Daniel Grossman writes:

As a major user of Vanguard brokerage for many years, I find their newly-introduced Buy/Sell Page (for entering trades) clumsy, slow and inefficient — what computer programmers might refer to as kludgy or klutzy.

Talking to the person at Vanguard running the project has convinced me that the new Buy/Sell Page has not been sensibly designed or tested, but that it is an unstoppable freight train rolling down the track to Vanguard's thirty million customers and Vanguard has no interest in reconsideration or change of any significant aspect.

Having completely failed on my own, I wonder if a group of significant Vanguard brokerage users would have more influence, for example by writing a joint letter to Vanguard's CEO Tim Buckley or by promoting a media story on the faulty Buy/Sell page (also referred to as the "ticket" or, perhaps in general, the trading platform).

If any Speclister has interest in comparing notes on this, please contact me offline at 561-278-5646 or

Bud Conrad writes:

I have used both Fidelity and Vanguard for years. I have been shocked by Vanguard's lack of sophistication on many fronts, like not charging me for cost for borrowing a stock to short, and not fully understanding some risks in shorting. Their support is weak in aids for trading and research on individual stocks. They don't allow a full complex of financial trading, outside of mutual funds and stocks. No futures, currencies. I've seen them offer more leverage on margin shorts than competition, which would seem attractive. In the early days you could only trade mutual funds, unless you opened up another separate account that they called a Brokerage Account, if you wanted to trade just regular listed stocks. Tha meant trading money between accounts that would not be required in different circumstances. For the lack of support, and other reasons I have done very little trading through them recently. I would guess in these days of "free" commissions pretty much everywhere (profits only made by relatively sophisticated order flow selling, as done by Riding Hood); I would guess they have little reason to invest in new trading platforms

I think it is part of a philosophy going back to John Bogle, of keeping costs down as identified for mutual funds. In any case, they seem surprisingly unsophisticated.

But it is not my job to fix a company's strategy or implementation. I would expect that if they don't know they have a problem they won't listen to you to say they need to develop a better interface. So the above is just to confirm that they are not trying to offer trading features, and would rather just hold Grand ma's passive mutual funds. And of course, collect money from the largest passive funds like S&P 500.



Final Prediction

September 28, 2020 | Leave a Comment

Stefan Jovanovich writes: 

On election day Trump will be behind in every battleground state by a margin of at least 4 points.  The public polling numbers will look even worse than they did in 2016.  The current raw poll data - ignore RCP et. al. - shows Trump with a 40% chance of winning - which is what he had at this time in 2016.

I am betting against those odds and predicting that Trump will win, based on two assumptions about "events": 

(1) on Saturday he will choose Barbara Lagoa as his nominee and the Democrats will do a Kavanaugh melt-down that lock down Florida and gain Trump 2-4 points in Nevada, Arizona, New Mexico and Colorado.  It may even save Cory Gardner.  If he chooses Amy (Opus Dei) Barrett, he loses.

(2) the 3rd quarter GDP and economic numbers will be a blow-out that will ease the minds of the people who still resent Trump for allowing himself to be conned into betraying the people who earn a living outside of the corporate, government and non-profit moat - the land that I now think of as Oregano world..

Daniel grossman writes: 

Thanks Stefan.

I agree, Trump will win.  Although the Dems will put a tremendous final effort into PA and the Midwest swing states, so it will be touch and go.

Lagoa is the smart political choice.  Harder to attack a Wise Latina.

Zubin Al Genubi  writes: 

Stefan, Now that he chose Barrett do you and all you other Trump supporters on this list think he will lose?  And do you continue to think this is bearish?



 Perfectionists have trouble doing things because they want everything to be perfect. It never is. They often focus in on small inconsequential details and lose sight of the bigger picture. They have trouble prioritizing and seek detail. Certain things benefit from this, but trading is not one of them.

In focusing on small details, larger macro cycles can be ignored. It's important even when studying small time frames to look at the larger cycles at work. I saw a trading idea once called "Framesync" where the trader looked for bullish signals on three different time frames to pull the trigger. I always thought that was a good idea and generally follow that thinking.

Dan Grossman writes: 

I know Jim is right that one should avoid perfectionist tendencies when buying and selling. But I must say I get great pleasure when it turns out that I have sold a stock at the highest price of the day (ie, to the exact penny), or have bought a stock at the lowest price of the day. And I admit that this psychological pleasure sometimes outweighs that of the actual dollar gain. I am curious how many other Specs experience the same.



 When it comes to education and new media, there has been no development as overwhelmingly successful and useful (and actually successfully used, in the US and around the world) as the one-person-developed and relatively low-tech Khan Academy.

Nothing from the Gates Foundation, Teach for America, Common Core, Pres Obama, Arnie Duncan, the Dept of Education, Harvard and other schools of Education, that comes within 2% of Khan Academy.

There should be a lesson there about letting things bubble up from the talents, knowledge and intelligence of 320 million Americans, rather than imposing them from the top (eg, Common Core), but I doubt many will see it.



 Bill Rafter, thanks for your interesting posts.

I think you will be interested in the attached chart showing native-born compared to immigrant gains (or lack of gains) in employment. It is the work of a perceptive fellow like yourself who tracks such comparison from gov. statistics (whose name I have for the time being misplaced) and who reports on the website.

As you can see from the chart, all net gains in US employment since Obama took office have gone to Foreign-born, while net employment of native-born Americans has not increased during this period.

In addition to being worrying in itself, this may well tie into your finding that while employment has increased, payroll taxes (and therefore wages) have decreased, presumably because of substitution of lower-paid immigrant workers for higher paid native-born workers.

As an illustration one can think of the US construction industry, which used to employ large numbers of middle income workers. Now as I understand it the industry largely employs immigrant Hispanic workers at far lower salaries. One can think of a number of other industry examples.

Gary Rogan writes:

In traditional economic terms substituting cheap foreign-born labor for native-born American labor is manna from heaven: the cost of goods for everyone goes down, so what's not to like? But when those displaced workers go on disability and when they vote themselves food stamps and "free" healthcare, it's not working out so well, is it? This sounds like a Luddite-type argument, and it is, but Luddite argument are valid when the number of displaced workers reaches some critical mass. People are not copper or oil, if they are desperate they resort to desperate measures. The industrial revolution produced Marx, and it was only because the positive effects of that revolution overtook the negatives quickly enough that there wasn't a Marxist revolution in England at the time.

Stefan Jovanovich writes:

Er, no. Gary should stick to his guns on the subject of migration. The reason there was not a Marxist revolution in Britain/England in the 19th century is that people emigrated from the British Isles in sufficient numbers to populate Canada, Australia, New Zealand and double the white-skinned population of the United States. You can add to those numbers the millions of Britons who went overseas to manage/rule/work for the Empire in Africa and Asia and the Caribbean. The argument for "free trade" made by Cobden and others was that the attempts to support prices for British landowners was literally starving the "native-born" population of Britain. They were right, of course; what even they did not anticipate was that, by allowing goods to come into and out of Britain without quotas and with "honest" tariffs (ones that could not be manipulated to hold the goods hostage to official approval) the free trade produced the financial revolution that made London the center of the world's capital markets. That financial revolution and the ability of Brits to do wonderful things with maths are what sustained Britain and still do, not the industrial revolution. The best scholars are now in agreement that Britain's economic rise over the rest of the world came much earlier, before combustion-driven machinery had even begun to take hold - in the 18th and early 19th century. By 1850 and certainly by 1870 Britain's "industry" had been overwhelmed by American, French and German innovation and mechanization.



 We're all well accustomed to the closing of the National Parks, the Smithsonian, the Statue of Liberty and similar government attractions, in order to maximize the hardship of the government shutdown on schoolchildren and other innocents.

But suspending the Navy v. Air Force game seems a new height in ridiculousness. Surely the costs of the football programs have already been incurred and the ticket and other revenue from the game would have been a major financial plus to these government schools.

I see at least some game tickets were previously selling online in the $100 range. Assuming an average price less than half of this would yield a couple of million dollars from ticket revenue alone. Plus food and other concession revenues. Plus the largest of all, the schools' share of TV and other broadcast revenues.

But what better way to bring home to citizens the terrible consequences of interfering with the government's normal modus operandi?



 For anyone looking for a fun and (I believe) safe used car, for a kid or as second car for self, consider a Saab. Because discontinued by GM and parts have at times been difficult to get, used Saabs sell at very low prices.

For example, I have a 2007 9-3 wagon with leather seats, sports package and whatever. Edmunds used car prices lists at around $6,000, while equivalent Volvo would be $9 or 10,000.

My repair guy says parts are now readily available. And a Dutch sports car maker who purchased the brand is introducing a 2014 Saab model, to be sold starting in 2013. Pictures available online. I would think now that new Saabs will now be sold together with parts availability will begin to bring prices back to normal used car levels.



 This is from historian Paul Johnson's review of Black's book A Matter of Principle:

In addition to Black’s understand-able desire to set the record straight in his own case, the book has the more important public object of exposing the faults in the American judicial system, which make such a miscarriage possible. I had for some years been worried about the deterioration in the American process of criminal law, and I am gratified, and also profoundly disturbed, to find my misgivings confirmed by this account. The process of decay seems to have begun in the 1970s, but it has reached the point where it now constitutes the most radical weakness in the entire American system and one which must be addressed as a matter of urgency. The fault can be summed up in a sentence: America’s criminal courts now insist on convictions at the expense of any other consideration, above all of justice. They are more like a court martial than a civilian establishment of law. The presumption of innocence has been abandoned. . . . The assumption of guilt is sanctified in law by the grotesquely unjust plea-bargaining process, which saves the accused from total financial ruin by forcing him to plead guilty to some of the crimes with which he is charged, however innocent he or she may be. Plea-bargaining in turn leads to a multiplicity of indictments by prosecutors, which adds a judicial to the financial compulsion of the innocent to bargain. Hence the American prosecution practices are what the law calls ‘a derogation from honest service’. The US prosecution service, in heedless pursuit of convictions, does what it wants and prosecutes whoever it wishes for as long as it likes. Thus, over 90 per cent of prosecutions are successful, a higher proportion than in either Putin’s Russia or Communist China. America, as Black puts it, has become a ‘prosecut-ocracy’.



 I have followed Conrad Black and highly recommend his recent book, A Matter of Principle . The latter half of the book — on his conviction, incarceration, successful appeal to the Supreme Court, but then his re-sentencing (for one count out of some 16 dismissed or overturned) — is very compelling, and more interesting than the first half of the book, an over-detailed account of his business activities, although they seemed highly successful and convincingly non-criminal to me.

He presents a brave account (despite great pressure to apologize to the Court in order to receive a lesser sentence, he always refused to do so) and he writes with grace, humor, and a refusal to feel sorry for himself.

Very good on the nature of the US criminal justice system, the legal profession, and the alacrity with which famous friends immediately desert him or even work against him when he is charged with a crime (Henry Kissinger is prominent in this regard).

As I say, highly recommended. It's a compelling example that when the government decides it wants to convict you, it is 99% successful in being able to do so.

(The law Black was convicted under, in its latest iteration, was authored by now-VP Joe Biden. At the Supreme Court hearing, Justice Breyer — probably the justice who most upholds the government — commented that the way the law was written, probably 80% of the business executives in the US could be convicted under it.)



The Chair and the media may think Obama won the debate, but he is leaking profusely on Intrade.

And watching the (admittedly boring and annoying) debate, one saw Romney playing it safe as if he were ahead, and Obama attacking as if he were behind.

The Chair might also be interested in the unusual prominence of the Navy in the debate, but that we will leave for a separate post.



 I have a lot of friends on Wall Street who are losing their jobs and/or are concerned they will lose their jobs imminently. Most of these people are 30-50 and have financial responsibilities, wives, kids, etc. Most seem to hang on and try to find jobs but the time to find work has been growing and growing and hearing someone is out of work for 12 or more months isn't that shocking anymore. The business is shrinking. Regulation is expanding. Jobs are scarce. Qualified applicants are plentiful. Incomes are dropping. Technology is replacing the need for people. Arguing the financial industry is in a jobs depression is not that far fetched. Reports are that for every opening there are thousands of applicants.

What do you think? Will the industry rebound or is this the end of Wall Street as we have known it. How does this jobs environment compare to the 70s recession or before, were those times equally as daunting? What are alternatives for people who are forced out of the business?

David Lilienfeld writes: 

Are you sure you're not talking about the 1930s? or perhaps the 1970s? Or the 1890s? or the 1850s? (See the pattern here?) There will always be a need for financial services in a capitalistic economy. The problem these bankers are having is that given the oversupply of them (or relative lack of demand, if you prefer), and given their lack of wealth creation in the society (industry creates wealth, services create QoL), I don't see where the problem is. Financial services is overstaffed the same way retail is. 7/11s and digging graves sounds like it has more value-add. Maybe they'd like to work picking crops in central California? I understand that since the crackdown on the border took hold, the San Joaquin Valley farms are short-handed. The wages aren't great, the sun's a bitch, and occupational hazards abound, but there are jobs, and those holding them do get paid. But I grant you, it's hard to pay for a Porsche SUV on a farm-picker's wage.

Leo Jia writes: 

Perhaps I can offer some sort of soothing message.

They at least have some very good unemployment benefits.

I remember years ago (perhaps the same now) the state regulation on the unemployment benefit for all domestic people working at so-called "wholly foreign owned enterprises" (WFOE's) in China is as follows. All of one's personnel issues are registered at one of the state-owned so-called "personnel management companies". The company withholds a certain percentage from the employee's salary every month. By regulation, the unemployment benefits it offers to the employee are: 1) it first tries to find a job for the person if unemployed; 2) if no job can be found, it pays the person certain percentage of his original salary (for 3 months?); and 3) if one doesn't want to take the job it finds, then no unemployment payment. Sounds not too bad. But the key is the job it find you. It literally could be a street sweeping job, and they always find one for you. 

Dan Grossman writes:

A person knowledgeable about business (and as talented as most finance professionals seem to regard themselves) can think of a needed product or service and start his own business to provide same. I am always surprised how few do, even after many months of unemployment.

Or, instead of just "looking for a job", a person with such background and talent should think of the way he could bring new or significantly increased profits to an existing business, large or small. And then go to that business with a proposal that he be engaged (whether as an employee or at-risk contractor) to bring about those new or significantly increased profits. As a business owner, I would be very interested in such a proposal, far more interested than in "giving someone a job".



 "Roberts Switched Views to Uphold Health Care Law"

This is highly unusual, especially so soon after the decision. (Since CBS requires two sources, it must have come from two of the Justices or their clerks.)

IMHO one thing this case demonstrates is the excess power and prestige of the Supreme Court. The Justices are treated as almost rock stars by the NYTimes set. In fact, they are old and isolated in their Washington environment, with little feel for the country as a whole (they do not "ride circuit" getting around the country as the original SC Justices did) or use of modern technology by which their isolated thinking could be vetted before being imposed on 300 million of us.

Compare highly sophisticated and expert legal blogs or even the dailyspec where a decision such as Roberts' (relying on a tax argument that legal experts have been able to immediately demolish), while ineffectively trying to establish the principle that the Commerce Clause has teeth for the future, would have been denounced as nonsensical or even downright stupid.



 Paul Zak has authored a series of papers showing that oxytocin, a hormone released when you're hugging can make people more generous. He can inject people with it, and make them more generous, and find that those with more oxytocin are more generous. He finds that hugging releases oxytocins and encourages hugging in the work place, and follows this practice in the day and fray. The studies seem to be very biased and inconclusive. What is your view of this chicanery or unusual ant like behavior?

Kim Zussman writes: 

Volatility is a collective hug.

Daniel Grossman writes: 

It probably generates more of that hormone if you have sex with everyone you want to be generous with.

Laurel Kenner writes: 

When the Chair and I visited NYU to give a presentation several years ago, the president approached. He started to give Vic a bear hug. Vic stopped him. "You don't need to bother — I've lost all my money." The president looked him over carefully and then said, "I'll hug you anyway."

We later learned that such presidential hugs are often distributed to potential donors to NYU. It is of course immeasurable how much this technique has contributed to the rapid expansion of NYU's campus under his reign, and the question of whether oxytocin is involved is one for the biochemists. I merely note the president's name — Sexton — and speculate in innocent wonderment whether particularly well-endowed dowagers come in for particularly vivacious oxytocin production.

The Chair further speculates that since he had in fact not at that time lost all his money, that oxytocin may have predictive qualities.

Leo Jia adds: 

It has been widely debated that the Chinese rich are not generous at all. One strong evidence is that the philanthropic dinner meeting with the Chinese rich hosted by Gates and Buffett received little response. So, the very tradition that Chinese don't hug plays a big role. It was a pity that Gates and Buffett didn't give them big hugs at the meeting.



 I am so removed from Wall Street that this may be an obvious point:

I think it will turn out that Greg Smith did Goldman Sachs a great favor. No amount of purposeful PR could have helped GS so much and turned the tide running against GS so effectively as Smith's pompous, self-serving and unsupported resignation op ed.

Except among the irrational haters of wealth and speculation, Smith's op ed will wind up generating sympathy for GS, and I predict this week will mark the bottom of GS both in reputation and stock price. It will be pretty much all up from here.

The true criticism of GS, of course, would be its corrupt, crony-capitalist relationships with current and prior Presidential Administrations. But that's too subtle and knowledgeable a criticism. Rather the criticism in the popular mind is "greed". Smith's attempt to cloak his resignation in anti-greed will be seen through and will lead to greater acceptance of a beleaguered GS just trying to go about its business of making Wall Street work.

Rocky Humbert writes: 

As a GS alum, I would like to offer a few observations, without directly commenting on Dan's point.

When I left GS as a vice president in 1989, GS was run by Whitehead and Weinberg, successors to the legendary Gus Levy. The firm was a private partnership, and importantly, the investment banking/capital markets side of the company dwarfed the trading side of the company. This is a critical distinction from today. Sure, Bob Rubin's risk arb desk was hugely profitable. Sure, we did some big block trades in equities; but the much higher commissions of that period, and the firm's limited capital, ensured that the focus was on flow and not on principal transactions. By then, Traders were second class citizens versus the hermes-wearing, first-class-flying I-bankers who, at that time, would never ever represent a company in a hostile takeover. Of course there were some guys who pushed the envelope on occasion (I won't name names), but there was a distinct belief that everything flowed from the profitability of the clients. For an analogy of the inherent tensions between Ibanking and trading, revisit the Gluckman/Peterson feud at the ancient Lehman Brothers (pre-Amex deal).

That really was the GS culture back then. Heck, Weinberg drove a crappy Ford sedan because we did the Ford IPO. And few things could get you in trouble faster than talking badly about an important client. It was unthinkable that we would push a client into a security that we thought would turn out badly. We looked down our noses at Bear Stearns and the other bulge bracket firms who were known for that sort of thing. (Aside: I posit that the GS cultural evolution can be gleaned from the type of car the CEO drove.)

The world evolves, and I believe that the evolution of GS into its current form is a reflection of:

1) The end of its being a private partnership — which ensured risk taking with OTHER people's money. I still remember having a particularly bad losing day when Eric Sheinberg walked up to me, whacked me on the head and said with a reassuring smile, "Don't sweat it. It's ONLY money…..and it's MY money."

2) The domination of trading profits versus investment banking revenues. Management realized you can only grow investment banking to a certain size due to its service nature; whereas you can compound capital by investment and trading in a theoretically unlimited way.

3) The growth of trading technology and impersonalization of counterparty relationships. (It's much easier to "screw" someone who you don't know.)

4) The 10 percent rule, where they fire the worst performing 10% of employees every year. Back in the Whitehead/Weinberg day, such a concept would have been unfathomable. It really was a family lifetime employment sort of feel, not dissimilar to GE before Jack Welch and IBM before Lou Gestner.

5) And many other examples that correlate with a 30 year bull market in debt as a pct of GDP.

I am not lamenting here. I am simply saying that Smith is right when he observes that the GS culture has changed.

Too, the world has changed.

And, to be honest, I don't really understand why Smith wrote that piece except as an attempt to be Michael Lewis-esque, but without the chuckle factor.

Jack Tierney writes: 

Notes of interest in the GS "time to buy?" discussion: Goldman's full-year net income hit a record $13.4 billion in 2009, then slipped to $8.4 billion in 2010 before tumbling to $4.4 billion last year. Goldman's share price has plummeted from its 2009 high of $192 to the current quote of $111. During 2009 and 2010, Goldman spent 71% of its net income buying back its stock. But last year, the company spent 264% of net income buying its stock (excluding the repurchase of preferred stock from Warren Buffet, Goldman still spent 140% of its net income buying its own shares last year - double the rate of 2009-10.) Last week, Goldman executives cashed in $20 million worth of stock that had been "locked up" for the last three years. Over the last five years, Goldman's management spent $21 billion of the shareholders' capital buying GS stock in the open market at an average price of $171 a share. Today, the stock sells for $111. On a mark-to-market basis, therefore, Goldman's stock buy-back "investment" has produced a loss of about $7.3 billion for shareholders…. Last week, nine Goldman insiders sold their stock as fast as the law would let them. They cashed out $20 million worth of stock at an average price of $107.44.

Fred Crossman replies: 

Great points, Jack, on buy backs. I noted that American retailers have continually expanded at a much greater rate than the population growth. In addition to declining per store sales and income these retailers have been furiously buying back stock since 2007 to goose earnings. LOW has reduced shares outstanding by 12%, BBY 18%, HD 20%, KSS 11%, WMT, 15% and SHLD 29%. All buybacks above book value (destroying share holder value). Especially HD, now trading at 4.1 times book. 

Bruno Ombreux writes: 

There is a very simple way not to be screwed by GS, or anybody else. I am talking about trading, not corporate finance.

If you are making trades directly with GS, you are presumably a company, not some small private speculator. So you have a tool which is called "Risk management policy" and you make it a sackable offense not to comply with it. In the risk management policy, you list the markets and the instruments people are allowed to trade.

For instance:

- only markets with at least 3 active market makers and x trades/per day
- only vanilla instruments like swaps In addition, you have procedures like "trader must obtain 3 quotes from 3 different counterparties prior to making a trade", and a track record of the consulted counterparties and their quotes must be kept in the trading system, for each trade. In these types of market, you are not trading every 5 minutes, so you have the time to do all this.

There is no way you are getting screwed if you restrict yourself to simple instruments and they have the best bid/ask available among several other market makers.

Rocky Humbert comments: 

Sorry, but I don't understand your distinction between trading and investing. I also don't understand your definition of vanilla. I am however a fan of "rocky road" flavor.

I agree with you that entering trades that you are not sure to be able to exit is risky. But if the market provides you with a sufficient liquidity premium, it's rational and it can be profitable. But only if you do it right of course.

Bruno Ombreux replies: 

Trading vs investing: this could be the beginning of an endless semantic debate.

But let's use a couple of examples:
- trading: I buy a basket of stocks this morning with the intention of reselling before the close
- investing: I build a portfolio of stocks with the intention to keep it a relatively long time, because I think that these stocks value will increase due to whatever reason, growth, value, the economy…

I also like the following classification, which I believe comes from Minsky:
- Profits on the position neither depend on price variation of the asset, nor on cost of carry: I am investing.
- Profits do not depend on price variation, but only on positive carry: I am trading.
- Profit depend on price variation of the asset: I am speculating.

The example and the definition are not equivalent, but they give a rough idea of what trading is and what investing is. The border between both activities can be blurry. But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.

Now, to answer your second question, what is vanilla? Vanilla is anything that is simple, easy to understand and commonly traded. In the energy markets, everybody trades swaps and Asian options. These are vanilla. What is not vanilla would be a double-barrier option on Singapore 180 cst Fuel Oil, settled at the average CAD/EUR exchange rate lagged 3 months vs the Fuel oil averaging period. That is not vanilla, and definitely more simple than many equity derivative deals.

Dylan Distasio comments: 

But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.

I will let those wiser than myself comment on the rest of your analysis, but the above jumps out at me as a poor definition of investing. Holding a bond to maturity may be a valid example of your argument, but there are plenty of people arguably INVESTING in other instruments who need a market to close their positions. A few off the top of my head include real estate, stocks, bonds not held to maturity but still held as investments, commodities including physical ones held in safes or other venues. Of course you need a market to close out most investments! I may be missing something but this seems obvious. If you cannot find someone else to buy or sell your investment at the time of closing the position, you have zero liquidity and for all intents and purposes zero value if you need that liquidity immediately. Without a secondary market, most investments cannot realize their value.



By now you have probably read the Pulitzer prize winning Washington Post article about violinist Joshua Bell performing in the D.C subway.

You have to love the Posties; if they can find a way to diminish and demean their own subscribers, they go for it - because they know that their newspaper can only continue to be the font of wisdom as long as the civil servants believe they have to read it each morning.

Playing Bach in a subway station is like playing baseball indoors; all the skill in the world can't make it anything but a nuisance.

P.S. Bell's virtuosity is unchallengable; his musicianship, like Midori's, so dreadfully earnest that, of course, it gets an A+ from the Wurlitzers of record and requires an audience full of schoolies full of superior appreciation.

Kim Zussman writes: 

Aesthetics and taste are subjective and subject to presentation. Examples include statistical inconsistency in rating fine wine and celebrities out of context. When you meet so-called "knock out" actresses in person, more often the surprise is disappointment.

Russ Sears writes: 

I am in the middle of reading "Thinking Fast and Slow" by Daniel Kahneman. It tries to describe what psychologist "know" about how intuition (fast thinking) and analysis (slow thinking) work and work together. I will try to give a more complete report once I am finished with it.

However, briefly it mainly describes how thinking creates biases, while at the same time tries to show respect and analyze how amazing "thinking" is.

One of the biases: it is clear most people underestimate the persuasiveness of their surrounding to their effect on their mood, judgment and decision making with even subtle unperceived differences he calls "priming". Such things as a poster with big eyes in the room with a "honor box" for coffee greatly increases the amount put in the box. And a forced smile creates happier people much later.

In the intro- he implied that his main criticism has been the of focusing on the biases rather than the strengths of "thinking", However, so far my main criticism is his over generalizations, and insistence that these studies prove "we" (all of us) are victims of these biases. And so far the book seem to imply that only through analysis (by such studies) can these be recognized and "we" overcome them. Yet, I would suggest that many of the more successful and happy people's "edge" comes from intuitively having perceived many of these biases early on in their lives and having made adjustments to offset them…without perhaps knowing the "science" behind "why".

Such are the people that stopped for the music in the subway station. Even though primed to ignore it. Yet while he insist that "all" are victims of specific biases. Their is perhaps in total evidence that we all accept, the possibility of biases for the power of thinking. But it is natural for life to perceive that they are the superior different one in overcoming these biases. The violinist show many think they would stop and listen, but few actually do.

Even so, the book thinking fast and slow has given me much to think about, and I would recommend it to all.

Dan Grossman writes:

 As a former violinist, I had enjoyed the You Tube video and the seeming fact Bell would play incognito in the subway. But I hadn't realized it was a put-up job by the Washington Post.

It's like all those Kahneman and Tversky experiments everyone is so excited about to show there's no rational man that economics is based on, where students play games with small amounts of money given to them.Contrary to that famous fairness experiment, if the student in the real world were negotiating to divide $1 million dollars of real money and he had the choice of getting 10% ($100,000) or nothing, while the other player got 90%, he would take the $100,000.

Victor Niederhoffer adds:

One would add that when Bell plays, his body movements are very poetic and add immeasurably to the sense of music of the audience. Presumably because this was a set up job similar to what Prof Phil pointed out vis a vis the tag team of beggars and homeless brought in to keep man small, and the chair to his credit first brought to the attention of the list vis a vis The Port Authority in New York, which is always laden with the beggars and homeless to keep man small, a la Ayn Rand's essay on Victor Hugo's The Compafriros, the maimed in Spain raised to show how bad the lot of some people can be relative to the feudal existence of the masses, one can assume that Joshua did not make those body movements and twists and turns that lets the audience know he is really making music, so that it would be more likely that the Wash Post could prove the point that no one would notice. 31 bucks on the other hand seems pretty good considering the lack of charity in workers in the beltway who are living off the fruit of other peoples labor. 



 It's striking to me that not one of the 18 charts covering virtually every significant economic topic refers in the slightest to the massive legal and illegal immigration into the US over the last few decades, and how this could have correlated with chart topics such as working-age male unemployment, amount of toil to rent a house served by average school, medical care spending, etc, etc.

Stefan Jovanovich comments:

Thank you, Daniel. he decline in wealth for the "average" American since the collapse of the boom matches the slow, steady ruin that the 50% of the U.S. population who lived on farms endured after the end of the WW I boom. The migration to the industrial north of the white and black-skinned sharecroppers/small-hold farmers that is now celebrated as the precursor of the civil rights movement was an index of the desperation people felt. If people had really wanted to trade Tennessee for Chicago and Detroit, their children would not be moving back "home" as fast as they have in the past few decades. No one was talking about the depression of the 1920s on the radio any more than they are mentioning it on Twitter now; but it was occurring and continuing to grow in severity.



 Have you seen this article about the top 5 regrets of the dying? It is a must read. 

Gary Rogan writes: 

I really liked all of them, except based on everything that I know I disagree with the statement that "happiness is a choice". Irrational fears are not a choice, depression is not a choice, and neither is happiness.

Gibbons Burke writes: 

Well, happiness is dependent on one's attitude, and in many cases, you can choose, control or direct your attitude.

My theory is unhappiness and depression happen when reality does not live up to one's expectations of what life is "supposed" to be like. I think the key to happiness is letting go of those expectations. That action at least is within an individuals purview and control. There is an old Zen maxim: If you are not happy in the here and now, you never will be.

Russ Sears adds:

I think most irrational fears and depression stem from the unintended consequences of one's choices or often, the lack of decisions, such as little or no exercise. However, I believe many of these choices are made when we are children, and we do not fully understand the consequences. Many of these bad choices may be taught often though example by adults or sometimes it is just one's unproductive coping methods that are simply not countered with productive coping methods by the adults in their lives. I think some people are more prone to fall into these ruts, but most of these ruts are dug none the less.

Jim Sogi writes: 

The regrets are perhaps easily said on the deathbed but implementing these choices in life is very difficult. Many can not afford the luxury of such choices. When there is no financial security hard work is a necessity. Such regrets are not much different than daydreams such as, oh I wish I could live in Hawaii and surf everyday. The fact of the matter is that the grass always seems greener on the other side. Speak to the lifestyle guys in their old age. Will they say I wish I worked harder and had a career and made more meaning of life than being a ski bum or surf bum? 

Gary Rogan responds: 

What you say is true about the effects of exercise. But that's just one of many factors that are biochemical in nature. Pre-natal environment, genetics, and related chemical balances and imbalances are highly important in the subjective perception of the level of happiness. There are proteins in your brain that effect how the levels of happiness-inducing hormones and neurotransmitters are regulated and there is nothing you can do about it without a major medical intervention. Certainly some choices that people make affect their eventual subjective perceptions through the resultant stresses and satisfying achievements in their lives, so the choice part of it can clearly be argued. My main point was that by the time the person is an adult, their disposition is as good as inherited. They can vary the levels of subjective perception of happiness around that level through their actions, but they are still stuck with the range, mostly through no fault or choice of their own.

Since a few literally quotations on the subject have been posted, let me end with the quote from William Blake that was used before the chapter on the biological basis of personality I recently read:

Every Night & every Morn

Some to Misery are Born.

Every Morn & every Night

Some are Born to sweet Delight.

Ken Drees writes in: 

I believe that you must put effort towards a goal and that exercise in itself begets a reward that bends toward happiness. It's the journey, not the end result. You must cultivate to grow. A perfectly plowed field left untended grows weeds–the pull is down if nothing is done.

Russ Sears adds:

 It has been my experience with helping others put exercise into their lives that few teens and young adults have reached such a narrow range that they cannot achieve happiness in their lives. This would include people that have been abused and people that have a natural dispensation to anxiety. Their "range" increases often well beyond what we are currently capable of achieving with "major medical intervention". As we age however our capacity to exercise decreases. While the effects of exercise can still be remarkable; they too are limited by the accelerated decay due to unhappiness within an older body's capacity. Allowing time for our bodies is an art. Art that can bring the delights of youth back to the old and a understanding of the content happiness of a disciplined life to the young.

Peter Saint-Andre replies: 


Yes, hard work is often a necessity. But hard work does not prevent one from pursuing other priorities in parallel (writing, music, athletics, investing, whatever you're interested in). Very few people in America have absolutely no leisure time — in fact they have a lot more leisure time than our forebears, but they waste it on television and Facebook and other worthless activities.

Between working 100 hours a week (which few do) and being a ski bum (which few also do) there lies the vast majority of people. Too many of them have ample opportunity to bring forth some of the songs inside them, but instead they fritter their time away and thus end up leading lives of quiet desperation.

It does not need to be so.

Dan Grossman adds: 

Jim Sogi has a good point. The deathbed regret that one didn't spend more time with one's family is frequently an unrealistic cliche, similar to fired high level executives expressing the same sentimental goal.

The fact is that being good at family life is a talent not everyone has. And family life can be difficult, messy and not easy to make progress with. Which is perhaps one of the reasons more women these days prefer to have jobs rather than deal all day with family.

Being honest or at least more realistic on their deathbeds, some people should perhaps be saying "I wish I had spent more time building my company."

Rocky Humbert comments:

 I feel compelled to note that this discussion about deathbed regrets has been largely ego-centric (from the viewpoint of the bed's occupant) — rather than the perspective of those surrounding the deathbed. I've walked through many a cemetery, (including the storied Kensico Cemetery) and note the preponderance of epitaphs that read: "Loving Husband,"; "Devoted Father," ; "Devoted Mother," and the absence of any tombstones that read: "King of Banking" or "Money Talks: But Not From the Grave."

Notably, Ayn Rand's tombstone in Kensico is devoid of any comments — bearing just her year of birth and death. (She is, however, buried next to her husband.) 

In discussing this with my daughter (who recently acquired her driver's license/learning permit), I shared with her the ONLY memory of my high school driver's ed class. (The lesson was taught in the style of an epitaph.):

"Here lies the body of Otis Day.

He died defending his right of way.

He was right; dead right; as he drove along.

But now he's just as dead, as if he'd been wrong." 

Kim Zussman writes:

Is an approach of future regret-minimization equivalent to risk-aversion?

Workaholic dads have something to show for their life efforts that Mr. Moms don't, and vice-versa.

If so, perhaps the only free epithet is to diversify devotions — at the expense of reduced expectation of making a big mark on the world or your family.



The fatal bullet may have been fired by a Libyan rebel but it was NATO (ie, US planes and technology) that attacked Qadaffi's convoy leading to his capture and killing. Since when do the usually objective members of SpecList think it wise and appropriate policy for the US to go around assassinating leaders of countries we have not declared war against? And how would we feel if the situation were reversed, if Iran were working to assassinate our President instead of just the Saudi ambassador, or if it had been established at the time that Castro's Cuba was behind Oswald's assassination of John Kennedy?

Second, after Qadaffi was shaken by the violent US removal of Saddam Hussein, it was clear Qadaffi and the US made a deal that Qadaffi would give up his nuclear weapons program and refrain from causing trouble in neighboring countries, and the US in turn would not attack Libya and Qadaffi. Do we want the US to be known as a country that reneges on such highly mutually advantageous types of agreements?

In retrospect Qadaffi would have been wiser to complete his nuclear weapons program. Then, like North Korea and possibly Iran, he would have been far more immune from US attack.



 In a survey of doctors on a website I follow, 80% of responding doctors answered no way would they allow their patients to email them.

This was the response I posted:

To the 80% of responding docs who say "No way": If you wonder why many patients develop major hostility to doctors' office procedures and to doctors themselves, and why the public is happy to stay silently on the sidelines while the government and insurance companies take over control of doctors' working lives, could it be that doctors (who for 100 years had control of their practices and refused to make them patient-friendly and efficient) have failed to enter into the 21st century? And regard it as perfectly acceptable to impose inefficiency, frustration and wasted time on patients by not letting them communicate with the doctor but requiring them to make an office appointment (probably 3 or 4 hours with travel to and fro, long office waits, etc) for every question or matter?

I see nothing wrong with a doc charging for email or telephone time. Those patients wishing to use email or telephone should be willing to pay the time charge, regardless of whether such charge is covered by insurance. But if our profession continues to lord it over patients by refusing to allow them what every other profession and all of modern life does, doctors will deserve what they get in the way of government and insurance oversight and regulation.

Charles Pennington writes: 

Chiming in, that is a pet peeve of mine. What other profession won't take email? Lawyers, dentists, accountants, etc. all communicate by email, of course. Doctors make it even worse by making you communicate with them only via a voice-mail maze that begins with "If you are a physician, press 1; otherwise, your call is very important to us so please remain on the line…"

Russ Herrold comments:

I'm with the doc's here.

When the tears are flowing, everyone says they are willing to pay, but without getting into the business of FIRST AND AT THE ONSET, having a Retainer Agreement, unilateral right to draw it down upon presentation of statement, Mandatory Arbitration clause, deposit for fees in the Trust Account, all one does is lay a background for a fee dispute complaint or malpractice counterclaim to a suit to collect those fees. It's not gonna happen as a general practice. The doc is caught between the rocks of patient desire for immediacy and convenience; the professional obligation 'not to miss' something that in hindsight seemed obvious; and the fact that insurer reimbursement for web and email oriented 'treatment' lag.

Having had poor service (breaches of patient confidentiality, outright prevarication by nursing staff, and failures of delivery of test results repeatedly and after specific instruction) in the care of a wound, all since May of this year, from the standpoint of the patient, I want there to be a formal paper trail (not email; not call center notes in some database, forgotten and closed; not some other ephemeral media) … a well drafted letter explaining the issue, a file CC, and a cc to the supervising agency (hospital system privacy officer, nursing board, 'authorized provider' certification entity), and an equally formal response (or in its absence, proper escalation on my part).

Unreasonable, I know, but progress is made on the backs of unreasonable people.

The same goes for lawyering. If a client cannot keep and will not pay for an office visit, or meeting at other venue of their choice, to permit the open-ended probing that proper representation requires, they won't be MY client very much longer, as I cannot properly represent them.

Alex Forshaw writes:

The fact stands that interacting with doctors is a pain in the ass from the second you enter the door. They do not face nearly enough competition. There is no bigger beneficiary of protectionism in the entire country. The lack of competition has meant they face no evolutionary pressure. I hate "socialized medicine" as much as anyone but US doctors are as much culprits in their own demise as the tort bar and all of doctors' other favorite bogeymen.

George Zachar adds: 

In my conversations with doctors, I've been told the potential legal and regulatory liabilities risked by patient email contact are vague and large, leading them to simply shun the practice.

Phil McDonnell writes: 

Regular email is not a secure medium. Privacy regs hamper a Doc's ability to use email. Most will call you on the phone and/or write a letter with results. That is why expensive software with encryption is required that often the smaller practices cannot afford.

Gordan Haave responds: 

Sure that's what they say. But it's BS. How is the fax or telephone somehow more secure than email?

If the issue is confidentiality, why is it that Lawyers will email you but not Doctors?

There is one other group that won't send emails: The IRS.

I am in the middle of a personal and business audit, and you can't email the IRS. It's very inefficient.

To me this is just further proof that Dr's collectively are not the saints they claim to be, but rather just a cartel that uses wildly inefficient systems to extract rent's from consumers.

Dan Grossman writes:

I am surprised that a few otherwise highly astute Speclisters so easily accept doctors' excuses for refusing to permit email. As a service to the medical profession and to our country (and in time for inclusion in the President's speech tonight as a new regulation under the Patient Protection and Affordable Care Act), I have drafted and present below a few simple groundrules that a doctor can require a patient to accept as a prerequisite for emailing him.

"A Patient wishing to email Doctor must indicate his acceptance of the following:

1. Complex or detailed matters require an office visit. This email is for minor procedural, scheduling and prescription renewal matters.

2. Doctor will attempt to look at reasonable numbers of emails as time permits but because of his busy schedule cannot commit to read or deal with every email. Any information Patient wishes to convey with certainty must be conveyed by other means.

3. Emails are not secure and should not include sensitive personal information. They will not necessarily be presevered or included in Patient's medical file or record.

4. Patient agrees to pay $20.00 for each ten minutes or part thereof Doctor spends reading or dealing with emails from Patient, regardless of whether the amount is reimbursable to Patient by his insurer. Medicare and Medicaid Patients unfortunately are not eligible to use this email since such programs do not permit email charges. (Doctor regrets this and asks that you please take up such inefficiency with the Government rather than with him.)"

With regard to 3, doctors or their office assistants can instead spend 15 minutes setting up free encryption, as others on the List have already pointed out.






Stocks should have rallied (and stayed rallied) but didn't on Friday because insiders (as some say, flexions) knew the S&P downgrade was coming. On Monday stocks will rally (perhaps after an opening down move) because the S&P downgrade is meaningless.

As a matter of fact it is bullish, because the only meaning it will have is in the Presidential election where Obama will now lose because the Republicans will constantly beat him over the head that he lost the US's AAA credit rating. Something clear that the public can understand and focus on.



 Is it perhaps an indication of the media's solicitude for the current President that every poor economic report is termed "unexpected"?

While poor economic results under the prior President were somehow not so surprising since he was such an incompetent boob?

Kim Zussman adds: 

As with many time series this month was similar to the prior month, which was different from the month before.

Victor Niederhoffer adds: 

All are part of the regression fallacy.

Ken Drees writes: 

So now we wander into "needed and now expected qe3" type thinking and should not the market go up due to this stimulus?

Sam Marx adds:

Three Thoughts on the Reported Unemployment Rate.

1) The Unemployment Rate is probably higher than the government reported.

2) Compared to the Reagan Recovery this Administration's economic plan is a failure

3) With Socialistic Policies you have high employment rates and I don't see much hope for great improvement.

George Zachar writes: 

As luck would have it, Bernanke delivers one of his regular reports to Congress next week.

No doubt, this report will put that question high up on the agenda, and he'll be spending the weekend formulating his response.




 My friend is a doctor. He was complaining to me the other day about a patient who asked for the discount, even though she was late and cancelled appointments.

On the discount, I wanted to point out that there is nothing immoral or unethical with asking. I was interested in the significant number of friends who say they give discounts, including the 20% discount for cash (which when I was a patient would be very happy to avail myself of if I knew of it). I'm sure everyone has asked for a discount on occasion in buying some product or service.

Further, you have to admire the bravery of the patient asking for a discount. I myself would be afraid to ask it of a physician because of fear the physician would somehow take it out on me in the medical treatment. To him and other docs outraged about the discount request, I say you don't have to grant it, but ethically you should assure the patient (especially after what the MA reported to her) that you harbor no hard feelings and it will not affect your medical care of her.



 An interesting revelation in an article by Ireland economist Morgan Kelly.  But why Geithner's veto? "Perhaps haircutting the Irish bonds by two-thirds would have made Geitner and the Administration look particularly bad in light of their $160 billion full bailout of AIG in order to make sure Goldman and French counterparties were paid in full":

"The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. [Irish Finance Minister] Lenihan was overjoyed, according to a source who was there, telling the IMF team: "You are Ireland's salvation."

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner…"Perhaps haircutting the Irish bonds by two-thirds would have made Geitner and the Administration look particularly bad in light of their $160 billion full bailout of AIG in order to make sure Goldman and French counterparties were paid in full.

Full more here.



Speaking of commodity spillover, I'd be interested to know the historical effect on near-term stock prices when commodities hit a "high" and then decline.

Many thanks,


Russ Sears writes: 

One data point that may be applicable is Silver Thursday

Mar 27 1980 S&P closed 98.2
next day 100.68
5 trading days 102.25
21 days (April 28) 105.64
June 27 116.00

Looks pretty bullish.

Tim Hesslesweet adds:

Spot energy.

Nymex energy futures.

Kim Zussman writes: 

Using Tim's linked data for Cushing WTI spot crude weekly prices, constructed the attached comparison plot of log (spot crude) and log (sp500). Log (spx) was scaled -1 log unit (divided by 10) in order to readily compare the two.

The chart shows a similar gain for crude and SPX over the interval, 1/87-5/11. Crude remained relatively flat through the 90's while stocks gained. Oil bottomed in 1998, and from this bottom to the peak in 5/08 gained about 10X.

IQ1 marks the 1st Iraq war, with an expected spike in crude price and drop in stocks. Both stocks and oil were near many-year highs in 9/00, and both declined together until a few months after 9/11, when stocks continued to drop but crude rose. At the outset of IQ2, oil spiked and stocks sagged - like the prior Iraq war. From this point SPX rose consistently, and after a few months oil followed.

Stocks hit a many year high in 9/07 before turning down, and crude did the same 8 months later in 5/08. Subsequently oil bottomed faster - in 12/08 - and stocks in 3/09.

For crude and SPX there does not seem to be a clear relation between peaks and valleys, though there was a contemporaneous inverse relationship with two wars in the middle East.



I see the Chair is too busy with market extremes (and doubtless the Knicks' loss) to comment on the Oracle in India.

Sort of seems like a last hurrah, Netjetting to all the large, third-world countries in which he's never had the pleasure of personal acclaim before he finishes his Cokes.



Surely there will be some hedge funds in trouble, because of Japan and falling prices in other markets, that arguably will have to be bailed out so as not cause more serious disruptions.

T.K Marks writes:

Not all of them. There are those who have felt that Japan's had intractable debt burdens whose chickens were eventually going to one way or another come home to roost."

Check out this article: "Even Before the Disaster, Big Investors Were Wagering on Economic Problems…"



 Probably forever, roughly every week, Barron's has an article about a few big cap stocks that they say are pretty good bargains. What's different about the articles over the past year or two though is that they seem really compelling. That's true even now, after a big market rally.

This week's article is about drug stocks. Typical of the stocks they mention is Abbott, listed with a p/e of 10 on 2011 earnings and a 3.9% yield. All of them–Bristol Myers, Lily, Medtronic, Merck, and Pfizer–have similar numbers, yields higher than the 10-year treasury and P/Es around 10 give or take. They also list some European firms, AstraZeneca, GlaxoSmithKline, Novartis, Roche, and Sanofi-Aventis, that look even cheaper. E.g. AstraZeneca is at a P/E of 7.3 and yields 5.2%.

The point of the article is that some of the firms could help shareholders if they would do some restructurings, spin-offs, break-ups, but what struck me instead is that they are look surprisingly cheap as they are. Seems to me that a lot would have to go wrong for these to do poorly compared to bonds over the next 10 years.

Vince Fulco writes: 

That has been David Einhorn's contention for some time at least on PFE. I.E. the bad stuff is already well known.

Bill Humbert writes:

I suspect this situation of high dividends will continue for some time, but the causes are not being dealt with. The system, by which I mean the internal processes used in drug discovery, is broken.

All that is being done is shuffling managers in and out. Each old set of managers floats off on their golden parachutes. The new managers talk and talk but do not make real changes to return the system back to the productive way research used to be done. The industry will slowly decline, have more M&A, and golden parachutes, until eventually the internal research organizations are disbanded.

PFE is already chopping internal research hard. The big pharmas are turning into development and marketing organizations and will shed research completely. Once they all do that, it will be fascinating to see where they will get molecules to develop.

The biotechs are hurting bad. More than a few went under, and many of the remaining ones have had their research organizations corrupted by the amazingly stupid management practices of big pharma. Lots of big pharma people went to the biotechs and wrecked them, too.

Check this out. Some data on the drug industry:

Figure A: # new drugs by year

NME = new molecular entity (new drug, although its structure could be closely related to that of an existing drug, i.e., a me-too drug)

The industry is about half as productive as it was 10-15 years ago.

Figure B:

Pfizer R&D spend

"You can see that Pfizer's R&D spending has nearly tripled since the year 2000, but that cumulative NME line doesn't seem to be bending much. And, as Munos points out, two (and now three) productive research organizations have been taken out along the way to produce these results. It is not, as they say, a pretty picture."

Alston Mabry writes: 

As long as it's the weekend and we're kicking around stock ideas…consider TEVA: They will get huge new opportunities from the blockbuster drugs coming off patent, and they've been growing revs and earnings like crazy. They play well to the "rising cost of healthcare" theme, and they are global. You're buying growth, though, not dividend.

Dan Grossman writes: 

1. The Barron's article makes no sense. If a company is about to lose half its earnings because the patent on its most profitable drug is about to expire, how does it help to sell off products or a division where earnings are not expiring?

2. Teva is in much the same position as Big Pharma. While known as a seller of generics, more than 30% of its earnings come from its non-generic multiple sclerosis drug Copaxone, which will soon face generic competition itself resulting in disappearance of these profits. Only Teva has been a lot less honest about this than Big Pharma.

John Tierney writes:

….The problem is that they have failed to deliver any important new and important blockbuster drugs for years.

Right on the money. Some blame, though, must be placed on the FDA. This story from the NYT elaborates:

Medical device industry executives and investors are complaining vociferously these days that the industry's competitive edge in the United States and overseas is being jeopardized by a heightened regulatory scrutiny.

The F.D.A., they and others say, appears to be reacting to criticism that its approvals for some products had been lax, leading to a spate of recalls of some unsafe medical devices, like implanted defibrillators and hip replacements.

Device companies have been seeking early approval in Europe for years because it is easier. In Europe, a device must be shown to be safe, while in the United States it must also be shown to be effective in treating a disease or condition. And European approvals are handled by third parties, not a powerful central agency like the F.D.A.

This article follows another that the Times published (which I can't find at the moment) last week revealing that the two drugs most commonly used for surgical anesthesia are both made only in Switzerland. The drugs are no longer being made available since Arizona, running short of the primary drug, bought some from an independent supplier, and subsequently used it in an execution– a big EU no-no. As a result, Novartis, with no control over their customer's distribution, is refusing to sell any more in the states.

The article concludes by noting that venture capital spending on the medical device industry in the US dropped 37%. Yet billions and billions are sitting on the sidelines ready to pounce on the next techno-dweeb with a social networking idea. 

John Tierney adds: 

The study, covering 2004 through 2010, found the overall success rate for drugs moving from early stage Phase I clinical trials to FDA approval is about one in 10, down from one in five to one in six seen in reports involving earlier year.

Roger Longman comments: 

Guess I sort of agree.

But issue is that while downside isn't huge, the likelihood of some price decline is possible while near-term upside unattractive since tied so closely to successful product launches. BI is only company with really great recent news (launch of Pradaxa, which will likely be a blockbuster) — but BI is private. Bayer/J&J got great news on recent competitor drug — but launch some time away and by then BI will have sewed up most of the new prescribers. Novo could do well, given extremely successful launch of Victoza — but success probably priced into the stock. NVS has Gilenya (innovative small-molecule MS drug) but reports are that it's had a troubled launch because hadn't solved the neurologists' problems with cardiac monitoring when starting the therapy.

He's right that people could buy them for the dividends but I'd wonder if the potential downsides in the stocks might not negate the effects. Stuff can and will go wrong. Merck, for example, has lost a significant chunk of the future value of SGP acquisition thanks to poor launches of Bridion and Saphris, disadvantages of boceprevir vs. Vertex's telaprevir, and — the cause of its most recent stock problem — failure of vorapaxor (most important drug in SGP pipeline).



One would have thought a single crony bank spending $15 billion a year in legal fees (as Vic has evocativey brought to our attention) would have spread a profitable umbrella over all of Big Law.

But no, here's the death of Howrey LLP, a 55 yr old, major Washington and international law firm:

As owner of an auto parts company, I recently spent several months months dealing with Howrey's threat, on behalf of their client BMW, to bring hell down upon us for daring to sell parts on the Internet under the name (with no confusion in the public mind, over a period of more than six years, that we were in fact Bavarian Motor Works). It is rare that bullies get their comeuppance so promptly and completely.



 Is the quality of the announcing teams for sports broadcasts unusually high because aside from those who are readers of westerns, the sports listener is the most demanding of accuracy in the world? I like the Yankees baseball announcers, and the Knicks television announcers very much. They seem to be very sagacious, infinitely more so than the average market analyst or CNN reporter.

Dan Grossman writes: 

The quality mentioned by Vic also applies to commentary.

Over breakfast I usually switch back and forth between CNBC and Mike & Mike in the morning. The quality, no-nonsense content and science of the latter far exceed any financial commentary that may be offered on the former.

Russ Sears writes:

 I had always thought it was because of the large number of former elite athletes that they have to compete with to get a spot. They love the sport either they are doing this in sports retirement or were great in college but not the right size for the big leagues. These elites raise the bar for all candidates.

The elite athlete, transforming himself into an elite second life, is proof that the elite often can transform themselves to what is valued. Rather than just the "luck" of being born in a system that values "X" as the non-hunting gather Sage would have you believe.

I believe you see this somewhat better at the college level where local announcers are often great local college player. But have not thought up a test of this hypothesis on "quality".



UPDATE 1/31/2011:

Contestants Summary:

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

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

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

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

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

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

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

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

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

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

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

Contracts Summary:

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

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

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

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

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

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

Victor Niederhoffer wrote:

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

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

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

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

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

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

David Hillman writes: 

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

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

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

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

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

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

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

Market direction picks are wanted:

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

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

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

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

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

Bill Rafter adds: 

Suggestion for contest:

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

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

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

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

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

Ralph Vince writes:

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

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

I'm going to sit and do nothing.

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

Gordon Haave writes: 

 My three predictions:

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

Dollar ends 10% stronger compared to euro

All are actionable predictions.

Steve Ellison writes:

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

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

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

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

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

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

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

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

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

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

Jan-Petter Janssen writes: 

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

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

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

Vince Fulco predicts:

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

Additional points/guesstimates are:

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

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

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

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

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

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

Potential negatives:

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

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

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

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

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

Mr. Albert enters: 

 Single pick stock ticker is REFR

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

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

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

Dan Grossman writes:

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

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

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

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

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

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

Best to all for the New Year,


Gary Rogan writes:

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

Wildcard: Short Netflix.

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

Equal Amounts in:

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

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

12/30 closing prices (in order):


Bill Rafter writes:

Two entries:

Buy: FXP and IRWD

Hold for the entire year.

William Weaver writes:

 For Returns: Long XIV January 21st through year end

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

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



Ken Drees writes:

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

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

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

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


Happy New Year!

Ken Drees———keepin it real.

Sam Eisenstadt forecasts:

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

S&P 500       1410

Anton Johnson writes: 

Equal amounts allocated to:

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

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

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

Scott Brooks picks: 


Evenly between the 4 (25% each)

Sushil Kedia predicts:


1) Gold
2) Copper
3) Japanese Yen

30% moves approximately in each, within 2011.

Rocky Humbert writes:

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

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

Dylan Distasio comments: 

Gawin mo magsalita tagalog?

Gary Rogan writes:

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

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

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

Tim Melvin writes:

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

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

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

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

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

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

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

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

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

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

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

Other than that I am clueless.

Kim Zussman comments: 

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

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

A ball of confusion!

4 picks in equal proportion:

long XLV (health care etf; underperformed last year)

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

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

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

Alan Millhone writes:

 Hello everyone,

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

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

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

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

Happy New Year and good health,



Jay Pasch predicts: 

2010 will close below SP futures 1255.

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

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

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

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

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

Chris Tucker enters: 

Buy and Hold


Wildcard:  Buy and Hold AVAV

Gibbons Burke comments: 

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

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

2) Ride your winners.

3) Cut your losses short.

4) Keep the size of your bet small.

Then there are the "special" rules:

5) Follow all the rules.

and for masters of the game:

6) Know when to break rule #5

A prosperous and joy-filled New Year to everyone.



John Floyd writes:

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

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

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

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

A Mr. Krisrock predicts: 

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

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

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

4…commodities are peaking ….

Laurel Kenner predicts: 

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

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

Pete Earle writes:

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

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

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

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

Happy New Year to all,

Pete Earle

Paolo Pezzutti enters: 

If I may humbly add my 2 cents:

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

J.T Holley contributes: 


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

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

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


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

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


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

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

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


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

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

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

Sex and Speculation:

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


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


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

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

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

Long - Common Sense.

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

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

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

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

I had to end on a Long note.

Happy New Year's Specs. Thanks to all for support over the last four years. I finally realized that it ain't about being right or wrong, just profitable in all endeavors. Too many losses led to this, pain felt after lookin' within, and countin' ones character results with pen/paper.

Russ Sears writes:

 For my entry to the contest, I will stick with the stocks ETF, and the index markets and avoid individual stocks, and the bonds and interest rates. This entry was thrown together rather quickly, not at all an acceptable level if it was real money. This entry is meant to show my personal biases and familiarity, rather than my investment regiment. I am largely talking my personal book.

Therefore, in the spirit of the contest , as well as the rules I will expose my line of thinking but only put numbers on actual entry predictions. Finally, if my caveats are not warning enough, I will comment on how a prediction or contest entry differs from any real investment. I would make or have made.

The USA number one new product export will continue to be the exportation of inflation. The printing of dollars will continue to have unintended consequences than its intended effect on the national economy but have an effect on the global economy.. Such monetary policy will hit areas with the most potential for growth: the emerging markets of China and India. In these economies, that spends over half their income on food, food will continue to rise. This appears to be a position opposite the Chairs starting point prediction of reversal of last year's trends.

Likewise, the demand for precious metals such as gold and silver will not wane as these are the poor man's hedge against food cost. It may be overkill for the advanced economies to horde the necessities and load up on precious metals Yet, unlike the 70's the US/ European economy no longer controls gold and silver a paradigm shift in thinking that perhaps the simple statistician that uses weighted averages and the geocentric economist have missed. So I believe those entries shorting gold or silver will be largely disappointed. However in a nod to the chair's wisdom, I will not pick metals directly as an entry. Last year's surprise is seldom this year's media darling. However, the trend can continue and gold could have a good year. The exception to the reversal rule seems to be with bubbles which gain a momentum of their own, apart from the fundamentals. The media has a natural sympathy in suggesting a return to the drama of he 70's, the stagflation dilemma, ,and propelling an indicator of doom. With the media's and the Fed's befuddled backing perhaps the "exception" is to be expected. But I certainly don't see metal's impending collapse nor its continued performance.

The stability or even elevated food prices will have some big effects on the heartland.

1. For my trend is your friend pick: Rather than buy directly into a agriculture commodity based index like DBA, I am suggesting you buy an equity agriculture based ETF like CRBA year end price at 77.50. I am suggesting that this ETF do not need to have commodities produce a stellar year, but simply need more confirmation that commodity price have established a higher long term floor. Individually I own several of these stocks and my wife family are farmers and landowners (for full disclosure purposes not to suggest I know anything about the agriculture business) Price of farmland is raising, due to low rates, GSE available credit, high grain prices due to high demand from China/India, ethanol substitution of oil A more direct investment in agriculture stability would be farmland. Farmers are buying tractors, best seeds and fertilizers of course, but will this accelerate. Being wrong on my core theme of stable to rising food/commodity price will ruin this trade. Therefore any real trade would do due diligence on individual stocks, and put a trailing floor. And be sensitive to higher volatility in commodities as well as a appropriate entry and exit level.

2. For the long term negative alpha, short term strength trade: I am going with airlines and FAA at 49.42 at year end. There seems to be finally some ability to pass cost through to the consumer, will it hold?

3. For the comeback of the year trade XHB: (the homebuilders ETF), bounces back with 25% return. While the overbuilding and vacancy rates in many high population density areas will continue to drag the home makes down, the new demand from the heartland for high end houses will rise that is this is I am suggesting that the homebuilders index is a good play for housing regionally decoupling from the national index. And much of what was said about the trading of agriculture ETF, also apply to this ETF. However, while I consider this a "surprise", the surprise is that this ETF does not have a negative alpha or slightly positive. This is in-line with my S&P 500 prediction below. Therefore unless you want volatility, simply buying the S&P Vanguard fund would probably be wiser. Or simply hold these inline to the index.

4. For the S&P Index itself I would go with the Vanguard 500 Fund as my vehicle VFINXF, and predict it will end 2011 at $145.03, this is 25% + the dividend. This is largely due to how I believe the economy will react this year. 

5. For my wild card regional banks EFT, greater than IAT > 37.50 by end 2011…

Yanki Onen writes:

 I would like to thank all for sharing their insights and wisdom. As we all know and reminded time to time, how unforgiven could the market Mistress be. We also know how nurturing and giving it could be. Time to time i had my share of falls and rises. Everytime I fall, I pick your book turn couple of pages to get my fix then scroll through articles in DSpecs seeking wisdom and a flash of light. It never fails, before you know, back to the races. I have all of you to thank for that.

Now the ideas;

-This year's lagger next year's winner CSCO

Go long Jan 2012 20 Puts @ 2.63 Go long CSCO @ 19.55 Being long the put gives you the leverage and protection for a whole year, to give the stock time to make a move.

You could own 100,000 shares for $263K with portfolio margin ! Sooner the stock moves the more you make (time decay)

-Sell contango Buy backwardation

You could never go wrong if you accept the truth, Index funds always roll and specs dont take physical delivery. This cant be more true in Cotton.

Right before Index roll dates (it is widely published) sell front month buy back month especially when it is giving you almost -30 to do so Sell March CT Buy July CT pyramid this trade untill the roll date (sometime at the end of Jan or begining of Feb) when they are almost done rolling(watch the shift in open interest) close out and Buy May CT sell July CT wait patiently for it to play it out again untill the next roll.

- Leveraged ETFs suckers play!

Two ways to play this one out if you could borrow and sell short, short both FAZ and FAS equal $ amounts since the trade is neutral, execute this trade almost free of margin. One thing is for sure to stay even long after we are gone is volatility and triple leveraged products melt under volatility!

If you cant borrow the shares execute the trade using Jan 12 options to open synthetic short positions. This trade works with time and patience!

Vic, thanks again for providing a platform to listen and to be heard.


Yanki Onen

Phil McDonnell writes: 

When investing one should consider a diversified portfolio. But in a contest the best strategy is just to go for it. After all you have to be number one.

With that thought in mind I am going to bet it all on Silver using derivatives on the ETF SLV.

SLV closed at 30.18 on Friday.

Buy Jan 2013 40 call for 3.45.
Sell Jan 2012 40 call at 1.80.
Sell Jul 25 put at 1.15.

Net debit is .50.

Exit strategy: close out entire position if SLV ETF reaches a price of 40 or better. If 40 is not reached then exit on 2/31/2011 at the close.

George Parkanyi entered:

For what it's worth, the Great White North weighs in ….
3 Markets equally weighted - 3 stages each (if rules allow) - all trades front months
3 JAN 2011
BUY NAT GAS at open

BUY SILVER at open

BUY CORN at open
28 FEB 2011 (Reverse Positions)
SELL and then SHORT NAT GAS at open

SELL and then SHORT SILVER at open

SELL and then SHORT CORN at open
1 AUG 2011 (Reverse Positions)
COVER and then BUY NAT GAS at open

COVER and then BUY SILVER at open

COVER and then BUY CORN at open
Hold all positions to the end of the year

3 JAN BUY PLATINUM and hold to end of year.


. Markets to unexpectedly carry through in New Year despite correction fears.

. Spain/Ireland debt roll issues - Europe/Euro in general- will be in the news in Q1/Q2

- markets will correct sharply in late Q1 through Q2 (interest rates will be rising)

. Markets will kick in again in Q3 & Q4 with strong finish on more/earlier QE in both Europe and US - hard assets will remain in favour; corn & platinum shortages; cooling trend & economic recovery to favour nat gas

. Also assuming seasonals will perform more or less according to stats

If rules do not allow directional changes; then go long NAT GAS, SILVER, and CORN on 1 AUG 2011 (cash until then); wild card trade the same.

Gratuitous/pointless prediction: At least two European countries will drop out of Euro in 2011 (at least announce it) and go back to their own currency. 

Marlowe Cassetti enters:

FXE - Currency Shares Euro Trust

XLE - Energy Select

BAL - iPath Dow Jones-AIG Cotton Total Return Sub-Index

GDXJ - Market Vectors Junior Gold Miners

AMJ - JPMorgan Alerian MLP Index ETN

Wild Card:


VNM - Market Vectors Vietnam ETF

Kim Zussman entered: 

long XLV (health care etf; underperformed last year)
long CMF (Cali muni bond fund; fears over-wrought, investors still
need tax-free yield)
short GLD (looks like a bubble and who needs gold anyway)
short IEF (7-10Y treasuries; near multi-year high/QE2 is weaker than



 Super-clever administration strategists are suggesting Obama name "someone from the business community" to replace Summers, in order to overcome the perception he is anti-business, anti-capitalism and anti-markets.

To affect my perception he doesn't have to appoint anyone. All he has to do is to say something like the following:

"I want to try to correct the impression that the only businesspeople I admire are those who share the Buffet and Gates philosophy of raising taxes for ones behind them on the way up, or those of the type I praise in my photo ops, typically the owner of a new eclectric storage battery or solar panel factory in Michigan subsidized by the government who is creating green jobs and working towards our energy independence.

"That type of person may actually be less a true entrepreneur than what Rahm Emmanuel has told me is called a schmoozer, someone whose greatest skill is befriending politicians and wheedling subsidies out of the government.

"This may surprise you but let me give you an example — two random examples out of many possibilities — of some other businessmen I admire, David and Charles Koch of Koch Industries of Wichita, Kansas. Not enough people have heard of them, they are not as well-known as they should be, but the Koch brothers have taken a business inherited from their father and steadily built it, investing and reinvesting their own money without government subsidies, until it is now I believe the second largest privately-owned business in the country. In fact, some people claim they have created more jobs than my entire stimulus program. I hope that isn't true in that my stimulus program has done better, but nevertheless I admire what the Koch brothers have accomplished, for themselves and for their numerous employees, suppliers and customers. And for the billions of dollars in federal and state taxes that Koch Industries and the Koch brothers have paid.

"At the same time the Koch brothers have been majors supporters of a wide variety of charities and cultural institutions. And yes, of think tanks like the Cato Institute. Which I don't often agree with, but that's okay. The more thoughtful ideas the better, whether the ideas be liberal, libertarian or whatever.

"Now these folks have been demonized in a recent article by Jane Mayer in the New Yorker. I'm pretty busy in the White House and the New Yorker is one of the few magazines I actually subscribe to and read. But this article was really out of line. Any mammoth company like Koch Industries, especially an oil and natural resource company, will have occasional environment problems. And has the full right to lobby federal and state governments on matters of significance to them.

"And, as I said, the Koch brothers have the full right to contribute to libertarian think tanks like Cato. George Soros contributes to liberal think tanks and we don't demonize him.

"I admire the Koch brothers for what they have accomplished in the very difficult free competition of the marketplace. And I admire their philanthropic contributions whatever their political philosophy."

If he would make such a simple statement (of which the above is just one out of a million possibilities), the President could appoint anyone he pleases, could go shoot some hoops instead of wasting time vetting Ann Mulcahy, Richard Parsons and other washed-up veterans of the "business community"



 Movie rental rules of thumb especially for one whose girlfriend has a more humanitarian, international sensibility:

1. Avoid movies about poor people in f**cked up countries.

2. Avoid movies relating to "the troubles" in Northern Ireland. (This is by and large a subcategory of 1 above, since Ireland much of that time was a f**ked up country.)

3. Most movies would be improved by the addition of scenes involving the machine-gunning of Nazis. (This includes movies like Julie and Julia, Sideways, and A River Runs Through It.)

Can specs offer other rules of thumb?

Disclosure as to where I'm coming from: The movies I'd rate highest over the last couple of years (at least the ones I can remember):

The Queen

History of Violence

No Country For Old Men

Lives of Others

Taking Chance

Victor Niederhoffer comments: 

 Explain to girlfriend that if they take from the rich and give to the poor, it's a taking based on singling out one group based on attributes that the majority does not  like, and it is very dangerous when extended. Explain that it has to come at some one else's expense. Explain that when a game is played, it's unfair to take the chips from the winners after the game. Explain that if two people vote to take the third 's chips away, it's like a robber coming and taking it away. Explain that once you take it away from one group, after another, there won't be any one else to take it from, ( the Jews thing from the bishop again). Explain that people stop trying after they keep having to have it taken away. Explain that it's not theirs to give. That it's wrong to steal from others, even if there's a vote. Explain that when people approach each other from each according to their ability to each according to needs, they begin to hate each other always being afraid of what the other guy is wanting from you or you can get from him. Explain that there's no difference between taking from the rich and giving to the poor to buy votes and all this, and that this is the idee fixe of the party in power. Explain that buying votes by taking a small amount per capita from one group and giving to another, earmarks and logrolling is the same thing.

George Parkanyi writes:

Generally I agree with the points you make, but you need to define "rich", and how they got that way. If you are rich because of looting, subjugating/brutalizing, running people off their land, government subsidies, inside information/cheating, exploiting misery (in a way that perpetuates/worsens, not improves it), generally racketeering and so on (in business or politics) - no sympathy whatsoever. And if you are rich by benefiting from the commons - the environment, shared infrastructures such as roads/highways etc. then a fair contribution should be put toward the custodianship of that (fair being the same formula for rich or poor). But where someone acquires wealth by imagination, creativity, and effort within on a fairly accessible, level, playing field, then I agree wholeheartedly that forced re-distribution of wealth is wrong. As for inherited wealth, although that may appear to be a free ride, if someone bestows upon you the fruits of their work, ultimately it is their right to spend their wealth that way, so that also should fall under protection from external plunder.

T.K Marks writes:

At the early onset of a relationship, there's always a little dance that takes place. I call it the pas de deux period, the part of the performance wherein the two principals gingerly feel their respective ways around one another.

In one's youthful exuberance this situation invariably takes place against a backdrop of lots of saloons and even more beer.

However as one gets older and lest their elevated liver enzymes leaving them forever dancing with two left feet, they must summon up their inner-Balanchine and modify the mating choreography a bit.

As such, and with respect to film rentals, there is a cinematic litmus test of sorts that affords one a little window into exactly what they're about to get into.

Think of it as a diagnostic dating tool. Kind of like an MRI of the soul.

Simply explain to the lady that you're in the mood for a classic film and since the ultimate choice of the rental should should only fairly be a bilateral decision, how about if you choose the director, and she, the exact film.

She may very well be taken aback by your quick sense of interest in her input and tastes in art.

Then you tell her that the two directors you had in mind were Frank Capra and Ingmar Bergman, a blithe/bleak dichotomy if there ever were one.

If she bites on Bergman, you might as well just have snuck a peak into her medicine cabinet. That thing is probably going to choking with Paxil, Zoloft, or whatever the latest SSRI big pharma is pushing at the moment.

However, if she's reflexively goes for Capra, there's a better than even chance that the serotonin issue is off the table and you may have just walked into a Norman Rockwell painting.



the announcement At $25 million a year, plus a larger amount in endorsements, of course Lebron James chose Miami over New York, LA and Cleveland. Florida has no income tax. While those other states are among the highest tax states in the country.

Scott Brooks comments:

But that tax wouldn't make up the money he lost ($30 million) by signing with Miami over Cleveland.

J.T Holley writes:

The math is 12 million in difference for the length of his contract in State Taxes saved. That's over 35% saved in my book, better supporting cast, nice climate (Miami has never had a 100 degree weathered day recorded), So. Beach, he gets to finally be a man and leave home, and the insiders could've shorted MSG from let's say 21 to 19 leveraged? I'm just sayin'.

The King seems to be following the advice of his consultants rather well. In the Navy the ole' sayin' is "loose lips, sinks ships". I was quite surprised that MSG didn't spike more than it did and go a few more deviations to the upside. The tight lipped coverage and suspense was brilliant and had to be hard to keep up. This is especially amazing to me considering Wade and Bosh were also involved in the dealings ultimately in the decision.

There has to be a study of "high profile" free agents and "warm weathered" correlation to be done when it comes to money and choices. Does anyone know of a high profile athlete that choose a "cold weathered" city when the initial contract was up? Just sayin'?

David Wren-Hardin comments: 

Jody Rosen over at Slate had a short piece that I think nails it.

New York is no longer the hip place to be. For a young, minority millionaire, the post-racial (or allegedly post-racial) melting pot of Miami is the place to be. Everyone scratching their heads about tax breaks, endorsements, and culture is living twenty years in the past.



arsonAll those benighted idiots who took out adjustable rate mortgages a couple of years ago with 1% initial teaser rates are looking pretty good these days. They probably paid 4% interest over the last year, and are looking at adjustment to something like 3% for the year to come.

Ken Drees adds:

Pennywise, pound foolish. So what if you save some bucks on interest. You invested in housing at still questionably high prices, and interest rates can only now surprise on the upside. Selling your home (getting out) is not a button push. Housing can stay low and will for years–much longer than short term holders will be able to stand.

Now they should lock 30's. Lots of arson these days….



BP's stock price is up, while oil and oil stocks are down. My guess is this means those expert companies and brave underwater Red Adair-types in the Gulf will have the spill staunched a lot sooner than the media expect.

Pitt T. Maner replies:

You are probably right given that the following division of Superior Energy Services (SPN) is involved and has done subsea interventions before. Media reports have highlighted that coffer dams have been used mainly in shallow water situations but the Wild Well web page suggests otherwise. Oil service companies are master fabricators and extremely creative — especially when constructing fishing tools to pull things out of boreholes.

Interesting though that T. Boone Pickens this morning thought it would take four to five months to drill the relief well to remedy the situation. There are still a lot of unknowns but smart analysts, engineers and attorneys will be able to sort out the HAL, RIG, CAM, and BP et. al. downside risks.

Wild Well by the way was one of the first competitors to Red Adair and crew (Boots and Coots) that we discussed a couple of weeks ago.

Subsea Intervention Wild Well Control has helped Clients to resolve subsea blowouts and well control problems through direct intervention in water depths up to 6000'. Some of these projects include:
· Blowout through broach at the seafloor in 1700' water depth
· Blowout through broach at the seafloor in 5400' water depth
· Direct intervention planning for blowout in 5500' water depth
· Subsea blowout in 2000' water depth
· Subsea well kill with use of additional BOP stack in 600' water depth
· Direct intervention and well kill in 6000' water depth after riser failure
· Direct intervention into wells laying on the seafloor with coiled tubing in 100' water depth
· Direct intervention into subsea BOP with special high pressure riser and snubbing unit

Rocky Humbert writes:

In the past few months, we have had three important corporations suffer substantive adverse headline/litigation/business news: Toyota, Goldman Sachs, and now BP/Transocean. It seems that the headline effect wears off quickly — consistent with an efficient markets theory — but this needs to be quantified, and consideration given to whether there is negative forward-looking alpha. (Remembering : Philip Morris, Merck, Cendant, et. al.) Are there any good studies on this?

Rocky Humbert, quantitative analyst, speculator and master chef, blogs as OneHonestMan.



Word of the Day, for Victor:

aibohphobia (pronounced eye-bow-phobia)

Irrational fear of palindromes

The origin should be obvious…



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

Alan Millhone replies:

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

Dan Grossman writes:

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

1. We don't know what it is.

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

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

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

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

Pitt T. Maner III comments:

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

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

James Lackey writes:

Toyoda has been apologizing since he took the job.

1. Cars break.

2. All cars have defects.

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

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

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

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

7. See INTC keeping AMD around.

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

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

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

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

Akio Toyoda?

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

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

Occupation President and CEO, Toyota Motor CorporationEnd.

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



 I have a dumb question that everyone on television seems to understand but I don't:

If we lost 13,000 jobs in November, how come the unemployment rate declined from 10.2% to 10%?

Stefan Jovanovich replies: 

Base14 counting. The unemployment rate is not based on the number of people who are physically capable of working but do not have jobs; it is based on the official count of the people who qualify to be considered "unemployed". If your unemployment benefits have run out, you are no longer "unemployed" by the BLS's count. Senator Moynihan once said that before you can solve a social problem, you have to be able to quantify it. As the new science of climate change has shown, once you have a political agenda, your data have to match. And, if the facts are stubbornly resistant, you have to change the plain meaning of words until the facts comply. So, early winter snow storms and severe cold become further proof of global warming; and a stock market rally becomes proof of an economic recovery even though the increased corporate earnings are almost entirely the result of cost-cutting by laying off employees and capital subsidies to the people who deal in credit (the Federal bailouts are the carry trade).

Rudolf Hauser notes:

Stefan is incorrect when he writes "If your unemployment benefits have run out, you are no longer "unemployed" by the BLS count." The BLS definition of unemployed has nothing to do with whether or not you are collecting unemployment insurance. You are counted as employed if you worked at all during the past week, were self-employed, or are employed but did not work because of such things as vacation, sick leave, a strike, bad weather, etc. You are counted as unemployed if you have actively looked for work in the past four weeks. Actively looking includes job interviews, contacting an employer, contacting a public or private employment agency, contacting friends or relatives for job leads, using an employment center such as that of a university, sending out resumes or filing out job applications, placing or answering ads, checking union or professional job registers or any other active means of job search. Getting or not getting unemployment insurance is never a consideration. You are also counted as unemployed if you do not look for a job but are on a layoff and expect to be recalled within the next six months. To see questions asked and more details go to the BLS web site.

Dan,  your question is one that is often asked when the two series produce somewhat different results. Stefan's explanation is way off base. The decline in employment you refer to is the number from the payroll series which is based on report to the BLS from firm's reporting that information to the IRS. It is known as the establishment survey. It is benchmarked by the quarterly reports all employers, no matter who small (I filed reports for the people who cared for my mother) for purposes of unemployment insurance premiums. The reported numbers are revised annually based on that benchmark.

The unemployment number is obtained from a different survey. It is based on a survey of households by the BLS. Employment on that series actually increased by 275 thousand by that measure. It is based on the number of people who worked at all during the survey week. It is divided by those people who have been employed or actively looking for work. Naturally, the unemployment rate could decline with a decline in the number of employed (numerator) if the civilian labor force (denominator) declined even more, but of course that is not what happened in November.

Stefan Jovanovich responds:

But, that assumption (that the methodology is sound) is the very problem. The statistical methods can be completely sound and the outputs can be garbage because what is being counted are categorical abstractions that do not match up well to actual human activity. What the BLS has never done –as far as I have discovered– is test its own sampling techniques against data that cannot easily be fudged where enterprise is concerned. I have not found anything from the BLS that makes a comparison between the 1.5 million jobs that were supposedly created by new businesses started in the past year and a half and the actual data for incorporations, fictitious business name filings, and resale number applications– the usual indices for new business formations. Rudolph knows infinitely more about the details of how the BLS works; my point is simply that the tools of statistics can be used to build sand castles if "norms" are accepted at face value. It is like the Romers' presumption that government spending has an implicit multiplier that is greater than 1. That is certainly true– if you are a government employee. What the BLS is increasingly counting is "work" that is itself government employment; and its surveying is missing not only the "black" economy but also the "grey" one of legally-permissible activity that no longer fits the "standard" categories. My personal, non-statistical observation is that the shrinkage of activity in the black and grey markets here in California continues unabated.




While Belichick's decision is certainly controversial, especially in hindsight, I would not be surprised if objective statistical analysis showed that in general teams punt too often on 4th and short yardage.

Taking the usual kick and runback, perhaps the defensive team takes over an average of 30 yards down the field. If the offensive team can make the short yardage, say, 75% of the time, in general that seems a worthwhile tradeoff. Of course, Belichick was ahead, with two minutes to go, on his own 29 yard line, so not the most favorable case for it.

I recently heard of a small college team where the coach nearly always goes for it on 4th down, and nearly always on kickoffs kicks an offside kick to try to recover the ball. I bet he comes out ahead, although his tradeoffs are more favorable than in the NFL where kickers kick much farther, less chance of a kick's being blocked, etc.

I know nothing about football, but sounds a strategy worth trying more, especially if gives the defensive team a lot more uncertainty.

Bill Egan comments:

Belicheck's decision is a lovely example of bad risk control. He risked everything on one play.There are those who might argue that risk management should of course be a matter of necessary discipline. And even though it may behoove one's survival interests to never wager everything on one unknowable outcome, ratcheting up the risk parameters when one clearly has the upper hand, should never be ruled out. That said, even though one may steadfastly never risk anymore than x percent on any one outcome, it would hardly be unduly irresponsible to risk somewhat more than x to wager that Belicheck will not do that again anytime soon.

Why, because there's a considerable qualitative element at work here.

He wasn't the inevitable victim of the inevitable 100-year flood, some of which will inevitably if soggily cluster. No, he was the victim of not having any faith in his defensive employees.

And he knows full-well that the flesh-eaters in the media would reduce him to dry bones but quick if he did it that egregiously again, and it didn't work again.

Therefore, it would be relatively safe to dutifully wager that it won't happen under those same circumstances anytime soon, and it would hardly be imprudent to risk more than the ordinary x.

(Provided that's in the prospectus. Never mess with the lawyers, they're a lot cagier than football coaches. And the odds are always in their favor.)



Hypothesis One, by Victor Niederhoffer:

Whenever BRK big breaks through 100000 one way or the other it's wrong for the market.

Hypothesis Two, by Daniel Grossman:

Whenever Buffett pays stock rather than all cash (e.g., for General Re), he is bearish about the market. It's his only available way of selling BRK stock.


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