I'm looking right now at some verse etched into the frosted glass of a medical center's lobby. Written by the prominent American poet, Robinson Jeffers, I found it poignant enough to pass on.

It's a less prosaic way of saying: Nothing changes.

The cycles surely will, as Jeffers attests, but not the grand cycle.

It's the immovable and ineffable force which ensures that the inevitable underlying shifts happen in the first place. As such, the following reads like an ode to the law of ever-changing cycles. And Jeffer's use of the term "Someone", could easily be viewed as an oblique nod to the immovable force.

Someone whispered into my ear
          when I was very young
Someone whispered that
          what was gone returns;
          what has been, is;
          what will be, was;
The future is a farther past.

— Robinson Jeffers

Gary Rogan writes:

Totally true unless found in an e-mail with "Sent from my iPhone" at the very bottom.



 The web mistress, as you doubtless know, has a very good sense of humor and her pictures are often very funny. I asked her if she could find a picture of a young kid "heading the ball" in soccer to go along with what I just wrote about the man. And it will be interesting to see if she does.

T.K Marks writes:

I've always found the selection of the photos that accompany any given DailySpec article to be a delightful adjunct and sometimes so mischievously ironic as to be sublime in and of themselves. A cornerstone of my personal philosophy is the highest forms of truth oftenmost are found in the irony. As such those photos generally resonate well with my sensibilities.

So some years ago I started wondering just exactly how those photos somehow came to be matched up with their articles. To do so I had to get inside the head of the website's art editor, someone whose identity and background I did not know. So I would play a little exercise with myself: Read the article and then try to cull the exact terms or themes from such that when entered into Google image search would yield the photo.

You might want to try this little bit of forensics with Aubrey at some point as doing so would probably help further develop astute acumen in his bright young head. I can hear you now, "Aubrey, find me the provenance of this photo in the next 5 minutes and you have permission to stay up a half-hour later this evening."



Out here in Berkeley, they have a little quirky perk when it comes to parking lots. It's the antithesis of parking for the handicapped; it's parking for the gifted.



 As far as emotional bloodsports go, there promises to be a bit of athletic theater at MSG in NYC tonight.

Mike D'Antoni and his Ritalin offense, both recently of the Knicks, come to town with his newest victims, the low-ebb Lakers, a roster of all-stars suddenly resembling the cast of a Jerry Springer show in their collective dysfunction.

Carmelo Anthony didn't exactly see eye-to-eye with D'Antoni when they were both here in NY last year so Melo is probably going to try to put on a show to rub it in to his erstwhile nemesis. While on the other hand, Kobe Bryant never likes ceding the spotlight to anybody so he's probably he's going to try light things up as well.

As for D'Antoni, this does not exactly shape up as a MacArthuresque return, as the crowd is probably not going to be very hospitable. There will be nothing genteel about any of this. D'Antoni probably won't need a Kevlar vest but a pocketful of Xanax might be strongly advisable.

Victor Niederhoffer comments: 

This was written before Antoni trash talked the team after his loss and boos. Someone has to say, "coach, it's not the players, it is your system". 

Uncle Howie Eisenberg writes in: 

Agreed. His system obviously doesn't work for the current Laker roster and he keeps trying to shove square pegs into round holes. He is the anti-Jackson who became the greatest coach or manager that ever lived by getting the most out of what every player brought to the table. Case in point: Instead of capitalizing on Pau Gasol's great ability inside which puts him among the top 3 power forwards or centers in the league, he has him on the perimeter where his outside shooting is middling and berates him for not being in shape to run full speed all the time. He (actually) is a Hatfield in need of a McCoy to run him out of town. Unfortunately Jim Buss by his early morning rejection phone call to the Zen Master has forever precluded the return of the guy who could have best exploited the 4 HOFers on the Lakers while enabling the others to transcend themselves.

As far as the defense is concerned I don't know whether it is as Felton said not getting back in time, or the over emphasis of the fast moving offense that causes players to either not put out on defense or maybe not have the energy to do it on both ends of the floor.



 An archaeologist looking through my house in the future would come across a purple post it stuck on p.322 of Paul Johnson's "A History of the American People". It's over the quote "all serious visitors such as Dickens, Trollope, and Thackeray who intended to write books about their travels visited one or more prisons as well as workhouses, homes for fallen women, and similar dismal but worthy places". Now who would have placed such a post-it. Ha, only one person. The Hobo. And it would lead the archaeologist to conclude that Hobo was living here in the attic in 1997 when the book was published before his trip to Thailand.

The Hobo  (Bo Keely) responds:

u clairvoyant.

Victor Niederhoffer replies:

One wishes it were true.

T.K Marks adds:

To your credit, let it be said that anybody who has never had a hobo living in their attic has led an unfulfilled life.



 There's a market lesson in this cartoon.  That lesson is that it is sometimes very dangerous or even fatal to believe in what everyone else around you believes. There are probably many more lessons here, but this one just jumped out at me.

T.K Marks writes:

On the perils of consensus, I recall standing uneasily in the silver pit one afternoon some years ago. The market had been probing new highs in recent weeks and on this day the entire ring had loaded up long going into the close. Visions of stop close-only buying dancing in our hopeful little heads.

But suddenly there was an eerie silence and a collective epiphany as it dawned upon us that we were all in the same boat.

At which point an inveterate misanthrope amongst us asked rhetorically of the pit, "When was the last time EVERYBODY was right???…"

His words had the same convulsive immediacy as James Baker's "Regrettably…", only this time it was said by a brawny Italian guy from Staten Island rather than a Brooks Bros. WASP from the State Department.

Seconds later the bell for the silver close rang and the bloodbath began. It's quite a spectacle to see 100 pit traders simultaneously try to dump longs for their own accounts, nary a bid to be found.

Been known to lead to some momentary inefficiencies.

As for the misanthrope whose mischief triggered the whole debacle, he was long too. But his value system valued mayhem as well as money and this was just too ripe an opportunity to pass up. You see he was a downside terrorist by nature — rarely met a collapse he didn't like or profit from — and on that occasion wanted once again to teach the wobbly longs a lesson.

Even if it cost him 20 grand.

Other than that little personality quirk he was a fairly upstanding guy. Generally stayed out of jail. Last I heard he was teaching a Lamaze class in one of the "tonier sections of Bensonhurst."



 I would suggest from long experience and no contraries at all, when someone offers you a free lunch don't take it. When someone offer you a ride to the pent house, get off at the first floor. Never accept anything that's too good to be true, and that would require the firm or you to break the law or break the bank if they offered it to many other people. And above all, never do anything wrong yourself, as that's the first step to losing everything. When you are in Apache or Aborigine territory beware of an ambush. When you aren't in likely ambush territory, be double beware.

T.K Marks adds: 

The silver pit corollary: Never buy anything offered beneath the bid.

Especially a solid bid.

This took about 1 day's experience to figure out. If's it's 6 bid around the ring and some guy nonetheless starts 'energetically' offering 200 at 4, it doesn't mean he's a numbskull and those contracts are a bargain, it more than likely means he's "strategically" short and has 500 to sell at 2 stop.

An anonymous commenter writes in: 

 Such good advice. And nowhere do I find it more relevant than with people who make gifts of their trade recommendations. When portfolio managers have a view they truly believe is great, they are apt to keep it for themselves. No one wants to get other large players in the position only to have them front run one's exit. But if portfolio managers lack genuine conviction, they will try to bolster their confidence by attracting others to their side, sharing their recommendations widely. Often, these recommendations are made in a defensive tone that brooks no dissent, with scant evidence, as in, "Only a fool would be long, with money printing such as this." The purpose is not discussion–or enriching the accounts of others. Rather, it's a desperate search for confirmation–and a worthwhile tell at the market's poker table.

One bear recently provided such a perspective based upon the disastrous policies of central banks and the parlous circumstances of the Middle East. I responded by showing how stocks have behaved when more than 80% of shares within the S&P 500 Index were trading above their 5, 10, 20, 50, 100, and 200-day moving averages. Returns over the subsequent month have been quite bullish, as breadth and momentum have tended to persist. It was as if I had insulted the manager's mother: a huffy response tantamount to "this time is different" delivered in a condescending manner was the reward for my attempt at discussion. That was quite a few S&P points ago. The bear is now generously sharing a variation of his prior offering, in the form of a "bursting bubbles" thesis…more free lunches offering scant nutrition.



 Hello everyone.

I notice a lot more metal roofs being installed on residential home roofs of late. I asked my banker CEO how appraisers feel about metal vs. shingled roofs and he had no answer for the present.

I note most of the roofs I see being applied are metal over existing shingles. I am old school and prefer a 30 year dimensional shingle. I have a couple of my apt units that will need roofed (I tear off and never do a tack over) and will use shingles.

Any thoughts?



T.K Marks writes: 

Alan, you underestimate yourself. You transcend old school. You're paleo-school. Straight out of a Norman Rockwell painting. Never change.



 Zuck gives an interview and FB kicks up 5%. There's still no clarity on how it will triumph in the mobile space, how it will address the decline in FB use among teens and young adults in the US, or retention of employees given the stock's performance to date. I suppose one could argue that the only place for FB to go is up, but just because it doesn't decline anymore doesn't mean it will go up.

Maybe I'm missing something here?

Easan Katir writes: 

Only twenty more speeches and, at this rate, the suffering shareholders will break even. 

T.K Marks writes: 

So today's philosophical conundrum might be, would it be unethical of him…to front-run his own speeches?

Given the circumstances, that's a question more easily posed than answered.



 My Dad used the rails to commute to his summer job in college (through a friend he had an "in" at the Hotel del Coronado in San Diego and he worked there first as a busboy, then as a room service waiter). It took him two, sometimes three days to get from Denver to Southern California by way of the Union and Southern Pacific. He said it wasn't anything like the movies. No "bulls" chased anyone in the rail yards when the cars were in motion; it was too dangerous for them or anyone else to be running around moving trains. He said the railroads were sensible enough to know that their security risks were not from people riding the empty cars but from people breaking into the loaded ones. That was the reason the empty box cars had their doors locked open; the railroads didn't advertise the rule but, Dad said, everyone knew it. If someone was caught touching a locked car, they would have the crap beaten out of them; if you road in an open car, the most that would happen would be a verbal roust. He also said the reason people jumped off the cars as they came into a yard was not from fear of the bulls but to catch the next train. There was no point in riding the freight all the way into the switching yard where the individual cars were uncoupled and recouped. You wanted to catch your next freight after it had been assembled and was about to head out.

Dad loved movies — all movies; and one of his favorites was The Emperor of the North. But, he loved movies for their fiction, not their reality. (He told a wonderful story about his disappointment the first time he went to the Stork Club. It was so "tiny", nothing at all like the places where Fred and Ginger had gone to dance.) Hoboes did get beaten up by cops; but the violence of that life came far more from the other hoboes than the cops. He said Jack London's On the Road was much closer to his experience than Wild Boys; the time he worried most was when he was on his way home, with his summer's savings in postal money orders. The risk was that one of the younger, angry drunks would become enraged enough to badly hurt him when they realized the "money" they had robbed from him was worthless. (For insurance he said he carried a few silver dollars in his pockets - Roosevelt had not confiscated those - and kept the money orders folded up under the inner soles of his shoes.)

T.K Marks writes: 

I used a much similar strategy during college when riding the NYC subways, a mode of transportation that was completely foreign to me.

At the time the City was in the throes of a fiscal calamity, to the point of police layoffs. The cops that managed to keep their jobs were dispirited and overwhelmed. As mayor, Abe Beame was in charge, but didn't remind anyone of John Wayne in that capacity.

Beame was a bookkeeper by trade. Bad guys of the violent variety are generally not intimidated by men who wear green eye-shades for a living. Thus, in the NYC subways of the late-70s, it was halcyon days for hooligans.

I hadn't grown up in an urban environment, no less a lawless one. As such I felt about as home in these new surroundings as Kosinski's protagonist in "The Painted Bird" did in his.

Welcome to predation, young man. Next stop, perdition. And it's a dark length of track in between.

The trick is to switch metaphorical trains, when the switching's good..

So I would routinely take the preemptive measure of keeping an illusory couple of dollars in my pocket while putting the bigger balance deep in my sock, under my sole. No tell-tale bulge. Those bills could ultimately have been fresher, but chances are at least they'd still be mine.

Luckily, was only accosted once. It was on a lonely, late-at-night #1 train, going up the West Side. They approached, and asked in no uncertain terms if I had any 'spare change'. My hayseed innocence generously complied, gave them the minor contents of my pocket, and that was that. Though I can still hear my heart from that night…Thump…Thump…Thump.

I bear no lasting ill-will towards them. They let me keep the Herodotus book that I was reading.

All of which I found only appropriate. He was a worldly historian from antiquity whom I guarantee would not be at all surprised how little the world has changed since.

The reason being, when it comes to understanding the driving forces of human nature, circumstances are made of sand; themes, of stone.

I think.

Well…actually…on second thought…I'm pretty sure of that one.

Whatever the case, in the millennia that have passed since his time, I'm not sure Herodotus has ever before been mentioned in conjunction with some kid getting rolled on an uptown #1 train, but that's how it went down so what can I say.



 One of the great regularities that I have observed from a long and not uneventful career in trading is that whatever governments want, the governments get. If they want stock prices to rise before an election, or oil prices to decrease or commodity prices to decrease they get it. They have so many trillions to work with, so many entities that can be called on to increase the perks and power of the governmental entities. There's the EU, the IMF, the central banks, the what have you. It always amazed me that the palindrome was able to overcome the Old Lady on the pound. All HM Government had to do was tell the private banks to charge 200% interest to the palindrome on the leverage. In those days, presumably the private banks were more independent, but now their very survival, profitability, and existence is dependent on the good will of the governments with the direct investments, the bailouts, the purchase of bad assets, the cost of borrowing reserves, the fines, the regulations that permit their existence unless they agree to further the "Idea". The whole thing must be quantified. And a subset of governmental market reactions must be found that are susceptible to predictions based on specific times, and events. (I think).

Art Cooper comments:

I agree that that is correct, what governments want, governments get, but that's merely the first stage. The second stage is that those groups/powers which have the greatest influence on government get what THEY want from government in those matters which are most important to them — that's who government serves. If Traveler's Insurance wants the repeal of Glass-Steagall so that, post-merger, they can continue all operations in a new Citigroup, then Glass-Steagall will be repealed. Special-purpose legislation seems the primary purpose of contemporary government.

T.K Marks writes:

I've often pondered what you said about the palindrome myself. My only conclusion was that he had to know that his position interests were favorably aligned with enough sovereign interests to pull it off. Or else Greenspan and his monetary brethren the world over would be very wary of the precedence of one private concern successfully staring down a central bank to the point of capitulation. And then basically reveling in the adulation.

Gary Rogan writes: 

And that's an example of "knowing what's going on in the world" and making money from it. He seemingly makes these highly complex "let's reason it out" calculations and bets on them. Not long ago Victor related a story about Palindrome wanting him to bet on something using his reasoning and Victor retorting that he had to do what his numbers were telling him, or something like that.

The few times I listened to him drone on about globalization or how Europe will or will not solve its problems he sounded half-insane, but it evidently still works for him. Of course he now has a lot of influence, so there are self-fulfilling prophecies possibly at work.




 I live immediately down the street from the Cal football stadium. Little more than a touchdown run away, actually.

So I'm sitting out by the sidewalk as I type this, amidst much hoopla. Taking in the scene, drinking my morning coffee. The season kicks off in less than an hour, Cal playing Nevada, and the neighboring frat and sorority houses are exploding with beer and BBQ activities. Today's game holds extra significance as the newly-renovated Cal stadium opens up after the team had to play last year across the Bay in SF.

So as the parade of fans flow towards the stadium I see two guys who appear educated in ways other than academics making their ways through the crowd. One's holding a sign which reads, "I need tickets."

As they walk past me I ask, What are tickets going at?

The guy with the "I need tickets" sign says, 40.

40, I say, noncommittally sipping from my mug of coffee.

Then the sign guy immediately says he'll pay 50. Rather enthusiastically, actually.

So I tell the guy, I'm a buyer. Which I don't think came as a complete shock because the sign guy's sidekick quickly let me know that he's got some for 200.

So basically what I was dealing with here was a couple of sidewalk ticket entrepreneurs making a two-sided market, 50 bid, at 200. Which was rather clever as the cardinal rule of pit trading was the counter-intuitive notion of bidding when already long, which they obviously were. I guess that precept extends past the pits. All the world's a trading floor.

Whatever the case, I told them that I would think about it for a while and they shuffled away. About twenty seconds later the guy with the $200 offer comes back and informs me that he's now suddenly willing to sell at 50.

At this point I had to laugh as I told him that I presumed that his partner had pulled his 50 dollar bid or else you guys are making a flat market in football tickets while standing outside a stadium. That's a curious business model, I added.

"Do you want one or not???"

20 dollar bid.

"Twenty dollars???"

Yeah, was all I said. He didn't say anything as he handed me the ticket; and me, his money.

The game starts shortly. The football one. The other game just ended.



"The set piece" is an elaborate and memorable interlude in a film or book, e.g. a duel, an escape, a death which is visually striking and somewhat apart from the main story. I like the set piece in Post Captain where Aubrey is dressed up as a bear to evade the French or the train scene in Atlas Shrugged where the workers come to make the ride safe or best of all the scene in Reverse of the Medal where Aubrey is sentenced to the stocks and all his shipmates line the street to prevent him from getting pelted. I understand there is a nice set piece in The Dark Knight where the plane is hijacked at the opening but I missed it amidst the 3 hours of heroism and villainy. What are your favorite set pieces? The set pieces in Count of Monte Cristo are frequently used as great ones.

It's somewhat similar to the Pitching in the Pinch of Christy Mathewson where the crowd is on its feet and the pitcher bears down and it's sudden death at a count of 3 and 2 with the bases loaded. Okay, the market has set pieces. It's a conflict between bear and bulls often with wide gyrations that yes, stand out on a chart, and perhaps have great volatility and volume. Perhaps a change from limit up to limit down like used to happen in silver in a second or the announcement that catches everyone the wrong way and leads to the running of stops, even both sides.

It could be the battle royale that leads to a turning point. What is your favorite set piece in the market and how can it be quantified. And yes, are there any predictive aspects to it?

T.K Marks writes: 

"Perhaps a change from limit up to limit down like used to happen in silver in a second"

Once upon a time I was a fledgling silver clerk during just such an occurrence. Was buried 'neath an avalanche of order tickets, limit up bids in the same pile as limit down offers. They met in the middle and both buyers and sellers thought it was Christmas. They soon made me a trader because I somehow kept my cool that day.

I think that fortune oftentimes smiles on those that find calm in chaos.



Suppose there were 2 people in an economy. And they traded. The second lost a lot. The other did not. A central bank bought the asset that the second had to make him whole. The Treasury then spent the amount of the loss on better environmental things for government buildings. The money to pay for this would come from the first person in current taxes. What would happen? The total spending would not change as the second would have spent the money he was taxed or invested it with someone who would. The incentives of the second would decrease to zero so that there was no effort to improve any more. The situation would not be much different for 10 traders. The incentives would be ruined for the winners. The spending of the winners on voluntarily exchanged things would be replaced by political wasteful spending by the government. The economy would not grow. Jobs would not be created. Why is this not a reasonable model of what's happening now and what happened during the 30's when FDR tried similar government works?

T.K. Marks writes:

A creative academic sort might counter with a disingenuous application of Ramsey Theory, positing that unduly reducing the number of elements in the set strips it of the properties from which the desired outcome will emerge. According to such an approach, reducing the system to only 2 or 10 traders (i.e., dynamics easy to understand) would inherently alter the palliative effect of intervention models. Models which can only work on vast systems of millions of traders (i.e., dynamics extremely difficult to understand).

If somebody can sit before some House subcommittee on something-or- another and manage to keep a straight-face, the above can actually be pulled off. As a matter of fact, variants of it happen all day long in Washington.

"…Ramsey theory, named after the British mathematician and philosopher Frank P. Ramsey, is a branch of mathematics that studies the conditions under which order must appear. Problems in Ramsey theory typically ask a question of the form: "how many elements of some structure must there be to guarantee that a particular property will hold…"

Phil McDonnell writes: 

Rocky [see post below] makes some good points but at some point finesses the concept of (some?) politically wasteful spending into all government spending is wasteful. Personally I would posit that some government spending is always wasteful but not all is. On the other hand most government spending is uneconomic. I say this based on the fact that if the activity was economic then the private sector would probably have already done. it.



 It has always seemed to me that one of the worst and most frequent causes of defeat in basketball is showboating. After being ahead two games ago by 17 points at the end of the third quarter, the Knicks managed to lose to Atlanta. The loss came after a 3 point shot by Novak that the whole bench jumped up to cheer about to Novak's Gallinari like smile of triumph and joy. I say that too many games are lost when one team has a large lead to bear consistent with randomness or lack of serial correlation which some Kahneman like biased researchers playing to the crowd have posited for bastketball. A main cause is showboating but the general problem of letting up is relevant also. "Never let up" is a great motto for market players and basketball players. I tried to insulate myself from this in squash by pretending that the score was reversed against me when I got a good lead in squash. I tried to hold my opponents to straight game losses and under double digits when I played. And to a remarkable extent I was successful at it. I don't ever remember losing a match when I had a big lead, and I remember all my losses. I wish I were as good at not letting up or winning in the markets as I was at squash. I am not one tenth as good. What is the remedy for letting up and showboating in the market? I would say the answer must be quantified. What's the expectation when the market is up by x or more with just y hours to the close. What happens after a inordinate move with a bar? That's a start.

A coach unlike the terrible and ineffective D'Antoni who was such a source of the Knicks losing records, and now that he has been fired is receiving such loving and adulatory treatment by the press, in a syndrome of "don't say bad things about the man who died" was actually encouraging of the showboating. Which coaches are good at rooting out showboating, and good at maintaining leads? What can we learn from them? How could it be applied to markets?

On another front, a reader writes in response to Tim Melvin's great piece about baseball that baseball is dying in the US as the blacks abandoned it for basketball and the kids now abandon it for soccer. He says the baseball diamonds are empty. Is this statement true? Are there any profitable activities based upon that idea? I wonder if it can be generalized to buying stocks that the kids are interested in as opposed to what adults like. My kids are very adept at picking stocks.

T.K Marks adds: 

The showboating tedium would appear to be not limited to basketball, but rather a pervasive plague that cuts across all sports. Golf may be the last refuge of sporting decorum. Same for Wimbledon.

Some years ago NFl coach Marty Schottenheimer referred to this trend as the "SportsCenter mentality." Everybody wants to be an ESPN highlight. As such, the objective in many football circles is no longer to wrap one's arms around the ballcarrier to better ensure making the tackle but rather to lead with the shoulder and try to knock the guy into the next zip code. The problem is they're going after a moving target and shoulders however brawny can't grab. Arms can.

"…In 1998, when the Kansas City Chiefs were penalized 15 times in a game, many for taunting, showboating, late hits and every act of unsportsmanlike conduct, their disgusted head coach, Marty Schottenheimer, explained, "It's the 'SportsCenter' mentality."

A cultural anthropologist might say that the devolution of decorum that we see on playing fields is a reflection of shifting social mores that increasingly accommodate an anything-goes, me-me-me collective mindset. It's the ascendance of flamboyance over fundamentals.

It's not a trend that is limited to sports. A friend's mother is an English professor. She once shared with me an observation she had made of her students: Nobody could spell anymore. Even seemed to be oblivious to the 'i before e' thing. Rather, they all went for shock value in their compositions. The implication being that spelling was insufficiently postmodern in their eyes, I guess.

P.S. I may have to re-visit that golf as a redoubt of manners notion. As I type I'm watching The Masters on tv and Tiger Woods just hit an errant shot. He kicked his club, demonstrably pouted, cussed. The whole fairway intemperance package.

Kurt Specht writes:

Fortunately, Tiger is the rare exception and nearly all involved with professional golf do maintain civil decorum. He has been an arrogant ignoramus for many years.

Jay Pasch adds: 

This is a gold mine for a trader, and for the bullish chartist to invert the chart once in a while in order to see what the other side has in mind…

An anonymous contributor writes in: 

Perhaps the markets equivalent to showboating is market arbitrage, because both have a way of snatching defeat from an apparent victory. Both show disrespect for those on the other side of your performance. Both imply that you are the smartest most talented and your approach is the only side worth considering. The other side is either stupid, without hope of duplicating you or blind to the easy win.

Sometime the common sense of "no free lunch" will help those vulnerable to hubris reject something presented with the actual word "arbitrage". However, if you are vulnerable to hubris of omniscience (including science is complete and has all the answers) or manifest destiny (mystical chosen favor) you still are prone to believe the con man pitching your talent, position and place. You want models or world views that confirm you are right rather than confront where you need improvement. You do not want to look for the true risk reward trade off.

The reason both showboating and "arbitrage" are so dangerous is: it disarms one to the risks, so that you become blind to the risk outside your vantage point. It dismisses the risks that you are the one wrong or the sucker at the table that you are being hustled (see AIG or subprime CDO counterparties to the too big to bring to justice). It makes others hold you in the same contempt you show to the weaker hand… and makes you a target for the bigger fish. It invokes envy. It causes you to seek affirmation rather than constructive criticism, making you prey for those with flowery words. It rejects coaching especially from those "beneath" you. It assumes you have arrived and need not evolve.

Risk is constantly evolving. If there was an underlying attitude that caused the crisis it was that AAA credit was not vulnerable to this evolution. 

Russ Sears writes: 

Vic, one need not worry too much about baseball's future if one visits small towns in Oklahoma and Texas. What the blacks may have abandoned, the hispanics have filled in. There will still be those most hungry for success ready to fill the city kids place.

35 years ago, in 6th grade, I lived in Glencoe, OK, a town so small that I could walk from one side to the other in 5 minutes. I played 3 sports, baseball, basketball and track. The biggest building was the school gym. The stands would be half full for a 6th grade baseball game. The population would more than double when the high school teams played since the county folks and the visiting team's fans also swarmed the stands on a Friday night.

I went back to visit a couple years ago. The dirt track was now trailer classrooms. The whole town had turned into a trailer park,  perhaps tripling the population from 1970s. Glencoe is now the "new" poor, those outside the mainstream media view but growing, looking and waiting for their chance. The town is run down, the houses from the 70s all are run down and trailers surround them, even on the smallest lots. Besides the trailers, the school building are all from the 70s.

However, the baseball diamond is much bigger and better than before. The stands and concession building are much bigger also. I imagine them full on a Friday night in May.

I would suggest that in addition to trusting the stock picks of your kids, you ask farmers and others who travel all over the country their local picks. Ask those where the money is flowing what they see.



The Moon Illusion

April 9, 2012 | 2 Comments

 This was the moon over Manhattan Saturday night.

It was a great example of the phenomenon known as the Moon illusion. The viewer's brain plays tricks on the eye that result in an optical illusion that the Moon is considerably larger nearer the horizon than when it's higher up in the sky. It's not larger actually, but it certainly looks like it is.
When it happens it's breathtaking to behold. One of my favorite natural phenomena.

The first time I saw it was in NYC and it was extremely low on the horizon. An absolutely gigantic sight, it was framed by the tall buildings of a crosstown street I was walking down. It looked like a huge orange beach ball sitting on the ground somewhere just across the East River.

All the pedestrian traffic stopped and everybody just stared eastward at it. In silence, mesmerized. Finally some kid asked me, "Why did the Moon land in Queens?"

I told him it was re-fueling at LaGuardia.

Judging by his nodding reaction, I think he bought it.



 The question everybody asks but is not willing to answer is "why did nobody recognize Jeremy Lin's talent until it was obvious?"

Well a basketball counter did:

"Truck Driver’s Analysis Predicted Lin’s Potential as a Professional"

However, the obvious answer is prejudice. Not just racial prejudice, that would be too easy and would let the NBA, NCAA coaches and the media off too easy. These groups have learned to destroy racial stereotypes and marginalization.

There is a bigger prejudice that seems to be ignored. If you do not need others to help you but can lift yourself up by your own bootstraps, often those in the business to help, colleges, coaches, professors, and the media do not want to help you.

Jeremy was smart, male, Asian, had a close supportive family, and was a person of strong faith and beliefs. He was going to make it, with or without basketball.

I believe much of the mystery of why people believe, what to an outsider appear to be crazy things, is explained by considering the Amish.

For the Amish, you either chose to believe and live like the community tells you to, or you are ostracized by your family and your community. While most modern Christians and Jews do not usually go to that negative extreme, it is still a statement of trust and a heavy reliance on your family and your family's community to be a person of faith.

They don't trust or rely on the establishment, the government and experts for answers. They believe in the individual rather than making the individual small to build the system up.

Perhaps nobody wanted to take a chance on him because it is obvious that he made himself… not some coach or some college minority scholarship program. Nor was it because he was casting his family aside to follow some enlightened professor's political agenda. The reason nobody saw Jeremy Lin was because nobody was going to get the credit for making him… except himself.

T.K Marks writes:

 Meanwhile, over there Milan way, the cognoscenti are apparently are asking the same of "Il Baffo" — The Mustache."

Previous to this Continental information I had always thought that he was just a guy that didn't coach a whole lot of defense. The John Wayne thing was lost on my Stateside ways.

Il Baffo…Now I've heard it all:

"If you are remaking a classic Western, say Stagecoach or The Wild Bunch, how do you NOT cast Mike D'Antoni as Sheriff? That 'stache!!!" — Miles C.

"It truly is majestic. (I like this old ode by Rob Peterson.) I would be proud as an American to watch D'Antoni draw pistols while on horseback in Cheyenne.

"However, you have to be careful not to start typecasting the Knicks coach as a pure Westerns guy, because then you're missing out on one of the best things about him: his international flava.

"D'Antoni remains a beloved hoops figure in Italy, where he played for most of the '80s and won four league titles, all while sporting the same duster (in cut, if not color) that remains today. Marc Berman wrote in the New York Post last season that D'Antoni is still referred to in Milan as "Il Baffo" — The Mustache. Or, says Google Translate, The Whisker, which I think we can all agree is superior. "Contento per Lin, ma sopratutto per il baffo … il tanto vituperato mike d'antoni," wrote one commenter, named Luigi, on an Italian basketball blog after the Knicks beat the Sacramento Kings last week. Translated roughly, that meant: "Happy for Lin, but especially for the much-maligned mustache … Mike D'Antoni."

On that, Luigi and I are speaking the same language…"



 The other day while sitting in the local coffee shop I came across a thin volume of poetry, laying lonely on a shelf. I began leafing through it, and was so taken by three of the efforts, I copied them down on a napkin.

Written by somebody named Joe Connor, they were love poems, each composed in a brief and uncomplicated fashion.

The first one, Love Poet, I liked because of the seashell metaphor. Verse is an underappreciated art form. Perhaps because, like seashells, at times there seems like there's so much of the stuff around we take for granted the individual charms. Having never been neither, one still gets the unmistakable impression that both poets and seashells can be lonely incarnations at times.

The second one, Bind Me, I liked because of the delightfully simple rhyming scheme: ABCB. In writing, technical technique can be somewhat obtrusive at time; in writing verse, it can be fatal. Simple is sublime.

Mr. Connor's third selection here, Good Bye, I also enjoyed. It's good. It's brutal to behold….but it's good. Love is a contact sport, sometimes you take a hit. Sounds like he must have taken one at some point.

Given the spirit and theme of the day hopefully somebody may enjoy these three poems I serendipitously came across as much as I did.

– Love Poet

To be a poet
Is to spend your life as a seashell
will hold close enough
to hear the beating of their own heart.

–  Bind Me

Bind me to your kisses
Tie me to your sighs,
Chain me to your passions,
Lock me to your eyes.

Let us live a thousand years
As close as lovers do,
Clinging to this flower of life,
Like orbs of mourning dew.

Then if in ten hundred years
Our embrace doth chance to break,
Yeah, …only for a single breath,
And then our arms remake.

– Good Bye

When you left me that note
Saying you were leaving,
Tucked so carefully in my sleeve
I almost died.
You would be back, you said
Perhaps, but not to wait

The caustic glue of love
Will hold me for some time
Yet an acid anger churns my every touch

It was you who said
I had my foot in too many worlds.
I would have preferred some anesthesia
Before the amputation.



 Aubrey learned a good lesson today. I took him to buy ticket scalped to the Knicks/Lakers game at 5 pm yesterday. Game starting at 7 pm.  Our first con man insisted on the street that tickets were 400 a piece but we should be very careful because there were disreputable people selling tickets. When I told him I only had 400 bucks, he introduced us to one of his colleagues who pointed to the pizza joint north east and told us to wait there and he would see what he could do. He then came back and told us, "I have to tell you and repeat that these tickets are for the third upper level. Is that okay?". I appreciated his honesty and turned over the 400. When I looked at at he tickets when Aubrey said "let's go to our seats" I noticed that they were for a Bucks game that had transpired 2 weeks prior. I went to look for him on the corner but he and his accomplice had disappeared. I felt it was a great lesson for Aubrey that I wish I had learned from my dad many years before as it would have saved me tens of big. I believe the lesson has enormous market implications and I will test a few things in its honor.

What I liked most about the con was the attempt to show their honesty by pretending to be super scrupulous in telling me that they weren't giving me the best tickets. I guess this is like the broker who tells you that most customers lose. Or the market that tells you that you're selling below the previous high et al.

T.K Marks writes: 

 Many years ago I fell for a similar switching con, one perpetrated by a deft band of street entrepreneurs.

It happened at the end of the day as I made my way to the E train entrance in the World Trade Center. Amidst the rush hour bustle were two guys with two cartons from which they were purportedly selling phone answering machines for 10 bucks apiece, a bargain price at the time. Being familiar with the wily ways of the City I would ordinarily be somewhat circumspect about these type of retail circumstances, but my fears were allayed by the fact that the things were in official looking boxes, each sealed in shrink-wrapped plastic. But the thing that really sold me on the deal was the weight of the box — It clearly wasn't empty and in fact appeared to weigh almost exactly what a phone answering would.

So I bought the thing and got on the subway.

Upon reaching my apartment I got a knife, cut through the plastic wrapping, and opened the box.

Inside, gingerly swathed in a cushion of some Chinese newspaper, was a brick.

It wasn't even a new brick, it was an old brick.

 Rather than get furious with the situation I just sat there and smiled wanly, admittedly impressed with the creative lengths the "retailers' how gone to to pull this routine off. They had picked the right place, the right time of day, somehow came up with the real boxes, and then topped it all off with the plastic shrink-wrapping gimmick so that none of the customers could inspect the goods right on the spot. Balanchine couldn't have choreographed this ballet any better.

After proper reflection though, I learned a little lesson though. Given that the store price for these things at the time was about $60, I should have realized that at10 bucks, those street guys were selling the stuff too low.

One should always be wary about buying anything offered beneath the bid.

Russ Sears writes: 

Scalping tickets is legal in Indiana (at least it was when I lived there) and therefore apparently much safer and honest transactions more likely to occur. Sellers often sell in front of the police to insure honesty and safety for both sides. Family guys will routinely offer to sell a ticket for you if you cannot make it to a big game at Purdue or IU. Not sure if this has changed in Indianapolis due to the Final Four and Super Bowl.

Alston Mabry writes:

I would say that asking you the question whether upper-level seats are okay is not so much to demonstrate honesty as it is to control your attention. I think a critical part of any con is to control the mark's attention and direct it away from the incriminating part of the trick. As I understand it, this is how good magicians work, too.




 On Telegraph Avenue in Berkeley is this town's incarnation of the storied Parisian bookseller, Shakespeare & Co. While walking past the shop last evening I saw in its windows a winsome quote.

It addressed the chemical underpinnings of the pleasing fragrance of erudition associated with old volumes:

Lignin, the stuff that prevents all trees from adopting the weeping habit, is a polymer made up of units that are closely related to vanillin. When made into paper and stored for years, it breaks down and smells good. Which is how divine providence has arranged for secondhand bookstores to smell like good-quality vanilla absolute, subliminally stoking a hunger for knowledge in all of us…

from the article "How to Smell Like a Used Book"

It seems that time-honored books have had more up their respective sleeves than meets the eye.



 The first hat was the blue Policeman's hat worn by my father. I thought it made him look a giant and one dared not dispute his authority. I learned from him that the hat was a universal symbol of authority and respect. And that it was made of a sturdy felt that protected the head from falling objects, blows with a stick and even gun shots. The hat came in handy whenever I got into trouble in school. Artie would go into the principal's office with his hat on, and his holster, and ask the principal if he had read me my rights before disciplining me and extorting the confession from me. The funny thing is one of those encounters got me into Harvard. Although I was very good at tennis and college boards, Harvard accepted only a handful of Jews from all of Brooklyn in those days, and I didn't have the 100 average that thousands of other National Junior champions among applying Brooklynites had. But the principal was so incensed by my father's visit that he wrote on my application that Harvard should not admit me. The man who interviewed me had been exposed to a similar blackballing and was so incensed that he insisted as a big donor that they admit me.

 In those days, indeed throughout the history of our republic until 1950, everyone wore hats in the winter. But near the beach, at Sea Breeze Park on W. 4th street, where the checker tables were, it was customary to take the hat off when the temperature was above 80. There was one person however, who a crowd always stood behind, who never took his hat off even in the summer. I learned that it was Tom Wiswell, the world go as you please checker champion. I eventually took weekly checker lessons from him for 20 years. He wrote to me once, "I wore my hat, I won many tournaments, Wylie was the first checker teacher and I will the last. It's time for me to take my hat off.". At the age of 85 he suddenly lost his memory and I never saw him again. But I will always love him, and I will never take my hat off again, except when in the presence of a lady, or if I ever patronize a lady of the night for the first time, in his honor.

 My next encounter wiith hats came at the foot of my grandfather Martin, who was genius court interpreter that spoke 50 languages at least. After working as chief accountant for Irving Berlin's music firm, he became a highly successful speculator in stocks, channeling most of his trades through Bache and Company. Like some of his descendants however, he had one major failing. He liked to trade on 20 times leverage and when the depression came and many stocks fell 20% in one Black Friday, he lost everything. He was always studying the market thereafter and loved to buy the can't misses, true blues like Western Union and Radio and Trolley and Canal which were the blue chips of his day. He told me for my Bar Mitzvah that he would buy me 10 shares of any stock I liked under 10. I asked him what was the best for the long term, something that I could hold onto for growth and peace of mind until I went to college, and that was near 10. Hat Corporation of America he told me, people will never stop wearing hats. They make them in all varieties. There are thousands of uses. And they have a monopoly on all the machines that are necessary to make them. You can wear this one for ever and sleep well with it under the bed. "But Martin," I said, "I read that there were 110 hat manufacturers in 1900 and only 7 left today. Hats have been in a decline since 1900 because people don't want to be formal any more and they don't walk to work." "Never Mind," he said, "the time to buy a stock is when it's out of favor. They have a new method of manufacturing where they substitute a resin for the felt that totally automates what was once a hand made process." Hat as it was called never spent a day above 10 after I bought it and like Union and the others eventually receded to below 1 before being delisted and declaring belly up. 

Whether it was because of the car, or the many overhead vestibules, hats have continued their decline ever since. They received what the owner of the HCA called their death blow when Kennedy became president because he never liked wearing a hat. When Cavanaugh the owner told him he had ruined the hat business, Kennedy took to always holding a hat but never wearing it.

T.K Marks comments:

 At the end of each evening my father would gingerly place his hat in its box on the top shelf of half (quarter) of my parents' closet.

Infants should be handled so delicately.

It was a Homburg if my memory serves correct.

The thing would sleep there, upside-down in its comfy confines, till the next day's dawn came around.

Then both it and he would be off to catch the Long Island Rail Road so that they would both be an hour early for work.

Rudy Hauser comments: 

Given all the talk of hats, I should perhaps add my own comments since I have been wearing hats for many years. Back when I was young I did not wear hats. But after one snowy day which I encountered with a bare head, I decided to wear a hat in the winter. I choose a fur hat made with relatively inexpensive rabbit fur. Drafts from air conditioning in trains that aggravated an allergy induced sinus headache caused me to add hats for the remainder of the year. In the moderate temperature range of spring and autumn, I wore a derby hat I purchased at a very reasonable price at the South Street Seaport for a few decades. Unlike a true derby this was made of soft rather than hard felt. In recent years I have worn a better quality Homburg. In the summer I wear a Panama hat. It has the advantage of helping keep the head a bit cooler in the sun and protecting my face from sunburn.

As to the impact a hat has, back when I was an economist for a money management firm, I would go down to Washington on occasion with a small group arranged by an economist/political analyst consultant consisting of a small number of his institutional clients to visit with government officials. One member was a distinguished lady who was the political policy advisor of a major mutual fund complex. She had once remarked (not to me directkty) how my presence with my derby added a certain dignity to our group. One of the Panama style hats I wore was not a true Panama and was rather flexible, creating its own unique sharp from long wear. My boss and colleague had indicated that it was time to have it replaced. We had both attended a meeting of the Mont Pelerin being held in Cambridge as his guest. Chuck had made the remark in the earshot of a fine classical liberal of the British peerage, who remarked that the hat had character and should be retained. I often hear compliments on my hats on the street. This even applies to my very old and worn rabbit skin fur hat, whose black dye has faded and now is a shade of black and brown with little bits of the fur missing. My attitude is that it still keeps my head very warm, and should I be discarded just because I have lost hair and what I have left is turning gray? Since my response to the latter question is in the negative, I see no reason why I should treat the hat differently.

But the hat business has clearly suffered greatly. To my knowledge there were only two very good quality hat stores left in Manhattan, and the one on Madison Avenue in the 40's closed well over a decade ago leaving only one on Fifth Avenue around 30th Street. There is (or at least there was as I am not sure if it is still in business) a hat store downtown, but the selection of quality hats is not that great, although it did have many lesser quality hats. There is a cigar store on Lexington that has high quality hats, but its selection is very limited.

Sam Marx comments: 

With the government backing them (and Peter Lynch saying good things about them ), even FNM seemed indestructible.



 Have you ever noticed how those who have done you the most wrong, or those who loathe you the most, when they come onto hard times will often come back to you asking for assistance. This often happens to me with former colleagues. I can't always differentiate between whether the colleagues are in such bad straights that they will go to their most unlikely and ill wanted savior, or whether they wish to take their worst enemy down with them once more before they finally go under. I believe it is a variant of rats deserting a sinking ship. The British Navy and I believe all navies have a standard order from their captain "every man for himself " when the ship is sinking. And there is doubtless maritime law about when it is legal to put the captain in chains, (albeit this is somewhat a different situation). I believe the idea has many market implications, especially when markets have gone to the nadir like last week, but more important is how to protect your life in such situations I think.

One finds that there are only 25 suicides a year at Niagara Falls these days, and The Golden Gate has much more, but one can't speculate as to whether the sight causes the suicides or whether people with suicide on their mind tend to go there to do the deed. As for market moves, they must cause many more such catastrophes but again whether the person seeks out the opportunity or the opportunity causes the action, or both, it would be hard to unravel and a quantitative study of the types of moves that induce same would be helpful for saving lives and profits. 

Russ Herrold writes:

I've had this happen a few times. I think the reason is that the former colleague or friend is sufficiently 'intimate' with the weak spot that their former friend had, and so can 'get past your guard' more easily.

Factor in some perverse pathological character trait, and they may even feel justifies in taking advantage of someone they feel has 'done them wrong' in the past. Indeed, it may be that there was an intent to deceive (conscious, or latent) from the onset of them approaching you, 'the mark'.

The best approach is to probably to buy the lunch, but to keep one's checkbook firmly locked up.

Polonius: (to his son)

Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.

Hamlet Act 1, scene 3, 75.77

and later


This above all: to thine own self be true, And it must follow, as the night the day, Thou canst not then be false to any man. Farewell, my blessing season this in thee!

Laertes: Most humbly do I take my leave, my lord.

Hamlet Act 1, scene 3, 78.82

The thought expressed by Vic is that there should be some heightened sense of gratitude if one is dealing with a moral person and 'offering the hand up' and a hand-out. But Twain echoed the Bard on this topic as well:

If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.

- Pudd'nhead Wilson

Steve Ellison writes:

 When my children were 5 and 3, we hiked across the Golden Gate Bridge. There had recently been a freak accident in which a small child had somehow fallen through the small gap between the bottom of the railing and the sidewalk to her death. There were plans to replace the railing with one that went all the way down to the sidewalk, but the work had not been done yet, so I was keeping a close eye to make sure the children did not go too close to the railing. While my attention was diverted in this direction, I was almost caught off guard when the 3-year-old climbed on top of the one-foot high barrier between the sidewalk and the speeding traffic.

T.K Marks writes:

I, too, have walked across that bridge on numerous occasions. I'd walk over to Sausalito and take the ferry back. A spectacular stroll. One is still struck mid-span by the ease at which a despondent person could reach their goal. The curiously low railings prompt one to macabre thoughts. Who was the civil engineer involved with this project, Derek Humphry?

Stefan Jovanovich answers:

 The answer is Charles A. Ellis. Joseph B. Strauss did everything he could to claim credit for it (Strauss was to architects and engineers what Douglas MacArthur was to the Army and Navy - even when he was wrong, he was right - just ask him). Ellis reworked Strauss' initial proposal for a cantilevered suspension bridge - which would have been the mating of the Forth bridge with a ropewalk - and produced the design one sees today. Ellis did almost all the actual work - the calculations required for the computation of stresses, the specifications, contracts and proposal forms - singlehandedly, working non-stop for 2 years. After Ellis completed the work but before the final designs were submitted to the Bridge District's Board for its review and final approval, Strauss fired Ellis. There was no mention of Ellis in any report by Strauss, including the final report upon the bridge's completion in 1938. Ellis was the equal of Louis Sullivan, and like Sullivan he spent half his working life in total obscurity, unable to get any further commissions. Moisseiff gets credit for the development of deflection theory; but, as events proved (see "original bridge" section of Tacoma Narrows bridge), Ellis was the person who fully understood the necessary relationship between span length and flexibility. He is literally the father of the modern suspension bridge and the engineering theory behind it.

Bill Rafter comments: 

There was a psychology professor that published a study showing that the vast majority of Golden Gate jumpers took the leap on the side facing the city (facing East) rather than the ocean (West) side. The article then attempted to theorize why this might be the case, and he concluded that it was an attempt by the jumper to say goodbye one last time. Nice thought, but it totally ignores the reality that it would be damned hard to jump on the ocean side as that pedestrian walkway is almost always closed.

It must be particularly interesting to be on the bridge when one of the big carriers goes under, as they have to time it with low tide to clear.



 If one does not hear from me in the next day, it is likely that you can find me at Trinity Church worshiping and walking unsteadily to the east.

T.K Marks writes:

One hopes that you mean in a bargain hunting fashion rather than a spectral one.

P.S. I don't know if you caught the basketball game last game but Dallas' offensive stupor made the one-dimensional Knicks look like the Harlem Globetrotters in terms of panache and creativity. Looked like they were playing rugby.

Victor Niederhoffer adds: 

I'll either be at Trinity Church or Westminster Abbey. 

Jeff Watson writes: 

Better than the Tower of London. 

T.K Marks writes:

Meanwhile, across the Channel, the French had a Revolutionary tradition of dispatching of one with a relatively humane suddenness, rather than the death-by-a-thousand-cuts peculiar to modern trading.



 Amazing ability of D'Antoni to deflect criticism of him by complimenting his players: "I have never been prouder of a team". With a good coach, the Knicks would have won both games. What is the trading significance?

T.K Marks writes: 

Such deflective behavior by D'Antoni reminds one of those monthly letters to investors after a fund's programs were caught on the wrong side of a violent market move.

If D'Antoni were a fund manager, at some point he would be writing something like this:

"…Though loses were severe last month we are heartened to observe that had the market moved with such vigor and determination in the opposite direction our programs would have performed in a truly Olympian fashion…"

 Therefore, it was the direction's fault. Everybody and everything else is exonerated. Variations on this theme happen every month in those monthly investor letters. One might say that it's Wall St.'s version of pulp fiction, though they do come written on higher-grade paper.

Then again, the more expensive a piece of stationary is the more circumspect I am about the verity of what's written on it. And whenever I come across something gold-embossed, my antennae go way up. Because politicians have a fetish for using (very expensive, taxpayer-paid-for) gold-embossed stationary. Guess they figure it lends an air of the regal to their act.



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

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

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

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

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

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

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

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

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

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

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

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

Mark Schuetz comments: 

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

Victor Niederhoffer replies:

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

Ralph Vince writes:

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

1. There is no such thing as easy money

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

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

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

Jim Lackey writes: 

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

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

Alston Mabry adds:

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

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

14. Never go on vacation with open trading positions.

Or, zooming in:
<click> home

<click><click> to lunch

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

Paolo Pezzutti writes:

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

Alston Mabry comments:

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

Chris Tucker adds: 

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

Anton Johnson writes:

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

Jeff Rollert writes:

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

Rocky Humbert writes:

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

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

Jeff Sasmor writes:

About Jeff R's # 16:

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

Happened to me yesterday…

Ralph Vince comments:

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

Victor Niederhoffer adds:

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

Jay Pasch comments:

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

Ralph Vince adds: 

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

T.K Marks writes:

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

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

Jim Sogi writes:

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

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

James Goldcamp writes:

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

Ralph Vince comments: 

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

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

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

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

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

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

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

Jeff Rollert adds: 

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



 All this chatter about interstate highways reminds one of the late CBS newsman Charles Kuralt's observations of such.

He felt strongly and not without reason that they should be avoided by the curious as: "Interstate highways allow you to drive coast to coast, without seeing anything." Felt so strongly about it that he was able to carve a tidy little career out of the notion:

…When he persuaded CBS to let him try out just such an idea for three months, it turned into a quarter-century project. "On the Road" became a regular feature on The CBS Evening News with Walter Cronkite in 1967. Kuralt hit the road in a motor home (he wore out six before he was through) with a small crew and avoided the interstates in favor of the nation's back roads in search of America's people and their doings…

from wikipedia.

Stefan Jovanovich comments: 

In Bardstown, Kentucky there is a surviving piece of the other Bible Belt highway - the Wilderness Road. It has survived all the traffic because (1) it was build out of cobblestones and (2) the newer, better roads built during the Turnpike boom took a different route into town.

About the cobblestones: these are not the lovely smooth rounded ones that still survive in the pavements of some Eastern cities. They are truly rough pavement - the stones were not trimmed but simply set tightly in place, on edge. Walking the road is like hiking on the side of an old farm wall tilted up at one end; the grade and the stones get you in shape for the after-effects of the bourbon.



There are those who not only find baseball a most apt metaphor for life but also in the best interests of the propagation of the species.



 Amazing arrogance in D'Antoni: "I have no problem with Stud and Antony looking for each other as long as they don't overdo it." My goodness, what a personage.

T.K Marks writes:

In a pre-game tv interview D'Antoni did something that the certain star player(s) could very easily take as a gratuitous and not-so-subtle slight. Pointedly claimed that the Knicks' recent bouts of ineffectiveness originate from a lack of "intensity" in the lockerroom, whose custodian of such is presumably part of the job description of one or both of the two guys getting paid $20m/per, and not his own on-court strategies and schemas. That would seem to invite antagonism between himself and certain parties. Found it unduly undiplomatic.

Must say though Uncle Howie is rather perspicacious in these NBA matters. He's been touting the potential of the Nets' nucleus all along. As I had not seen the Nets perform at all yet this season couldn't get over the stellar talent of their big kid, Lopez, and that newly acquired point guard, Deron Williams. That team would appear to be a few players away from being a very formidable outfit.



There is a quote from the estimable Walt Frazier in this morning's NYPost that echoes in verbatim spirit what Vic's been saying for some time now.

Toward the end of the game against the Celtics he frustratingly observed: "The Knicks are not attacking, not trying to get to the hoop, man. They're just hanging out on the perimeter. See? Look where they are, 30 feet from the basket!"



 1. The return of Gallo to the Denver Lineup, and his previous absence must be the reason that they were winning before and can be expected to lose now. Such a new beginning should be used in markets to determine the distributions after a new event like the first up opening in x days or the first red or green in the colored co-movement chart that Doc updates on daily spec.

2. I have always eschewed the development of systematic methods based on anomalies for making an extra buck in individual stocks for a different reason than Richard Roll who finds that they never do half as well in real life as they do on paper. My reason is that by the time you consider the extra 2 or 3 percentage points you can make from them at the best, your customers if you have any couldn't cover the cost of their fees and be left with anything good. And if you don't have customers like me, then the return you could possibly make from them would never be sufficient to cover your expenses.

Louis L' Amour in The Iron Marshall has written a great Horatio Alger story that has almost as much accurate stuff about New York City in the 1850s in it and great Titanic Thompson con man stuff in it, as does his usual Western fare, always written with a topographical map at his side. However, I repeat that his constant emphasis on boxing technique as the deciding factor in who gets ahead and his inability to flesh out the endearing personal nobility of relations between friends the way O' Brian or Schaeffer can makes much of his work very shallow.

4. The overreactions in the market last week show how waiting without trading for the time when you normally would have been squeezed out, but then going in big is a viable strategy. The main problem with this is what would have happened to you if you did this the day in October 2008 the market anticipated the inevitability of the community organizer's election and dropped 20% in two days.

5. It is always amazing to me to read the GaveKal analysis of the influence of world events on stock prices. They invariably come to the same conclusions as me, almost always in favor of the long term drift, and almost always taking a contrarian approach to investing. They have a good essay on why they are bullish on Japan now. Based on such things as that their market is underweighted and undervalued relative to other markets, and their own history, it is likely that easing will occur, and that the nuclear crisis was much more contained than fearful reports made it out to be. I have never seen a GaveKal analysis that I didn't agree with except for one of their favorite hobby horses about how the inexorable and unbeatable new type of virtual company arising a la Carefour that can make an infinite rate of return et al.

T.K Marks comments:

The fade Gallo system of basketball handicapping reminds me somewhat of a client that we used to have when I first started out on the floor. There was this direct line phone to a brokerage concern that would ring all day long with order entries. Nothing particularly noteworthy of having with having a busy client, but it was the type of orders that piqued my novice interest.

You see, every order that was entered was a cross: Buy and sell equal amounts at the same price, whether above or below the market, or at the market. As I obviously found the net result of all these transactions to be unduly homeostatic in terms of P&L, after about a week of observing this curious phenomenon I finally mustered up the temerity to ask a grizzled sort twice my age what was the purpose of this.

He just looked at me blankly for a moment before succinctly advising, "Don't worry about it."

So about two weeks later, and after I had passed his vetting process I guess, he out-of-the-blue explained what all those crosses from particular brokerage house's crosses were about.

Their experience being that the equity of most retail accounts having short half-lives, their thinking was to take the other side of every one of their customers' orders.

It was my first exposure to any sort of trading system. And although it was as regimented and rigidly fixed as could be, those characteristics had nothing to do with mathematical calculations and everything to do with human nature.

As far as they were concerned, when it came to silver futures traded in a retail account, everybody was Gallo until proven otherwise. In the long-run I'm not sure what the karma consequences of presuming that everybody is a hoodoo waiting to happen, but the people from that brokerage house were obviously no strangers to some of the darker corners of psychology.



 You know that feeling that everybody who has ever traded has gotten when the market is going sharply against them though with a velocity whose ferocity one knows can't be maintained. But a pain threshold has been surpassed so however around the corner the reversion to the mean might be, the stuff just has to be dumped.

The Mets are doing that now. In what must be the baseball equivalent of not be able to make a margin call, a few months back they went to the Commissioner's office to borrow $25m to remain liquid. So as shakily solvent as they would appear to be, they've taken to dumping onerous contracts in the hole. The other day they released second-baseman Luis Castillo though they still have to pay him $6m for this season and it is widely expected that any day now pitcher Oliver Perez will be cut as well, the $12m he is owed this season notwithstanding.

They're just dumping stuff in the hole. Most don't expect them to be competitive this year and I don't know how much worse they would be with these two guys on the team, especially in light of what they're owed. But those two guys were wildly unpopular. It's as if they sensed they were caught long public relations futures in a cratering market and their fan base was the clearinghouse that demanded they liquidate.



 Here's a portrait of a person in complete charge of a situation. Right from the magisterial entrance.

He was 85 at the time of this performance. Amazing. Seems to have had an air of kinetic aplomb about him. At once exuberant and restrained.

Given my heritage, it might seem unduly contrarian of me to be sitting here on St. Patrick's Day raptly thinking about an Italian conductor, but this is an interesting guy. From the palace intrigue of how he got his start as a conductor while down in Rio, to his political epiphany that maybe that flirtation of his with fascism might not be such a good idea, to a legendary quote of his that might be the absolute apotheosis of the backhanded compliment:

"To Strauss the composer I take off my hat; to Strauss the man I put it back on again."



 The legendary drummer and vocalist Levon Helm from The Band routinely hosts concerts at his barn home/recording studio up in Woodstock, NY.

The intimate shows are always fantastic and the venue is unparalleled in its uniqueness:

It's his living room.

I highly recommend the shows up at his house. Been there many a time and it never gets old. Some really outstanding musicians.



 It was the night before Christmas when I stepped down into the Idaho basement and beheld a horsehair mat measuring six-by-eight 10-year-old strides that changed my life.

The next morning the real gift came when dad took off a bowtie and younger brother Tom opened a big box of boxing gloves. We descended the stairs, and had at it. Thrice weekly for an hour, the bouts alternated among boxing, wrestling and judo for years.

Parents should wonder what martial art to place their youngster in, that will alter his thinking, movement and life choices. Having dabbled in most of the sports from the horsehair mat to asphalt alley, here's a quick rundown.

Boxing: The attack and defence is with the fists. The hands are wrapped and gloved, and head put in a helmet to prevent injuries. I've done enough boxing to say it's a great sport from a distance. I gave it up at the YMCA after getting so pummelled and pooped that there seemed no need to raise the elbows above the supper table for a day. It's a great sport for those who stick with it, teaches importantly getting hit is no big deal, and will get you by nicely in most street scrapes.

Judo: The name means gentle way, and was my forte for ten years. The opponent's center of gravity and momentum are utilized to throw him around like a rag doll, without injury to anyone. It is superior because of 'hands-on' training, quick gains, aerobic and anaerobic condition, and is the best progress to balance and tumbling. There is no better way to learn to read a person's body language in every situation.

Wrestling: This is the most superior martial art that I had a love/hate relationship for many years. I practiced so hard, adored the move and counter chains, and half the time ended up flat on my back in front of jeering fans and my sad parents. Nonetheless, if you don't know what to do after school, go to the wrestling room and get an epiphany for life.

Karate: The term means empty handed, and is a practical self-defense appended by a philosophical touch. Strikes with the hand or foot stop just short of contact. It involves tedious repetitions that, in college threw my elbow and knee joints out of whack from jerking to a stop. There are more efficient ways to exercise or learn combat.

Ballet: Is too a martial art, especially for an uncoordinated person.

Brazilian Jiu-Jitsu: This is a self-defense system and martial art that emphasizes taking an opponent to the ground and applying submission holds such as joint-locks and chokeholds. The premise is that most of the advantage of a larger, stronger foe comes from superior reach and more powerful strikes, that are negated on the ground. My practicing friends call it 'tackle-and-choke', and there's something refreshing and potent about simplicity where there are so many choices.

Kickboxing: A popular blend of karate and boxing, especially in Thailand where after public contests I've been invited, as the only Caucasian spectator in the crowd, to dojos to train with the athletes. I trained little, watched a lot, and surmised (as in other contact sports) it's good to learn to take blows, plus it builds character and very strong legs. However, it's inferior as a defense to all the other contact arts.

Full contact Karate: To me, this is the only Karate. I took a year of contact-less in college and the big problem is that after a few months of pulling thousands of kicks and punches short of target, or striking a defenseless sawdust bag, one suddenly finds himself in a rough place with a false glow of confidence. There's a split-instant hesitation before striking as the muscle memory kicks in to actually hit a person… and by then it's too late. But Full Contact is a true self-defence with protective pads and helmets during practice for safety.

Ultimate Fighting: It's an American martial arts' fest where fighters from different disciplines fight to submission or knockout. I've known a few ultimate fighters, usually type A personalities in gorilla bodies, who admit it's a bloody, real test. The best are former collegiate and Olympic champion wrestlers.

Kung Fu: The term means a skill or ability to do something, hence is aggressive. Also referred to as Wushu, a modern name for Chinese martial arts, I once lived with a practitioner/owner of a dojo who was also a telepath, according to publicity (not mine), and he challenged Sugar Ray Leonard in the boxing ring blindfolded using just his feet. It never happened, but he did get on 'That's Incredible.' Sharp kicks and blows are applied to pressure points on the body, and once I wrestled the housemate who in the first three seconds touched each of about two dozen pressure points, and I gasped.

Thai Chi: Throughout Asia, one sees seniors practicing katas in front yards and parks, content and oblivious to passers-by, dogs and traffic. For this reason, it seems a good meditative activity, develops body awareness and sequential thinking, but is too static to be considered a martial defense or aerobic activity. There are faster-motion forms, but the martial aspect requires years of training.

Aikido: The self-defense resembles a harmonious dance on the mat or street, until suddenly a lock is applied to neutralize or control the opponent. There are chains of beautiful applications of leverage across joints, and circular movements within a contained mat area that teach discipline and respect. I've watched practice sessions, and had an elbow and knee bent to testify the efficacy. At the highest level, the defender hurts no one, only leads the red-faced attacker away by a bent finger or ear. This is the first horsehair sport I would encourage my child to undertake.

The above list (from about 50 martial arts practiced around the globe) includes the most popular and ones with which I have some familiarity.

The benefits of martial arts cannot be underestimated. They include:

General fitness and coordination.
Decision making, including cross-over training for chess, bridge and many jobs.
A discipline to greet new challenges by forming a strategy, and to adjust or stick with it to a goal.
Confidence in mastering new situations.
A mindset to find a correct frame of thinking to greet novel scenarios.
The grasp of chained sequences in thought and movement.
Respect for an instructor, and others.
Testing and learning one’s limits, hence humbleness.
Boost in general self-esteem as other life challenges, physical and mental, are met cheerfully.
A habit of accomplishment from training with many little steps and progressions.
Increased productivity in school or business
The confidence to strike out to new grounds, and travel.
Inner peace.
Meet worthy people.
Burn off a kid’s energy with a better night’s sleep for everyone.

T.K Marks writes: 

Bo Keely's thoughts and experiences are an enthralling memoir waiting to happen. At once picaresque in its tone and regimented in its discipline, his stories exude the charming rogue paradigm. He's an original.

P.S. Met up with Omid last night for dinner and he told me that come this summer he's considering "riding the rails" again with Dr. Keely. I could see handy-with-a-camera O getting some video grist out of something like that. The wild thing being that none of it would be staged.

P.S.S. Where did you find Bo Keely?

Victor Niederhoffer writes: 

We met at a racquetball tournament. 



The suddenly Carmelo Knicks rise to the spotlight occasion tonight and actually beat LeBron, Wade, Bosh, et al., down there in Miami, dramatically raising future expectations.

Only to have those momentarily lofty expectations ultimately meet a foreverly futile fate. 

In charting terms, a basketball apotheosis of the big-time false breakout (i.e., $50 silver, 30-some years ago.)



 Kindly advise Uncle Howie that he is more than welcome back from his Lakers odyssey now that the Knicks have suddenly become relevant again. The modern NBA is a two-star game in a five-player sport. The Knicks now have their two stars, all of which now puts Mike D'Antoni on the hot seat as his Croesus roster just ran him out of excuses.

Howard "Uncle Howie" Eisenberg responds: 

People forget about how great Billups is. He was the heart of the Pistons teams that got to the NBA and Eastern finals annually and then lifted the Nuggets from mediocrity (even with Carmello) to the West finals. He is a 90% foul shooter, superior 3-point shooter and great in the clutch. The Knicks are a 3 star team! They should be competitive with anyone– except the Brooklyn Nets who will augment Laker castoffs Farmar and Sasha with all of their #1 draft picks and the rubles of their Russian owner.



 There's probably no better comment on the state of "capitalism" in this country than that the pivotal issue and the sturm-und-drang slowly mounting around the NYSE being taken over by Deutsche Bourse seems to center upon a "bastion of American capitalism falling into foreign hands" (Aside: A business that essentially operates as a monopoly is a bastion of American capitalism? On second thought, perhaps.) and not, as it should be, what price is being paid vs. the current share price, and if/how shareholders stand to benefit in terms of economies of scale, marketing benefits, etc.

T.K Marks writes:

Regarding the foreign acquistion of the New York Stock Exchange, should there be any dissenters on the Board of such they should insist on writing into the contractual terms that any deal include an agreement in principle that the aquiring party should dig even deeper into their pockets and buy another New York namesake of note, the Mets.

That should be enough of a poison pill.

Should the terms of a such an arrangement not seem at first blush to be entirely above board, the irony lost upon them would be understable to those who have never toiled on an exchange floor.

To those who have worked on the floor and still don't get the above, a closer reading of Dante's Inferno may be in order.

Most specifically, the Fourth, Eight, and Ninth circles.

Those boys out there in Chicago are already saddled with the Cubs. They've suffered enough. Given the circumstances, throwing the Mets in as a rider to any Big Board deal would be cruel and unusual gamesmanship.

A compromise should be in order: Should the Germans in fact be serious about buying the NYSE, as a goodwill gesture they should agree to take Mike D'Antonio off New York's hands as well.

The Germans in turn could unload him to the Dallas Mavericks and get Dirk Nowitzki back.

Sounds like a complicated international negotiation, but then again only a coach with as little regard for fundamentals as Mike D'Antonio could somehow get The Hague involved.




 There was a Spencer Tracy movie on this evening: 1954's "Bad Day at Black Rock".

Besides being engaging in regards to prejudice against japanese americans during wwii in the USA, there was a really good line:

"A man is defined by what makes him angry".

T.K Marks replies:

Having never seen the film I don't know the context in which it was used, though it would certainly appear able to stand alone almost anywhere. A great, informative line.

Come to think of it though, the consequences of it's use remind one of a fundamental principle of dramaturgy.

That is, if a gun is shown on stage in Act 1, no matter how fleetingly or incidentally, that gun should be used before the curtain comes down on Act 3.

Or else the audience has been meaninglessly distracked by its appearance in the first place.

Similarly, I would imagine the same precept would extend from stage to screen. That is, if a character says early on that, "A man is defined by what makes him angry," then somebody at some point is going to "express" themselves in a most unabashed fashion.

It's almost guaranteed. The forces of proper structure would be cross otherwise.



Gary pushes:

"Goldman Exec Wants More Regulation — of Hedge Funds, Not Banks"

Gary Cohn is concerned about under-regulation. The shocking thing about this is that Cohn is president and COO of Goldman Sachs — not exactly a proponent of regulatory overhaul. The not so shocking part about his view is that it refers to under-regulation of hedge funds and other businesses Goldman doesn't run…How many hedge fund managers do you think were rolling their eyes during this speech?…Well, at least one hedge fund manager at Davos told the FT that Cohn's remarks were "self-interested"

But hedgies push back:

Mr Cohn's speech has since drawn criticism from some of the hedge fund industry's most well-known names – including clients of the investment bank – which have interpreted his remarks as an attack on their activities…"These statements are just false. Hedge funds are regulated. We didn't cause the financial crisis. We didn't take bail-out money," Richard Baker, the president and chief executive of the Managed Funds Association, the industry's main trade association, told the Financial Times…"



In college basketball yesterday, #4 Pitt played #3 Syracuse. How's this for an unlikely start between two highly-ranked teams:

"Pittsburgh coach Jamie Dixon almost couldn't believe it as the Panthers built their lead — 5-0, 11-0, 13-0 and finally to 19-0. Syracuse missed its first 10 shots and nearly half of them weren't close…But as inexplicable as the 19 consecutive points were, so was Syracuse answering with a 17-0 run — a burst in which the Orange held the Panthers scoreless for 6 minutes, 35 seconds…"

When was the last time a game started 19-0 against a #3 team, only for them to immediately come back with a 17-0 run against a #4 team to make it 19-17?

How bizarre is that ? Sounds like an equation Mike D'Antoni would be a variable of.



Amare is currently ranked #12 and Carmelo #25. At PER 20.68 Carmelo is currently a "borderline" all star. Melo looks to be rebounding quite well and that helps a team win. He did help lead Syracuse to a National Championship as a freshman— which might be a indication of future ability to raise the level of team play when in a supporting environment.

I can only conceptualize that for a trader it would be how efficient he performs within the boundaries of time, risk, trade size, contribution to portfolio winning percentage, etc. and all those advanced measures you experts use.

The basics of shot selection
, defensive play and positioning, "hustle", and judicious leveraging of innate abilities are pretty important in basketball.

The Player Efficiency Rating is ESPN Insider writer John Hollinger's all-in-one basketball rating, which attempts to boil down all of a player's contributions into one number. Using a detailed formula, Hollinger developed a system that rates every player's statistical performance

All calculations begin with what is called unadjusted PER (uPER).

Once uPER is calculated, it must be adjusted for team pace and normalized to the league to become PER: This final step takes away the advantage held by players whose teams play a fast break style (and therefore have more possessions and more opportunities to do things on offense), and then sets the league average to 15.00. Also note that it is impossible to calculate PER (at least in the conventional manner described above) for NBA seasons prior to 1978, as the league did not keep track of turnovers before that year.

George Parkanyi responds:

 It depends on how many people are directly or perhaps indirectly contributing to the final decision of a trade. For example, how many people have a touch in your organization Victor before you make the final decision to trade or implement a trading program? - research/set-up, analysis, programming, execution, and so on … Any one of the these factors could impact the success (profit) or failure (loss) of the trade.

Steve Ellison comments: 

"What is missing from formulas like Berri's is an account of what Anthony does to the rest of the Nuggets."

There is a hockey statistic called plus/minus to help assess exactly that. Every player on the ice when his team scores gets a plus one. Every player on the ice when the opponents score gets a minus one. The results are cumulative. A player who does not score much but has a high positive plus/minus total is presumed to be doing something right.

Victor Niederhoffer inquires: 

How could this immediately be applied to markets ? There are players on a team also. But rather than simply adding, would a regression work better?

Steve Ellison responds: 

 One might consider various market "players" and what happens when they are visibly "on the ice". For example, when the President is speaking, does the market go up or down? When the Mayor's news feed features the Sage, does the market go up or down?

Victor Niederhoffer writes: 

I would conceptualize that the other players on the team are the other markets. how often does the stock market , create wins for the oil market et al, and for the grains, and are there leads and lags?

T.K.marks comments:

Anecdotal evidence has long had it that the oft-retired Michael Jordan was the ultimate basketball player in terms of making teammates better players. Apropos of the discussion here, it's been suggested that his talent in that regard was not limited to the court, but instead, cross-market in its scope.

From Wikipedia:

"…Jordan's yearly income from the endorsements is estimated to be over forty million dollars… An academic study found that Jordan’s first NBA comeback resulted in an increase in the market capitalization of his client firms of more than $1 billion…"

The journal in which the study is found is a subscription so I'll take Wiki's word for it. Though it would be nice to know by comparison what the overall market cap did during that same time frame.



 One believes that the invisible clubs, the riding in cars together of competitors, the lunches at the gilded offices at the Federal Reserve banks, the squash games, the parties that the partners of the flexions themselves go to together, the telephone calls et al, are the main lines of communication. A point I would make is that trillions have been taken out of the total pot, or the energy totality (in ecological terms), and that these trillions would have been disseminated to what Amiity Schlaes calls "the forgotten man".

I would also point out that such badges and emblems of self dealing, (call it a conspiracy or an informal network, or a kinship thing), have been endemic to wall street from its inception (in a price fixing deal to keep commissions up under the buttonwood tree).

Such insider, wrongful, and dysfunctinoal activity, needs a very capable, speptical, and dedicated personage, a Patrick or Patricia O Brian or Serpico or Puzo to record, memorialize, expose and eliminate.

Wall Street's Secret Society Inducts Members With Lehman Video

By Max Abelson Jan. 15 (Bloomberg)

– A bald man in a tuxedo walked into Manhattan's St. Regis Hotel, muttered to a uniformed attendant and was ushered to an elevator. A woman in a fur hat the size of a lampshade followed, then a man in a topcoat, who licked his lips as he walked under a ceiling painted with naked cherubs.

Kappa Beta Phi, the banking fraternity founded before the 1929 stock-market crash that counts Wall Street's most senior executives and regulators among its past members, held its annual induction dinner behind closed doors at the landmark New York hotel on Jan. 13. This year's names included Josh Harris, senior managing director at Apollo Global Management LLC, the buyout firm led by Leon Black, according to two attendees, who spoke on the condition of anonymity because the society's activities are secret. Harris, 46, was No. 655 on Forbes Magazine's billionaires list last year.

read full article here. 

T.K Marks writes: 

When word of Wall St.'s pervasive machinations first began to bubble up during the (selective) bailout bonanza, somebody I know likened the expected fallout to the public relations Chernobyl that the Catholic Church continues to face in the wake of the predatory priests scandal. The thinking being that people will not soon forget being duped on a systematic scale. The Church is still reeling from that situation, as the litigation liabilities would bear out.

The difference in the two situations however is that in the eyes of some Wall St. would appear to have an unseemly symbiotic relationship with the government entities that are in theory supposed to ferret out high-level duplicity. They're the guys with the Geiger counters and if they say the situation is not inherently radioactive, who has the wherewithal to challenge them?



 I recall reading in Victor's Education of a Speculator many years ago that one of his more delightful methodologies was some sort of South American cigarette butt index. Wherein, how close a discarded butt thrown in the street was smoked down to the filter was a function of the general health of an economy. The thinking obviously being that the more tobacco left unenjoyed, the more the feeling that there was plenty more where that came from. I presume that the spirited Bo Keely was his man in the field on that one.

This was back in '96 or '97 and having been previously unfamiliar with anything he had written, amusedly thought to myself, OK, this guy is going to drive the professorial drones in the academic industrial complex nuts with this type of stuff.

Ever since that initial exposure to the notion of coming up with one's own metrics for gauging the state of things I've tried to hone an eye for such.

Toward that end, one of the things that I have long noticed is that little cup of pennies that one invariably sees on the counter right next to the cash register. Oftentimes taped to it is a sign saying, "Take a penny, leave a penny", along with a drawing of one of those smiley face things.

The blight of the smiley face cliche always kills me, but I invariably just block it out and instead reflexively think of a lyric from "Ripple", a quite beautiful Grateful Dead song: "Reach out your hand if your cup be empty, If your cup is full, may it be again."

Fine enough sentiment. That said though, I noticed a few years back that amidst the red of these cups' pennies some silver suddenly began to pop up: nickels.

I'm hardly paleolithic of years but I do recall that there was a time not eons ago when one could buy a (tabloid) newspaper for but a nickel, and now they're giving the things away. Smiled one of those little, private, personal perspective smiles the time I saw my first nickel in one of those cups. It was like quantitative easing for the proletariat rather than the princely. A year or so later beheld my first free dime. Thought to myself, OK, logic is going to hold the line on this bonanza right there: At a dime.

Then just moments ago that key resistance level was breached. I'm sitting here in a Dunkin' Donuts as I type this and up in the cash register's penny cup I just spotted atop the smattering of lowly red coins, 3 quarters, looking no less out of place than a robin's speckled blue eggs would have.

The irony being that it wasn't too long ago that the simple black coffee that I'm partial to — none of that cinnamon-topped frappachino stuff — would be a far cry from the $2.49 they just took me for, with refills at full-freight.

Now they purport to give away unrequested quarters by way of karma introduction and get the customer on the back-end, the bloated cost of the actual product.

A mildly insidious business model. Seen much worse.

But should I see at any point soon dollar bills begin to appear in those ubiquitous penny cups I will know for sure that we are in a full-blown Weimar scenario, the intent of the would-be benefactor and price of the cup of coffee notwithstanding.

Ken Drees writes:

This says something to me about the public consciousness of inflation. I mentioned not too long ago the vibe of people talking to me (strangers) at the gas pumps complaining about prices. This seems to be a cohesion type behavior where people use the topic as a bridge to conversation–like a soldiers right to complain about food quality. It's better than talking about the weather.

But as a youth of 12 years as a passenger/helper in a delivery van, the young teenagers/ early 20 year old drivers in the late 70s complained non stop about gas prices and inflation– everyone was talking about it. It was the talk of every bar, every station, and every food stop.

I got the point one day when this guy lit a dollar on fire with his lighter, used the dollar to light his cigarette, and then let the burning buck suck out of the window into the winter wind– he looked at me with a stone cold face and said that the dollar wasn't going to be worth sh*t in the near future. I got the point and started thinking about money.

We are not even close to that point again. 4$ gasoline will start it up.

Easan Katir writes:

Often I carry a pre-64 silver quarter and attempt to purchase something with its melt value, around $5. So far, no takers. When someone finally accepts, I will consider that a tipping point for the fate of the US dollar.



Apropos of this derivative-centric world, I'll never forget the first time I was asked, "what might happen if there were a crash UP?"

Bill Rafter writes:

There were "up crashes". During the flash crash in May there were some thinly traded ETFs that had big range days with the activity being on the upside. I believe that was because they were involved in some long/short strategies such that when the holder dumped the long side, he covered the short ETF driving it up. 



 "Better by far that you should forget and smile than that you should remember and be sad." Christina Rossetti

Featured on 60 Minutes and dubbed "the Human Google" by Good Morning America, Brad is only the second person ever studied for HYPERTHYMESIA, an extremely detailed memory for the events of his life.

It is a nice song too, but do we really want to remember everything intensely: a cautionary fictional (I think) story from Nature .

"The pressure to succeed steadily increased and so did the need to stay alert, to focus relentlessly. I prowled the smart-drug chat-rooms and message boards. During the day I traded stocks and shares, during the night I was trading ideas and experiences. I learned about stacking and cycling, optimizing the stimulation and minimizing the side effects. All of us avidly sought the pot of gold at the end of the pharmacological rainbow, an eidetic memory, capable of perfect recall. I got the drugs from incurious online pharmacies."

And are there virtues to be found in the ability to forget? also a good read here.


The default view in the epistemology of forgetting is that human memory would be epistemically better if we were not so susceptible to forgetting—that forgetting is in general a cognitive vice. In this paper, I argue for the opposed view: normal human forgetting—the pattern of forgetting characteristic of cognitively normal adult human beings—approximates a virtue located at the mean between the opposed cognitive vices of forgetting too much and remembering too much. I argue, first, that, for any finite cognizer, a certain pattern of forgetting is necessary if her memory is to perform its function well. I argue, second, that, by eliminating "clutter" from her memory store, this pattern of forgetting improves the overall shape of the subject's total doxastic state. I conclude by reviewing work in psychology which suggests that normal human forgetting approximates this virtuous pattern of forgetting.


"At first glance, AJ might appear to have an enviably good autobiographical memory. But closer examination of the case suggests that though we naturally assume that increased access to stored memories (less forgetting) would amount to an improvement to memory, this is not in fact the case. There are two points to note here. First: Though it is natural to assume that a \better" memory would provide us with a signi cant cognitive advantage, this is likely not the case. As Parker, Cahill, and McGaugh point out, AJ's exceptional memory has provided her with no apparent advantage in daily life or in her studies; nor is it helpful on IQ tests and the like (2006, 48). And at the same time, AJ's unusual retrieval capacity carries heavy cognitive costs. In particular, she \spends much of her time recollecting the past instead of orienting to the present and future" (2006, 48).An increased retrieval capacity comes at a price: time that would otherwise be spent on other cognitive tasks is devoted to retrieval; time that would otherwise be spent acquiring new knowledge is spent simply processing \surplus" retrieved memories."

Sam Marx writes:

The 60 Minutes program piqued my interest in people who have this super memory as a natural talent. It is obvious that there are people who are super geniuses in certain fields such as chess, music, math, etc. Maybe Thomas Edison was a super genius, he certainly accomplished a lot. Super geniuses in these fields can be easily discerned.

There may be super geniuses in other fields, business for example, but luck and other variables may affect their success.

I once knew a fellow who was just a clerk on the trading floor but he could complete the NY TIMES crossword puzzle in minutes. He was amazing. Maybe he was a super genius in just this one field because he never advanced further than that of a clerk.

These study of these super geniuses may someday lead science into creating a race of super geniuses to hopefully help mankind.

I've wondered as I watched football is there a super genius offensive director who can anticipate the moves of each defensive player for each offensive play he calls, a Prof. Nash in the booth.

Ralph Vince writes:

About your last point–No. Great offense — like great chess — or brilliantly playing a
mediocre bridge hand– requires the element of surprise moreso than
knowing what all the pieces might do.

"Surprise," is anticipatating what most are quite certain will happen,
fienging it, then taking advantage of that en masse, not individually.
-Ralph Vince 

T.K Marks writes:

 My recollection of Jerry Lucas' memory methodology is that it had much more to do with technique than talent. Something he readily admitted. There's an old axiom in legerdemain: A magician never tells. Lucas told. Heresy happens.

But, first of all, Lucas was delightfully different from the get-go.

While on the Knicks he played center so far from the basket that the other team's defender would look confused as to what to do because if he went out to meet Lucas he effectively just took his own team's best rebounder out of the equation. Therefore it would oftentimes appear as if Lucas was playing offense undefended. A bizarre sight to behold.

My first brush with his mnemonic capabilities though was when he demonstrated his ability to recite pages from a New York phonebook to Johnny Carson on The Tonight Show.

Intrigued by how he was able to do that, I read some of his materials. He freely provided how one could easily and quickly memorize long lists of objects and actions in precise order by using rhyme and incongruity.

It worked like this. There was a rhyming scheme linked to the number of the sequence of items/actions to be memorized. For instance, 1 corresponded to gun, 2 to shoe, 3 to tree, 4 to door,…8 to gate, …44 to knock on a door….

Rhyme resonates in memory and Lucas, a luminous soul, knew this. As such, It was very easy to learn the initial rhyme key, and one could readily extrapolate further from what was provided.

The second part of the equation involved somehow associating the number-linked rhyming sequence with the object or action to be memorized. And the incongruity involved helped make it stick as an image.

For example, if the second thing to be remembered is a bottle of aspirin, the memorizer pictures in their mind a bottle of aspirin in a shoe. That's an unlikely scenario, and that's what helps make it stick. And just keep on going. If item 8 were a cat, picture a cat walking up and opening up a gate to a country estate. If item 44 were a rogue politician, picture him knocking on the door of a convent for a shakedown donation. The idea obviously was to make it as incongruous as possible, provided it remained consistent with the rhyming key.

It was remarkable how quickly this information could be retained based on this easily learned technique. So much so that I fondly recall as a kid having a little fun with my father as soon as I learned it. I said, Da, write down 20 items and I bet you I can recite them back to you in less than 5 minutes. Frontwards, backwards, randomly, any way you want. He said, no way you can do that in 5 minutes.

After we concluded the little demonstration, he asked — demanded actually — how his kid had just done that. Told him I couldn't tell him. It was magic.

He smiled.

I sensed as well that there was also a little "magic" involved in the 60 Minutes piece on autobiographical memory. Some of subjects too quickly and unsolicitedly mentioned what day of the week it was when asked about what had transpired on a random date. That suggested a key-scheme gimmick peculiar to days of the week in any given year. And with such, a presumption of legitimacy in a larger sense.

But there were other non-scientific methodologies mentioned as well. The least of which was certainly not the fact that the lead reporter, Leslie Stahl, had remembered midstream that she just happened to know well one of the final 5 subjects, actress Marilu Henner, and so brought her into the tiny sample group.

She just happened to know a 1 in a supposed xx million shot? How is that not curious.

I was initially intrigued by that piece when I had first heard that it would be aired, but after watching it, found it to be much more science-cum-show biz than peer-reviewed journal. The editorial board of The New England Journal of Medicine would get them on the Leslie Stahl/Marilu Henner abject lack of randomness angle.

One would hope.



 1. I am reading the deeply flawed book Bounce by Matthew Syed who believes that the quantity and quality of practice is key to determining greatness. Also reading another book from the same garage of hatred of the subject he writes about– The Company Town by Hardy Green and also Titanic Thompson: The Man Who Bet On Everything by Kevin Cook, about a man that should be hated but is quite interesting.

2. They say that when there is a big traffic accident in an area and it's cleared, there is still a traffic jam there the next day, I think because people are slow to observe past effects. And one is reminded of that at the opens of all the markets. In the pit days, there used to be tremendous volatility and big moves like in the first 5 minutes. But now there is no pit trading in most markets, but there's still the same volatility that occurs, like in bonds today at 820.

3. One notes that after 13 or more 10 day changes up, the expectation the
next day is -1/10 of a % and after 13 or more 10 day changes down the
expectation for the next day is -1/10 of a % however there are 244
occasions when the 10 day SP is down 13 or more times in Rowand 398
occasions when the 10 DYA SP is up 13 or more times in row. Thus,
declining 10 day moves less harmonious than up 10 day moves a meal for a
day not here but possibly for life time.

Thomas Miller shares: 

Trafficwaves is an awesome website by an electrical engineer about what causes "invisible traffic jams" with lots of illustrations. 

Chris Tucker writes:

I've heard this referred to in an astrophysics class as a Density Wave, it is one of several theories brought up to account for the formation of the distinct arms in spiral galaxies. The teacher used this specific example of highway traffic to explain it.

Jim Sogi adds:

When particles interact due to input of energy they move at different speeds. The faster ones overtake the slower ones. A buildup occurs at the slow point. Everyone has seen this in traffic. This is how big waves are created in the ocean. The interaction of energy pushing forward, and forces of resistance due to bunching, due to structural resistance (in the ocean its the bottom) in markets due to vig etc., and the secondary forces created by interaction of the various maxima and minima gets complex. It seems the areas of maxima and minima are easy to focus on and they provide distinct boundaries, maximum energy, and minimal densities.

T.K Marks comments:

Apropos of the peculiarities of traffic mishaps otherwise involving cars, just moments ago I had sent sent a similar response to your thoughts contained below only to be have it unceremoniously bounced back to your humble correspondent.

So here we go again.

Back in the day when pit trading held sway, the lion's share of the action took place on the open. Afterwards, the tempo was akin to the pace of watching grass grow. The occasional rock'n'roll news developing days notwithstanding.

So after I would take care of my market opening responsibilities and see that there was not unduly pressing on my book, I would delegate responsibilities to my second-in-command and repair upstairs to the the gym on the 8th floor gym of the WTC for a palliative steam and sauna.

The equilibrium benefits of such generally worked wonders because the close made the open look like the most genteel of tea parties,. It was the closet I'v been to Nam. Every day was a Tet Offensive.



 That was some game.

Afterwards I looked up the following and was not entirely surprised, as years ago it had been pointed out to me that in basketball, defense in terms of points allowed is largely an illusion. The reason being is that it is less an indicator of dogged fundamentals on the part of the defenders as it is a function of how capable those same are of scoring when they have the ball.

For the overwhelming part of any basketball game if a team can score with alacrity, they generally do. And, unless it's in the waning seconds of a quarter other than the fourth, the game clock is an afterthought.

But if a team is saddled with poor shooters and otherwise less creative opportunity makers on offense, they tend to use most of the 24-second clock looking for somebody to get a lesser contested look at the basket.

That shortens the game.

The Knicks in their present form can score.

But by being nimble with the ball, they lengthen the game in that they give the opposition more possession and, thus, chances to score. Presently, out of the 30 NBA teams they rank a sterling first in points scored, but a lowly 28th in points allowed.

And notwithstanding their overperforming record so far this year, 16-10, it's illuminating to note they're doing all of this with a scoring differential of less than 2 points per game.

In the long run it might seem that they would be hoping that the vagaries of a coin flip suggested by that thin a margin would continue to smile on them.

Over the course of a long season, that's asking for a lot.

In the media accounts of this game it will be noted that the reason that Boston won was solely because Paul Pierce hit a money shot with but 4/10ths of a seconds left and A'mare Stoudemire's heroic answer to such came just an even smaller fraction of a second too late.

But I would maintain that's not why they won the game. They won the game because their earlier tenacious adherence to a fundamental put them in a position to win the game.

They were a perfect 21 of 21 in free throws.

That's why they won the game.

There are parallels to this in most every human endeavor. That is, putting oneself in a position to have the optimal chances of success.

A task much easier written than consistently done.

Victor Niederhoffer adds:

Shades of my friend Dr. Brett adds to the analysis of this game. The Knicks lost because of a personality disorder in that they gave up two technical fouls and lost possession and the 2 points. They keep high fiving themselves and showing off for their fans, and he coach allows them to explode their emotions on court. It is loathsome to see the coaches terrible strategy of helter skelter shooting holding back such a good team with the best player on the league on the team able to shoot from inside.

T.K Marks replies:

About the coach allowing them to explode their emotions on the court, check out the Jets in that regard. The coach there has allowed them to become the pariahs of pro football while the players on the other teams openly question what in the world are these guys basing their considerable conceit on. How can they theoretically be cocky when they haven't won a Super Bowl in over four decades. Haven't even come close. Now that is a textbook example of a collective personality disorder, a DSM code waiting to happen.

Presently the Knicks are an outside shooting team, attempting and making more 3s than anybody else in the league. As such, they will live and die by the hot hand.

That's unduly risky. A structurally flawed strategy, begs fate for an edge. Can only last for as long as fortune's fickle window remains open.

And by way of a market heuristic that might buttress the above point, over the educational years I've had mountains of my out-of-the-money calls expire worthless.

I love education.

Though I wish a little less of it would not be initially lost on me.

Brett Steenbarger writes in: 

The one thing I've learned being part of hiring processes at trading firms:

In life's racetrack, bet on the workhorses, not the show horses.

Distributions of returns, conditional probabilities of having a winning period after a losing one (and vice versa), performance under differing/changing market conditions: much of a speculator's psychology is revealed in their stats. Same for basketball players: assists to turnovers, number of times making it to the free throw line, offensive vs. defensive rebounds, etc help define the workhorses.



Optimism's bete noire has an ardent admirer, it would seem…

Albeit one who fancies style over substance.

"…Few people can make words sing as well as Alan Abelson can when he takes quill in hand to wax eloquent on our state of financial being. More poet than economist, his weekly take on Mr. Market’s gyrations is the top of my DO NOT MISS list. Abelson remains the standard against which all other American financial writing is to be judged….He is the American Shakespeare of economic commentary…"

After having read that bouquet of a last sentence, I will never look at a Barron's again without thinking of the Globe Theatre.

But then, most all financial media is theatre by other means anyway.

Of the vaudeville variety.



 Following four up-sessions, metals bulls appear in control and all forgot the worries of Nov. 9th exhaustion top experience. Two factors are not widely heeded:

1. That Silver is trading tonight at the highest level that Asia has seen in thirty years.
2. That tomorrow is Tuesday. In front of the U.S. market holidays, no less.

Well, I am prepping for an active Tuesday!

Anatoly Veltman writes:

Never have I yearned for my pit trading past as I do having watched these events unfold.

On the floor the outsize returns were always on the downside, as the moves were mercilessly violent and geography no small consideration. As such, I'd lay on my pillow these nights with thoughts of the avalanche selloffs like visions of sugar plums dancing in my head, to borrow some seasonal verse



 There is something so unique about this situation that it makes one nostalgic for other noteworthy decisions of a uni-directional nature.

Namely, the Comex Board's 'liquidation only' decree for silver back in 1980. It's a full three decades ago now, but time has hardly taken the bloom off that nefarious rose. Skulduggery at its finest. The ultimate inside job.

Actually, though, I'd imagine that the Comex powers would argue even more strenuously than the the Big Ten officials of today that were guided by nothing more than the well-being of the "players" :

CHICAGO — Northwestern, Illinois and the Big Ten have agreed to run their offenses in only one direction Saturday at Wrigley Field because of concerns that the stadium's outfield wall is too close to the field behind one end zone. Illinois sports information director Kent Brown said Friday the conferences and schools agreed that the offenses will run only toward the west end zone…



 I finished reading a fine book last evening, and one of its closing philosophical points made me think of an old friend, Doug. It involved hunting, and his explanation one time to me that uninformed opponents of such appear to be burdened with some sort of Bambi Syndrome. Also known as BS, in the jargon of clinicians.

That is, the overwhelming majority of these opponents would have no problem with consuming mass-produced animals, but are seemingly appalled when somebody else more humanely cuts out the middleman, and cramped cages and pens.

That is a more than fair observation as there would seem to be an obvious paradox at work here. And probably one with parallels to other endeavors as well, which is why it is always prudent not to be reflexively judgmental about things about which we may not readily understand.

The person in the book echoing Doug's point was Eric Clapton, of all souls, in his autobiography.

An intense volume, it's Clapton tale of long redemption, going from a $2000 a day heroin habit, to a two-bottle a day liquor problem that he eventually found even more debilitating, as hard as that might be to imagine.

But rather than gloss over his troubled past, he vivisects it for all to see, with some of the scenes he gets into absolutely brutal to behold. It's amazing this guy is alive and sane, no less as wonderfully alive and lucid as he clearly appears to be.

It would seem obvious why Doug, a wildlife biologist and lifelong Vermont outdoorsman, wouldn't be burdened by Bambi Syndrome. But when reading Clapton's account of his life, it was interesting to note how the tortured artist came to his epiphany.

It seems that when he finally emerged from the thick woods of his various addictions, he found himself with much time on his hands, so he walked into the real woods.

With a bang.

pp. 294-295:

The tour of America took me through the autumn, and then on my return to England, I delved into a new hobby that was to equal fishing as an obsession in the years to come. My friend Phillip Walford, who is the river keeper on the stretch of the river Test that I fish, had always said that I should take up game shooting, if only for the logical reason that the shooting season starts when fishing season ends…I am a deep-end person, and in just a short time I was ordering braces of fine English guns and driving all over the country to shoot on different estates, gradually improving my skill and having the time of my life.

Clapton continues:

Ethically it was never a problem for me, and it is the same with fishing. My family and I eat what I catch and shoot. It is fresh and healthy and we love it. I am a hunter; it is in my genes, and I am quite comfortable with that. I also support a lot of other countryside pursuits, quite simply because I believe they are an important part of our culture and heritage, and need protecting, usually from people, or movements of people, who have little understanding of the delicate economic balance of countryside communities and have watched too many Disney movies.

Bambi Syndrome
further explained.
Clapton's autobiography.



 The leading historian says that he'll buy me a $ 8 cup of coffee under certain considerations. And I don't know much about coffee. But I've had occasion to have coffee at Stumptown Coffee, an Oregon firm with branches in New York now, and it's far and away the best coffee i've ever had. Next in line is the coffee at Kaffe that Mr. Florida surfer has recommended. The web mistress is a vegan, and I don't pay her that much to do all the editing and picturing so she usually doesn't put our stuff on barbecue up unless I get her mother on the case, which isn't that effective since she doesn't believe in coercion. Let us expand our mandate from bar b que to good beverages like coffee and tea.

Vince Fulco comments:

I wouldn't say THE top tier but for solid, day-in, day-out coffee, a NYC mail order institution which we order from is portorico. It's been around for over 100 years and we especially like their couple times a year sale with numerous versions of beans $5.99-7.99/lb, a veritable bargain when retail goes for similar prices for 10 ounces. They also have a weekly sale of one kind or another.

Jeff Sasmor writes:

For NJ suburbanites, the local roasting of primo beans and a nice college town quasi-hipster atmosphere is provided by Small World Coffee in Princeton. In spite of a Starbucks opening around the corner, Small World has actually grown larger.

David Hillman writes:

Stumptown is among best ever drunk here, too. We have a pound or two shipped in regularly. They ship the same day they roast and deliver in about 2-3 days, so coffee is very fresh. Currently in the cabinet is Indonesia Sulawsi Toarco and the African's are exceptional this year. An admirable direct trade business model worthy of support.

 Also, when in Portland, breakfast at Mother's. They serve Stumptown varieties in a french press at the table. That and the wild salmon hash is more than worth the long weekend a.m. waits.

Boom Bros. in Milwaukee is also happily recommended. Excellent roastmaster, their Velvet Hammer is the 'every morning' coffee at Cafe DGH.

Another favorite is this coffee from the D.R. Very cheap, very good. Best drunk in a cafe on the beach in Sosua. Maybe there's a Caribbean store of some sort in NYC?, but if not, there's always Bonanza:

"…..Always the most fresh production guaranteed! Manufacturer send my orders 3 times a week…..Thanks for looking!!!"

Chris Cooper writes:

Coincidentally, I have recently embarked on a quest to brew (consistently) the best cup of coffee. I have started roasting my own beans, and now it is evolving to importing my own green beans. Next month on the container arrives 300 kg of single-origin green beans from Indonesia from five farms. We call them Bali Kintamani, Java Jampit, Aceh Gayo, Sumatra Lintong, and Torajah Kalosi. I guess this may become more than just a hobby.

 While Mr. Surfer and family visited not so long ago, we served some Kopi Luwak, famous due to the journey of the fresh beans through the digestive tract of a civet. It turns out that there are various grades of Kopi Luwak, and since that time I've found a verifiably authentic version, which is rarer because often the growers will mix in other beans. I may try to import that as well, but it's very, very expensive, and I can probably only get 10 kg per year. The taste is really different, much earthier.

Larry Williams comments:

My cup runneth over with coffee from these guys, but thanks for the tips. I will begin my journey again for greatest java.

By the way, seems to have the best deals on espresso machine.

T.K Marks writes:

All this talk of coffee has gotten me nostalgic for one of my life's more squandered opportunities.

There was this little coffee spot on the Upper West Side, just a stone's throw from Lincoln Center, called Cafe Mozart. I used to spend much time there.

I would get a pot of coffee. Once even this thick Turkish stuff that perhaps made one look of Left Bank sensibilities, but tasted like tar. Would while away the hours there with reading, backgammon, or chess. It was a peaceful place.

So one night I'm sitting alone at my table reading when walks in and approaches, a woman.

A woman with a very fetching smile.

Bob?…she asked hesitatingly, as one would when meeting a blind date.

I stood up politely, smiled at her for a few seconds, and, No, was all I said.

Till this day I regret not lying through my teeth.

Had nothing to lose.

Jeff Watson writes:

 Many of my friends are coffee experts but I am sadly lacking in that department. One thing I do know is how to make is one of the better pots of coffee on the planet. The following recipe will even make even the most mediocre coffee taste good, and good coffee taste……delicious.

1. Wash an egg then break it into the bottom of an old fashioned metal campfire coffee pot, beating the egg slightly, leaving egg, shells and all in bottom of the pot..

2. Add a cup of very cold water to the pot, covering the egg and then add a pinch of salt.

3. Pour in a whole cup of course ground coffee to the water and egg mixture, and stir it up.

4. Pour enough boiling water over the coffee, egg, mixture to almost fill the pot up, and stir until mixed.

5. Cover the pot and plug the spout with a dish towel.

6. Put the coffee pot over a fire, heat it up to a gentle boil, back off, then let it simmer for a couple of minutes.

Take the pot off of the fire, let the coffee settle for a couple of minutes then add a cup of very cold water to precipitate the coffee grounds/egg mixture. Let the coffee settle for another minute, then serve.

My grandfather was taught to make coffee this way from some real cowboys when he went to the Arizona Territory for a trip sometime before 1910. He taught me how to make coffee when I was around 7 or 8, and put me in charge of the coffee every time there was a family picnic or outing. The secret to wonderful coffee is the egg, the pinch of salt, and good water. Coffee prepared in this manner evokes many good memories, and the good smell alone will attract any friends or neighbors in the near vicinity. Once in a great while, I will make this coffee on the stove and it's almost as good as on a campfire.

I have often wondered what a Kona coffee would taste like if prepared in this manner.

J.T Holley writes:

 I'm not a professional roaster or barista, but the keys that I learned in the 8-9 years that I mentored to roast, grind, and brew coffee are the following:

1) The time between roast and grind needs to be minimal (oils of the roast and storage important)

2) Method of brewing important to your individual tastes (percolate, press, or electric drip)

3) Water is 99% of a cup of coffee! Good tasting waters need to be used and free of chlorines, flourides, and impurities

4) Filtration choice and cleanliness of the brewer of choice imperative for consistent cups of good flavor

5) Once pot is brewed then stirring the pot and stirring the cup is important regardless of cream and sugar for consistency of coffee.

That's the basics!

All good shops should know this regardless if its a private house, private shop, franchise or friend.

Kim Zussman queries: 

How can coffee gourmets taste fluoride but not civet excrement?

Jim Sogi writes:

Chris's special Java java was distinctive and earthy. A treat especially in the palatial surroundings.

The key to brewing good coffee from whatever origin, is:

1. Be sure the parchment is sun dried, not machine dried. It has a much mellower smooth flavor.

2. Roast your own coffee. My favorite roast is 462 degrees, 11 minutes give or take based on humidity and ambient. Roast until the oil just starts to show, but is not oily. The oily roast is more for show. Roast only what you can use in 3 days.

3. Grind your own fresh roast. This is the most important of all. Don't try to freeze coffee beans.

When brewing in filter, only pour a little, not boiling, water through at a time.

Oh yes, Kona Coffee is without doubt the best in the world.



 It would be funny if the meme of shouting "dho" after every shot in ping pong had spread to all the players. I think it has. It's sort of like the mania that often grips speculators when they ride on a bandwagon before landing in the pillories.

T.K Marks comments:


Your recent ruminations on ping pong have gotten me to sighing that so much of Wall St. is a "racquet" sport as well.

Just with a little more anglicized spelling.

The commission guys and the boilerplate lawyers down there never have a losing day.

All while never taking a chance.

Now that's a tidy little racket.



 The web mistress, and entrepreneur behind a line of vegan shoes, tells me that my use of a million question markets and exclamation points for the mindless and senseless reaction to the Chicago purchasing managers, one of 100 cities, one of 100 numbers in each city, seasonally adjusted, senseless fury, signifying nothing, pre-released by flexions to their clients and cronies– is very au courant– the sort of thing that someone in her generation would use. I said what's the abbreviation for that. And she said: WTF! I looked around 3 times a la Jack Barnaby when he stuck his– backside out to show how to hit a side corner, and said I should say WTH! What the hades.

Jeff Watson writes:

When I was a kid, I cursed in a manner that would make a sailor blush. The important lesson I learned from my grandfather was to never curse in front of women, members of the clergy, my elders, or people in positions of authority like cops and judges. Realizing that my son was going to grow up as a beach rat, surrounded with boys, I knew that he would learn to curse by the age of 4 or 5, as those boys seemed to curse in every other word.. My instructions to him were much the same as what my grandfather gave to me with one major addition addition. If he was to curse, he should curse in the most artful, funny, witty, Rabelasian manner that would add humor and substance and turn it into a very funny story. He took the matter to heart and ended up rarely cursing…..but when he does, it would make Oscar Wilde proud. We never censored speech, reading materials, movies, music, porn, or any other forbidden fruits and it seems that my kid grew up relatively well balanced. It seems that the kids who grew up in houses that had such restrictions all gravitated to our house. We forewarned parents of our views, but were still accused of fostering seditious behavior more than once. 

T.K Marks writes:

By way of experiment, further advise her that the gospel of Strunk & White notwithstanding, writing is akin to a feudal society wherein character is king, punctuation niceties lowly vassals to such, and this contemporary abbreviation scourge a mere band of grammar gypsies just passing through.

Stefan Jovanovich writes:

Eisenhower rarely cursed; but when he did, he was a master who was more than a match for Patton and other habitual swearmongers. One hopes that he avoids Eisenhower's fate in dealing with academic hierarchies. When Ike wrote on article for the November 1920 issue of the Infantry Journal explaining how tanks had fundamentally changed the nature of warfare, he received a summons from the chief of Infantry, who informed Ike that his ideas were wrong and that henceforth he would keep them to himself or face a court-martial.



 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.



Inside Mory's eating clubMory's, a legendary Yale establishment, and site for flexion decision-making, just re-opened after two years of financial distress.

Can there be a better indicator to ensure that the "bottom's in?" (Or more accurately, "bottom's up"– for Mory's Cup fans.

T.K Marks adds:

From the Wiki article:

"…Although the club had an endowment of $2 million until recent years, it apparently suffered devastating losses in the markets crash of 2008…"

A college bar with a weighty position?….Something suggests to me that this is an establishment with some stories to tell. Anybody can get in over their head, but it's rare to see somebody do it whilst hosting an a capella group.

A good one too.

There's a roguish charm to a joint like that, I like it so far.



Raising Your Child to be a Champion in Athletics, Arts, and Academics
by Wayne Bryan and Woody Woodburn has many ideas about how to train that might be useful in markets and in life. They believe the main thing is to have fun. They suggest constant reinforcement with trophies, medals, and small goals. They recommend that you make the one thing you wish to excel at a passion, and that it be tempered with only one other passion. They schedule every second of every day, and never leave their kids alone in the house. They recommend playing with kids, and constant tournaments. They suggest going to events like high school and college games so that the kids can enjoy the feel of college and kids that are not that far removed from them. They suggest the importance of thanking all involved in any contest including the fellow competitors and the tournament organizers. Of course, they have taken their kids out of tournaments when they didn't behave as did Kramer and Borg. They of course totally ban all TV and computer games. They have a very successful program in tennis that they run, and their kids are the best doubles team of all time. (Both were national singles winners or close to it, and were called champ by their coach at Stanford). Do you feel that this has applicability to improving in our fields?

Pitt T. Maner III writes:

The Bryan TwinsThe Bryan twins were on 60 Minutes last Sunday.

Several things stood out in the interview. Lots of positives but some potential negatives. One of the brothers gave up a successful singles career in order to play doubles with his twin brother–always a possibility for future regret even though they are a great doubles team now. Other thing was the video game restriction–what they were denied in their youth they do now. So it would seem that too much discipline with children could lead them to rebel later in life in opposite directions.

There is always the survivorship argument that for all these successful kids there are a bunch of kids who become burned out on tennis, academics, and life in general. My guess is that one method fits all is not always going to work and parents would need to be very attentive to individual differences amongst their children. Too much praise (particularly if overdone and not genuine) and trophy hunting does not sound like a good thing either. Perhaps a need for balance is true for market participants also.

Rocky Humbert comments:

Waitzkin vs KasparovThe back cover of the book reads, "Byran has distilled his proven formula for success into a unique book that shows parents how to help their kids become champions in athletics, the arts, academics– and just about anything else they undertake."

A proven formula? I don't think so. (Or at least I hope not.) But early in the book the author's define "champion" in a broader way. They don't define it as being the best doubles tennis player of all time, graduating Harvard in two years, or having a ten-digit net worth.From the book: "The goal should be to raise a champion under a broader definition…. Being a champion means being fulfilled. Peace of mind and self-satisfaction."The authors continue, "There are endless definitions of a champion."And with that last sentence, I wholeheartedly agree. That recognition is applicable to every facet of our lives. 

T.K Marks:

In a recent working paper by Andrew Lo, "Is It Real, or Is It Randomized?: A Financial Turing Test", his colleagues and he conclude by vowing to consider in the future the null hypothesis of the video games are bad theory.

"…More generally, human intelligence is intertwined with pattern recognition and prediction (Hawkins, 2004), and financial pattern recognition is just one of many domains in which we excel. Our simple experimental framework suggests the possibility of developing human/computer interfaces that allow us to translate certain human abilities into other domains and functional specifications. For example, with the proper interface, it may be possible to translate the hand-eye coordination of highly skilled video-gamers to completely unrelated pattern-recognition and prediction problems such as weather forecasting or financial trading. We hope to explore such interfaces in future research…"

Regarding Professor Lo's financial variation on the Turing Test and proposed consideration of the pattern recognition abilities of video gamers, if a Bletchley Park were to have to happen today, the pattern developing and recognition talents of people who write and play at a very high level some of the more sophisticated versions of those games would undoubtedly be tapped into.

Alongside Alan Turing at Bletchley Park, in addition to the usual scientific suspects whose analytical skills were asked to break the German codes (e.g., mathematicians, logicians, physicists, etc.), they also had a host of Egyptologists, chess players, even a poet, anybody and everybody whose pattern recognition skill set would better lend itself to deconstructing a very complicated puzzle.

Nigel Davies:

The mix of chess players and mathematicians at Bletchley was interesting. Coincidentally I stumbled across this article today which differentiated the intelligence of mathematicians from that of chess players:

"Everybody was fairly impressed by this quick and crafty answer and the conversation moved on. The story illustrates something important about the nature of the chess mind– how good it is at short cuts (no pun intended) and tricky ways round things. Mathematicians are usually less devious in their thinking– it is important to find direct ways to prove things." If this is correct, which is the more valuable form of intelligence for markets? 

On another note, I would add that in our quest for 'love', 'approval' etc we can look for external approval within a particular sphere of excellence. Without reading the book (and I comment reluctantly without having done so) it looks to me like Wayne Bryan has found ways to link this ever more strongly to external performance. Is he to be congratulated for his efforts, as a parent?I am haunted by images of champions who go totally off the rails as they struggle with the ghosts of their childhood. In my own sphere I've met too many pushy parents making 'love' conditional on performance to join in the applause. Just this last week a kid in my chess class threw a wobbly and had a nose bleed when I enforced the touch move rule on him, costing him a rook. Needless to say his mum insists on him being the best at everything… 



 Most of us view the probability of an event as being between zero and one. But this is a simplification. Negative probabilities exist in physics, and they "probably" exist in the markets.

Additionally, probabilities greater than 1 exist too. Probabilities which are less than zero or greater than one are called "extended probabilities."

This is the first paper that I've seen which builds a mathematical model of interest rate options for negative probabilities. Previous papers have dealt with "risk-neutral" and "psedo-probabilities." The authors also promise an upcoming paper that describes financial models for events with a probability. The paper makes good reading for those who enjoy dividing by zero, and taking the square root of a negative number.

For the less geeky, besides negative interest rates, can anyone think of some real world examples of negative probabilities? Or probabilities greater than one?Is "Hell freezing over" an extended probability?

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

Bruno Ombreux comments:

If it is less than 0 or more than 1, then by definition, it is not a probability. It is not even a measure. They could call them anything, for instance "tiger-striped ferrraris", but they should not call them "negative probabilities".

The reason for a semantic discipline requirement, is that this tongue-in-cheek article, is targeted at finance people. People in the finance industry are generally clueless and take this kind of joke at face value.

Right now, I am studying Bayesian statistics, where they make ample use of calculation hacks and gimmicks. For instance they use Dirac masses as probability densities (height is infinite, width is zero, and area 1 ). But they know exactly what they are doing and nobody is fooled by the vocabulary.

That's different when the public is the banks or HF unwashed masses. For these, a dog should be called a dog, a cat a cat…

Rocky Humbert responds:

While I have often have my tongue planted in cheek (as well as foot planted in mouth), that is actually not the case here.

Mr. Bruno's first sentence is entirely correct with respect to "classical" probability theory. However, he might consider the possibility that Extended Probability Theory is analogous to Einstein's Relativity Theory extending Classical Newtonian Physics. (i.e. there are practical applications of atomic physics in our mundane lives — one doesn't need to travel at the speed of light to see this.)

I'm not a mathematician (and I don't play one on TV either) but I'm told that negative probabilities have a long history for people thinking about the foundations of quantum theory. Feynman wrote about them and the concepts led to his initial work on quantum computing. (Basic quantum computers now exist.)

Additionally, in markets, I believe that "Dutch Books" may give rise to extended probabilities.

I can't quarrel that some folks in the finance industry are clueless. (C'est moi, Monsieur!) but I don't find Brownian Motion-based options pricing models entirely satisfying either… hence I try to keep an open mind.

Jon Longtin writes:

Negative refraction I would caution against mixing mathematics with physics. Math is an (actually the only) absolute science, who's existence is defined completely in terms of stated rules and relationships. It is, at the end of the day, a very large body of definitions.

Probability, in the mathematical sense, is the chance that a particular outcome will happen, with the assumption that that outcome can at least happen. If an event can never happen its probably is zero, and if it always happen it is one. *Mathematically* to speak of events outside of this context is meaningless.

Physics is, well, physics. The world is the way it is and it's our job to describe it to the best of our ability. A tool that does this remarkably well is mathematics. Often, though, as we learn more the physical models have to be revised, expanded, and reinterpreted, given new information and insights. When we look at our new and improved models through the lens of the old model, thought, strange things happen. This is true with relatively, quantum mechanics, and when they discovered that the sun went around the earth, to name a few.

There are, for example, new materials that are characterized as having a negative index of refraction, n (a measure of how strongly materials bend light, and is the reason a pencil looks bent when in a glass of water); classically vacuum has n = 1 and air is about 1.0001 or so, water = 1.33, with values less than 1 physically impossible. There are, however, new materials being developed that do not naturally exist in nature, but rather are engineered structures that give the illusion of having a negative index. The point is no physics are being violated here; only that the model needs to be revised, and fitting the new material into the old model will result in surprising and sometimes counterintuitive understanding.

It is sometimes tempting to introduce an extension to the old model, such as e.g., negative refractive index and negative probability, but the more rigorous approach is to redefine the physical model from the ground up to capture the new phenomenon in a rigorous way.

Jon Longtin, Ph.D, is Associate Professor and Undergraduate Program Director, Department of Mechanical Engineering, State University of New York at Stony Brook

Bruno Ombreux replies:

In the case of the negative probability article, they are quick to dismiss the obvious and parsimonious solution that everyone has been using, and replace it with some harebrained theory.

Negative interest rates are nothing new and not a problem. We have had plenty of trade-ables that have always been able to get negative, with active OTC option markets in them, eg crack spreads…

The simple solution is to use a normal law instead of log-normal, and if you are still not happy, to use the empirical distribution.

Tom Marks comments:

 There is a fine volume recently out by the wonderfully polymathic Clifford Pickover called The Math Book. "From Pythagoras to the 57th Dimension, 250 Milestones in the History of Mathematics.

Reading each of these 250 entries is like doing a set of 25 push-ups for one's mind. And not just the left side, as the methodology behind fractal artwork indicates.

On the subject of squares of a negative number of which Rocky wrote, Dr. Pickover touches on the formerly ridiculed notion of imaginary numbers, the contributions of Bombelli, et al., and writes:

An imaginary number is one whose square has a negative value. The great mathematician Gottfried Leibniz called imaginary numbers 'a wonderful flight of God's Spirit; they are almost an amphibian between being and not being.' Because the square of any real number is positive, for centuries many mathematicians declared it impossible for a negative number to have a square root. Although various mathematicians had inklings of imaginary numbers, the history of imaginary numbers started to blossom in sixteenth-century Europe. The Italian engineer Rafael Bombelli, well known during his time for draining swamps, is today famous for his Algebra, published in 1572, that introduced a notation for √-1, which would be a valid solution for the equation x² + 1 = 0. He wrote, 'It was a wild thought in the judgment of many.' Numerous mathematicians were hesitant to 'believe' in imaginary numbers, including Descartes, who actually introduced the term imaginary as a kind of insult."

Leonard Euler in the eighteenth century introduced the symbol i for √-1 — for the first letter of the Latin word imaginarius — and we still use Euler's symbol today. Key advances in modern physics would not have been possible without the use of imaginary numbers, which ave aided physicists in a vast range of computations, including efficient calculations involving alternating currents, relativity theory, signal processing, fluid dynamics, and quantum mechanics. Imaginary numbers even play a role in the production of gorgeous fractal artworks that show a wealth of detail with increasing magnifications."From string theory to quantum theory, the deeper one studies physics, the closer one moves to pure mathematics. Some might even say that mathematics 'runs' reality in the same way that Microsoft's operating system runs a computer. Schrödinger's wave equation — which describes basic reality and events in terms of wave functions and probabilities — may be thought of as the evanescent substrate on which we all exist, and it relies on imaginary numbers.

Here is Dr. Pickover's website (well worth a look).

Rocky Humbert replies:

With your reference to Dr. Pickover, you tied together many loose ends:

Mr. Maner alluded to the fact that there is a probability greater than one that "…vampires will invade the literary world and be a profitable genre." He referenced the epic drama: "Abraham Lincoln: Vampire Hunter " Low and behold, it was Dr. Pickover who invented vampire numbers– I would wager that this is the first time that negative probability, markets, Abraham Lincoln and vampires were all discussed in the same thread on Dailyspec. (The probability of this happening is comparable to the odds that the S&P will rise five more days in a row. I therefore conclude that this must be an omen, and I just bought ONE March S&P 116 call as a homage to negative probability and vampires.)

Sushil Kedia writes:

The oracle at delphiThe first and the simplest example of negative probability at work in the markets comes to my mind from the Chair's oft emphasis on deception in the markets.

Let me use an example:

A street conman's game very much prevalent in India, near the smaller train stations and ports, where the hustler holds a heavy bag of muslin with two hands and offers a wide peep inside for you to see a nicely mixed hoarde of coloured and natural peanuts. The odds offered are 3:1 for you to multiply your money if you lift up a coloured peanut. You rush in playing an unfair game apparently to your advantage. When you shove your hand in, the mouth of the bag is held much closer around your wrist than when you were inticed to take a game loaded in your favour.

You pull out the peanut and it is not coloured.

The trick deployed is that there is another bag within the bag containing only uncoloured peanuts.

In the awareness of the hustler, probability of the outcome is certain due to his ability at deception. In the awareness of the player the probability of the outcome is somewhere close to 50:50. In the awareness of an analyst like me who has burnt the hand that tried picking the coloured peanut many times 50/(50+50+100) or 0.25 assuming the hustler fails at closing out the bag with mixed peanuts forcing your hand into the hidden bag with only plain ones.

The difference in the probabilities known to the newbies and those who have burnt their hand and become analysts is the 0.75 gap which is really the negative probability on which the hustler is peddling his skill.

Replace the peanuts - plain and the mixed ones with earnings guidance and announcements and you realize the negative probability the masses face vis-a-vis the insiders assuming all else being equal.

Replace the peanuts - plain and the mixed ones with counted stats the pros are playing with and the bags of code (not only computational but simply deal flow informational) the glittering big firms can have.

So on and so forth.

With this perspective gaps in perception, information, imagination, awareness, model specification, ability to loot, peddle, hustle etc. etc. a concept of negative probability fits in well with comprehension. The Oracles of Delphi as explained in the Education of a Speculator played really on the negative probability the masses believe are non-existent and happy to live with such belief. Despair, disdain, pursuit of short-cuts, road to quick riches have all been built with bricks of negative probability.

The first and the simplest example of negative probability at work in the markets comes to my mind from the Chair's oft emphasis on deception in the markets.

Let me use an example:

A street conman's game very much prevalent in India, near the smaller train stations and ports, where the hustler holds a heavy bag of muslin with two hands and offers a wide peep inside for you to see a nicely mixed hoarde of coloured and natural peanuts. The odds offered are 3:1 for you to multiply your money if you lift up a coloured peanut. You rush in playing an unfair game apparently to your advantage. When you shove your hand in, the mouth of the bag is held much closer around your wrist than when you were inticed to take a game loaded in your favour.

You pull out the peanut and it is not coloured.

The trick deployed is that there is another bag within the bag containing only uncoloured peanuts.

In the awareness of the hustler, probability of the outcome is certain due to his ability at deception. In the awareness of the player the probability of the outcome is somewhere close to 50:50. In the awareness of an analyst like me who has burnt the hand that tried picking the coloured peanut many times 50/(50+50+100) or 0.25 assuming the hustler fails at closing out the bag with mixed peanuts forcing your hand into the hidden bag with only plain ones.

The difference in probabilities known to the newbies and the analysts is 0.5-0.25 = 0.25 the awareness advantage.

The difference in probabilities known to the analysts and the hustler is 1-0.25 = 0.75 the hustling advantage.

The difference in probabilities known to the hustler and the newbies is0.5-1.0 = -0.5 the ignorants negative probability

Awareness Advantage MINUS Ignorants negative probability = 0.25-(-0.5) = 0.75 = The Hustling Advantage or in other words, the negative probability is Awareness Advantage - Hustling Advantage.

Replace the peanuts - plain and the mixed ones with earnings guidance and announcements and you realize the negative probability the masses face vis-a-vis the insiders assuming all else being equal.

Replace the peanuts - plain and the mixed ones with counted stats the pros are playing with and the bags of code (not only computational but simply deal flow informational) the glittering big firms can have.

So on and so forth.

With this perspective gaps in perception, information, imagination, awareness, model specification, ability to loot, peddle, hustle etc. etc. a concept of negative probability fits in well with comprehension. The Oracles of Delphi as explained in the Education of a Speculator played really on the negative probability the masses believe are non-existent and happy to live with such belief. Despair, disdain, pursuit of short-cuts, road to quick riches have all been built with bricks of negative probability.

T.K Marks writes:

On the subject of meals, I see today a poignant portrait of the food chain. These photos from Colorado are spectacular.

"…The starling seems to be completely unaware it is on the lunch menu as the bald eagle makes it attack at high speed…" On some level we've all been starlings at one point or another.



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

Victor adds:

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

Tom Marks replies:

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

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

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

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

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

Art Cooper remarks:

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

Douglas Dimick writes:

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

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



I just read the headline about Federer using profanity — so that's why I am bringing this up. Obviously Williams was spouting a fountain of profanity, and I saw one of the Russian players using it as she was losing to Oudin. Compared to Oudin who exclaimed "OK, good, all right" when a point went her way — a positive exclamation. What is happening today with this widespread abuse?

You are what you eat, what you think and what words and thoughts are in your mind and heart. And these inside truths come out during stress, like sports. These professionals should clean up their acts. I fell into the profanity trap and had to work day by day to retrain myself to not utter this filth. It can be done. I knew I was cured when I would stub a toe or bang a thumb and the word "ouch" came out instead of "&*^%^%*&".

Profanity is anti-good. Profanity is what my father said was "lowbrow" talk. To see a grown professional women bellow the exclamation "WTF?" — it's really a shame. Am I just getting older and complaining about kids today? Am I turning into the guy who watches to make sure kids don't walk on my lawn?

Oh snap!

Nick White adds:

I would love to say that I'm immune to such things but, alas, I am not.

Coarse language is usually an attempt by males to boost the perception of their machismo amongst peers. Naturally this explains much behaviour on the trading floor and locker room alike.

However, when one works amongst our quantitative French bretheren, one will hear the far more silken, "plus tard!" at an alarming frequency during the trading day. Perhaps this is a more appropriate substitute?

Left to the reader to ponder whether it's the efficacy of their models or their nature that unleashes the vitriol from within.

Tom Marks considers the importance of courtesy:

Victor wrote: "Artie always used to thank the referees for calling foot faults because of their vigilance. Do thank the rules committee."

A FSuch sage fatherly advice also applies to courts other than those used in racquet sports.

Years ago I was out at dinner with a cousin, a seasoned litigator, and his fledgling lawyer son. The father was imparting to the young man some pointers on how he should conduct himself in a courtroom. Prominently mentioned was that, win or — especially — lose, some gesture of sincere appreciation and thanks should be made to the jury after they have reached their verdict,

The reason being is, firstly, it's the proper thing to do. In fulfilling their civic responsibilities, they have just spent their considerable time listening to the brutally boring details of a situation that almost always will have no beneficial impact on their individual lives whatsoever.

But secondly, even though he would in all probability never see any of those people again, nor be professionally reliant on their opinion, there's a good chance he would see that judge in another case.

Sportsmanship counts, it also gets noticed. The jurist community is not a very large one, and word gets around. Next time around he might get the benefit of the doubt from the bench on a seemingly minor procedural point that could eventually tip the scales in his favor.

There are few things in life with less downside than good manners. No matter the field, no matter the situation.



 I have just read the first chapter of A Conceptual Introduction to Chemistry by Bauer, Birk, and Marks. The question immediately arises as to what would a chemist who lived on Mars and knew nothing of our financial situation study or do to make a profit in markets when he came down?

He would certainly place much emphasis on the changes in state that the various companies went through and their effect on stock prices. Big mergers and acquisitions would be studied as to their impact. The moves above 100 and below 10 or 5 would be considered. Stocks would be grouped by their digits and volatility. The amount of trading in each range would be considered as a measure of density. And the luster of each stock, relative to publicity and ballyhoo, and its electronegativity would be considered.

Does a stock dissolve in water, and at what temperature? Yes, and of course the ability of a stock to move on its own or the external force would be high on the list. What are the basic elements, the companies from which all others are built? One would think that a whole set of quantitative studies, probably much more useful than the ones usually found in the literature might be sparked by such a consideration.

Allan Millhone replies:

When the chemist came down from Mars in this down market he would see that items containing oil would be a good bet for future products.

He would note a suppressed housing market and might look at roofing and construction materials. Roofing, felt paper, ice guard brand products, tar. Or is it best for him to buy XOM and the like? I note the Golden Boys predict $85 oil. They must have a swami at a crystal ball like the wicked witch had watching Dorothy and her friends to see the future.

T. K. Marks adds:

The chemist would benignly synthesize a powerful new opiate aimed at pain relief and call it "Price Averaging, This Time It Will Definitely Work."

I would experiment with such, thinking that only others could get hooked.

George Parkanyi writes:

He might also look at what properties of a market attract energy (money), or repel it. Can markets be combined into compounds? If markets do form into complex "molecules", what would make them stable or unstable? How would the combinations behave? What would be the tipping points? What would be the solid, liquid, and gaseous states of a market? How much energy does it require to move from state to state? Does change of state happen smoothly, or in quantum increments? Do markets have polarity? Which ones repel; which ones attract each other? If markets don't necessarily interact with other markets, can they still act as catalysts to facilitate interactions between other markets? Does one market orbit around another? Does the state or presence of one market crowd out or starve another? Is the main trend of markets toward entropy (increasing disorder), and how much energy is required to keep markets organized and behaving in their current states? Can markets serving purposes today, be used for other purposes?

And… which markets cause high blood pressure and heart-problems…

Alex Forshaw comments:

The chemist would identify a massive, exploding black hole which the human species alternatively call "the Fed", "the US government", "FDIC", "FHLB", "Fed", Congress", "Obama", "Bush", and many other names, consuming everything else … and he would watch in amazement as market liquidity, entropy, gravity, etc were warped beyond recognition every other week.

He would probably blast off of Mars to a galaxy far far away ASAP before Mars were imminently gobbled up by the same black hole.

Easan Katir adds:

Thank you for this new chapter drawing analogies with your introduction of chemistry, in the service of profitable trading.

Though more hydraulics than chemistry, here is a video demo filmed at Cambridge of how a plumber / economist approached similar questions back in 1949, with his "Phillips Machine ", or "Moniac."

[Ed: if I understood correctly it is a hydraulic simulation of the Keynesian Liquidity Preference model].



 New York today was cold, wet, and raw, but I found this to be a warming tale, one including an unlikely cast of supporting characters: Muammar Qadaffi, Marc Rich, and the commodities trade.

By way of background, one of my older brothers is on the board of a wonderful little middle-school on the Upper West Side of Manhattan. An academic jewel couched in modest confines, some might suggest that the place looks like a factory.

But that it is.

They take inner-city kids that are even more academically talented than they might be economically disadvantaged, systematically educating and nurturing them to the point where the prep schools of New England and Manhattan always come eagerly knocking, quick to admit their graduates under very workable financial terms. That's how much those schools love the product. Ultimately it is a pipeline to the Ivy League for those whose considerable spirit and talents might otherwise fall through the ordinary system's cracks. And those kids never forget, as soon will be made clear.

I've never seen anything quite like this place. It is the noble brainchild of the headmaster, Brian Carty, a most remarkable, resourceful, and redoubtable soul. A guy as kind as he is brilliant as he is dogged. So much so that he and his vision remain the subject of a Harvard Business School case study:

"…To think about corporate responsibility, replication of an organizational concept, and succession planning. To challenge students to consider why this organization has been so successful. Also to consider whether the concept can be duplicated elsewhere and, if so, how. To consider the degree to which Brother Brian is central to the community, and what action, if any, is needed to plan for his successor…"

How cool is that? Luminous minds brainstorming how somebody of note might be duplicated.

So what does any of this have to do with Qadaffi and Rich? I recently caught up with a  story from last month's NYTimes, a sad story with a happy ending, and smiled one of those experienced smiles, having realized long ago that the emotions of sad and glad are by no means mutually exclusive states of mind. It's an amalgam that only a life less lived is without.

It seems that one of Brian's former students, Andre Nikolai Guevorguian, was working for Rich as a commodity trader, and found himself on that ill-fated flight over Lockerbie back in '88. That's the sad part.  Years ago over dinner I had heard from Brian the long and circuitous path the litigious fallout from that tragedy had taken, and how it turned out to have a silver lining for the school.

But to see the story in print brought the tale into high relief. It reads like the script of a sad film that somehow salvages a happy ending. Very Capraesque. And an admirable antidote to the slushy, sloppy weather in NY this afternoon, Andre's mom seeing that De La Salle's good works ending up with $2.47m of her late son's legacy, the rest going to Choate and Harvard.

Oh yeah, the Times columnist that wrote the piece, Jim Dwyer, turns out that he's a former student of Brian Carty's as well. Hadn't known that before, but wasn't surprised to learn it now.

Like I wrote earlier, kids taught well tend to never forget.

What a fine day.



When I was a kid there was this little bit of matinee subterfuge that we would perpetrate at the movies.Seeing that there was a 1 o’clock screening followed by a 3 o’clock screening, my associates and I would would wait until the crowd from the first show would exit en masse, whereupon, ticket-less but determined, we would nonchalantly walk in backwards amongst them. Once upstream and within the safety of the lobby, we would then make our way to the emptying seats and patiently wait for the curtain to come up again. As childhood mischief goes, not exactly hotwiring cars for a joyride but OK by suburban standards.

Later, when I was a fledgling clerk in the silver pit, I soon noticed a variation on this theme.

Banks and dealers will all have phones directly to the pit, constantly manned by a clerk whose job it is to parrot the bid/offer, by who, and what size. The larger of these players will have two or more phones to different brokers on the floor, all in competition with one another for that bank’s business. And all the clerks know what other clerk is on with what bank, and what’s transpiring at any given time. The guys in the pit are largely in the dark about these clerk dynamics because a lot of this activity is happening behind them. Literally.

Having been doing this for all of a couple weeks, the trader from the bank asks me a couple of times to size up the bid in the ring after I inform him of a large offer out there. Now he knows that I’m going to ask the broker I worked for what the aggregate bid size is, and later realized that he also knows that other people are going to hear me. (It’s difficult to be deft at something you’ve been doing for two weeks.) Considering the confluence of circumstances and sensing an edge, the eavesdroppers would presumably get short, whereupon, he tells his other more seasoned clerk (around, say, 8 weeks — survival skills develop quickly in the wild…or else) to very discretely advise his broker to not hit any bids but rather to take the large offer. Then he bids for more through multiple channels, though in such a way that he probably is not going to get hit. Opportunistic shorts are now left in the lurch. As they cover, the fresh long in turn typically sells out the physical off the floor on terms friendly to his interests, I would learn later. His plan all along.

The first time this happened my naiveté was taken aback by how quickly and decisively a supposedly sophisticated bank could change it’s mind. The second time it happened, I smiled one of those small, private, epiphany smiles, thinking, oh, the old walk-in-backwards approach. How quaint. In the ensuing years, I cannot believe how many times I’ve seen this little stratagem deployed and the large scale on which it is sometimes done.

Just like the movie situation, timing is key. It was easier to salmon one’s way into a matinee than a night show because the ushers trying to prevent it had been in a darkened theatre for a while. But now they had to stare out into the sunlight looking for what was making its way against the exiting tide. Takes a little while for their eyes to adjust. Such was the salmon’s edge.

It is the same for the markets, and just like there will always be an unwitting rookie clerk out there to further the deception of a cagey participant, there will always be a media prone to being duped again into helping some concern get out of their large, long-term position. A colossal oil company suddenly discovers that it has not a localized leak but rather systemic corrosion problems over a vast network of pipes. Crude quickly jumps. But when everybody’s eyes adjust days later to the blinding sun of pervasive press coverage, it’s actually down for the week. While unleaded gas has plunged as if it were an anvil tossed from a cliff. Hmmm.

If you can artfully walk in backwards when everybody’s slowly coming out, it would logically follow that one can discretely exit when everybody’s rushing in. Especially when the hype is at high tide and the sun is in their eyes.


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