The fondness for writing being inherited from my mother, who wrote the Town & Country column for the Maine Sunday Telegram, a sense of condolence with reporting the death just four days ago of Dmitri is sped by having had the privilege of his company and conversation during his once seasonal sojourns in Palm Beach as the famed son of Vladimir Nabokov. (News , News ).

Dmitri possessed that gift of understanding art forms in a grandness of range beyond what most of us experience at constricted when not linear levels of existence. He was a master of craft be it racing offshore power boats or training his skills in literary criticism. The seminal steward of his father’s writings, he excelled in parallel lives from his career as an opera singer to competing with collectable examples of automotive precision.

Central to these passions as a gentleman – and consistent with classical notions a la Castiglione – were his celebrated, sometimes published observations in matters concerning love of women, song, and literature. Dmitri was, as in his operatic performances, I am told, demonstrative of the classical lover, exhibiting a hue and brilliance with both languages and the physicality of motion.

Mr. Nabokov also revealed a mercurial sense of utility. Most celebrated perhaps was his recent decision to publish (on my birthday of November 17, 2009) his father’s unfinished, final title, “The Original of Laura” – admittedly reported by the son as being against his father’s wishes. And here D and I shared the common divergence of both having disregarded parental counsel to pursue careers in law; to this day appears his 6’5” frame bent by affront of the notion recalled in our conversation how it would be no less, no more than purgatory to spend one’s life dealing with “other peoples’ problems” when we were quite enthralled with generating our own individual digressions so found and to be humored in daily life.

For the past several years, Dmitri had struggled with physical challenges; ones that often tested his mental capacities. Yet, as with his now final call to the curtain, Dmitri Nabokov remains a life’s talent that not only elevates his father’s legacy but will lean forward with immortal-like speed that persuasion of the human spirit shared amongst us all in remembrance of him.



Did you read (and comment) the article Ten Reasons Why China is Different by Stephen S. Roach?

It appears the Yale faculty member of MS-Asia is attempting to sell a stale bushel of IB produce…

May be worth publishing here that which the commentator (vn 05:28 31 May 11) wrote in response to Roach a la "ten reasons why Stephen Roach is wrong…" [Ed.: we don't know the identity of the commentator].

"1. China's financial sector is in a mess. Read "Red Capitalism" by Carl Walter and Fraser Howie. Banks have been going through multiple recapitalizations but there continue to be piles of debt accumulating in a range of Ponzi schemes that would make the traders of Goldener Sacks and Lehman Brothers blush. And just as the global financial crisis came from nowhere, so will China's.

2. The seemingly wise, strategic, and committed leadership of the communist party that Roach so extols is as prone to crony capitalism, corruption, nepotism, and political patronage as the most capitalist societies. The state-owned corporations and banks of China are being carved up between communist party leaders, their families, relations, and friends.

3. The aggrandizement of China's export success as an example of superior strategy and impressive competitiveness actually rests on ever-increasing subsidies through low prices for energy, land, capital, water, and the environment, a labor force kept suppliant by the communist party, and an undervalued currency.

4. Continued high investment rates are being achieved by taxing households through a plethora of channels — including low interest rates, wages well below marginal productivity, and the delivery of health and education services at exorbitant prices.

5. China's gleaming cities have been built by migrant workers with no access to health, education, or housing services. Urban areas conduct a discreet form of apartheid where access to basic services depends on where people are born. (The so-called  户籍   system).

6. Inequality in consumption and income are rising — and inequality of asset ownership is probably at stratospheric levels. Yet popular discontent is repressed.

7. As a senior communist party official once remarked, China has privatized its government. It can no longer tell the difference between a public or a private good (or service). Most government departments and agencies have become profit centers, even the PLA. The China Banking Regulatory Commission — responsible for regulating China's powerful banking system — relies for its budget on the banks it is supposed to oversee. As it is, information asymmetries are powerful in banking — the incentives implicit in the Chinese supervisory system make them virtually insurmountable. The conflict of interest in the west’s credit rating agencies pale in comparison to the practices in China.

8. Mercantilist policies have created an accumulated environmental deficit that will take years to remedy – although the chances of reforms in this area are low given the close family and patronage ties between heads of large (polluting) firms and senior leaders in the party. Vested interests in the current arrangement have become very powerful.

9. The practice of “pragmatic, incremental” policy changes that China so prides itself in has created a complex web of interconnected policies, laws, guidelines, practices, and informal arrangements that make it very difficult to untangle. Even if the Chinese know what they want to change, they are not sure how to do it. Recent shortages in energy availability are a case in point. Power generation plants have had to close because of losses caused by high raw material costs and low administered energy prices – but raising energy prices would hurt energy-intensive industry; and raising public subsidies through the budget or banking system run counter to the government’s efforts to withdraw economic stimulus at a time when inflation is high and rising.

10. Encouraged by the success of the stimulus package, the government’s further encroachment into economic decision making by firms and individuals is moving in the opposite direction to where it should be going – if it is to become an innovative, flexible, and dynamic society. China’s leaders are drawing the wrong lessons from their past success. They believe it was because of the government’s superior decision making ability, when in reality it was because of the strength of markets."



 Hi gang,


From my book research, I believe that this number is far too low… maybe only 25% of the truth based on two units per family and corporate profits diverted into Chinese stock markets, which generated paper wealth used for subsequent leverage in real estate (and visa versa).

Compared to US 2008 Crash, PRC bubble presents much greater (valuation and inventory) parametric risk due to mass and velocity of pre-bust (2001-present) rate of vacancy:

China: Property speculation leaves 64.5 million vacant homes in ChinaSpeculation in the real estate market has generated such a high rate of housing vacancy that it could lead to social disorder and financial problems, an economist with the Chinese Academy of Social Sciences says. The government, meanwhile, crosses its fingers

full article.



 Hi V,

Here is submission for Whisperer Contest.

Thank you.


The Beholder, Neither Beauty nor Beast

Jackson Hole is named after Davey Jackson (1788-1873), a mountain man who trapped the area for beaver.

Having helped my father trap woodchucks at our farm as well as coming across trappers and traps during deer hunting in Maine, the chair's contest (with its market analogies so implied) is not without circumstantial if not direct correlation(s). A trap itself may be considered analogous to "boxed" (or closed loop) quantification that defines points of convergence and divergence. Moreover, animal tracks are not unlike price action footprints relative to time intervals and price patterning.

In the linked article, the hole of Jackson Hole is aptly named by those mountain men who had to descend into that valley from the North and East along steep slopes as if entering a hole. Again, relative to points of consolidation or tiers for positioning or hedging, such lows symbolize graphical referencing, wherein rivers and streams provide habitat for life generating trends and channels.

Aside: Fed Chair B.B. is listed a visitor of Jackson. After his family moved to Dillon, South Carolina, he waited on tables at "South of The Boarder" before college. During seasonal migration to and fro Maine and the Palm Beaches, this oddity was a favorite overnight of mine with dad.

The dilemma, I surmise, though, with our suggesting the best use of whispering is one of perceived symbiosis in language and environment: to wit…A horse whisperer is a horse trainer who adopts a sympathetic view of the motives, needs, and desires of the horse, based on natural horsemanship and modern equine psychology. Growing up with horses among other farm animals and having dabbed at training here and there, I came to model my understanding on the work of Monty Roberts. He and his wife Pat (my mom was also named Pat and maiden name, as my middle name, is Roberts) have adopted 47 children in addition to their own 3 kids. You may see his work here. Registered as his term for "hooking on", the phrase "Join~Up", in which a trainer negotiates with an untamed horse to form a voluntary relationship. This approach is contra-indicative to industry traditions of 'breaking" a horse, whereby physical subdual is achieved by often violent confrontation or interaction.The point here being is that a horse whisperer helps horses with people problems – sometimes, as a result, helping people with themselves. One so connects to understand with an object oriented approach, such as to help a rider and mount join-up, as portrayed in Redford's movie

Accordingly, be it with horses or markets, one, as a whisperer with a function as so implied by Victor, must first understand that language being transmitted. This factor is elemental for issue identification and definition if not quantification. Is there such a language of the markets? For instance, when a younger horse lowers his or her head to the older mare of the herd, it may be a sign of contrition or submission. Licking of the lips may be a sign of nervousness, fear, or seeking forgiveness. Are there similar signs generally analogous so occurring within price action?

Then there are the environmental distinctions. A horse is a living thing, natural, not artificial as a human construct. Markets are artificial; the one common singularity of such may be that each operates as an electronic exchange. However, the Theory of Quantitative Relativity indicates that the energy of such systematics is neither invariant (contra a horse's need to eat) nor of a singularity (contra a horse's time of birth or death). Therefore, where do we find a comparable numeric hierarchy in horse parlance relativity to market action?If you are asking yourself whether I penned this prior query in all seriousness or was attempting instead to be funny, well… yes and yes. When keying out the question, I was serious. Upon punctuation of the sentence, the analogy seemed humorous.

Nevertheless, the contest challenge is to identify the best use of such listeners of markets. Given that markets lack both a uniform language (albeit money) and decentralized, often fractured environments, whispers here appear to be more of use to consoling or commiserating with the rider (or trader, investor, speculator, etc.) than training (or taming) the beast.

An esoteric query? Perhaps but one which those so concerned or who monitor such cocktail banter might consider to be weighty. Even if de minimis, though, it makes for worthy digression.

P.S G and V: you ain't gonna break them horses who'd done left the barn a la post repeal of Glass-Steagall unless we restring that ole fence line.



Central bank of IcelandOne states that "the market does move to levels consistent with the state of affairs…"

Quantitative Relativity indicates that markets do so but not in absolute terms, which is where EMH as a popularized theory appears to fail in its proof.

How can "all information" be filtered or assimilated or correlated into some collective pricing function or series of indicators? AW's opening statement seems apropos as a response.

Regardless of indicators and functions one may develop, adapt, promote, or swear by for purposes of pricing markets and their listings, what appears most elusive among industry know-it-alls and the smart-boys (as Truman called them) is understanding the relativity of information to pricing.

For instance, "On October 3 [2008] it was reported that Wachovia had rejected the previous offer from Citigroup in favor of acquisition by Wells Fargo, resulting in a legal dispute with Citigroup… On Wednesday night, October 8, the Central Bank of Iceland abandoned its attempt to peg the Icelandic króna at 131 króna to the euro after trying to set this peg on Monday, October 6… By Thursday October 9, the Icelandic króna was trading at 340 to the euro when the government suspended all trade in the currency… On Friday, October 24, stock markets plummeted worldwide amidst growing fears among investors that a deep global recession is imminent if not already settled in."

Are those October 3-9 information events invariant references that correlated to October 24 price action? As the chair likes to query, "how does one quantify it?"

The answer is that, yes, one can so quantify. The problem becomes a matter of conversion, whereby information is equated (to include discounted) into the currency of any given bid and ask.

Why a problem? Because electronic market exchanges are sanctioned, to wit: they are rules-based constructs. EMH is theory, and existing sanctioning paradigms do not formulate substantive (or objectified for that matter) informational parametrics into exchange systematics.

Designing FSM logic for order execution protocol, one can see how EMH is irrelevant for quantitative purposes due to its lack of invariance — see conservation laws in physics.

Actually, electronic exchange systematics provide that property of remaining unchanged regardless of changes in the conditions of measurement, not any given (weak, semi-strong, or strong) degree informational reference. With evolution of electronic information and exchange systematics a la the Internet, evidence supporting this relativity unremarkable yet popularized phenomenon (EMH) appears to be frequently if not increasingly rebutted or disproven.

In that price action represents a form of energy, informational invariance does not exist; therefore, the conservation of (non)directional indicators and functions is a fallacy… what the chair reduces as being "the constellation of current events and future cognizables and reasonable unknowables taking account of randomness in the process."

Could not have said it better…


See wikipedia on the Global Finance Crisis for cited references.



“What other great books on their fields have carry over value or are beautiful in themselves?”

Here is an initial draft of a master list of books recommended or cited at daspec since May 2009 – not sure of the reason for stopping here except for falling asleep. Thus, be assured that it is incomplete and flawed with omissions and commissions galore.

Perhaps there might be a vote to prioritize?

In that democratic spirit, refreshed from my Tocqueville commentary, an offering of one of his quotes as a thought toward devising a standard for inclusion within this listing: “There is hardly a pioneer’s hut which does not contain a few odd volumes of Shakespeare. I remember reading the feudal drama of Henry V for the first time in a log cabin.”

Thus, regarding what would be on the shelf of any given so-and-so concerning any given topic…

Nagi on fencing

Bacon on speculation

Wiswell on checkers

Caples on advertising

Williams on trading

Tilden on spin of ball

The Science of Swimming by James E. Counsilman

More Money Than God - Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Trout by Ray Bergman

Scarne’s New Complete Guide to Gambling

You Can Negotiate Anything by Herb Cohen

Louis L’Amour’s Education of a Wandering Man

Nock, H. L Mencken, and Darwin

Karate: Technique and Spirit by Tadashi Nakamura

The Dangerous Book for Boys by Hal Iggulden

Message to Garcia by Elbert Hubbard

How to Win Friends and Influence People by Dale Carnegie

Strategy in Poker, Business & War by John McDonald and Robert Osborn

The Broker’s Edge; How to sell securities in any market by Steven Drozdeck and Karl Gretz

Selling The Invisible by Harry Beckwith

The Baseball Codes by Jason Turbow

Horse Trading by Ben Greene

Fortman’s Basic Checkers

A Season on the Mat: Dan Gable

Pursuit of Perfection by Nolan Zavora

Living with Children by G. Patterson

Parents and Adolescents by G. Patterson

Conan The Conqueror by R. Howard

Chess Secrets I Learned from the Masters by Edward Lasker

John Gardner: The Art of Fiction; Notes on Craft for Young Writers (1983) and

On Becoming a Novelist (1983)

The Flavor Bible: The Essential Guide to Culinary Creativity, Based on the Wisdom of America’s Most Imaginative Chefs by Karen Page and Andrew Dornenburg

Roasting-A Simple Art by Barbara Kafka, Maria Robledo

Outlaw Cook by John Thorne

The Way to Cook by Julia Child

Markets, Games, & Strategic Behavior by Charles A. Holt

Caught Inside: a Surfer’s year on the California Coast by Daniel Duane

The Grapes of Wrath by John Steinbeck

Law of the Jungle by John Otis

The Intelligence Investor by Benjamin Graman

Feynman Lectures on the Web, from Bill Egan

Why The Best-Laid Investment Plans Usually Go Wrong by Harry Browne

Copies of published newsletter by the late Louis Rukeyser

Patrick O’ Brian books

Dean King’s A Sea of Words

1960s Chicago Federal Reserve Bank booklet entitled Modern Money Mechanics

Pattern Recognition, 4th ed. by Theodoridis and Koutroumbas

2nd edition of Hastie et al.’s The Elements of Statistical Learning — free as a pdf

Bishop’s Pattern Recognition and Machine Learning

The Works of Guy De Maupassant, 1903 first edition

A Journey into Rabelais’s France, Nock

Wald’s book Sequential Analysis

Oliver Sacks included in his book The Man Who Mistook His Wife for a Hat

Lorie and Roberts’ book on marketing

The Mountaineering Handbook by Connally, Craig

Glacier Travel and Crevasse Rescue

Oliver Sacks, The Man Who Mistook His Wife for a Hat

The Road by Cormac McCarthy

McCarthy’s Blood Meridian, or the Evening Redness in the West, Blood Meridian, or the Evening Redness in the West



De Sade



Flannery O’Connor

William Styron

In the heart of the Sea, Nathaniel Philbrick

Moby Dick, Herman Melville

The ‘Code’: Ten unwritten baseball rules you might not know By Jason Turbow

Swindled: The Dark History of Food Fraud, from Poisoned Candy to Counterfeit Coffee by Bee Wilson

Water for Elephants

The Lovely Bones

Old Home Town by Rose Wilder Lane

Virginia Postrel’s book The Substance of Style

Galton’s The Art of Travel

The Story about Ping

The Upside of Turbulence by Donald Sull

Books by Ralph Vince

FEE essay, The House that Uncle Sam Built

Andrew Odlyzko’s online essay Collective hallucinations and inefficient markets: The British Railway Mania of the 1840s

Judgment under Uncertainty: Heuristics and Biases, Cambridge

Kahnemann, Tversky (eds): Choices, Values and Frames, Cambridge- Slovic et al: The Perception of Risk, Earthscan

Taleb: The Black Swan

Penguin- Popper: The Logic of Scientific Discovery, Routledge

Thaler: Advances in Behavioral Finance (Vol II), Princeton Publishing

Peterson: Inside the Investor’s Brain, Wiley- Forbes: Behavioural Finance

Gauch: Scientific Method in Practice, Cambridge

Chamley: Rational Herds: Economic Models of Social Learning, Cambridge

James Montier, The Little Book of Behavioral Investing– How Not to Be Your Own Worst Enemy

Dr. Aronson, Evidence-Based Technical Analysis, Wiley, 2006

Burning Bright, Ron Rash



Ayn Rand

Niederhoffer & Co.

Ken Smith,




Cowles Comprehensive Encyclopedia

Morihei Ueshiba, The Art of Peace

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005

Mika Waltari’s The Egyptian

Sir Walter Scott’s Ivanhoe

The Christmas Lectures

Analysis of Financial Times Series by Tsay

Musashi, Book of Five Rings

Taming the Infinite

Strogatz has received good reviews for his book The Calculus of Friendship

Dan Ariely, Predictably Irrational

Buy*ology, Truth and lies about why we buy, Martin Lindstrom

Raising Your Child to be a Champion in Athletics, Arts, and Academics by Wayne Bryan and Woody Woodbur

Philip L. Carret, his 1931 book, The Art of Speculation

Beyond Candlesticks by Nison

The Secret History of the Mongol Queens: How the Daughter of Genghis Khan Rescued His Empire

Statistical Rules of Thumb, by Gerald van Belle

The Dogs of Capitalism by Mitchell Jone

The Selfish Gene, Richard Dawkins

Van Belle - Statistical Rules of Thumb

Sheshkin - Handbook of Parametric and Nonparametric Statistical Procedures

Snedecor -Statistical Methods, 8th ed.

Siegel - Nonparametric Statistics for the Behavioral Sciences, 2nd ed.(1988)

Conover - Practical Nonparametric Statistics, 3rd ed.

Martinez - Computational Statistics Handbook with Matlab, 2nd ed.

Staying Alive in Avalanche Terrain, Bruce Tremper

The Book of Chuang Tzu

Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market

This Time is Different - Eight Centuries of Financial Folly, by Reinhart and Rogoff

Derek Rowntree - ‘Statistics Without Tears’ and ‘The Manager’s Book of Checklists’

Horse Trading by Ben Green

The Secrets of Professional Turf Betting by Robert Bacon

Zen and the Art of Motorcycle Maintenance by Robet Pirsig

The Rules of Winning Chess by Nigel Davies

Lobster Chronicles by Linda Greenlaw

Michael Lewis - Moneyball

A Terrible Splendor by Marshall Jon Fisher

Shogun by James Clavell

The Last Kings of Thule - Jean Malaurie

Many of Giono’s books

Many of Pierre Magnan books

Dava Sobel - Longitude

Order Out of Chaos by I. Prigogine

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

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

Deep Simplicity: Bringing Order to Chaos and Complexity by John Gribbin

The Foundations of Ethology by K. Lorenz

Studies in Animal and Human Behavior by- K. Lorenz

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

Mononcle d’ Amérique by A. Resnais (in French only)

The Botany of Desire by Michael Pollan

A Hole in the Ground with a Liar at the Top: Fraud and Deceit in the Golden Age of American Mining

The Complete Turtle Trader

Heyne’s Economic Way of Thinking

Practical Speculation

Made to Stick by Chip Heath and Dan Heath

Modern Principles: Microeconomics by Tyler Cowen and Alex Tabarrok

Fred Hapgood’s 1993 book Up the Infinite Corridor: MIT and the Technical Imagination

Getting Real

Scientific Method in Practice by Hugh G. Gauch

Psychology of Intelligence Analysis

The Farming Game by Bryan Jones

A Treasury of Deception: Liars, Misleaders, Hoodwinkers, and the Extraordinary True Stories of History’s Greatest Hoaxes, Fakes and Frauds by Michael Farquhar

Stocks for the Long Run by Siegel

Irrational Exuberance by Shiller

Beating the Street by Lynch

Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits by Altucher

The Intelligent Investor by Benjamin Graham

Common Stocks and Uncommon Profits and Other Writings by Fisher

Futures: Fundamental Analysis by Schwager

Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by Murphy

Contrarian Investment Strategies - The Next Generation, Dreyman

Trend Following: How Great Traders Make Millions in Up or Down Markets, Covel

Momentum Stock Selection: Using The Momentum Method For Maximum Profits, Bernstein

Hostile Territory by Gerald Westerby

The Gameby Neil Strauss

Arthur Schopenhauer’s The Art of Controversy; also by a different title: The Art of Being Right

A Random Walk Down Wall St., Malkiel

Security Analysis by Dodd

Atlas Shrugged

BECOMING WINSTON CHURCHILL: The Untold Story of Young Winston and his American Mentor, by Michael McMenamin, Greenwood Publishers (2007)

Our Enemy the State

On Doing the Right Thing

Memoirs of a Superflous Man [his autobiography and perhaps his best known book]


Isaiah’s Job

The Criminality of the State

The Jewish Problem in America

Applied Longitudinal Data Analysis by Judith Singer and John Willett

NurtureShock — New Thinking About Children, by Po Bronson & Ashley Merryman

Bruce Bueno de Mesquita’s book Predictioneer’s Game

The Art of Strategy: A Game Theorist’s Guide to Success in Business and Life by Avinash K. Dixit and Barry J. Nalebuff

Buffalo for the Broken Heart, by Dan O’Brien, 2001

Fourteen Methods of Operating in the Stock Market, published in 1918 by The Magazine of Wall Street

Moneyball, by Michael Lewis

Microtrends: The Small Forces Behind Tomorrow’s Big Changes, by Mark Penn

The Heart of the World by Ian Baker

Eye Movement Desensitization and Reprocessing (EMDR): Basic Principles, Protocols, and Procedures, 2nd Edition, by Francine Shapiro

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers, by Larry McDonald and Patrick Robinson

The Lost City of Z: A Tale of Deadly Obsession in the Amazon, by David Grann

The Mystery of Numbers by Annemarie Schimmel

Trend Following: Learn to Make Millions, FT Press, 2009

The Complete Idiot’s Guide to Global Economics, Alpha, 2008

The Logic of Life by Tim Harford

Freakonomics by Leavitt and Dubner

Discovering Your Inner Economist by Tyler Cowen

Intelligence and How to Get It by Richard Nisbett

The Bell Curve by Richard Herrnstein and Charles Murray

Don’t Tread on Me by H. W. Crocker III

Military Bookman

Education of a Speculator

Optimal Portfolio Modeling, Wiley, 2008

Play the Catalan, Everyman, 2009

Day One Trader

Biological Invasions: Theory and Practice by Shigesada and Lawasaki

Biological Invasions by Mark Williamson

The Command of the Ocean by N.A.M. Rodger

The Best American Essays of the Century edited by Joyce Carol Oates and Robert Atwan

Intelligence in War by John Keegan

A Splendid Exchange by William J. Bernstein

The Villainy of Stock Jobbers Detected (1701) by Daniel Defoe

Chronicles and Characters of the Stock Exchange (1850) by John Francis

The Drunkard’s Walk: How Randomness Rules Our Lives by Professor Leonard Mlodinow

Spent by Geoffrey Mille

Living at Micro Scale by Reedie David Dusenbery

Lectures on the Relation between Law and Public Opinion during the 19th Century, A.V. Dicey

Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems

Life History Invariants by Eric Charnov




Political scientists, commentators, and pundits consistently observe that government leaders usually opt for silver rather than lead when presented with crisis or conflict. If a ruler can pay coin instead of fire bullets, he or she is likely to do so. Commonly referred to as political instinct (or emblematic of human fragility to include corruption), such decisions often equate to deflection or redirection of what is tantamount to injustice, be it economic or political, that continues if not escalates.

From a rules-based (or Quantitative Relativity) analysis, we may conclude that the ten-year-old repeal of the Glass-Steagall Act is the Fort Sumter of a revolutionary period in the history of capital markets. Colliding and colluding energies then generated by investment banking and commercial banking interests created a black hole, from which the centricity of capital flows and the ergonomics of investor, trader, and speculator no longer appeared (or disappeared) on some 78 year-old, well charted maps of domains circumscribing public policy and regulatory stricture as well as academic and institutional dicta.

Accordingly, magnitudes of relative space and time correlations of the markets may now extend well beyond the comprehension of a single person. Thus, before considering the Chair's interrogatories, first consider whether the sage's musings are sagacious or merely in keeping with a (if not thee) central stakeholder that owes a fiduciary duty to those who may be keeping afloat with what otherwise would or should be sinking if not already sunk…

What did the guy actually say?

"Our first stimulus bill … was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in … as if everybody was putting in enough for their own constituents," he said. "It doesn't have really quite the wall that might have been anticipated there."

"I think that a second one may well be called for," Warren Buffett, the CEO of Berkshire Hathaway, told "Good Morning America" today. But, he added, "you hope it doesn't get watered down in many ways."

"I do not like the idea of any kind of a plan involving the government where Wall Street makes a lot of money. My plan provided that they would make no money whatsoever, and the American public would make the money. I just think that Wall Street owes the American people one at this point," he said.

"We are not in a freefall, but we are not in a recovery either," Buffett said. "We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior. That change hasn't changed." The U.S. unemployment rate, which currently stands at 9.5 percent, still "has a ways to go" before it peaks, he said. His own company, he said, had to lay off 500 people.

See http://abcnews.go.com/Business/story?id=8039651&page=1.

What are the natural reflections engendered by such an utterance as the sage's?

Hey, Big Spender, Spend a Little Time with Taxpayer Dimes: "The Keynesian stimulus is beneficial insofar as it gets to average consumers, but much of the money is headed elsewhere; perhaps overseas to buy commodities, gold, etc., for as few opportunities for profitable investment are within the US consumer economy, money will be attracted elsewhere. Moreover, but for alternative energy, even skillful application of Keynesian stimulus spending cannot return to the previous path of economic expansion for long without cheap oil.

Keynesian stimulus is a governmental policy that borrows economic demand from good times and uses the proceeds to boost demand during times of contraction, to keep recessions from deepening into deflationary depressions. Public spending by the US government on public projects is meant to restore demand missing due to contraction of the private sector of the economy. If there is enough public spending, a multiplier effect helps stimulate demand and revive consumer optimism.

In terms of the scale of the government money being introduced to stabilize the economy, it is mostly going to bailouts, low prime rate credit, and existing entitlements, with a relatively smaller amount of Keynesian stimulus. With the domestic consumer market so depressed, the easy credit offered to the banks now tends to leak out of the US and head abroad, without creating many domestic jobs in the process.

The near zero prime rate money available to the big profit-starved investment banks will probably be used to shore up their troubled bottom line with high-profit loans, lending for things like foreign subsidiaries of US corporations, commodities including gold, oil production, and growing markets in emerging nations. Some prime rate money is being borrowed and then used to buy higher interest paying US treasury bonds, giving guaranteed profits but no jobs."

Harbinger From 'Flash Crash' to Slow Motion Crash
: The scale of existing obligations on the part of US consumers, the many federal obligations and entitlements like health care and social security, and private bank debt taken together is an overwhelming tax burden for an aging unemployed population.

Given the peak oil situation, it is unlikely that this aggregate burden of US debt can ever be paid back with dollars that retain their current buying power. This reality leaves a choice of either US government default, or more likely in the short run, devaluation through inflation that keeps the finance books balanced with shrunken dollars.

The historic evidence strongly points to solving our debt problems with inflation, which is a concealed form of taxation. Here political policy takes over."

Electile Dysfunction: "Economists in a recent National Association for Business Economics survey say the economic recovery was not helped by the stimulus bill. Obama's $787 billion Recovery Act is a massive slush fund for "saved or created" jobs, a term still undefined. Additional $17.7 billion jobs bill is on track to do what the Recovery Act did - not much. National unemployment rate will remain hovering near double digits despite Obama's promise the Recovery Act would keep it below 8%.

Back in early January, when Barack Obama was still President-elect, two of his chief economic advisers - leading proponents of a stimulus bill - predicted that the passage of a large economic-aid package would boost the economy and keep the unemployment rate below 8%

Obama's Disco-era Jobs Bill is so named since the meat of it comes directly out of Carter's bill from 1977, a bill that economists still aren't sure actually worked. The initial $787 billion Recovery Act, with funds borrowed from China, was reassessed by the CBO back in January, increasing the actual cost of the stimulus package to $862 billion due to several factors including higher unemployment, the food stamp program, and the Build America Bond program, which pays state and local governments for 35 percent of their interest costs on taxable government bonds issued in 2009 and 2010 to finance capital spending.

The CBO outlined the increased national deficit burden of the stimulus package in this easy to follow and fun-for-the-whole-family-since-the-whole-family-will-be-saddled-with-massive-debt. White House's Council of Economic Advisers says on track to create or save 3.5 million jobs this year."

Job One: Given that he highlights one key indicator, Buffett's comment on unemployment provides a context for our "natural" correlations, priori, consiliences, etc.

"Regarding one's ground zero opening that "the low of the day was below the low on the Flash Crash day, note the extended declines Thursday came after initial jobless claims rose by 25000 to 471000 with a large part of the US domestic economy to be in a state of deflationary contraction as true US unemployment rate approaching that experienced during the great depression.

As an economic system constantly interacts with the politics that makes the rules that govern it, politics may prove to be anything but an efficient way to achieve rational change. Increasingly, global economic options may be narrowing to choice between continuing global economic stagnation versus a short start at recovery followed by a relapse into economic contraction and global stagnation. Therefore, use of stimulus spending or any other political and economic policies cannot reset prior economic growth within the short-term.

The return of another tight global oil market will be accompanied by the return of the crippling oil price increases we saw in mid-2008, but this time imposed on a weaker economy. The geology is the easy part, but it is the complexity of the social response that makes peak oil difficult to study. The economic crisis is resulting in gap between global growth predicted by banking and finance system versus disappointing performance of the global economy; the shortfall is reflected as political discontent.

US domestic economy comprised of two consumer spending sectors with different characteristics. Discretionary spending is shrinking fast as the jobless and the growing numbers of those fearful of income loss limit spending to the purchase of bare necessities; it with nondiscretionary are averaged together may present a misleading consumer price index, which excludes food and energy.

Whereas labor and services costs are determined by the supply and demand within the domestic economy, commodities typically have their prices determined by the global marketplace. When a tight global oil market returns, it means that the rising cost of oil needed to transport almost everything pushes up all other commodity prices — termed cost-push inflation.

If the non-discretionary sector of the consumer economy is deflating, due to slack demand and home prices decreasing, it does not mean that the same price trends apply to the non-discretionary sector. US domestic economy is stagnating while the global commodity sector is seeing price inflation.

Housing and labor prices have been falling, even as global commodities prices are rising, to give a misleading picture of inflation. These trends taken together signify stagflation, which tends to defy easy economic remedy.

As US consumer spending relatively shrinks, there also seems to be a global commodity price bubble attracting speculation and driving up many raw materials prices. Commodity prices in general have risen about 30% since March 2009; the price increases may now be spreading to food.

Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. Yet bad news feeds on itself, and this circularity perpetuates a deflationary downturn during hard times."

Meanwhile, aside from the obvious, being repeal of the Glass-Steagall Act separating commercial and investment banking, there was the stealth HTM to MTM change. Conjunctive to MTM, the derivatives market operated as a shadow economy intended to disperse risk among bank held and capital markets held assets, supposedly stabilizing values related to medium and long term contracts. So much for that theory…

As a result, post-crisis bailout of banks continues as the most expensive component of the legislation, as one commentator notes, not so "much a cost as it is a theft… a sort of Robin Hood in reverse… Bernanke & Co. are stealing money from the common man and giving it to the banks…."

[Ed. A more complete version of this essay will be published shortly].



ant holeI always had a special kinship with ants, having made and observed colonies as a kid. I performed many behavior experiments with ants and learned a lot. In college, we used to boil ants to extract the formic acid they use as defense. Ants have ideal defense mechanisms since formic acid is better than any tear gas or mace for incapacitating an attacker. I used the formic acid in many nefarious experiments and research. Another thing to note is that the collective works best with the ants as they are single minded, and it is my hypothesis that the collective only works for those who live life through ritualistic behavior.

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

Douglas Dimick adds:

Here in China, there is the "anthill" dynamic developing among university graduates who can only find low-paying work (2000 RMB per month). Graduates are renting rooms in apartments and living among collectives of similar fated new-to-the-market job seekers. See this China Daily article.

Riz Din writes:

Ants have an interesting relationship with aphids, treating them as a living food source to be farmed. Also, there are more of them than we think. Apparently they make up 15-25% of living terrestrial animal biomass.



Lex Luthor a.k.a The ThiefThe lineage of One's study about the types of people who disseminate their views about markets appears to originate with "Relevant Query" and is developed in "Connected Person" and elaborated by "People Who Disseminate" then spawning ideas such as those in "Vanishing and Present Types" and "The Cooler" and "Animals and Their Market Applications" and "The Bookie." I look back to one's questions as they first appear: "What are the many types of people who disseminate their views about the market? What are the major categories that I am missing or what is a better way to classify and make this useful?"

No doubt, there is a book to be done on the subject. That said…

This list is presented in order of published appearance. A caveat: "many fall into more than one category and mobile via age and wealth changes."

Enough said, so here we go…

The Connected Person, who makes you feel without saying it that she/he is or will be connected to the very lynch pin of policy at the Interior or some such.

Tout, who has position and wants you in for his/her favor.

Sponsor, who advertises or sponsors programs that treat him/her well.

Would-be-manager without funds impresses with his/her knowledge/ideas for you to join.

Old lion
, who is not virile but still fights younger from replacing him/her in power/ romance.

, who hates everything modern and wants all back to old days before tech.

Spankist, a beauty but aggrieved to give spanking unless things in order her/his way; observed to be everywhere and influence growing among spankisto and spankista's.

, who is always contrary, never reads papers or travels, and feels market is wrong.

Hole-In-Shoes, who only drinks coke and eats hamburgers, never pays a fee more than 10%.

Sanctimonious, who pretends to be honest while blind to any firm dishonesty/misdoing.

, who manipulates numbers retrospectively to allure investors.

Mystic, who looks at stars and bent keys.

Old Timer, who is guided by iron castings reports and freight car loadings and newsprint figures [sample]: all as timeless methods (non retro) with healthy respect for knowledge.

Fund Manager, who is quoted as "good buy" on stock that he/she sold bulk of before recall.

Jack of All Trades
, who explains every rise and decline due to (un)certainty about earnings and rates and other well chosen factors. Always welcome on TV because of his versatility.

Chronic Bear, who since 1966 written bearish columns with signs of optimism persisting.

Humanitarian, who finds world as selfish with only solution to be redistribution or service for poor.

The Mark, who in hushed tone, glazed eyes, reveals privileged information so as to be rich.

The Friend
, who can see "the tells" tells and tells deaf ears to exit before pocket emptied.

Permabull type likes market anywhere, anytime, well coiffed, strong BUY to partner.

Foreign Funder, who likes exotic as better value with more room for catch-up valuations.

Eminent Bank of Sweden Prize Laureates, who are trotted out by others to do the thinking.

Walter Mittyist, who is market hobbyist with secret hopes: a market philanderer.

Split-Level Dwellers, who favor inheritance taxes as the absolute "down home"

Go-Pound-Sterling types…

Delusional-Vengefulites, who are too full of themselves to see beauty of system they seek to destroy.

Boorish Loud-Mouthed Bellower of Blab, who mastered costumes and adorn picks equally garishly.

Echoing Silence of Financial Pressers
, who never explain major market move until after.

Small Echoing Would-Be-Manager, who remains silent due to fear of publicly humiliation and reverse engineer techniques she/he developed in long years of lonely silence.

Nock's Prophet of The Remnant, who with absolute assurance, has no need to advertise and makes own way without adventitious aids.

The Whodoos, the jinxes…

The Joe Bfstlks of the world…

The Ralph Kramdens, who, despite good intentions, are just plain unlucky, thus dangerous to associate with.

Poseurs, who in empty suits may be the French equivalent of "Big hat no cattle" in Texas.

Abstaining Cooks, who never eat their own meals or go in on their own stock recommendations.

Thief a la Bernie Madoff or Lex Luthor, who take the shortcut to wealth: brilliant yet totally corrupt.

Blowhard a la Jim Cramer, who "made $100 million" with results not quantifiable.

Former Champion a la Bob Prechter
, Joe Granville, or Stan Weinstein…

Celebrity a la Len Dykstra

Former-Wrestler-Who-Marries-The-Analyst, John Layfield…

The Foreigner, whose suave language skills are so impressive that he/she must know.

Self-Deprecating Genius

Infomercial Guy,
who is ubiquitous.

The Consummate Professional
, who as the active operator prognosticates on everything from currencies to value/growth trends, providing decent performance for years.

Lone Sailor, who keeps going with no one to blame for loses or wins but oneself.

Optimistic College Student, who realizes some stocks will never be this cheap again.

, who has with wine prices outperformed equities.

New Chartist, who believes future wealth is guaranteed by angles and lines on their screen.

Saboteur, who finds fault with every issue in your portfolio.

Blind Gamble, who is neither bullish nor bearish, fully leveraged or not in, thus travels the road between wealth and poverty as driving a car to work. `

Afraid-Of-His-Own-Shadow Commentator
, who measures and comments on every tick, trusts nothing, always on a business news channel or radio program about how to trade.

Conspiracy Theorist, who believes that "the banksters"/HFT traders/dark pool operators/PPT have totally rigged the market because this can't be happening on it's own.

Cloud Commentarist
, who all have related typologies and vanish into the infrastructure or "the market."

, who "thought" counting overcomes asymmetry between all edges that the boys, who made the rules and made the market, had over oneself as the optimistic contrarian.

Guy With A Theory
, who (is me and perhaps a few others, such as those on Tradestation Forum) has no real world (trading) experience, an outsider of the industry, and is dangerous more so to oneself by virtue of knowing a little bit but will not give up.



Edward LorenzDimensionality of Market Trading: Open (State-Input-Output)/Closed (State-Input-State)

Query, Comments, and the Issue

What is the equivalent of an open versus a closed game in market trading, and under what conditions is each better or worse?

Upon reading the comments, one may conclude that there is significant variation in the interpretation of the meanings of open and closed relative game theory applications to market trading. Ball and bat indicates baseball or cricket. The Black Monday events related to futures distinguishes valuation tools and calculation of market support. A two-dimensional answer also may encompass both (option spreads and directional futures) issuances and (high/low volatility) market conditions. Fees then VIX, cash balance, and price-volume-spread applications may be linear processes.

My presupposition here is that Victor’s query originates from his recent recommendation of Nigel Davies' book on chess. As the ecology of chess may function as a multi-dimensional system (e.g., 3d chess), and as open (1 e4 e5) and closed (1 d4 d5) moves operate as tactical or game strategies, we may address the query by researching the issue:

If market trading functions as a multi-dimensional system, how may open and closed strategies operate for optimal performance?

Excerpts — A Survey of Research on Open/Closed Concepts

Consider the following excerpts from research on open and closed concepts. Note that the direction of this research leads to theory of chaos and logistic mapping.

Ecology (definition): The branch of sociology that is concerned with studying the relationships between human groups and their physical and social environments: also called human ecology.

Note that both games and markets are human constructs constituting physical/social environments that function as rules-based systems.

Systems and states (terms): A system is a combination of interacting elements that performs a function not possible with any of the individual elements. In a dynamic system, outputs depend on present and past values of inputs and must define the concept of a state.

The state of a system makes the system’s history irrelevant. The state of the system contains all of the information needed to calculate responses to present and future inputs without reference to the past history of inputs and outputs; present inputs and the sequence of future inputs allow computation of all future states (and outputs). Some dynamic systems are modeled best with state equations while others are modeled best with state machines.

Dimensionality of dynamical systems: Discrete chaotic systems, such as the logistic map, can exhibit strange attractors whatever their dimensionality. However, the Poincaré-Bendixson theorem shows that a strange attractor can only arise in a continuous dynamical system (specified by differential equations) if it has three or more dimensions. Linear systems are never chaotic; for a dynamical system to display chaotic behavior it has to be nonlinear.

Open/Closed Principle: The term Open/Closed Principle is that once completed, the implementation of a class could only be modified to correct errors. New or changed features would require that a different class be created; that class could reuse coding from the original class through inheritance. The derived subclass might or might not have the same interface as the original class.

Implementation can be reused through inheritance but interface specifications need not be. The existing implementation is closed to modifications, and new implementations need not implement the existing interface.

Polymorphic Open/Closed Principle advocates inheritance from abstract base classes. Interface specifications can be reused through inheritance but not implementation.

The existing interface is closed to modifications and new implementations must, at a minimum, implement that interface. Thus, the Principle became popularly redefined to refer to the use of abstracted interfaces, where the implementations can be changed and multiple implementations could be created and polymorphically substituted for each other.

The concept of an “open system” was formalized within the framework of thermodynamics. This concept was expanded upon with the advent of information theory and subsequently systems theory.

In the social sciences, an open system process exchanges material, energy, people, capital and information with its environment. In the natural sciences, an open system is one whose border is permeable to both energy and mass. By contrast in physics, a closed system is permeable to energy but not to matter.

Open systems have a number of consequences. A closed system contains limited energies. Open system assumes that supplies of energy cannot be depleted from a surrounding environment, being infinite for the purposes of study. For instance, the radiant energy system receives its energy from solar radiation, which may be considered inexhaustible.

A closed system is a system in a state isolated from its surrounding environment. An idealized system is where closure is perfect, yet no system can be completely closed (only varying degrees of closure).

In thermodynamics, a closed system can exchange heat and work (aka energy) but not matter with its surroundings. In contrast, an open system can exchange all of heat, work and matter.

Note that Victor and Laurel analogize market exchanges with energy related to thermodynamics (see Chapter 13 in Practical Speculation and Page 32 of my current book project, Theory of Quantitative Relativity for Program Trading and Portfolio Management Systems Architecture).

Syllable: A syllable is a unit of organization for a sequence of speech sounds and is typically made up of a syllable nucleus (most often a vowel) with optional initial and final margins (typically, consonants). Syllables are often considered the phonological “building blocks” of words. The general structure of a syllable consists of the following segments:

Onset (obligatory in some languages, optional or even restricted in others) Rime Nucleus (obligatory in all languages) Coda (optional in some languages, highly restricted or prohibited in others)

In some theories of phonology, these syllable structures are displayed as tree diagrams (similar to the trees found in some types of syntax). The syllable nucleus is typically a sonorant, usually making a vowel sound, in the form of a monophthong, diphthong, or triphthong, but sometimes sonorant consonants like [l] or [r].

The syllable onset is the sound or sounds occurring before the nucleus, and the syllable coda (literally ‘tail’) is the sound or sounds that follow the nucleus. The term rime covers the nucleus plus coda.

Generally, every syllable requires a nucleus. Onsets are extremely common, and some languages require all syllables to have an onset. (That is, a CVC syllable like cat is possible, but a VC syllable such as at is not.) A coda-less syllable of the form V, CV, CCV, etc. is called an open syllable (or free syllable), while a syllable that has a coda (VC, CVC, CVCC, etc.) is called a closed syllable (or checked syllable). Note that they have nothing to do with open and close vowels.

Dynamical system (concept): The dynamical system concept is a mathematical formalization for any fixed “rule” that describes the time dependence of a point’s position in its ambient space. Examples include the mathematical models that describe the swinging of a clock pendulum, the flow of water in a pipe, and the number of fish each spring in a lake.

At any given time a dynamical system has a state given by a set of real numbers (a vector) which can be represented by a point in an appropriate state space (a geometrical manifold). Small changes in the state of the system correspond to small changes in the numbers.

The evolution rule of the dynamical system is a fixed rule that describes what future states follow from the current state. The rule is deterministic: for a given time interval only one future state follows from the current state.

The concept of a dynamical system has its origins in Newtonian mechanics. The evolution rule gives the state of the system only a short time into the future based on a relation that is either a differential equation, difference equation, or other time scale.

To determine the state for all future times requires iterating the relation many times – each advancing time a small step. The iteration procedure is referred to as solving the system or integrating the system. Once the system can be solved, given an initial point it is possible to determine all its future points, a collection known as a trajectory or orbit.

Numerical methods implemented on electronic computing machines have simplified the task of determining the orbits of a dynamical system. For simple dynamical systems, knowing the trajectory is often sufficient, but most dynamical systems are too complicated to be understood in terms of individual trajectories. The difficulties arise because:

Trajectories may be periodic and wander through different states of a system, so applications often require enumerating these classes or maintaining the system within one class. Classifying all possible trajectories has led to the qualitative study of dynamical systems, that is, properties that do not change under coordinate changes. Linear dynamical systems and systems that have two numbers describing a state are examples of dynamical systems where the possible classes of orbits are understood.

The behavior of trajectories as a function of a parameter may be what is needed for an application. As a parameter is varied, the dynamical systems may have bifurcation points where the qualitative behavior of the dynamical system changes. For example, it may go from having only periodic motions to apparently erratic behavior, as in the transition to turbulence of a fluid.

The trajectories of the system may appear erratic, as if random. In these cases it may be necessary to compute averages using one very long trajectory or many different trajectories. The averages are well defined for ergodic systems and a more detailed understanding has been worked out for hyperbolic systems. Understanding the probabilistic aspects of dynamical systems has helped establish the foundations of statistical mechanics and of chaos.

Dynamical system (definition): A dynamical system is a manifold M called the phase (or state) space endowed with a family of smooth evolution functions that for any element of the time, map a point of the phase space back into the phase space. The notion of smoothness changes with applications and the type of manifold.

Differential equations can be used to define the evolution rule: an equation that arises from the modeling of mechanical systems with complicated constraints. Many of the concepts in dynamical systems can be extended to infinite-dimensional manifolds—those that are locally Banach spaces—in which case the differential equations are partial differential equations.

Linear dynamical systems: Linear dynamical systems can be solved in terms of simple functions and the behavior of all orbits classified. In a linear system the phase space is the N-dimensional Euclidean space, so any point in phase space can be represented by a vector with N numbers.

Flows: For a flow, the vector field is a linear function of the position in the phase space with A a matrix, b a vector of numbers and x the position vector. The solution to this system can be found by using the superposition principle (linearity).

The distance between two different initial conditions in the case A ? 0 will change exponentially in most cases by either converging exponentially fast towards a point or diverging exponentially fast. Linear systems display sensitive dependence on initial conditions in the case of divergence.

Maps: A discrete-time, affine dynamical system has the form with A a matrix and b a vector. In the new coordinate system, the origin is a fixed point of the map and the solutions are of the linear system. The solutions for the map are no longer curves, but points that hop in the phase space. The orbits are organized in curves, or fibers, which are collections of points that map into themselves under the action of the map. There are also many other discrete dynamical systems.

Local dynamics: The qualitative properties of dynamical systems do not change under a smooth change of coordinates (this is sometimes taken as a definition of qualitative). A singular point of the vector field (a point where v(x) = 0) will remain a singular point under smooth transformations; a periodic orbit is a loop in phase space and smooth deformations of the phase space cannot alter it being a loop.

It is in the neighborhood of singular points and periodic orbits that the structure of a phase space of a dynamical system can be well understood. In the qualitative study of dynamical systems, the approach is to show that there is a change of coordinates (usually unspecified, but computable) that makes the dynamical system as simple as possible.

Rectification: A flow in most small patches of the phase space can be made very simple. If y is a point where the vector field v(y) ? 0, then there is a change of coordinates for a region around y where the vector field becomes a series of parallel vectors of the same magnitude. This is known as the rectification theorem.

The rectification theorem says that away from singular points the dynamics of a point in a small patch is a straight line. The patch can sometimes be enlarged by stitching several patches together, and when this works out in the whole phase space M the dynamical system is integrable. In most cases the patch cannot be extended to the entire phase space.

Bifurcation theory: When the evolution map (or the vector field it is derived from) depends on a parameter, the structure of the phase space will also depend on this parameter. Small changes may produce no qualitative changes in the phase space until a special value is reached. At this point the phase space changes qualitatively and the dynamical system is said to have gone through a bifurcation.

Bifurcation theory considers a structure in phase space (typically a fixed point, a periodic orbit, or an invariant torus) and studies its behavior as a function of the parameter. At the bifurcation point the structure may change its stability, split into new structures, or merge with other structures. By using Taylor series approximations of the maps and an understanding of the differences that may be eliminated by a change of coordinates, it is possible to catalog the bifurcations of dynamical systems.

Ergodic systems: In many dynamical systems it is possible to choose the coordinates of the system so that the volume (really a ?-dimensional volume) in phase space is invariant. This happens for mechanical systems derived from Newton’s laws as long as the coordinates are the position and the momentum and the volume is measured in units of (position) × (momentum).

The ergodic hypothesis turned out not to be the essential property needed for the development of statistical mechanics and a series of other ergodic-like properties were introduced to capture the relevant aspects of physical systems. Koopman approached the study of ergodic systems by the use of functional analysis.

Nonlinear dynamical systems and chaos: Simple nonlinear dynamical systems and even piecewise linear systems can exhibit a completely unpredictable behavior, which might seem to be random – within completely deterministic systems. This seemingly unpredictable behavior has been called chaos.

Hyperbolic systems are precisely defined dynamical systems that exhibit the properties ascribed to chaotic systems. In hyperbolic systems the tangent space perpendicular to a trajectory can be well separated into two parts: one with the points that converge towards the orbit (the stable manifold) and another of the points that diverge from the orbit (the unstable manifold).

This branch of mathematics deals with the long-term qualitative behavior of dynamical systems. Here, the focus is not on finding precise solutions to the equations defining the dynamical system (which is often hopeless), but rather to answer questions, for example:

• Will the system settle down to a steady state in the long term?
• If so, what are the possible attractors?
• Does the long-term behavior of the system depend on its initial condition?

Note that the chaotic behavior of complicated systems is not the issue.

Meteorology has been known for years to involve complicated—even chaotic—behavior. Chaos theory has been so surprising because chaos can be found within almost all trivial systems.

Chaos: Although there is no universally accepted mathematical definition of chaos, a commonly-used definition says that, for a dynamical system to be classified as chaotic, it must have the following properties:

a) it must be sensitive to initial conditions;
b) it must be topologically mixing, and;
c) its periodic orbits must be dense.

Sensitivity to initial conditions: Sensitivity to initial conditions means that each point in such a system is arbitrarily closely approximated by other points with significantly different future trajectories. Thus, an arbitrarily small perturbation of the current trajectory may lead to significantly different future behavior.

Sensitivity to initial conditions is popularly known as the “butterfly effect,” so called because of the title of a paper given by Edward Lorenz in 1972 entitled Predictability: Does the Flap of a Butterfly’s Wings in Brazil set off a Tornado in Texas?

The Lyapunov exponent characterizes the extent of the sensitivity to initial conditions. Quantitatively, two trajectories in phase space with initial separation diverge. The rate of separation can be different for different orientations of the initial separation vector. Thus, there is a whole spectrum of Lyapunov exponents — the number of them is equal to the number of dimensions of the phase space.

Topological mixing: Topological mixing (or topological transitivity) means that the system will evolve over time so that any given region or open set of its phase space will eventually overlap with any other given region. This mathematical concept of “mixing” corresponds to the standard intuition, and the mixing of colored dyes or fluids is an example of a chaotic system.

Topological mixing is often omitted from popular accounts of chaos, which equate chaos with sensitivity to initial conditions. However, sensitive dependence on initial conditions alone does not give chaos.

Density of periodic orbits: Density of periodic orbits means that every point in the space is approached arbitrarily closely by periodic orbits. Topologically mixing systems failing this condition may not display sensitivity to initial conditions, and hence may not be chaotic. For example, an irrational rotation of the circle is topologically transitive, but does not have dense periodic orbits, and hence does not have sensitive dependence on initial conditions.

Lorenz and butterflies: An early pioneer was Edward Lorenz whose interest in chaos came about accidentally through his work on weather prediction in 1961. Lorenz was using a simple digital computer to run his weather simulation. He wanted to see a sequence of data again and to save time he started the simulation in the middle of its course. He was able to do this by entering a printout of the data corresponding to conditions in the middle of his simulation, which he had calculated last time.

To his surprise the weather that the machine began to predict was completely different from the weather calculated before. Lorenz tracked this down to the computer printout. The computer worked with 6-digit precision, but the printout rounded variables off to a 3-digit number, so a value like 0.506127 was printed as 0.506. This difference is tiny and the consensus at the time would have been that it should have had practically no effect.

However Lorenz had discovered that small changes in initial conditions produced large changes in the long-term outcome. Lorenz’s discovery, which gave its name to Lorenz attractors, proved that meteorology could not reasonably predict weather beyond a weekly period (at most).

Mandelbrot and snowflakes: The year before, Benoît Mandelbrot found recurring patterns at every scale in data on cotton prices. Beforehand, he had studied information theory and concluded noise was patterned like a Cantor set: on any scale the proportion of noise-containing periods to error-free periods was a constant – thus errors were inevitable and must be planned for by incorporating redundancy.

Mandelbrot described to effects. The “Noah effect” in which sudden discontinuous changes can occur (e.g., in a stock’s prices after bad news), thus challenging normal distribution theory in statistics (aka Bell Curve). The “Joseph effect” is where persistence of a value can occur for a while yet suddenly change afterwards.

An object whose irregularity is constant over different scales (”self-similarity”) is a fractal (for example, the Koch curve or “snowflake”, which is infinitely long yet encloses a finite space and has fractal dimension equal to circa 1.2619, the Menger sponge and the Sierpinski gasket). In 1975 Mandelbrot published The Fractal Geometry of Nature, which became a classic of chaos theory. Biological systems such as the branching of the circulatory and bronchial systems proved to fit a fractal model.

Distinguishing random from chaotic data: It can be difficult to tell from data whether a physical or other observed process is random or chaotic, because in practice no time series consists of pure ’signal.’ There will always be some form of corrupting noise, even if it is present as round-off or truncation error. Thus any real time series, even if mostly deterministic, will contain some randomness.

Statistical tests attempting to separate noise from the deterministic skeleton or inversely isolate the deterministic part risk failure. Things become worse when the deterministic component is a non-linear feedback system. In presence of interactions between nonlinear deterministic components and noise, the resulting nonlinear series can display dynamics that traditional tests for nonlinearity are sometimes not able to capture.

Logistic mapping: In the case of the logistic map, the quadratic difference equation (1) describing it may be thought of as a stretching-and-folding operation on the interval (0,1). This stretching-and-folding does not just produce a gradual divergence of the sequences of iterates, but an exponential divergence (see Lyapunov exponents) as evidenced also by the complexity and unpredictability of the chaotic logistic map.

In fact, exponential divergence of sequences of iterates explains the connection between chaos and unpredictability: a small error in the supposed initial state of the system will tend to correspond to a large error later in its evolution. Hence, predictions about future states become progressively (and exponentially) worse when there are even very small errors in our knowledge of the initial state..

It is often possible, however, to make precise and accurate statements about the likelihood of a future state in a chaotic system. If a (possibly chaotic) dynamical system has an attractor, then there exists a probability measure that gives the long-run proportion of time spent by the system in the various regions of the attractor.


Based on Quantitative Relativity, if market trading functions as a multi-dimensional system, distinguishing between market situation processing and market strategy operation for order execution may provide the optimal performance of systemic applications of open and closed strategies.

The Theory of Quantitative Relativity distinguishes between control rules (or proof planning anticipatory systems) for correlating that “nexus” of the matter observed as energy transformation and transference, constituting nonrandom sequencing of combination structures within electronic exchange markets of financial instruments.

In a dynamic system, outputs depend on present and past values of inputs and must define the concept of a state. Therefore, an open system would be indicated for state-input-output processing.

As the state of a system makes the system’s history irrelevant, some dynamic systems are modeled best with state equations while others are modeled best with state machines. Therefore, market situation processing indicates open systematics, whereas market strategy indicates closed systematics.

A strange attractor can only arise in a continuous dynamical system (specified by differential equations) if it has three or more dimensions. Linear systems are never chaotic; for a dynamical system to display chaotic behavior, it has to be nonlinear. In that market trading may be multi-dimensional, it can be chaotic; therefore, quantification of strange attractors requires open systematics for state-input-output processing.

The term Open/Closed Principle is that once completed, the implementation of a class could only be modified to correct errors. New or changed features would require that a different class be created. Therefore, to achieve a linear system for order execution, a closed system is required within a rules-based subsystem of a state machine that quantitatively defines each state.

The dynamical system concept is a mathematical formalization for any fixed “rule” that describes the time dependence of a point’s position in its ambient space, such as the flow of water in a pipe. Therefore, closed systematics for (rules-based) function integration is required to quantify space and time correlation of price action (as a form of energy).

As (a) a dynamical system has a state given by a set of real numbers (a vector) which can be represented by a point in an appropriate state space (a geometrical manifold), and (b) small changes in the state of the system correspond to small changes in the numbers, therefore, open systematics are indicated to quantify state transitioning (or state-input-state), whereas a closed system is required to define rules-based excitation for state transitioning.

Iteration to determine the state for all future times is solving the system or integrating the system. Once the system can be solved, given an initial point, it is possible to determine all its future points, a collection known as a trajectory or orbit. This system operates as the (state-input-output) processing of the market situation; therefore, based on Quantitative Relativity, the solving of the system indicates open systematics, whereas the collection as a trajectory requires a closed system to establish linear processing for nonrandom storage and recall – being pattern recognition and connection of intelligence.

Linear dynamical systems can be solved in terms of simple functions and the behavior of all orbits classified. In a linear system the phase space is the N-dimensional Euclidean space, so any point in phase space can be represented by a vector with N numbers. Therefore, as solutions for the map are no longer curves but points that hop in the phase space, a closed system is supported for binary processing of order execution protocol.

The qualitative properties of dynamical systems do not change under a smooth change of coordinates (this is sometimes taken as a definition of qualitative). Therefore, as the incongruency of averaging is minimized during market strategy processing, efficient operation of a closed system is viable for state transitioning.

If coordinates are the position and the momentum and the volume is measured in units of (position) × (momentum), phase space may be invariant. Therefore, as open systematics are required to quantify price action as energy coordinates of a market situation, a closed system may achieve state transitioning of patterns during unpredictable behavior, which might seem to be random – within completely deterministic systems (or being the chaos of market exchange behavior).

Hyperbolic systems are dynamical systems that exhibit properties of chaotic systems and may be separated into two parts: one with the points that converge towards the orbit (the stable manifold) and another of the points that diverge from the orbit (the unstable manifold). Chaotic behavior of complicated systems is not the issue but for defining rules-based applications of market trading; therefore, quantification of the stable manifold for convergence of market strategy supports closed systematics, whereas divergence of market situation requires open systematics to define and quantify state transitioning.

Sensitivity to initial conditions means that each point in such a system is arbitrarily closely approximated by other points with significantly different future trajectories; therefore, open systematics are indicated for market situation processing to both define and quantify state transitioning.

Topological mixing (or topological transitivity) means that the system will evolve over time so that any given region or open set of its phase space will eventually overlap with any other given region. Therefore, to effect binary processing of synchronous-oriented state transition functions, closed systematics are indicated.

Exponential divergence of sequences of iterates explains the connection between chaos and unpredictability: a small error in the supposed initial state of the system will tend to correspond to a large error later in its evolution. It is often possible, however, to make precise and accurate statements about the likelihood of a future state in a chaotic system.

Therefore, open and closed systematics are required to both define rules-based quantification and operate function integration for optimal performance of market trading programs.

Attribution: Please see wikipedia for research excerpted herein.



 For the past several months, I have been reading these propaganda-like articles to include in the Times. They seem to be generated by some Times(?) writer(s) in Beijing with a contributor in Hong Kong.

No facts. No statistics. No reports.

Just headlines and dogma as to how the recovery is proceeding and it is “happy thoughts” every day — after 60 years of glory from “a fool’s errand” (Sum of All Fears).

Here at Shanghai University, Agricultural Bank’s branch office just closed. Wires hang from the inoperable ATM. This development is odd… seeing how the school required me to open the account just 3 months ago. Still, perhaps not strange given the central government’s recent cap-call on the big four state-owned, technically bankrupt pillars of capitalism with Chinese characteristics… ah-hem.

More to the point, the university is getting screwed, as it requires staff and faculty and students to use this bank. I have yet to find another branch nearby. Guess the university isn’t the one getting screwed… just the students, faculty, staff – as long as school leaders are not inconvenienced, Confucian thinking dictates no speaking.

So much for top-down-to-tickle-down-to-keep-95%-down-so-long-as-20%-not-demonstrating-to-incite-80%-that-costs-5%-money economic policies (i.e., this would be the Chinese characteristics).

You follow the Chinese math and logic here?

Took me three years… Had I learned Mandarin, I would never have got it.

Anyway, the Bank of China branch office at the Yanchang (Line 1) shopping mall, across the street from our lovely city campus, has one ATM and three teller stations for a locale that traffics tens of thousands of people per day.

Right, you guessed it: the ATM does not have money a fair amount of the time.

How about the line(s) for a teller?

Forget about it. The mothers and grandparents line up in the morning before the doors open. Note, there is a VIP window upstairs for the Communists, as they are about the only ones with enough money to qualify.

So yesterday, I took my dentist and his colleague to lunch at Sal’s (or Salzinaria’s, I think), an Italian food franchise (so quantified as [OliveGarden – PizzaHut = Sals]). Though, true to holism, albeit the parts sum total, the food and pricing and quality are the best that I have seen here in China as far as restaurant ecology may be observed.

Anyway, I needed cash – this restaurant does not take cards, any kind of cards accept a pre-paid Sal’s Card. Smart – Sal’s does not seem to trust Chinese bankers either.

Right, you guessed correct again. Being within sight of the restaurant, the Bank of China ATM has no money at a key time of the day (lunchtime).

Being a barbarian, the foreigner, I do the unthinkable and complain.

The nice lady, whom I presume to be the manager (or maybe the only one who speaks English), says that the ATM is waiting for cash to be “put in” but I can go to the ATM at the shopping store two buildings down. In summary, I cannot get cash from my own bank.

Mr. Zussman, your USSR theory on “our” tech-bubb is interesting. My study then of that phenomenon was less ecometrics and more social-economic with regard to civilian-commercialization of the Internet.

Mr. Jovanovich , concur albeit causation. Clinton’s repeal of Glass-Steagall in 1999, whereby rules-based doctrines and paradigms — that had been developed since the last Great Depression — became (to varying degrees of obfuscated to obliterated) then fundamentally altered within a brief time-period.

Mr. Grossman, you hit the nail on the head of that which Dan hammered… ditto (in a Non-Rush context) here in Red China. They still don’t get it at the central government level, because they are afraid – which means, translated to Chinese Thinking, is that they do get it but do not want to do it because it will cost “them” too much money. This accounting scares the Communists, who ironically are afraid, because that is how they rule – with fear.

When does the servant become the master?

Thus, until US-EU policy mongers and corporate opportunists are replaced with some frontline veterans of trade and finance, who can draw lines instead of circles, whereby social-economic systematics absent of fundamental (First Amendment) human rights are opposed with economic-trade defenses, thereby replacing current free but for unfair trade concoctions of diplomatic, currency-swapped, palm pressing (albeit politically correct) ballyhoo… Communist states will be allowed to linger within if not fester among corruptive, party-centric domains of dysfunction.

Ronald Reagan had it right… trust with verification.

In terms of legal and accounting compliance, I have seen little of that here, as US-EU state leadership cow-tow to their election-campaign-cuffed, well-lobbied finance streamed (MNC) corporate interests, who prefer non-bargaining labor pools and focused (noncompetitive) consumer segments.

As Reagan knew, if you force a communist state to perform based on verification, the system itself will deteriorate from within – until there is internal/external political demand for reform – due to the nontransparent nature of the political ethic.

The system is reliant on lying. Stop the lying, stop the system.

I do not mean Republican and Democratic lies. They do not have an army standing behind them – just a bunch of lawyers and spinsters… The Chinese government simply hangs or shoots them.

As appealing as this approach to conflict-resolution may appear to those of us who hail from the most litigious society in the history of mankind, the point is not quite so absolute in terms of outcome-oriented disposition. The point is that rule of law prevails and is so required for even social-capitalistic constructs as practiced by most neo-communists these days, albeit Cuba and North Korea… stellar examples of how economic justice is reliant upon social justice – NOT.

In conclusion, as we may garner from V, focus on your game, practice the shot to a point of mastery, and be patient. Eventually, the Chinese Communists will either do an economic-trade-like Peal Harbor and we will snap out of it or they will be eaten by their own kind. 5,000 years of history tells us so…

Enough said.



 Reflections… Gravitas and Graviton

After the first year of dad's being diagnosed with Alzheimer’s, we purchased a condo at Polo Island at PBPCC in Florida. Selling the farm in Falmouth for a backbay condo in Portland, the idea was to provide environmental stimuli that minimized environmental conditions not positively impacting emotional, mental, and physical wellbeing for someone like dad – happy in frame and outlook, enjoying the moment and the people where so he found himself.

Cold weather and gray skies had a negative impact on dad’s emotional and psychological tendencies. Old and dark locations were likewise causes of uncertainty and fear relative to his disposition.

After a year, the summer condo in Portland was switched for a lakeside townhouse in Naples (Maine). The problem was that the architecture of the backbay unit was complicated for entry and exit, though the four bedroom unit itself was elegant – formerly owned by dad’s senior, long deceased architectural firm partner, Royal Boston, an MIT graduate with an elevated view of life and art. The townhouse “enabled” dad to swim and sun daily with ease — same with Polo Island.

As a result, father lived through 11 years of Alzheimer’s with an inventiveness and selfless ease that made me and others around him ourselves better folk. It is this sense of commonality that creates ecologies among groupings of people, as with that cognate found among or within a single regimen (or people such as nationalism or the occult), ethic (or philosophy or politic such as conservative and liberal parties), even movements (or cycles or patterns within markets long and short).

China provides an interesting laboratory for such study. The Communists utilize folk art and dance to reinforce party doctrine in such a way to buttress nationalistic domains and trends. Examination of their WTO defenses reflect party leadership attempts to export that same psychology – defending cultural traditions (like corruption and divisive social-economic prejudices) against the “nothingness” of neutrality for international commerce and globalization when compared to nationalist customs and mores.

Are the markets so different?

The Lobagola of that private-public nexus: repeal of Glass-Steagall to permit depository fleecing via toxic derivatives; political prejudice during taxpayer financed corporate bailout; pre/post-crisis selective due process in (SEC and other federal and state) regulatory enforcement and prosecutorial actions; media and entertainment industry-connective hype and backwash of individual and group constituencies based on a “be a good consumer, be a good citizen” themed debt-accumulation edifice fueling nationalist monetarism and fiscal plunder.

Was it not Tolstoy: “We are products of our environment?” Yes, and it is so by the choices we make individually and collectively – such is market and exchange.

Meaning here? Markets make themselves.

Regardless of the day’s fashion, though, the relativity of markets is artificial (or manmade) – constructs that cannot escape the black and white (or red here in the PRC) of the human condition (or good and evil). Debt laden national and world economies, so enslaving folks from household finances to national treasury, and markets (debt, equity, currency, etc…) will find it inescapable eventually, captured by the lore of an implied social-economic realism (or truism) as defined in folk art.

That phenomenon (or form of energy) is the graviton of Quantitative Relativity, operating (or mediating) within exchange systematics. Such then is the form (or idea in a Platonic regard) of a market… Polarity forever remains: war and peace; debt and equity, profit and loss; greed and fear; love and hate; pain and pleasure; birth and death.

Sunny fleets of finance and oceans of unbilled acquisition: who will question?

Put it in a dark place where they play the blues, and you shall become short with life’s despair and the ills apparent. Who, what, when, and how the tune comes to change makes for his daily speculations…

The rest is academic.



TroyVictor's Homeric reference invites reflection upon markets and social order.

Why, when combined, do Iliad and Odyssey present the evolution of human mores as found in our markets of today?

With a study of world masterpieces, we see how Homer’s Iliad and Odyssey represent an eclipse of the “old order” by that anew: having been governed by contract, so guised, therein leading to servitude, we oppose with preeminence of the individual – represented by the ode’s central character, Odysseus.

Agamemnon raises his fleet to Troy by contract… All would honor and enforce Helen’s choice. Intent was then extended beyond marital rights at time of her suitors’ resolution. Thus we see how the four corners of a contract may be rounded by the scissoring malfeasance of human pride (or the Greek notion of hubris).

So too here with a president and congress, commissioning a secretary of corporate errands (Rubin) en route to private offices (Citi).

As the Iliad depicts the unfurling of flagged notions of men bound in strife, so claimed to be that strength of contract as law; though as likely leading to social and economic decay. The Odyssey celebrates that struggle of man as an individual, there chronicling Odysseus’s escape from both the madness found in the armies of men and their leaders’ desires for power; all to be purged with loss of his crew during the ensuing return trip to the sanctity of home and kin.

So too since have we with the “Crisis” this year past.

Perhaps the markets of today are not of Troy as found in the glories of exchange but in the ruins of what has been lost during the past ten years. The ten year war since fought, as if by contract among monetary and global centrists, who in 1999 achieved their commercial and depository banking union at the behest of investment banking tribes, with what we see today from the repeal of Glass-Steagall?



The Theory of Quantitative Relativity indicates cone-shaped plotting of domains representing order size execution of issuances trading on electronic exchange markets. Circular base of order size cones generate upon convergence of velocity bound sums; inclusive of mass aligned with directional vectors of closed, subspace sums bound to a linear mapping of transaction exchange energy patterns.

Published September 2008…

As market fragmentation grows, fueled by ECN competition as well as individual bank platforms, market aggregation becomes more important. In fact, it has become one of the most important developments in recent years. Independent trading platform vendors have emerged to meet this growing market demand from clients. In addition, large dealing banks have increasingly turned to internalization to reduce costs and improve profit margins. More specifically, internalization enables banks to capture the spread internally and avoid paying the spread to an ECN, leaving virtually no footprint in the marketplace and eliminating ECN brokerage fees and associated interbank settlement fees, such as CLS costs.

Published December 2008…

Retail and institutional investors have been stunned at recent stock market volatility. The general thinking is that everything is related to the global financial crisis, starting, for the most part, in August 2007, when the Volatility Index, or VIX, started to climb. We believe, however, that there are more fundamental reasons behind the explosion in trading volume and the speed at which stock prices and indexes are changing. It has to do with the way electronic trading, the new for-profit exchanges and ECNs, the NYSE Hybrid and the SEC's Regulation NMS have all come together in unexpected ways, starting, coincidently, in late summer of 2007.

This has resulted in the proliferation of a new generation of very profitable, high-speed, computerized trading firms and methods that are causing retail and institutional investors to chase artificial prices. These high frequency traders make tiny amounts of money per share, on a huge volume of small trades, taking advantage of the fact that all listed stocks are now available for electronic trading, thanks to Reg NMS and the NYSE Hybrid. Now that it has become so profitable, according to Traders Magazine, more such firms are starting up, funded by hedge funds and private equity (only $10 million to $100 million is needed), and the exchanges and ECNs are courting their business.

Geometrically, an order-relative domain forms upon a circular base. The diameter of that base of the corresponding cone parallels an assimilated plotting (or linear progression) of issue transactional velocity. This line ends at the point of divergence among indicators constituting that directional function of the issuance transaction (or series of order executions).

Diameter of circular base of domain represents averaging of order size. Linear sequencing of orders therewith generate plotting of closed, convex sets less extreme points (e.g., apex connecting legs of cone).

This rules-based construct of geometric portioning offers a method to reconstruct electronic exchange market footprinting. The purpose (or value) of such plotting is being able to quantify patterns of market relativity otherwise eliminated or nontransparent within increasingly fragmented markets. That inability to correlate is also caused by low latency, high frequency systematics as well as during (artificial) pricing gyrations of market aggregation and periods of high levels of volatility.



F FSome of the more vivid analogies to markets come in blood sports. Harry Clews writes well about them in Florida Frenzy. Here he describes and wonders about the honesty of cock fighting: "I watched guys shouting across the pit at one another, calling numbers, signaling to each other with upheld fingers, and it seemed to me there was no way in the world they could keep track of the bets. I turned to the man who had brought me and asked why losers of bets being made that way didn't renege, simply say the bet hadn't been made and walk away. "First, everyone here knows every one else. And second, these folks are as good as their word. Some of them got more money than others, but it ain't one here whose word you can't risk your life on. And the last thing is, welching on a bet can buy you a lot of trouble real cheap. You could git dead from it.' " Crews didn't realize that people will be dishonest when there is not any repeat business involved because then it's in their interests. And he doesn't take account of the value of reputation. But he does give a pretty good explanation of why there were so few cases of dishonesty in the pits even when walking away from a trade made the difference between life and success.

Victor adds:

It is an interesting aspect of human nature that pit traders, among the least honorable people I have ever met in dealing with the outside world, are so highly ethical in their dealing within their own tribe.

Tom Marks replies:

T MWhen futures trading was exclusively pit-based I always wondered why funds just didn't hire an ex-pit guy to go down there, tap the executing brokers on the shoulder, introduce himself, explain that he'd worked on the floor for many years, but now represents the interests of person X.

Then further explain that person X would greatly appreciate if any executing broker of his would eschew getting egregiously creative in the handling of his orders. Especially since person X has a knack for ferreting out patterns that is by no way limited to price movements on a grander scale.

Polite and to the point. They'd get the message.

That said, though, some might suggest that the chicanery of pit traders pales in comparison to what routinely goes on in law, and especially medicine, of the high-end variety. Regarding the latter, the bill is run up considerably by ordering expensive tests of dubious necessity and diagnostic value considering the circumstances. In that field it's called The Game.

Just as in pit trading and law, not all doctors play The Game, but regrettably a fair share do.

Art Cooper remarks:

Consider the difference in consequences between acting unethically to one's "own tribe" vs. the outside world. As a general rule, the adverse consequences from acting unethically towards the former are serious enough to enforce ethcial conduct. Adverse consequences from acting unethically towards the outside world, if any, tend to be attenuated. It's not a question of human nature; it's a matter of self-interest.

Douglas Dimick writes:

During my second year at U Miami Law, I went to one of these fights with a south Miami Cuban club type. Electronic market exchange systems would appear to shift the “ethic” here from the integrity of transacted exchange to the efficacy of the market process.

I see it here in China. Markets are rigged though the exchange transaction appears rules-based (or fair); from a transactional standpoint, the evil of nontransparent manipulations of supply and demand result with fraudulent systematics. Government and Communist Party affiliated holdings being sold (or bled) into the market, for instance, indicates how such a bloodless system sucks the life (or money) out of 80% of those who participate — being the percent of losers in China’s stock markets.



Instead of sports, consider the physics of those consiliences that Vic has noted…

The Quantitative Relativity of markets dictates that gravitational pull (or downward drift absent causation of price action) equates to that alacrity of stadium economics. That age ole notion of “time is money” is literally realized within this calculus, whereby nonactivity costs money due to time degeneration (or depreciation when expensed).

Likewise, the phenomenon of economic announcements serves as the cause (for insider/outsider necessitated effects) by virtue of its media-worthy consonance found within political-economic cycling. Be it upon fundamentals or technicals, markets act as they are so constituted, dictated by the rules from which they are constructed and from so operate.

I wonder if one has the numbers of long versus short positions (pre/post) relative to those cross classifications of big/small rises and declines?

Such as factoring retail (retirement/pension) ratios and holdings as a condition precedent to any individual stock analysis, should one not first consider that insider/outsider ratio among market (or indexed) tiers of price support and resistance levels?

I see it here in the Chinese markets. Mom and pop are not allowed to short; as a result, the sucker money is long, whereby insider advantage focuses on short-cycling declines, big and small relative to randomness and scalability of any cited consiliences. Cannot the same be said of US-based (if not worldwide) worker-based pension fund schematics within investment banking circles — as when so ruled by Greenspan and Rubin?

If so, market incentives, as one so previously highlights, become merely the elements of formation for similar rules-based retail schematics. For instance, the post Glass-Steagall construct was an insider/outsider ruse, whereby the outsiders (or homebuyers and taxpayers a la the ensuing default and foreclosure “crisis”) financed insider (or investment banks and political parties) service charges and fees to effect wealth consolidation via derivative issuances and resales.

During my last three years of travels along a comtemporary Samarcand Road, whereby, from Wuhan among Hubei to Shenzhen to Hong Kong to Macau to Beijing among Henan to Shandon and Shanghai to Yangzhou to here, Hangzhou, one may arrive, an hour away from the market facades of Shanghaiese Communists, to ponder the pooling reflections of China’s famous West Lake. As with the terrain darkness of China’s stock markets ranking last among some 176 countries by year-end 2008, silk-stained strands of like-kind (top-down) political economics seemly appear crocheted into and expanding globalized fabric, one born of and so worn by tribes of self-appointed monetary kings, who themselves appear to have no clothes, but are only so fashioned, neither of doctrine or principle, merely hooked along an intra-governmental pattern connecting treasuries as pillars with the daily speculations of a market’s posts.



 Nobody asked me, but which recent Wimbledon champion had his role in default due to mother and daughter sanitized to win because of injury in a recent obit?

As usual the bond vigilantes are close to causing a double dip, and a well deserved one at that, in the economy.

The US long bond and German Bund now both at 120 1/3 move together like love and marriage despite their differences in everything, like the S&P and Nikkei now close to the magic 1000 but still flirting with the mid 900s.

Longwood Gardens has the most fun children's garden in the world and had lines of 50 cars waiting to get into their 1500 car parking lot.

There are entire blocks of seaport communities wherever I look vacant before the boom season of summer auguring badly for the state of recreation.

A store offers 10% off to those ripped off by Madoff and another one out of business offers prices reduced by 70% in line with the cold weather of February.

The discount stores continue to do very well with all the Bob Evans and Applebees I went to with big lines outside. Thus the price mechanism works well with high priced items showing much reduced demand and low priced items increasing in line with Walmart and McDonalds performing better than Tiffany's .

The price to weight ratio pioneered by Roger Longman is a better indicator of abnormal, exceptional business than return on equity. The correlation between the price to weight ratio and subsequent return is highly negative during recessions.

The economy would have been in much better shape right now without the interventions than with them. The evidence that bank failures were highly correlated with reductions in output is due mainly to the output's causing the failure rather than the bank failures' causing the output declines.

The fears of crony capitalism that Albert Jay Nock wrote about vis a vis the Secretary of the Interior's being the most important person in the government that everyone wanted to glad hand as he twirled around like a teetotum not being able to sing the last lines of Marching Through Georgia are so resonant with the crony capitalism that is so common in Russia, the old Germany, and places and times so much closer.

Alan Millhone writes in:

Speaking of one of favorite restaurants, I took my mother to the Parkersburg Route 50 Bob Evans today for the last time as it closed for good today at 4 PM. Very unusual for any Bob Evans to ever close as new ones open all the time in America. A good book is out about the life of Bob Evans who began as a short order cook at his roadside cafe in Gallipolis, Ohio years ago. He and his wife lived on a farm in Rio Grande, Ohio and he passed away not that long ago. He gave away much of his wealth to a variety of good causes. It was sad to see today one of his namesakes close. All the workers there knew our names and we knew theirs. We will miss going there.

Jim Sogi comments:

J SogiLook at some past excesses that in hindsight seem so obvious, but at the time seemed, well, kind of high. Real estate of course seemed kind of high, but it wasn't clear the effect of the fallout on credit and bonds. The dot com bubble of course seemed high, but the fall out was bad tho contained. The premature bailout caused the real estate boom. The high teen bond yield in the 80s was outlying. Looking around now, what seems, 'kind of high'? Government spending/debt is the obvious answer. Just as crashing real estate wasn't really comprehensible, government itself crashing isn't comprehensible to many. But look at the Palindrome, the Distinguished Prof, at Russia, at Iraq, at Sarajevo, Japan, Germany, all governments that fell rapidly in recent memory. It's not so farfetched. States and municipalities are stretched. The Feds are painting themselves into a corner. The boomers are getting old. I shudder to think of the downside. To protect yourself, you have to think of the downside. What if?

 Douglas Roberts Dimick comments:

Why Nobody Did…

All the time that Greenspan and clan where being hurrahed, I wondered about the Bob Evans and Big Mac folks.

It seemed he was fixated on the eminence of real estate and stock portfolio managers and their giants of ownership, allowing them to feast and fatten on the depositories of working people post Glass-Steagall.

Meanwhile, Greenspan’s so favored and their legions of bean counters and suits figured new ways to lean out related entitlements and private sector employee benefits.

This article’s taking to task the recent interventions appears well founded in that context of price to weight ratio. Though valid in ideal and policy, two-party, two-administration applications may be collectively recorded as the epitome of the saying that we use to spout out in the Army… “Good enough for government work.”

Therewith, the legalized corruption of the US federal (and some state) electoral processes came to roost.

The question to be answered now: as a society and as a voting electorate, have Americans become too blind (or perhaps jaded or merely reduced in common sense quotient) to see above those well manicured bank and financial hedges, now only pillared a la government bailouts when not political party sellouts?

Will we seek out those who now hide behind well-trimmed bush, so appropriately labeled “crony capitalists” as they are now seen, as the tide continues to ebb outward, to be not only financially and morally naked but quite two-faced about the role(s) of government in business and society?

The time to smell the roses is past. Time to spread their manure and plant our new, hopeful hybrid-seeds for individual and collective wealth generation.

Derrick Humbert writes:

When in the Atlanta area I strongly recommend Callaway Gardens, located 50 mi southwest of Atlanta and 60 miles from Auburn Al. It has so much to offer from PGA golf, to world class bass fishing to butterfly exhibit to herb garden seen on PBS to a Christmas display.

I visited it some years back and the view is absolutely breathtaking. I suggest if you plan on lodging you get a cabin for the week and a restaurant package as there are no real restaurants in the area. Plan ahead as cabin availability is severely limited for the summer.

Nearby is the winter home of FDR, who came for the warm springs to help with his polio.

Much to offer here and the place in not affiliated with the golf company Callaway.



 When first reading an article on the upcoming SEC hosted short selling round table series, I considered how the Iquitos female/male birthright ratio analysis smacks of a similar (or parallel) rules-based phenomenon.

The article provides a PDF link to a recent Credit Suisse report, highlighting that “according to Credit Suisse’s data, a 10 percent circuit breaker would have been triggered 26.6 times per day for Standard & Poor’s 500 stocks last September, and 80.4 times per day in October. In November and December, it would have triggered 48.8 and 25.0 times per day, respectively. That compares to the first eight months of 2008 when the average number of times per day that an S&P 500 stock dropped 10 percent ranged from 0.8 to 7.7.”

The Theory of Quantitative Relativity (or QR) indicates that, in both instances (the Peru local’s skewed birth right and SEC shortselling regulatory regime), there are rules-based ecologies currently effecting (or causing what some observers argue to be) those cited systemic anomalies.

Is low blood sugar a deviation, in that the relative norm may represent higher ratio’s, thereby sustaining nominal birthright trending? Or have ecological considerations within the eco-system itself altered the quantifiable balance of related (human procreation) indictors and functions?

Does naked shortselling constitute market trending or become merely implicative of relative space and time reporting of market deviations, so generated by systemic imbalances that result from ecological assimilations of exchange standards and procedures by public and private actors?

In both instances, there appears to be a focus on quantifying input that may or may not have a metacircular correlation with the highlighted result (be it birthright or long/short ratio). Determinative, however, would be to understand the conditions precedent for the numeric outcomes… for instance…

“In his panel comments, Direct Edge’s O’Brien also discussed the circuit breakers in the SEC’s proposal. He noted that in the market turmoil since last fall, stocks have risen and fallen by 10 percent frequently. That means, he said, a circuit breaker could be triggered often, leading to potential changes in trading behavior in stocks that decline significantly.”

This citation of rules-based correlations resulting with state-input-output assimilation may be considered the basis for understanding how program trading and portfolio management systems operate within any give electronic exchange market of financial instruments.

Is the issue that only one male is birthed for every seven females? What of the impending social and economic correlations resulting from that assimilating demographic? For instance, would males from other towns (passively or actively) relocate? What governmental action may result from this systemic condition, and what governmental action may have caused it?

QR states that a determinative consideration here is that rules-based constructs (e.g., social order or market exchange) are relative to ecological trending from the standpoint that lines enter spaces that constitute parametric (or geometric) correlations. Such nonlinear correlations are the product(s) of either selective rules (e.g., laws of supply and demand within an agri-economic artifice or circuit-breaker regulation governing stock market exchanges) or the construct itself, such as the Peruvian governing authority or the SEC.

To merely conduct statistical modeling that determines cause and effect without outcome orientation – of those (at least primary) conditions precedent central to the ecological – is a failure to assimilate correlations that are ecological, therefore outcome determinative. Linear projections, so based on quantification of discrete data sets, become operatives of state-input-output functioning.

In that divergence of linear trending thereby is determinative for risk management (and mitigation a la hedging), those spatial (parametric, geometric) domains thereby define randomness and knowledge of the very conditions precedent that affect (if not effect) both preceding and subsequent linear outcomes. Thus, in the design of state machine logic, one concludes that state-input-state functioning (or state transition) is the metacircular outcome for quantifying any given numeric hierarchy of a given ecology.

Rules and numbers: when does the servant become the master?



BaseOne of Tom Wiswell's favorite things to say was "make sure you have a strong base of operations." I find this true in all aspects of life. In the market, it would involve the preparation for the investment or speculation. Certainly having all the equipment and getting in on time. And having the proper capital and vig relations. Certainly not being distracted. Tom liked to say afterwards "checkers is a game of architecture." The importance of a proper foundation in a building, a proper base relative to the tower, and proper communication between the various departments of the building is also clear. I have been thinking of this subject in conjunction with a note I am going to send to Aubrey on his third birthday. It is important to have a good base of operations in whatever you do. Always prepare in advance. Don't rush. Plan what you're going to do. Don't act in haste. Make sure you take in the proper foods. That you get a proper sleep. That you don't run around too much distracting yourself from the important essential goals to survive and prosper. Have a proper financial foundation. Be prepared for adversity. Put things aside in case things don't go as planned. Move forward when healthy. Develop your talents. Get proper mentors.

The thought leads me to suggest something controversial. I am a very weak chess player and my thoughts on it must be taken with many grains of salt. However, i took lessons from Art Bisguier for about 20 years, and I have seen Adam Robinson and Dr. Vic play many games as well as watched many games in Brighton Beach where they played every day. I think from my observations that checkers provides many more life lessons than chess because the rules are less specialized. Moving forward or backward, except when a opposing man is in front of you where you jump, is a very binary kind of thing from which all kinds of ultimate outcomes arise including its proximity to computers, electrical relays, and logic circuits which are also on/off or 0/1 systems. Thus, I would recommend  checkers as more helpful to kids as a game to prepare for life than chess.

Nigel Davies comments: 

I've found myself that the number of rules in chess has diminished with my level of understanding, and I tentatively suggest that this might be applied to all fields.

Douglas Roberts Dimick adds: 

The Art of War, Sun Tzu

Chapter 1 — Laying Plans explores the five key elements that define a successful outcome (the Way, seasons, terrain, leadership, and management). By thinking, assessing and comparing these points you can calculate a victory, deviation from them will ensure failure. Remember that war is a very grave matter of state.

As for state, so to for money…

All battles are won before they are fought.

Anatoly Veltman comments:

 I can speak from personal experience: Aubrey's received an essential for a 3 y.o. memo!

My parents handed me over to a personal checkers coach when I was 5, and I was taught basic framework. Master trainer in charge of Odessa Women's Team took over - within the next year, I've traveled the Soviet Union (without parents) as part of the Women's Team. My paradise ended when other teams filed protest over "unfair advantage". I proceeded to score enough wins in Men's tournaments to qualify for "Master of Sports" title by 12 - youngest in Soviet history of any sport. They exempted me from statutory "age 13" requirement, when I've scored double the required points… And curiously: I was not a "natural". Topping eventually over a million registered competitors in my sport for three straight years in Play-off finals - admittedly, I never felt as the gifted one. For instance: the blind-folded record on 100-square board was 10 simultaneous; but I could never complete more than 2-3 games at a time.

What gave me edge over competition was iron discipline and preparation. At 6, they taught me to sit straight and down-the-middle. At 10, they trained my peripheral vision, so I could gaze the entire 100-square board and successfully transition from the 64-square game. Consequently, I could count 30 moves ahead on 100-square board, without touching the pieces. My coach kept me away from alcohol, smoking and all-night bridge sessions. In course of Round-Robin, I'd review each opponent's favorite openings, prepare surprise divergence and win on time-clock alone. Others in my age category often felt defeated, just taking a sit in front of me. My first trades happened to be in Comex gold, and it surprised me how many of "big punters" were totally oblivious to basic idiosyncrasies. It took me only a couple of 50-lot orders, which remained "unable-on-10" - to figure out that physical arbitrageurs were seeking out 40-lot = 10 400oz bars! It took me a forfeit of a million-dollar unrealized profit in Silver on April 27, 1987 to figure out that Comex notice/delivery rules were skewed in favor of Shorts (over the next two years, I made a client $5m profit based on this quirk alone)… It always amazed me that even largest speculative funds neglected 80-lot Yen futures increments = exactly a billion yen; and worst of all neglected two-banking-day settlement duration. That translated into significant Yen and Gold carry on Wednesday evenings year-round (and a real kicker in front of long weekends and numerous Japan holidays!) Since Nov 1997 split, trading 4 or 40-lot bigSP makes much more sense given new $25/point denomination than 5 or 50; but 90% of the participants neglect that too… Dark pools and market-maker wigs have been a "wet dream" of high-frequency trading outfits for years, translating into billions of nearly risk-free profits for them. Yet, schools and teams of "stock day-traders" continue entering the industry in record numbers to this day…



In Iquitos, Peru , the female to male birthrate is 7 to 1 but no one has been able to figure out why. Meals are a buck, hotel 4-, internet .60 per hour, a porcelain crown 100-, and i just took a two hr. private taxi tour for 10-. Twenty interesting resident gringo expats, and the tourists are starting to pour in with the onset of dry season. However, i´m jumping a boat to Brazil and refusing all invitations from cannibals to dinner.

 Douglas Dimick comments:

Rules-Based Relativity of Ecological Numeric Hierarchies

When first reading an article on the upcoming SEC hosted short selling round table series, one may consider how the Inquitos female/male birthright ratio analysis smacks of a similar (or parallel) rules-based phenomenon.


The article provides a PDF link to a recent Credit Suisse report, highlighting that…

“According to Credit Suisse’s data, a 10 percent circuit breaker would have been triggered 26.6 times per day for Standard & Poor’s 500 stocks last September, and 80.4 times per day in October. In November and December, it would have triggered 48.8 and 25.0 times per day, respectively. That compares to the first eight months of 2008 when the average number of times per day that an S&P 500 stock dropped 10 percent ranged from 0.8 to 7.7.”

The Theory of Quantitative Relativity (or QR) indicates that, in both instances (the Peru local’s skewed birth right and SEC shortselling regulatory regime), there are rules-based ecologies currently effecting (or causing what some observers argue to be) those cited systemic anomalies.

Is low blood sugar a deviation, in that the relative norm may represent higher ratio’s, thereby sustaining nominal birthright trending? Or have ecological considerations within the eco-system itself altered the quantifiable balance of related (human procreation) indictors and functions?

Does naked shortselling constitute market trending or become merely implicative of relative space and time reporting of market deviations, so generated by systemic imbalances that result from ecological assimilations of exchange standards and procedures by public and private actors?

In both instances, there appears to be a focus on quantifying input that may or may not have a metacircular correlation with the highlighted result (be it birthright or long/short ratio). Determinative, however, would be to understand the conditions precedent for the numeric outcomes… for instance…

“In his panel comments, Direct Edge’s O’Brien also discussed the circuit breakers in the SEC’s proposal. He noted that in the market turmoil since last fall, stocks have risen and fallen by 10 percent frequently. That means, he said, a circuit breaker could be triggered often, leading to potential changes in trading behavior in stocks that decline significantly.”

This citation of rules-based correlations resulting with state-input-output assimilation may be considered the basis for understanding how program trading and portfolio management systems operate within any give electronic exchange market of financial instruments.

Is the issue that only one male is birthed for every seven females? What of the impending social and economic correlations resulting from that assimilating demographic? For instance, would males from other towns (passively or actively) relocate? What governmental action may result from this systemic condition, and what governmental action may have caused it?

QR states that a determinative consideration here is that rules-based constructs (e.g., social order or market exchange) are relative to ecological trending from the standpoint that lines enter spaces that constitute parametric (or geometric) correlations. Such nonlinear correlations are the product(s) of either selective rules (e.g., laws of supply and demand within an agri-economic artifice or circuit-breaker regulation governing stock market exchanges) or the construct itself, such as the Peruvian governing authority or the SEC.

To merely conduct statistical modeling that determines cause and effect without outcome orientation – of those (at least primary) conditions precedent central to the ecological – is a failure to assimilate correlations that are ecological, therefore outcome determinative. Linear projections, so based on quantification of discrete data sets, become operatives of state-input-output functioning.

In that divergence of linear trending thereby is determinative for risk management (and mitigation a la hedging), those spatial (parametric, geometric) domains thereby define randomness and knowledge of the very conditions precedent that affect (if not effect) both preceding and subsequent linear outcomes. Thus, in the design of state machine logic, one concludes that state-input-state functioning (or state transition) is the metacircular outcome for quantifying any given numeric hierarchy of a given ecology.

Rules and numbers: when does the servant become the master?



I am submitting a chart based on my coding that indicates (SMART) systemic processing of Jim's linear observation.

The plotting assimilates high and low lines relative to intraday correlation of 3 minute intervals during regular sessions of MSFT.

Recalibration of each day resets the correlations; however, interval variation allows this same schematic to process 24 hour (Forex) as well as day, week, month, year correlations. Also see how relative high and low noise is related to (what we may term here as) secondary levels of price floor and ceiling correlations.

The key appears to be closed loop processing to distinguish between irrelevant noise of the simulated price action occurring between (dark green/red) ranging and trigonometric variation and the actual (green/red) market changes occurring during the given session. In effect, a uniform domain (or state) is thereby created to account for randomness.

I presume… that the "simulation to show whether such lines are more frequent with the simulation from actual changes than the actual market itself" so concerns noise in relation to frequency?



 I wonder if electronic interface and interaction within and among our economic, political, and social realms of globalization merely permits a greater (prism-like) spectrum of ingenuity and imagination during the course of individual and collective endeavors.

Case in point:

Madoff victims say jail a good start Submitted By The Associated Press Submitted on Friday, Mar. 13 at 10:37 am

BANGOR — A Bangor area couple who lost their life savings to Wall Street swindler Bernard Madoff say his being jailed Thursday was more justice than they expected, but far from enough.

Marcia Ellis says she and her husband, Martin, lost their savings in Madoff’s fraudulent Ponzi scheme that cheated investors out of at least $65 billion.

The 70-year-old Madoff was jailed Thursday in New York after pleading guilty on 11 counts. He faces up to 150 years in prison at his sentencing in June.

With their savings wiped out, Marcia Ellis is going back to school in preparation for a possible retirement job. Her husband just took a test to be a U.S. Census worker. She says she might go to New York to watch Madoff’s sentencing for “emotional closure.”

From a forensic analysis, it may be said that a primary distinction between Madoff and Ponzi is electronics.

The pain for this couple in the article may be as real as had Madoff physically stole their savings. The issue becomes the facility by which electronic mediums alter standards and practices, for example, whereby exemplar or illicit activity is enabled or condoned.

Be it Nintendo or snowball fights, positioning is elemental if not determinative. Madoff was playing a game too – he often called it “one big turf war.”

A reported scrapper from the onset of his career on the Street, Madoff came to appreciate position. Thus, for “setting up” his Ponzi scheme, he knew how to segregate his illegal and legal activities as well as overlay and parlay both to minimize risk and maximize value in his operations.

Was the rather “to good to be true” halo above Madoff so digitally enhanced that investors like The Ellis’s allowed their greed to intercede or precede the observance of standard investment protocols?

We all are taught to “never put all your eggs in one basket” while growing up. Victor reminded me of it in his first email to me.

The Ellis’s too thought that they were playing a game of position. They had a “good thing” as their investment with Madoff was selective, not available to most of us in society. Madoff was exclusive. One had to know someone, right?

People like the Ellis’s where, simply put, out-positioned by allowing their greed for “abnormal” investment profits to dictate deviation from industry standards and practices found in any accountant’s or attorney’s due diligence list.

Madoff knew that, and he “played” it. Compared to the first-to-third tier houses’ standard churn and burn, illegal shorting, and insider-outsider ploys constituting many a firm’s daily practices, perhaps, among those players, it would be said that BM “got game.”

If you read his five page allocution letter, what is most ingenious is the simplicity of his constructed nexus between the physical and electronic worlds. I saw statements from Madoff’s trading operations during the winter of 2006. He electronically papered his scheme successfully because of his expertise and his firms’ positioning. In sports, the winning combination, yes?

Perhaps younger generations, because they are playing Nintendo instead of having snowball fights, will be more attuned, more competent within our ever globalizing world of electronic exchange markets?

Certainly, on this fine day after Madoff’s slide into his new digs, one may so hope.



 Cowboys and westerns — is there this illusion as to the romance of the markets, a sense of individuality or lawlessness (e.g., Madoff et al)?

I wonder, as if in the "Wild, Wild, West" there were real consequences to our posts and comments on westerns, such as criticizing the government or a corporation. Case in point

Item: Famous Writer Stabbed in Beijing

When it flames, it pours. First, an architectural pride of the city is engulfed in a state of flames, then ProState in Flames, a famous Chinese blogger (real name: Xu Lai), is stabbed in a bathroom.

Xu’s anti-establishment blog, which has been shut down and moved several times in the past few months, often touched on very sensitive issues, including censorship, the melamine scandal and last week’s fire. At 4pm on Saturday afternoon, Xu was talking about his new book, Fanciful Creatures, at One Way Street Library in Wanda Plaza.

He was forced into the men’s bathroom by two attackers, one of whom was wielding a kitchen knife and preparing to cut off Xu’s hand while the other stabbed him once in the stomach.

After the attack, as the two men fled the scene, a blogger reports he heard one of the men say, “You brought this on yourself. You know why we’re doing this don’t you?” Bystanders chased the men, and while they escaped, photos of the pair were obtained on cell phones and presumably on the CCTV camera in the building, and it is expected they will be caught soon.

Xu is in stable condition, but the attack raises a red flag on the danger of dissent, not from authorities, but from strong minded fellow citizens.

For more, see reports from The New York Times, Danwei.org, and BlackandWhiteCat.org.



 I should know something about the relation between Merrill and BAC because I have much experience in sports and mergers, but I just am amazed about how much I don't know. Some isolated facts stand out. Apparently Lewis caught the previous BAC's eye because of his dashing characteristics on the softball field of Central Park where in a game, his hard slides helped them beat Citi even though Citi was much bigger. Okay, does playing an aggressive game really qualify one to move up the ladder these days? Apparently it does because the Lehman chief was known for saying to Thain, "He'd cut his heart out if he learned that rumors about L's being in trouble were being spread. And he also liked to beat out opposing fathers or coaches at Little League games if they tried to bully fathers on his side and he was well known for the look in his eyes that scared you in the executive suite and the squash court. It's right out of How to Succeed in Business and I wonder if it's still grounds for demotion if you act sassy with the boss's girlfriend, and whether you still have to sing the college song or take up knitting as a hobby if the boss is into it to get ahead.  

Now on the merger, this is known. The agreement on the deal was announced September 14th at 29 a share in stock for 42 billion. BAC at 34 on sep 22. Deal approved by Merrill shareholders on Dec 5 when stock at 15 and closed on Dec 31 when BAC closed at 14. By Jan 19, BAC was 5. So Merrill shareholders only received 15 billion or 7 billion at most. Merrill had a book value of 37 billion at year end 2007 and lost 27 billion "after" in 2008 bringing book down to 10. They started year with 41 billion in cash and 1 trillion in total assets. Merrrill lost 15 billion in Dec. Thain said he told BAC about the losses when he learned about them. He was acting as CEO and Chief of Trading for the combined entities through the period. He said that the Merrill bonuses were paid in the normal course with BAC approval. The Fed agreed to invest 20 billion in BAC and guarantee 118 billion in assets when the loss was announced. the questions all relate to the timing. How does it happen that a CEO does not know about the losses in his operation, during a period, especially when a merger is being voted on until a few days after the end of the period. Same with respect to bonuses being paid. From what I know about mergers, it's not surprising that both companies wished to merge. Companies like to sell when the lighting is about to strike and pickets are surrounding their factories. Buyers are much more reluctant to pay cash than stock when their business is going well.

Presumably this was a Brer Rabbit and Brer Bear case where both buyer and seller were so reluctant to be thrown into the briar patch that they both needed exhortation from a third party to go through with it. Presumably this had something to do with the additional 20 billion invested on 1/16 by the third party and the 100 billion guarantees. But my questions remain. How could a head man now know about the losses in a fourth quarter until Jan 16 and how could he not have disclosed these earlier to his acquiring company? How could they all have independently bought stocks at 6 a share on Jan 22, including T and l just a few days after the loss was announced, and one day before T was asked to leave? I read that the third party had to come up with the 20 billion and 100 billion because otherwise BAC would have backed out of the deal but how could they do so after the deal had been approved by their stockholders? Were their comparable bad things that each party did not disclose to the others when the stock to stock deal was agreed to? What's the back story here about when T was asked to leave and did it have anything to do with the 1.2 office renovation or more about the failure to disclose the extent of the loss before the stockholders vote, and the executive bonuses were paid out? How does the request by Thain for a bonus for himself of 5 million which was apparently rejected by the directors fit into the puzzle and where were the directors vis a vis disclosure of the losses to all parties in the time line of the agreement the vote and the closing?

I am a babe in arms about this and wish to be clarified so I won't be so naive again after having spent so much time in aggressive sports competition and putting together mergers.

Douglas Dimick writes:

For team sports, I pitched and played firstbase and leftfield in little league for two years, then baseball and basketball in junior high. For high school, though, I spent my winters competing individually at a private ski racing academy in NH.

I worked for four years in the world’s largest law firm (The JAGC) as a legal specialist in the US Army. Then after law school, though, I worked as a trustee for my parents.

While at Georgetown studying literature, I did a consulting job for a beltway firm that provided anti-terrorist training to the State Department. The owner told me: “Son, if you have to compete, you are in the wrong business.”

This man appeared to me to assume responsibility as SOP. He took ownership, initiative to lead on a deal, the business, an issue at hand. If something went wrong, he was the first to step up.

I worked with another man, who had been a key person during the go-go years at Reliance, who was recently barred from the markets as a settlement with the SEC. For him, it appeared to me that he operated from a centricity of ego, from which he would apportion responsibility and blame upon others. I found his style of leadership to be more about avoiding responsibility than accepting it.

Then there is evolution. I understand that V has a collection of seashells – symbolizing spiraling of life, markets, human endeavors, often so traded and reduced to currency?

During R&D of Quantitative Relativity, I studied spiraling (a la Fibonacci) concerning market indicators and function integration. Is the spiral a result of competition, the output of (non)correlated forces struggling for gain (and loss)? Are circling “patterns” (not as an output or state but as a geometric representation) exchange-like flows of the resulting order(s) from a given chaotic condition or event?

Relative to disclosure of losses and bonus issues as so posed in the article, perhaps these matters are merely a continuation of the same dynamics (or energy patterns) spiraling from years of exchanges (or transactions) that have lead markets to their levels of today?

I have found that, when humans compete, rules-based systems are so observed only to the degree that there is (natural or artificial) enforcement. When a runner is at first base and lurching out with thoughts of “stealing” second, the only regulation is governed from the pitcher’s corner eye.

Could we expect anything more (or less) of BAC, Merrill, and their angling minions?

I read the locker-room banter-sites among deal mavens. The mentality appears symptomatic of breast-feeding on how to blindside the umpire – that’s why they require “teams” of lawyers and accountants.

Who thinks that such professional sportsmen follow the rules, regardless of when they play it hard or play it soft? Fans don’t. Why should investors — at least after now?

Here in China, where there are no rules, just party will, striking similarities may be found with the recounted gameplay tactics like “hide the losses from shareholders one day before the vote.” We then need not wait to read the newspapers – government owned or otherwise – to know how these innings end… Badly for all concerned: teams, owners, fans, and the game.

What I learned long after my dairy cow showing during Maine’s fair season was that “winning” is not just about winning. Granted, theoretically, for every trade, there is a winner and a loser.

But we know that is not necessarily true. It is a matter of perspective, as we spiral about our individual and collective ways, which we then – testing variants of humility as ego-centric creatures – externalize, thereby attempting to quantify as a cause or an effect of market timing.

With the Chinese New Year half way through its two-week celebration, I hope that we all might stop and reflect how a 4-H’er may approach the article… Consider, then…

The four “H”s target Life Skills:

•Head Planning & Organizing Problem Solving & Decision Making

•Heart Communication & Cooperation Showing Concern for Others

•Hands Community Service & Volunteering with Others

•Healthy Lifestyles Stress Management & Disease Prevention Character Education



To be part of a king’s court,
coining wealth and privilege,
both traded and hoarded,
so religiously among a few of
apparently common ilk,
only to find that their ruler,
a financial deity with no clothes,
was also without sovereign.

Poor people without such knowing,
working or without,
middle-class alike,
who struggle each and every day
for essentials in common life
remain for not…

Not retirement savings,
not winter homes and country club dues,
not chaired philanthropic, tax-generated endeavors,
not even college savings for a son or daughter.

To include others spawned of that common ilk,
perhaps religiously or not,
bootstrapped in mind and
percolating in heart,
we do set upon one’s quest…

The published rebuke by the religious leader,
who said “shame” upon the fallen crown.

Will his enshrined plutocracy pay for
mercy and forgiveness or
is shame a balance sheet rectification,
parsing subsidiary liabilities of gains once gotten,
now spent in lost hands of
the moneychangers?

From and to those…

Country club members,
luxuriated in finery and staff,
who dined upon the meats
of their steadfast, monthly returns,
served religiously,
whereupon now they find that
they feasted upon themselves.

Are they not to pay for
such banqueting,
financed by member broker-dealers,
as if not knowing of washroom etiquette,
their selections in OPM?

The hedge fund managers and their keepers,
all incestuously conspired to
marry among daughters of one
to the sons of countries, a many.

Must they not be divorced as
a contemporary feudalism,
ashened from their own churn and
burning, if you will,
the nouveau-riche?

The US Senator
defending both ways and means for
no one but
a herd,
the animal farm –
as “no” we may say, not an industry –
by his office,
a republic for those pillars:
alas, now to be tax deductible,
so stolen from the countries allured,
for the sake of one city, one state,
a fleeced electorate.

Is he and his gang,
campaign financing schemers
so ensconced,
not of an order
to be tried and hanged?

Government minions
all the same,
thee attorney general,
thee commission governor
with juris doctorates,
accounting certifications
that scribe opinions and reports
for crown et al,
as if in the employ of
his majesty’s court.

Are they to be beheaded or gutted,
publishers of proclamations and
bidding for their king,

The sons,
so red-light legit,
whose market-marking slights of hand
prospered by the right of the father’s left gains,
a tally rectified during a single confession.

Are they to be stripped for remaining children,
instead of being men,
while before their father’s throne?

Portend as well those,
who bailout in realignment,
to avoid self-confessed fallout,
now continue after dusk
to hide in the night of
those perpetuating lies.

Thus who aspires
“empathizing” for the “lost”
of what was not gained,
merely speculated with
a strict collector
quantifying what only was
self-elusive acts of treason,
which from Napoleonic adventures,
we know to be merely
a matter of dates?

No, good sir,
your query is misplaced,
as was their pockets.

Trust is the coin of the realm,
not consistent returns –
ill-gotten or otherwise.



 On a best efforts basis, remove morality and legality from the analysis, then correlate the architecture, conducting, and harmony of the work in terms of its enduring production, and we may arrive at a single word following the viewing of Pitt’s cited video performance of Madoff –- Maestro.

Three years ago, some four months before coming to China, I was “brought in” by a former high-frequency trader ($350m per annum) – he was like a brother, whom I have known now some 15 years. He was angling to “get in” with this guy in New York who was providing consistent, annual high returns. Perhaps he would set up a clearing operation with the big guy’s firm, whereupon then he could schmooze a book of business?

My friend’s father had the guy managing his money. Home in Westchester… Winter residence at Palm Beach Polo Club… A golf family… Great people…

I look back on my conversations with father and son about Madoff – his name was never mentioned to me. I think the Peak-End Rule was then flashing like a stoplight at a poorly lit, inner-city intersection of New Haven on a rainy, black of black nights, when only the after-hours joints are still trading; it was flashing as starkly as the red flags were streaming, fender mounted among industry vocals, including those notifying clients, the press, and the SEC that “Something’s Afoot” and the butler didn’t do it – yes, it almost has that Broadway pizzazz, don’t cha think(?)…

But enough, though, of the harmonic convergences… for then there is the missing 6:10 minute encapsulation in the video

A ground shattering divergence at a level nearing the missing 18:5 minutes?

(see watergate)

Mark the time from 19:15 to 25:25 of Pitt T. Maner’s cited video… Josh explains the architectural alignment of greed and fear as correlated in the “fundamental quant models” so driving electronic market exchange systems.

Herd mentality: in seven years of research and development, I could swear that it was the cause and effect, but its recording appeared erased. Alas, Josh so testifies.

To those who dismiss the psychotic patterning of “the markets,” listen to the 6.10 minutes. Note the repetition of words “herd” and “animals” to describe funds buying “cheap” stocks and selling “expensive” stocks as “bets.”

Question: what is the relative basis for those quant generated characterizations of valuation?

As Josh notes, in the August event, what appeared uncorrelated either actually was or became so assimilated, whereby correlation was a de facto quantification in of itself from a program trading perspective.

Was that market occurrence a 25 Standard Deviation event?

How do we quantify these variables of correlation, deviation, particularly given the multi-tiered concentration(s)?

Is the video’s audience participant’s (low-high pressure system) weather analogy indicative?

Victor’s opening (December 10) post on Peak-End reports twice the variability of lowest compared to highest peaks. Consider Josh’s discussion of the periods of “time” corresponding to the building up of positions a la greed contrasted by the fear-struck collapsing of positions – note his use of “pain.”

I am the 1974 4-H Dairy Champion of Cumberland County, Maine. The cow’s name was Beth.

That said, be it large animals (the fund type) or dairy cows, when herding out to pasture or into the barn for milking, relativity of speed and variability of direction is as determinative (if not more so) than size of the herd.

Thus, we may now see how “quantitative relativity” is what the program trading and portfolio management industry has been missing since quant-algo fashion became sexy.

When, may we ask? Oh, right around the time Madoff was ramping up. Henceforth, the need for firms big and small to retool their fundamental programs accordingly is unto itself the primary rationale for a rules-based paradigm shift.

We did not need Mr. Madoff’s confessional to tell us so. Still, those at the SEC may come to recognize his crime(s) in the hopes to prevent a repetition…

He was a maestro because he understood relativity of positioning. He knew where to place his firm, being a gatekeeper as a marketmaker first, a hedge fund second, whereby the former “enabled” – see prior article’s AA clinical reference of – the latter to lie, cheat, and steal at intoxicated levels of leveraging.

Then again, position is relative and not just among the herd. Two often volume is confused for mass.

The email response from my former trader (forever friend) in Florida… yes we lost everything my father is taking it real bad worried about him.

Granted, a single cell organism within a corpus of complex organs, but the nature of markets – and why there is that “hand” thing going on – is because where there was one, there can become two… and three… then four… and so on until a market is made, perhaps then only to be lost (or conceded upon confession) by a correlating inversion of that very same process.

Herding much of anything is a process, one may note…therefore, laws of relativity become front and center (for managing a herd), determinative of any calculation, formulation, even estimation, thereby necessitating rules-based quantification…

Like the once young farmboy, sitting atop the posted end of a funneling fenceline, counting heads in preparation to close the gate upon all passing through, not to forget the rustlers themselves… Here, in the case to be before the court, swinging it shut, were two market-making sons – whereby we can only mitigate that moment of cognition, as he enables them to turn him in…



 Relative to most of you, I do not know much about trading. My work during the past seven years learning how to design and engineer a program trading system has been in stead course not to trade (in a trading sense).

That said, during book research these past two years here in China, I recall one particular, personal tour by the manager of a sixth nationally ranked securities firm’s branch office.

Working our way to central ops, we finally arrive at the trading room.

When introduced to the head trader, I asked him why he was successful. I noticed most screens in China displayed variations of MACD.

1.3 billion people (or maybe .4 or .5 or .6, as no one seems really sure, as I guess there are too many to keep track), represent the “potential” largest world’s financial services and investment market. Still, today, the giant paper wealth generator here appears to ebb and flow along this one, rather dated indicator.

Aha, I notice the firm’s star trader has Bollinger Bands on display. Is this the secret to his success, I press?

With his boss, my friend, peering across, he sort of shuffled in his chair, looked down – Chinese here seem to do that a lot — and mumbled about the government.

When we head back down the hallway to the office, I asked “what the heck” was that guy talking about?

I was told that he said “supply and demand.” OOOKaaay… and so…

Privatization a la Red Chinese Corporate Buffet means that the government sells one third to some trusted party member(s), retains one third, and sells as little as possible of the balance to create enough interest… so they (party and government) can then go and dump stock (reportedly at times against proscribed rules) once prices rise.

Who’s money are they taking? I read news here of a national study that reported 80% of Chinese market investors lose money, so I guess “who” would be all the little people with big dreams (and foreign dopes).

Translated and processed regarding our head trader? Perhaps he has inside info with government minions?

Who knows? Who cares… the system is a parlor game. You know this when you walk in the door.

How? As an American, relatively speaking, I find that Chinese securities firm branch offices present a Feng Shui blend of bus station and race track décor and ambiance. Enough said – though, also note a hint of Italian bordello-ish-ness.

This last impression must be a Chinese subtlety for reminding one that lawyers are of no use here – they don’t seem to be very welcome throughout China, come to think of it.

That’s odd… I am noticing reams of HR listings for lawyers needed in China.

Note to self: what is mortality rate of foreign lawyers here?

The central government must have numbers on this… notice how quickly they get out key economic reports for worldwide consumption… almost like tomorrow’s news today… You don’t think they are…?

Alternatively… back to the foreign lawyers, Bleak House (Revisited)? The China version (or syndrome)?

I SHARE ALL THIS but I cannot say how it might relate to girls and boxing. Love that title though — smart guy…

I only comment that we might keep in mind our star, head trader’s cloaked wisdom (“supply and demand”) with regards to redemptions and recognition (not just realization) of subsidiary insolvent banking channels yet to drop onto one of many Florida-ballot-chad-like balance sheets.

Perhaps markets and traders have insights that “enable” (an AA clinical term, ahem…) all that detail stuff… many certainly seem to have done so swapping back and forth derivatives.

Hmm, let’s see, we bought it today for $52.50… must be worth $54 tomorrow… Just look at the real estate market. Right, that’s the ticket…

Hey, as long as I am getting mine, who cares — heard and saw a lot of that thinking during recent years as well.

Kind of like musical chairs, right up to the point where the leasing company shows up to take the chairs back… and the piano… and the karaoke machine… and the espresso maker… and the Warhol… and, well, just take it…

Not sure if this is any consolation, but I know a guy who has been in the securities markets for 30 years, tour in Nam, went to lot better schools than me… He says the support level is around 7500; if that breaks, 5500.

Can we watch the boxing match now?


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