr. Albert enters: 

 Single pick stock ticker is REFR

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

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

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

Dan Grossman writes:

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

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

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

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

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

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

Best to all for the New Year,


Gary Rogan writes:

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

Wildcard: Short Netflix.

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

Equal Amounts in:

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

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

12/30 closing prices (in order):


Bill Rafter writes:

Two entries:

Buy: FXP and IRWD

Hold for the entire year.

William Weaver writes:

 For Returns: Long XIV January 21st through year end

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

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



Ken Drees writes:

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

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

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

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


Happy New Year!

Ken Drees———keepin it real.

Sam Eisenstadt forecasts:

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

S&P 500       1410

Anton Johnson writes: 

Equal amounts allocated to:

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

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

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

Scott Brooks picks: 


Evenly between the 4 (25% each)

Sushil Kedia predicts:


1) Gold
2) Copper
3) Japanese Yen

30% moves approximately in each, within 2011.

Rocky Humbert writes:

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

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

Dylan Distasio comments: 

Gawin mo magsalita tagalog?

Gary Rogan writes:

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

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

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

Tim Melvin writes:

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

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

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

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

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

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

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

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

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

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

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

Other than that I am clueless.

Kim Zussman comments: 

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

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

A ball of confusion!

4 picks in equal proportion:

long XLV (health care etf; underperformed last year)

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

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

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

Alan Millhone writes:

 Hello everyone,

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

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

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

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

Happy New Year and good health,



Jay Pasch predicts: 

2010 will close below SP futures 1255.

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

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

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

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

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

Chris Tucker enters: 

Buy and Hold


Wildcard:  Buy and Hold AVAV

Gibbons Burke comments: 

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

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

2) Ride your winners.

3) Cut your losses short.

4) Keep the size of your bet small.

Then there are the "special" rules:

5) Follow all the rules.

and for masters of the game:

6) Know when to break rule #5

A prosperous and joy-filled New Year to everyone.



John Floyd writes:

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

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

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

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

A Mr. Krisrock predicts: 

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

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

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

4…commodities are peaking ….

Laurel Kenner predicts: 

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

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

Pete Earle writes:

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

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

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

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

Happy New Year to all,

Pete Earle

Paolo Pezzutti enters: 

If I may humbly add my 2 cents:

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

J.T Holley contributes: 


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

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

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


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

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


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

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

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


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

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

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

Sex and Speculation:

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


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


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

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

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

Long - Common Sense.

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

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

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

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

I had to end on a Long note.

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

Russ Sears writes:

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

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

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

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

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

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

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

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

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

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

Yanki Onen writes:

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

Now the ideas;

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

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

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

-Sell contango Buy backwardation

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

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

- Leveraged ETFs suckers play!

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

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

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


Yanki Onen

Phil McDonnell writes: 

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

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

SLV closed at 30.18 on Friday.

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

Net debit is .50.

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

George Parkanyi entered:

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

BUY SILVER at open

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

SELL and then SHORT SILVER at open

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

COVER and then BUY SILVER at open

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

3 JAN BUY PLATINUM and hold to end of year.


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

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

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

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

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

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

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

Marlowe Cassetti enters:

FXE - Currency Shares Euro Trust

XLE - Energy Select

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

GDXJ - Market Vectors Junior Gold Miners

AMJ - JPMorgan Alerian MLP Index ETN

Wild Card:


VNM - Market Vectors Vietnam ETF

Kim Zussman entered: 

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



 1. I am reading the deeply flawed book Bounce by Matthew Syed who believes that the quantity and quality of practice is key to determining greatness. Also reading another book from the same garage of hatred of the subject he writes about– The Company Town by Hardy Green and also Titanic Thompson: The Man Who Bet On Everything by Kevin Cook, about a man that should be hated but is quite interesting.

2. They say that when there is a big traffic accident in an area and it's cleared, there is still a traffic jam there the next day, I think because people are slow to observe past effects. And one is reminded of that at the opens of all the markets. In the pit days, there used to be tremendous volatility and big moves like in the first 5 minutes. But now there is no pit trading in most markets, but there's still the same volatility that occurs, like in bonds today at 820.

3. One notes that after 13 or more 10 day changes up, the expectation the
next day is -1/10 of a % and after 13 or more 10 day changes down the
expectation for the next day is -1/10 of a % however there are 244
occasions when the 10 day SP is down 13 or more times in Rowand 398
occasions when the 10 DYA SP is up 13 or more times in row. Thus,
declining 10 day moves less harmonious than up 10 day moves a meal for a
day not here but possibly for life time.

Thomas Miller shares: 

Trafficwaves is an awesome website by an electrical engineer about what causes "invisible traffic jams" with lots of illustrations. 

Chris Tucker writes:

I've heard this referred to in an astrophysics class as a Density Wave, it is one of several theories brought up to account for the formation of the distinct arms in spiral galaxies. The teacher used this specific example of highway traffic to explain it.

Jim Sogi adds:

When particles interact due to input of energy they move at different speeds. The faster ones overtake the slower ones. A buildup occurs at the slow point. Everyone has seen this in traffic. This is how big waves are created in the ocean. The interaction of energy pushing forward, and forces of resistance due to bunching, due to structural resistance (in the ocean its the bottom) in markets due to vig etc., and the secondary forces created by interaction of the various maxima and minima gets complex. It seems the areas of maxima and minima are easy to focus on and they provide distinct boundaries, maximum energy, and minimal densities.

T.K Marks comments:

Apropos of the peculiarities of traffic mishaps otherwise involving cars, just moments ago I had sent sent a similar response to your thoughts contained below only to be have it unceremoniously bounced back to your humble correspondent.

So here we go again.

Back in the day when pit trading held sway, the lion's share of the action took place on the open. Afterwards, the tempo was akin to the pace of watching grass grow. The occasional rock'n'roll news developing days notwithstanding.

So after I would take care of my market opening responsibilities and see that there was not unduly pressing on my book, I would delegate responsibilities to my second-in-command and repair upstairs to the the gym on the 8th floor gym of the WTC for a palliative steam and sauna.

The equilibrium benefits of such generally worked wonders because the close made the open look like the most genteel of tea parties,. It was the closet I'v been to Nam. Every day was a Tet Offensive.



 This is an absolutely brilliant interview that is full of insights for the market. The interviewee is one of the pilots aboard the Qantas Airbus A380 last month that had an extremely serious uncontained engine explosion shortly after take-off.

In the interview they cover - inter alia - such things as

- The importance of checklists
- Dealing with contradicting signals
- Over-riding systematic considerations in favour of discretionary controls
- Keeping your head during a major catastrophe which constantly shifts its dynamics and has a lot of what we might call negative gamma…rapidly developing, interacting, non-linear issues that can rapidly move beyond your ability to keep up with them
- The importance of training and professionalism
- The importance of excess redundancy and robustness
- The importance of improvisation - and the ability to keep a clear enough head in a panic to ensure your creativity can be brought to bear on the problem.
- Power of teamwork.

Best part are the pictures of the cockpit showing the checklists and procedures they are working through.

As it turns out, this incident was very much more serious than the media ever picked up on. What an amazing story. I'm sure all will benefit greatly from reading this. For myself, I will be referring to this interview many times. A banquet for a lifetime.

Hope it benefits you all as much as it did me. Also hoping Mr. Tucker weighs in with some insights!

Chris Tucker writes:

Thanks Nick, a nice summary of some of the lessons available from this.

I would add the importance of prioritizing. As Captain Evans points out in the interview, one of the golden rules of aviation is "Aviate, Navigate, Communicate - in that order". This is drilled into every pilots head from their first day of ground school. Keeping the aircraft in a stable flight path is the number one priority, dealing with malfunctions is secondary.

Another aspect of this incident is the importance of a thorough working knowledge of your systems. Today's airliners are complex systems in the extreme. It is fortunate that, according to the New York Times.

The pilot in command, Richard de Crespigny, spent the last two years researching the airplane and its engines for a book, according to Richard Woodward, a safety representative for the international pilots union and a Qantas pilot who says he has spoken to the crew of Flight 32. "His technical knowledge of the airplane is very deep," Mr. Woodward said.

Deep knowledge of your systems is what guides you when you need to decide what to pay attention to and what to disregard.

Another aspect of this incident which it shares with the Hudson River Miracle , in addition to having some of the most experienced pilots in the airline at the controls, is the preponderance of good fortune (after the initial really bad stroke of luck). To consider: It was daylight and the weather was amenable with clear skies. This is huge. Had it simply been raining, it is not clear that the aircraft would have been able to stop safely within the length of the available runway. The fact that the engine failure was not contained is disturbing. (see the Rolls-Royce Trent 900 engine in a blade off containment test at time 1:52 in this video )

An uncontained engine failure such as the one experienced by Qantas flight 32, although it caused tremendous damage, did not cause immediate catastrophic damage to the airframe or flight control systems. This is either a testament to the robustness of the aircraft or blind luck, probably a little of both. Things could have been much, much worse, as in the United 232 accident in Sioux City, Iowa.

In the end, Captain Evans remarks that it all comes down to common sense and airmanship. Flying is a job that inspires passion. I know very few pilots that are not totally in love with what they do; their dedication to their craft and willingness to never stop learning is a result of this and it is what keeps you and I safe when we entrust ourselves to their care.



 The sound of applause begin hesitantly by the door and soon erupted into a cacophony of hoots and hollers as the old man entered the club. He made his way slowly through the crowd, smiling from ear to ear, greeting people, pausing for photographs, acknowledging his adoring fans. We stood, clapping and hooting with the rest, he smiled as I raised my camera and snapped a picture of a man I have idolized for years. He had to be escorted up the steps to the stage as it had become difficult for him to walk. My wife and I shuddered with anticipation and a touch of trepidation as he made his way to the keyboard with small, shuffling steps. Our fears were assuaged however the moment he touched the keys and we could see that he was definitely still "all that". The noise slowly died down, he introduced the band and we sat back and sank into a deep trance, nay, rapture as Dave Brubeck brought the Blue Note Cafe to life. I was immediately awed by his ability to combine multiple rhythms into the same piece, and found myself trying to analyze this and of course became hopelessly confused. Better to just listen, let the music flow over and around me.

To quote his son Chris:  "In Dave's playing you always hear much of the stylistic history of jazz piano, but you also hear those idioms turned inside out with his own personal twists. In addition to polytonality, Dave employs the concept of polyrhythms. Again, this is the notion that two time signatures can exist simultaneously and both "feels" can live in the same passage of music with fascinating results."

"On many nights I have heard him play with one time feel in each hand, which is sort of the musical equivalent of daring to ride two horses at the same time. The effect is a captivating tension, like a juggler with musical chainsaws. Audiences may not know what is going on technically but they perceive the meter pulls and pushes of the polyrhythmic approach. You will probably not be surprised to know that Dave will often get cooking polyrhythmically and then really spice things up by playing in two keys at once. Polyrhythms and polytonality are just two of many new musical ideas that Dave brought into the modern jazz vocabulary."

Dave's great granddaughter was in the audience and he begged our indulgence as his daughter had asked him to play "Somewhere Over the Rainbow" and saxophonist/flautist Bobby Militello transported us away, doing things with a flute that I found difficult to believe. Onstage, Dave reminisces to us about visiting Poland in 1958. "Eisenhower sent us over to eastern Europe in 1958 under a program called People for People. When I was in Poland I visited Chopin's house and saw all his pianos there. I began thinking about Chopin and I wrote this piece and we didn't have time to rehearse it, so when we got up to play I said to the guys, 'Just follow me and pray!'. This piece is called Dzie;kuje. Are there any Poles in the audience?" A single booming "YES!" from a woman across the room. "Can you tell us what it means my dear?" "Thank You" says she. "Yes. Thank you. This is a thank you to the polish people. Thank you for hanging on and surviving through communism."

And it seemed like Chopin was on the stage, playing Chopin with a jazz tilt. "You know I would love to play 'Blue Rondo ala Turk' for you. (incredible applause) I don't play it much anymore. I was at a concert and they asked me to play it and I had a student get up there and play it for me and he goofed it up. He missed one note. After the performance he said to me, 'Mr. Brubeck I can't seem to ever play that piece perfectly, I always screw it up somehow.' And I said 'Join the Club!' Anyway, I would like to play it for you but I was in the hospital for 18 days and you know, you lose your chops. I had a pacemaker put in and its working GREAT! But I appreciate your wanting to hear it." "So who wants to hear 'Take Five'? and the crowd erupts into insane cheering as the band sets up to play Dave's signature piece that was written by his long time collaborator Paul Desmond. Along with the other pieces from the 1959 platinum album "Time Out".

"Take Five" is written in an odd time signature, in this case 5/4. Brubeck was famous for experimenting with different time signatures, believing that listeners would be able to follow them without becoming lost or muddled. We were not disappointed. Dave played with a smile on his face and he and Militello blew us away. Dave has been performing and composing for seventy years. His discography reads like War and Peace. He is responsible for introducing millions of people like myself, otherwise mystified by the chromatic sounds of jazz, into a world where jazz is accessible and understandable while not the least bit dumbed down. Quite the contrary. Brubeck is a timeless hero of a uniquely American style of music.

Dave admonished us to please watch a new documentary produced by fellow pianist Clint Eastwood for Dave's 90th Birthday called "Dave Brubeck: In His Own Sweet Way " premiering on Turner Movie Classics on Dec. 6th at 5:00pm.

As the show ended, Dave made fun of his advanced years and asked the rest of the band "Are we done?" A standing ovation and countless minutes of applauding later the man made his way off the stage and we left with a feeling of utter delight having finally seen and heard the song and the man that introduced me to jazz.

I feel this quote says it so well: 

 Despite the controversy and criticism that his unconventional style seemed to draw, Brubeck never wavered from following his own path. 'Every individual should be expressing themselves, whether a politician or a minister or a policeman,' Brubeck says. 'What's more important — to play the way you want to play? Or play the way they want you to play? For me it was more important to play the way I wanted to play. Often it got me fired.'

But Brubeck's unique rhythms and style resonated with audiences. Dave not only won the hearts and loyalties of millions of jazz fans, he created a sound that had cross-over appeal, introducing jazz to new listeners." 



 Just finished "Surprise" again. Aubrey went at Marengo and was hulled over 200 times with 24 pounders. He succeeded in convincing Linois that the Indiamen had a larger military escort and Linois backed down, but Surprise took a tremendous battering. Had the french gone for the rigging instead of her hull things may have been worse. The fact that Marengo couldn't open her lower (leeward in this case) gunports and bring her 36 pounders to bear (due to the swell) was sheer good fortune and provided the crux of Aubreys tactic. Things could have been much, much worse, women and wine or no!

Chris Tucker

A speculator replies:

Such a weakness was also prevalent in the boy wonder, Jesse Livermore, who was married 4 times, and had several follies girls on his payroll when he filed for bankruptcy the fourth time before committing suicide because of his excessive churning. An interesting side light is that one of his wives had 5 husbands, including him, all of whom committed suicide.

Chris Tucker writes back: 

Why is that? Must be something glandular that leads to the inevitable incorrect choice - I'm sure there's a human behavior study in there someplace.

A speculator writes:

it is guaranteed to happen when one's position is such that one cant hold for fear of ruination, and the market senses that and takes one final move to shake the weak holders out, just at the worst time as it did with me. The antidote to that terrible condition is to wait, hold the fire, as Jack Aubrey did with the French and then go right at them.

P. S. One had an excessive position in fixed income and stocks believing
that they would maintain their negative coterminous correlation and
could not appropriately hold both fixed income and stocks at the same
time, so had to choose one, and chose the wrong one. Guaranteed to

Chris Tucker replies:

Yes, though one could argue that strategy was easier for him to effect as he faced an adversary less stout than current markets.

A speculator responds:

Yes. The French were too interested in their food and women to put up much of a defense even when they had the better ships.

One had in his day in his vault, many tokens of the tendency of the French to revel in those priorities, with many exquisite French Prisoner of War sculptures, ( including one in ivory of the Guillotine), as a reminder of that all too human tendency and its inevitable consequences.



This is a delightful quote I found while poking around the New School's History of Economic Thought page.

Every school of thought is like a man who has talked to himself for a hundred years and is delighted with his own mind, however stupid it may be. (J.W. Goethe, 1817, Principles of Natural Science)



 I've been thinking lately about some of the skills that have to be learned in order to work effectively as an air traffic controller and how they might translate into effective trading.

One of the toughest things to pick up seems subtle at first but must become second nature in order to ensure success. In order to illustrate this I'm going to ask you to imagine two aircraft. Aircraft A is traveling east along the top your computer screen, aircraft B is traveling northbound along the right edge. Our goal is to keep these two aircraft separated by at least 5 miles. The routes of these two aircraft will intersect at the upper right corner and we will name this location ZZZ. All things being equal, if both aircraft are the same type and traveling at the same speed over the ground and there is no wind, if they begin equidistant from ZZZ, they should arrive at the same time. Upon first glance, the two aircraft and the intersection form an equilateral triangle so one might assume, prior to ingesting the speed data, that they will be in conflict with each other at ZZZ. Now lets assume that aircraft A is a jet moving over the ground at 480 knots and aircraft B is a prop moving at 300 knots and they are both 25 nautical miles (nm) from ZZZ. After three minutes, Aircraft A will have traveled (8 nm/min * 3 min) = 24nm and will be 1 nm from ZZZ. At the same time, aircraft B will have traveled (5 nm/min * 3) = 15 and will be 10 nm from ZZZ. After 4 minutes, A will be 7 nm east of ZZZ and B will still be 5nm south. So they will not conflict with each other.

The point I'm trying to make is that at first glance, these two warranted some attention and some thought. In our lingo we would say that they looked "a little tight", but after a quick calculation, we can project into the future and see that they will not be close at all at the crossing point. Now add a 120 knot headwind to aircraft A and see what happens, now it is no longer perfectly clear that they will be clear of each other or "clean" in ATC jargon. Or perhaps make the wind out of the south southeast, accelerating Aircraft B and slowing Aircraft A. Or add some turbulence and now Aircraft A advises that he will be slowing down to dampen its effects. Or add a thunderstorm at ZZZ and try to guess what the two aircraft will do to avoid it.

So this idea of projection, of a vision into the future is critical. We cannot simply look at where things are, but where they *will be. *And then, we have to constantly monitor and check if conditions are changing and make adjustments as necessary. Our projections must be based on sound and rational expectations. I KNOW that if there are thunderstorms about, then there will be turbulence and I cannot expect any aircraft to maintain normal cruise speeds, I have to be able to adjust for that in my assumptions * before* it happens. My assumptions must take into account current conditions and projected conditions. Every assumption I make must be verified repeatedly to ensure that my vision of the near future is correlated with reality. If not I have to find out why and pronto. So being able to see accurately into the future requires some very thorough knowledge of aircraft characteristics, ie. rates of climb, speed in the climb and speed in cruise (sometimes radically different), knowledge of the airspace and procedures, current winds at various altitudes, weather, amount of traffic, and anything out of the ordinary. In the above sentence you can substitute any number of market phenomena and you come up with a similar picture. Granted, markets have many more random factors, but the idea seems to translate well.

The thing about a situation like this is that it is not immediately obvious what will happen. You have to do some calculating, some thinking in order to come up with an accurate projection. Situations may appear obvious at first but upon reflection may turn out to be entirely counter-intuitive. One thing about projecting is that it takes time for things to develop, you have to allow that time to pass in your mind to project and then allow it to pass in reality to check the validity of your projections.

It takes some exposure and experience to have confidence in your projections, to know the difference between what *might* work and what *will* work. And then to truly recognize what is working and what isn't. One of the things we try to teach people is, if a situation needs fixing, the most important thing is to do something, ANYTHING, right away. To make a decision, a choice, even if it is not the best choice, just make it and act on it quickly. Then let that guide you toward your next step. If the first choice was catastrophically wrong you will know soon enough and then you can use that information to change your plan. Continued exposure and experience will teach you how to make correct decisions more and more frequently. You begin to learn what doesn't work much more quickly than what does and tend to avoid those types of decisions. People who don't learn don't last.

A big key in the above is learning to be flexible. To not be so committed to a plan that you can't change it. You have to be able to allow yourself to be wrong or you won't be able to recognize the fact when it happens. When you learn to cut and run from your mistakes you find freedom in your ability to adapt. This tends to conflict with ego. Ego gets in the way, the truly great players have conquered their egos or at least don't let them interfere with getting things done.

High performance in any field also involves a willingness to try things, to tinker. And an ability to accept sage advice while picking and choosing the bits that fit your own style and discarding the rest. Unless you are truly capable of making anothers way of thinking yours, you will have to come up with your very own. Otherwise you will have no confidence in your decisions and when push comes to shove you will get steamrolled. Finally, you have to be willing to push. To go the extra distance, to surpass yourself. Again, if your ego is too big, there is no reason to do this. Lose the ego and the barriers that it creates vanish. Easier said than done of course. 

Chris Tucker adds:

Something important that I forgot to discuss: What happens when your expectations are violated? Here is an example from air traffic control.

Controller A tells the leading a/c (aircraft) to maintain 290 knots or greater and the following a/c to not exceed 290 knots. He does some other stuff, gets back to these two, sees that his plan is working (that is that the following aircraft is not gaining on the lead, which can happen, even when speeds are assigned, especially if the following a/c climbs faster as ground speed will increase with altitude at the same indicated air speed), then he notices that the lead a/c has crossing traffic at FL230 (Flight Level 230 is 23,000' more or less, another story) and asks the lead a/c to expedite his climb through FL240. Controller A then observes the lead a/c leaving FL240 and is no longer traffic for the guy crossing at FL230 so he issues a frequency change to controller B, who sees the assigned airspeeds in the data block and assumes everything is hunky dory. And rightly so, controllers must trust one another in order for the system to work. Then, as a few minutes go by, controller B looks again and sees that the following a/c has a 100 knot (groundspeed) overtake on the lead and is about to lose separation (5 miles is the minimum at this altitude). Controller B thinks "what the heck?" and asks the lead a/c his indicated airspeed and the pilot responds with "220 knots and accelerating".

Why is that? Well, controller A made a mistake but it is a subtle one, but one that all controllers should understand. When he asked the lead a/c to expedite its climb, he was asking for something that this particular a/c could not do while maintaining the assigned speed. So the pilot bled off airspeed and traded it for altitude, then when he left the required altitude he began accelerating again. In the pilots mind, the new instruction to expedite the climb superseded the instruction to maintain forward speed so he did that first and then went back to trying to go fast, which is difficult for this type a/c to begin with. The pilot sort of/kind of made a mistake by not informing the controller that the vertical maneuver would kill his airspeed, however I contend that controller A should have expected this. Controller B made a mistake by asking questions first and fixing it second. When we recognize an imminent situation we are taught to shoot first and ask questions later. The query ate up valuable time that could have been used to tear these two apart (not to worry, they did not get dangerously close).

A significant point is that it took time for the overtake to show up in the data. It takes five sweeps of the radar (one minute in most cases) for the tracking software to get an accurate bead on speeds, so the overtake was in place and the gap was closing before the data even presented itself. So when the speed is changing, the data will always lag by about a minute. This is why we have to understand not only how we should expect aircraft to perform, but also the limitations inherent in our systems. Its an important point, one that is not obvious and one that takes a while to sink in. So when your expectations are violated there is important information there that has to be sorted out and sometimes acted upon with alacrity.



 While I am no critic of classical music, I do know when I am in the presence of greatness. Tonight my wife and I had the pleasure of hearing a performance by the Emerson String Quartet. As they performed a new composition commissioned by them by Lawrence Dillon, String Quartet No. 5: Through the Night (2009), with its wistful and ethereal passages, I wandered off in thought of markets and how themes can travel back and forth between instruments, sometimes juxtaposed, sometimes counterpoint, sometimes feeding off each other into rising tension, sometimes coalescing together into a single powerful movement or crescendo and capitulation. These thoughts continued as the quartet was joined by pianist Gilbert Kalish in a simply amazing performance of Brahms Quintet in F minor for piano and strings, Op. 34. After meeting chair I don't think I can listen to classical music without contemplating markets. An enjoyable rendering of the finale performed by Arthur Rubinstein and the Guarneri Quartet is here on youtube. 



 Referred to me by the folks at the Museum of Mathematics, there is a great article in NY Times that refers to M. F. M. Osborne's 1962 paper: "Periodic Structure in the Brownian Motion of Stock Prices"

Excerpt from the op-ed article "Magic Numbers" by Daniel Gilbert:

Magic “time numbers” cost a lot, but magic “10 numbers” may cost even more. In 1962, a physicist named M. F. M. Osborne noticed that stock prices tended to cluster around numbers ending in zero and five. Why? Well, on the one hand, most people have five fingers, and on the other hand, most people have five more. It isn’t hard to understand why an animal with 10 fingers would use a base-10 counting system. But according to economic theory, a stock’s price is supposed to be determined by the efficient workings of the free market and not by the phalanges of the people trading it.

And yet, research shows that fingers affect finances. For example, a stock that closed the previous day at $10.01 will perform about as well as a stock that closed at $10.03, but it will significantly outperform a stock that closed at $9.99. If stocks close two pennies apart, then why does it matter which pennies they are? Because for animals that go from thumb to pinkie in four easy steps, 10 is a magic number, and we just can’t help but use it as a magic marker — as a reference point that $10.01 exceeds and $9.99 does not. Retailers have known this for centuries, which is why so many prices end in nine and so few in one.

Gary Rogan adds:

I found this article that says a different numerical bias affects the entire universe under various guises.

Ken Drees asks:

Would it be fair to say that "deliberateness", a concept of action, is required for Benford's law to engage in natural environment. A quake, a wind, a measurable force?

Gary Rogan replies:

I don't think so. I was trying to explain to myself how something so basic yet so powerful can exist and this is the explanation I just came up with (and it's fully consistent with randomness of certain processes).

Imagine yourself shooting projectiles at an infinite log base 10 labeled axis. What are the chance that any number you hit starts with 1 if everything is completely random? My geuss was it's log base 10 of 2, and voila: I just calculated it and it's equal to .301, or the percentage they cite (30.1%). This law must characterize any truly random phenomena where the measurements are distributed over many orders of magnitude. When you don't see this law, this must indicate absence of randomness or a close concentration around some mean.

Jeremy Smith comments:

In the binary number system, all numbers save zero begin with a 1. 

Gary Rogan writes: 

The probability of the number starting with a 1 is log of 2 base whatever type number system you have other than of course for the binary system. It's just the ratio of the distance between 1 and 2 on the log axis divided by the distance between 1 and the number equal to the base of the system. There may be even a way to express it so that it works for the binary system since log of 2 base 2 is 0, but not right now.

Victor Niederhoffer comments:

Osborne was reporting on a phenomenon he and I studied in a number of papers see "N and O Jasa 1966" for references, and his work was not a Benford thing. it was a specialist thing with all the limit orders concentrated there. It's related to Livermore's breakthrough "the round number" and much else. By the way I consider Osborne the greatest researcher in this field to have ever graced the behavioral finance and efficient markets field. His creativity was unbounded.



Just in the middle of Ben Green's fabulous Horse Tradin' and came across this gem. One of many:

However he led you to believe– in fact, he was ready to confess– that he was a gentleman of the highest order and horsemanship and horses were not a business with him but a love; a part of his life that he couldn't do without. That was the real reason for his being in the horse business, and not because of any money that might be connected with the running of a livery stable and the buying, selling, and trading of horses. This kind of angle on things was sort of a a new breed of animal with me. I thought horse people were in the horse business because they had to be or because they wanted to be, and since I was a small boy I've more or less considered the horse business not a business but a disease. The thing a horseman ought to do was to learn all he could about the disease, so he could live with it without its totally ruining him, financially and otherwise.



Oswald BoelckeI watched a documentary recently about air power in WWI and was interested to learn of a man named Oswald Boelcke. Wikipedia claims that Boelcke is the "Father of Air Fighting Tactics" and was the first to create a set of formal rules for these which he called the "Dicta Boelcke".  Boelke was Richtofen's mentor. Here it is: 

1. Try to secure the upper hand before attacking. If possible, keep the sun behind you.

2. Always continue with an attack you have begun.

3. Open fire only at close range, and then only when the opponent issquarely in your sights.

4. You should always try to keep your eye on your opponent, and never let yourself be decieved by ruses.

5. In any type of attack, it is essential to assail your opponent from behind.

6. If your opponent dives on you, do not try to get around his attack, but fly to meet it.

7. When over the enemies lines, always remember your own line of retreat.

8. Tip for Squadrons: In principle, it is better to attack in groups offour or six. Avoid two aircraft attacking the same opponent.

There are several lessons to be learned from this list of rules, the wiki article expands on them individually.



Susan Edlinger on surfboardWith waves up from the hurricanes, surfers will be out…and they will need to know their abilities well to safely handle bigger waves and strong currents.

A good video and article by Mrs. Edlinger follows about taking up surfing later in life and the associated benefits of and lessons learned from the sport.

My limited personal experience has been exclusively with body surfing and even then you have to evaluate the wave fairly quickly (if it is going to break too fast, too steeply and wipe you out with little water out front to cushion the blow) and feel the pull just before it begins to break and launch, swim, and kick yourself into the proper position/angle and use your hands like fins to control your trajectory. You are always trying to decide whether to go with the first wave of a set or the second one and one tends to become a waveform critic because you want to have a ride that is worth going in on and that makes it worth expending the energy to get back to the break area. On rare days you get big glassy, slow breaking, wonderful waves for body surfers. Its always a bit scary though on the bigger waves when you sometimes get driven downward and finally come up for air only to have a second wave wash over you as you try to grab a quick breath—there is a half second of panic you have to learn to control. Pro surfers obviously train to stay down underwater and work through downward water column pressure for extended time as the movies show.

All in all it is good exercise and you get a lot of twisting, turning and stretching, and tend to sleep quite well that night.

But as Mrs. Edlinger shows even midlifers can learn to get on a board, overcome fears and have fun:

Paddle Smarter, Not Harder!

by Susan Edlinger, M.Ed.

"You're never going to catch a wave paddling like that!" a strong male voice bellowed from behind me. He sounded angry, as if my paddling skills were a personal affront to him. "Great," I thought, "I'm already padding as hard as I can!"

My self-appointed surf coach paddled up and reiterated, "You're never going to catch a wave the way you paddle!" and proceeded to do a not-so-funny re-enactment of my paddling style. Watching him, I realized that by now I should be used to this when I'm surfing. As soon as my board hits the water, I become a part of the community, where although you may feel alone, you never are. Surfers, as a group, are a loosely formed coalition of people who share a passion, and that passion binds us, for better or for worse. Chances are, this gentleman felt these connections particularly strong this morning.

Coming back to reality, I mused, "Why is he talking to me", and more importantly, "Why does he seem so mad?" What then ensued was a brief conversation and demonstration of how I should be paddling vs. what I was actually doing.

"You've got to DIG, and FAST, not just paddle." Then as quick as he appeared, my surf coach turned to catch the next wave, with this sweet grumbled parting, "I just want to see you catch some waves."

Relief! He wasn't angry after all. He was just frustrated watching my incompetent paddling attempts (I secretly believe that good surfers are like artists, they become aesthetically offended at the sight of clumsy, unrefined effort.) Nonetheless, I was thankful for his advice. And I must add, it's not as if I am a total "kook". I do catch waves, but in all honesty, my personal ratio of waves caught to effort expended is embarrassingly low.

As the next few waves approached, I practiced my newly learned paddling skills, but no success. Then I heard another voice rising above the waves, "Wait till the wave almost breaks on you!" My new mentor glides over to me, "These waves are slow, take off only when they look like they are going to break on top of your head!" I smiled, nodded and wondered, "Was there anybody in the water who didn't have something to say about my surfing?" I knew what I was doing wrong, but still couldn't master the skills. Knowledge and application were oceans apart.

Finally, I caught a wave, to the whooping and hollering of my surf comrades. I was pleased and as I turned to paddle back out, I saw another surfer heading my direction. As he paddled by, he commented briskly, "It's not about the paddling, it's more about the ANGLE."

"Oh no, what's this"? I thought. Another secret other surfers know that I had to learn. I quickly paddled inside to my newest teacher to hear more of his wisdom. "Your board is like a kid's teeter-totter," He told me in-between taking every ride on the inside, "When you're paddling for the wave, keep you're back arched, then when the wave gets to about your ankles or calves, put your head quickly down on the front of your board and angle downward". To me this sounded vaguely like a surfer version of the political slogan, "It's the economy, stupid." It became "It's the angle, stupid."

For the next hour I practiced. Digging instead of simply paddling, watching my timing, and most of all, angling on my board. Surprise, surprise, I caught waves. I had fun. Strangers cheered.

So, what's the point of my story? Well, as I later contemplated that morning surf, I found myself reflecting on what I had learned, both in terms of surfing skills, and also how it reflected on my life. I was reminded again of the maxim 'how we do one thing, is how we do all things.'

I was behaving the way I typically behave when frustrated by something not working; I try harder. I do the same thing over and over, thinking I'm going to get better results if I just put in more effort. In this case, if only I paddled harder, I'd catch those waves. Wrong.

The definition of insanity, I've heard, is doing the same thing over and over again and expecting different results. If an ounce of something doesn't work, maybe a gallon will? Like so many areas in my life, I needed to learn to paddle smarter, not harder. There was more to catching a wave than how hard I paddled; I had to dig fast, watch my timing, and lastly, pay attention to the physics of board leverage.

I also relearned several other things that morning in the surf. People are essentially good; we want to help each other. There is a joy we all share in watching someone else be successful; watching another surfer catch a great wave. This is called community.

I remembered once more that life can be easier, less strenuous, and more successful when I allow myself to actually listen to what other people are trying to tell me and then simply do what they say!

The road to learning is paved with humility and there are teachers everywhere. I learned that being stubborn about my paddling and trying harder and doing more of the same was not going to result in my catching a wave, only getting more tired. I had to try something different. I needed a community to learn to 'paddle smarter, not harder.'

What about you? Where can you 'paddle smarter, not harder?' What do you need to do differently, and who can teach you?

Susan Edlinger, M.Ed. is a certified Executive and Life Coach, living in Woodland Hills, and practicing her art wherever waves and people meet.

Victor Niederhoffer writes:

One must be aware of being knocked unconscious by body surfing as "Uncle Howie" was recently. It is nice to be able to afford the time and luxury of such activities in the fullness of time also.  

Chris Tucker writes:

As Captain Aubrey, "always a hand for the ship", one must always "keep an eye for the waves." 

Jeff Watson adds:

Any type of surfing is very addicting and has similarities to heavy drugs. Surfing is our form of crack, and we start getting tweaky when away from the waves or beach for a long time. Most mid-life surfers get hurt a lot, at least the crew of geriatrics that I surf with do. We view the aches, pains, sprains, and broken bones as part of the cost of doing business. In my case, I have had an injury every year for the past ten years that has resulted in some sort of medical treatment or hospitalization. In fact, I'm out of commission right now but my injury is skateboarding related, not surfing, and skateboarding and surfing are closely related in the surfing tribe.

My crew has similar experiences, and our eldest member is 69 years old, I get asked all the time why I still surf. My answer is that I just never quit. On that note, here is a good movie, "Surfing for Life" that describes the lives of many senior citizens that still surf seriously. I gave The Chair a copy and he said that he enjoyed the movie which I found to be one of the most uplifting documentaries of all time.

Interesting that the surfing tribe would be worthy of a study by Mead. Here's a very good MA thesis that an acquaintance wrote back in 1976 describing the surfing tribe of Santa Cruz, CA.

"Uncle" Howie Eisenberg corrects:

You neglected to mention not to bodysurf a wave that has become whitewater as uncle Howie did in winning the worlds stupidest bodysurfer award. I did not become unconscious. After "breaking my fall" with my head snapping my neck back, I emerged from the sea a bloody mess with tingling from my wrists to my shoulders, picked up my sandals, walked to the lifeguards who placed me on a wooden board, was ambulanced to a hospital where 3 CT scans, especially the brain scan showed nothing.

David Hillman writes:

at the chiropractor this a.m for an adjustment…

Doc says, "took my 6 year old son to the waterpark yesterday afternoon for an 'end of summer' day."

"How did it go?" asks I.

"Really well, first we went on Lazy River, a slow meandering stream one paddles down leisurely, then we went for a few runs down the big slides."

"Oh, knowing him, he must have really liked the action down the big slides."

"Yes, he does, so it was really a big surprise when he said 'Dad, let's go back down the Lazy River.' It surprised me because it's usually a little too tame for his liking. But we put the raft back in the Lazy River and we're paddling downstream a little when he says 'DAD! Do you see that lifeguard?' I take a look in the direction he's staring in agape and here's this beautiful blonde college girl lifeguard in one of those form-fitting Speedo suits. Six years old and it's already ingrained in him."

We laughed a bit, and, "Then, on the way home in the car," says Doc, "my son says to me out of the blue, 'Thanks for the best end-of-summer day ever, Dad."

Yes, yes…..always a hand for the ship and an eye for the waves….

Craig Mee adds:

Don't forget the change in tide either. It can get you into trouble if you have not taken into account the change in water depth at the front of a wave when attempting to pull off.

A bit like the markets.



Fourth Birthday Letter

"You brighten our days, you light up our life".

Let's start at the beginning. You were born 4 years ago in May, with great vigor, after overcoming many challenges, to your loving parents Laurel and Victor and an extended doting family of 6 sisters, Galt, Katie, Rand, Toria, Artie, and Kira and your step mother Susan, your uncle Roy, and your god parents, Ming and Dan, and your caretakers Lorna and Tashi, and mentors Doc, John and Jeff. We got you fresh air outside the hospital on your first day born, (tripping the hospital alarm system in the process), and good food at the Four Seasons and tennis at the town club, and music from Mommy on the piano, on your first day outside the hospital, and you have been proactively enjoying good things like that every day since that time.

I wrote you a letter when you were born emphasizing the importance of choosing the right path and friends in life, listening and learning, giving others the benefit of the doubt, taking care of small things, choosing the right incentives, counting to make sure that you know where you are, reading and surrounding yourself with good books, the importance of music and games, knowing how to handle money, and the value of competition, modeling yourself after heroes.

You have encapped most of those things so far, and amazed me by saying recently "the mouse with one hole is quickly taken" and "the little things you do get the job done". You love good books, music, and sports, machines, races, pretty people. You also said about the importance of eating good food "that's what attracts us to it " and you told me your favorite book is about the 12 heroic deeds of Hercules.

Perhaps you will reread those letters and the comments from the many friends that we have who augmented them with tips and guidance for you in the future.

Artie, my father always said that the happiest day in his life would come when I started to beat him in racket sports (a necessity along with music and books in our family). That day came to me, but I am not sure that you will ever have that pleasure since life is short, and I am still pretty good but at least you will have these letters and the knowledge that is Mom's and my most fervent wish for you to excel us in all things to look back upon. The key attribute you have as you enter your fifth year is that you radiate joy in all about you from the time you wake up to the time you go to sleep. Everyone you come in contact with loves you, from the doormen to the waiters, to the taxi drivers, to your teachers. You wake up singing songs like "those daring young men in their flying machines" and telling us that "the Large Hadron Collider at CERN has 27 kilometers of path", and you go to sleep saying that "you're thinking of silly things like all my friends have friends, and they have friends who have friends also". There's not one minute of the day, where you're not asking questions about how things work, what different words mean, why things are happening as they are, and why and what we're doing, along with your own explanations of the reason for each event you experience.

I am happy to say that somehow, you seem to already show interests and ability in all the things that are key to this family and that we have encouraged you to digest.

Your vocabulary is immense and you use word like "visible", "eventually", "finally", " theory", "familiar", "promising", "recommendation", "privacy" in everyday conversation. Here are some characteristic things you recently said "Let's not fly the kite. It might get lost. Let's just go for a scenic walk". "The three resistors make the fan go up in the air and that is how a street light works." "Practice is what makes you good at things". "I got hit by a rogue wave in S. Hampton but I don't have to worry about that on the Connecticut shore because the land is in the way". You said while we were swimming "You should board the board." Then you added, "that's a palindrome, isn't it?"

You are also good at languages and are beginning to master Chinese and you love to talk and hear Spanish.

You are a shrewd article, knowing how to solve problems and how to influence people. I was particularly impressed when you said to Susan, "do keep records of how much math I am doing now so you can tell Daddy so he'll let me watch the iron man video". Before going to sleep you recently said characteristically. "I'm thinking of something crazy. I was playing golf and then I started flying."

You are quite good at tennis, and can now hit a running backhand when you are incentivized by a banana split. You still have perfect pitch and love to sing all day, and now you have great rhythm also, and can play all the complicated rhythms of mommy's piano stuff on the drums. You've taken an interest in dancing, especially Irish dancing, and ice skating dancing, and love to imitate Michael Flatley and Apollo Ono.

You are good at the back stroke in swimming, and you can read most of the beginning Bob books. You love all machines including those used for building, cooking and sewing. You have incorporated the family's love of competition and are always ready to race anyone in anything and beat them at the finish. You also love to watch horse racing especially as the horses race to the finish. You amazed me recently when we went to the track by saying at the end as we met all the woebegones on the bus, "Daddy bet on the 4 horse in the second race, and it was in the lead but the 7 horse came up very fast at the end and we lost, but we won because daddy bet to place on second".

You love money and nothing gives you greater pleasure than selling lemonade. You dance up to all customers, give them a little kiss when they buy things, and then carefully count the revenues made in your cash register. You like to use credit card and understand what things cost and when you have to be careful about buying them. Sometimes you look at the screen of prices and say things like "oh no, what will make the prices stop going down."

You love going to concerts and have been to more live performances, ( and been escorted to the "front" ) than almost anyone. Your favorites are South Pacific which you've seen 5 times (I hope we can get you through the second act), The Music Man, My Fair Lady, and Annie. The little orchestra society has a few stars that you look for at their concert that make you love the music even more.

You are very good at counting and can add 9 to any number and know how to subtract. You recently gave a taxi driver 20 on a 17 fare and said "3 back" without prompting. You love to read maps, and can give a driver explicit instructions with all routes from West Street in Manhattan to Hillcrest in Weston.

Now that you know what's important in this family, and have already in your activities prepared the way, let's turn to some things for the future.

You will find that almost all the things you do in life come about because of the places and people that you visit and meet. Okay, you have to choose them wisely. Stay around good people who do good things that make you happy. But don't only think of short term happiness like Pinocchio did, but think about the things that will help you over the long run. The people you can always count on to lead you to good things, thinking only of your own welfare are your family and friends, the people mentioned above. You can always count on them, through thick and thin, and you must not expect to rely on others as the world spins on its axis and many a storm and uncertainty envelopes you. I had a friend once, a Palindrome.

Closely related to this is one of my most important things. Stay away from people that seem to have bad luck. People who always end up in trouble, or who seem to be in places where bad things happen to them and their companions, even if no fault of their own. I call these people hoodoos, and you will meet many of them among your friends and acquaintances who you should stay away from. As the dictionary says, "hoodoos are not confined to locomotives that are always involved in accidents through no fault of their own, but to boats, and planes also."

A good place to be is one where you can do the same thing over and over again without excessive danger. If you keep doing dangerous things, in life, play, romance or business, you'll find that eventually one of those dangerous things will cause disaster. I have made that mistake in my speculations, and life and I am afraid that you may be prone to this error also. Be careful. The best things are yet to come.

You have so many talents, so many good things ahead of you, and life is so beautiful that you should never take a chance, even if it's one in 10,000 that would cause you irreparable harm. I found this out too late in life to thoroughly incorporate and if I had, life would have been a lot easier for all of us. I know that your mother agrees with me on this, as we do on most things.

While you should stay away from Hoodoos, you should stay around heroes. I have come in contact with lots of heroes who do great things overcoming tremendous obstacles to do them in my day to day life as well as in books. Heroes I have known include Jack Barnaby, the greatest squash coach, Jim Lorie, the man who created the data base for all of finance, and most of all, your grandfather and my father Artie. He was like you. Everyone who knew him loved him and thought of him as a second father or second brother. He never did a bad thing in life and always tried to do good. He loved all of life, including not only the things above I said were so important, but writing, teaching, dancing, ice skating, games, checkers, sports of all kinds, parties, words, books, libraries, food, friends, music. His favorite expression was "this is living", which he was likely to say when eating a good tomato or watermelon. The picture of him we have showing his books, his violin, his tennis racket, football, checker board, type writer says it all. Most important of all was that he always knew and tried to do the right thing. He was a master of form and knew how to do anything just so.  His second favorite expression was "So what of it" which he liked to say whenever one of his kids was sad and depressed and worrying unduly about things. It's always good to let "the bygones be bygones" as no sense letting bad things hurt you in the past and future. And often what happens bad in past turns out to be good for the future. For example, a miserable boss helped to get Mommy fired from her job, even though she was excellent at it. But if she hadn't been fired, she and I wouldn't have met, and you wouldn't have been born.

Such an approach to life led Artie to often say "I'm the happiest man in the world". I believe Uncle Roy often says that, and I hope you can also. If there was one characteristic that marked Artie above others, and made him like a second father or older brother to almost everyone he met, it was that he was a "formist". He knew the right way of doing every thing.

Doing the right thing means doing things the proper way. Without wasting any motion, and effectively going from beginning to end. It means doing things properly regardless of whether you have to, but because it's part of your nature, and no one can take it or tell you what to do. It includes taking risk and overcoming obstacles to make your family better, protecting women, helping the weak, and being courageous when something important is at stake. It also means doing good things that will make you and others happy even when you don't have to do it. You are lucky these days in that you don't have to rely on heroes in your family and books only for guidance in doing the right thing. But you can look things up on the internet to see the right way of doing it. Thankfully you are already good at using google and wiki, and you should continue to look things up there as well as the dictionaries that you love when you want to know the right way.

I have two groups of people that have been very helpful in showing me the right things to do, the junta, and the spec list. Many of them are like family and you will be able to draw strength and nurturing from them in the future. They all agreed with me that it's important to surround yourself with good people and when I asked them for heroes besides Artie to model yourself after from books they came up with the following list. General Petraeus (smart, effective, loyal), Jack Aubrey (knew everything about his field, gusto, generous, well versed in deception, musician, big, competence), Cal Ripken (perseverance, expansive, excellence at game, sharing his love of game with others for profit), Thomas Jefferson (scholarly, omniscient, doing the right thing) Benjamin Franklin (practical, down to earth, self effacing, romantic, scientific), Morihei Ueshiba (self reliance, self defence, physical training, achieving your goals) coack K and Coach Wooden, and Coach Pete Newell, (dedication to teaching, completely knowledgeable) Bruce Lee (strategy, physical training), Richard Feynman (curiosity, ingenuity, happiness, loyalty), Michael Waltari (independence, resourceful, world as oyster), Ted Mack (not petty, serving as example, creative), Faraday (humble, able to popularize, neat, experimenting, dedicated), Thomas Edison (inventive, practical, seeing the big picture, diligent), Lord Rama (ideal son, husband, friend, and king), King Leonidas (for bravery, tenacity) Galton (ingenuity, generosity, diversity of interests, counting, visualization, diplomacy).

A boy, a man has many roles to play as he grows: to be a good son, a good husband, a good friend, a good brother, a good teacher, a good leader. Fortunately, the foundation, the qualities for dispatching those roles are rather simple. The heroes mentioned all seem to have that foundation. Strength, bigness, courage, diligence, organization, practical, knowledge, self awareness, sense of happiness, loyalty. You are fortunate to have been born with many abilities. If you try to weld the above qualities of success onto those abilities you are sure to lead a happy and productive life.

Some day you'll look back on these letters and realize that the lessons I tried to teach you come from the wisdom and good experiences of my parents and their parents before them, and that they can live forever in you, and yours.

Just one more thing. Tom Wiswell, the greatest American free style checker player, and my checker teacher for 20 years always said, "make sure you have a good foundation in Checkers and life." Try to fill in the holes before you start something. Have a strong base with checkers and resources supporting where you're coming from. Read the story of the three pigs and learn from it to use strong materials, for example strong people and products when starting a business. Dig deep and wide and strong at the beginning. Make sure there are strong posts of brick or concrete or metal all round to hold up what you're doing. And make sure there's lots of volume underneath to distribute your project over. The worst mistake you can make in business or life is to get in over your head. That mistake always starts with not building a proper foundation.

One more thing. Think big. Have great dreams. Try to make them come true. Don't worry about little things. As Galton says, "let the bygones be bygones". Or as Artie would say "so what of it" about little things that go wrong.

As the song goes, "the days grow short. I haven't time for a waiting game. These precious days dwindle down to a precious few, and these few precious days I'd spend with you." Hopefully the ideas, heroes, books, and love that make up this letter will help steer you on the path to a happy and productive life.

Love, dad

Kim Zussman comments:

I hope and believe you will live beyond the day when Aubrey beats you at tennis, and everything else. It is part of nature's plan.

Chris Tucker comments:

Spent the afternoon at the beach yesterday. There is something special about having your child run to you and reach for your hand, about holding your child's hands and helping them jump over the waves and squeal with delight, again and again. It makes all the other stuff just disappear.



Aviation Safety experts talk a lot about "The Swiss Cheese Model" of human error as described by Dr. James Reason of the University of Manchester Dept. of Psychology.

From wikipedia:: ( )

"James Reason hypothesizes that most accidents can be traced to one or more of four levels of failure: Organizational influences, unsafe supervision, preconditions for unsafe acts, and the unsafe acts themselves. In this model, an organization's defences against failure are modelled as a series of barriers, with individual weaknesses in individual parts of the system, and are continually varying in size and position. The system as a whole produces failures when all individual barrier weaknesses align, permitting "a trajectory of accident opportunity", so that a hazard passes through all of the holes in all of the defenses, leading to a failure."

In "Human error models and management" ( ) James Reason criticizes the "person approach" to human error and suggests a "Systems approach": "The long-standing and widespread tradition of the person approach focuses on the unsafe acts—errors and procedural violations—of people on the front line …" ~ " It views these unsafe acts as arising primarily from aberrant mental processes such as forgetfulness, inattention, poor motivation, carelessness, negligence, and recklessness. The associated countermeasures are directed mainly at reducing unwanted variability in human behavior."

… "Another serious weakness of the person approach is that by focusing on the individual origins of error, it isolates unsafe acts from their system context. As a result, 2 important features of human error tend to be overlooked. First, it is often the best people who make the worst mistakes—error is not the monopoly of an unfortunate few. Second, far from being random, mishaps tend to fall into recurrent patterns. The same set of circumstances can provoke similar errors, regardless of the people involved. The pursuit of greater safety is seriously impeded by an approach that does not seek out and remove the error-provoking properties within the system at large."

"The basic premise in the system approach is that humans are fallible and errors are to be expected, even in the best organizations. Errors are seen as consequences rather than causes, having their origins not so much in the perversity of human nature as in “upstream” systemic factors. These include recurrent error traps in the workplace and the organizational processes that give rise to them.

Countermeasures are based on the assumption that although we cannot change the human condition, we can change the conditions under which humans work. A central idea is that of system defenses. All hazardous technologies possess barriers and safeguards. When an adverse event occurs, the important issue is not who blundered, but how and why the defenses failed."

His seminal work : "Human Error", James Reason, 1990 ( )

 Peter Grieve comments:

This is very similar to Nigel's chess teaching - when someone makes a blunder, usually it's been set up by a position that has been deteriorating for several moves.

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