The energy crunch in China and Europe may grow into a bigger trend worldwide. Its one of those small line notes you notice and go hmmm. Like the pandemic was in early 2020. Hmmm, shortage of masks. Hmmm, Shortage of gas, coal. Things that make you go hmmm.

Water shortages also coming up. See how this winter is. Reservoirs are quite low. Look at weekly chart of FIW water etf.

Jeff Watson adds:

I’m noticing many holes where product should be on shelving at every retail establishment we patronize. I’ve been waiting on a part for my Jeep that’s been on back order for 6months. Still see little to no ammo in stores. The system is full of hiccups.

Tim Melvin notes:

I saw a lot of empty shelf space at Costco last week. Very unusual.

Pamela Van Giessen writes:

No joke. We have a huge problem. This is what happens when the world gets shut down and everything is all covid fear all the time. No workers. Test school kids constantly and they will end up being sent home and parents won’t be able to work. Then stuff won’t get made or shipped to where it needs to be. Freight train, fully loaded, sat parked in Livingston MT for nearly 2 weeks. Just left the other day.

As someone running a business that relies on actual commodities (flour, sugar, etc) I find myself overbuying out of concern that I will not be able to get basic ingredients. I had a hard time getting boxes about 2 weeks ago. It’s ridiculous.

Laurence Glazier writes:

It’s getting reminiscent or the Atlas Shrugged movie.

Nils Poertner suggests:

UK is worth to watch as most things we are going to see here in Eurozone or you guys in the US are happening a touch earlier over there (UK being such a tiny, little, open, exposed, econ).

Laurence Glazier adds:

Yes, over here in London it's harder to get petrol (i.e. gas) for the car, less things available in online stores.

James Lackey writes:

I can get everything to build a car a bike or a motorcycle and mysteriously no spikes no single bearing or one simple chip - I call BS. This is almost as big as a Vatican scam.

Jeff Rollert adds:

The most common boat engine, the Merc Cruiser, is quoting deliveries of full engines for next summer.

Duncan Coker notes:

Motors being taken out of production. Sounds a lot like a book I know.



Last Train

February 15, 2021 | Leave a Comment

Victor Niederhoffer writes:

To paradise: https://www.amazon.com/s?k=henry+flagler+last+train+to+paradise&crid=2K4P028N815Z3&sprefix=

train+to+paradise+henry%2Caps%2C166&ref=nb_sb_ss_ts-doa-p_1_23   tells the story of a great adventures and benefactor of  Florida and the country  written in 20002 without the cancel  culture exerting too much of these influence. highly regomme3nde and inspiring as to what an man of integrity and the books  should aspire to.

Jeffery Watson writes:

That book is a must read for anyone who loves the history of Florida. 

Tim Melvin writes:

The authors fiction books set in Florida are also outstanding reads.



Pardon my links but this is pretty interesting conversation between Elroy Dimson and Meb Faber.



 Do you hear that?

This new and sudden silence is deafening.

No crack of the bat. No slap of the mitt. No murmur in the stands. No roar of the crowd. No police whistles as they break up a fight at Citifield. No melodious tones of the announcers as they describe how the pitcher overcame juvenile explosive diarrhea to attain Major League success. Hell, I would go even put up with Joe Bucks annoying cadence and nonsense of the would turn the lights back on and open the turnstiles once more. But it is not to be. The 2017 baseball season is gone now. It had a good, exciting long life-extending as far as the rules allow but it has left the world leaving us only memories of its glory and grandeur. Spring training is 100 days away, and the silence is deafening.

Gone are the bright colors and melodic songs of the Blue Jays. Cardinals and Orioles. The Marlins and Rays scamper among the waves no longer. The Padres and Mariners have both ended their voyages for now. Though they are champions only memories of the Astros light the night sky now. The Rangers and Indians alike have retreated from the plains. The delights of spring and summer are gone once again along with the extreme passion and grand intensity of October.

Ahead lies only winter with Timberwolves, Grizzlies, Warriors, and Raptors to hold our attention to any degree. They won't work for me as I find most NBA basketball to be absolutely unwatchable on TV. One can almost succumb to tears comparing Havlicek, Monroe, West, Frazier, Bird, and Magic to the run and slam version of the game played today. I must confess I do watch the highlights most nights but a whole game would be too much for me.

I have pondered my loss of interest in the NFL a great deal. Part of it is the fact that the game is shit. The referees seem to be determined to have more airtime than the two starting quarterbacks and flags fly out more consistency that many airlines have ever shown. While I am a fan of celebrating achievements watching some idiot do a victory dance because he sacked the quarterback while his team is losing 31-7 late in the 4th quarter disgusts me. If we are honest, it is just not a very good game anymore.

Part of it I think is social. Football is an excuse for the single, or no kids crowd to head to the bar at noon on Sunday and avoid the emptiness of an apartment on Sunday with no work or events to distract you. It is something to do when the snow is up to the low edge of your ass, and the idea of venturing outside is about as welcome as inviting a politician to dinner. It helps pass the winter and gives you something to think about besides frozen pipes salted driveways.

I am now married these past seven years and live in Florida. I am not a big fan of day drinking unless I can get a nap before dinner, so I don't head out to the sports bars much anymore. There is always something to do in Florida and weather that allows you to do things.

I am sure it is a combination of things, but the NFL just does not hold my interest. I follow and watch Notre Dame and Navy at the college level but have no interest in the pro version of the game. No, baseball is the game for me. An evening with a book, while the games played on the TV, has been the preferred activity of many of the last 249 days. Checking the MLB app on a regular basis when the wife wants to watch something else has also been a significant part of my life. Games on the radio version of the app while running around town doing errands while engaging in Florida things has also been a regular activity. Now, that's over. One catch, one toss from Altuve to first base and baseball is over. No more home runs, double plays, dumb baserunning, brilliant pitches, astounding catches, stretching a single or stealing a base. No more second-guessing the manager, yelling at umpires encased in my flat screen or wondering how in the hell Chris Davis could let that pitch go by without swinging. No more box score searching, mathematical determinations of how we can catch the division leaders with a little run of luck. There will be the hot stove league, trades and all sorts of managerial stuff going on all winter to follow. I will probably go sit at the bar during the Winter meetings next weekend to get a little fix. But none of it will enough.

The silence is deafening.

Stefan Jovanovich writes: 

There is the NHL - where all the fans and players stand for 2 national anthems whenever American and Canadian franchises compete and they know the words to both. It is the only team sport other than baseball where 1 player–pitcher, goalie–can single handedly lead a weaker team to victory–something neither Michael Jordan nor Barry Sanders could do.

Tim Melvin writes: 

I have gone to some minor league hockey games and enjoyed them…but find the sport unwatchable on TV. The only ice I want to see most of the time is my glass. While I am watching a baseball game.



 Thanks to my son in law I got a chance to talk with the trader, professor, and gambler recently. The interview ran on Benzinga.com and specs might find it interesting and of possible value

Edward Thorp is one of the most well known figures on Wall Street. Throughout his venerable career he's spent time as a mathematics professor, hedge fund manager, blackjack player, and author. "The father of the wearable computer," recently released his sixth book, "A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market." Marketfy's Tim Melvin recently caught up with the Wall Street legend to discuss his career and outlook on investing. Below is their conversation, slightly edited for length and clarity.

Tim Melvin: You're really considered to be one of the fathers of quantitative investing, which brings up a certain picture of a guy with a bunch of computers trading wildly. But as I go through the book, you really have a tremendous Warren Buffet-kind of Ben Graham influence on your approach to investing. Can you talk a little bit about that? Because that really surprised me.

Edward Thorp: I came at the securities markets without basically any prior knowledge and I educated myself by sitting down and reading anything I could lay my hands on. I began to get oriented, and then I discovered how to evaluate warrants, at least in an elementary way, and I decided that was a way that I could apply mathematics and logical thinking and maybe get an edge in the market.

Melvin: So you weren't trading like a mad man, like what we think of quants today. You were setting the trades and letting them run, right?

Thorp: Yes, initially it was slow trading. We'd put on warrant hedges and watch them and every so often, if there was a big move in the underlying stock, we'd change the ratio of warrants to stock. And then that evolved into revertible bond trading and we did pretty much the same thing there. So, then [Thorpe and co-author Sheen Kassouf] both went on to careers managing money.

I started a hedge fund in 1969, after meeting and talking with Warren Buffet for a while in 1968. He'd been running a hedge fund for about a dozen years, and he was just shutting down. And it turned out that stocks were at manic highs then. Which is why he was shutting down, and for me, it didn't matter because I was putting on market neutral hedges. Something people hadn't been doing before.

Melvin: Now, in the book you talk a lot about statistical arbitrage, I know you stopped doing it in about 2002, according to an interview I read. But it's a term that's used a lot. I don't think anybody really knows what it means that's not in the business. Could you kind of describe that a little bit?

Thorp: Sure. As you actually will have seen by reading my new book, "A Man for all Markets", the idea was discovered by us back at either December 1979 or January 1980. The root idea was a researcher discovered that if you took the stocks that had been the worst performers over the last two or three weeks and bet on them, they would tend to outperform over the next two or three weeks, and the reverse was true too. The stocks acted as though they had some unobservable true value that wandered along some unknown curve, and they set a range back and forth around this curve, and followed it. Sometimes demand would push them up too high, for a while. And sometimes supply would push them too low for a while. So he ran a simulation where he bet on the 10 percent that were the most up for the last couple of weeks, and sold them short. And then bought the ones that were the most down for the last couple of weeks, and set up a hedge portfolio.

Now you might say, "Where's the hedge?" Well, if you have a diversified pool of stocks that are kind of randomly chosen, they'll tend to track the market. So the ones that were up the most, we would short, and that group tended to track the opposite of the market. That is, it would tend to move as though you would short the market.

On the other side, we had a pool that were long and they tended to track the market. So when you put them together, the long and the short sides, the market effect was pretty much cancelled out. Now, of course, there were a lot of other effects, all these stocks were traveling around their own random way around their market factor or market component. Well, we got rid of the market part.

So we said, "Gee, this is an interesting new source of profit." We looked at this and found out that it was somewhat riskier than the other things that we had in our portfolio. So we put it aside. And then as I tell in, "A Man for All Markets," somebody at Morgan Stanley (NYSE: MS) came across the same idea about two or three years later. And Morgan Stanley turned it into a very profitable product.

Then that person was disaffected by his treatment at Morgan Stanley, he happened to answer an ad that we had put in the newspaper looking for people with good quantitative ideas. I interviewed him. I saw that what he had done was very much like what we had done, only he had improved it a notch because he used groups of stocks in a single industry separately, to set up these long short hedges. So the upshot was we went into business with him, it worked very well. Through the crash of 1987, for example, it made money during that terrible down day. Then it began to lose some of its power as Morgan Stanley and others spread the idea and also put more money into it. So, we devised a new method that got rid of not only the market factor, but lots of other things, oil factor, interest rate factor, that sort of thing. And that ran just fine.

That's the root idea, and it had a huge impact on the markets, because it's a natural sequence into the idea of high frequency trading. The reason it's a natural sequence is because you have computer feeds of the stock ticker. So, prices are pouring into the computer continuously, all day long for statistical arbitrage. Then the machines are recalculating what to bet on, and how to modify the portfolio. So, once you have a high speed data feed that you're processing all day long, you begin to think, "Well, are there other ways to trade to this data feed, besides putting on trades that are on for an average of ten days or so?" And you begin to look for patterns that are shorter. So there's a natural segue then into high frequency trading, you've got all the equipment, all the background and so forth. And I think that's probably how people got into high frequency trading.

Melvin: As an individual trader, is it worth the extra effort to try to beat the market today?

Thorp: That depends on the person. I think to myself, "Gee, if I were 25 and I got interested in this, what would I do?" And I'm not sure, but for what I know now, I'd say the Warren Buffett way is a good way if you want to put your whole life into it. I'd probably decide not to want to put my whole life into it. So I would say if you wanted to get really rich and you wanted to trade your whole life for getting really rich, a trade I don't necessarily recommend, then I'd say that's the way to go. But if you just want to make lesser amounts of money, I don't know what to tell a person at this point because you can do so well knowing nothing in the market.

Melvin: In the book, you talk about a way to beat the market that you used at Princeton-Newport, buying deeply discounted closed-end funds and allowing the discount to narrow. Have you considered that much in recent years?

Thorp: I have thought about that. My experience was long ago when there weren't people tuned into this as much, but I think you could maybe make 15-20 percent a year pretty safely.

Melvin: In the early part of the book, it seems like you were such an intellectually, inquisitive child and pulled remarkable stunts. I love the one with the flare in the balloon, that just cracked me up. But as a parent and as an educator over the years, is there a way to bring out that natural intellectual curiosity in a child?

Thorp: Well, I can tell you what we did with our kids and it seemed to work. We made dinner time a special time, when everybody got together, nobody had any devices, or other activity or distractions. We all sat down, we talked about whatever was on anybody's mind. So the mean teacher at school, the bully, whether or not there's a God, whatever came up. The logic behind climate change, or the arguments against it, and so the kids learned to think for themselves. And this power of thinking for yourself is really formidable because it enables you to do many things. Whereas people who don't do their own thinking kind of have to key off other people to try to figure out what it is that they should be doing. They basically follow the crowd.

The second thing is that we try to give our kids opportunity, so they had choices, but we tried not to steer those choices. So just because I'm a science, math, gambling stock market type guy, doesn't mean that I try to steer my kids that way. So one kid became a hedge fund manager eventually, one kid became an architect, and one became a district attorney. They went their separate ways, they're all smart.

Melvin: You talked about that several times in the book. In fact, I have passages underlined. You attribute a lot of your success as an investor because you did it not just for the money, but for the love of the mathematics behind it. And at one point, you say that your discoveries fit in with your life path as a mathematician, leaving you largely free to enjoy your family and pursue a career in the academic world. So you weren't 18 hours a day bent over a screen. You were enjoying your life, because you enjoyed the work. Not because it was finance, because it was math.

Thorp: That's exactly right.

Melvin: Now 1948, you apparently spent the entire summer sitting on a beach reading 60 novels that you considered to be classics. Did that make a big impact on the way you thought, the way you approached the rest of your life?

Thorp: I would say yes. It gave me… I'd call it maybe more of a philosophical and humanitarian perspective on life. And it made me think about the big world of society, politics, history, geography and so on. And it gave me a framework for putting things in their place.

Melvin: You talk a lot also about the importance of education, and your concerns about the future of education. Can you talk about that a little bit?

Thorp: Yes. I think of education as a lot like the seed corn for society. And if people are willing to pay for it, if they're willing to be taxed and if they're willing to build a good educational system, then I see that the minds that are generated out of that will apply tremendous leverage to society, and society will grow and advance much more rapidly. And many good things will happen and get done. If you had a society that was devoid of education, it would just sit in place and do nothing. It would be the same thing decade after decade, perhaps century after century. It would be like the perhaps inaccurate image that we have of the dark ages where nothing much happens.

So in a place like California, for example, they made a terrible mistake back in 1978. They passed something called Proposition 13. What that did was bust the state budget. The biggest component of the state budget is education. And so education has gotten squeezed ever after in California, at both the elementary, the secondary, and the college level. And tuition has gone up enormously. When I went to the University of California, my tuition was $35 a semester. Of course, that was back in 1949, 1950 and you might say, "Well, inflation's changed the number quite a bit." It has maybe 10, 12 times, but just add a zero to $35, $350 a semester, but we're looking at instead of $700 a year. In today's dollars, we're looking at maybe $12,000 a year, or something like that for in-state, maybe $30,000 for out-of-state. So what happens is people can't afford to get as good an education.

They go to school and even if they can pay the tuition, they have to work in large part to supplement to get the money to pay it because it just isn't available in so many of the families. If you work while you're going to school, which I did, you don't do as well in school as you might. You don't learn as much. I can think back at the courses I took because I was working, I didn't learn the courses as well. And the rest of my life, I could feel the impact of that lack of knowledge, that I would have had if only I had been able to focus properly on the course I was taking.

So anyhow, to make a long story longer, I've seen charts of how much is invested in science, engineering, and education in a society, as a fraction of their GMP versus the rate of change of GMP. And it's quite dramatic. Societies that have a higher investment of education advance the growth in their GMP much more rapidly in societies that don't. And the obvious example is something like Silicon Valley. If we didn't have a Silicon Valley or the equivalent, or Redmond, Washington, or the equivalent, we wouldn't have all the computer advancement that we have. Apple would be a giant company in some other place, Japan, Russia, China, something of that sort as opposed to being a giant company in the United States. So anyhow to not spend money in education is a terrible mistake.

And another consequence of that mistake is gambling. There are lottery systems all over, and one of the ways of getting people to accept them is we're willing to fund education with lottery proceeds. But that's actually been in California bait and switch. What happens is they have signed a certain fraction of the lottery profits to education, but then they take away money from education with the other hand. So education doesn't end up getting any more money. California ends up getting more money in the general fund, and ends up with a major gambling problem on top of it.

Melvin: In the book, you think a flat tax might be the answer to solve some of the funding problems at all levels of government.

Yes, I do and there's an obstacle to getting it in, which is that the complicated tax system is one that's been made that way by politicians who are busy paying off special interests, who in return make campaign contributions to elect or re-elect the politicians. So that's why the tax code degenerates into horrible complexity over and over. Now flat tax would eliminate most of the power of the politicians to extract benefits from the tax code. So they would oppose it. But, you could probably get support from large parts of society if you made the flat, the change to a flat tax neutral.

So for instance, suppose you take away the carried interest benefit for hedge funds. Just to explain what that is, carried interest is a scheme which has been disguised by an obscure phrase, carried interest, a scheme to tax money made by hedge fund operators at the capital gains rate rather than at the ordinary income rate. And so they pay far less tax. They can also defer the payment of the tax for many years, 10 years or more. Let's say you took that away. You might get another $20 billion in tax collections that way. What to do with it? Well, go to the politically unconnected rich, the ones who don't have benefits built into the tax code from bribing politicians. Take the top tax rate down. Apply that $15 or $20 billion tax savings that you capture from the changing the carried interest toward their income, apply that to the top rate. So it comes down from 39.6% to maybe 39% or 38.5% or whatever that comes down to. My idea would be that you keep making changes that are revenue neutral, and if you brought a flat tax in all at once, that would be a massive change that if were done in a revenue neutral way, would have as many winners as losers, so you'd have a lot of people rooting for it.

Melvin: Yeah. I agree. I've always said to the first part of your statement, that taxes are not just about raising income. It's also a very complex reward and punishment system. And that's been the biggest reason it's developed into the nightmare that it is. I was surprised to see you comment on it in bringing it out in the book, happily so, but we're in complete agreement on that.

Thorp: Well, one of the reasons I have some, I'll call them public policy commentary in the book, is that if you have a math and science background like I do and you believe yourself to be a rational thinker, you end up applying it to as many things as you can. And with a large part of my life spent in finance and economics, I naturally ended up applying a lot of this thinking to public policy and other things that I see in society that have a broad impact. That's where a fair amount of this is coming from. I believe that if people just learned how to think instead of letting other people do the thinking for them, that we could work our way to a considerably better society.

I've got one last question for you, and this is the big one. It's one that I try to ask everybody I run across. What books are you reading now?

Thorp: Right now, I'm reading a book called "The Accidental Superpower" by a guy named Peter Zeihan. And the reason I'm reading it is because one of my friends who I mentioned in the book, Gary Basil, who was a professor of economics and finance over at UCI when I first met him, sent it to me thinking it was going to be interesting, good to read. We had been talking about the election of Donald Trump, what we thought that meant for the country. This book looks at things much differently than I do, and I find that if I read things that may not agree with the way I look at the world, than I'm more likely to learn something than if I just read things that keep telling me, "Yes, you're right" over and over and over.

This is a geopolitics type book, which basically thinks that geography in demographics are major determinants of how things evolve for societies. It's an interesting historical perspective, and it has predictions of how the future's going to go. I'm enjoying working my way through that and seeing where I agree and where I don't agree with it and what I've learned from it or haven't. That's one interesting book that I've been reading.



This piece on the "20 Rules of Being a Knight" might be of interest and enjoyment to the many of us who are still fascinated and enraptured by Don Quixote.



 July is creeping toward an end and I'm starting to see the first back-to-school ads pop up on television. Before you know it, it will be September and then the beginning of fall.

Before moving to Florida, I always had mixed feeling about fall. While you have the start of football and pennant-race baseball along with the release of the fall/winter book catalog by most fiction publishers, it also meant that winter was on its way. Since relocating, weather changes just mean I might have to wear shoes at some point in the next six months, so I look forward to September more than ever.

This year, however, I view autumn's approach with a twinge of trepidation. In addition to baseball playoffs and football, this year we will see another season begin. Election season will soon be upon us and the advertising barrage will begin anew. There will be so many political ads here in Florida that folks peddling erectile dysfunction pills and adult diapers are going to have a hard time getting a sales pitch in edgewise.

It will be the same for much of the country as the primary elections, especially on the GOP side, are going to get ugly quick. Without straying too far into politics, I have to say that I fully expect the Democratic primary to get just as ugly before all is said and done, too.

There is a huge profit opportunity in this barrage of ads. Local newspapers and radio stations will see a significant pick-up in business as candidates attack each other and single-issue PACs push their various initiatives. There will be more chatter about this as we get closer to year-end but the time to consider buying the local TV and radio stocks is now while everyone is focusing on tech earnings and Chinese growth rates.

The Hispanic vote is going to be very important this year and Spanish-language stations and papers should reap a bonanza. "Spanish Broadcasting System" (SBSA) owns 20 radio stations located in the top U.S. Hispanic markets of New York City, Los Angeles, Miami, Chicago, San Francisco and Puerto Rico. The company also owns MegaTV, a television operation with over-the-air, cable and satellite distribution and affiliates in the U.S. and Puerto Rico, in addition to websites and apps for Spanish-language news, entertainment and music. The stock is reasonably priced right now, with an enterprise value/EBIT ratio of 6, but sales and earnings should see an enormous boost next year.

I am a big fan of A.H



What sub-sectors are traditionally used to benefit from the elections campaigns, or will the campaign be fought on twitter and other social media?

Victor Niederhoffer writes: 

Tim Melvin is the expert on this. Any company that depends on government largesse will benefit as the idea that has world in its grip is that we are victims and the purpose of government is to take from the productive and give to the poor and foster smallness in humans, and strive for inequality so that none stand out as counterweights to the perks and emoluments and mistresses of the governs. 

Tim Melvin writes: 

Oddly enough today's column addressed this big government trade:

While macro stuff is not my strong point I feel like I can identify some segments of the world we live in that are more or less have to happen situations. Obviously small banks fit well into my long term view of the world. Smaller banks are going to have an increasingly difficult time keeping with regulatory and technology costs. The will find that it makes more sense to sell to a larger competitor rather than struggle to remain independent. This simple trend should makes us all a lot of money over the next decade.

The next powerful trend is one that I hate to see but the fact is that without a social and political revolution the Federal government will continue to play a larger role in the lives of its citizens. They are developing programs for medical care, social programs, energy policy and a host to other instructions and instructions that are going to require huge expenditures. A whole bunch of that money will find its way into the hands of consulting companies like Willdan Group (WLDN), Provident Service Group (PRSC), CACI International, FTI Consulting (FCN) and Ameresco (AMRC) that provide specialized consulting services to the various government agencies that will develop and oversee these programs.

And don't forget the print news and radio companies that will see a ton of advertising dollars from local elections–ahc, salm, SBSA–the hispanic vote will be HUGE and much $$$ will be spent there…TV station owners like GTN, MEG, SBGI–ssp owns both local tv stations and newspapers….

And many thanks. I was just sitting here wondering what in the fresh H*** to write about for tomorrow. Problem solved. I will post full column here when done if chair would like.

Ed Stewart writes: 

I think the same thing Tim talks about in banking is going to happen with brokerage firms, though a bit more stealthily. The second tier firms that are primarily marketing firms are going to give up on the technology side, much of the regulatory compliance side, etc, and become something more like introducing brokers. When this occurs most of them, or a great many of them, will consolidate under IBKR's global platform and then focus on sales and service. Apparently scottrade is the first, they have outsourced their options trading platform to IBKR - and the commission will be the exact same (supposedly) that IBKR's clients receive. They do this because ibkr will treat each brokerage relationship as 1 client, give them the volume discount, and then the other firm keeps the spread between the volume discount and what their individual clients are actually doing. Its a neat business model.

It will be invisible from a client perspective as the front-end will be customized or rebranded. One interesting small cap play on the hispanic market and possibly cycle is hemisphere TV, run by an experienced TV executive. I've looked into it just a bit, perhaps if i do more I will write a brief thing on it for the idea list.

IBKR is also starting to capture more fund business as smaller funds are kicked off the big platforms.

anonymous writes: 

I took a quick look at HMTV. It's an interesting company. But it seems to have a focus on niche markets within the hispanic community. I don't know how much appeal that may have to political campaign advisors. That's not to say it may not make for a great investment. My father invested in Perkin-Elmer in the 1960s because it launched a product that he thought would be great in the classroom. It flopped. Didn't matter, though. The company flourished because of its position as the leading supplier of electronic manufacturing equipment—a booming industry of the 1960s.



 David Lillienfeld writes:

Last year, Tim Melvin posted a classic piece about Memorial Day. It brought me to tears then, and it did so this morning when I went through it again. It is some of the most eloquent writing I have seen about Memorial Day, and it's a shame that it hasn't received more notice outside of this site than it has to date—it certainly merits it.

Tim Melvin writes:

They call to you this weekend. From Flanders Field, from Normandy, Khe San, Gettysburg, Concord and Lexington, the Chosin Reservoir, from the hull of the Arizona, and from all the hundreds of thousands of resting places marked and unmarked they call to you. The call to you from the depths of the Pacific and the jungle of Asia, from the deserts of the American Southwest, from the fields and cities of Europe, from Cuba, from around the world they call you with a request this weekend. Remember me.

Remember who I was and the hopes and dreams I willingly laid upon the altar of the great American experiment. Remember that like you I was once flesh and blood and I gave that up to secure a portion of the American Dream and secure essential liberties at home and even for people around the world. You may not have agreed with the rational for some of the conflicts we have ensnared ourselves in over the centuries and I am not even sure I fully understood it. But our nation called and I answered. Liberty carries a price tag and I paid it for you. Remember me.

War is an idiotic human endeavor and I wish we never had to go engage in such a wasteful exercise. But at times throughout history it has been necessary for good men to take up arms to secure our freedom from tyranny and defends ourselves against expressions of pure evil and hatred. When such times have arisen I have taken arms and defended the freedom and liberty in which I believed and for which all humanity years. Remember me.

Do not remember me with tears and sadness. Pray solemnly and shed tears if you must but that it is not my preference. Remember me in a violent celebration of all that is America. Take your families to the seashore and frolic as man has done since we merged from the sea. Go out on your boats and go as fast as you can over the waves with the winds of a free land and a free people blowing back your hair. Fire up your grill and invite the neighbors up for food, drink and laughter. This is why I laid down my life. Not so you would cry for me but so you could enjoy your life and your family, your loved ones and friends. Remember me in the laughter and joy of being alive.

Hear me in the sound of loud music coming from a dock bar. Hear me in the growling of a stock car engine taking a green flag or the whine of Indy car hitting 200 mph on the backstretch. Hear me in the laughter of a child skipping in the surf or running through the sprinkler in the back yard. Hear me in the chatter of friends around a BBQ pit. Hear me in the swell of an orchestral pop concert on a wide meadow as the sun settle over the land. In all the joyous raucous noises of being alive, hear me and remember me.

 See me in the flag unwinding in the breeze. See me on the baseball diamond, the soccer pitch the basketball court. See me at the bar with my friends raining a glass to good times gone by and still to come. See me in the smile of your wife, your girlfriend or male equivalent thereof. See me in the hammock beneath the tree taking a slow summer nap. See me in all the moments and times of that make life special. See me and remember me.

Remember me best in living well. Think of me when you are passing around the steaks and steamed crabs. Remember me as you sip the cold gin and tonic in a sweaty solo cup under a shade tree. Think of me in the fisszt of a beer bottle opening, the fizzing of soda pop in a glass, the shaking of a martini, the pop of a cork, and the tinkle of ice. Remember me in the sounds of the party of life.

I do not want you to remember me in solemn sweaty ceremonies and pompous parades of politicians. You do not need to go to the cemetery to remember me for I am not there. I am at the beach, the ballgame and in the backyard. I am at the lake, on the boat and fishing on the riverbank. Do not remember me simply because I died. Forgetting to duck or being ordered to charge impregnable positions is a crappy legacy if you ask me. Remember me because I lived and I died protecting your right and ability to live and experience all the joys and madness that is life.

I am not merely a dead soldier who died in the service of his country. I am all the things that were made possible by freedom gained and protected. I am Mark Twain, William Faulkner and Hunter Thompson and all the words written by the geniuses spawned in the America. I am the music spawned among a free and talented people. I am Robert Johnson, Miles Davis Liberace and Ted Nugent. I'm all the great scientists and inventors that have graced this land. I am Edison, I am Feynman and I am Ford. I am all the great athletes born in the towns and cities of this nation. I am Mantle. I am Unitas. I am Jesse Owens and Jim Thorpe. I am every greatness achieved by this nation born in a sea of blood and protected by rivers of it over centuries. Do not mourn me for the time has past for that, but remember me.

Remember me for I am also the future of this great nation I died to build. Remember me as you live, as you build as you work and as your create. Remember me as youprotect my legacy from the charlatans, thieves and idiots who make up our political class. Remember me when you refuse to cede personal liberties I died for to those who have good intentions and bad ideas. Remember me when you take chances and reach for your dreams and ideal. Remember me when you refuse to participate in limiting freedom or opportunity based on skin color, sexual preference or genital make up. Remember me when you dream, when you achieve and when you celebrate. These are things for which I died and for which I would be remembered.

My voice calls to you today. Life, love, laugh dream, build achieve. Do this in remembrance of me.

Happy Memorial Day. Remember me.

Stefan Jovanovich writes: 

 Memorial Day used to be Decoration Day — the day when the graves of soldiers were draped in flags — and there was no official Federal date. In Gettysburg it was held on November 19, the day the cemetery was dedicated. In the South it was on various dates in the Spring. It was never, ever a day for speeches until the official South decided that the soldiers graves should be part of a general uprising to justify the Rebellion — the same political movement that gave us official segregation; at that same time - the late 1880s — the states began legislating official holidays for Decoration Day, they also made Jefferson Davis' birthday a state holiday. What we now observe dates only from WW II, and the date itself was fixed in the 1960s. It is strictly a Cold War ritual that has been revived for the war against unspecified terrors.

I hope Tim finds an equilibrium somewhere between thinking that everyone who ever died in uniform as a hero and believing war is everywhere and always to be considered the worst of all things. I hope everyone enjoys the ceremonies today. If I don't, it is not out of disrespect for what people have done. I don't like official remembrances for the same reason Grant hated parades; they tend, by their very nature, to be organized lies.

They allow the people in the reviewing stands to preen and they present a picture of order that is the very last thing that wars ever are.

The truth is that some wars are worth their awfulness and some are completely stupid. The people best qualified to judge are the ones who have done the fighting; as with so many other things in life, those who know the most are the very ones who don't say much. There are exceptions, like Professor Sledge:

"War is brutish, inglorious, and a terrible waste… The only redeeming factors were my comrades' incredible bravery and their devotion to each other. Marine Corps training taught us to kill efficiently and to try to survive. But it also taught us loyalty to each other - and love. That espirit de corps sustained us."

"Until the millennium arrives and countries cease trying to enslave others, it will be necessary to accept one's responsibilities and be willing to make sacrifices for one's country - as my comrades did."

anonymous comments: 

I differ…greatly.

I preface by saying I have not served in the services nor in a war.

Yet I've known many…young, naive or foolish men who have answered the call. Many didn't believe in the cause and thought their superiors to be idiots. Yet they stayed and fought. I respect and remember that loyalty, and buy dinner or drinks for them and their family when I come into contact with them. I do it out if loyalty and not guilt. They upheld their end of the bargain. The least I can do is acknowledge them.

These are not the she-men that appear to surround me, those who talk about shat should be done yet are never there to do it. They have loyalty to no one.

There are pieces meant to rouse the animal spirits and conscripted ranks. I felt Tim's piece wasn't a call to enlist as other pieces.

The generation of Vietnam castigated those who were drafted and required to fight. That double bind or catch-22 has always bothered me. There's a similar thinking in DC now, where you are encouraged to break laws and obey them simultaneously.

One if the primary social contracts is to take care of your own. Tim's piece echoed that sentiment. The Chair demonstrates it too, as do many on the list.

In the Catholic Church, there are many celebrations of saints. I have learned, not having been raised Catholic, that many saints were far from perfect. There was a similar idea in his piece. Monday isn't a celebration of personal perfection or success in war. As Tim writes, it is recalling the guy who once sat in the empty chair at our table.

Semper Fi et Ductus Exemplo. 

Ralph Vince writes: 

There is nothing more inadvertently dangerous than a young man.

There is nothing more potentially vicious than a woman on her own.

One must tread carefully around these. 



 I put this together after hearing of his passing.

A legend of the value world has passed. Irving Khan passed away at 109. Mr. Kahn was a teach assistant for Graham at Columbia University and worked on both Security Analysis and the Intelligent Investor. When Graham closed his partnership he suggested clients consider taking their accounts to Mr. Kahn who was then at Abrahams and Company a firm eventually purchased by Lehman Brothers. In 1978 he left Lehman and founded his own firm Kahn Brothers. He also wrote a book titled Benjamin Graham, The Father of Financial Analysis that is available on Kindle and is suggested reading.

In a 2014 interview he described his approach thusly ""I prefer to be slow and steady, study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven't changed, then I should like the stock even more when it goes down." In the same interview with UK based Telegraph he added ""During the recent crash and in other sell-offs, Tom and I looked for good companies selling at a discount, which do surface if you're patient. If the market is overpriced, an investor must be willing to wait. There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market. Throughout all the crashes, sticking to value investing helped me to preserve and grow my capital. Investors must remember that their first job is to preserve their capital. After they've dealt with that, they can approach the second job, seeking a return on that capital."

He also said in the Telegraph piece that ""I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful. People say 'buy low, sell high', but you cannot do this if you are following the herd. You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It's also helpful to remember the power of compounding. You don't need to stretch for returns to grow your capital over the course of your life." In 2012 he told Jasn Zweig of th e Wall Journal "Individual investors who avoid "doing things you know too little about" still stand a decent chance of outperforming professional investors, especially by sticking to smaller stocks." He laos added a quote that my well end up as a tattoo or throw pillow around Chez Melvin ""If you command a lot of cash you can be wrong and still not have to worry."

In 2008 he told Financial Week that ""There are very few true value investors.Value investing takes discipline, patience and a healthy dose of skepticism. We live in an era with too much confidence in advertising. Everyone tells you that you can attend a seminar for $250 and make lots of money. Value investing means being much more discriminating." More Irving Kahn quotes to consider that well help you be a better investor and perhaps even have a better life:

Stop buying things that you don't need, and start focusing on the essentials; then you will live long and be happy.

You don't have to be fully invested all the time. Have patience, keep your standards.

Ben always believed in the Socratic approach. He never provided students with a ready answer, believing that through thorough discussions and rational deductions, solid conclusions would be reached. I remember asking him about the word 'tranche' as it applied to finance. Instead of providing the definition right way, Ben asked me to look it up in the dictionary. I discovered that it means 'slice' in French. Ben believed that if he told me the answer right away, I would forget it, but if I took the initiative to look it up myself, then I would always remember it.

I understand that net-net stocks are not too common anymore, but today's investors should not complain too much because there were only a handful of industries in which to look for stocks in the old days. Now there are so many different types of businesses in so many different countries that investors can easily find something. Besides, the Internet has made more information available. If you complain that you cannot find opportunities, then that means you either haven't looked hard enough or you haven't read broadly enough. Tim's hint – Think community banks

Prices are continuously molded by fears, hopes, and unreliable estimates, capital is always at risk unless you buy better than average values.

 Why are results so often below average? I believe there are two reasons. First, the institutional client illogically expects security selection to be limited to the major corporations conventionally selected by others. This conventional bias dooms performance to an approximation of the average. Second, the institutional investors believes he should have his hand held a few times a year to confirm his own reactions to the current scene.

Never buy popular stocks, except maybe in a depression.

I'm a passionate reader. That's why being an investor is the perfect job for me.

Successful investors, like successful doctors, must have a good understanding of the hard facts expressed in numbers

If the art of investing were actually easy, or quickly achieved, no one would be in the lower or middle classes. To be a successful investor learning is essential.

Security prices are as volatile as ocean waves – they range from calm to stormy.

Shrewd investors must resist following the crowd; when everyone is making money these investors know this portends a decline. Value investing is one of the best ways to step apart from the crowd and to protect oneself from the unpredictable behavior of the securities markets.

If a company has great prospects everyone already knows about it. We won't be comfortable paying for good prospects. People are always worried about the economy and the world, especially since the financial crisis of 2008 and Europe's sovereign debt crisis in 2011. I feel that people should learn to be optimistic because life goes on, and sometimes favorable surprises come out of the blue, whether due to new policies or scientific breakthroughs.

The world is full of complications, and the media are full of advertising. Stop buying things that you don't need, and start focusing on the essentials; then you will live long and be happy. In life, the goal is to achieve happiness, so start thinking about the things that count!

Lemmings always lose.

Any market mania comes up against hard reality in the end.

Real investors should never feel bearish because the time to buy value is when markets go down!

I cannot top or add to the wisdom of a legend and one of the founding fathers of value investing. RIP Mr.Kahn and thanks for all the fantastic stock ideas we stole from your SEC filings over the years.

Have great week all. There will be no Thursday update next week as I am off to Baltimore for my daughter's wedding. I am told there is a lot of stuff I have to do to get ready for the big day. I have no idea what all that stuff is but I am sure that between my daughter, my wife and the groom mom I will have lots of instructions as to how to carry our my various tasks!

Have a great week.



 The Disney intellectual property focused economic model seems like an extraordinarily good one which I think can teach allot about money making in today's consumer economy. I am only scratching the surface and have little real insight, however I think it is still worth taking the time to consider, to better identify good investments and also to monetize our own ideas.

The movies and other entertainment programs are intense emotional experiences where kids bond with certain characters as heroes or loved villains. The fact that the huge investment in infusing new "magic" into IP assets (movies and their characters) called can in itself turn a healthy profit is extraordinary. In most industries that would be a huge cost that had to be recouped over years, vs Disney where it seems to be a profit or annuity on top of healthy profits. The smash hit and profit of a movie (and of course offsetting some of the losers), there is the ability to monetize the characters and songs far into the future through products that must have at least a 97% gross margin, and most parents have no problem buying armloads of the stuff.

Another great economic feature of the Parks is the complete integration of product sales with the various amusements. I was continuously surprised with the 1001 creative ways that rides and amusements were used to create a sales funnel for high margin toys, clothing, and accessories. One of the best was after the Star Wars 3d ride (very impressive!), where we exited our space craft and suddenly found ourselves in a bazaar-like selling space where we had the ability to buy all the characters, space crafts and light sabers - it was impossible to exit to outdoors without at least 100 sales pitches at the children's eye-level, and It seamed to me that at least 50% of riders were looking for stuff to purchase.

While exiting an accidental excursion into one of these selling spaces, I overhead a lower-middle-class looking woman telling her kids, "We have already spent $600 today, sorry we are broke" and I noticed her kids were decked out in Disney gear from head to toe.

Indeed, one of the benefits of visiting Disney is that it seems a window into the hopes and economic prospects of what might be called the dead-center middle class, and even the lower middle class. Tim Melvin (Who was kind enough to meet me for breakfast one morning) told me that many families save up for months, even years, for their perfect Disney vacation - including those who might otherwise be 4 months worth of paychecks away from losing their rent or mortgage money. It brings to mind the powerful role that time preference has in determining who rises economically, and who is stationary or falling. It seems that much of the consumer economy is an amusement designed to facilitate income shifting up the pyramid.

 Based on the promotional videos I watched, 70% families of color (all wearing polo shirts) might have been expected at all Disney Properties. In reality, over the 4 full days of our trip (and not including a few school groups) I saw no more than a handful of persons of color among the many thousands of guests. The only "complete" family of color (mom, dad, kids) I saw was in our hotel lobby, where they were filming a promo video for Disney Resorts! The other PC amusement in this area was seen in the Disney educational rides, where 90% of 20th century achievements were persons of color, including the female wearing thigh-high gogo boots sporting an enormous Afro, leading the NASA control room for the moon landing. As an aside an ugly-looking white male was seen inventing the computer revolution, but his back was to us and he seemed to lack significance and stature vs. the others, almost troll-like in his disposition.

Overall it was a very fun and worthwhile trip. The kids had a blast. It was a new experience for me, as my parents much preferred a place similar to Victor's "worst place in the world" with zero crowds or commercial interest of any kind, a fusty attitude I had maintained until this trip (And might now return to). One surprise was that the food at the restaurants was mostly very good, the primary difference relative to decent city dining was the larger portion sizes. It is a great relief for parents to be at a pleasant place for dinner that is 100% kid friendly, without receiving dirty looks even when kids are 100% well behaved. That plus the night-time ride on the lake to one of our dinner destinations was my favorite Disney experience. My son's favorite was the "Design a car" ride and the Star wars 3d, plus playing in the pool.

Tim Melvin comments: 

We have annual passes and go to the parks often. My observation has been that the demographics are right in line with the general population. There is always a large international attendance as well with Brazil and England be the source of most out of country visitor.

Disney is ruthlessly efficient about the quality of the guests' experience and squeezing every dime possible out of its guests. At times I will just get a coffee and watch a particular attraction for a period of time and the amounts of money spent in each and every little shop (says the man with two Grumpy sweatshirts and 4 coffee mugs that also have my namesake character on them). B-school students would do well to spend some time in the parks to see the sale power of customer service, marketing, branding and capitalism at its finest.

You do indeed see many folks their for their dream vacation of a lifetime with months and years involved in saving for the trip. These visitors seem almost desperate to experience in every park. There is a statement in there about our society but it's too nice a day down here to spend time on such serious matters.



 There's lots of PE money going to Europe. Given the continent wide slowdown, I have to ask: why?

Tim Melvin writes:

There is a ton of PE and distressed money moving into Europe to buy bank assets and southern Europe. RE, KKR, Apollo, Baupost WL Ross and others have moved in a big way this year. The fund manager survey does not track this more patient (and probably smarter) money at all. Basically the PE and distressed guys are buying what the classic asset managers ares selling. Guess whose side I'm on?

anonymous writes:

On the macro level the fact that Germany is slowing is a major source of concern for the European economy, and the experiment in the single currency. Considering the Asian export market slowdown, persistence uncertainty in the Ukraine and ME it is unlikely German will have a meaningful pick up in 2014. German was supposed to be the main source of growth of Europe as the rest of Europe tightens budgets and deals with domestic crunch. The growing debt levels in the periphery, persistent weak growth, disinflationary forces, social and political discontent cannot portend well for the future.

The Italian government bond market is the 3rd largest in the world and they can borrow at roughly the same level as the US. Since 2010 public debt has gone from 120% of GDP to 135% and over the past 10 years GDP has been barely above .3%.

There is value in many of these assets being liquidated by banks and asset managers but expect the ECB to remain easy and the currency to make much of the adjustment necessary balance the macro picture.

Milton Friedman said:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it's hard to believe that it's going to be a stable system for a long time. … If we look back at recent history, they've tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn't in on the euro. It's only a year old. Give it time to develop its troubles.

Boris Simonder writes: 

Interesting quote by MF. That must be a very old one judging by his comment. Fourteen and half years later the Euro is alive and kicking, in fact, well beyond of what any skeptic would believe given recent years.

John Floyd adds: 

The quote was from 2000, alive and kicking is relative, the euro straight jacket has done no favors to other macro indicators such as GDP, productivity, debt levels, etc….I am not making a prediction on Euro survival or failure, in the end that will be a largely political event, as was the inception, one cannot ignore the fact now that a negative political and economic vortex is forming and become self-reinforcing, where the braking mechanism is in asset prices I am not sure, and full disclosure I have been bearish the Euro concept since inception, luckily I have learned from mistakes and been able to squeeze out some profits and both sides and from other asset markets playing the same thematic tones, such as long the front end curves, I merely ask the question now is the timing and confluence of catalysts pushing us closer to seeing the Euro move lower? And yes alive and kicking for some time it has been, but so did the Argentine Peso pegged at 1 for about 10 years.

Boris Simonder writes:

The macro indicators you are referring to has more to do with national and cultural structures of each individual EU country, than the currency itself - As for betting against the Euro since inception, I'm sure no one envisioned an almost 100% rise between 2002-2008. Euro moving lower? Speculators net positioning in the futures market would think so, and perhaps the macro crowd betting on widening EU/U.S rate-spreads would support as well. If you consider Euro to be a risk-on currency, then the climate isn't perhaps the best to support that. Or how about the bag of technical breakdowns since May.

As for the comparison to Argentine Peso, can you really compare a pegged currency against a free-floating one? Or yet a single country against a bloc of countries with far more political and monetary power?



 I listened to an interesting NPR piece about Florida crime novels. One of the authors, John D Macdonald, is one of the best crime writers I've read and The Deep Blue Good-bye is a great book, filled with bad people, easy women, and a glib philosophical detective set in a dark background. You can burn through it in a day or two.

Tim Melvin writes: 

The John Deal books by Les Standiford are also great. Lawrence Shames' key west crime novels are hysterical. Tom Corocoran also has a nice series set in keys. All Travis McGee books are right there with Louis L'Amour. Must reads, good stories, many lessons.



 I must confess that I love me some Fourth of July. It is a uniquely American celebration, raucous, loud and quite often tacky in the way only Americans can be. We have a huge party in the neighborhood today and there will be loud music, screaming kids, fireworks, too much food and I have sworn to do my part to make sure there is an excessive amount of delicious adult beverages as well. It will be as John Adams commanded "solemnized with pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations, from one end of this continent to the other, from this time forward forevermore."

From that humble beginning in 1776 what an incredible nation we have grown. Our achievements in the arts and sciences have been almost beyond measure. We have grown great businesses and great cities over our years. Often we have stood as the last bastion against oppression and evil incarnate. I have traveled the length and breadth of the lower 48 and can tell you we have grown a citizenry of incredible bravery, compassion and determination unequaled on the planet. We have sent men to the moon and solved many dread diseases that once threatened the population. We have spawned great music and great literature. It is a great country and I feel fortunate, if not blessed to have been born here. Unfortunately we have allowed much to go wrong along our journey and at times it threatens to end this great experiment in liberty that our forefathers began.

 As I do every year at this time before I start tipping the Sangria and blowing stuff up I reflect upon where we are as a nation. This is still an incredible nation but I fear we are no longer the bright shining city on a hill that serves as an example of freedom and liberty. We are still the home of the brave but I do not really think we are the land of the free so much anymore. When government can tell you how large a soda you can buy, what type of oil you may cook with, who you have to fire and how much you have to pay them or who you love or marry it is not exactly what I would call a state of liberty. When government can decide how you can live your personal life and interferes in every aspect of your life it is not a free society any longer. We have allowed government to grow and consume that vision the founding fathers originally have. It is not necessarily inspired by evil but rather in the name of some greater good, quite often the children. But as Benjamin Franklin warned us at the very start of this grand experiment ""They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."

 HL Mencken warned us about the spread of government and that slow slipping away of liberty when he said "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." For that matter Plato was probably the first to warned us about governments inevitable infringement of the rights of the people telling us so very long ago "When the tyrant has disposed of foreign enemies by conquest or treaty and there is nothing to fear from them then he is always stirring up some wary or other in order that the people may require a leader."

I worry that the political parties have done such a fantastic job of spreading government s reach into our daily lives by sowing dogmatic discord throughout the populace. The straights hate the gays, the blacks don't trust the whites, the Northerner dislikes those in the south, the farmer hates the city dweller. We turn gay rights and family values into war cries and march off under our banner to demand our rights and more importantly privileges. The two parties rally the folks around their causes and drive a deep divide into the populace all the while strengthening their death grip on the seat of power and the public purse. If we could all forget what it says on our voter registration card we would be better off as a nation and as a people. Keep in mind that the only real difference between the two parties is how they sway the voters. The Democrats wish to regulate everything but what goes on in your bedroom and the republican want to regulate nothing except what goes on in your bedroom. Both parties are deeply in bed with Wall Street and Corporate America and no amount of ridiculous advertising or rhetoric can change that. They go to great lengths to gerrymander voting districts and do whatever is necessary to keep the two party system entrenched in our society. One again it's our own fault. We were warned that this would happen.

In 1870 John Adams was already concerned about the two party system at work. He wrote then that "There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution." George Washingt5om expressed his fears on political parties in his farewell speech telling the citizens of the fledgling republic "However [political parties] may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion."

 I often fear that George Bernard Shaw was right when he said "Liberty means responsibility. That is why most men dread it." It seems that many would prefer the soft comforting bosom of government to standing up on their own two feet and taking what they want from life on their own effort and merit. If a child is failing in school it must be the governments fault not our own. If we are not earnings much as we want then the generous purses of government must take from someone who is and redistribute it to us. Government should protect us from ourselves and everything around us. That old catch phrase"Why that's outrageous, There ought to be a law" has done an enormous amount of harm over the centuries and unchecked will do more in the centuries ahead. Shaw also once said "Democracy is a device that insures we shall be governed no better than we deserve." The challenge then for us is to deserve more. In the opening scene of HBOs series Newsroom says that we are not the greatest nation on earth, but we could be is our challenge. We could be. We should be. Live in such a way to deserve more.

We need to quit accepting the unholy morass of crony capitalism and go back to the invisible hand of the market as described by Adam Smith so many years ago. Make corporations and government responsible for their decisions and the harm that they do. Whenever someone lectures me about how Wall Street caused the crisis and ruined many Americans and by god the government needs to something about it, I remind that in fact the government did do something about it. They bailed out the very banks that helped create the crisis. But if you are ranting about the situation but have a Bank of America or Chase credit card in your wallet because it is just so convenient you are tying the invisible hand of the market behind its back and are as big a part of the problem as the bankers and legislators. If you are upset about the Gulf Oil spill but pull into BP for gas because it is on the way to work you are as big a part of the problem as the oil company itself. We tend to look for government to punish all these violators when they are in fact in bed with most of them.

We can be the greatest nation on earth if we go back to a nation that embraces personal responsibility. We need to work, learn and strive to accomplish our dream and desires for ourselves and our families and not wait for it to be given to us. We need to each get up each today and do what we can to make our lives better and educate our children in such a manner that they can do the same when it is their turn. The outcome of your life depends on you and your effort and mine should depend on mine. The opportunities are there if we just insist the government get out of the way and allow us each as individuals to achieve our dream. By independent effort and achievement alone do we become a great society.

We need to quit worrying about everyone else does with their life or who they are to become a great a nation once again. Who is marrying who, or sleeping with who is none of your business. Who likes to smoke a little pot instead of drinking a beer is none of your business. The fact that someone's skin tone is different than yours should have nothing to do with your opinion of them. Which version of the great granddaddy in the sky they favor is no business of yours either. As long as they harm no one and do not rely on you to support them let people live their own lives and you do the same.

 We need to restore the spirit of personal generosity. As Jesus said the poor will be with us always.. Even the conservative Austrian Economist Hayek once said "There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody." But we have allowed the safety net to become a way of life for far too large a percentage of the population. We need the kind for generous spirit that helps those less fortunate on our own inclinations and not one enforced at the end of a tax collectors pistol. If life has blessed you then you should look for an opportunity to help others progress in their lives. Because you want to, not because the government makes you. We need to get the government out of the charity business and the people back in it. Our social policy should be based on educating our children and growing an economy that provides jobs for them when they graduate.

We are not the greatest nation in the world right now. But imagine an America where everyone is free to live their own lives in their own way. Where we provide a safe place to educate and teachers do not teach to the test but inspire a lifelong love of science, math, literature and the arts. Where the government does not take as much as half of your income to spend on failed social programs, foreign aid to nations who despise us and illegal wars. Where every child grows up knowing they have a chance to achieve a good life and discover their own version of the pursuit of happiness. Where you can marry who you want, love who you want. Where the rights of the individual come before the desires of the masses. Where the tax code is fair, reasonable and limited. Where business are allowed to grow and create jobs. Where people take responsibility for their own needs, desires and actions. Where Freedom means free to live you own way as long as you cause no harm to others. That America will once again be the greatest nation in the world.

We can make it so. We just have to live in such a fashion as to deserve it.

Now, let the good times roll. It's the Fourth of July and we celebrate what has been and what we can Be. God Bless America and pass me that BBQ!





 I've been to some strange places on earth but when I landed in the LA county jail for jaywalking I thought this is the end. First, two hundred of us were jammed into a large room with one open toilet where the feces literally overflowed onto the floor. I sat on the floor near there so people wouldn't bother me. A guy went into convulsions nearby and they just let him twitch for 20 minutes before unlocking the door and bringing in a stretcher. Then we were herded in groups into a smaller room where they gassed us through the ventilation with chloroform as they threw our cage assignments onto the floor. For the next three days we were shuttled from cage to cage every three hours not knowing if it was day or night in the underground 2000 person facility. There was a baloney sandwich every 8 hours when they made us sit crotch to crotch but on a long bench to eat. The guards warned us that if any of us acted up the others should jump him. My last cell was the size of a small bedroom where I was the only white but we all stood because there was no room to do anything else as a loudspeaker crackled our court times.

I hadn't jaywalked and stopped traffic on the 2 am streets as the ticket said, so I planned a defense. Next I was daisy chained with a line of other inmates and marched through a dark tunnel and suddenly into a huge bright courtroom. The judge looked like Groucho Marx. "Well, gentlemen, I have good and bad news," he intoned. "the bad news is the jail is overcrowded; the good is that you are all going to be released with 'time served' if everyone pleads guilty." I looked around and knew these guys would shiv (stab, knife) me if I said otherwise, and we all answered guilty. Hours later they examined the Mickey Mouse tattoo on my left shoulder to make sure it was me, and I was released onto the streets of LA on July 4th.

Tim Melvin writes: 

In the misspent days of yore I was a traveling door to door book salesman for several years. One of the drawbacks of this profession was being subject to arrest in various cities and towns that had some sort of ordinance against door to door sales. As a result I got to experience many of our nation's jails and lockups for a brief period of time. LA County is second only to Albuquerque for filthy and horrid conditions. For those keeping score Boulder Colorado was the best. I was there for a weekend and took a macrame class and caught up on my reading. 



 Today, in Baltimore as in many other cities across the United States, today is Opening Day, the first game of the 2014 baseball season. For many, spring began on March 21; for fans of baseball, it begins today. In the Baltimore of my youth, on opening day, there were usually a few empty seats in the classroom once noon came around. It was understood that some parents had procured tickets to opening day and that was that. One teacher at my elementary school tried to schedule a test on opening day as a means of getting her students to stay in school. Word of this innovation reached the Mayor, who subsequently called the principal and told her that such approaches were not in the best interests of civic spirit. The test was re-scheduled. My school was not unique, as this episode was reported across the city, and dutifully written up in the Sunpapers and the News American as though it was something novel when it never was.

 When I was 4, the premier home run hitter in the Orioles line-up was Jim Gentile. I remember screaming myself hoarse at many a games as though my utterances would have any impact on the path of his well hit balls to the deep outfield. Of course, they never did, and most times, the ball was caught. But that interest faded, as Brooks Robinson began what can only be described as his amazing career. (To this day (37 years after retirement), in Baltimore he is known as Mr. Oriole and when he travels in the city, it's as incognito as he can get not so much out of disrespect for the fans but, rather, in deference to them. I remember once waiting at the stoplight at end of the Jones Falls Expressway going into downtown Baltimore. The driver of the car at the head of the next lane over was Brooks Robinson. He was recognized by the driver in the car in the next to him, who promptly exited his car and, with paper and pen in hand, went to Brooks' car. A fellow in the car behind Brooks's car started honking his horn—the light had changed and the driver now by Brooks's car screamed back, "It's Brooks Robinson! Can't you wait a second, fellow?" The driver of that car soon emerged from it, also with pen and paper in hand. This scene repeated a few times, with a mob forming near Brooks's car. He finally got out of the car to rousing applause by the assembled fifty (maybe more) or so drivers and onlookers on the sidewalks leading to the intersection. He asked if anyone else wanted an autograph and as you might imagine, hands went flying into the air. Not a few were by parents with a child in tow, waiting to see the legend. He said he was pulling off to the side of the street on the other side of the light so drivers could exit the expressway and get to where they were trying to go. Of course, that didn't do anything to get the now abandoned cars off the JFX, as it was known. The mass of people moved forward and engulfed the car as Brooks got out of it again. A policeman came over to see what was going on, and there were soon Baltimore Police Department cruisers blocking off the streets around this scene. After about 45 minutes or so, Brooks started pointing at the abandoned cars and thanked everyone for their support over the years and how proud he was of the city and how much he looked forward to seeing them at the stadium. That was Brooks. Years later, Bob Costas was interviewing Cal Ripken after Ripken had broken Gehrig's streak. Costas noted that Ripken was known throughout the city as someone who, when walking somewhere and approached by any—especially anyone young—he would stop and talk with them, sign a piece paper and so on. Costas wanted to know why Ripken did it, it was so unusual for ballplayers. Ripken said that he had grown up "just up the road" from Baltimore, was a lifelong Orioles fan, and that when you grew up near Baltimore, you learned how to play third base by watching Brooks. "Watching Brooks taught me a lot about playing third, and also about living your life. Brooks did it, so I do it too. It's the right thing to do for the fans. Especially the kids.") As with many youth in Baltimore, when my father would take me to see an Os game, I went with my Spalding baseball glove (the one with Brooks Robinson's name in cursive on the palm) and my Johnny Unitas crew cut. If you looked around the stadium, every boy under 10 looked like me, convinced that there would be a ball hit towards them, and that the Brooks Robinson Gold Glove mitt would let they haul it in. I never figured out what the kids behind home plate thought, with the netting and all. If the netting gave way, though, they were prepared with their mitts ready for action and their right hand prepared to drop the soda cup to catch that ball.

 Boog Powell was another fixture of the Orioles of my youth. He played the outfield for a while, but at 6'4 and 225 pounds, he was too good of a target at first base to be left in the outfield. Powell was a strong hitter. He hit over 300 homers during his career—and these weren't balls that maybe without an assist from the wind would have been foul or good for a long fly ball out. Nope, these were creamed. There was no doubt that the ball would soon be gone. Which was good in a way, since Powell batted left handed and was a dead pull hitter. Lots of times, the opposing team would move the shortstop behind second base, the second baseman to midway between between first and second, and the first baseman guarding the line. It didn't much matter when the ball was smashed through the infield into the outfield. In 1970, Boog's AL MVP year, one team once tried a different type of shift. The third baseman playing behind second, the second baseman and the shortstop were playing between first and second, and the first baseman was holding the runner. Boog was the tying run, and the opposing team wanted to make sure he did not get on base. Boog proceeded to hit a curve ball to where the 3rd baseman should have been, in which case it would have been a pretty routine double play and the Os would have lost. The ball had lots of spin on it and after it hit the turf, it took a wicked twist into foul territory. By the time the 3rd baseman fielded the ball, the runner had scored and Boog, representing the tying run, stood at second base with a stand-up infield double. (No error, just badly positioned fielders for that particular player.) Elrod Hendricks (who subsequently became the Os bullpen coach), at least I think it was Elrod, came to the plate and on a 1-1 pitch, lofted a ball just over the right field wall. Os won by a run. There was the time Boog was on first, a left handed hitter at the plate, and Boog got a great jump on the pitcher (what pitcher in his right mind was going to hold Powell on first??). As just about everyone in the stadium fell off their seats (Powell never stole bases, he was simply too slow), the catcher released the ball pretty quick, and the shortstop came into position to take the throw and tag Powell for the out. Assuming of course that Powell was out. Which became a moot question when Boog drops to a slide, left leg extended, spikes visible to all. Seeing 235 pounds of angry pot roast coming at him, the shortstop got out of the way as the ball, thrown perfectly just right of second base, went sailing into center field. Powell wisely didn't try to take a base on the error, he would probably have been out. As it was, he scored two batters later. Someone (I don't remember who) interviewed the shortstop after the game about that throw. The shortstop replied that he could let the ball go by and take the error, or (seeing Powell starting his slide) he could take the throw and deal with the spikes and the mass behind them. He said he could live with the error but observed that it's hard to live when you're dead. Yogi Berra was not the only profound philosopher in baseball.

 There are others in Orioles history I'm sure many already know about—Paul Blair, whom Willie Mays thought covered more of center field than Mays ever could, and if Mays invented the basket catch, Blair perfected it—Frank Robinson, arguably the most intense competitor in the game during his career—even more than Pete Rose at the time and others. Bob Gibson said that Robinson was one of the players he most feared (his word) pitching to—"he has so many ways to beat you." Frank stands out not just for his exploits on the field but also his difficulties in finding a home for his family in Baltimore. This was in 1966, and Baltimore was still de facto (though not de jure) segregated. Robinson had trouble finding a house. He found one eventually, but not before the News-American, at the time with the highest circulation in the city, published a front page (not sports section front page) above the fold article about Robinson's experience. I wonder to this day whether that experience, and the publicity attending it, helped with integration (such as it was) in the city.

It's getting to be time for the game to start, so I'll stop here. It's time to think back to those innocent times as a kid, at Memorial Stadium (I have lots of memories from it), glove on my left hand peanuts in my right, ready for that ball that I was sure was coming my way, my father by my side. Tim M—do you think Tillman wins the opener?

Scott—sorry, I haven't followed the Cards this spring. The season needs to advance some for me to get much of an idea about them this year.

Regardless, it's time to "Play ball!"

Tim Melvin writes: 

Nice piece David. Tillman has pitched well all spring so he has a good shot at a win if he can go deep and keep ball out of the hands in the bullpen.

David Lillienfeld replies: 

Thanks. I agree with you on both counts.

I've often wondered if the tell on the re-ascendence of the US will be signaled when baseball resumes its long-standing role as the national pastime. The NFL may have over-reached with over-exposure, not to mention health issues. We'll see if the MLB comes back. Football is such a militaristic game (blitz, bomb, mounting a drive, etc). Nothing like that in baseball. Walt Whitman called it "our game, America's game".



 The mocking press about Sochi accommodations shorts the many thousands of workers who made a great effort to create a venue where none existed previously. Given the well known corruption and central command government in Russia, expecting 5-star hotels by journalists, athletes, or spectators was never realistic.

"Journalists at Sochi are live tweeting their hilarious and gross hotel experiences"

Putin bears much responsibility for the mockery so far, because of his ego, vested interests, tsarist regime, and hostility toward the West. Probably Gorbachev would have been given more slack, and would have rightly approached such a task more humbly. No doubt Mexico, under similar circumstances, would have been given a full pass.

There are many who believe we in the US are living under an increasingly repressive and controlling government. Russians have lived like this for a thousand years. One of their few permitted joys is pride over national sports. I for one hope they have reason to cheer at this Olympics.

Tim Melvin writes:

Mocking press my flaming ass. This is the Olympics and Russia committed to providing world class accommodations in their bid package. The rooms are not finished and some have no water. At least one hotel is telling people not to use the water on skin as it is dangerous. Do you think for a minute it would be this bad if Austria or South Korea had won the bid? If it was never realistic they should not have won the bid. Period.

Gary Rogan writes:

It's amazing how corrupt the whole world has gotten: very little of importance is done for the right reasons. Nobel prizes, Olympic venues, Global Warming. It used to be that individual countries and locales were corrupt, and that's still going strong, but globalization has led to global corruption. Everything is Kabuki theater of one form or another.



 I first saw the 'dead eyes' look of a poker player/loser when I was 13 or so. Still gives me restless nights and I know I cannot become that way.

My dad took me into the "stockman's bar" in Billings, Montana to impress upon me what degenerate, greedy people turn into.

Probably another sleepless tonight tormented by that devil.

Gary Rogan asks: 

What is the real difference between gambling and speculation (if you take drinking out of the equation)? Is it having a theory about the odds being better than even and avoiding ruin along the way?

Tim Melvin writes: 

I will leave the math side of that answer to those better qualified than I, but one real variable is the lifestyle and people with whom one associates. A speculator can choose his associates. If you have ever been a guest of the Chair you know he surrounds himself with intelligent cultured people from whom he can learn and whom he can teach. There is good music, old books, chess and fresh fruit. The same holds true for many specs I have been fortunate to know.

Contrast that to the casinos and racetracks where your companions out of necessity are drunks, desperates, pimps, thieves, shylocks, charlatans and tourists from the suburbs. Even if you found a way to beat the big, the world of a professional gambler just is not a pleasant place.

Gibbons Burke writes: 

 Here is something I posted here before on this distinction…

Being called a gambler shouldn't bother a speculator one iota. He is not a gambler; being so called merely establishes the ignorance of the caller. A gambler is one who willingly places his capital at risk in a game where the odds are ineluctably, mathematically or mechanically, set against the player by his counter-party, known as the 'house'. The house sets the odds to its own advantage, and, if, by some wrinkle of skill or fate the gambler wins consistently, the house will summarily eject him from the game as a cheat.

The payoff for gamblers is not necessarily the win, because they inevitably lose, but the play - the rush of the occasional win, the diversion, the community of like minded others. For some, it is a desire to dispose of money in a socially acceptable way without incurring the obligations and responsibilities incurred by giving the money away to others. For some, having some "skin in the game" increases their enjoyment of the event. Sadly, for many, the variable reward on a variable schedule is a form of operant conditioning which reinforces a compulsive addiction to the game.

That said, there are many 'gamblers' who are really speculators, because they participate in games where they develop real edges based on skill, or inside knowledge, and they are not booted for winning. I would include in this number blackjack counters who get away with it, or poker games, where the pot is returned to the players in full, minus a fee to the house for its hospitality*.

Speculators risk their capital in bets with other speculators in a marketplace. The odds are not foreordained by formula or design—for the most part the speculator is in full control of his own destiny, and takes full responsibility for the inevitable losses and misfortunes which he may incur. Speculators pay a 'vig' to the market; real work always involves friction. Someone must pay the light bill. However the market, unlike the casino, does not, often, kick him out of the game for winning, though others may attempt to adapt to or adopt his winning strategies, and the game may change over time requiring the speculator to suss out new rules and regimes.

That said, there are many who are engaged in the pursuit of speculative profits who, by their own lack of skill are really gambling; they are knowingly trading without an identifiable edge. Like gamblers, their utility function is not necessarily to based on growth of their capital. They willingly lose their capital for many reasons, among them: they enjoy the diversion of trading, or the society of other traders, or perhaps they have a psychological need to get rid of lucre obtained by disreputable means.

Reduced to the bare elements: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.

There is no shame in being called a gambler, either, unless one has succumbed to the play as a compulsion which becomes a destructive vice. Gambling serves a worthwhile function in society: it provides an efficient means to separate valuable capital from those who have no desire to steward it into the hands of those who do, and it often provides the player excellent entertainment and fun in exchange. It's a fair and voluntary trade.

Kim Zussman writes:

One gambles that Ralph and/or Rocky will comment.

Leo Jia adds: 

From the perspective of entering trades, I wonder if one should think in this way:

speculators are willing losers who often win; gamblers are willing winners who often lose.

David Hillman adds: 

It is rare to find a successful drug lord who is also a junkie. 

Craig Mee writes: 

One possible definition might be "a gambler chases fast fixed returns based on luck, while a speculator has time on his side to let the market decide how much his edge is worth."

Bill Rafter comments: 

Perhaps the true Speculator — one who is on the front lines day after day — knows that to win big for his backers, he HAS to gamble. His only advantage is that he can choose when to play. 

 Anton Johnson writes: 

A speculator strives to be professional, honorable, intellectual, serious, analytical, calm, selective and focused.

Whereas the gambler is corrupt, distracted, moody, impulsive, excitable, desperate and superstitious.

Jeff Watson writes: 

I know quite a few gamblers who took their losses like men, gambled in a controlled (but net losing manner), paid their gambling debts before anything else, were first rate sports, family guys, and all around good characters. They just had a monkey on their back. One cannot paint with a broad brush because I have run into some sleazy speculators who make the degenerates that frequent the Jai-Alai Frontons, Dog Tracks, OTB's, etc look like choir boys. 

anonymous writes: 

Guys — this is serious, not platitudinous, and I can say it from having suffered the tragic outcomes of compulsive gambling of another — the difference between gambling and speculating is not the game, the company kept, the location, the desperation or the amounts. The only difference is that a gambler, when asked of his criterion, when asked why he is doing this, will respond with "To make money."

That's how a compulsive gambler responds.

Proper money management, at its foundation, requires the question of criteria be answered appropriately, and in doing so, a plan, a road map to achieving that criteria can be approached.

Anton Johnson writes: 

It's not the market that defines whether a participant is a Gambler or a Speculator, it's his behavior.

Gibbons Burke writes: 

That's the essence of my distinction:

"gamblers are willing losers who occasionally win"

That is, gamblers risk their capital on propositions where the odds are either:

- unknown to them
- cannot be known

- which actual experience has shown to have negative expectation
- or which they know with mathematical precision to be negative

They are rewarded for doing so on a random schedule and a random reward size, which is a pattern of stimulus-response which behavioral scientists have established as one which induces the subject to engage in the behavior the longest without a reward, and creates superstitious as well as compulsive behavior patterns. Because they have traded reason for emotion, they tend not to follow reasonable and disciplined approach to sizing their bets, and often over bet, leading to ruin.

"speculators are willing winners who occasionally lose." That is, speculators risk their capital on propositions where the odds are:

- known to have positive expectation, from (in increasing order of significance) theory, empirical testing, or actual trading experience

They occasionally get unlucky, and have losing streaks, but these players incorporate that risk into the determination of the expectation. Because their approach is reason-based rather than driven by emotion, they usually have disciplined programs for sizing their bets to get the maximum geometric growth of their capital given the characteristics of the return stream, their tolerance for drawdown.

If a player has positive expected value on a bet, then it is not a gamble at all. The house does not gamble. It builds positive expectation into its games. It is a willing winner, although it occasionally loses.

There are positive aspects of gambling, which I have pointed out earlier in the thread and won't belabor. To say that "all gambling is bad" is to take the narrowest view. Gamblers who are willing losers (by my definition all are) provide the opportunities for willing winners (i.e., speculators) to relieve gamblers of the burden of capital they clearly have no desire to hold onto, or are willing to trade in a fair exchange for the excitement of the play, to enable their alcoholic habit, to pass the time, to relieve their boredom, to indulge delusions of grandeur at the hoped-for big win, after which they will quit playing, or combinations of all of the above.

Duncan Coker writes: 

I found Trading & Exchanges by Larry Harris a good book on this topic and he defines all the participants in the exchanges and both gambler and speculators have a role to play. Here is something taken from page 6 that make sense to me: "Gamblers trade to entertain". Speculators to "trade to profit from information they have about future prices."

He divides speculators into those that are well informed versus those that are not. One profits at the expense of the other. Investors "use the markets to move money from the present into the future". Borrowers do the opposite.



 In the top drawer of my dresser there is a baseball. I have no idea where this particular baseball came from and there is nothing really special about it. It has the look of a stadium or fast food giveaway ball as it has both the Orioles Logo and Bank of America stamped on it. I’m pretty sure my stepdaughter gave it to me but I could be mistaken. It is just a baseball. It is a regulation ball made by Rawlings. It has a cowhide cover over a cork center weighing about 5 ounces. It is 9 inches in circumference and has 108 red double stitches holding it all together. The baseball has never been winged around the diamond or smacked off the outfield fence by an enthusiastic bat. There are no scars or scuffs on my baseball. It is just a baseball that lives in my dresser drawer.

Sometimes, like now, I take my baseball out. I grip it like a pitcher and try recreating the grip for a fastball or the curveball I could never throw. I even grip it like a knuckleball and toss the ball up for a bit to see if I can get the motion correct. I flip the ball into the air and catch it and just generally goof around with my baseball. I have always loved the fell and the look of a new baseball. Sometimes I take that baseball out and just toss it up and down while I am working and that baseball and I go drifting back.

We drift back to a dusty filed in the Eastport section of Annapolis. It is nine in the morning on a summer day and already groups of boys are gathering in that field. It’s a grubby collection of boys ranging from 8 to maybe 12 years of age. They are wearing whatever jeans were on sale on Britts Department store, JC Penney or Sears. There are no cleats or fancy shoe wear and PF flyers and Ked’s rule the day on our little field of dreams. I am there with my dirty old glove and trusty bat. I am enthusiastic about the game and love playing it. I am not very good at this game but I do love it so. I can’t hit for shit although since I am ambidextrous I am equally awful from both sides of the plate. If I get a pitch right in the sweet spot of my swing when batting left handed I can drive a ball a little ways so no one ever throws it there. On the rare occasion I pitch the game turns into home run derby time. I can play the field without embarrassing myself and I’m pretty fast for a little guy so I am not a total liability. We will be in that field until dark if our parents let us.

On days when there were not enough kids to get up a game a few of us would grab the Wiffle Ball gear and head for the back of the Harbor House Apartments. Off the wall was a home run and only one kid could hit it. He hit it every time he came up to bat. Needless to say that kid was not me. None the less we played until the folks down the third base line had to be sick of the sound of a plastic ball whapping off the sliding glass doors and little boys arguing strikes and foul balls. When there was no bigger game in the filed we were behind the projects playing a version of baseball with rules and quirks know only to us.

 The feel of that ball in my hands with fingers properly aligned for my lightning fast 25 mile an hour fastball and I can recall as if it was yesterday being in the back yard with a pitch back net. The net was stretched on an aluminum frame with springs and had a strike zone stitched in the middle. When no one else was around, or far more likely I was grounded for some nefarious crime against parenthood, I would spend hour upon hours pitching to that machine and chasing down the returns. I was Palmer, Ford, Gibson or McNally on the release and Brooks, Belanger and Mantle on the return. I have no idea what my mother spent on that damn thing but it was the best deal she ever got on a toy.

Tossing my pristine baseball gently into the air watching the spin of the seams through the air and I am carried back to my basement room in the house on Boucher Avenue. I can almost feel those little white plastic earplugs on my highly prized hand held transistor radio. I would lay on the bed and listen to Chuck Thompson call the game aided by legendary stadium announcer Rex Barney. Those earplugs drowned out the sounds of a marriage that never should have happened coming to its harsh ending over a period of a couple of years. The sounds of the Orioles whipping the snot shit out of the Tigers, the Yankees, and the hated Boston Red Sox frowned out the yelling, the tight voiced arguments and occasional breaking of dishes or whatever else Mom chose to wing at her husband that night. Listening to the White Sox, The Indians, The Angels and The A’s go down in ignoble defeat could help you forget your sister was in the hospital with yet another asthma attack. You could escape it all as Buford , Blair, Robinson F, Boog, Robinson B, Johnson, Etchebarren/Hendricks, and Belanger used superior fielding skills and fierce bats to smote the evil opposition. Palmer, McNally and Cuellar befuddled and dispatched the opposing batters and Eddie Watt would close it out of they got tired from tossing all those strikeouts. I wasn’t supposed to stay up listening to those games but my mother let me have my little escape from it all and at some point during the night she would take those plugs out of my sleeping ears and place that little radio on the dresser. That radio had the most amazing batteries too. I had it for years and the batteries always worked and never needed changing. One suspects Mom had something to do with that as well.

As I recreate the motion of throwing across the diamond to nip the runner at first with my baseball I can remember the first time I went to a game. My friend Billy’s dad took us and no supplicant ever approached the altar of St Peters in Rome with the reverence and awe which I entered Memorial Stadium for the first time. The grass was breathtakingly green and the stark white of the baselines is etched in my mind still. Right there on the field in front of us were the Gods, legends and heroes of my youth. Andy Etchebarren hit a home run and Palmer outdueled Louis Tiant for the win against the Indians and I do not think my feet touched the ground for a month.

 My baseball and I can fast forward too. We can go all the way up to 1983 to the one and only baseball game my father and I ever went to together. We were estranged for many years and not reunited until I was in my late teens. My own travels and misadventure kept us apart for several years as well but I was back from my travels and misadventures and living in Baltimore. Dad was pretty sick by then and didn’t get around so good but he scored tickets to a game that season of Orioles Magic. We sat in the first row of the upper deck and watched the Orioles come from behind in the bottom of the ninth with six straight singles to win the game. It was the only baseball game I ever went to with my dad and I still remember it well.

A few months later as Cal Ripken caught the last out to vanquish the Phillies and win the World Series I reached for the phone to celebrate with my Dad. He didn’t answer and my joy of the victory was tempered by the fact that he never would again. He had died just a few weeks earlier and we would never go to another game or talk baseball while catching a game on the television. But I have that one game and I will treasure it forever.

My baseball and I like to visit 1984 as well. My daughter was born of May of 1984 and a more unprepared scared shitless,”what the f to do I do with this thing” father you have never seen. Fortunately there was a bus that stopped right outside my east Baltimore row house that dropped me right at the stadium. I packed that stroller up many times and just took her to the game, diaper bag in tow, to watch the Orioles. It was on such an adventure that I learned that no matter how exciting the game you cannot just give the baby more bottles in the heat and sun when she cries. Bad things happen when you do that and then pick the baby up after the game. The upside is that when you are covered in baby puke in the heat finding a seat on the bus is not much of a problem.

 We can fast forward some more to the little league fields of Arnold Maryland watching my son play ball. He was so much better than I ever was and I loved watching him play. He was all legs and elbows but had the range and glove to play shortstop like a little Belanger. He could pitch a little too when called upon. He was a tad erratic. When he was on he was a strikeout machine. When he was off he hit every batter he faced. On the upside he rarely walked anyone. Tommy wasn’t a great hitter but he was far better than his father ever was at the plate. Eventually girls, video games and other distraction of the teenage years took him away from the game but my god I did love watching my son play baseball. In my mind’s eye I can still see his bony lanky form drifting over to snag a grounder at short and start the double play.

I made my daughter play softball one summer as well. She had a skill set a tad below her brothers. She couldn’t hit, was afraid to catch the ball and ran like a very slow turtle. But Lisa tried and even made a few plays and accidentally got a base hit once. The other girls on the team were incredibly supportive and I can still see her with her multicolored braces and early teen awkwardness in her Arnold Orioles uniform giving the game a try for dad’s sake. She declined the opportunity to play the next year. My baseball sparks more recent memories as well. I think about taking my wife and stepdaughter to a game right before we got married. Maeve still wasn’t too sure about this whole stepfather thing but she had a ball at the game and just maybe figured out that the whole thing wouldn’t be so bad after all. Anyway she stills has the bright orange oversized foam finger around here somewhere so it was not an entirely horrible experience. She and my wife have learned to tolerate my addiction to the worst baseball team in the American League East and try not to laugh too hard at me when I am watching the games during the summer. I am pretty sure Maeve even gave me this baseball I sit spinning randomly in the air while sitting at my desk and she made me the Baltimore Orioles Build a Bear that sits on the bookshelf. Perhaps I am not the most evil stepfather in the history of the world after all.

Tommy and I catch a game or two together every season these days as well when time allows. He is busy climbing the ladder of success out there in the world it is nice to slow things down for a bit on a sunny summer’s eve and head to Camden yards. It is a chance to knock back a couple of years and enjoy the bonds that baseball has built between fathers and sons over the decades. Lisa comes along once in a while but she I suspect she doesn’t have the love of the game her brother and I do and is merely indulging us for the price of free beer. Erin and I have caught a game or two over the past two years, although again she is mostly indulging her strange little husband’s love of the silly damn game.

 It is just baseball I keep in my dresser. Sometimes I take that baseball out and toss it around and grip it like the major league ballplayer I never was except in the backyard with my pitch back net. I think of the lessons of the game that have translated to my life. Practice often. Run out grounders. Don’t spit in the dugout. Always hit the cutoff man except when you a play at the plate. Watch for the signs. Sometimes a bunt is better than a home. Sometimes it’s not. Keep the ball in front of you. Know the pitch count, how many outs there are and what base the runners are on. Back up first.

As I grip that baseball I think of that little boy in torn dungarees and the amazing journey his life has turned out to be. I think of the people I love and the moments we have shared along the way. I recall the joys of being at a game with friends, enjoying a few beers and the greatest game in the history of the world (in my opinion anyway). I think of my kids and my wife who indulge my baseball addiction and all we still have to experience together as a family (including the Orioles World Series games we will be attending together very soon) and how blessed and lucky I am to have them in my life. As I watch my little baseball roll across the desk after my latest error I think of all the magic of life and the pure joy that being alive can bring.

It just a baseball I keep in my dresser drawer. There is nothing special about it at all.

I think I’ll keep it.



 Sorry for the link but I found this article fascinating and worthy of the share…

"What Should We Be Worried About"

Chinese Eugenics

China has been running the world's largest and most successful eugenics program for more than thirty years, driving China's ever-faster rise as the global superpower. I worry that this poses some existential threat to Western civilization. Yet the most likely result is that America and Europe linger around a few hundred more years as also-rans on the world-historical stage, nursing our anti-hereditarian political correctness to the bitter end.

David Lilienfeld comments:

Four thoughts on reading this piece:

1. Every time someone tries to selectively breed a population, you get lots of unexpected diseases showing up. Sometimes, those diseases affect only a small segment of the target population. Other times, a larger segment. I doubt that this effort will be any different in result–and it may result in a higher rate than the Chinese are prepared to accept. Imagine, for example, that the process results in 5% of the target population having an accelerated version of dementia, perhaps starting in the early teens–before these individuals have much ability to use their IQs to advantage (contributing to the society). The costs of care will challenge China in ways it hadn't anticipated, particularly given the population implosion already in place. Moreover, one doesn't know if these alleles code for a protein, serve a regulatory function, or both. Taking the alleles out of the genome could, potentially, interrupt their ability to function in the manner expected. So I don't think it's necessarily "game over".

2. Malcolm Gladwell noted in Outliers the value given in East Asian societies to patience, something lacking profoundly in Western societies these days. However, if one starts to breed a specific genome, do those individuals have the same willingness for patience? I don't think that we know that this advantage in East Asia is simply cultural. There's also the need for innovation. East Asian societies do well in innovations in quantitative areas, but translating that strength to the consumer/business arena hasn't been so straightforward. Until there's a demonstration of consistent innovation from those societies, this will be a question mark. Now, how long before such innovation becomes visible? I have no clue. Perhaps this activity is already present and I've just missed it (in which case I'm sure those on this list won't hesitate to provide some education of the fact).

3. There's a related issue: the social dimension. What sort of society results from such breeding? I'm reminded of the Foundation trilogy–the First Foundation engages in all manner of production advances–lots of innovation, etc. There's rumored to be a Second Foundation, but it's not really clear what that entity is all about, or even if it exists. (Spoiler alert): It's the Second Foundation, with its sociological orientation that comes into play and addresses the sociological and related problems resulting from the First Foundation's success. (The trilogy makes for short reading, and it's some of Asimov's best science fiction.)

4. The sociological dimension isn't a minor one in China. Chinese sociology isn't one of the country's strengths, and I think that's part of the reason Chinese epidemiology is weak. Even if this area becomes a focus of development by the Chinese government, it seems unlikely to change for at least one generation, more likely two or three. The nature of sociology works against efforts to speed up capacity and capability in it. I suppose one could let any social changes occur and deal with them piecemeal (as we have with our drug problem–locking up 2-3% of the population), but I don't know that that would be acceptable in such a new society. I'm speculating, though.

Just some initial thoughts. It is provocative, I agree.

Russ Sears writes:

The reason eugenics does not work on humans is simple. They are using the wrong evolutionary strategy for our species. We are not a survival of the fittest species. We are a "Survival of the First" species. We have dominated a vast new land called abstract thought. Further, we are a species of super cooperators when the cooperation is through mutual respect and trade-offs we exponentially increase each others wealth. Putting this together we, have captured vast new resources of wealth.

If you want a superior more competitive people you do not measure by the conformist standard of the "greatest" in XY or Z. Even if X, Y, and Z are abstract thoughts, it is not NEW abstract thought, it is standardized testable conformist abstract thought. You measure in how much risk they willing to take, how much they want to be the "first", how they want to try new things, how they look at failure not as a step back, but one less step to the right path and how much they value Liberty and unsupervised willingness to risk failure for the chance at great success. You give yourself a group of people willing to risk losing everything for a fresh new start, because they believe working together, they have what it takes to create a new world for themselves. You breed those entrepreneurs with those who love entrepreneurs. Then you have people that create new wealth, because they did not do what they were told. They had a dream and saw a vast new land in being the first in this new niche area. Once the path to this vast new wealth are clear, then many people will willingly follow. If you want to live where leaders believe they earned their authority by superior skills, NOT correct risk taking, then you will find a world where the leaders are those best at tearing everyone down, do not value diverse thinking from their expertise and taking from those that took correct risk to create the wealth.



 So another year has come to a close. It has been a mildly eventful year with the move to a more southerly location. We had the great truck caper of 2012 and all the attendant adventure of having everything you own stolen along with your moving fan. That resolved with the miraculous recovery by the praiseworthy North Carolina State Police and is now just another story to tell. As a side note I love the State of South Carolina. The low country area is one of the prettiest in the country but I hope I never have to drive it end to end three times in one day in a car with no air conditioning in July ever again. We have pretty much settled in here in Windermere with the gators and Mickey Mouse. As I write this it is approaching 70 degrees at mid-morning and I have little to complain about.

Moving here was the latest stage in a transition phase of my life that began at about three years ago. The years between 38 and 48 were a high speed romp through life with fast boats, horse tracks, Rush Street reviling, Manhattan misadventures and just a scotch fueled extravaganza. There are a lot of memories in there that I would not trade for anything and friendships I will have for the rest of my life but after a decade of it I was starting to lose a step. More Saturdays found me on the couch with a ball game and a cocktail than in the dock bars or hanging onto the side rails of Tic Tacs boat as he once again misjudged a wake. Like an aging fighter I could still go when the occasion called for it but it hurt more the day after.

Then I met Erin and the process moved along at a rapid clip. It is hard to justify going out when the person you most want to be with is at home. There is still plenty of adventuring and excitement but it is of a more personal nature. She is my best friend and partner and hanging out with her is my favorite activity of all. The move to Orlando has seen us settle into a pattern of life that is slower but even more rewarding on so many levels.

I do not want anyone to get the idea that I have grown up or anything silly like that. I have not gotten religion or fallen down the twelve steps. I may not have the Grouse distillery working a third shift anymore but there are several vineyards that have no doubt seen an uptick in their bottom line. We have sniffed out some of the cool funky little bars here in Florida including some dock joints and beach bars. Most evenings can find me on my little lanai with a wineglass and a cigarette in hand enjoying my palm trees. This is merely the latest and best chapter of the adventure I call life. If the kids would move to Florida sometime soon I would have everything a man could want out of life. Good wine, lots of laughter, good music, good books and someone to share it all with. Perfection.

Now onto other items of various levels of importance. It has been a strong sports year. The Orioles made the playoffs for the first time in 15 years. Navy had a winning season and took home the CIC trophy once again and Beat Army once again. The Ravens have some serious choices to make as the offseason looms but for the 5th straight year are in the playoffs and should be able to handle Indy and move to the next round. My newly adopted Florida Gators are in the Sugar Bowl and will be in the top 5 if they snuff Louisville on Tuesday. I still don’t give a shit about the NBA and the hockey strike means pretty much nothing to me. All in all a good year.

Baseball has had an interesting off season so far. As if life in the AL East is not bad enough the Blue Jays decided to out Yankee the Yankees and made some monster signings. They now have a savage lineup and strong pitching staff. This is going to be on exciting team to watch and a very tough one to beat. The Yankees look old, Boston got a little better with some key signings. Tampa Bay remains a consistently good team with an ignorant and absent fan base. So far Baltimore remains pretty much the same.

Although many are concerned about the lack of moves by the form office it may be the right thing to do. If Nolan Reimold can come back and play like he did before getting hurt we will have an awesome outfield. He hit for average and power and along with Jones and Markakis would form a solid outfield. Machado looks good at third and in addition to being occasionally Brooks like at the bag the kid can it and he is fast. Chris Davis needs to work on his position play but he is a solid bat. If JJ Hardy can get those 30 points back on his batting average we have a solid infield along with Weiters behind the plate. The hole is at second base. Brian Roberts is a mystery at this point and Andino is just adequate and lacks any pop in the bat. If there is any question about B-Rob we need to go get a second baseman with either power or speed to solidify the infield and improve the offense.

The pitching staff looks good to me. If we can bring back the same guys and the younger guys continue to improve the staff will be just fine. Dylan Bundy could break into the bigs full time this year and that would be another welcome young talented arm. I think we can ride this staff into the playoffs again.

We could use one big bat at DH. If we could get a 30+ homerun 100 RBI guy in the middle of the lineup we will be a tough team to face. The problem is that I really do not see anyone in the free agent ranks that looks like a decent fit. We will have to count on Buck to find a way to get some additional pop in the lineup. It’s a tough division and a tough league. On paper it’s the Angels and Blue jays but I like our chances of hanging around until the end of the year and maybe surprising someone.

I suppose I have to tackle politics before moving on and that means it is time for the children and overly sensitive types to leave the room. Dear Government: Please just do your job as defined. Provide a level playing field for commerce, provide for the common defense and leave me the **&* alone. The rest of this stuff is simply not your job. I do not need you to regulate my behavior and provide me with some ridiculous safety net or somehow try to make an unfair world magically fair. Dear ignorant liberal: Please quit trying to have the government solve the words problems. They cannot. Further I do not want your help or advice on living my life, raising my children or handling my financial affairs. I did not sign a social contract and you owe me nothing and I sure as heck do not think I owe you or anyone else one thing as a result of your birth. You take care of you and yours and I will do the same thing. Dear Ignorant intolerant social conservative: really? Shut the **** up. I do not care what you think of my sex life, what I do or do not do with my body or my religious views. Just shut you ignorant backwater mouth and keep your **** to yourself. If you want to sit there and believe all that ignorant stuff about people do so quietly. And quit blaming it on Jesus. If Jesus came back today he would most likely beat the ever loving crap out of your close minded hate filled selves. Above all please quit trying to legislate morality or perhaps best of all just quit voting.

It boils down to this. Quit looking for the government to solve your problems. Take personal responsibility and act as the invisible hand of the market to change society. Practice the golden rule and take care of those you love. Help where you can and don’t hurt if you can help it. Work hard, be thrifty and responsible and quit asking me to bail you out. I don’t care if you are a third generation welfare queen or large bank who made bad investments. You do not have a claim on my money so please just quit buying politicians with money or votes and leave me the heck alone. Please just leave me alone and I promise I will do the same for you. Quit ruining my world and my country in the name of fairness, for the children, to save the financial system or any other bs reason you can come up with.

Now onto markets. First off I have no idea what will happen in the stock market next year. Neither does anyone else. If anyone tells you they know what the stock market is going to do and asks you to invest based on their beliefs, stop, think and then beat the heck out of the charlatan. I know some super smart guys who use higher math and super computers and they can predict the market with a high degree of success. That is for the next few hours or maybe a day or two at most. Beyond that it’s all guessing and mental masturbation. Why so many people waste so much time and energy trying to predict the market direction remains one of the great mysteries of our time.

The truth is that if you look for safe and cheap stocks and buy during down moves you should just fine over time in the stock market. Quit chasing the popular names and focus on businesses that can be purchased at an attractive price. Prices will fluctuate daily but business and asset values more slowly. Read Graham, Whitman and Klarman and then act accordingly.

My list for the end of 2011 has done pretty well this year with an average return above 30%. I’ll take that. That doesn’t include the suggestion to buy small banks which was also a winning strategy for the past year with several takeovers and positive surprises. Lets hope we do as well with the suggestions for 2013.

Going into the year I find I am bullish on energy stocks. I am not oil expert but I see a few things. First to achieve energy independence and get the economy growing the administration is going to have to allow drilling, digging and fracking. They can pay lip service to the premature exploitation of renewables but the truth is we need oil gas and coal. Some doomsday types see oil going to $40. The Saudi oil minister is the most accurate indicator of oil prices I have found and he is pretty comfortable with the current price. I do not see prices going much lower for very long.

There my bullshit macro case for oil, gas and coal. The real reason I like the space is because so many of the stocks are cheap. Arch Coal (ACI) is trading at 60% of tangible book value. Nabors is at 70% of TBV. Swift Energy (SFY) is at 60%. Penn Virginia (PVA) is at 30%. Rowan is at 80%. Tesco (TESO) trades for TBV and has enormous upside in the oil services sector. I like the energy sector because it is cheap.

I like staffing as well. I have done okay with Kelly services so far but its still at 90% of tangible book value. One of my favorite picks in Volt Information Sciences (VISI), a provider of technical staffing to many fortune 500 companies. I do not have time to get into the nuts and bolts of this special situation but it is an uber cheap stock with several catalysts. I don’t like these stocks because I think jobs and the economy will come roaring back. I like them because they are cheap.

I like the banks again this year. I even like some foreign banks again. I have a good profit in Bank of Ireland (IRE) but I still like the stock. Its at 40% of TBV and Wilbur Ross is on the board. The stock goes a lot higher over the next decade. I am looking at Latin American banks, especially Brazil but haven’t pulled any triggers there yet. The closest I have so far are Popular (BPOP) and First Bancorp (FBR) out of Puerto Rico. They are longshots but could easily rise many multiples of the current quote over the next few years.

I am not giving up the little banks I like as I see no need to create competition for myself in these thinly traded gems. If you really want to know make cash offer and I may discuss them with you. Of the larger community and regionals I like KEY, BERK, WFD,AF, CBF,CFNB, ESSA, ASBB, CPF,FFNW, and several others I will mention from time to time during 2013. Watch this space.

A few things to keep in mind. I do not buy up tapes. You improve your odds of success dramatically by buying fear and selling greed. Markets Fluctuate. Make that work for you. I stay small, move slow and scale in and out of stocks most of the time. Insider buying is hugely predictive. I have done a lot of work on this during the past year and found it be a powerful addition to the arsenal. I own stocks for a long time so if you are looking for three month holding you are probably best following someone else.

So 2012 is coming to a close. In 2013 I hope to move ahead with a few projects, increase my money management practice, maybe introduce a newsletter or web based project, and perhaps write a book. On the business side of things my goals are modest as I do not have any wish to be the biggest or the famous but to succeed and prosper enough to have a good life for me and mine.

There are far more important things to focus on in this life. In 2013 I will kiss my wife often and tell her I love her every day. I will try not to give her too many reasons to kill me in my sleep during the year. I will talk to my adult kids often and agitate the living shot out of them until they move to Florida. I will continue to restrict my little ones access to electronic crap and make her do unpleasant stuff like homework and reading books. I will make sure she continues to love art and explores her talents in that area. I will do all the things she hates now so she can have all the things she loves later.

I will read a lot of books. I will drink a lot of wine. I will go to the beach more often. I will laugh a lot. I will make new friends where ever and whenever I can. I will avoid ignorant people. I will look for alligators every day. I will watch a lot of baseball games. I will go to more minor league games (I think there is a team called the Pelicans right down the road and I simply have to become a fan).I will listen to a lot of music. I will spend a lot of time on my lanai. I will find a swamp bar to go with the beach bars we have found. I will take a lot of naps. I will walk the dog a lot. I will do all the things I like with the people I love and together we will ride out any storms that my come our way during the year. I will try to emulate Ben Graham and do something generous, something creative and something foolish every day.

It’s a new year. A new chance to embrace life, to live, to learn, to grow, to love. Let’s make the most of it.



 Rome: an Empire's Story By Greg Woolf gives and excellent review of the reasons and history of the rise and decline of Rome's empire which was kept relatively intact for 1500 years. The rise he attributes to efficiency, trade, and military success. The fall he attributes to weak alliances with neighboring countries to rule the provinces, and lack of incentives to produce from the provinces. I find many parallels to the present. The good news is that it took 1500 years to disintegrate.

Steve Ellison writes: 

I am partway through volume 1 of Gibbon's The Decline and Fall of the Roman Empire. There was little incentive for the emperor to rule for the benefit of his subjects rather than for his own pleasure. Rome became a military kleptocracy after the murder of Commodus in 192. The armies knew they were the source of power and demanded an exorbitant price for their support, beginning with the Praetorian guard's murder of Pertinax and subsequent auction of the throne to the highest bidder. Frequently contending for rival generals to seize the throne, Roman armies put more energy into fighting one another than fighting the enemies on the frontiers.

Stefan Jovanovich writes: 

Details, details:

"Romans imagined [the empire] as a collective effort: Senate and people, Rome and her allies, the men and the gods of the city working together." This continued as Rome passed from the Republic to the Caesars, who were kings "even if [Romans] could never bring themselves to call them by that name." It is "a history of remarkable stability. If it was largely true that (as one historian has put it) 'Emperors don't die in bed,' it was also true that the murders of many individual emperors seem to have done little to shake the system itself."

Since "decline and fall" is the current meme, one should hardly be surprised that publishers and their authors want to cash in on the latest craze. (That is all publishers ever do; and authors, poor things, are usually desperate to oblige.) Professor Woolf should have resisted the impulse. He certainly knows better. The "collective effort" he describes is a complete fairy tale. The Empire never even developed a common language; our "classical" education notions are based entirely on the fact that rich people had too know Greek because that was the commercial language of the eastern provinces — which was where the money was. Latin was for the inscriptions on the public buildings and for the official orations and the school examinations but the "common" people continued to speak their own tongues. Even the Army relied on whistles, drums. and flags for its "commands" when it took to the field. This explains why Latin itself became almost instantly obsolete even south of the Rubicon. No one writing about the Hapsburgs, who did manage to keep their own Empire running for a good long while, would ever have offered up such fictions about "court and people, Vienna and her allies, the men and gods of Vienna working together". But, we have enough information to know that the court spoke French in that Holy Roman empire. The beauty of Roman history is that there are so few actual facts that survive that one can make the story whatever one wants it to be.

Jim Sogi writes:

The key is "1500 years". It's not going to fall apart in the next 100, that's for sure.

Gary Rogan writes:

The difference is that they couldn't do state borrowing in anywhere near the same proportion to their GNP as the US can. It also took less than 100 years from the peak, however defined to really difficult times. And as "mr. grain's" article demonstrates in less than 200 years from the peak free people were volunteering for slavery to avoid taxes, an inflation rate of 15,000% was experienced, free employees were essentially made into slaves at their places of work, and women, children, and parents were physically hauled off and abused to get to the tax evaders. All due to overspending and overtaxation.

Also for whatever reason they limited the free grains to a relatively fixed number of people, and the amount was small for quite a long time. Their modern equivalents today with a much more advance education in economics talk about redistribution with such excitement and such lack of concern for where this is all going that would make Nero proud (I mean the part about fiddling while the Rome burned, except they are not fiddling but setting the fires).

Vince Fulco writes:

I am still trying to understand how a society flourishes with reported median family incomes stagnant or below that of a decade ago? And there is no sign the worker is gaining any bargaining power. Sure the govt can artificially tinker with rates reducing the carrying costs but someday existing debt must be paid; at least at the consumer level. It is debt assumption for non-producing overpriced (after debt service costs are added in) consumer goods which will kill this country.

Tim Melvin writes: 

I agree with that to a large degree…..crony capitalism at the expense of everyone else is a cancer in any society….the problem is not capitalism exploiting the workers. it is the complex and intertwined relationship of business and government that does us the most harm. Eisenhower was right.

Anonymous adds:


I think the malignancy has metastasized much deeper than that, and now sits in a kind of acid bath (the pending "fiscal crisis') where all else is peeled away and we see it clearly (in fact, the fact that people seem to NOT see this clearly is evidence of its metastastization) and it is this: Our society — at every level — is characterized by a desire for more rules, and an exception of those rules for ourselves.

Talking different tax rates is a carve out. The argument that the elderly should get a carve out. The birth control carve out. The government worker's salaries untouchability as a carve out.

How about when the White House issues exemptions to Obamacare?

Affirmative action is a carve out. All corporate socialism is a carve out. Every bill passed by Congress does not apply to them. I call that a carve out!

The white lady's sinus-snort lament, "This is RIDICULOUS!" always pertains to her being denied her attempted exception carve-out to the rules.

That's the cancer. The cure would take a lot more than Mitt Romney, and likely cannot be cured by a single individual.

History doesn't exactly repeat, usually, an incident is followed by another incident of similar cause but differing results and often differing in duration. I don't think we're going into a 1,000 year long dark ages. I think we're racing headlong now to something far more sudden and shocking, and bigger than any one man or political party can purge from our psyches.

Jim Sogi writes: 

I used to think the revolution was just around the corner, society was fragile and was about to come apart. Not now. Look at NYC and Sandy: that was an amazing comeback. The recession was bad, but the economy is slowly coming back. Things are not bad now. In the 1940's there was nuclear world war. Japan, Germany, Europe came back. Russia fell apart, but now is back. China killed 10s of millions, but came back strong. People are resilient and social systems are strong. The apocalypse is Hollywood and journalistic bogus hokum ballyhoo.

David Lilienfeld writes: 

The same is true of the US post-Civil War. Nothing before or since has had the social and economic impact that that war had. The US is more adaptable than Rome was. As Peter Drucker often observed, the US genius is political.

One of the signposts that Rome was done was when it was no longer able to rely on client states for security. That isn't the case now with the US.

A better paradigm for guidance might be the Persian Empire.

Gary Rogan writes: 

I keep coming back to the debt issue, the current size, and the ability and desire by "the powers that be" to accumulate more at an astonishing clip. Four years ago I predicted a debt-driven collapse that Rocky chided me for so much, and while the timeframe now seems indeterminate, what IS the way out without a currency collapse and all that follows in those types of situations? The bond vigilantes are not too concerned, and they know all, but what is it that they see? Can they see far into the future or are they playing musical chairs? 

David Lilienfeld adds: 

I'm reminded of the comment by Jim Carville, Bill Clinton's political advisor. In a re-incarnated life, he said, he wanted to come back as the bond market. "It can intimidate anyone it wants to."



 So here we are once again. Thanksgiving is fast upon us and the madness we refer to as the "Holiday Season" is upon us. Thanksgiving is like the feast before the slaughter in many ways. For one day we can eat, drink and watch football without worrying about gift giving or shopping. Unless of course you are one of the many dumbasses heading out for Black Friday shopping in the wee hours of the morning then it's just the pre-battle dinner. I cannot for the life of me imagine of anything I need badly enough to head out for Black Friday or pre Thursday shopping. I do not think I could look some poor minimum wage store clerk in the ye that had to come to work Thanksgiving at midnight so I could save a few bucks on a big screen TV and Tickle me (but not there without checking ID first) Elmo. Call me sentimental but I remember when Thanksgiving was about family, friends with lots of food and booze and not carb loading for shopping madness that puts WWE action to shame.

Tomorrow is the big travel today although some signs of the exodus have already started to appear. I am always that people will fight their way along turnpikes , through airports and jam into trains like sardines to spend a day with a bunch of folks they really don't like that much anyway. There is nothing like fighting your way up I95 to spend two or three days of hearing about all the things you did wrong 30 years ago and rehash all the wrongs done to your siblings over the years. It must be magical to do a Usain Bolt through the Atlanta or Dallas airports to be in time to once again watch Uncle Frank can shit canned on your dads good booze while your cousins new baby daddy explains the intricacies of the parole and probation system over dried turkey and mashed potatoes that could easily double as stucco and mortar. There is a reason most of us don't live that close to our extended family. Thanksgiving is a time to explore all those highly dysfunctional and unpleasant reasons while fueled up on liquor. Ah, the holidays indeed.

 We will see all those commercials and Hallmark movies that show families gathered to delightful dinners in a glow of soft candlelight. Most of us that have experienced the large extended family holiday gatherings over the years know that a far different picture usually emerges. Mom is frazzled beyond the breaking point after two days cooking and cleaning and is desperately trying to resist the urge to smother her younger single professional sister in the green bean casserole after the 19th story about her fabulous weekends, dad and Uncle Ernie are drinking Jack in the back yard an about to break into a fistfight over who won the 1972 Super Bowl, Aunt Ethel is puking in the potted plants, the baby has managed to obtain and eat an entire pumpkin pie, and although Johnny is home from the army no one has seen him or his 17 years step cousin in some time now although there is bright red thong where his car used to be parked. The TV is blaring a football game no one cares about and the youngsters are in the den watching 9 and ½ Weeks while Grandpa snores strenuously in the middle of it all and Grandma is slumped in the recliner with a bottle of sherry and a bendy straw. The great American family holiday!

After a few too many holiday gathering exactly like the one described above, along with threats of rectally inserted turkeys and full on food fights among unrestrained youngsters I have the misfortune of sharing a blood line with, the kids and I years ago came to the conclusion that we would rather say home and celebrate things our way. The Melvin way means tons of food, good wine and we only allow people we like to join us. My wife is of the same mindset so our holidays have become good times with people we actually enjoy being around. We admit no one we don't care for regardless of birth circumstances, social status or blood type. It makes for a much more enjoyable relaxed holiday experience.

 It is also a time of year when we really should set aside our worries for a moment and be thankful for all we have in life. There is plenty to worry about this year. Our government is heading away from a free market republic to more of a democratic big government form of socialism. There are plenty of historical precedents for this but that doesn't mean I have to like it. The economy sucks. Soccer is gaining in popularity. The Blue Jays just got a lot better and will be a threat this year. Taxes are going up. There is either global warming, climate change or a looming ice age depending which channel you have on at the moment. Honey Boo-Boo has her own show. Rush Limbaugh and Al Sharpton are still taken seriously be entirely too large a percentage of the population. Teen paranormal romance is now a section in Barnes and Noble stores. My Mother is coming next month. Rap music has not died off yet. The head of the CIA can't even have a covert affair. There aren't going to be any more Twinkies or ho-hos soon. There are plenty of things to worry about but this time of year is about being thankful.

 As always I have to start with family. I have been blessed with an amazing if somewhat eccentric and weird immediate family. I have no idea why my amazing wife would marry me but every day I am damn glad she did. She calms me, excites me, and makes my life better in every way imaginable. I have no idea what she sees in me. I am messy, absent minded, stubborn and difficult…and those are my good qualities. She is a saint of putting up with me much less loving me. Every day I wake up next to her is a good one. Lisa has grown into this smart confident young woman and Tommy is a businessman of the highest order without losing an ounce of his magnificent if crude sense of humor. Maeve is growing smarter and more artistic with each passing day. Each day I am reminded that I am a lucky man and that I blessed that these amazing people put up with me.

I am also blessed with some great friends. Many culled themselves off the list in the aftermath of the great IRR last year but those that remain are steadfast and true companions along the road of life. I don't travel as much right now so I may not be sharing bar adventures and dubious cocktails with the Chicago Curmudgeon, the Voodoo Professor, The world's only living Iranian Jewish cartoonist, the degenerate Kentucky Colonel, the Cheesehead or others but I talk to them frequently still through the magic of Facebook, twitter and other modern communication devices. I don't see the island crowd every other night at the bar like the old days but I am still in touch with people like the littlest firefighter, Tic-tac, Rag Lady, and others. I expect to see them when the snow is ass high in the Mid Atlantic this winter. I am in contact with great people like Baldy, the Beard, the Preacher and Granola on a daily basis during market hours and beyond. I have a solid group of friends and for that I am thankful.

When toy get right down to it at it is core life is magnificent. There is so much to be thankful for each year that we really should take time to express and explore our gratitude more often. My list grows all the time but among other things I am thankful for:

Each day I wake. This beats the living shit out of the alternative.

 The dog. I still hate pets but walking the thing around the neighborhood here in Florida has led to me walking a few miles a day and losing about 10 pounds since we got here. Still not a fan of picking up the steaming piles of fresh shit but at least I don't gag or throw up anymore.

Alligators. I love alligators. The dog and I see two or three a day and they are just cool. I may be grey and losing my hair but I am like a little kid when I see alligators.

Same for Pelicans. Have to drive to the coast to see them but I get a huge kick out of pelicans.

Books. Friends ,educators, entertainers, companions. Brain food. It's a lifelong love affair.

Wine. Rounds off the edges off a bad day and adds a sparkle to the good ones. Damn tasty too.

The fact that less than 1/10 of one percent of investors pay a lick of attention to tangible asset value. The faux value investors out there create opportunities for those of us who actually practice it.

Ben Graham, Chris Browne, Walter Schloss and all the other greats who paved the way.

Florida. Can't manage an election or field a decent professional football team to save their lives but this is a great place to live.

Did I mention my incredible wife?

Zombies, Bikers and Insane Asylums.

Newspapers. I still love an old fashioned actual ink and paper newspaper. My extraordinary wife actually got me subscription to the daily paper here in Orlando. That never would have occurred to me.

Twitter. I freaking love Twitter. If you set your feed up right its better than a news ticker most days. It's also a lot of fun to trade barbs and quips with people like @tangletrade,@byrneTSCM, @Brian Sozzi and others.

Greed. No matter how much my liberal friends deny it greed has been the source of much of human advancement. Rather it be greed for money, achievement or knowledge greed moves us forward.

Sunsets. I am sure sunrises are awesome too but I don't get up that early if I can avoid it. With a 9yr old who thinks 7 is late I see more of them these days.

Sleeping in. Its rare these days so I appreciate it even more

Naps. I love naps. You can never take enough naps.

Travis McGee, Doc Ford, Spenser, Hawk, Tomlinson, Agent Prendergast, John Cory, Thorn, Jesse Stone, Stone Barrington, Lucas Davenport, Horatio Hornnblower, Cletus Frade, Harry Dresden and all the other boon companions of the written word.

 Baseball, my life friend and obsession. The Orioles in the playoffs just makes the year better. The Red Sox sucking is just sublime

Football because who doesn't like barely controlled violence with half naked dancing girls?

Beethoven, Bach, Miles Davis, Wilson Pickett, Handel, Springsteen, Waylon Jennings, Jerry Jeff Walker, the Grateful Dead and everyone else who plays the soundtrack of my life.

My wife. My kids. My life. I am a lucky man and I know it. I have much to be thankful for again this year.

Now let's get the bird in the oven. Uncork the wine and get this party started. Happy Thanksgiving.



 Having internalized some basic aspects of wave counts, such as alternation of corrective waves within a motive wave, coming back to the counts produced by Advanced GET is a strange experience, as the software-generated counts seem quite wrong.

Have others, as I now have, given up using software to mark the key wave points? Of course one would still use a software grid to mark Fibonacci retracements.

Anatoly Veltman writes: 

Actually, Advanced Get by Tom Joseph was very good when first introduced in late 80's-early 90's. Trick was that one should have also attended Tom's weekend workshop (mostly held near an airport in Ohio), to be tipped on the whole essence: type 1 and type 2 trades, wave 4 index and oscilator. Without figuring out when Wave 4's odds diminish to unacceptable — there is no reliable Elliott Wave trading. And Fib retracements are great — but ONLY if EW type 1 or type 2 trade has first been isolated. I taught Tom's methods for about 15 years. Not sure if any of my students succeeded in black-boxing the entire methodology.

Tim Melvin writes:

Did someone really say fibonacci on the spec list? This could get interesting if it is anything like the old days…

Anatoly Veltman writes: 

Well, that's the whole point. Loving to say Fib doesn't test well– when the wrong application was tested to begin with.

Phil McDonnell writes: 

To be sure one must test something according to the right way of doing things. However that is exactly the problem with wave counts and the like. The rules are so arcane and convoluted even so called experts disagree on them.

If you get 5 different Elliot exerts in a room you will get 5 different wave counts at the same time. It is a bit like the game of Fizzbin. The rules keep changing and are unnecessarily complex. 

Leo Jia writes: 

I think one probably should take this argument as a not-bad news for Elliot theory or any theory that gives non-consenting results. It means that it likely has some statistical truth in it that is worth one's effort in seeking. Don't we agree that a market theory delivering definitive results does not exist or, if exists, ought to be thrown out?

Steve Ellison writes: 

Trying to stay in line with our raison d'etre, I have been coding a method for retrospectively identifying highs and lows of multiple levels of significance.

My approach is to go bottom up, starting with an idea I got from one of the Senator's books. A local high is a bar whose close is higher than the closes of both the previous bar and the following bar. A local low is a bar whose close is lower than the closes of both the previous bar and the following bar (a sequence of 2 or more bars with equal closes count as one bar for this purpose).

After identifying the local highs and lows, I move up a level. A 2nd level high is one that is higher than both the preceding local high and the following local high. A 2nd level high cannot be recognized until one bar after the lower local high that follows the 2nd level high. I record the time at which the 2nd level high could have been recognized.

I follow similar rules to identify 3rd level, 4th level, etc., highs and lows and the times at which they could have been recognized in retrospect.

I haven't finished yet, but this method should give me a platform for testing hypotheses about "primary trends", etc.

Anatoly Veltman writes:

Tom Joseph's contribution to E.W. trading, in my view, was much greater than Prechter's or RN.Elliott's. Tom basically said with his excellent refined Type 1 trade: don't ever place any bid, unless:

1) you've already observed a valid impulse (with extended third wave)
2) a correction is currently in progress, approaching 38% of preceding rally
3) you're filtering this correction with oscilator return to 0, and fourth-wave index still sufficient for fifth wave
4) fifth wave projection extends to at least 2:1 profit/loss ratio, incl. all possible slippage.

I say: if all these conditions are not met (and this may not occur every day) - never place a bid at 38% retracement. If all these conditions are not met, you'll have to bid only at near-100% retracement. What does this principle have to do with popular E.W. or popular Fibonacci methods. Nothing!!

Laurence Glazier writes: 

Sure, things are complicated and one would not wish to poke a stick into a hornets nest, but … some things are complicated.

It took hundreds of years to elicit the laws of harmony from the canon of classical music (many to this day deny their existence). Put five composers in a room and have them harmonise a tune (the non-believers might refuse to!), and they will do it five different ways, but they will all have added to the map of knowledge.

Even knowing those laws, one could not reasonably predict how a piece of music would continue if Pause were pressed (unless it were minimalist) - but one might anticipate it would return to the tonic key, and that the free fantasia would not be over-long, and so on.

Those laws are difficult, unprovable, and without material substance but are the result of empirical observation.

Gibbons Burke writes: 

CTA E.W. Dreiss used, in the 1990s, a very similar way to count waves in the market using what he called the Fractal Wave Algorithm (FWA), and he traded futures breakouts from FWA-n magnitude highs and lows. Did quite well, but like all trend followers, it is a bumpy ride.

He also came up with the Choppiness Index, which sums the true ranges in the last n periods, and takes that as a ratio of the n-day range.

Jason Ruspini writes: 

This is the natural approach that I took as well. Ignoring the "correct" 1-5 definitions, I just looked for a run of higher such double-X highs and higher double-X lows identifiable with the necessary lag, with attention to what happens when you eventually get a lower major high/low, breaking the "wave" run count, which can keep going after 5. What I found wasn't very interesting, in-line with my previous comment. I'm still unclear if anyone is actually trading a tested (complicated) system or just applying versions of rules with discretion. If it is a tested system, why is it better than a simple long-term momentum system?

George Parkanyi writes:

I like to keep it simple. Many years ago, I read something written by Larry that said, when the commercials are generally substantially more net long or short than specs - that tends to stop trends and turn markets the other way. He admitted it was a rough rule of thumb - that it may take a while to turn the tanker - but I pay attention and time after time I've got to say it works. So right now two markets that fit that profile are coffee and to a little lesser extent sugar. (Oh yeah, VIX as well) I've been long both for a couple of weeks with modest starting positions, and just had a nibble at VIX. I don't know when the trends will turn and I may have to take a stop or two, but I like the chances for a good position-trade in these two markets - and VIX as a bet on a short-term post-Fed hang-over. I checked back to when coffee started this particular big decline - and it was within two weeks of when commercials were selling the crap out of it and their net-short positions had peaked. Gold and a number of other commodities did the same thing at the beginning of this rally that began in May - except that the commercials were the only buyers at the time. It may be a dumb-as-dirt perspective on my part, and will likely set off Anatoly - but its one thing that has stuck with me from reading a number of Larry's books.



 At last Labor Day weekend is upon us once again. This weekend marks so many special things, doesn’t it? The kids are back in school and the cries of “but I am bored” no longer echo across the playrooms and backyards of North America. College football season begins as we rediscover that violence with half naked women cheering the contestants to greater fury is the true embodiment of America. The pennant races are real now as baseball gets serious. It is celebrated the same way we celebrated all our holidays with copious amounts of alcohol, the ritual burning of tasty dead animals in the back yard and road trips down crowded highways.

Most of us have some vague idea of what the holiday celebrates. It is to honor all those who work, right? The image many of us get is that of a factory worker or coal miner when we think of Labor Day at all. Indeed the holiday was started to honor them and the growing Labor Union movement at the start of the industrial revolution. It is a day to honor the contributions and sacrifices of all those whose labor built this country and continues to feed the engine of production. The men who built the skyscrapers, poured the steel, mixed the concrete and laid the block that form the foundation of this great nation. The celebration started in Oregon and spread around the country. By the time it became a federal holiday in 1894 in the aftermath of the Pullman strike, 30 states already had set aside a day to celebrate the contributions of the labor force.

We still honor, and always should, these people. Those who rise early and descend into the earth to mine coal, or head to the rigs to bring oil and gas to the surface power our nation. The factory workers assemble the products that make our daily lives better. Millions of men (and women) with calloused hands load their trucks each morning to build the homes we live in, the roads upon which we drive and the buildings where we earn our living. Labors contribution to our nation is incalculable and should be celebrated.

 When I think of Labor Day I tend to broaden my definition somewhat. I include every American who gets up and goes forward to earn their living by making a contribution to society. I think of guys like my friend Carl in Key West. He makes a nice living in Key West as a cab driver. Now driving drunken tourists around may not sound particularly laborious. I wonder how many lives Carl has saved keeping folks from driving drunk or wandering around the streets Island Drunk? I think of the Tic-Tac kid selling software that makes companies work more efficiently and on a more cost effective basis. How many jobs have been created because his products freed up resources and made a business run more efficiently? I think of my journalist friends who chase stories all over hells half acre and back to keep us all informed. What about the kid at the grocery store who stocked the shelves on the night shift last night so you had fresh produce and other products available to feed and care for your family? How about the bartender who poured your drinks, listened to your bull, put the right game on the TV and the called you a cab at the end of the night? Or the cook at the restaurant who fixed that perfect meal, the waitress who served you and the bus boys and dishwashers who cleaned up after you? They all work their ass off and make our world just a little better every day.

 The definition of labor needs to be expanded to include more of us on this holiday. You know who I think we should honor on Labor day? Working moms. Especially single ones. I don’t care if you are a factory worker, an executive, waitress or a stripper on a damn pole. Being a working mother is LABOR. Even in homes with a father present there are some jobs and duties reserved to Mom. After carrying your fair share and earning a living all day women still have to come home to the kids and be Mommy with baths to be given, homework to be checked, boo-boos to fix, stories to tell, house work to do and other tasks that are pretty much reserved to Mom. The single ones have even more as they have no one to help them fix the meals, pay the bills do the dishes or laundry or all the other tasks of making a home. Being a parent is hard work but it is even harder for a working mom. I am pretty handy around the house and work from home but no matter how much of I do my wife is still being Mommy after my day has ended and I am parked on the couch with a book and a ballgame. When you are celebrating Labor Day this year pop one of those cold frosty delicious distilled beverages in honor of every woman who works hard to earn a living and even harder to be a Mom.

 We do not usually think of business owners on Labor Day as they are generally consider capital and nor worthy of recognition. That’s just wrong. These people work their asses off, rising early to open the store, dealing with the bills, the supply ordering, the staffing, the taxes, payroll and regulatory crap before the first employee arrives. They have to greet the customers, fill in for whoever didn’t show up today, solve problems, be a marketer and cheerleader, handle employee problems, stay on top of trends and opportunities in their industry. They have to deal with salespeople, vendors, complainers and regulators. The responsibility for others families fall on their shoulders and it is a heavy burden. These entrepreneurs get up each day to open the liquor store, the gas station, the restaurant, the jewelry store, the barber shop and host of other businesses that provide the products and services that make our lives easier and better. They spend their nights with ulcers trying to eat them alive from the inside out as they sweat out the choices between payroll and mortgage, new equipment and the kid’s school bill, paying taxes or paying the bills and the other hard choices they must make each and every day as they grow their business. As they reach a level of success they are the ones sponsoring little league teams, buying ads in school programs, buying tables at special Olympics fundraisers and contributing to other community causes and concerns. They Labor to make lives better for themselves and their families and by doing so they provide millions of jobs and make our communities better places. At least one of those frosty gin and tonics in a sweat covered cold glass of lime tinged deliciousness should be downed in honor of the engine of America, the small business owner this labor day.

 You know who else labors and should be honored this labor day? Immigrants. It is controversial subject and many are here illegally but a good deal of that is the result of ignorant policy. There are some who come here just to take advantage of social benefits and I am in complete agreement with deporting these freeloading bastards. Same with those with criminal records. Bye-bye thanks for trying, go the fu home. But those who come here to work should be allowed to do so. The image of the lazy Mexican or Latino is just bull. They aren’t taking jobs from anybody, they are doing the jobs that our spoiled ass society doesn’t want to and this has been the case since the dawn of time. Immigrants have always come here to take the lower paid jobs that society needs done. They have worked hard, sometime holding two or three jobs to make a future for their family. I see the same thing today in immigrants. Those that come here to work, work hard and contribute to their new nation. We need an immigration policy that can keep out the parasites and criminals but allows those who to come here to work, contribute and write a new chapter of the American dream. I hear fears from some small minded people that letting all these Hispanic and Asian immigrants may change our precious nation. There is no doubt they will. Just like the micks, kikes, krauts, niggers, polacks, lunkheads, hunkies, hillbillies, white trash, ragheads, frogs, wops, dingo f, chinks, goat bangers, and other races and nationalities that have come here in search of a new live and new hope, they will change our nation. For the better. We are a nation of immigrants and the great melting pot of America has room for new generations of workers, builders and dreamers. I raise of glass of well chilled glass of New Zealand Sauvignon Blanc in honor of those who look to come here to labor for their dreams.

I think of those in our Armed Forces who labor to protect our freedoms. From basic training onward military service is hard work. It requires discipline, commitment honor and the bravery to rush to the guns when required. They serve often in missions they do not understand. They serve a public that is not always grateful for their service. From the highest ranking General to the newest private they serve for far less money than they could make in private life. They labor for their nation and the ideal we try to represent and I will raise a glass of cold delicious frosty beer in a salute to their labor and sacrifice.

 I even think we should raise our glasses this labor day to honor some government employees. The policeman and fire fighters who risk their lives to keep our homes and families safe. Those who rebuild and repair our roads, sewers, highways, bridges and electrical lines that makes our lives so much easier and safer. Those who keep our neighborhoods cleaner and free of unsightly trash and garbage by carting all our trash and junk off to the dump should be thanked and honored. To those teaches who labor to educate our children and push them to new heights of achievement I offer my thanks and appreciation. All of those whose toil and labor to improve our cities and towns should be considered this labor day. I raise this crisp, chilled martini in your honor.

Of course I do not offer any honor to the bureaucrats, politicians, administrators, tax creators and collectors and other parasites who live on the public dime without offering any real benefit to society. To those who make it difficult for workers to work, first responders to respond, teachers to teach and citizens to thrive I offer no honor or respect. I spit this well used cocktail onion in your general direction.

 It is Labor Day. I think the definition of the day needs to be expanded to everyone who rises each day to earn their daily bread, to provide for their family, to offer their children a better life, to achieve their dreams and earn their success. It does not matter if you wore a coat and tie, grease stained coveralls, a business suit and heels or a nurses uniform if you went to work to make your life more secure, your labor in pursuit of your own dreams has helped to make our national dream closer to a reality. This nation is built not just on the hopes and dreams of our citizens but the effort, yes, the labor, that has gone into reaching for those hopes and dreams. To the dreamers who work I celebrate you and lift my glass high in praise of your labor and your contribution to the world.

Now light the damn grill, turn on the game and someone get me a refill. Happy Labor Day to all.



There is much pessimism on the site about the stock market. One thing I always like to ask is suppose it were true that the economy is really going to be weaker than people expect. Like we'll have 1 or 2% growth rather than 2 or 3. Why should this affect stock prices? What is the evidence that stocks do worse during periods of below average growth? Why should it matter? How does the rate of return on capital of businesses compare to the 30 year rate as stocks are valued based on discounted value of expected future earnings adjusted for risk, with the growth rate of earnings being determined by the rate of return on capital less the pay out on dividends rate. Is it better to buy stocks when people are pessimistic or optimistic?

All these things must be tested. I'm not saying that I'm bullish or bearish on stocks or that one should be. I'm just questioning the glue and the weakness type of stuff. Assuming it was true, which I doubt, why should that be bullish or bearish? Testing is required.

Steve Ellison writes: 

A regression of the 1-year S&P 500 return from 1981 to 2010 against the US unemployment rate reported the previous December shows a 16% positive correlation, with the regression line for the next year's S&P 500 net change being -1.9% + (1.9 * unemployment rate).

t=0.86, p=0.40

Leo Jia writes: 

I often ask myself similar questions but can not answer them. Perhaps one has to answer this question first: what percentage of the people in the market are rational? Or rather, what percentage of the money in the market is rational? Though I don't have an answer, I tend to believe that there is more irrational money than rational money in general. The clear problem is that the degree varies all the time.

J.T Holley writes: 

With the std dev of 18% and annual rate of 8-9%, I'll order a double helpin' of "drift" with a side of "thank you".

If that meal doesn't fill you up then you must question where you get your meals and disregard the gratuity the next time you sup.

Tim Melvin writes: 

Drift only exists if you have a 100 year time frame in my opinion. See 1970s and 2000 to present. Much of investing success last fifty years for most investors is result of membership in lucky sperm club.

Craig Mee writes: 

Doesn't one new variable in a mix during the testing period influence the outcome– QE, no QE, etc etc…(sure, there's been other ways of doing it). But how to judge what has the over riding influence on the outcome? This could vary under certain conditions. How much of the US equity recent rise is in default of Europe, just like EURGBP taking the heat…and how much of the current price is underpinning based on QE to come?

What has recent price action illustrated, if anything at all…

How should weaker growth effect share prices? I would argue that this would just be a further nail in the coffin, when all the ducks are lining up, but how can we say it's got more weight currently than some other significant half ? It's tough. Are the number of running variables any different than twenty years ago? Maybe not. Are market conditions, HFT, leverage, number of participants in the market any different? Certainly. Has this influenced price action? Maybe Richard Dennis may have some views here.

When does the variation in conditions influence the ability to test? I suppose this might be the question.



So, corn and wheat are going up, just about all other commodities, gold included, is headed down. Copper, too? Jury's out. Stocks don't look so hot–valuations are high and guidance is turning pretty crappy. Oh, and there's an election in the offing. So, with the 10 yr Treasury south of 2% (and maybe setting another low in the next several days), where does one put one's money–in Europe?(!?) In…

Tim Melvin writes: 

Every time I think if passing on the mess that is Europe I think if John Templeton's advice to invest at the point of maximum pessimism.

Of course all of us have found a supposed max to be a min to our dismay.

I have a baby toe in Europe at this point.

Andre Clapp writes: 

My point exactly… Pessimism on Europe, if not at a maximum, is certainly very high. Significant career risk for professionals. Everyone knows you'd have to be an idiot to invest in Europe. Reminds me of the US market during March of '03 and '09. Buffett out today saying Euro is "doomed to failure" with one small caveat. (Who is more front page than the Oracle?) Reminds me of the Economist issue "Drowning in Oil", when oil was $12 a barrel. They felt that oil should trade at $5 a barrel, with one small caveat, "in the absence of political considerations"… Hmmm, seems like a pretty big caveat to me! Needless to say, oil (Brent) trading at triple digit levels only a decade later, even in a weak global economy. The lesson to me: Mind the caveat!

Lastly, The Oracle may have his own personal reasons for "encouraging" the Europeans. He is not above that, IMO. People stating the consensus opinion often leave this kind of trap-door caveat behind. My guess is that the sun will still rise, and Europe will still be here, 10 years from now.



 Ahh Fathers Day. That annual day to offset the fact that most of the year we are just the surly man in the background yelling for quiet and some crap about getting the chores done. All over America men are unwrapping ties they will never wear and the 209th coffee cup to add to their collection and eating a breakfast cooked by some decidedly unculinary offspring. Later we will probably get to fire up the grill and grill some stuff and thank the heavens we are not Moms and so at least the dreaded brunch is not in the equation.

I am lucky in this regard. My kids are in their twenties and my stepdaughter is heading off with her dad today so I get to be taken out to eat crabs drink beer and hopefully watch the Orioles smack the Braves around the diamond. My wife and my kids are my three best friends on the planet so it's going to be a pleasant day and I have a quasi-legal excuse to skip most chores. The little one has already started the day off with a pretty cool gift and card. Having a curmudgeonly ogre for a step dad is tough when you are a 9 year old princess but she makes the most of it.

One can't help but think about the journey and adventure that is fatherhood on this day. I don't give a shit if it is a Hallmark created day that exists to sell greeting cards, ugly ties and charcoal. It still makes me think to the past 28 years and all the steps, missteps, adventures and disasters that have led to this particular Father's Day. It has been an interesting experience and worthy of reflection.

 I never set out to be a Father. It was never high on my list of life's priorities. Both my kids just sort of happened along the way. They frequently give thanks to Scotch for the miracle of their birth. I had no idea what I was doing and just sort of made it all up as I went along. I may not have set out to be Dad but I cannot imagine what my life would have been like if I wasn't.
I can still, as I am sure most fathers can, recall the moments of my children's respective births. To be clear I was not, and still am not, a huge fan of the whole father in the operating room bit. I was dragged from my mother's heavily sedated body while my father sat in the waiting room chain smoking and nipping from a flask with other soon to be poppas and that's a system that makes perfect sense to me. But I was there and the one single moment will stay with me forever.

Lisa came into the world screaming and making noise (this is no surprise to anyone that knows her. The child is just loud). She was born with a full head of hair and eyes that took up about half her face. She was making all kinds of bellicose noises right up until they scrubbed all the yuck off, wrapped her in a blanket and handed her to me. She stopped crying and those enormous eyes looked up at me with a look that said she knew me and was glad to be here. Of course she ruined the moment by taking a giant crap shortly thereafter and I had to change my first diaper before we could present her to the rest of the family in the waiting room.

Tommy ,on the other hand, didn't cry at first. As the little Asian doctor lifted him up so the nurse could cut the cord he decided, like most guys after a long period of confinement that he needed to take a leak. He pissed all over the little doctor as a way of introducing himself to the world. That's been pretty much his approach to life ever since.

 I have been a divorced father pretty much most of their lives. Lisa was 6 and Tommy 2 when their mother and I split up. My perspective is perhaps not the same as one who lived in an Ozzie and Harriet family but is probably more the norm these days. I have learned a few lessons along the way and thought I would write them down while I was reflecting on fatherhood. They may or may not be of any value but it is too early to drink beer and the game does not start for several hours so this will help me pass the time. I don't know how much of it is because of anything I did but my kids have turned out to be amazing. I hope I played at least a small part in that and that the lessons learned along the way have some value.

I always get a kick out of those who tell me that kids won't change their life. Of course they will. You are not going to be taking the stroller to happy hour and kids are frowned up in casinos. You and Jr, are not going to hit the racetrack on Saturday or take in the symphony that night. Baseball games and war movies are going to be replaced by little damn purple dinosaurs, robots, princesses and other horrible little creations. Life is going to change more than you can possibly imagine. Don't blame the kids however. It doesn't matter if your offspring were procreated in a moment of candles and whispers or during wild monkey sex on the kitchen table after a drunken night at the dock bar. They are here now and your life is going to change. You made them and it's your job to mold them.

It's not always easy. We all have those nights where you come home after a shitty day. The market took a crap on your portfolio, you biggest client wants to know why they don't own latest piece of shit.com and is talking about taking his account to Goldman Sucks. You firm made the front page of the WSJ and not in a good way. The SEC called and by the way the audit is tomorrow. You assistant discovered the joys of cocaine and disappeared with all copies of your presentation to the largest pension fund in the area. You just want to sit back drink some scotch, watch some mindless TV and forget the damn day.

Tough shit pal. The algebra has to get done and the whole concept of this damn solve for x thing is not penetrating your daughters brain. Your son has a report due on Tom Sawyer and wants to know if he can watch it on DVD instead of reading the book. They haven't had dinner yet and unlike you they do not live on beer and leftovers from the diner. And by the way the pinewood derby race is this weekend and that block of wood on the table is probably not going to perform well with no wheels or decorations. You can relax some other time, say in 10 or 15 years.

There's more to it that that I am afraid. If you are going to do this right they have to come first much of the time. That trip to the Keys is out of the question if it coincides with the little league tournament. That dream job in New York is going to be delayed if the ex has custody and lives in Peoria. That date with the hot chick you met at the bar will have to be cancelled if someone has a fever. You can still live your life but you will have to make choices and modification along the way. You made em, you raise them.
I have one key to raising kids that has served me well over the years. You have to love them. I don't mean hugs and kisses and all that crap as nice as that is. You have to love them enough to tell them no early and often. No they cannot have jello and chips for breakfast. No they can't say up to watch Charlie Sheen's new show. No, they cannot leave the house dressed like that No, they cannot do their homework later. No they can't go hang out at the mall with all the budding trailer trash and lounge lids from school. No they can't take the car tonight.

You have to love them enough to be the bad guy. In my general experience Moms suck at being the bad guy. No matter what is going on with your ex or how much you wish she would run off to the far corners of hell with her biker tennis pro boyfriend she needs to be able to scare the shit our of your kids by threatening to call you. You need to love them enough to hop in the car and go over spank their little asses or ground them for eternity to whatever it takes to restore discipline. You and your ex can hate each other on your own time. When it comes to the kids you still have to fill the dad disciplinarian role.

You need to love them enough to let them fall and stumble. Mom can kiss their boo-boos. They are good at that. Unless there is vomiting or stitches involved dad needs to get them brushed off and back in the game. Teach to take the bumps of bruises of life and get back up. Its dads job to teach time how to overcome setbacks, that broken hearts don't last forever and that pretty much everything can be overcome if you want it bad enough.

Love them enough to be an asshole. You know, the asshole that turns off the TV and kicks them outside on a nice day. The kind of asshole that puts passwords on the computer and won't let them have an iPhone until they can pay of it themselves. Be the kind of absolute asshole who makes them contribute to their first car and pay their own insurance. Be the unbearable bastard who grounds them for anything less than honor roll. Be that dad who won't let them read the cliff notes or watch the movie, the one who just doesn't give a shit what Susie and Johnny s parents let them do. Set your standards and be enough of an asshole to hold your kids to them.

As they get older it gets tougher because you have to hold your own instincts in check enough to let them trust you. Your kids will experiment with sex, drugs and booze. They will make some incredibly stupid mistakes and questionable decision. In other words there is a very good chance that your teenagers will do the same type of stuff you did. If your kids trust you and can talk to you without a self-righteous angry response perhaps you will be able to guide them through these difficult years. If you're as lucky as I was your kids will do only a fraction of the truly stupid shit you did at their age.

It is not all being the hard ass tough guy. You have to take time to play with your kids. Wrestle with them, tickle them until they pee. Take them outside and teach them to throw a baseball. Teach them chess and checkers. Go to all the little league games and dance recitals you possibly can because as big a pain in the ass as they are now they will be big memories for all of you later in life
Fatherhood is not easy. It takes effort, concentration and balls the size of your average wild alligator wrestler. Some of the stuff you thought you wanted is going to have to be set aside. I have had to make a lot of choices and decisions over the years that would have been no brainers if I didn't have kids. I do not regret a single one of them. The success of my kids and their happiness in life so far is proof that I made the right decision. As a result I am far happier with my own life.

When I look at my life so far I am more than satisfied with my legacy to date. I didn't cure cancer; I am not the biggest hedge fund a manger in the entire world. I didn't build any libraries or endow any foundations. I did play a part in bringing the world an honest hard working business man with integrity and a school teacher who is devoted to teaching your kids to read, to learn and to grow as individuals. Erin and I are working on bringing you a Pulitzer prize winning author who is also the world's most famous fashion designer in her off hours. I have done much in my life but if my only achievement was my children I would be proud to stand on my record. That's the secret of being a dad.

Now, I am off to stick the little shits with my bar bill for a change. Happy Fathers Day to all.



 We are well into the Triple Crown season with just one race left to go. It's been fun for me so far as based purely on the name I liked I'll Have Another early on in both Derby Futures as well as Santa Anita. Now we have a decent shot at a real Triple Crown winner as the horse is one of the better closers we have seen in a few years and the length of the Belmont Stakes should favor the him. We have been disappointed several times since Affirmed in 1978 so we shall see what happens in two Saturdays.

I have always been a huge fan of horse racing, racetracks and all the associated depravity. Some of my fondest memories of the past decade are the trips we used to take to Keeneland in Lexington Kentucky every year for the Bluegrass Stakes. Lexington is a town founded by Irish gamblers and is made to order for me. A diverse group of traders, investors, professors and other assorted ner' do wells used to assemble for a long weekend of horse racing and bourbon drinking with the expected adventurous and occasionally disastrous results. I guess we all outgrew the trip or just got to busy but they will be telling some of those stories at my funeral in fifty years or so!

I don't hit the races or even the poker table the way I did in the past. A combination of marriage, kids, getting older, and the end result of the earlier explained IRR have kept me from wagering and whiskey in the quantities of days past. I still follow the ponies however and am always cognizant of the lessons learned at many racetracks and card tables over the years. A day at the track contains lessons in statistics, psychology, marketing, and a host of other scientific disciplines. Many of these I have found to be directly applicable to the markets and to life its own self.

The track contains many of the elements of the financial markets. You have the touters and system developers who look for the answer and failing to find it sell their services to others. It was Tom Ainslie who pointed out how these systems develop in his book on handicapping. *" A longshot wins a race. A disappointed bettor consults his Form and discovers that the longshot had been timed at 36 seconds in a breezing three-furlong workout a couple of days ago. No other horse in the race had worked so rapidly so recently. Powie! A new system is born!"* How many of these have you seen in the stock market. Someone curves fit data to show that the winning stocks of the past had a particular characteristic or price pattern and a brand new newsletter and web site is offered to investors as the answer to all their problems and a sure fire path to short term wealth. In truth none of it works any better on Wall Street than it does at the track but selling easy answers to greedy people has always been a source of profits for stock market and horse racing system developers.

Then there are the people you meet at the track. You have the bleary eyed beer soaked despondent souls who pick up discarded racing forms to search for a long shot winner to just get them back to even so they can start over again. They won once and hit some exacta or trifecta bets, usually by luck and have been chasing that short term success for a lifetime of almost and faded in the stretch. There are those who offer an informed opinion on each and every race with all the certainty of the Delhi Oracle. They bet each and every race and brag of their fantastic winnings before hopping in their classic car (a 1988 Buick Riviera with balding tires and cracked windshield) to head off to their luxury furnished studio apartment with a spectacular view of the railroad tracks and oil refinery. The stock market is full of these folks as well. The oracle of the last market cycle and the expert who never loses are everywhere on Wall Street and I am never sure if their hearts desire is to get to the winners circle or just drag as many others into their pool of disgrace and desperation as possible. Whichever the case, they are to be avoided in life, at the stock exchange and along the rail.

 At every track I have been into in my life you can always find a few gentleman, usually older who sit through the race scribbling notes in their racing form each and every race. With the exception of perhaps a close friend or two they do not talk to anyone else or engage in the tip sharing and" who da ya like?" camaraderie of their fellow rail birds. They watch, take notes and perhaps sip a cold beer, or more likely a coffee. They wander off to the paddock before each and every race and the vast majority of the time they return to their seat to scribble some notes without bothering to place a bet. On rare occasions they get up, go the window and make a bet. These are the ones who have figured out the game. They only bet when they see an advantage and are more likely to fly over the grandstand than tell you how they derived their advantage. This is similar to investors who don't see the need to trade every day and only pull out their wallets when they have an edge and prices are favorable enough to offer a high probability of long term investment success.

One such astute gambler was among the best of them all. Pittsburgh Phil had a distinguished and successful career as a horse bettor. He once said *"Playing the races appears to be the one business in which men believe they can succeed without special study, special talent, or special exertion."* This is the case in the markets as well. So many people sit down and read a book or look at a chart and think that they, of all the speculators, traders and investors who came before them, have figured out the answer to market success. They do not study, research, or test and care little for other opinions. The worst thing that can happen to these people is initial short term success that makes them even more confident in their flawed opinions. Eventually the all go spectacularly bust. If this was easy everybody would be rich.

Phil, whose real name was George Smith also once said *"Know when to put a good bet down and when not to." *This is not only the best advice for horse gamblers but stock investors. Just because the window is open does not mean you have to get in the action. Patience pays at the racetrack and in the stock market. Just because they open the casino down at Wall and Broad does not mean you have to trade. Once a year or so you will get a steep decline in stock prices that carry 10 to 15% lower. Every few years you will get a gullywhumper of a selloff and prices will fall 20% or more from the highs. That's when you want to invest your cash. Keep in mind the excellent advice not only of Pittsburgh Phil but Henry Clews in his investing classic, 28 Years on Wall Street as well. *"But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellow will be seen in Wall Street, hobbling down on their canes to their brokers' offices. Then they always buy good stocks to the extent of their bank balances, which have been permitted to accumulate for just such an emergency."*

 When I was a more frequent visitor to the track I used to look for horses that were stepping down in class in a race. I looked for a horse that had run middle of the pack races in higher dollar stakes race and are now stepping down a bit. If I could find a horse in a $50,000 stakes race that had run a few $100,000 races and had placed third or fourth I was interested. Racing against lesser competition the horse had a strong chance of running well and the past performance figures against better horses usually gave longer odds than should have been the case. The biggest ticket I ever cashed came from finding two of them in one race and hitting a badly underpriced exacta. It also provided a pretty steady diet of simple win tickets over the years. To me this is a lot like buying fallen angel stocks. Former blue chips that have had a reversal of fortune and fall into single digits have provided a fertile shopping ground for winning stocks over my career. It also applies to people. I am more comfortable being associated with someone who has fallen or failed and gotten back up to run again that I am with someone who has yet to taste defeat and disappointment. These temporarily blessed souls usually think it is their brilliance rather than circumstance that has so blessed them. When the fecal matter hits the the fan as it always does they are apt to become unreliable partners or friends in my experience.

If I was betting on a rainy day I always wanted to look for the mudder in the race. Some horses like Storm Cat just love the mud and run very well thought the slop. I have seen horses that need a taxi to reach the finish line on a dry day win by 10 lengths when the rain is falling and the mud is thick. This plays out in the stock market as well. Even in a crappy market and economy like 2008 there were some companies that will benefit from current conditions. In 2008 as the world and portfolio values sank like a well-ventilated submarine companies that catered to low end bad credit consumers did very well. AaronRents, Dollar Tree, Wal Mart, Family Dollar and others that catered to the broken consumer saw their stock prices do very well. Last year it was energy stocks and companies that sold to a resurgent upscale consumer that ran to victory in a flat market. In every economy and market condition there is a group of companies that will benefit and buck the trend.

There a lot of comparisons found at the track that apply to markets and to life. That sleek looking thoroughbred that goes off at short odds may win a good percentage of the time but if you bet him every race he will take your wallet for a ride. He will do well for his owners but gamblers will go broke betting short odds. The same can be said of buying high growth issues at very high multiples and trophy wives. The feisty little colt at long odds that has run well in the past but is under bet can make you a fortune. So can stocks that are experiencing temporary difficulties or just ignored by the investing public. The stunning high maintenance slut queen at the bar may attract all the attention but it is the good looking smart quite woman in the corner that will make you happy man for decades of life. Flash and short odds does not reward in any endeavor as does substance with a high payout.

I love the race track. Not only is it enjoyable and some of the best people watching you will ever experience but you can gain an MBA in Investing and Life $2 at a time.

Sam Marx writes: 

But how does one overcome the 17% edge that the track has?

The stock market vig was high in the days of fixed commissions but now you can have the edge in certain markets such as options especially options that are traded with a penny spread. 

Tim Melvin adds: 

The article is not intended to suggest one make their living at the track. Merely that there are lessons to be learned that may be applicable to markets and other areas of life…

Stefan Jovanovich comments: 

Tim's wonderful piece is better advice than some of us deserve. At the risk of being one of the beer-soaked wretches who used to hang on the rail at Hollywood Park, I have a "fallen angel" tip for the $2 bettors that even meets Tim's ''fallen angel" criteria: AMAT. And, if you want to make it a 2-horse parlay, add KLAC. The foundry business is like coking coal in the 19th century– ugly, unattractive and essential, as Mr. Carnegie and Mr. Frick well knew.

Sam Marx writes: 

From my experience of going to the track, always with a friend who talked me into it, I found interesting characters and observations there.

But I never bet there, even at the $2 window. Same with slot machines at Vegas or A.C.

Logically I know that a $2 bet would've given me something to root for, increasing my enjoyment at the track for a small amount, but my aversion to betting when the edge is against me is almost of a religious intensity.

To learn about markets and trading psychology when young, I'd recommend the stamp or coin market. If you know your markets there and try to avoid having the urges of a collector but as a trader and buy at close to wholesale prices, you'll do well.
Tim's piece was a very enjoyable read but I don't think horse players are the best source for learning about markets.




 The Upas tree was a terrible tree according to Erasmus Darwin that was so poisonous that it was able to destroy all life of any kind for 15 miles around it. Who and what are the Upas trees of the market?

I would say that Madoff and Abelson and the conglomerates and real estate slumps are Upas trees, and in increase in rates, perhaps the first change in direction is also quite lethal. The signal of unbridled interference and flexionism galore as in October 08 would also seem to be a curse. The lyrics to "I've got a little list" from Mikado go through the head. The hoodoo, the parson and the albatross from O'Brian go through the head as does the report "there's a little shadow on this x-ray. Probably nothing to worry about."

What would you add? I would like to say Buffett but I refrain.

Victor Niederhoffer adds:

 One Upas tree regularity is the tremendous move against the weak player when he she one is being squeezed out of position. The MF, the Societe General, and the Thailand moves are examples of that. One wonders what the other side of the coin is. What are the apple trees of the market, the benevolent things that cause it to go up. The book "The Man Who Planted Trees" is a very good one for all to read describing how a French man who planted apple trees brought a village to life from death by first stopping erosion. And then providing shade and food and respite from the heat. The oak tree is also a benevolent tree providing food and shelter for countless species and Cervantes mentions the cork tree "whose benevolent fruit provides shelter for beauteous maidens without any thought of its own welfare". What other trees? What's good for the market. Many of the things that are good for the market are bad in the short term but good in the long term. Like a decline in oil prices. The prospect of a decrease in the service revenues is also very good. What are some benevolent and some more destructive things for markets?

Tim Melvin writes:

High junk bond defaults that clear the weak players and reallocate assets to stronger hands come to mind as a short term negative that is a long term positive.

Laurel Kenner adds: 

Obamacare and Dodd-Frank are the two worst and most dangerous pieces of legislation ever introduced into the American field, and have the potential to turn into giant ruinous Upas trees. They are only shells for unknown future rules put into effect by people whom neither the electorate nor Congress will be able to control. They have no sunset, no funding limits, and no restraint on their bureaucracies. 

Steve Ellison adds:

 I would nominate an inverted yield curve. An inverted yield curve pinches the flexions' net interest margins. 6 of the last 40 years began with inverted yield curves: 1974, 1979, 1980, 1981, 2001, and2007. None of them were good years to be an investor in stocks.

Kurt Specht comments:

European debt concerns and related debt market convulsions are frequently sited as short term drivers of overall market action.  

Ken Drees adds: 

 I was about to opine about the benefits of the upas, even something so deadly has good parts and then I tried to fold that into a Madoff or an MF Global and couldn't come up with any quick relationships of how a bad market tree can bestow something positive other than a lesson to be learned. Other than a lesson to future investors, sometimes positive regulation comes out of these dark trees.

From wikipedia

It is a fairly low source of timber and yields a lightweight hardwood with density of 250-540 kilogram per cubic metre (similar to balsa). As the wood peels very easily and evenly, it is commonly used for veneer work. The bark has a high concentration of tannin which is used in traditional clothes dyeing and paints. In Javanese traditional medicine, the leaves and root are used to treat mental illnesses. In Africa and other Asian nations, seed, leaves and bark are used as an astringent and the seeds as an antidysenteric. Most famous to Africa and Polynesia are the strong, coarse bark cloth derived clothings- which are often decorated with the dye produced from the bark tannins.

The plant is often grown purposely for shade or shelter around human dwellings as it provides excellent dense shade from the tropical heat. The leaf litter is an excellent compost material and high in nutrients- often spread around local gardens, which must be grown distant to the antiaris due to its extremely dense canopy.

Recently, the plant had allegedly been used by retired Tanzanian pastor Ambilikile Mwasapile to allegedly cure all manner of diseases, including HIV/AIDS, diabetes, high blood pressure, cancer, asthma, and others.

While found to be harmless to humans when boiled in accordance with Mwasapile's mode of creating a medicinal drink out of the bark, it allegedly was undergoing testing by the WHO and Tanzanian health authorities to verify whether it has any medicinal value. However, conflicting reports suggest that the plant in question is not indeed Antiaris toxicaria, but rather Carissa edulis.

Poison Humans have long used poison for hunting and warfare. Antiaris toxicaria is most famous for being employed as a poison for arrows, darts and blowdarts. In Javanese tradition, Antiaris toxicaria is used with strychnos ignatii. The Antiaris toxicaria latex sap has the active components of cardenolides (chemicals with cardiac arresting potential).

The latex, present in the bark and foliage, contains a cardiac glycoside named antiarin, which is used as an arrow poison called upas: Javanese for poison, but, commonly to the poetic (non literal) quality of many Javanese words has a duality of meanings- watchman, messenger and courier.

In China, this plant is known as Arrow Poison Wood and the poison is said to be so deadly that it has been described as "Seven Up Eight Down Nine No Life" meaning once poisoned a person can take no more than seven steps uphill, eight steps downhill or nine steps on level ground. A visitor to South Kensington Museum in 1881 noted a picture of a Upas tree and wrote in their diary 'a picture of the Upas tree the most poisonous in the world any one fall down dead before they can reach it.

Gary Rogan writes: 

It turns out there is a poem about this tree by the traditionally the most famous Russian poet:

The Upas Tree

by Alexander Sergeyevich Pushkin

Deep in the desert's misery,
far in the fury of the sand,
there stands the awesome Upas Tree
lone watchman of a lifeless land.

The wilderness, a world of thirst,
in wrath engendered it and filled
its every root, every accursed
grey leafstalk with a sap that killed.

Dissolving in the midday sun
the poison oozes through its bark,
and freezing when the day is done
gleams thick and gem-like in the dark.

No bird flies near, no tiger creeps;
alone the whirlwind, wild and black,
assails the tree of death and sweeps
away with death upon its back.

And though some roving cloud may stain
with glancing drops those leaden leaves,
the dripping of a poisoned rain
is all the burning sand receives.

But man sent man with one proud look
towards the tree, and he was gone,
the humble one, and there he took
the poison and returned at dawn.

He brought the deadly gum; with it
he brought some leaves, a withered bough,
while rivulets of icy sweat
ran slowly down his livid brow.

He came, he fell upon a mat,
and reaping a poor slave's reward,
died near the painted hut where sat
his now unconquerable lord.

The king, he soaked his arrows true
in poison, and beyond the plains
dispatched those messengers and slew
his neighbors in their own domains.



 Walter Schloss died yesterday a 95. he was one of the true great investors with compound returns of above 16% net of fees for an astounding 47%. He and his son Edward practiced true value investing buying book value bargains with little or no debt and holding until they worked. By all accounts a true gentleman, genius and humble man. I always tried to meet him when I was in the Tweedy Browne offices where he hung his hat but he was semi retired by the then and his desk in the corner was never occupied when I occasion to be in the old Vanderbilt Avenue offices.

Stefan Jovanovich writes:

He was a great supporter of Freedom House; it is largely because of his influence that they had the courage to publish Peter Braestrup's book –at a time when no one else in New York or Washington would touch it.



 Okay I will say it. This whole Valentines thing is one whacked out holiday. In fact although am sure I will get in trouble for saying it, it is f*&^ing ridiculous. We take some obscure Catholic saint and turn this into a windfall for candy and greeting card companies. Bars and restaurants love the holiday as well as they are either serving the left over shit in the walk in as a high priced prix fixe dinner for lovers or serving drinks to singles who were fine yesterday but now incomplete because they haven’t found their Valentine yet. Of course we excel at making stupid holidays out of nothing don’t we? Take St Patrick’s day, again a minor saint, whose feast day is used to prove that all races, religions and ethnic groups can puke green beer and rail Irish whiskey just like a real Irishman. Cinco de Mayo is another great one where we all drink beer made in St Louis in a brewery owned by a European company to celebrate a minor victory by the Mexican Army. For gods sake they beat the French so its not like they even beat a real army. But we do excel at producing a holiday from minor stuff and turning it into a celebration of excess. But Valentines Day takes the idiotic stupid f*&*ing holiday crown.

It is not enough for all of us to take this day and force romance on our partners to the point where the search for the perfect card of gift becomes so stressful we don’t love anybody by the time its done. No, that is not enough. We take all this stress and pressure and shove it down our kids throats. My poor wife sat at the table last night stuffing treat bags and valentines cards into bags for her daughter to give to the 30 some kids in her class. We take this day and use it to teach our kids how not getting a card from some kid you wouldn’t say hello to yesterday can ruin your whole damn day. They give little cardboard love notes to other kids, many of whose last names they could not spell on a bet. Your entire social standing becomes related to what kind of cards and candy you give. Just to make sure its not exclusively painful to the kids they send us home notes to bake cookies and cupcakes for the absurd over the top unnecessary celebration of a day none of the poor kids even begins to understand.

 It's not that I hate romantics. I guess it's for my wife to judge at the end of the day if I am romantic or not but I like to think so. I come across as a cynic at times but I often take an overly romantic view of the world. I love sunsets, soft jazz and walks on the beach and all the other stuff that is thought of as romantic. I love the romantic moments of life, I just am not sure they should or can be scripted or scheduled. I am also aware that romance is one of those things that needs to be practiced and appreciated every day of your life or it doesn’t mean a hell of a lot. If your courtship of your spouse or significant other comes to down to one frenetic day of searching for the perfect combinations of mylar balloons and recycled greeting cards you have problems deeper than the special dinner at Mel's diner is going to fix.

Yes, romance is sailing ships and knights in shining armor. It is magical kisses under the moonlight. It's dinner on the beach at Casa Marina in a soft Caribbean breeze. Romance is shimmering moonlight on crashing waves and wishing upon a late night star. Romance is dawn in the keys at a little motel on the beach. It is candlelight and roses with Mozart softly in the background. It’s all those things and more.

But romance is far more than that. It is not stabbing your husband in his sleep when he snores. It is walking your wife’s dog although you are ambiguous on dogs in general and vehemently opposed to picking up steaming piles of shit first thing in the morning. It is taking your turn with the crying child in the middle of the night. It is letting your husband sleep in even though you have been up since six am and cant for the life of you understand how that lazy bastard can sleep until 9:30. It is making the coffee the night before so it is ready when your significant other gets up . Its Mac and cheese for dinner because there is a recital at the school and only half an hour to get ready. It’s not getting too mad when he stayed at the bar far longer than the game was on. It’s an oil change in your spouse’s car. It is loading the dishwasher. It's sharing the remote. Romance is all the moments of all the days you spend together living and enjoying life. It is all the little things we do and say each and every day to let our partners know they matter to us and we care about their day, their life, their thoughts and feelings. Romance can be magical moments frozen in time .It is also the everyday lived in the moment with each other. I do not need Hallmark to remind me to tell my wife I love her. I try to find some way every day to show her. That is romance.

Of course I participated in the day. I love my wife too much for her to have to spend the day explaining that her cynical mean ass husband doesn’t give a rats ass about Valentine’s day. I sent flowers and a teddy bear to her office. I was going to make a special dinner but true to her Texas roots she requested steaks on the grill. I will love our evening together. But I will love our evening together tomorrow when there is homework to get done and the dog is chasing the cat to hell and back, the dinner dishes need to get done, my daughter is cheating at words with friends again and I want to watch Finder but my bride is hooked on the Food network just as much. Moments are nice. Life is better.



When the market gets going in one direction like it has lately I usually get a bit frustrated. Not so much because I am losing (I have given up trying to pick tops and bottoms when there is anything beyond my opinion at stake) but more just because the market has such a propensity to go to extremes and it is hard to handicap extremes. Usually I swear off shorting and make general untested comments like “buying over the long haul is the only way to go” right before a big reversal.

I decided to test this phenomenon by looking at the close/open change in the SPY from 1/2000 to end of Jan 2012. I found the average result was -0.01%. Max was +8.43%, min -8.99%, st dev 1.16%. Of the 3039 days, 51.5% were up. I found this to be interesting because the distribution was fairly normal. This could all be a function of the central limit theorem (CLT) but regardless of reason, sort of renders my conclusion that it pays to only go long wrong. As an aside, it is interesting to consider the CLT as a trading device, I do not believe it can be proven wrong over enough observations and time—solvency remains the concern.

Anyway, I next examined the calendar years and found that there are biases within years. They are subtle but they exist. More evidence of the CLT causing the near zero expectation over the long haul. I drilled further (weekly/daily) and found more biases.

Looking at it this way, I would say that it pays to be both long and short, the distribution is approximately normal over the long haul and therefore there is no great bias to long vs. short. The frequency goes to the longs but the magnitude advantage of the shorts renders the longs neutralized. On shorter horizons the biases become more evident. If you can pick the sub periods correctly, you will outperform.

But stepping back, I look at it another way. If I go long every day I would be down very small. If I go short every day I would be up very small. If I go long and short my outcomes vary. If I hit every day correctly, I will drastically outperform. If I hit every day incorrectly, I will drastically underperform. Given the distribution is normal, the expected return of batting 50/50 with a long/short approach is about break even.

So while the simple math indicates I am equally benefited in being long or short, the reality is I have to be right. Therefore I believe it may make more sense to just be directionally biased. Over time the central limit theorem will bail me out. If I use counting or fundamentals or value or common sense or some combo of these I can likely find more opportune times to be in/out of my directional play, upping my chances of success with a CLT kicker. Adding a trailing stop would likely help. I could, in theory be directionally biased picking every single day wrong, but the odds of this generally seem less likely than getting chopped up being long/short. I have not quantified this however.


Rocky Humbert writes: 

Without commenting directly, there are two big things you didn't mention:1. Convexity. This is a fancy way of saying that, stock prices cannot go below zero. But they can rise infinitely. This may seem like a nonsense statement, but I raise it because you raised the central limit theorem. If the stock market is truly and completely random (and has no long term drift), if you play a monte carlo simulation long enough, the S&P will print at a price of 0.0000000001. It will also print at a price of X–>infinity. Hence, there is a clear mathematical benefit to being long versus being short, ceteris paribus…. because the sum of infinity and zero is a BIG positive number … 2. Cost of carry. Again, assuming that there is no drift, when the risk free rate is substantially below the dividend yield, there is a (perhaps illusory) bias to holding long positions. When the risk free rate is substantially above the dividend yield, there is a (perhaps illusory) bias to holding net short positions. And, unless you are always 100% long or 100% short, there is also the cash yield on uninvested cash. Perhaps some other specs have studied the market behavior when stocks have positive/negative carry — I haven't. However, it's generally accepted that a substantial portion of the return in stocks is attributable to dividend yield, so this should be considered. To repeat, I'm not directly responding to your question. I'm pointing out two considerations that you didn't mention.

Tim Melvin writes:

While not the worlds greatest math or stats guy I think your test period may be giving you information that becomes less true with time. The period you use has two major market crashes in less than decade giving more bias to the short side results than you might have gotten if you studied 1988 to 2000. if you believe the next twelve years will look like the last 12 in terms of market behavior and volatility then you study holds up well if it doesn't then perhaps not so much…

George Coyle responds: 

Interesting point Tim and Rocky. When I graduated college (2000ish) it was a forgone conclusion you could expect the stock market to return 8% or so a year, year in and year out (well over a horizon at least). The last 10 years have proven otherwise. Ever changing cycles. Would be interesting to study the impact of generally accepted academic market conventions and what happens in reality once they become doctrine. Hard parameters to concisely define though.



 There's a kind of dance that the 20s do these days where they move forward with high kicks and movements first forward and backward "honey I need you" "no, go away, get a job". The kids tell me it's a Beyonce song: "All the Single Ladies" that has a chorus "if you want me, put a ring around it". It is so reminiscent of the market vis a vis 1300 the last week. First it goes down to 1302 than right back up to 1315. Then back down again and up. 5 times. Once it actually gets in the house at 1296 but no action there as it gets thrown out at 1030 to get a job, that's yesterday. Where its close at 1309 only to go back to 1302.5 before closing unchanged yesterday. I'm told it's called free style dance, a combination of rap and rhythm and blues where the man tries hard to get in but the women constantly gives him a little opening and then turns him out until he can show the car and house and job and gives up the ho.

This is to the point but there was a lot more coming forward and being pushed apart like magnetic poles in the ones I saw at Rand's wedding.

Tim Melvin comments: 

Sounds like the line dance we used to do to Paradise by the Dashboard Light at weddings and parties

Of course, as that song points out, often getting the "fill" you so ardently desire and work for is the worst thing that could ever happen.



 What do we regret as we lie on the proverbial bed awaiting the last gasp that marks our passing from this realm? It is a great question and one I have spent some time thinking and reading about over the years. How do we live our lives to minimize the regrets as we anticipate the end of our earthly experience? Is there some magic formula we can all use to make sure that we pass this live with as few regrets as possible?

A few years back I read an interview with a hospice worker on this very subject. In her many discussions with those about to pass through the door of life she found that most people regret the things they did not do far more than the things they may have done. Regardless of their crimes and misdeeds throughout their life their regrets were about not taking that trip, not kissing the girl, not chasing their dreams and not being who they wanted to be as they took their journey.

It is quite correct to point out that the whole wishing you spent more time with family and friends and other greeting card sentiments is probably a cliché of sorts. While there are not many headstones that say I wish I spent more time at work it is also true that very few of us actually pick our own epitaph. I am quite sure that many do pass those last hours wishing they had been better husbands, wife's and parents. I am also sure many spend their last hours wishing they had done more with their careers, their business and professional life. We are all different and as much as we live different lives we will have different regrets as we approach our individual deaths.

The real regrets come from the fact that far too many of us do indeed live lives of quiet desperation. We are born, go to school, get married, have a family, get divorced, work at jobs we hate, raise kids we don't understand, settle for less than we dreamed and do what we think we are supposed to do along the way. Our lives get shaped by television and pop culture and we drift along on a sea of conformity and apathy. I see it every day and I am sure the rest of you do as well. We all start out with dreams, hopes and desires and somewhere along the way let go of them to get along as best we can. I have yet to talk to a recent college or high school grad who told me they were going to get a job they hated, have a couple of kids who would stop talking to them in twenty years, spend thirty years drinking bud and watching Survivor reruns before dropping dead mowing the lawn in a house they hate while their ex-wife spends their hard earned retirement funds on a cruise to Cancun. I have however talked to a lot of folks my age whose life has played out exactly that way.

 How the hell does this happen to us? We start out full of fire and hope. I never met a lawyer who planned to spend his years getting his soul crushed as a mid-level associate or a doctor who planned to spend a few decades doing colonoscopies at the VA clinic. We all want to change the world, to get rich, to create great art and chase big dreams as we start of the path of adulthood. None of us start out to become what so many of us do.

Little boys dream of being the star center fielder and or the hot gloved third baseman with the big bat not the backup utility infielder. Little girls want to be the prima ballerina or the singing star with the big hair and bigger voice, not the back up chorus singer. We all have the big dreams and hopes as life begins. That of course is much of the problem. We cannot all be the star we hope to be. If that was true I would currently be managing the Orioles after a long career as the much loved replacement for Brooksie on third base. I am not. I love baseball but I am about as athletic as a door stop. Never mind a curve ball I couldn't hit a little league non fastball. Cant sing, cant dance and the only thing I can do with a paint brush is make a mess. I was never going to be a star ballplayer or artist no matter how much I dreamed.

This can be crushing. We get into the world and find out bills need to be paid, food costs money, bosses will work you into a nub of yourself without so much as a thank you or a f you. The world does not care about you or your dreams and no one was sitting around anxiously awaiting your arrival on the scene. You take a job to get by and next thing you know you are sitting in La-z- Boy bud in hand noticing that the only thing more absent than your hairline is your happiness. It is too easy to let live dictate you instead of you dictating life. You have to be vigilant to protect your passion and your dreams.

I can dream with regret of not being the hot handed third baseman and the world's greatest baseball manager or I can love the fact that I can be a fan and sit in the stands on a summer day with a cold beer and a scorecard. I can bitch and moan about not going to college and maybe going to work for Goldman Sachs or even better the New York Times or I can love the fact that I am a pretty good writer and decent manager of investments and have managed to build a life around those two facts. I can spend my days wishing this or that or I can love what my life is and the fact that I have chased my dreams and made pretty good headway towards achieving parts of them.

Often life is just not going to go the way we want and wish. This does not mean that life cannot still be magical and absent of regrets for the most part. Even if life has forced you into circumstances you never wanted and instead of being the accountant that saved the world you are an IRS auditor does not mean that all the things you love and desire about life are gone. IRS auditors can still listen to Beethoven, watch sunsets, fall in love (just not with my daughter please) and appreciate the beauty of life. Just because you are selling Fords instead of driving one to victory at Daytona does not mean that life is not capable of being a beautiful and wonderful experience. There are still books, knowledge, music, art, and other parts of life that can produce great passion and meaning.

 Life is precious and as far as we know we can only have one of them. We have to protect our passions and no matter what life deals out stay focused on what we love about living. We will all screw up along the way and it is probably not going to work exactly as hoped as we crossed the stage to pick out diploma. That does not mean we need to just lay down and accept what comes along the way and miss out on the adventure. So having kids kept you from going to Tibet and contemplating the navel of a Yak in search of the world's great answers. You can let that beat you back into the chair and take in Snookies latest adventures or appreciate and love the fact that you have the chance to mold the spirit of adventure, love of beauty and learning in your kids and share the adventures with them as they grow. So you are not Clarence Darrow and the superstar of the legal world but to those you help on a day to day basis you just might be.

The problem with many of us is letting fear dictate our actions, or more accurately our inactions. Just because we got divorced or had a bad relationship does not mean we should harden our hearts against the possibility of love in the future. Just because our Fried Liver Chips franchise idea failed does not mean we should never explore another opportunity. If your first novel is rejected you have joined than ranks of just about every author who ever lived and it's not a reason to set down the pen and turn on the TV. If you are not the star learn to appreciate and live the fact that most people never even make it to the chorus. Chase you dreams, your passion and enjoy where it takes you. Life will give you a lot of choices and paths along the way. I promise you life will give lots of chances to just quit. You will not be able to hit the curve ball. You voice will sound like amplified sandpaper scrubbed on cement. You will not promoted to department head. Someone you love will not love you back. It is not all going to go your way. It will be easy to quit. If you do you will spend those last days and hours thinking of all the things you did not do and struggling to remember who was the last one voted off the island.

 I think the key to no regrets is to embrace the romance and beauty of life and to chase your dreams and your passions. You may not get all you want but there is a good chance you will get the life you want. Read the book, turn up the music, kiss the girl, take the chance. You will win some, you will lose some. But the dream come true really is the journey and adventure of it all. Don't, as they say, sweat the small stuff because its all small stuff. If you want to spend more time with your family then do that. If you want to spend more time building your company, then that's how you should spend your time and energy. It is your life. Live it. Then perhaps you can be able to die without regretting the choices you made along the way



I call your attention to this article:

Risk on the rise as political leaders give in to mob rule

By Ray Dalio, President, Bridgewater Asssociates Inc.


[link requires registration]


We are in the midst of a deleveraging, we are nearly out of [fiscal and monetary] ammunition and we are at each other’s throats. … being at each other’s throats is our biggest problem.

[In such situations ] frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

Matthew adds:

Mr. Dalio recently appeared on Charlie Rose . [37 minutes].

Tim Melvin writes:

This much publicity is inevitably followed by "bad things".

Philip J. McDonnell comments:

I agree with Tim. The tone of Mr. Dalio's screed is strongly doom and gloom.

I am guessing he is bullish though because he urges cooperative action.




A good friend of my daughter asked me for advice on the best way of winning a man's heart on a first or second date.

I told her to use the Jennifer Flowers Gambit (the surprise erotic interlude when stopped on a drawbridge) or the Lee Raziwell gambit (listen intently to everything he says and ask about his expansive greatness), or the Leona Helmseley Gambit (pretend that there is another suiter waiting for you that evening so you have to leave at 11 pm as nothing inflames a man more than competition) but I feel that others here are more sapient in this area and others and I  would appreciate your insights.

An Anonymous  writer comments: 

My conclusion is that the number one sign of a good long term relationship with a woman is based on the quality of her relationship with her father.

I am basically engaged to be engaged with a woman, and the emotional commitment on my end happened after a dinner where much of the conversation was her describing her relationship with her dad, and how he helped her with her math and physics homework, and then they would walk to the store for a treat, etc, and just the general way that her face lights up when talking about her dad.

So anyway, that's what worked on me. Perhaps she should try it.

/my 2 cents

 Gary Rogan responds: 

This sounds like good advice and the father thing is pretty well-known, but I'm just amazed that you have made some conclusions about long-term relationships after having dated women in around ten countries over two years. 

 Pitt T. Maner III comments:

Well then there are some who base decisions and strategies on a few minutes of observation. The HFT of the dating scene—your most important impression—the first 3 seconds!

 José Bonamigo shares:

From Forbes Magazine:

The mating practices of human beings offer a reason for thinking beauty and intelligence might come in the same package. The logic of this covariance was explained to me years ago by a Harvard psychologist who had been reading a history of the Rothschild family. His mischievous but astute observation: The family founders, in 18th-century Frankfurt, were supremely ugly, but several generations later, after successive marriages to supremely beautiful women, the men in the family were indistinguishable from movie stars. The Rothschild effect, as you could call it, is well established in sociology research: Men everywhere want to marry beautiful women, and women everywhere want socially dominant (i.e., intelligent) husbands. When competent men marry pretty women, the couple tends to have children above average in both competence and looks. Covariance is everywhere. At the other end of the scale, too, there is a connection between looks and smarts. According to Erdal Tekin, a research fellow at the National Bureau of Economic Research, low attractiveness ratings predict lower test scores and a greater likelihood of criminal activity.


Best regards from Brazil


 Gary Rogan inquires:

 After a while this degenerates into just socially dominant and not necessarily intelligent men. This modified effect can be readily seen in the Charles/Diana coupling, at least in the older Prince William. Of course how did Charles come about if the theory is correct? 

 Stefan Jovanovich comments:

Trusting Forbes magazine on stories of family history is more than a bit like buying a Degas ballerina sculpture from Toby Esterhase's Soho gallery. The notion that the 5 founding brothers were "supremely ugly" is part of the standard viciousness of the portrait of the Jewish banker as Shylock that survives to this day. There is no evidence of any special ugliness in their portraits.






The Rothschilds married money - the Ephrussis, the Guggenheims and the Oppenheims. One suspects that, as in most things, the question of beauty was left to the beholders.

In the 19th century the great minds were certain that criminal behavior could be predicted by examining the bumps on people's heads. It should hardly be surprising that we are back to estimating future viciousness by measuring the asymmetry of human features.



 Jim Wildman comments:

I would say that she can't on the first or second date. Winning someone's heart in a deep, lasting way, takes time. Anyone can fake interest for a while. What about when she is sick? When he is grumpy? When life intrudes on the lovers? Are their hearts still connected?

Granted, I haven't dated anyone for over 3 decades, but I have watched 3 daughters struggle with guys..

 Marion Dreyfus questions:

My question:

And some may find this offensive–

Does the ubiquity of pornography, specifically for the ones who purvey it day and night (I understand that equals a LOT of the male population), make falling in love with and making love with real women –including the physical aspects of affection–much more difficult than it used to be before every late-night channel offered a raft of such virtual substitutes for real relationships?

Rocky Humbert comments: 


(a) Korean BBQ. Nothing excites a man more than watching a lady handle chopsticks amidst an open flame. Alas, times change. Woo Lae Oak has gone out of business. http://nymag.com/listings/restaurant/woo-lae-oak/

(b) Take whatever advice a parent provides, and do exactly the opposite.

(c) Que Sera, Sera

(d) http://www.datingish.com/695368212/how-to-win-your-guys-heart/

Score 1 point for picking the right answer. Deduct 1/4 point for picking the wrong answer.

 Bill Rafter writes:

When you are fishing, you need to match the bait to the fish. Striped Bass like clams, but Bluefish and Flounder will eat anything, so you might as well use bunker. Think of it this way: a young lady would wear one kind of dress on a date and a different dress when meeting the young man’s mother.

If a man is 25 or younger he is probably only interested in one thing and he is not looking for lasting qualities. Not that there’s anything wrong with that. The interlude on the drawbridge is something he will never forget. A woman with an interesting job is attractive as long as it does not threaten him.

At some time the man starts to look for additional qualities in a mate. Maybe because of pressure from his parents he starts to think of having a family. Then he starts looking for someone who might be a good wife and mother. A schoolteacher is attractive in this case.

In foods, women are attracted to chocolate whereas men are attracted to cinnamon.

 Tim Melvin writes:

I told my daughter in response to a similar question that anything won so easily or quickly likely had little value in the long run. She should be herself at all times and the man who liked and fell for that woman was likely a better match. I taught all the tricks her old man had used over the years to win fair lady specifically so she could avoid them.

 Jose Bonamigo responds:

My intention with the Forbes extract was not to present solid evidence, just a likely explanation for couples like Charles and Diana (a common combination), as Gary pointed out.

Looking at the portraits it seemed to me they were "regular" uglies (just kidding)…

For a more scientific approach, at least in the physical part of dating:





 How I have missed you. It occurs to me after a few days without power that nothing in our modern world works without electricity. I suspect power generators are much more valuable than the market gives them credit for.

Henry Gifford writes: 

Electricity is priced in a strange way, and generally thought by many to be heavily subsidized.

Roughly described, the utility company is guaranteed a % return on investment, so once a wire or power plant is paid back, it is "a sunken cost" and carried on the books as worthless.

Residential customers pay only for buying and transporting electricity they use, and for political reasons pay nothing for unused infrastructure. This is a little like telling a taxi to wait by your door all year because you might want to go someplace on New Years Eve, or you might not want to go anyplace, but you won't pay the taxi to wait at the curb all year.

"Commercial" customers pay a "demand charge" for the infrastructure capacity that is available 24 hours 365 days per year, but only fully used for a few minutes per year, often in the late afternoon in the summer, when everyone else wants it. The demand portion of the bill can exceed the electricity buying and transporting charges, and indeed many companies are in the business of helping large users shave their peak demand, sometimes by shifting it to a non-peak time.

One example is the 20+ companies in the US that manufacture ice storage tanks. Customers with large air conditioning loads make ice at night, when their demand is lower, then use the ice for cooling during the day, reducing their peak (daytime) electricity use.

Charles Pennington clarifies: 

We're categorizing water in three ways: drinking water, washing/cleaning the body water, and flushing-the-toilet water.

Sam's Club Diet Lemon-Lime Soda is a pretty good go-to for the washing/cleaning the body water. It's cheaper than most bottled water, and because it's "Diet" it has no sugar and is good for washing your hands. I guess it's not optimal for brushing teeth, but it won't be for long, I hope.



 Noted that ending the space shuttles will end 9,000 jobs. One man interviewed who is losing his 60,000 per year job hopes to start an internet business. I suppose the laid off will draw off unemployment and be eligible for federally funded job retraining and keep all health benefits and the list continues for miles. How will the 9,000 be crookedly figured in job loss and unemployment numbers ?



Tim Melvin writes: 

I was in South Texas last week and all the headlines in area papers are related to job losses and lost income form shuttle programs.

Btw those who would like a seaside vacation without the crowds but all the amenities of a great town would do well to check out Rockport/ Fulton area of Texas. It really reminds me of west coast of Florida twenty years ago…with a Texas flair of course. Lots of great mexican and bqq joints…. 



 Does the current global taxation rate, environmental focus, regulatory environment and other factors serve to actively discourage the type of innovation and production gains we have seen historically.

I think even the politically correct mode of thinking has to be considered ad a negative. Consider this. All of Galton's work would have been dismissed as the ramblings of a racist hate monger had he produced it today. His work on eugenics would have rendered all his other work meaningless in the eyes of the academic world. Much of the work done in energy innovation fits this classification. If it is not wind solar or another "approved" energy source all work is widely discredited and attacked.

Not taking a position yet, just thinking aloud.



My latest ramblings  on why most people should not go into the investment business and what to do if you still want to go into it despite my advice.



 One has to wonder why this whole "college is a waste of time" meme has suddenly become so prevalent. Is it because so many people have trouble with college loans? Too many writers who have nothing more to say about O's birth certificate?

Thinking one can predict the future based on what one does in the present is a persistent human foible. For sure a lot of kids go to college who don't need to. But is this truly something new? Would anyone sensible make a decision based on what they read about this subject? Unfortunately some probably will.

It remains to be seen how employers of the future will react to resumes that state "I am really smart but I didn't go to college because I read online that it was BS; but I really am smart."

One of my kids is 1/2 way through college and the other is just entering this fall– and I don't spend any time at all thinking it's a waste of time or money; it's been a path to prosperity in my family where none of the previous generation had any education past high-school (if indeed they finished that at all).

On the other hand my wife and I went to CUNY at a time where the cost was $35/semester. That's not a typo.

But I still wonder what's behind the impetus to discredit higher education?

Ken Drees writes:

I get the vibe that the intent is more of a cost justification issue. You don't send a kid to college who gets middle of the road grades and majors in marketing anymore. The job market out of college is poor and will continue to be poor. College now will set you back serious money as a percentage of household income and there will be serious debt burdens on the student and parents upon graduation. You can't put the college payments on the credit card or the home equity loan anymore.

I believe that a college bound child needs serious career planning up front, which is tough to do since kids sometimes do not know what they want to do prior to going off to the higher education arena. Like the union bubble which is feeling the backlash from the debt riddled state pockets empty reality, colleges need to step back, cut back, stop the pay raises–else enrollment is going to crater and the pie shrinks.

Victor Niederhoffer comments:

 A college education will always serve as a signaling device to employers and partners and parents that one is capable of being admitted under highly competitive circumstances and then has the fortitude to stick with the program, and finish the requirements, and the moral fiber not to have been kicked out. The signaling will always be of value and the rate of return from college should stay relatively constant.

Russ Sears comments:

Very similar qualifications could be said about homeownerships, commitment to paying a mortgage and good citizenship of being a good neighbor. When a persons limit to leverage has no bearing to what they could reasonably expect… many with nothing to loss will gamble with somebody else's money. This of course creates a bubble in some areas where there will be large oversupply of X degrees. For instance everybody will think in 2022, "what were they thinking taking forensic science and $100 grand of loans?"

The problem is when you use the argument that is it "should" be worth it to argue that everybody has a "right" to upgrade there lives. Further when you grant this "right" to any 18 year old capable of getting a high school degree you are bound to get many that should not have been given this privilege without working a few years and tasting responsibility. I still believe orginially there was a segment of responsible people that were granted sub-prime loans. These people however, proved to be the exception to the rule when everybody was given this right.The difference may be that those youth that are the sharpest will see the "bubble" within these areas and avoid them.

Could we be looking at the class of 2011? on a resume and subconsciously think what a deadbeat?

James Goldcamp writes: 

 I agree with chair's analysis of the signaling value of education, but one also wonders at what cost. I would find it hard to believe the return on invested capital has not gone down with both greater real costs and general degree (volume) inflation over time. It occurs to me that a rigorous self study program with standardized tests against which one could be compared might provide some lesser but nonetheless valuable signaling vehicle at 1/20th the cost of the current college education. Interestingly, one hire we had years ago was more known for his perfect SAT than his multiple Ivy degrees.

Thomas Miller writes:

This anti college education and anti home ownership "debate", seem to reflect a negative attitude that is growing in this country. The theme seems to be "dont even bother to go to college or strive to own your own home. it's not "worth it." just give up and settle for less." Of course college education or home ownership is not for everyone, but those that propagate these defeatist platitudes, (especially the ones that do it on internet blogs read by a large audience), are doing a great disservice to young people. "just settle for less" is not the attitude that made this country great. A generation ago, many that chose not to pursue college could get a decent job with benefits and be fairly sure of being able to retire from that job. There are very few of those jobs available now. The gap between those with a college degree and those without will continue to widen.

Russ Sears comments:

 I believe those that are "anti" college are saying take more risks start a business instead.

And for those that it will not turn out for the better, it's not good government to guarantee the loan. More responsible decisions will be made if they have to compete for access to loans like anyone else.

Ralph Vince replies:

I cannot speak for others, but I am not advocating a "give up," or defeatist attitude here. I speak with those who have children of college age frequently, as well those who ARE of college age frequently too. One of these day, I'm going to stop speaking to people who don;t take my advice (most people are incapable of taking advice, we simply have to learn things the hard way, and usually more than once)

I hear an awful lot of talk from all of these people that a college education is necessary to enter the American job market, as though it were a ticket to the dance, a means to an end as it were.

(I should point out in full disclosure I do not have a college education. I am self taught. When I decided I should learn math, I started with algebra, geometry, trig, analytic geometry, calculus, topology…..eventually stochastic differential equations, which is used (with near exclusivity) to model prices with (a nice target for a math track for someone interested in the markets, but I find these methods model prices with a degree of reality akin to Oz modeling Kansas). When I wanted to learn literature, I started with Homer, then Virgil….through to the 1950s. Of course one cannot study everything and anything, you have to make selective, intelligent decisions (which is where talking with others comes in) and someone must WANT to dispal their ignorance (and this is the key attribute, the acknowledgement of our ignorance and a desire to overcome that — whether formally educated or not).

The last time anyone ever asked me about my educational background was probably when Reagan was running against Carter.

So when I look at what people are learning, and WHY they are learning it, I DO come away in MOST cases with a "Why bother with that?" attitude.

So once we acknowledge that there are two reasons for edication:
1. To dispel our ignorance, and ultimately, to study material we are passionate about, should have such good fortune, and
2. To make ourselves, personally, a marketable product (i.e. posses a marketable "trade," be it electrician, brain surgeon, or truck driving certificate)

people can make better decisions. Unless they are fortunate enough to be a trust fund kid, they need #2. A mere college degree does NOT provide that — this is a wives tale that floats about America wherein a lot of money is being wasted in its pursuit.

#1 is a luxury — one must have the good fortune of finding what fires their jets at a young age, aside from pornography, and find a way to pursue it. If they have the resources and time, college is the way to go. If not, anyone with a spark and a modicum of resourcefulness will find a way to pursue it.

I've spoken of this before. The number of persons from the 2000 census to the 2010 census is up 20%, the number of households, nowhere near that amount. Clearly, in the not-so-distant future, either much housing must be created or much work must be done to convert the "cul-de-sac development" McMansions into 2 and three household homes. What young person is a yeoman plumber out there, or plasterer? Not many, certainly not many over the past 10 years — but it is the fastest track to acquiring #2, above, for most.

And most need #2. Not everyone needs #1, and if they have that luxury, nothing will stop them from pursuing it. But the notion of borrowing a lot of money for a ticket to a dance based on some parent's misguided model of reality (Oz!) is something the educational institutions feed on, benefit by and play to.

Jim Lackey writes:

 College is the time to meet your mate, your equal. For the fortunate men, it's  the better half you spend life with.

In your college years, there is only so far you will go…. Either to fake it, to fit in/get ahead or rebel against, to get off easy and/or explore the adventures of danger. The gist is how you act when no one you know is looking. Sin may resurface later in life. For certain people, the hypocrisy of life will rear its ugly head. If a married couple knew each other during these years of growth and uncertainty it's near impossible to argue later the lack of full disclosure prior to marriage.

A grievance can always be resolved. A slight, an imaginary hurt, the lack of full disclosure–the "I thought I knew that person". That person will hate you til the day they die.

My guess that is how/why bitter divorces ruin families… vs the much higher than average success rate of current marriages from my anecdotal evidence of family, friends and cohorts that married some one they knew from school.

Jeff Sasmor writes:

Good article on "What's a Degree Worth" :

What Are You Going to Do With That?

For the first time, researchers analyze earnings based on 171 college majors

By Beckie Supiano

Tuition is rising, the job market is weak, and everyone seems to be debating the value of a college degree. But Anthony P. Carnevale thinks these arguments are missing an important point. Mr. Carnevale, director of the Georgetown University Center on Education and the Workforce, has argued that talking about the bachelor's degree in general doesn't make a whole lot of sense, because its financial payoff is heavily affected by what that degree is in and which college it is from.

Now, new data from the U.S. Census Bureau sheds light on one big piece of Mr. Carnevale's assertion: the importance of the undergraduate major. In 2009, the American Community Survey, the tool the bureau uses to collect annual estimates of population characteristics, included a new question asking respondents with a bachelor's degree to give their undergraduate major.

After combing through the data, Mr. Carnevale says, it's clear: "It does matter what you major in."

Laurence Glazier writes:

After the signalling provided by college qualifications, the deliberate undertaking of full-time employment may signal the willingness to allow creative fruit to wither on the vine. A shibboleth of perspective. So many wait for retirement (which may not come) to allow vent to such aspirations, but the law of the farm dictates regular irrigiation throughout a lifetime.

To this end there would be much benefit to all if full-time work became less the norm. The end of government subsidy of unsound housing loans would reduce the pressure on people to suppress their finest qualities.

The Harry Potter books emerged not in spite of the writer's modest circumstances, but aided by them.

David Hillman writes:

Very astute observations.

A laborer can be trained to dig a ditch to a certain depth. A monkey can be trained to dance to the organ grinder's tune. Even a plant can be 'trained' to grow in the desired fashion. But few of the former are, nor neither of the latter can be, trained to *think* and creatively problem solve.

One might speculate that emphasizing skills, specialization and technology in educational curricula and employment qualifications may be the culprits.

While a college education being increasingly available only to the affluent because of financial considerations is, indeed, an issue, perhaps another of our chief concerns should be that we are creating a nation of people who are trained, rather than educated.

Kim Zussman writes:

The "education ruins thinking" argument has value, but simply looking at dollars a college degree pays more than just HS diploma. BLS stats below shows increasing income with formal education: about $400/week more for college grads - which of course does not include harder to value assets like volume of learning, tutored critical thinking, facility of life-long learning, status, access to better mates, good memories, signalling, etc.

One would need about 10 years of the additional (median) college grad salary to pay for 4-year private degree (ignoring taxes). Would the degree be worth it if it took 20 years to pay off?

Unemployment rate     Education attained        Median weekly earnings
in 2010 (Percent)                     in 2010 (Dollars)

1.9%            Doctoral degree            $1,550
2.4            Professional degree         1,610
4.0            Master's degree             1,272
5.4            Bachelor's degree         1,038
7.0            Associate degree           767
9.2            Some college, no degree           712
10.3            High-school graduate           626
14.9            Less than a high school diploma       444

8.2                     All Workers                        782

Note: Data are 2010 annual averages for persons age 25 and over.

Earnings are for full-time wage and salary workers.

Source: Bureau of Labor Statistics, Current Population Survey

Rudolf Hauser writes:

The question of a rate of return on a college education is not that easy to measure. For one, it will vary greatly on the college attended both by cost and quality of education. It would also vary greatly by the course of study and how much a person actually learned as opposed to just getting by and having fun. Even taking account of these variables, it is not an easy question to answer. The math is a simple discounted present value calculation, but the inputs are something else. For one, the attributes of those attending college and those not attending will differ. Those with an interest in learning and working hard, more personal discipline and more ambitious are more likely to be attending college than those who are not. Those people are more likely to earn more than the group that does not go to college even if they had not gone to college. So while the value of the education is the difference in what they earn in the future compared to what they could have earned had they not gone to college, one cannot just assume the latter is what those without a college education currently earn. In addition what is actually earned will not be a single average or medium figure but will have a wide distribution around it based on good or bad fortune, who you know, and countless factors beyond one's control. Costs while being educated in addition to direct costs of tuition ,books include difference in living costs relative to what they would be had one not gone to college and opportunity costs of lost potential earnings from working rather than going to school. Then there is the question of how much of the difference is due to signaling as opposed to the value of what was learned and contacts made during school. That is real but could change if the marketplace found alternatives to such signaling. If lower education had more strict criteria for graduation and grades the signaling value of a college education might lessen as employers had more confidence in that and prior work experience. The cost of loans may also vary, so that how the education is financed will matter a great deal.

In addition to monetary economic measurement, there are other benefits that might be gained. Meeting a spouse has been mentioned by list members as one such benefit. Learning about many areas and learning how to learn, may enrich one's life as a person, contributing to the value one has to society and family and to one's personal richness of life and happiness. But if prospects do not turn out as one hoped, it can also lead to unhappiness. The question then is how much one wishes to pay for these other potential benefits or negatives (i.e., the probability of disappointment). Some areas of study such as general liberal arts, might be expected to have a higher risk of low or negative economic returns than more specialized fields, but specialization runs risks if those skills become of less use to society.

On a personal level, I do not believe it make sense to send a kid to college unless they are actually going to work hard to learn. If not, it might be best for them to work for a time and see how difficult life can be without a college education. Often they may then go to college and actually make the most of it rather than going at a younger age and goofing off.

I might also add that education need not be in the classroom. The time spent learning on one's own is also education. One need not attend college to learn. It might not have much signaling value but it certainly helps in many areas. The cost is the value of the time spent either in terms of the value of one's leisure or economic opportunity cost.
The ability to learn might be enhanced by a formal education. One of the things I would advise a person attending college to learn is how different disciplines think. The way a lawyer thinks about problems, the way a scientist does, the way a creative writer thinks , the way an economist thinks differ and are specialized in some ways that takes a time to learn. The first course in microeconomics is difficult for many students, for example. The more ways of thinking one understands, the broader ones ways of understanding the world, understanding other people and in solving problems. Some of the great innovations come from taking of advantages in knowing something about other areas of learning that provide insights into the problems in your area of interest.

David Hillman writes:

Ok, then, I meant the focus to be on the point of training versus education. If it requires more updated or timeless references than those to the 20th Century, so be it, and I beg pardon.

(1) Backhoe operators are *trained* to operate them, but there are many instances of heavy equipment being stuck because the operator failed to *think* about the application.

(2) Musicians can be *trained* to play an instrument, but without a proper foundation, i.e., *education* in music theory, history, etc., while the music may be technically correct, it is often dry and mechanical, uninspired and with an 'off-the-shelf' feel.

(3) An air traffic controller can be *trained* to direct aircraft, but when an emergency arises, he/she must *think* of how to resolve it, not unlike,

(4) A 9-1-1 operator being *trained* to follow protocol, but when that protocol does not apply, hopefully, that individual may be capable of *thinking* of a way to prevent loss of life.

And, what of entrepreneurs like you and me? How can one be *trained* to brainstorm an idea out of thin air, then take it from the drawing board to reality? But, one can certainly be educated broadly enough to think creatively, make connections, take calculated risks and solve problems. Even in strategic planning, one can follow a plan, but the successful execution of it requires feedback from the real world and adjustment, which requires the ability to think, not just the ability to follow an SOP manual.

Clearly, a liberal arts education is not for everyone and the rise of tech schools and alternative forms of education and training should be applauded. For those who require training, the more well-trained they are, the better off will be all of us who depend upon their services. But, one should not necessarily depend upon them to do anything other than the job for which they've been trained, nor to be able to *think* creatively when faced with a situation or event for which they have not been trained. Trained mechanics may depend upon a diagnostic computer and trained line cooks upon a recipe, whereas a great mechanic might 'feel' a rough idle and a great chef might improvise a dish. The latter two have the ability to think and create, some of which is natural, but a good deal of which may also come from an education.

Nor is a college education always the right thing for someone at any given time. There are plenty of examples of individuals who failed to perform well in college as a recent high school grad, but did stellar work 'going back to school', my own being one of them.

Some eschew those who are 'too educated' as being 'troublesome' precisely because they can think. However, if I knew nothing of one's natural intelligence, and had to choose, I'd probably go with the educated over the trained.

That said, neither education nor training has much to do with 'smarts.' For that, you either are, or you are not. Some of the dumbest guys I've known have had PhD's, but so have some of the smartest. Likewise, some of the least educated have been the smartest and most capable, but there have been many that are dumb as a box of rocks.

As someone once told me, "it's better to healthy and rich, than to be sick and poor." I'm kinda thinking it might also be better in the long run to be smart and educated, than to be dumb and trained.

Stefan Jovanovich writes:

David is right. If there is any fault to his argument, it would lie in his optimism about the capacities of higher education. But, then, my cynicism about schooling comes from having literally grown up in the business and from being a 2nd generation academic bum. (There are not many fathers and sons who share the distinction of having gone to graduate school in English literature solely because they had no better idea of what to do and the GI Bill would pay for it.) School, like most things, is what you make of it. My difficulty is that "education" is now what "national defense" was in the 50s and beyond; an open-ended appeal for more money that is always justified in the name of some higher good that is incapable of being questioned.

Jeff Rollert writes:

I concur with Ralph, and if you believe in the concept of singularity, then a repetitive answer method is most likely to be replaced by a machine.

For me, I believe that standard problems will have standard solutions already applied to them before I'm even aware of the problem. So if one were to find employees who where good at sensing/finding the "unknown-unknowns" then they would have to have a non-standardized approach - in other words a non-academic approach.

Lastly, in a logic sense, how can something be a "value" but still be "expensive"? Aren't these mutually exclusive?

Tim Melvin writes: 

We have dealt with both sides of the college issue here in the past few years. My daughter on her quest to be the world only libertarian teacher had no choice. To teach you must have three degrees and credentials. She has on semester left and has pulled a 4.0 throughout. She may have learned some basic teaching techniques she did not know but the general education element was lost on one who reads like her. When I look at the top 10 majors in US colleges I have a hard time seeing what we are producing except middle managers. Teaching and nursing are the only to that offer a truce vocational choice. I would love to have had four years to study literature, but I question the employment value of the degree itself. The top tier schools may be different but is seems to me that our universities are teaching fixed values and information, not how to think. How to think has to be either installed by your parents or learned on your own. I cannot see where this can possibly be worth the cost today. Perhaps Colonel Depew can add a though on this but I think teaching the young to read the Great Books Curriculum would go farther than the current middle management factory that are most schools today.

I never went to college. Truth be told I dropped out of high school at the enthusiastic recommendation of the local authorities. What education I have I obtained from between two covers in the style of Louis L'Amour– I suggest that book as a manual on learning to think by the way. I read constantly when I was a kid. My mother was wise enough to let us read anything we wanted regardless of content. If there was something we didn't understand she made us find the source material to explain it..and this was back in the day when Encyclopedia Britannica was still the source of knowledge not the internet. I have continued to read ravenously all my life. I read anything and everything. I have found that even fiction often contains lessons for life and can be a source of knowledge. As an example, I read two or three of Robert Parker's excellent Spenser series. Great detective books, but read a few and you will learn two or three good quick dinner recipes, several literary quotes worthy of further research and how to win a fight. Many of us on the list have followed the chair's lead and studied the great lessons of Monte Walsh, Don Quixote and Patrick O' Brian. Randy Wayne Whites Doc Ford novels often contain insights into the biology of floridian waterways and the everglades. Knowledge is everywhere if you know how to think. I fear today's world of standardized testing and assembly line universities may not be teaching that valuable skill.

Think about this. The two greatest innovators and business men of the past thirty years both dropped out of college. Some schools may be worth the price tag. I suspect most are not.

My son on the other eschewed school in favor of making a few bucks. He discovered he had a real talent for and love of business. Within six months or so of going to work at Boater's Worlds he was managing one of the top producing stores in the company…at the age of 20. We talked about school and he told me flat out "I can't see the value of spending the money. I have two MBAs working for me now because they can't find jobs that pay enough, and my part time staff includes a phd in English." He moved on when the Ritz family folded the chain. His former district manager brought him over to his new company and he is moving up the rank there. He just undersands the art of working hard and making money. He may need a few accounting classes some day but four years at some state university would have been a waste of time and money.

We need more thinkers who have a passion for knowledge and more curious explorers and fewer managers and chair holders. That's on us as parents as much as the schoools. If our children go onto college make sure they know how to think and the univerisity allows them to do so.

Stefan Jovanovich writes:

Dropping out can be useful even for scholars. Peter Green (the #1 biographer of Alexander the Great) did it.

So did Eddy's favorite professor who didn't teach art history.

Eddy's most treasured legacy from 4 years at Cal was giving Professor Jacobson the recording of her version of the Super Mario tune. He had heard her play it on the UC Carillon and wanted it for the ring tone on his phone.

Dan Grossman writes: 

Found this interesting blog post by Steve Sailer proving the value of higher education:

 A column on a new Gallup Poll asking "Just your best guess, what percentage of Americans today are gay or lesbian?"

"The mean guess was a ridiculous 24.6%. Only 4% said less than 5%, which is probably the best guess.

Polling companies seldom ask questions on which people can make obvious fools of themselves, since those can raise questions about the value of opinion polls.

Looking at the demographic crosstabs, it's evident that low intelligence people were most likely to wildly overestimate the percentage of homosexuals: 53% of people making under $30,000 annually said that at least 25% of the population was gay, and 47% of those with no more than a high school education. 43% of Democrats versus 24% of Republicans got the question wildly wrong.

In general, people are terrible at estimating or remembering demographic statistics. A 2001 Gallup survey, right after the release of 2000 Census results, found that the average American estimated that 33% of the population was black and 29% were Hispanic. That adds up to 62%, but who's counting? Not most people.

In that 2001 survey, nonwhites estimated that 40% of the population was black and 35% was Hispanic (adding up to 75%). In contrast, people claiming postgraduate degrees estimated that 25% were black and 24% Hispanic (only about double the Census numbers), which proves the value of advanced education."



 The problem I have had with the former advertising manager's methodology is that it is not clear to me that any studies show that value outperforms growth, and I am not convinced he used prospective files for his studies, even though the rumor is that the Columbia students he hired to do his research did so, and the results in his books are completely random, as well as the wide diffusion of his seemingly random and regime based studies.

Allen Gillespie writes:

The misapplication comes by using P/B to declare stocks growth or value. The best growth stocks have little in way of book but much (non-book) goodwill (though not always booked goodwill) associated with the product or brand. In fact, some of the best growth stocks show this interesting pattern (high sales and earnings growth) while the value competitor shows on Altman Z-Score screens (think SNDK/EK, NFLX/BBI). One grows by eating the other (monopoly rents) and rebirth. How many stores did Walmart eat? If one looks at the pure style indices (RPG and RPV etfs) v. the old Russell two way classification (IWF and IWD) one will find the excess returns above cash for the growth and value risk premiums are equal and greater than the traditional growth and value classification (where there is a value bias). This makes sense, as the pure style indices are more concentrated into those stocks that actually exhibit the growth/value factors. Particularly regarding growth, imagine the age distribution of a population, it will have more adults than children because more are grown than growing. If you sliced it in half you will have one set with some growth, but highly diluted. This also presents an index problem as by definition young companies are likely not to be included in the indices initially and will be underweighted even when they are. None of this, of course, is to deny that there aren't cycles where the relative spreads between the combinations don't over or under shoot the trend.

Industries, of course, can regenerate by cannabilizing themselves at times (I am watching closely) the combination of high fuel prices and cars– the fuel efficient fleet will ultimately eat the existing stock leading to a long number of years of above average growth into a downsized industry. This is the value players dream situation as the stocks will be priced on the history with the future ahead. 100 years ago horsepower add horses, even on the tracks unfortunately.

Rocky Humbert writes:

(With SAT test season approaching, I humbly request that fellow specs weigh-in with the current usage in my paragraph 2 below. Should the correct form of to-be be "is" or "are"? [….a portfolio of stocks which *is* trading…] If we cannot reach consensus on the proper rules of English usage, there's no hope for other conciliations.) 

A problem with the problem is the definition of "value" versus "growth." S&P's methodology is to put stocks with low p-e's (or p/b's) into the value category, and stocks with high p-e's into the growth category. The approach is self-referential, and although convenient, it's arbitrary and silly.

Yet, if one takes the S&P approach ad absurdem, The Chair cannot quarrel with the proposition that a portfolio of financially strong stocks which is trading at 5x earnings (and which is paying out 100% of earnings as dividends) will eventually outperform a portfolio of stocks which are trading at 1,0000000000x earnings. The asymptotic nature of compounding and the laws of economics ensure that this will be eventually true. Once The Chair accepts the irrefutable truth of this observation, the discussion becomes much more nuanced — leading to an analysis of what conditions lead to Value outperforming Growth or visa versa.

Lastly, one must note that, in general, the volatility of stock prices is greater than the volatility of the underlying business performance. This is the essence of "taking out the canes" — and one wonders whether value investing is a second cousin of Mr. Clewes?

Tim Melvin writes:

Let's use Walter Schloss's definition and see if any testers with better databases and math skills than I can compute the results.

True value investing as practiced by Graham, Schloss, Kahn, Whitman et al looks something like this:

price below tangible book value

debt to equity ration below .3

profitable or at least breakeven

closer to lows for the year than highs

a minimum of 10% insider ownership

Using pe or relative value is NOT value investing as best and originally define.



The results of "stock screen" Friday provided a fun and surprising riddle:

Among all of the developed markets, what is the ONLY mega-cap stock (>US$ 50 Billion) which is currently trading at under 65% of it's stated tangible book value?

Hint: It's not Berkshire Hathaway, but the company does have something in common with Warren Buffett.

Tim Melvin writes:

It's AIG, but that tangible book is a moving target at best.

Mark Schuetz writes:

I see both MTU (Mitsubishi UFJ Financial Group) and NTT (Nippon Telegraph & Telephone). I guess I'm not enough of a Buffett follower to make the connection though.

Rocky Humbert responds:

Mark, you get the buzzer– and lose everything in the final jeopardy round!! Although Bloomberg shows NTT to be trading far below book in their screening algorithm, a closer examination of NTT's balance sheet reveals Bloomberg is wrong!

Tim Melvin writes:

It's below stated book but at roughly tangible book right now…

Rocky Humbert writes:


So, the meal-for-a-lifetime thought follows:

MTU is trading at about 65% of tangible book. Citi is trading roughly at tangible book. And Citi got a Get-Out-Of-Jail card from the US government. Yet — over the past 5 and 10 years, MTU stock (despite a horrible RoE) has still outperformed Citi nicely in local currency terms!!And for US$-based investors, MTU has outperformed Citi substantially.

Nonetheless, Mr. Market is now offering a 35% haircut for MTU's assets and a 0% haircut for Citi's assets…. a striking commentary about investor preference and expectations. Note also that the slug of MS stock that MTU received this morning (as part of the perferred conversion) is trading around 114% of book.

p.s. I still remember attending a roadshow for Japanese bank stocks in the late 1980's during which the White Shoe underwriting firm explained that Japanese banks deserved a price/book multiple of 250%-300%. Presumably, the same analyst is today explaining why the same companies deserve a price/book multiple of 0.6….



I just read Greenblatt's newest offering, The Big Secret for the Small Investor.

It may be the most intellectually dishonest book I have ever read. The whole thing is sales job for his newest managed accounts and mutual funds designed to create what he calls a "value weighted index." At least he didn't rewrite You Too Can Be a Stockmarket Genius, one of the best books ever written about investing in stocks. I use many of the techniques in that book and appreciate no new competition developing as a result.



 Back in 1992 I read Peter Lynch's book "Beating the Street". It's a fun book to read; he explains how he came to recommend ~20 stocks in that year's Barron's "Roundtable". As the years passed though I kept noticing that stocks that he had recommended were falling by the wayside. One of them, Sun TV and Appliance, was a retailer in Columbus, Ohio, where I was living at the time, and not too many years after the recommendation, Sun crashed and burned. Similarly I noticed bad things happening to Supercuts, which he recommended, and more recently Fannie Mae and GM both fell to zero-ish levels. So I've long suspected that overall his picks might have been sub-par, or a disaster, even.

Today I finally got had the time and energy to test it. I know this is breaking the rules, but please refer to the attached spreadsheet, only 10 kB. The spreadsheet shows Lynch's 18 stocks (I excluded one stock because it traded in London and another because it was a "Class B" share, and I couldn't figure out what ticker to use in my database) and their tickers as of 1/31/1992.

Many, actually most, of the stocks did not continue as going concerns until today; they were either acquired, bankrupted, or whatever. I believe that my database (MarketQA) does a reasonably good job of giving my a terminal value, but beyond that I didn't attempt to find out what happened to each stock.

So the spreadsheet has a column for "months as a going concern", i.e. how long the stock lasted after 1/31/1992 until it was acquired, bankrupted, or whatever. Stocks that survived until now have lived for 229 months. The next column, "$1 grew to" tells you how much money you'd have if you invested $1 and held until the firm ceased as a going concern. The last column gives the compound return over the period as a going concern.

Lynch didn't do badly at all. The average stock grew $1 into $4.24. On average the stocks "lived" for 141 months as going concerns, and I did not give Lynch any credit for reinvesting the moneys after stocks died off. However there was an enormous variation among the stocks. Five of the 18 stocks lost more than 90%, but four multiplied your money by a factor of 10 or more.

The big winners were in the thrift / S&L stocks–on average they grew $1 into more than $8, and without them the average performance of the remaining stocks is not impressive.

Lessons? I guess these results give a pretty good feel for the wide variation in returns of individual stocks over long periods. It may also be surprising that stocks have such finite lifetimes, even when they work out well–e.g. First Essex turned your $1 into $20 before it fell off the radar about ten years ago, presumably after being acquired. Lynch himself always emphasizes that the occasional "ten bagger" can make up for a lot of sins elsewhere in the portfolio, and that definitely played out with his picks.

(If you can't handle spreadsheets, here it is as text, but I have no idea whether it will format properly for you.)

ticker as of 1/31/1992    company name    months as a going concern    $1 grew
to    compound annualized return while a going concern
GH    General Host    72    $0.80    -3.6%
PIR    Pier 1 Imports    229    $2.88    5.7%
SBN    Sunbelt Nursery    74    $0.03    -44.7%
CUTS    Supercuts    57    $0.72    -6.7%
SNTV    Sun TV and Appliance    82    $0.03    -40.0%
EAG    Eagle Financial    75    $6.34    34.4%
FESX    First Essex Bancorp    145    $19.57    27.9%
GSBK    Germantown Savings Bank    35    $3.67    56.1%
GBCI    Glacier Bancorp    229    $12.70    14.2%
LSBX    Lawrence Savings Bank    229    $10.54    13.1%
PBNB    People's Savings Financial    66    $3.97    28.5%
SVRN    Sovereign Bancorp    204    $1.03    0.2%
TLP    Tenera L.P.    139    $0.00    -42.8%
GM    General Motors    226    $0.01    -23.7%
PD    Phelps Dodge    182    $10.64    16.9%
CMS    CMS Energy    229    $1.74    2.9%
FNM    Fannie Mae    229    $0.04    -15.5%
COGRA    Colonial Group    38    $1.67    17.6%

       average    $4.24

Steve Ellison writes:

The median stock turned $1 into $1.70 and had a 4.4% CAGR. I got similar results when I checked stocks suggested by Jim Collins in Good to Great. A small number of big gainers made the portfolio as a whole above average. Maybe there is a lesson here.

Tim Melvin comments: 

If you study Mr. Lynch's results much of his success was a result of playing the mutual thrift conversion game. His fund had deposts in just about every mutual thrift in the country so he could buy the conversion offering. Almost universally these stocks were HUGE winners. That game is very much back to life today as new regs are pretty much forcing many thrifts to convert…..most can be bought after the offering at a still sizable disocunt to tangible book value.

Charles Pennington writes: 

Of the four "ten baggers", two would have gotten stopped out at very disadvantageous (roughly break even) prices…

I would have guessed that those conversions had limits on how much stock a customer could buy, and with those limits in place, how could they make a dent in the performance of a large fund?

According to the Cramer book ("Confessions.."), which is very entertaining, much of the good performance of his fund was also due to holding thrifts, but he almost went under when redemptions threatened to force him to sell those very illiquid stocks.

Apart from the initial "pop" after a conversion, I don't see why thrift stocks would continue being cheap. Isn't this a very well-known idea, given that I've heard of it?

Victor Niederhoffer writes:

Now the professor is going to compute the market value of the individual stocks and tell me that the average market value of the ones that went down 100% at inception was not different from the average market value of the ones that were 10 baggers and kept him from reading books. 

Charles Pennington responds: 

The Chair's point is that most of the 10 baggers mostly started out as impossibly-small-to-buy stocks, and that is correct. Here are the 10-baggers and their market caps in January 1992:

First Essex (FESX) $21 million
Glacier Bancorp (GBCI) $32 million
LSBX $12 million
Phelps Dodge (PD) $2.6 billion

The only non-micro cap is Phelps Dodge.

Here are the January 1992 market caps of the stocks that lost nearly 100%:

SBN $60 million
SNTV $109 million
TLP $30 million
GM $19.9 billion
FNM $17.7 billion

George Coyle writes: 

Food for thought since I don't have access to data, certain funds and firms have size restrictions on what they can buy due to position sizing, liquidity, etc. It would be interesting to see if stocks which crossed over a given level in market cap ($100mm, $500mm, $1bb) subsequently saw inflows or outflows by virtue of qualifying as new investments for bigger buyers or being kicked out by virtue of falling below an acceptable cap level. Also, there are legal filing consequences of holding positions over certain sizes so I imagine patterns exist which are very real as firms alter position sizing to avoid regulatory filings (and ultimately position size disclosure on a non-quarterly basis). It is a bit of a momentum study meets the analysis below but with a legal/fund guideline slant. I believe Factset tracks historical cap sizes with some reasonable degree of accuracy/frequency but I no longer have access.

Phil McDonnell writes:

To throw a few stats on the table I am posting links to some work done by Eric Crittenden. He is a momentum quant with BlackStar Funds. He argues that trend following must work because long term stock distributions have very fat tails. He also argues that the negative fat tail implies that stop losses must work. One of the charts shows a huge right tail of three baggers or better. Another shows that all gains come from 20% of the stocks.
I have had the chance to review several of his studies in progress and Crittenden seems to do it right. He uses total returns and avoids obvious pitfalls like survivor bias etc.

Charles Pennington responds:

It seems kind of silly that they take this indirect route — "lots of big gainers and lots of big losers, therefore use stop losses". Why don't they just test the performance of some simple stop-loss rule? Jason proposed a trailing stop of 50%. That sounds ok to me. Then, whenever you're stopped out, use the proceeds to buy an equal weight (cap weighted) of the remaining stocks. Does that outperform or under-perform the equal-weight (or cap weighted) index?



UPDATE 1/31/2011:

Contestants Summary:

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

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

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

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

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

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

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

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

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

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

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

Contracts Summary:

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

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

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

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

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

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

Victor Niederhoffer wrote:

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

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

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

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

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

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

David Hillman writes: 

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

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

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

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

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

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

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

Market direction picks are wanted:

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

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

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

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

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

Bill Rafter adds: 

Suggestion for contest:

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

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

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

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

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

Ralph Vince writes:

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

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

I'm going to sit and do nothing.

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

Gordon Haave writes: 

 My three predictions:

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

Dollar ends 10% stronger compared to euro

All are actionable predictions.

Steve Ellison writes:

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

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

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

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

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

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

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

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

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

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

Jan-Petter Janssen writes: 

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

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

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

Vince Fulco predicts:

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

Additional points/guesstimates are:

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

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

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

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

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

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

Potential negatives:

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

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

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

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

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

Mr. Albert enters: 

 Single pick stock ticker is REFR

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

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

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

Dan Grossman writes:

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

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

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

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

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

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

Best to all for the New Year,


Gary Rogan writes:

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

Wildcard: Short Netflix.

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

Equal Amounts in:

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

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

12/30 closing prices (in order):


Bill Rafter writes:

Two entries:

Buy: FXP and IRWD

Hold for the entire year.

William Weaver writes:

 For Returns: Long XIV January 21st through year end

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

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



Ken Drees writes:

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

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

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

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

wildcard: AMEX URANUIM STOCKS. UEC, URRE, URZ, DNN. 25% EACH, buy day 1 then do SELL 70% OF EVERYTHING AT 96$LB u http://www.uxc.com/ FOR PRICING, AND HOLD REST FOR YEAR END.

Happy New Year!

Ken Drees———keepin it real.

Sam Eisenstadt forecasts:

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

S&P 500       1410

Anton Johnson writes: 

Equal amounts allocated to:

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

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

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

Scott Brooks picks: 


Evenly between the 4 (25% each)

Sushil Kedia predicts:


1) Gold
2) Copper
3) Japanese Yen

30% moves approximately in each, within 2011.

Rocky Humbert writes:

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

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

Dylan Distasio comments: 

Gawin mo magsalita tagalog?

Gary Rogan writes:

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

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

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

Tim Melvin writes:

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

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

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

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

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

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

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

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

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

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

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

Other than that I am clueless.

Kim Zussman comments: 

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

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

A ball of confusion!

4 picks in equal proportion:

long XLV (health care etf; underperformed last year)

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

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

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

Alan Millhone writes:

 Hello everyone,

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

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

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

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

Happy New Year and good health,



Jay Pasch predicts: 

2010 will close below SP futures 1255.

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

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

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

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

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

Chris Tucker enters: 

Buy and Hold


Wildcard:  Buy and Hold AVAV

Gibbons Burke comments: 

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

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

2) Ride your winners.

3) Cut your losses short.

4) Keep the size of your bet small.

Then there are the "special" rules:

5) Follow all the rules.

and for masters of the game:

6) Know when to break rule #5

A prosperous and joy-filled New Year to everyone.



John Floyd writes:

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

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

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

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

A Mr. Krisrock predicts: 

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

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

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

4…commodities are peaking ….

Laurel Kenner predicts: 

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

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

Pete Earle writes:

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

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

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

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

Happy New Year to all,

Pete Earle

Paolo Pezzutti enters: 

If I may humbly add my 2 cents:

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

J.T Holley contributes: 


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

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

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


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

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


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

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

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


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

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

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

Sex and Speculation:

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


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


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

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

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

Long - Common Sense.

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

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

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

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

I had to end on a Long note.

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

Russ Sears writes:

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

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

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

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

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

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

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

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

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

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

Yanki Onen writes:

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

Now the ideas;

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

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

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

-Sell contango Buy backwardation

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

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

- Leveraged ETFs suckers play!

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

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

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


Yanki Onen

Phil McDonnell writes: 

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

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

SLV closed at 30.18 on Friday.

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

Net debit is .50.

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

George Parkanyi entered:

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

BUY SILVER at open

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

SELL and then SHORT SILVER at open

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

COVER and then BUY SILVER at open

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

3 JAN BUY PLATINUM and hold to end of year.


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

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

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

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

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

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

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

Marlowe Cassetti enters:

FXE - Currency Shares Euro Trust

XLE - Energy Select

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

GDXJ - Market Vectors Junior Gold Miners

AMJ - JPMorgan Alerian MLP Index ETN

Wild Card:


VNM - Market Vectors Vietnam ETF

Kim Zussman entered: 

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



 The other day, I was forced to attend an amateur showing of Dickens "A Christmas Carol." The production was well executed, the stagecraft was excellent, and the scenery was first rate. I've seen the Dickens classic so many times, I either just nod off, daydream, or try to improve my mind. During the show, I started to think of how the author, Charles Dickens, really hated capitalists and was a socialist at heart. He portrayed Ebeneezer Scrooge as the prototypical capitalist of the day, but his real "sin" was that he was a miser, only interested in his self, mistreating everyone. The fact that Scrooge had a bad attitude and dour personality did not work in his favor and was a great device used by Dickens to generate hatred for capitalists and the rich in general.

This got me thinking on many levels. For one thing, Scrooge was a businessman who earned his money fair and square. He cheated nobody and expected his contracts and debts to be paid as per any previous agreements, Scrooge ran a tight ship, to the point of being called miserly. He was a demanding employer of his clerk Mr. Cratchit, who accepted the employment contract with Mr. Scrooge with good cheer. Much has been said and written about the evil Mr Scrooge, his name has become part of the lexicon of the definition of an evil capitalist. Even the people in the neighborhood made disparaging remarks about Scrooge, and this mistreatment and lack of respect added to his dour personality. There was no evil to Mr Scrooge, and his unfavorable treatment was a literary device, a populist reaction by the left, the socialists who portray all rich as greedy, evil people who allow people to suffer while they live rich, extravagant lives. 

As I said before, Mr Scrooge had an employment contract with his clerk, Mr. Cratchit who was a man of good cheer. Cratchit's wife constantly complained that Scrooge was an old miser with a flinty heart of stone. She neglected to mention that Mr. Cratchit was free to seek employment elsewhere if his working conditions were so bad, but this aspect and so many others were left out by Dickens. As for Scrooge's miserly description, some would call his miserliness thrift, which is an esteemed Franklinian virtue.

Scrooge's refusal to participate in a festive dinner with his nephew and wife was his business and he certainly didn't deserve the ridicule heaped upon him by the women folk, nor was he required to offer an explanation or apology. He was merely exercising his freedom to do what he wanted, and if he chose not to celebrate Christmas, that was his natural, god given right. During Scrooge's pre ghost phase, he was a hard nosed flinty business man, albeit a bit ill mannered. There is no law against being ill mannered, dour, mean, or miserly. Scrooge was free to do whatever he wanted, with no worries what society would think as long as he behaved within the law and remaining scandal free.

Every good story likes to make a case of human redemption, a change from self interest to the interest and service of the collective. In popular culture, rich are inherently evil, their gains ill gotten off the backs of workers, and the poor always triumph over the rich. Dickens masterfully pulled this off when he had three ghosts visit Scrooge on Christmas Eve to scare the hell out of him and change his evil ways. His powerful scare tactics caused Mr Scrooge to abandon his own self interest, abandon his personal freedom for the good of society, destroy the profitability of his business, and spend his hard earned wealth on charity to repent for his earlier miserliness.

The messages Dickens made in a Christmas Carol were very clear. Productive people must give to the more deserving poor to be considered worthy, rich people are not happy due to guilt, producers must abandon self interest in order to satisfy the needs of others in a society who don't work as hard, businessmen must run their personal business for the sole benefit of their employees, conversely to the detriment of the stockholders. And finally one must give exorbitant sums to the poor, provide medical care for the employees, and give retroactive raises to allegedly underpaid employees. Benevolence is not a virtue in this world, it is a requirement. Scrooge was manipulated into this transformation by the three ghosts creating immense guilt and fear, and by the end of the story Mr Scrooge was more concerned with what people thought of him, his personal image, than the real work of creating profits, creating jobs, growing a business, and contributing to the general business climate.

At the end of the story Mr. Scrooge was a transformed man. He was happy, benevolent, highly thought of, giving,almost giddy, much like a person who has had a drink or ten. A good case could be made that he was a better man, but w hat he lost was the real tragedy. Scrooge lost his independence, his freedom, became dependent not on profits, but on the opinions of others. He was required to give money away, raised expectations of others, and caused economic imbalance by changing the market pay scale of employees in his business. In a way, Scrooge's new found largesse probably was bad for the economy as a whole a la the theories of Hazlitt. On another note, happiness tends to be fleeting much like health and I suspect that with Mr Scrooge, old habits die hard.

When the curtain closed, everyone was cheering. I felt a bit of sadness, as here's another story of poverty trumps wealth, rich is evil while poor is good, and being a second hander is more important than being a real, virtuous free man. In the end, Mr. Scrooge was the real loser and the real story was the transformation of a rich, productive man into a welfare state.

Rocky Humbert comments:

Dear Jeff:

Considering "A Christmas Carol" to be an indictment of Victorian Capitalism is not a novel idea, yet I still find your words and spirit to be sad, indeed.

While you are free to intrepret Dickens however you see fit, you have no such freedom with respect to core Judeo-Christian values, which parts of Dickens' play embodies. The principles which you lament are the core principles of Judaism and Christianity.

What you find lamentable, I find laudable. When you find trivial, I find grand. In short, I celebrate the charity and goodness toward man that Christmas celebrates, while you mock it as political correctness.

I wish you a happy holiday, and hope that you someday discover what Scrooged learned– that there is no greater joy than bringing happiness to others.

Scott Brooks adds:

 Let's not confuse charity with force of threat.

Scrooge offered a fair deal at a fair price. The way we can infer that this is the case is that people came to him, and willingly signed a contract. Scrooge performed his half of the contract by loaning them money. What is wrong with him expecting that they honor their portion of the contract?

And, let's not confuse what Scrooge did for charity. Giving to other under threat of force…..i.e. the spirits (under the direction of Dickens) threatened him with the threat of eternal damnation if he didn't commit business suicide.

Another problem with "A Christmas Carol" was that the story ended on December 25th. Let's flash forward to the "The Week After Christmas":

Bob Cratchit shows up at work on the 26th only to find that he doesn't have a job. Why? Because Scrooge, in his "fit of charity to bring happiness and joy to others" tore up all the debts owed to him and there was no more accounting work for Cratchit to do.

Later that day, and throughout the next week, a bunch of former Scrooge customers come to the office to borrow more money, only to find it closed because Scrooge has no more money to lend out. If he did, it would be evil (under Rocky's view of the world) to unfairly loan out money. And he couldn't just keep the money, he would have to give it away to atone for his supposed sins.

Therefore, the vital role that Scrooge played in the community…i.e. loaning money to people that had need of a loan for whatever purpose they felt they needed a loan for (and that Scrooge deemed as a good "loan risk")….that vital role was no longer available in the community.

And what happens when credit dries up in a society….well, I think we can all agree that that's not a good thing.

Sorry Rocky, but you're wrong in your assessment. This is not charity or Christian/Judeo ethics. This is a story by a man who didn't like Capitalism, that slams capitalism. It could have been written by most any journalist or university professor in today's society.

David Hillman writes:

 And then, there's the contrarian point of view

….which makes as much sense as does the interpretation of A Christmas Carol as an indictment of Victorian Capitalism [which, by the way, was far different from what we generally think of as 20th Century capitalism, i.e., the kinder, gentler Fordist model or the so-called millennial capitalism that has been evolving since the 1980s.]

I don't know much, but two things I know, 1) what Dickens' meaning and intent in A Christmas Carol was is about as clear as what the founding fathers intended in the Constitution, or as clear as whether the origin of the universe was a God or a Big Bang, and 2) we don't see things as they are, we see things as we are.

That said, I would posit that one's interpretation of A Christmas Carol, or just about anything else for that matter, tells us far more about the interpreter than it does of Dickens. 

Gary Rogan writes:

It's interesting that with all of his supposedly anti-capitalist novels, Dickens undertook two trips to America mostly to lobby for copyright enforcement. He also blamed his bankruptcy and later health and financial problems close to his death on being deprived of his rightful royalty stream. Somehow various American software companies and their hyper-liberal billionaire founders fighting intellectual property theft in China come to mind, although they are all in decidedly better financial shape.

Kim Zussman chimes in:

It's not every day you see Jewish pro-Christmas arguments against Mormons; a market top indicator?

The 1938 Christmas Carol is a great film, and if you don't tear up your trading accounts are definitely too flush.

Scrooge's encounters with ghostly futures cause us to ask what is really important. It is difficult to balance the race for money with taking time for things and people who will too soon be grown, old, or gone.

Stefan Jovanovich writes:

"A Christmas Carol" is far less about what our List calls "capitalism" - i.e. pricing by competition - and far more about Dickens' wanting the world to have a universal catcher in the rye and not be like the America he saw in 1842. He was appalled by our slavery and by our insane "push". He was also upset by the fact that, like the East Asians today, Americans were notorious copyright pirates. We were also the source of his growing wealth by being the best customers for his books. During his visit to New York his American publisher and his admirers (Washington Irving, William Cullen Bryant) held a gala in his honor, with 3000 people attending.

Dickens knew almost nothing about business by 1843 (the date of A Christmas Carol's publication) from direct experience or observation. His father had worked in the Navy Pay office and lived on a family inheritance. Dickens' only job in any "dark, satanic mill" was a few months sticking labels on bottles of shoe polish. He then went back to school. After school he worked in a law office as a clerk, taught himself the new short-hand and became a court reporter through a family connection. That led to political journalism. Sketches by Boz - his first book published in 1836 - is a collection of his political pieces for the Morning Chronicle, covering the Parliamentary elections.

The socialism Jeff finds in the story is there; it is the same socialism you find in Thoreau. It came from the same source - Unitarianism - which Dickens became interested in while visiting the U.S. And, capitalism in its modern forms was still in its infancy. It would be another decade and more before limited liability was formally recognized in Britain in the legislation of 1855-1856.

Gibbons Burke writes:

A Christmas Carol is not anti-Capitalist as such. But it makes a case strongly against Capitalism run by capitalists who serve Mammon rather than God. Scrooge, who initially perfectly represents that anti-human form of Capitalism at its worst soul-less excess, is the perfect picture of a seemingly-self-satisfied soul roasting in a Hell on Earth of his own devising, and he seems certainly destined for the eternal flame pit until his heart is converted later in the book. At that moment he becomes filled with the Joy that is the gigantic secret of the Christian (according to Chesterton).

Here is Dickens' initial description of old Scrooge - which seems to have plenty of editorial voltage:

Oh! But he was a tight-fisted hand at the grindstone, Scrooge! a squeezing, wrenching, grasping, scraping, clutching, covetous, old sinner! Hard and sharp as flint, from which no steel had ever struck out generous fire; secret, and self-contained, and solitary as an oyster. The cold within him froze his old features, nipped his pointed nose, shrivelled his cheek, stiffened his gait; made his eyes red, his thin lips blue; and spoke out shrewdly in his grating voice. A frosty rime was on his head, and on his eyebrows, and his wiry chin. He carried his own low temperature always about with him; he iced his office in the dog-days; and didn't thaw it one degree at Christmas.

External heat and cold had little influence on Scrooge. No warmth could warm, no wintry weather chill him. No wind that blew was bitterer than he, no falling snow was more intent upon its purpose, no pelting rain less open to entreaty. Foul weather didn't know where to have him. The heaviest rain, and snow, and hail, and sleet, could boast of the advantage over him in only one respect. They often "came down" handsomely, and Scrooge never did.

Nobody ever stopped him in the street to say, with gladsome looks, "My dear Scrooge, how are you? When will you come to see me?" No beggars implored him to bestow a trifle, no children asked him what it was o'clock, no man or woman ever once in all his life inquired the way to such and such a place, of Scrooge. Even the blind men's dogs appeared to know him; and when they saw him coming on, would tug their owners into doorways and up courts; and then would wag their tails as though they said, "No eye at all is better than an evil eye, dark master!"

But what did Scrooge care! It was the very thing he liked. To edge his way along the crowded paths of life, warning all human sympathy to keep its distance, was what the knowing ones call "nuts" to Scrooge.

The book is available in several illustrated editions for free on Project Gutenberg.

Jeff Watson responds: 

So, in other words, while Scrooge was unpopular, he enjoyed total freedom. That sounds pretty good to me. At least If I had his rep, I wouldn't have to say no to 30 requests for donations a day. Can you imagine how refreshing it would be to perform an essential service, perform admirably in business, deliver superior service, and not give a damn what people thought of you? That would make Hank Reardon proud. It is not a crime to be disagreeable, a skinflint, self serving or any other eccentricity. If we punished men for their eccentricities, Henry Ford would have never created and revolutionized the automobile business, J.P. Morgan would never have risen beyond the level of margin clerk, the old Commodore Vanderbilt would have probably died in a house of ill repute, Barney Frank would have been hanging out on…, and Bill Clinton would probably be in an Arkansas … for a very youthful indiscretion. 

John Tierney writes:

In 1899 Elbert Hubbard viewed the "Scrooges" thusly:

We have recently been hearing much maudlin sympathy expressed for the "downtrodden denizen of the sweat-shop" and the "homeless wanderer searching for honest employment," & with it all often go many hard words for the men in power.

Nothing is said about the employer who grows old before his time in a vain attempt to get frowsy ne'er-do-wells to do intelligent work; and his long patient striving with "help" that does nothing but loaf when his back is turned. In every store and factory there is a constant weeding-out process going on. The employer is constantly sending away "help" that have shown their incapacity to further the interests of the business, and others are being taken on. No matter how good times are, this sorting continues, only if times are hard and work is scarce, the sorting is done finer- but out and forever out, the incompetent and unworthy go.

It is the survival of the fittest. Self-interest prompts every employer to keep the best- those who can carry a message to Garcia.

I know one man of really brilliant parts who has not the ability to manage a business of his own, and yet who is absolutely worthless to any one else, because he carries with him constantly the insane suspicion that his employer is oppressing, or intending to oppress him. He cannot give orders; and he will not receive them. Should a message be given him to take to Garcia, his answer would probably be, "Take it yourself."

Tonight this man walks the streets looking for work, the wind whistling through his threadbare coat. No one who knows him dare employ him, for he is a regular fire-brand of discontent. He is impervious to reason, and the only thing that can impress him is the toe of a thick-soled No. 9 boot.

Tim Melvin comments:

 The question of scrooge and how we view him is one that men of business have wrestled with since the damn story was published. The thing is that Dickens does not paint Scrooge as the example of every businessman. We tend to take much of the Scrooge story out of context, I think. Business itself is not painted as evil or wrong. Was not Fezziwig the owner of a prosperous and successful business when young Ebenezer was employed there in his youth. Judging by the Christmas party it was prosperous business indeed. Yet Fezziwig was a generous soul to his employees who treated then well and asked for a fair days work for a fair day's pay and got it it cheerfully from those in his employ. Scrooge described his time employed there and his boss thusly, "The happiness he gives, is quite as great as if it cost a fortune ."

In contrast Scrooge underpaid Bob Cratchitt and treated him poorly. To say that Mr. Cratchitt could simply look for other employment is as ridiculous a statement as it is heartless. With a large family and a sick child he would be foolish to change what employment he did have by seeking other employ. Given the hours he toiled when would he had the time anyway?

Scrooge is indicted not for being a man of business but for being a man who shuts out the world and pursues only business in a mean spirited way. I greet my lender when I see him on the street. Scrooge was harsh man who was probably the lender of last resort and treated his customers poorly. Good business is a win win were the partied walk away feeling that both have scored a victory in my experience. To have your neighbors ignore you in the street and cackle over yor corpse does not paint the idea that he did business fairly in my mind. To be sure we all have probably made some enemies along the way, but we have made friends as well who would mourn our passing/ not so in this case.

Scrooge is indicted of closing his heart to all of humanity. He chooses commerce over the love of a woman and the potential for a life and a family. He helps no one with a kind word, a gentle lesson or a shared idea. The concept of charity is unique to us all. But hard asses as all of us are, as libertarian and objectivist rooted as we are, would we hesitate to assist a friend, relative or even employee who had an ill child if we had the resources to do so? Which of us would not give our nephew, our only family a visit on a holiday eve or at least a kind word, a lesson in the ways of the world that might help them succeed in life?

Scrooge was not indicted and sentenced to haunting for being a business man. He was convicted of living without love. The love of a child, of a woman, of humanity. He hated himself as much as he hated the rest of the world. Scrooge's crime was not being a business man but for failing to appreciate the wonder that life actually can be. I like so many other readers of this site detest the corporate charities, and I say no quickly and clearly in my best bah humbug fashion. But just like everyone else here there are charities and causes I believe in and donate my time and money. I do not buy the in the give to all philosophy or faceless giving anymore than the rest of you. I do believe in libraries, special olympics and a few other causes and I give. So do you whether it's a church, a cause, a philosophy of a friend in need so quit pretending your are an objectivist hardass who helps no one. Not only is that so much BS, it's a heartless life that would create a scrooge like existence and so far I have met no spec who fits that description.

Scrooge's crime was not business. It was living with love, without the touch and hear of another, without a child's smile, a lover kiss or the hand of a friend. By Dickens account he denied himself all the makes life special. There is no account given of good food, or beautiful music or even good books. Scrooge's crime was not one of business. He was guilty of crimes against life itself. 

Jeff Watson responds: 

(While I agree with much of Tim's premise, I'd like to see the statutes Scrooge violated regarding the aforementioned crimes). If those are indeed crimes that Scrooge committed, I fear the state is on the road to becoming more totalitarian if they feel the necessity to regulate those areas of normal but eccentric human behavior. Again, it's not against the law to be a total dick, nor should the government concern itself with forbidding person to be rude, self absorbed, cheap, hated, or mean spirited. I certainly can't find anything in the constitution addressing this issue. 

Stefan Jovanovich writes:

Dickens wanted women to stay in the kitchen; Hubbard wanted them to own the restaurant.

His company - Larkin Soap - gave Frank Lloyd Wright his first big commission. The friezes on open galleries of the building had these mottoes: GENEROSITY ALTRUISM SACRIFICE, INTEGRITY LOYALTY FIDELITY, IMAGINATION JUDGMENT INITIATIVE, INTELLIGENCE ENTHUSIASM CONTROL, CO-OPERATION ECONOMY INDUSTRY.

Here is Hubbard's story of how he started the Philistine magazine and the Roycroft shops. Begins at page 309



 So at long last the Holiday season is just about upon us. I know the malls and stores started playing Muzak versions of Rocking Around the Christmas Tree before we even sent the little ghosts and goblins out to extort candy from the neighbors but to me the Holidays start with Thanksgiving. It is one of the most perfect of holidays with excessive amounts of good fattening food, oceans of wine, lot of laughter and of course football in the extremis. I am not a fan of the retail rush to Christmas. In fact I hate it. There is no evidence it increases sales or profits and in fact it irritates me to the point I want to slap the crap out of fat guys with beards and short people wearing green on general principle. It's just annoying. As my old partner in the door to door book business used to point out the rest of the year I'm just a grouchy a-hole but this time of year I become some sort of happy-happy ho-ho mother something or another. I write this every year a day or two before the actual day occurs. Tomorrow is Thanksgiving Eve and generally I start cooking the night before. The stuffing gets made and there are onions to sauté, celery to chop and sausage of several varieties that need to be fried and mixed into my savory creation.

There will be butternut squash to whip and sweet potatoes that cry out for roasting and smashing. Others will be getting their junk touched by aggressive TSA officials at the airport, or perhaps posing for suitable for framing portraits of their nether regions in one of the new scanners, as the travel back to hearth and home for the occasion. Many others will be enjoying the spectacle of lights a twinkling…brake lights that is as they endure the back up of turnpikes, beltways and interstates on their way back to the bosom of family and friends. Still others will be jammed into trains and buses as they head home for the company of those they could not wait to escape when they left home in the first place.

It can be a special time. It is a chance to renew acquaintance with the obnoxious cousin you have pretty much hated since birth. We share apple pie and the opportunity for Mom to suggest we need to lose weight and change our hairstyle or pester us about grandchildren we have no intention of bearing. Doubtless Aunt Juniper will pass out in the rocking chair again this year have consumed too much of her the fruit of her namesake berries and it's a safe bet Uncle Herb will pinch your wife on the ass again this year in an annual ritual of shameless buttockal groping. Its a magical time to eat drink and remember exactly why you never liked your second cousins third husband and rediscover all the ways your particular family puts the fun un dysfunctional. All joking aside it is a time for families and for gratitude. We have a bunch of family and friends coming to Chez Melvin this year and we would not have it any other way. There will be wine, there will be pie, a giant turkey bird and all the trimmings my warped little mind can think of to enjoy throughout the day. There will be football. Above all there will be gratitude for all we have and the life we are so lucky to live and share together. We find much to be grateful for this time of year and here is just some of my list.

How can we not be thankful for the magic that is life itself? We lose track of it all someday but life brings so much to love, to savor and to enjoy. It is critical that we do not let the day to day garbage makes us lose sight of all that makes life so simply wonderful. There are full moons, sunsets and as I have discovered this year sunrises you can see without staying up all night (more on that later). We live in a world that has books full of knowledge, adventure dreams, hope, answers, questions, poems, relaxation and inspiration. We have music from the soul solacing sounds of Mozart and Beethoven to the gut crunching guitar licks of Stevie Ray and JJ Cale, We can enjoy the melodical pattern woven by John Coltrane and the lyrical twisting of a Lyle Lovett (how can you not love a line like "I'd ride my pony on my boat) song. There is food of every description from steaks on the grill done to a sizzling perfection to seafood fresh from the bay and everything in between for us to enjoy and fuel our journey through the days.

More than ever I am grateful for friends of all stripes. We live in a land of slow breezes, fast boats and quick laughter here on the island and I have been blessed with incredible friends. The mix of people I am fortunate to call friend ranges from the married up tire guy to the Mr. Clean look alike firefighter, form the goat and the shacked up freeloader to the bread man, from tic tacs and meatballs to cupcakes and wedding planners ,crack babies to shaky electricians and just about everywhere and everyone in between.

Friends goes beyond the island as well. There is everyone from the irascible curmudgeonly options trader to the cheese head and they have all added much to my life. The world's only Iranian Jew was just here for a visit just before he went into viral celebrity for a brief but good visit. The handicapper is in NYC running stock market cartoons and projecting some sort of lines on charts, the spread trader stops his fun filled journeys to war torn nations and famine stricken banana republics long enough to check in from time to time. The Wiz and the Professor are still doing exactly whatever it is they do to hammer on the markets and the chairman still does his best to deflate ballyhoo and avoid hoodoos of all stripes. The counter count, the chartists chart and the opinionated opine and I am happy to call them all friend. They have added much to my life and my world.

Of course I am grateful for my children even when I am contemplating locking them in a dank dungeon full of James Joyce novels and leaving them in there until they can rationally explain Ulysses to the average person. My son's twisted sense of humor and sarcastic mannerisms hide a sharp mind and a kind heart. I probably do not tell him enough but I am proud of him and the success he has already begun to achieve in his short time here on the planet. His mind naturally grasps the concept of business and profits and he is wise far beyond in 22 years in the ways of commerce. My daughter still has her too loud infectious and a voice that climbs a decibel with every sip of wine. She is adamant about being a teacher and has shown a perseverance and determination to reach the goal she set for herself. She has overcome the five years of being sick, worked her way through the first few years of school and is now at 26 finally a full time student closing to reaching her goal of being broke and happy as an elementary school teacher. I am plotting to get Tim Hewson to immigrate and marry her so I don't have to pay the extras for the rest of my life. I figure if we are going to have an Ayn Rand loving libertarian school teacher in the family we might as well add an Irish trader with good taste in booze and books. I love watching the two of them continue to grow and learn to love life. Now If I could just get my son to read a book.

There is an addition to the list this year. There is now a seven year old step daughter in the mix and the madness here at Chez Melvin. This energetic young Mensa candidate is either going to keep me young or wear me out in short order. She is a blonde haired, earlier rising sweet heart of a girl named for an Irish cattle stealing Queen and she is a welcome addition to the family. As a sign of her extraordinary intelligence he adores Lisa already, is getting used to her step brother and is altogether unsure about myself. Told you she was smart! She is a reader, with a sharp mind and loving heart who adds much to our family mix.

With a stepdaughter of course comes the person for whom I am most grateful this year. After giving up on the concept of ever finding someone who could put up with me it actually happened this year. I met the one person I really think I was destined to be with for life and maybe even beyond. I will spare all…okay some…of the romantic sappy stuff but when I look into Erin's eyes I am sure I have had my last first kiss. We met in May, married in September and I cannot imagine my life without her ever again. She is everything I never thought I would have in my life. I was not looking anymore but the universe put her in my life and she has become my world. Above all this year I am thankful for my wife and the love we share and the grand adventure of life we have before us.

Life has its bumps and bruises. Almost nothing is going to go as planned. Life is unpredictable. Quit bitching about it and enjoy the journey. No matter your circumstance of current situations there is much about life for which to be grateful. There are raucous nights and quiet Sunday mornings. We have grand symphonies and party time rock and roll. Here is knowledge to be gained and lessons to be learned. There are bright sunny days for play and majestic rolling thunderstorms to watch in awe. Life is here like or not. Learn to embrace it, to enjoy it and above all to be thankful for it as this holiday of gratitude comes upon us this week.

I will lift my glass to you my friends on Thursday. I wish for you to have laughter and love, a thirst for knowledge, a zest for life and above all a sense of gratitude for the many wonderful moments that make up our lives and I thank you all for being a part of my life. I am off to pour a glass of wine and begin to slip into my happy happy ho-ho state of mind.



 It's become popular in this community to bash the Fed's QE– and most recently, the story championed by some is that the Fed is "giving away taxpayer money" to the primary dealers with the mechanics of its open market purchases. This hysteria reached an embarrassing climax when the Chair chose to post a Daily Spec Website link to Zero Hedge's entirely wrong article on the subject entitled "Is QE2 a Stealthy $90 Billion Gifting Scheme to The Primary Dealers?"

I am not a fan of QE, however, the facts are quite different from the conspiracy theorists' allegation regarding the costs and mechanics.

Here is a link to today's open market operations.

An objective observer notes that the largest purchases were in securities that were between 2 and 5 basis points CHEAP on the curve. An objective observer further notes that there were no purchases in quite a few securities — and on balance, those securities were rich spots on the yield curve. Furthermore, anyone with a Cantor-Fitz broker screen can see that all of these securities trade with a 1 to 2/32 bid-ask spread.

My conclusion is that the open market desk today did a fairly good job at buying securities that represented relative value on the yield curve. And even if the NY Fed pays the offer side on its entire 600 Billion QE, that bid/ask spread totals about $187 million. That isn't chump change, but it is materially smaller than the savings which they can achieve by picking "cheap" points on the yield curve.

If the community wants to debate the philosophical and economic issues at stake, that seems productive. But I hope these facts will put to rest the baloney that the NY Fed has handed a $90 Billion gift to the dealer community — as Zero Hedge wrote — and which Mr. Rogan and the Chair gullibly accepted.

George Zachar writes:

It's been known all along that Goldman's branch at Liberty Street tends to buy the "cheap" parts of the targeted curve segment. It's childsplay for dealers knowing in advance the outlines of the NY Fed buyback program to accumulate the "right" securities, certain they'll face a forced buyer in the near future. The size of this "edge" is only known by the P/L clerks around the street.

Even if it's "only" a few hundred million dollars, it's becoming increasingly hard to view the current matrix of finance/govt interlocks as anything but a brazen conspiracy to loot a defenseless public.

Tim Melvin writes:

Of course there is NO chance the dealers bought those securities a couple of days ago and sold them "cheap on the curve" today. Such a thing would be unheard of on Wall Street. 

Rocky Humbert replies:

In the event that some members of the community have never run a treasury arbitrage book, I'll let you all in on the dirty little secret of how it works: (1) buy the stuff that's CHEAP. (2) short the stuff that's EXPENSIVE. (3) Pray that the repo-clerk doesn't screw you on the financing. (4) Wait for a real money (i.e. Pimco, Fidelity, OR THE NY FED) account to close the arbitrage. It's always nice as a broker dealer to avoid paying the bid/ask spread, however, if even LTCM (a non-broker-dealer) had stuck to this strategy, they'd still be in business.

Mr. Zachar seems "shocked - just shocked" that Goldman might buy the cheap part of the yield curve in the course of its market operations. But that is the job of a treasury trader — QE or no-QE. I'd also remind him that primary dealers are REQUIRED to provide a bid and offer to the NY Fed — whether or not they have inventory. I feel some sympathy for the hapless mid-curve trader who had to make an offer on $2 Billion of the 9%'s of 11/18 — since that issue is probably held by a bunch of widows and orphans, and the dealer would have been stuck paying a reverse rate for god-knows-how-long.

I am skeptic about the efficacy of QE — for a variety of macro-economic and feedback-loop reasons, but I refuse to stoop to unconvincing hyperbole such as "looting a defenseless public." Whatever happened to the ballyhoo deflation and the scientific method?

George Zachar recovers:

I traded on-the-run mortgage-backed securities at primary dealers for a decade…"shocked" is not exactly how I feel.

The "dirty little secret" of primary dealer flow trading is that front-running inflexible counter-parties is a central strategy. Not news.

One problem with QE2 is that the primary dealers have sympathetic decision-makers on the other side of the trade who are not trading their own capital, or even client capital that is accountable. The dealers are blissfully front-running the taxpayers of the US, with their own pals facilitating the trade.

As someone who owns high-end real estate in NYC, it is very much in my interest for the local swells to fleece the broad public, keeping a bid under my assets.

That doesn't alter the nature of what's happening to the nation's taxpayers. One man's clever arbitrage P/L is another's "looting the tax payer".

Vince Fulco writes:

On the eve of the GM deal and near the holiday season, a fine American like Rattner reminds us of all WE have to be thankful for w.r.t. the actions taken by the Bush and Obama admins. Reminds me of the recurring historical magazine cover which keeps popping into my head…anyone remember the line from National Lampoon in the 1970s, "Buy the magazine or we'll shoot this dog!"




The Knicks are able to lose when being up 21 points very readily. They do so because everything is up for grabs as they try random 3 point shots more than any other team, and with about the least accuracy. The coaching they get is the worst in the world. Their performance reminds one so much of what happens when a market opens up 1% more after an up day. Slowly, gradually, the ineluctable happens.

Tim Melvin writes:

This was far from being just another Knicks loss. The game was historic. Keven Love had the first 30 pr 30 rebound game in 28 years….



 I'm sure we'll never agree on who was the best but I ask you not to forget Minnie Minoso. He had some great stats although he never had an opportunity to play in the "bigs" until he was 28. (And continued on until he was 65.)

What made Minnie stand out was his determination to get on base. If the White Sox really needed a runner or Minnie was in a slump, Minnie had the sure-fire way to get on base.

He just stuck his head over home plate and took one in the ear, got up, and jogged to first (and frequently stole second). Led the league in this category 10 times, Never saw that in the Yankee Clipper, the Man, the Mick, or the Splendid Splinter.

Stefan Jovanovich writes:

Yogi Berra - Minnie Minoso story: Whitey Ford was starting for the Yankees and they were playing the White Sox when they had their great 1950s team. Ford throws the first pitch - a fastball - and Luis Aparicio lines a single to center. Nellie Fox comes up and Ford and Yogi decide to switch to the curve ball; Fox hits if off the right field wall for a double, Aparacio scores. Minnie Minoso is next; and they decide to go soft ball. Minoso hits the change-up into the left field bleachers. 3-0 White Sox. Casey Stengel decides to invite Yogi to join him in making a visit to the mound. "How we doing, boys?" he asks Ford and his catcher. "Well, Skip," says Yogi, "Whitey's mixing up his pitches." "Yes," says Stengel, "but how is he doing?" Yogi answered: "I can't really say. I haven't caught any yet."

Jeff Watson comments:

Not wishing to diss the Mick who's easily in my top ten, but my favorite person in baseball of all time would have to be Ty Cobb. Not only was he was a great rough and tumble, aggressive ballplayer, he was a sagacious trader who died rich off of his investments. Cobb had a "need to win," part of his make-up that came straight from his gut– it's too bad that he had more than a few character flaws. But then again, one could make an argument that his flaws were a sign of the time….apologists make that argument for Jefferson all the time. 

Tim Melvin writes:

My favorite Cobb story from wikipedia:

Cobb's competitive fires continued to burn after retirement. In 1941, Cobb faced Babe Ruth in a series of charity golf matches at courses outside New York, Boston and Detroit. (Cobb won.) At the 1947 Old Timers Game in Yankee Stadium, Cobb warned catcher Benny Bengough to move back, claiming he was rusty and hadn't swung a bat in almost 20 years. Bengough stepped back, to avoid being struck by Cobb's backswing. Having repositioned the catcher, Cobb cannily laid down a perfect bunt in front of the plate, and easily beat the throw from a surprised Bengough.

Sam Marx writes:

It is usually agreed that Ted Williams was a better hitter than Joe DiMaggio, but what quality is it that allows a lesser hitter, like DiMaggio, to have hitting a streak of 56 games whereas no other hitter ever came close. I believe DiMaggio also had other long streaks of hitting in games including when he was in the minors. 



 One of intelligent honest things that Livermore did was to get out of one market by selling a related market, inducing the other traders to think that there was weakness in one market which would carry over to the related market. The art of indirection and letting people use their own intelligence and inferences to come to their own conclusion. for example if he wanted to get out of cotton, he'd sell some coffee. If he wanted to get out of a common, he's sell the preferred or a related company that owned a big chunk of it, like sell Christiana which owned general motors et al. This technique one wonders how often is it used today. When it happens, is it artful indirection or chance? How to quantify and what predictions to be made? Would the robots be smart enough to do this?

Anatoly Veltman writes:

There was a moment in late 80s Energy trading, when legend has it that a great admirer of Livermore who runs a venerable hedge fund near New York was Bearish to the tune of 40,000 lots. If you think it's not much, just remember that Exchange limit for open speculative position in any contract was 6,000. Of course, his positions were in all possible inter-month spreads and across products. So once decision to cover was made, he picked up the phone and asked for the cockiest trader in the Crude pit. "Are you a man or mouse?" Trader thought it was a prank: "Come on Paul, what do you want?" "I'll give an order to sell 1,000 market, and I mean worst. But if I don't see Crude print through even– they're all yours! Do you accept?" 

Tim Melvin comments:

Smart enough? Its one of the key concepts the black box guys I have spoken to use every day? I am not a programmer, nor do I play one on TV but it seems to me that a good one could set that up in short order…. 

Jeff Watson comments:

One technique still used today on a limited basis is to buy or sell a large order in a single batch and see how the market digests it. A trader can glean a lot of information about direction by seeing if his bid or offer is gobbled up or many of the same order comes out of the woodwork. This method worked great when the pits were active, and still works somewhat in the computer age. 



 One 's first thoughts upon a trip to Walt Disney World with a four year old son (and the 5 and 7 year old daughters of some very good friends) is that the magic and happiness trumps everything with the little boy and the parents settling into the rhythm of creativity, joy, excitement and healthfulness of the experience. The attractions are beautiful and modern, the cast is friendly and helpful, the little girls are all dressed in their princess costumes and the boys are screaming with delight at the thrilling rides, the parks are filled with an up to date diversity of fun and educational events, teenagers are reveling in their favorites shows and games, and the guests are a cross section of the world that makes you jump for joy at the down to earth enjoyment they can take in something this good, and their productivity in being able to afford this delight.

Particularly heartwarming is the effort taken to give the ubiquitous handicapped memories and undoubtedly the happiest times of their life. The parents were also pleased with all the modern efforts to provide healthy foods, with toffuti, hummus, fresh fruits, and sugar-free commestibles available at almost all locations.

I have 7 kids and all of them have been to Disney multiple times. They look back on their vacations there as among the best and most formative experiences of their life. The four year old boy at first was frightened by all the noise and the discordant notes of all the music, and scariness of the rides and the long waits. But after a few days, he settled into the rhythm and he particularly enjoyed the parades, the Jungle Cruise, the moving sidewalk, the movie ride, the circular garden dinner and fountains at Epcot.

 And yet, I was seething after visiting the Hall of Presidents. The show is narrated by Morgan Freeman, one of the 2 or 3% of the visitors there of his color. The history of the presidents presented would be something you'd expect from Russia in the 1970s with a skip from George Washington to Andrew Jackson and then to the two Roosevelts, with lionization of their efforts to stamp out monopoly, save the country from greedy businessmen, and attempts to take from the rich and powerful and give to the weak permeating and enveloping the whole thing. Particularly loathsome was that the talking was at least 50% devoted to the current president and FDR, the two most agrarian Presidents in history. The collectivist bias of Disney in this show was consistent with the anti business movie that Disney just released about Wall Street, the well known anti business attitude and ego mania of its previous president, and the scary remake of Alice in Wonderland that made the whole show a roller coaster ride of scary escapes rather than the coming of age and creative, thoughtful adventures of a girl trying to cope with the world of the original.

Walt Disney himself, after hatching the idea for Disney World in the 1950s, arranging the financing to buy 40 square miles of swamp land, planning every detail of its infrastructure, managing to buy the land through dummy corporations so that all the land holders were happy to sell out for a song the swamp land they bought in 1912 from the Munger corporation for 5 bucks an acre, never lived to see Disney built. Mrs. Lilian Disney said that he would have been happy to see how it turned out. But how he would turn over in his grave to see the anti business, collectivist bias of the executives who have taken over his idea and made it consistent with the idea that has the world in its grip. (It is interesting to note that Eisner refers to his partnerships with Warren Buffet and Charlie Munger as helping him climb the ladder of success at Disney).

Of course, the Disney parks are a mere 25%, of the total Disney revenue of 40 billion a year, and an even lower 15% of profits. Disney itself is mainly sparked by its 100 million cable television subscribers that accounts for 60% of its profits. When they bought ABC, Eisner admitted in that self deprecating mien of the chronic egomaniac that the top guys didn't even know what ESPN was. But now they do, and the analysts that follow Disney and their capital expenditures of 10 billion here and 5 billion there to develop content make the company a play on the public's addiction to sports. Not to be gainsaid of course is the incredible feat of their movie division to have two billion dollar + revenue producers in one year in Alice in in Wonderland and Toy Story. And they continue to follow their mantra of making all their movies for 1/2 the price of any other company, and then tying it in with every aspect of their operation from parks to gifts to licenses.

Indeed, Disney is the very model of a perfect modern corporation. Its stock at 33 is near its century high of 37. It's up some 3500 % from its offering of 1.3 in 1981. It's near its all time high of 43 from 1997, and its revenues and profits this year are up at least 15% in all areas except theme parks. You have to admire the way this company like Apple has adjusted to modern times, and captured the idea that has the world in its grip, and the things that animate kids of all ages in our current generation.

Tim Melvin adds:

 The best trip I ever took to Disney was in early 2009 with my adult children. They still thrilled at the spectacle but were able to appreciate the effort and industry that goes into the enterprise that is Walt Disney World. Thankfully the hall of Presidents was closed or odds are my Ayn Rand loving daughter would have gotten us all arrested. Disney will always be on my buy-in-a-crash list. My sum of the parts for this stock is right around $38 bucks and when it drifts below $20 in a melt down (this has happened twice in the last decade) it paid off huge on both occasions for those who saw the merits of the mouse at such a level.

Steve Ellison comments:

In the Disney parks, everything is part of the show. I was at Disneyland in 2000 watching Honey I Shrunk the Audience when suddenly the action stopped, and I heard an announcement: "We have had a power outage. Please exit through the doors on the right." I assumed it was part of the show and wondered what would happen next. It was not until the doors opened and people started walking out that I realized there really was a power outage (one of many in California after the failed attempt at partial deregulation of electricity). 

Anatoly Veltman writes:

I take my kids via motorhome every Winter and Spring breaks: can't beat this destination weather-wise. I don't deem them mature enough for busy Disney Parks; ever since my first visit in 1980, I always thought of Epcot (and later Studios and Animal Kingdom) as a prime education destination. Smaller kids love watery fun of Grand Floridian, Polynesian, Caribbean, Coronado, Saratoga, Boardwalk, Orleans, Key West, Swan/Dolphin. You can access all these via comp buses, boats, monorail. The only resorts really limited to guests are Beach and Yacht Club. Feel free to quiz me for hints, or read up some more general wisdom at MouseSavers.com

Vincent Andres adds:

The picture on DailySpec triggers some analogy. The river is fake and the little boat moves only thanks to a especially built Deus ex machina. Our occidental "capitalist" world is also, for long, a true Disneyland. The main Deus ex machina are our debts and all what our master fakers are able to do with our "major" currencies. But if the debt flow slows down, we'll soon have our little businesses/boats slowing down also.

We though we were good car sellers, but was it really this difficult when our customers get /in fine/ there money thru loans or money printers ?

I'm confident our master fakers are doing all there possible for our deus ex machina to continue to work properly, but it seems the Mississipi debt river is now slowly founding more fertile soils to irrigate. (Spain just downgraded by moody's.) Let's hope our second fake motor will not also have problems.Little boats and there passengers begin to stamp.



6.73%, from Steve Ellison

September 8, 2010 | 1 Comment

Where can one find a decent return on investment? 3-month U.S. Treasury bills yield 0.13%. 10-year U.S. Treasury bonds yield 2.71%.

The expected earnings of the S&P 500 over the next four quarters are 74.30. At current prices, the expected earnings yield is 6.73%, nearly 2 1/2 times the 10-year bond yield. This "Fed model" ratio was below 1 for years in the 1990s.

Alston Mabry writes:

In early 2000, if you aggregated the top 10 companies in the NASDAQ 100 into a single virtual company, that company had a market cap of $1.6T and sold for 14.7 times revenues and 83 times earnings, for an earnings yield of 1.2%. It seemed like a pretty rich valuation, but people were willing to pay it– for a time. Who's to say the yield on the 10-yr won't go to 1.2%?

Tim Melvin writes:

While not disputing that there are opportunities in today's market, anyone who bases any decision on expected earnings is making a foolish mistake. The margin of error on these estimates is incredibly wide. 

Stefan Jovanovich writes:

Big Al's speculation about how rich the valuation of bonds can get finds some confirmation in the modeling of Marcelle Chauvet — another of California's intellectual property imports.

Rocky Humbert writes:

Quick, back of the envelope, the R-squared between the professor's recession index and the closing monthly bond price is 0.18. The r-squared between the professor's recession index and the closing monthly spx price is .16. If I lag the bond price, the r-squared drops to 0.03

The Professor's Index seems to be as useful as a blind man looking in the mirror….

Which means ….that bonds may yield 1.2% … or 3.2% … or …. ???

Tyler McClellan writes:

Time for the repeating track,

The real return to bonds in the 20th century (relatively long time horizon) ex post does not substantiate the claim that we are at an unusual place vis a vis the return to savings in the government bond market, which is the market for which there is much ability to coerce the means of paying this debt regardless of the source of economic prosperity from which it does or does not arise (I am quite confident unique in that stead, and the reason why anyone who has done a deep study of social security/etc… know that there is very trivial difference in the end between fully funded, pay as you go, etc..we get the prosperity we get, period.)

Future inflation expectations do seem to be very historically unusual in both their low mean level and the historically unusual international dispersion around this level.



If you have not read Life and Fate by Vasily Grossman do so ASAP. Available on Amazon. the book was banned in the Soviet Inion and is as powerful as Ayn Rand. Fantastic novel with many life lessons.



J RobinsonWhat can we learn from baseball that is applicable to markets?

In looking at how to hit for Aubrey, I focus on posing and gaining potential energy by moving the back foot back or lifting the right foot up before hitting the ball. Also holding the head directly at pitcher, and the trigger point. Also following through the ball with the bat following it on a line before snapping up. I don't know anything about baseball but all this seems applicable.

Please augment. We have quite a few experts on baseball who read this site and the All-American also.

James Lackey replies:

They don't teach you to lift your foot up anymore when you bat. You use a wide stance, and you pivot your back foot towards the pitcher and snap your hips. Some teach you to pivot your back foot on the ball of the foot, with you front foot on its heel while swinging, and you end the swing with your feet pointing to the pitcher. My son's 11-12 year old hitting coach had a hard time retraining my kid. He cut a 1" piece of PVC pipe the length of his shoulders made him stand over it and do a zillion swings to get his front foot down before he could snap his hips. We were all taught to keep your elbow up, use a narrow stance and step into the pitcher.

J.P Highland comments:

Being able to choose the pitchers we want to face gives us a great advantage over baseball hitters. The Nymex's pitching rotation is my favorite. They like to intimidate batters with lightning fastballs but their stuff suits my swing, as opposed to the tough off-speed pitches ES has mastered that have victimized me so often.

James Lackey adds:

My kid was born with a cannon. I knew it at age four when he threw me a hardball. By 10 he could throw from the fence to the catcher. He was a good pitcher at 12, but his coach would always yell at him over the top when he lost control.

Now what I do not quite get is that his football coach yells at him at practice to quit throwing a baseball. It's how quick you release to give the defenders a chance to attack. My son explained to me how it works, but I still do not get the mechanics.

The only good thing to report is I have never been his football or baseball coach only dirt bikes. So naturally he loves team sports.

Tim Melvin writes:

I'm not a much of a pitcher as I have a noodle for an arm and always have, but in the excellent baseball book featuring John Smoltz and Mike Mussina we learn that speed, location and deception are the keys to successful pitching over time. I am not just talking about power speed either. The Nolan Ryans are the one off Soros and Buffets of the baseball world. The ability to vary speed and move the ball around are the key to long term success.

I shall leave you all to draw you own market conclusions as there are many that leap to my mind.

Scott Brooks comments:

Good pitching isn't about overpowering batters and striking them out, it's about throwing the ball so that the batters make bad contact, and then letting your fielders do their job.

Stefan Jovanovich writes:

 Albert Pujols does both old and new school. He has his right foot turned 45 degrees towards the pitcher, the right knee bent slightly, the hands held back and high (at the top of the strike zone), the right shoulder held above the left, with the bat vertical. When he unloads, the left foot and hips do a quarter turn, the right shoulder drops slightly as he throws the bat at the ball, and the bat stays level to the ground for the full travel across the plate. In 4 days against the Giants he made one bad swing: when Matt Cain threw him a 1-2 slider down and away. He absolutely ate Barry Zito alive even though Zito now has game back and had no trouble at all with the rest of the Cardinal lineup. Theoretically, you could throw him changeups and curves down and away; but, when Lincecum tried it, by the 2nd at-bat, Pujols was hitting doubles down the line in right. It was like watching the Yankees try to pitch Williams inside (with his long arms and height, he should have been vulnerable) and watching him take the ball early and park it in Ruth's pavilion. Yo-Yo Ma with a pine bow.

Pitt T. Maner suggests:

This article which I quote from was interesting in light of an optical illusion I had seen a few days earlier on the internet. Many years ago I had read stories of knuckleballers who had pitches where even they themselves were not sure of the ball's pathway to the catcher's (often oversized) mitt.  This story has a bit of that mysterious, "unhittable" pitch reminiscent of Plimpton's April Fool's hoax:

"DiFelice grips the ball across the seams, like a four-seam fastball, and tilts it so his middle finger rests along the red stitching. He squeezes the ball with his middle finger, raises his index finger and throws it as he would a fastball. The result is confounding: The ball spins like a fastball and moves like a slider, and the optical illusion it plays on hitters allows him to get away with throwing an 82-mph pitch the batter knows is coming."

And here is the optical illusion (best illusion of the year in fact).

How would you learn to hit such things? Would you need to learn to selectively ignore information coming from your eyes?

Phil McDonnell writes:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

The real reason for the foot lift is that it enforces a good weight shift. When the foot is lifted all of your weight is on the back foot by necessity. This allows the weight to start on the back foot and shift to the front foot. The weight shift adds power to the swing by starting the twisting motion of the body and the hips. Fundamentally the power is generated by the centrifugal motion of the bat. The center of that motion is the twisting of the hips and body.

There is another subtle but important aspect to batting. That is the need to have a good follow through. The key is the hands. If you do an imaginary swing with your hands you will see that when you fully extend your left hand in a follow through that your right hand cannot stretch out nearly as far as the left (for righties).

This compels two types of follow through motions. The first kind is simply to break the hands. The follow through continues with only the left hand still holding the bat as the right hand is released. Reverse for lefties.

The other type of follow through involves a roll of the wrist. Basically the right wrist rolls over the left as the bat passes to the left of the body. The object of either finish is to keep the bat moving even after it is in contact with the ball.

The one follow through technique that is bad is to keep both hands on the bat without a roll. If you try it you will see that you get a hitch in your swing just about when the bat handle passes your body.

One little known, but good exercise is to simply swing a light bat 50-100 times with your left hand only. The left hand is an important hand for guiding the bat. The left tricep is the important muscle for this motion. This exercise is best started pre-season because it often leaves the tricep sore after the first few times.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Jeff Watson adds:

 With much ado regarding the merits of different pitching styles, and the physics of different type of curves, knuckelballs, fastballs, and sliders, I'm surprised that nobody has brought up the pitches of Gaylord Perry and Joe Niekro. Perry allegedly did wonders with a spitball, and when the heat came to tough for him to bear, he replaced spit with Vaseline. Perry was constantly hounded by umpires his whole career, and had to develop different methods for hiding his illegal substances after the 1968 ruling regarding wiping the mouth before a pitch. The spitball was one of those pitchers that made the ball seemingly disobey the laws of physics, and was hard to hit. Perry and pitchers of his ilk had deceptive moves down to a science, and whether they threw a spitball or not, the batter was never sure. The market has shown similar characteristics in the past and present, where following the rules is winked at. Certain reports are released early by officials to their friends, and nobody really says anything. Naked short selling was allowed until it was apparent that there would be a possibility of the whole financial sector going to zero. The market players just had too much of an advantage over the public and the rules had to change, much like they did in 1968, and much like little things like the height of the hill being modified from time to time. Even after the rules are changed, in baseball and the markets, people still try to cheat. Niekro was caught red-handed by the umpire after he was searched for an emery board, and it flew out of his hand onto the field. That was one of the classic moments of baseball.

Stefan Jovanovich responds:

 Niekro used a piece of emery board to scuff the ball so he could get a better break on his curve. That was what he was throwing away when he was caught. Perry used perspiration from the back of his neck to load the ball so his sinker would have more drop. (He would take off his cap and run his pitching hand over the back of his head and down to adjust the top of his jersey). Baseball, being like the SEC, had and still has elaborate rules that are utterly useless in terms of actual cheating on the mound. For example, the pitcher cannot go to his mouth while standing on the mound (automatic ball to the batter; balk if there are men on base); but he can still walk off the mound and lick his fingers all he wants. However, since saliva doesn't work nearly as well as sweat (which is much heavier because of the salts and dries more slowly), the anti-spit rule itself is pointless. The spit ball was outlawed was the one where the spit the pitchers used was loaded with chewing tobacco.

The idea that pitchers used vaseline is a media urban legend. There is no question that the stuff could be useful; but you would need a towel boy with soap and a basin of water that you could go to between pitches so you could clean off your hands. However, since the batters - who are always looking for an explanation for their inevitable failures - never figured this out (not being particularly concerned about hygiene), Perry and Early Winn and others always made a great pretense of using it. Perry still does; but you can hardly fail to notice the twinkle in his eye whenever he gives his seemingly evasive answer to the latest interviewer.

In my next life I want to hit against the pitchers on Dr. Phil's team. Everything he wrote is wrong. The knuckleball wobbles because it has no gyroscopic balance. It has no gyroscopic balance because it has no spin. The pitch is thrown with the ball held by the nails so that when it leaves the hand there is no friction with the skin. The trick is in holding the ball with the nail of the thumb; that is the part of the grip that defeats most people. (This is why nuckleball pitchers are fussier than manicurists about their nails; they want them trimmed so that they perfectly fit the curve of the ball.) The pitch is called a knuckle ball because when you have the proper grip the knuckles all stick out on the pitcher's hand. That also makes it instantly noticeable so there is no deception whatsoever about what the pitcher is throwing. If the ball has any rotation at all — even the magic reversible one from the "sail effect of the seams" that Dr. Phil has discovered, then the pitcher is in for a world of hurt because the pitch becomes a batting practice fastball (think Tim Wakefield pitching relief against the Yankees in the playoffs). All the other pitches Dr. Phil mentioned — the palm ball, fork ball, split finger — do have spin; they have to because the pitcher has to control their location. The knuckleball and the true 95+ mph fastball are the only two pitches where the pitcher can say "here, hit it" and not worry about where he or she throws it. (Some day some bright woman is going to learn how to throw a knuckler!) What the palm ball, fork ball, split finger all do is change the velocity. By holding the ball against the palm or jamming it down between your fingers, you lose some of the whip from your release. The circle change has the same effect; by holding the ball with all 4 fingers, you lose speed while keeping the same arm action. The cut fastball that Pitt posted about earlier is different; it is like the screwball. You are throwing the pitch with the same speed as a fastball but with a different rotation.

Phil McDonnell remarks:

 Curve balls really do curve. There are many proofs of this but the simplest is the center field TV camera where the resolution is too poor to show the spin, but the curvature is obvious. If the viewer cannot see the spin then it is difficult to explain how it can be an optical illusion.

Basically the curvature comes from the spin of the ball. The easy way to remember is that the direction that the front of the ball is spinning is the direction of curvature. A pitch that is thrown with a right to left spin will curve to the left. A pitch that is thrown with a down and to the left spin will break low and away.

The spin exerts a small orthogonal force on the ball as it speeds toward the plate. This force is governed by Newton's equation:

Force = Mass * Acceleration

Note that the last term is the acceleration not the speed of the sideways movement. The ball actually curves at a faster and faster rate. Thus the most deceptive part of the curve occurs right at the point where the batter swings.

The knuckle ball is a bit different. The idea of a knuckle ball is no spin. What happens is that the seams act as little sails that catch the passing air causing curvature in one direction or another. Naturally the seams also cause a very slight rotation of the ball until the another seam comes around. The effect is that the ball begins to curve one direction and then as the seam changes it actually begins to curve in a new direction. From the batter's perspective the ball can appear to wobble. Other times it can fly off in one direction or another in a strongly curving manner. Even the pitcher does know what it will do. The knuckle ball is not the only grip that results in no spin. Others can be the fork ball AKA split finger fast ball and the palm ball.

Another deceptive use of these no spin pitches is that they can be thrown just like the pitcher's fast ball. If the batter has previously timed the pitcher's fast ball then he will likely start his swing based on that timing only to be fooled by a ball arriving slower than expected. So even if he is not deceived by the wobbles of the ball he may be swinging too early or need to hold up his swing and lose critical power.

In many ways these change up style pitches are reminiscent of the deceptive action of the seemingly dead market last Friday which suddenly exploded to life in the last seven minutes of the trading session.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

George Parkanyi comments:

In pick-up ball where it's pretty easy to hit, I choose the direction I want to go by adjusting my back foot. If I want to hit to the opposite field because I'm being played to pull the ball, then I'll drop my back foot further away from the plate, which turns my torso to slightly lag my swing and "point" the direction of my "power" through to the opposite field. If I want to hit to center I line up parallel to the plate, and if I want to pull the ball, I move my back foot closer in toward the plate. If you connect well with the ball, it will go in the direction of your set-up. Against a professional pitch, I think I'd be happy just to touch the ball — perhaps even just to see it.

Dean Davis writes:

The most critical thing you can teach Aubrey is to avoid moving your head forward (toward pitcher) in the process of moving from a loaded position to the striking the ball. This is often the result of a hip shift which moves weight to the pitcher side of center (this destroys a hitter's power). The timing of hitting a baseball is difficult enough without ceding an advantage to the pitcher by destroying his stereo-vision by moving your head forward.

If you can get him to solidly place his stride foot slightly closed (closer to the near edge of the plate than the back foot), before he starts his swing (done by merely rotating the back heel low to the ground until pointing away from the pitcher), you will avoid him having to relearn the swing when he gets to a select/traveling/high school team later in life.

The Texas Rangers pitchers are taught to throw the circle change where they are attempting to "throw the O" (the circled index finger & thumb) at the target (pushing the index finger down to close the O at release). This means that their middle three fingers are are pointing at one of the dugouts as the shoulders are square to the target. That exaggerates the screwball spin and drop. Index finger should lay across the seam.

I teach my pitchers (age 11 & up with longer fingers) to have the same grip (floating the the middle finger off the ball if possible, substituting the ring finger for stability), throw it like a fast ball (the hand is more behind the ball when coming over the top) and emphasize the index finger pressure through release. They get the same screw ball action and drop as the major leaguers (to a lesser degree). When thrown by a righty to a righty (or lefty to lefty), it is a devastating "out" pitch (thrown on a X-2 count). My pitchers love to see the hitter "corkscrew" into the ground trying to make any contact.

Here is an interesting interview with Mike Basich (gave up record breaking HR to B Bonds) about how pitchers cheat (he names names!)

Steve Leslie contributes:

A great lesson that one learns from baseball pertaining to the markets is in the area of hitting. There are many different types of hitters those who are contact hitters for example and those who are home run sluggers.

Many consider Ty Cobb the greatest hitter in the game. He had a lifetime batting average of .367 over 24 seasons. This is the highest career batting average in the major leagues. He also had 724 doubles 295 triples and 117 homer runs. Through that whole period of time he had but 357 strikeouts. He also stole 892 bases. With the exception of his first season in the majors he never batted below .300 and his peak performance was in 1911 with 248 hits and a .420 average. He also held the batting title 12 times with 9 in a row. Ty Cobb forcused on what he did best which was hit the ball, put it in play and as a result of this dedication maintained a productive career that lasted a quarter of a century.

After his retirement, Cobb was a very wealthy man having been advised by executives and others in the Detroit area how to properly invest his money. He went on to invest in stocks and was a major stock holder in the Coca Cola company.

The lessons for the investor is that success in the markets is a lifetime pursuit. It is showing up for work every day and dedicating onself to the task at hand and utilizing the particular skills and they have been blessed with. Ty Cobb had a very productive and successful career because he concentrated on what he did best and he did it very well. Year in and year out .

Phil McDonnell admits:

Yes, I did pitch for Cal in the PAC-10. We actually won the conference when I played although only slightly due to my minor contribution. Since that time I coached about 50 kids in Little League. Of those, five players were drafted into the Major Leagues for a total signing bonus of about $5 million. Somehow that does not seem random to me.

The wonderful thing about the markets and baseball is that everyone thinks they know all about it. There are many ways to skin the cat. Perhaps I can arrange some batting practice against one of my ex-players next time they visit the A's or the Giants.

With respect to the back foot weight shift, we can do a simple thought experiment. Lift your back foot into the air and try to swing. Did that swing feel powerful? The fact is the weight shift from back to front occurs whether you are conscious of it or not.

The fingernail ball is something I have never taught. However I have never had to pull my starter for a broken cuticle, nor have I ever needed to smuggle an emery board out to the mound for emergency fingernail repair. I have coached the circle change. It is an excellent and easy to learn off speed pitch. My technique is to circle the two fingers in an OK sign, the the three remaining fingers are used to throw a weak pitch. The spin is the spin characteristic of a screwball (curves to the right). But the pitch does not curve because the spin is too weak and the speed is too slow. It is simply an off speed pitch.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Stephan Jovanovich replies:

Heck, Dr. Phil, with my eyesight I couldn't tell you from one of your former prodigies, let alone see the ball. I stopped playing ball at 18, after I went to the Phillies organization pow-wow and met the three catchers they already had in the system and compared the sizes of their hands to mine. The only talented pitcher I ever caught blew out his arm in AA in Odessa; he was from Guatemala, and he had the same stuff Mike Cuellar had. He would have been a marvel. I know enough about the bonus baby mania baseball went through to be unimpressed by the "about $5 million"; it is one of those factoids that is like Clinton's 100,000 new cops - wonderfully round and purposely vague. Hell, even with my puny hands and Molina family footspeed, I was offered $10,000. If you want to post your stats and the stats of your magic kids, I will be more than happy to eat crow and buy you and your camp followers each a bottle of bourbon. Until then, let's call it a draw. You still don't know anything about hitting, but there are few people who do. As for pitching, I would still recommend to the List that they send their kids to Dean's camp, even if his players have never been offered a stick of chewing gum by a scout. He knows far more about this than you or I do, and he lacks your cocoa puffed ego and my bad temper. Neither is a good temperament for teaching people. But - last shot - the most important reason to trust DD (listen up, Lack!) is that he clearly has no interest in any of the kiss-ass rituals that have turned so much of "organized" baseball at the junior level into a game of "my daddy knows your daddy" (out here in the Bay Area it has become even worse than it is in soccer).

Phil McDonnell suggests:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

Charles Pennington demurs:

Potential energy does not have a "direction". Why do batters start with the bat held up high? That's potential energy that ends up contributing to the kinetic energy of the swing, when the bat is low.

Let me add that the pitcher lifts his front foot in an effort to throw the ball fast in the horizontal direction.

Stefan Jovanovich notes:

Randy Johnson did it — at age 45. He became only the sixth left-hander in baseball history to win 300 games in a career. And, like Teddy baseball's final game and last home run (at his last at-bat), it happened while the world was looking elsewhere — before a tiny crowd on a rain-sodden field. Pure Brueghel.



Institutional investors now have a decade of no return. With some detailed credit work they can get 15-20%+ annualized from more senior securities and meet long term liabilities. Why subject oneself to the vol of equities when all your peers are moving to liability management policies and many are way behind the curve? The word on the street is hedgefund managers ( those still in existence) are blowing out their equity teams under the banner, "debt is the place to be for the next decade." Granted equities are undervalued by many historical measure but can stay so for a lengthy amount of time and the recent moves can be lethal if not careful.

Victor Niederhoffer asks:

Given that it would be possible to make 10% on senior debt, what would the required return on equities be at this level? That's my point about VIX and the required a priori rate of return.

Tim Melvin replies:

I would humbly suggest two times the level of senior debt rates.

Phil McDonnell ventures:

One reasonable and quantifiable approach might be to assume the market demands comparable Sharpe ratios from various asset classes. Consequently the ratio of the observed or estimated standard deviations of stocks to bonds may be the same as the ratio of the required expected returns.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008



MojaveThese passages from the first few pages of L'Amour's Mojave Crossing pretty much sum up life so far:

There's more snares in a woman's long lashes than all the creek bottoms in Tennessee.

Even a good woman with her ways and notions, can create more trouble than a good man can shoot his way out of. And I had a notion that this here was no good woman.

Nobody ever claimed I was much of a businessman, least of all me. But if a body can buy cheap and sell high, he just naturally ain't never liable to starve.

Seems to me there's enough trouble in this world without borrowing more with careless words.



J T Sometimes I think that all these banks with brokerages attached are issuing 8%-9% preferred while simultaneously driving down their own common to be able to buy back their own stock later on the cheap and ride it back up gaining momentum until the 2013 call dates on all these preferred where they'll do secondary offerings pay off the preferred and the beat goes on! I know it ain't that simple but it sure looks like that is what is going on to me. I mean the real probability of a bank run has what been elevated from what, 2%, to 2.5% probability? Similar to foreclosure rate going up and everyone already assigning in their heads a permanent straight line to 100% foreclosure, heck the White House might have to be foreclosed on in that picture accordin' to many.

Y'all think Ms. Whitney seems to have all the answers [22 minute video dated May 27 2008, Transcript]?

Value investor Tim Melvin replies:

Read the FDIC website, it is worse than you think.

Read the various statistical reports… loan loss reserves and net chargeoffs continue to grow and credit is getting tighter by the day.

J. T. Holley replies:

There are over 8000 banks under the FDIC umbrealla; if 2% failed that would be 160 or more banks. Right now on the list it’s only 11 with close to 20 shutting down in the ’00-’03 recession. So we could be possibly over halfway done for all you know?

Tim Melvin is not amused:

Fine, buy 'em all… especially if the NPA's are over 2% and climbing. It will be fine.

Ignore the rising charge offs, foreclosures and loan loss reserves. Derivative exposure means nothing. Just buy 'em all.

Equity to assets failing? No worries it's bullish. Consent letter signed? Buy it up.

Halfway done implies another 40% drop in valuation so, yeah, maybe we are halfway done.

J. T. Holley answers:

I certainly understand your feelings and am not ambivalent to the situation at hand but a very good analogy is my experience in the Navy with crabs and most venereal diseases. When a sailor ports his mind is on usually two things that being booze and the opposite sex. This led this middle class white boy from Virginia to experience things that had never been a part of the spectrum of my life. When a sailor contracted something and was revealed once we set sail he was avoided and condemned. Kwell was passed out and penicillin was on hand. Everyone had a sense of cleanliness that wasn’t felt ever in my life. Toilet lids were swiped four to five times. Contact was avoided at all costs. Mattresses were burned and/or thrown overboard into the ocean (this was 1990). After a while the exiled was allowed back amongst the population and normalcy came.

The banking sector has crabs/vd. Not all banks are bad. Not all of them are going to go under. Yes, they all are playing defense right now to dress up the pig with lipstick. I never said no worries, just not fear of economic nuclear winter that seems ever so present. I didn’t even say buy ‘em, buy ‘em all? I just simply wanted to say that it ain’t as bad as it seems. Feelings seem to be dominating way too much. I know before you get to 160 you have to pass through 10, 11, 12, 13, 14 and such but geez I’d rather see negative PE’s across the board (no such thing) and 80 banks gone under or merged before I’d feel the fear that most feel right now?



 Ah, the 4th of July, Independence Day is upon us once again. The smell of charcoal will waft across the nation as back yards everywhere become a monument to man's eternal desire to cook meat over open flames while consuming malt beverages and yelling at the kids. The streets of our towns and cities will be bedecked in red white and blue. There will be parades and old soldiers will suck in that gut and wear their uniform proudly down Main Street once again. High school bands will march sharply and play badly and politicians will wave at the crowd. There will be fireworks all over the country form NY harbor to Armpit Alabama, there will be pyrotechnic celebrations of our nations founding. I'll be right there with pride as always. I have a bunch of firecrackers in the closet, a few roman candles and bottle rockets to shoot up the neighborhood on Thursday. We are into gin and tonic season and I'll have a few of those as I celebrate my PETA (people eating tasty animals) membership by grilling up the largest steaks I can find. There will be friends and family, boats and fireworks and all the trimmings as we celebrate the 4th Kent Island style. I will, as I always do, stop and think of all that has gone into our 232 years of existence as a nation. So many have given so much to make and keep us a great nation. One of course think of the military, the soldiers, sailors and marines who have fought ot preserve our cherished freedoms. From the scared citizens who stood on Concord green, hearts beating wildly beneath buckskin as they held a musket in sweaty hand, to the scared GI who mutters a quick Hail Mary before leaving the green zone, the commitment and sacrifice they have given our country is staggering. I talked to a friend who returned today from visiting Normandy. He talked of the raw powerful emotion he felt looking at the beaches and cliffs those young men assaulted and took. He wept at the cemetery where so many of those young men found their final resting place. Our military won our independence form Britain over 200 years ago and has protected and preserved our status and place in the world ever since. There is no thank you large enough. Without them, there is no us.

I have written before of the contributions of businessmen to our nation. These are often overlooked as men of business are too often vilified and perceived as bad, or even evil. But the contributions of Thomas Edison, Henry Ford, The Rockefellers, the Bill Gates and even the Warren Buffetts [Ed.: this may be going too far] to our society cannot be ignored. In the name of profit and gain they have spurred technological innovation and industrial revolution. They bought light into our homes and automobiles into our garages. Because of them we can fly across the globe, have microsecond access to just about anything form a laptop computer. They have provided jobs and contributed generously to build schools, libraries and cultural centers across the United States. Again, without them, there is no us. Then there is the other businessman who makes our nation great. The little guy. Maybe he owns a tire shop and repair center that provides 7 or 8 jobs. He keeps his customers cars maintained and safe, saving them money and possibly their lives. Perhaps she owns a small accounting service helping others deal with intricate financial and tax problems. Or a restaurant that serves thousands of people a year good food at decent prices. Dozens of people will be employed at such a place, form youngsters with their first job to the middle aged waitress who is raising a couple of kids and works hard to give you the best possible service and dining experience. Small business owners have ink stained hands form their printing press, grease under their fingernails that will never come out entirely, they have sunburn from long days providing landscaping and yard services. They have eye strain from late nights reviewing budgets and payrolls. They live on a curious mix of Mylanta , hope and energy. They make our communities better places to live; they provide countless jobs, pay endless taxes and are the financial support for thousands of local charitable and cultural organizations. Without them, there is no US.

Then there are the so called average men and women. They go to work at a variety of jobs each day. They manufacture the products we use, they provide services to make out lives better. They raise their kids to be better educated than they are and hopefully have an even better life. They spend the money that supports business and industry. They pay the taxes that make the country function. They go to church and pray for a better world. They socialize with friends and neighbors and share each others burdens and joys. They may live in Wheatfield, Mo. or the upper east side of New York City. They are us. Their daily efforts to make their own lives better is what makes the country a little better and a little stronger as the years go by.
I know we are far from perfect. There is no perfect man and no perfect nation. I know that the rest of the world is not that fond of us at times. We are perceived as arrogant and materialistic, spreading the gospel of hip hop and coca cola around the globe. Of course, if the citizens of the governments that despise US did not want  hip hop and Coke, we would not be successful at this. There are more people who are free on this planet because of us. Without us Europe would be either a German Dictatorship or a Soviet colony. Here would be no communist China, they would be part of the Japanese Prosperity Zone. Latin America would be Spanish America and Portuguese America. We have never gone to war over territory. We have never annexed a defeated foe. We have taken the sons and daughters castoff by ther nations and turned them into Americans who have given the world far more than the world has given the United States. Perhaps we are not perfect, but I will take our imperfections over dictatorships and theocracies that still dominate many of the governments of the world.

Many decry our culture. Yes, I am afraid we did give you McDonalds and MTV. We also gave you jazz and Ernest Hemingway. From our lands came Faulkner, Twain, Updike, Kerouac and Mailer. Yes, Brittany Spears is our fault. But we made up for it with Bogart, Sinatra and Katherine Hepburn. From the American soul came the blues and rock and roll. Elvis, Dylan and Robert Johnson all are cut from American cloth. Charlie Parker, count Basie and Miles Davis may be well loved across Europe but they are form the United Sates and their sound and culture was born and thrived here. True we are responsible for the genetic cesspool that is the NBA, but we also give you baseball with Babe Ruth, Mickey Mantle, Joe DiMaggio and Cal Ripken. Our sports are not reserved to the upper classes. A baseball game can be enjoyed by anyone with a ticket, or on a radio while changing the oil or a local tavern television while enjoying a cold adult beverage with a few friends. The good and the great that has come out of our nation far exceeds the average or bad.

The United States of America. Born of a desire to be free to govern, worship, think and live the way each wished. Expanded by the speculations of Thomas Jefferson and the explorers who sought knowledge and land. A land where risk taking and speculation to better one's life is encouraged and supported, where an uneducated immigrant can someday see his sons and daughters attend world class universities. A country where you can, through your own vision and hard work, be who you want and live how you want to live. A place where you are responsible for you own life, but your neighbors are quick to help. A nation that is always first to respond to a disaster whether at home or in a far off land.

We are not perfect. But I still have not seen anything better. The single most important export of the US has been our concepts of freedom and principles of Liberty. It is a nation founded built and protected by the individual efforts of its citizens. It is the land of the free and Home of the brave because of the men and women who are born here, immigrate here and live here. They are US.

So be it the backyard grilling burgers and hollering at little Johnny to stop squirting the damn hose all over everybody; or on a terrace in Manhattan; by the lake in Chicago, in the wastelands of Wisconsin with a G&T in hand and gleam in your eye; a boat on the Chesapeake with beer and bikinis in great abundance; or wherever this 4th of July finds you. Remember for a moment to raise a glass in honor of all those who served, who lived, who built, learned, worked, raised kids and strived for a better life. In their strivings, we have found a better nation.

Steve Leslie writes:

Just a wonderful panoply Tim has crafted to describe  America the Beautiful. This is befitting of an op-ed piece appropriate for any major newspaper in America. Tim's words resonate loud and clear down on the Space Coast of Florida. I personally wish to thank him for sharing his thoughts. G-d Bless America, still and always the land of opportunity.



Whenever knocking a hat off I feel, and want to tear the weekly paper to pieces, and lash out at all the nabobs,  I don't take me to Nantucket but read "The Surprise" by O'Brian. There I find a passage about how the hands like to pretend that the ship is about to go under with the non-mariner dignitaries, and how the water is going to sink it, if not the waves or the backlash. It makes me think about the reasons for all the negativism. Is it the insiders trying to scare the daylights out of the public like the mariners? Yes. What difference does it make if the economy is down 1/2% this quarter and goes up 4% a year the next several years? Or what difference does it make that there was a housing recession the worst in 25 years. Or that the financial institutions had much water on their balance sheets. Such has happened before in the last 100 years, and is it bullish or bearish when all this negativism is about. One needs a Jack Aubrey with his natural ebullience to see the sweet sailing ahead on the blue waters that beckon.

Tim Melvin replies:

It makes all the difference in the world for any of us who wish to bet on US stocks… unless we are capitalized to withstand a 20% or more drawdown in stock prices. it especially matter if you are using any leverage at all (and yes I counted it. The average peak to valley drawdown in stock prices in a recession is on the order of 30+%. we have not even come close to the 1000 SPY levels that would be normal. The last time we had stagflation, the market fell over 60% peak to valley) There will indeed be blue skies ahead someday… the question is when? The combination of a falling economy, falling real estate and higher food and energy prices is crushing the consumer. If consumers do not buy luxury items, go out to eat, to the movies or even replace wardrobes, household items and even wardrobes, the companies that make these items, the retailers that sell them, and the companies that supply raw materials have lower profits. They cant borrow to make it through bad times and the water on bank balance sheets has tightened credit.

Loathe as I am to ever be opposite to one of the men I most admire, I think that most stocks are a poor bet right now. yes we will cure cancer, technology will advance and the long term future will be bright indeed. But not right now and reality is still not priced in the stock market. The dollar gets it, and bonds are starting to. The storm must pass before the sailor can safely leave the harbor. One caught in the storm must batten down and hope to ride it out as safely as possible. many , if not most, of those who ignored the warnings of wind and tide may well perish. Not even Aubrey would sail into the typhoon unless he it was a matter of the greatest urgency. As investors and traders we have one supreme luxury. We do not have to leave the harbor, and can profit by betting on the typhoon once in a great while, or simply sail a different sea.

Vic illustrates:

Here is a passage from The Surprise: "The envoy, Stanhope, had been told that water was coming in through the sides, and a seaman had told him that this was the gravest sign of all. One of the young gentlemen added that being pooped was more likely than actual foundering, or breaking in two, though neither possibility was to be overlooked. " Stephen said "The water coming in was inconvenient and even disconcerting but it was a usual phenomenon in such circumstances, particularly in aged vessels: It was what the mariners termed "the working of the ship." And be cautioned against too literal a belief in the words of the sailors: "They take an obscure delight in practicing upon us landlubbers". Once relieved of the sensation of imminent death, Mr. Stanhope…. ". Yes, the delight the brokers take in downgrading one another, and spreading rumours of runs, and trying to run the nakeds up again as they did the last two Springs, is not too innocent, but calculated to gain increased emoluments from the government and their future colleagues at the Board, and increase their share of the prizes as the landlubbers abandon ship.

Russ Humbert writes:

Perhaps it is no coincidence that Lehman, Merrill and Morgan Stanley, having received a review from the rating agencies that downgraded but still maintained their excellent ship worthiness, that the shorts would be emboldened. After getting so much wrong on the mortgage backed front any affirmation from them is similar to an endorsement from Bush's foreign intelligence chief on Iran. And perhaps it is no coincidence that Merrill, was the first to come out stating the shorts are full of hot air on Lehman's because they see they are next in line.

It will be interesting to watch for confirmation that Ben's revival meeting with all the investment banks included thinly veiled threats to those Investment Bankers who don't support their competitive brothers and reminders that  any piling on by them would be remembered for a long time. Was there a reminder that Bear Stearns did not help LTCM in 1998? Will Ben rally the troops? Will he speak in code? And how will the other brethren react? And will the SEC this time understand that their turf is in jeopardy and launch a full assault on the rumormongers, as they did on the  hyperbole of the dot com analyst? It has been my experience that a regulator fearing a turf grab is a dangerous animal backed into his own den with the hunter thinking he is cornered. And finally, could it be that the switch in NY governors will be the wind turning against those who believe their job is to protect us from big business without regard to method because size is equal to guilty?

The President of the Old Speculators Club, Mr. Tierney, issues a warning:

"Seems to me the greatest opportunities to make money going forward over the next 18 months to 24 months is to Short Gold, Short Oil, Dollar Cost into Equities as always, Long Dollar" - A reader of this web site

An interesting observation. In that it's been almost exactly 7 years since I announced the dumping my entire portfolio except for a couple of resource stocks, some retrospection is in order.

A recent post lauded the performance of IBM, hitting a multi-year high of ~$125. More recently, AXP was commended for its performance around $45. Those were among the equities I cast overboard, IBM @ $115.04 and AXP @ $39.43. As of today I would have been up 11.47% with Big Blue and 18.67% with AmEx - not exactly stunning performances over seven years (especially if one were to calculate the effects of inflation).

On the issue of shorting gold it has been an idea promoted by various List members at various times over that same time span - they have been incorrect. The concept of overpriced oil harkens back to the build-up to the second invasion of Iraq, when it was posited that the price would go back below $35; similar pullback predictions have been scattered over the past five years - once again, incorrectly.

The long dollar argument was made most forcefully by Yale Hirsch and his imported and highly regarded currency-expert henchwoman. That dates back about three years or so and, again, was incorrect.

Now the drunk who insists on looking under the street light for his lost keys because it's easier to see, may, once in a millenium, find them there. That's just luck. However, how do we judge the many sighted Street "names" who, over an extended period of time, have groped in the dark but come up empty?

More important, to whom do you listen for guidance in perilous times: the babbling and infrequently lucky drunk or to the sober and calculating historical record? The answer is obvious. Unfortunately, as has been documented and repeated innumerable times, the Market Mistress does not do the obvious.

Nor does she (nor anyone else so far) prepare meals of crow.

J. T. Holley asks:

Do you really think that we are in perilous times?

Jack Tierney replies:

Yes, I do. But in fairness, that's my nature. While many look on the markets with unflagging optimism (Vic and Laurel , L.V. Gave , Dimson et al. ), I tend to believe we have lived at a truly extraordinary time in an extraordinary country. So extraordinary, in fact, that not only those with the courage and capital, but also those who've stood and waited at the right place, have seen modest sums grow exponentially.

I am one of the latter, caught up by events and carried with the wave. Others, through risk-taking and foresight, have done substantially better, and deservedly so. However, the last 60-70 years doesn't, in my opinion, establish an immutable pattern. Historically, our past century is an anomaly. There has always existed a self-selected minority which achieved wealth through courage and daring.

But these last two (or three) generations have been unique in that wealth has "trickled down." Enough so, unfortunately, that it has become politically correct to view abundance, if not affluence, as a birthright - and one which can legislated for those who have missed out.

In itself, though, that's not enough to make me skeptical. My profit sharing account took some real whacks in '73-'75 and again in '79. I was fortunate enough to be in cash in '87, but got a minor haircut again in '91. I can live with oil crises, the slow motion crack-up of steel, autos, and aircraft. Technology, however it is defined at different times and different places, always ends up with more losers than winners.

But when major problems come out of the banking/finance sector, it's time to squeeze the pennies. Forget for the moment about those who have overspent and under saved. Instead, consider those financial institutions which have peddled gobs of their mortgage paper to pension funds, both public and private. By Greenspan's description, these are among those most able to undertake risk. In fact, they are not.

Much like myself, the memberships are made up of ordinary individuals who expect a modest sum to be available when they retire. If nothing is there, there exists no fallback positions. Already there are rumors of deficiency notices circulating… some involving major unions, others major metropolises. Jefferson County in Alabama is on the hook for over $3 billion in auction rate securities because JPMorgan and others sold them on interest rate swaps as a way to cut down on expenses.

In short, from the time of John Law, banking foul ups have had a much more severe effect on an unsuspecting public than any other business blunder. When bankers get it wrong, almost everybody gets hurt. So, yes, I'm concerned.

Stefan Jovanovich dissents:

I don't think the facts of American history support John's pessimism or his assumption that the years since the Great Depression have been uniquely profitable. The increase in wealth in the British colonies of North America from the end of King Phillip's War to the start of the Revolution was far greater per-capita than anything we have seen in the last 90 years; that is why there was an immigration boom that dwarfed anything the country has experienced since then. The period from the end of the Civil War to the passage of Smoot Hawley was equally spectacular as far as individual wealth in the North, Middle and Far West (but not the South) are concerned; and, once again, people literally flocked to the United States. Both periods depended on changes in technology that were - at least from the point of view of their effects on the rest of the world - far more dramatic than anything we have seen in our lifetimes. The improvement and broad use of Jethro Tull's seed drill was an agricultural revolution that equaled the effects of artificial fertilizer in our time, and the mating of steam power with Jacquard's loom turned India from a textile exporter to importer (with help, it must be admitted, from Britain's discriminatory trade rules).

John is right that, initially, "technology …. always ends up with more losers than winners" in the sense that machines replace people. But without that displacement no increases in wealth are possible. Socialism's real curse is that it kills all invention and change; in the name of fairness and equality Lavoisier's head is always the first to go.

The genuinely new and different improvement of our time has not been in wealth but in health. What the world has never seen before are the mortality statistics. Even with the devastations of the two World Wars and the results of Marxist national self-improvements in Europe, Asia and Africa, the change in the ability of people to be born safely, survive childhood and live long enough to suffer the diseases of old age and indulgence over the last hundred years has been breathtaking.

I wish I could share the assumption that the "public" - that anonymous sociological beast - has been duped by the evil bankers. Perhaps that has been true elsewhere in the country. But, from the point of view of California, the people who have borrowed money to buy dirt and houses and condos have been a great deal less unsuspecting than the folks who bought the securities that allowed the pyramid party to keep going. The borrowers knew they were signing for far more money than they could pay back out just the way anyone who could read knew during the Internet bubble that very few people were actually making any money from the brave new virtual world. In both cases the buyers thought it didn't matter; and, for a great deal longer than we supposedly rational business people considered possible, they were right.

My real quarrel is not with John's assumptions but with the premise that seems almost universal - namely, that bankers are still the source of enterprise capital that they were even a generation ago. Nothing that I know from direct experience or from studying the numbers for profitable non-financial public companies bears that out. We own common stock in 147 companies that do business in everything from shoes to lasers, and not one of them has relied on commercial borrowing or public financing as a significant source of cash since 2000. Of the over 100 independent business people I know here in California, the only ones people who have been able to rely on commercial credit from banks have been the folks dealing in real estate. Everyone else has been told no. Even SBA loans became dependent on the entrepreneur's having real estate that could be pledged as security.

Ironically, now that residential real estate out here is finally getting cheap enough to compete with rental prices and people with jobs and savings want to buy houses, the same bankers who issued ARM liar loans are largely unwilling to issue straight mortgages when the numbers pencil out. Having watched the Sandlers convert everyone to their cultist belief in appraisal values as the standard for credit-worthiness, most California lenders are now refusing loans because of their fears of what REO sales will do to future housing prices. The prospective buyers, who are offering to put real money down, are willing to take the risks; but the bankers still think they know the market better than people willing to put up most of their savings because they can buy a house for what it now costs them to rent an apartment.

The old bankers are always getting it wrong. That is why we end up having to find new ones.



How many things are there in baseball, the swings, the runs, the cycles, the signals, the deception, the consistencies, the standings, the All Stars, et. al., that are directly relevant to trading and could make us better?

Allen Gillespie replies:

I grew up a Braves fan and unfortunately after watching them win many pennants but only one World Series over a decade of dominance I can say this: there is a significant difference between championship teams and good regular season teams.

This is andedotal, but their one champion team I think won close to 30 games in the 9th innings. Spec lesson: never give up, keep it tight, and focus in the clutch. 2) The Braves have always had deep pitching — which helps in the regular season, but in the playoffs things change as teams shorten rotations, and so the Braves were always a bat or two short in the playoffs. Spec lesson: play the late months (Nov, Dec) — more offensively than the long season months. 3) Champions, even when they loose during the season, rarely get blown out because there is too much pride. While I have never been a Yankees fan, Derek Jeater did earn my appreciation when I saw him in some meaningless game during the season hustle to catach a fly while crashing into the stands on the 3rd base line and busting up his face a little to make an out.

Tim Melvin expatiates:

First, it is a long season. Although you have to play to win every day, no team ever has. Winning 100 out of 162 is considered a mark of greatness. A trader who wins 60% of the time day in and day out will probably also reach greatness. There will be losing days in the market as well. Shrug them off and learn from them. There is another game tomorrow.

Swing for the hits. the home runs will happen on their own. Sluggers who routinely swing for the fences every at bat may hot a lot of home runs. they will strike out a lot as well. Good hitters look to make solid contact knowing that the home runs will come when the conditions are right. a fastball inside or a curve hanging out over the plate. The major concern is to put the ball in play and advance the runners. In trading the objective should be to make good trades. the home runs will happen on their own when the conditions are right.

Focus when the play starts.
Baseball players seem to stand idly around between pitches. But watch how they focus once the pitcher steps on the rubber. Once you hit they key to enter the order, it is time to pay attention.

Situation matters. It is okay to steal second in the third with no outs and no score. In the 8th with the game tied and two outs it is usually not such a great idea to waste the potential winning run. A bunt early in the game with the bases empty and a three run lead does not make a lot of sense either. But in the ninth with a runner on first, no out, a tie and the top of the order coming up, its time to lay one down. If the markets is making new lows several days in a row, it might make sense to buy big on the long side. if it has been making new highs, maybe not so much.

Sometimes you just don't want to pitch to the guy. If a power hitter is up, a base is open and the game is on the line, it might make sense to just walk home and face a less powerful hitter. Sometimes, the small loss is the best one if it appears powerful forces could cause your trade to go strongly against you.

The game is not over until the last out.
Keep playing. baseball is riff with stories of 5 run comebacks in the ninth. So is trading. Stay focused and look for the chance to rally.

Defense matters. Ask the Texas rangers. You can play powerful offense but if your pitching and defense callow the opponents cheap runs, it is hard to be a winner. If you have large winners combined with large losses all the time, it is tough to win over time.Not every team will win the World Series. Only one will. But a winning record and playoff appearances fill the seats with fans. Not everyone can be the best trader at every time, but you can be a winning trader.

If you can steal the other teams signals, or just figure them out, you have an advantage. In the market you can gain one by being aware of what large successful traders and investors are doing. Thanks to COT reports and sec filings, it is easier for investors than ballplayers!

What position are you playing and what is your role? Pitchers and catchers are involved on each and every play. Fielders have to watch every play but are only involved when the ball is hit their way. The designated Hitter is only involved three to five times a game at most. Short term day traders are in every minute of every day. Macro oriented traders only when the markets move towards their entry points. Longer term investors only when conditions are exactly correct for entry. Knowing what you are trying to achieve and what style fits your strengths can be critical to your success.

It takes more than one person. Ask Barry Bonds or Nolan Ryan. you can be the best ever at your position but if the team around stinks it will be hard to succeed. in trading I think this goes beyond just the coworkers and analysts you might work with and take advice form. our team is those people we surround us with, bounce ideas off of, celebrate wins and suffer losses with at the end of the day. Our team is our family, friends and confidants. I do not think anyone can be successful without having the strong network of friends with them along the way. It is like being a pitcher with no team. you cannot just be good, you have to perfect as any ball put in play is a run. Pretty damn lonely even if such a perfect person were to exist.

Be ready when called on. Recently jay payton of the baltimore orioles went 5 for 5 as a late inning pinch hitter. it is a big reason the Birds are winning right now. Same with the bullpen. Even when market conditions are not right for your type of trading, stay sharp and focused. You never know when a late inning rally puts you in a position to come off the bench and drive in the game winner. Markets and games can change in the blink of a surprise fed announcement or a three run homer. be ready.

There is more to life than baseball. You must practice your skills, study your opponents and work hard. But it helps to be able to relax away from the game and enjoy other endeavors as well. Same with the markets. Study learn, anticipate, but take the timeout for books, music, friends, family and all the other things that actually make life so damn good. Maybe even take in a baseball game once in awhile…

Dean David adds:

In hitting it is important to let the pitch thrown determine what type of swing you offer. As an example, Rudy Jaramillo teaches hitters to try to hit outside pitches to the "opposite" field. Frequently this approach results in a firmly struck single, where attempting to "pull" an outside pitch will result in a weak grounder the opposite way or a "pop up". It appears that this is lost art early in the season as many hitters look to bolster power numbers by pulling every pitch without regard to its location. Strategy for the pitching coach would be to pitch away to hitters that have yet to demonstrate a willingness to "go with the pitch". This is an addendum to Mr. Melvin's comments about the importance of singles.

Jeff Watson comments:

In baseball, one must always be on the lookout for a pitcher who throws a spitball, a 3rd base coach who steals signals, and a batter who uses a corked bat. In trading, one must look for the same type of behavior.

Alston Mabry notices:

Some similarities between baseball and markets:

Random events are interpreted as meaningful: "Have you noticed how many times you see the guy who made the last out on defense be the next guy up at the plate?"

Talking heads use meaningless stats to produce commentary: "Rodriguez is hitting .243 for the season, but on the road against left-handed pitching, he's only .218."

Lots of fresh data produced every day.

Quants taking innovative approaches see some success, e.g., Boston.

People will, in fact, cheat to get ahead.

The public gets tapped to support the infrastructure.

In the long run, the better teams steadily increase their lead over the poorer teams. In the short run, e.g., the playoffs, "anything can happen."

Phil McDonnell writes:

Some years ago I coached my son and daughter' teams in baseball and softball respectively. In particular one phenomenon noted was that there was a king of the hill effect. We recall that king of the hill is the game where one kid stands on the top of the hill and all the others gang up to bring him down. Then a new king emerges and the gang has a new target. Needless to say no one ever remains king for long.

In my Little League days the effect was the same. Aware of the king effect our team somehow managed to lose every single pre-season game in every year I coached. Naturally one took the opportunity to mention it to every other coach in the League.

On opening day we made slight adjustments to the line-up. Somehow we managed to win 7 out of the first 8 games - yes, every single year. We played about 16 to 18 games each year so that was about the mid point of the season. Usually about then people started to try to figure out the standings. At that point the season got a lot tougher. Coaches would know that we were on top and invariably we would only see the best pitcher on each team. The only advantage that our team had in the latter part of the season was that my batting order simulation model was getting smarter because it had more statistics on our players as the season went on. My estimate was that the model gave us about a 1 to 2 run edge in every game and the average number of runs was about 6 so this was considerable. Still somehow we managed to come in first or second every year, but the headwind from the king of the hill effect made it much more difficult.

The parallels with the top trader or money manager each year are profound. When a manger is on top two things happen. First his style or technique becomes reverse engineered and his trading space become more crowded. Secondly the king of the hill effect is at least as strong in trading as in baseball. If one was number one last year then literally everyone else is out to get you. Literally the other managers and traders cannot afford to let anyone stay at number one too long. They would lose all of their accounts to the top trade. So they have no choice but to gang up to survive.



So far the year has started off with a bang. A lot going on around Kent Island and of course the market is generating its own special sort of bang. 2007 is fading into the rearview mirror and it was quite a year. With the Island crew one never lacks for adventure. The year featured the usual assortment of trips with a lot of airplanes and at least one flying boat. Chicago and Kentucky figured heavily into my travels, as they seem to do every year. Melvin B’s is gone now, a casualty of urban renewal and it will be missed. We have plotted the overthrow of the financial system at the outside café bar, consoled each other over women, markets and bets gone bad and I have many great memories of the joint. It was the coldest racing weekend in Kentucky that I can remember but that little fact did not dissuade us from our usual weekend of degenerate behavior and wild eyed gambling. We did tone it down a touch this year since Tim bought his lovely bride to be. Jason bought Wendy as well but I am pretty sure she just ignores us all. New York of course was a frequent stop and we started the year in Naples, Florida enjoying the warm weather, old friends and at least one difficult damn woman. The tire guy married up — way up — at year end. There were great times with old friends and a lot of new ones found along the way. The kids both continue to do well and I haven’t threatened to kill my son in at least a month now. They are both working, going to school and thriving. The markets were horrendous for much of the year, especially in value and special situation stocks as financing for transactions died off quicker than one of my relationships. No real contender for the next incarnation of the one true love of my life but the interview process was as much fun as always. I spent time with several very attractive intelligent women but none who could fill my eyes with what I now call the Hillman Twinkle. It was one hell of a year by all counts. The local sports scene was a bit dismal with the Orioles and Ravens having terrible years, the Terps going out of the tournament early and the Maryland football team average at best. As usual Navy was a bright spot, beating Army and going to a bowl game and playing some very exciting football.
On to 2008. The market is just horrible right now and I don’t think it gets better real soon. The next three weeks feature a string of earnings reports from financial companies and that does not bode well. In addition to the continuing stream of mortgage and credit write downs, home prices are still falling and the yield curve is not steep enough to allow profitable lending. It's ugly. It will be interesting to see if the technology report in late January, early February will give the market any legs. I think we may actually get to my long term oversold point in the S&P before this is over with. That level will set up one of the best buying opportunities we have seen since 2001. The plain truth is that as difficult as this environment is, not all mortgages are going to default and real estate is not going to zero. There is going to be a stopping point to the carnage sometime in 2008 and it will be time to buy. The small local banks that trade down below book value but have positive earnings and sound balance sheets with high capital ratios and adequate loan loss reserves will be incredible bargains. There is a life cycle to this part of the industry. The small banks proliferate during boom times and after the bust comes, the shares fall to lows like we are seeing right now. The larger institutions begin to buy the smaller competitors to acquire their clean loan books and reserves. A wave of consolidation moves through the banking industry, good times return to the economy and new local banks begin to spring up again. The last time we saw this was after the banking and S&L crisis of the late 980’s and early 90’s. Many of the local banks sold below book and it was about as much fun as I have ever had in this business. We were buying stocks at or below book and 10 times earnings that were taken over at twice book and 20 times earnings. It was easy money and extraordinarily low risk. We are coming back to that type of market and I cannot wait. I am also looking at the trading side of some of the midsize banks to buy one-year calls once I think the slide is slowing down. On a selloff at-the-money, or slightly in-the-money long term calls will be a good bet. Banking aside, I think the pendulum in the market will continue to favor growth stocks that can generate cash internally. It will be a bit of time before the financing needed to fuel a value revival will come to pass. Growth stocks to me are trading and surfing instruments but the surf is roiling and boiling so it will be a good time to surf in 2008. The dollar will probably stay weak and energy will stay strong so international and energy stock will provide some trades for the year as well. I am going to play special situation and activist stocks by selling puts when the market sells off and collecting the premium. It seems to be the way to make money in that corner of the market right now. The one factor that will loom large as near the third quarter of this is the dividend tax reduction that expires in December. Should that not be renewed and a Democrat is winning the race for the White House we will see what I think will be the largest selloff of my life time. It is very much a trader's market right now. With the exception of the little banks I have a hard time buying stocks for the long term when I think the short term could take them much lower. Buckle up.
In 2008 there will new adventures, new books, new ideas all through the year. The Orioles will stink. News on the wire that they are probably trading the best ballplayer on the club to the Cubs. Think I might be a Cubs fan this year. At least they are trying to get better! As always, the Ravens will get a new look, Maryland basketball will be interesting and Navy turns a new corner with a new coach. There will be sunsets and setbacks, celebrations and defeats, first kisses and sad goodbyes. Some will be born, and some will pass on. There will be fast boats and slow summer evenings, rainy nights and hot summer days. We'll have a few poker games, I will do something stupid involving a ditch or a woman (let's hope there are no dog stories this year), we will laugh a lot, maybe cry a little at times but is should be one hell of a good year. Life has all its up and downs as we all know and 2008 is positioned to bring with it more than its share on both a professional and personal level. I look forward to it all. It should be a year full of life, full of surprises with opportunities to live life the way it should be, greedily and with great abandon.



Over the woods and through the hills to grandmother's house we go… okay its actually down Rte 50, into Fisherman's and to the bar for the Thanksgiving Special. For a change I do not have the kids for the day so I am not running around like a chicken with its head cut off getting ready for Thursday's dinner and I intend to take full advantage. I certainly not going to grandma's this year… in fact mom is not allowed to cook holiday dinners as her idea of cooking is to take expensive meats and poultry and cook them until they are serviceable as arctic footwear, vegetables not cooked to the consistency of porridge are considered underdone and mashed potatoes come from a box… if her cooking was indicative of southern women, there wouldn’t be a fat man south of the mason dixon line… mom never quite enjoyed cooking it seems… but all the same the Thanksgiving holiday is upon us and might as well pack up for the lovely drive, maybe a couple of lifetimes on the Jersey Turnpike or a rugby scrum through an airport to travel to far destinations to see people we are still pissed off at for tearing the head of our kung fu grip GI Joe 40 years ago, as we stand in the middle of the airport parking lot with the broken suitcase spilling on the tarmac, our significant other giving us that that quiet, thin lipped “I told you we needed new luggage” look, or in a car with children arguing at approximately the decibel level of an F16 fly-over and the radio stations blaring christmas music over the din of 5000 hopelessly grid locked cars, it is time to reflect up the year gone by and the moments and things we are thankful for, the things that make life the special wonder that it is…..

For starters I am grateful for a holiday that does not involve me having to purchase gifts for anyone, attend a mass that lasts just slightly less time than the Middle Ages, or do anything but eat enormous amounts of food and watch football whilst sipping and swigging wine… I have never figured out exactly how eating and drinking to excess while watching steroid fueled behemoths bat hell out of each other chasing a pigskin around a field is a sign of gratitude… but who am I to argue with such a fine tradition? I have much to be grateful for so I'll have an extra piece of pie, more wine than is good for me and watch every damn game that comes on the tube… for living in a land and in a time where I can screw up, blow up, start, fail and do it all over again, to be part of a culture and society that allows me get up after a disaster and start back up the stairs, where the only real limits I encounter are those I put on myself… for my family, even if my extended family is truly the bunch that puts the fun in dysfunctional, for my kids, my daughter, 23 now, going to scholol and working and just doing incredibly well. She's reading now and it's kind of a kick to talk books with your adult child and watch as they discover Cervantes, Faulkner, Hemingway and Fitzgerald. When she is 30 I'll tell her about Bukowski and Thompson… my son, the eternal class clown… working and school as well and has recently taken up fishing. Still a total clown most of the time… worst thing that ever happened to him was seeing a Jim Carrey movie… ,my joke-cracking snake-raising son. He moved in with me last year and now, after 8 years as a loner I have him, his girlfriend, two snakes, a hamster,a cat and for some damn reason, a turtle.He does love his animals especially reptiles. He learned all the breeding and care stuff on his own to the point that at nineteen, local vets will call him with questions… for those nights when they both with a caravan of friends descend on my place like a pack of locusts, consuming enough Mountain Dew code red to keep a small nation jacked up on a sugar caffeine rush and devour enough to keep several take out joints in the area in business and driving Cadillacs for years to come (I've actually come home to see them lined up three deep at the door delivering various pizzas, chicken, subs) listening to that horrid music and watching truly idiotic movies …..they re noisy, eat constantly , stay up until insane hours and I love every minute…..

For friends of course, because what is life without friends… people to talk with, laugh with, cry with, drink with, people with whom we share our thoughts, our ideas, pieces of our souls… people who put up with us not because of some birth-related accident but because they choose to… the ones who answer their phone at midnight when we have some great idea or major crisis, who call on Sunday mornings to wake us up with their latest great idea or crisis… for those whose companionship as we walk the road of life makes the journey all so much more enjoyable… for DailySpeculations, which has been a source of so many new friends ( in scattered time zones so you never know when the phone will ring), a source of ideas, of incredible conversations, intelligent arguments, new philosophies and ways of looking at life, a simple email list that has allowed me to meet some of the most incredible (to say nothing of a few of the strangest) people I have ever been blessed enough to call friend…..the oregonian, the mormon, the crazed tank-driving day-trading BMX rider, the bombastic genius of Kris, the chicago crew, the biofuels guy, the real estate mogul, the Wiz, the sun baked spec, the columnist, the authors and the editor… and of course the thrice blessed voodoo prof… there's too many to name them all but each has had a positive impact on my life over the past few years,and of course as we look over our life on Thursday and raise a glass, I think we all have to include the Chair and Laurel in our toast as it was their idea and drive that created a very unique, inspiring and worthwhile community of minds and souls…..

And the island friends. The tic-tac kid, tire guy and his fiancé (he is definitely marrying up!), rag lady, the electrician, the beach club guy, baldy, crackbaby, logistics guy and his lovely way over his head and we all wonder how in the hell he managed that wife, evil Dave, hell there’s too many to list here. You all know who you are. My god the times we have had. The boats, the beers, the food, the conversations, the moments that were almost sublime in their stupidity and fun. Air Tic-tac over the water, missing Dominos signs, late nights on the pier, football games. It is like being in a fraternity located in a resort. Each successful in their own right and blessed with an over abundance of a love of good friends, good times, open water and open bar. It was a geographical accident I chose to live where I do but I am damn glad I chose the island.

Of course, me being me I am thankful to whatever benign creator created the fairer sex, ah yes women… they have inspired me, they have comforted me, excited me, enraged me, engaged me, and on two occasions damn near bankrupted me. They are the most frustrating creatures that G_d, with his infinite sense of humor, could have ever designed… without them, I would be rich enough to retire young, still have brown hair instead of this gray stuff growing over my grey matter, I would get more sleep at night, be more productive, and have more time to spend working and studying. But I would rather be a gray-haired property settlement-paying insomniac than lived in a world where there were none….

For the other temptress in my life, the markets, with her siren song of changing notes, a constant daily challenge to get ahead and stay ahead of her dance, for the intellectual challenge of figuring her song, endless variations, price to book, high correlations, low z scores, new knowledge gained, free cash flow, arbitrage, liquidations. An endless dance and flow of ideas and strategies to test and trade… I can't imagine a more challenging or frustrating way to make a living… I cant imagine doing anything else…

For books and the written word. Writing the books and the daily column has been more fun that I can recall getting paid to do. It's been a blast and I hope this part of my career and life continues to expand. For all the ones I read, with their hours of entertainment, education and relaxation. For Parker, RW , White, Hemingway, Thompson, Russo and the dozen of other writers I have come to enjoy so over the years.

Thankful just for this dance called life, to live, experience, to learn, to fail, to succeed, to read the poetry, drink the wine, to kiss the girl… so carve up the bird, pour a little more bubbly stuff over here… hey whats the score… it's a life,,, up, down, sideways, it's a hell of a lot of fun and each of you in this group has made more interesting and enjoyable… so I raise my glass to you and say Happy Thanksgiving…



FenwaySupposedly tonight will be the first game of this year's World Series. The Boston area weather report casts some doubt upon that with an 80% chance of rain, but still it is time for the fall classic. This year's series has some great story lines. American League versus National League. Junior circuit against senior circuit. Good versus evil. Those scum sucking no good rat fink bast.. oop.. I mean the Boston Red Sox with the best record in baseball against the unlikely Colorado Rockies. Boston's dominance of the league and Colorado's record breaking 20 wins in 21 games to get into the series. The Rockies were thought to be out of it as September rolled around. The Red Sox almost blew a 7 game lead with three weeks to go in the season. It has the making of, well let's be honest it has the makings of a Boston blow out. They are too good. I hate them. I detest their trend following fleecer of a public owner. I wish Josh Beckett was an Oriole and that Curt Schilling would take his darn bloody sock and go back to the National League. I wish David Ortiz would get sucked into some magical vortex that made him disappear for the next week. I wish Manny Ramirez, like Sampson, would get a haircut and lose the ability to hit a baseball. But, all of that is unlikely. They have the hitting, the starting pitching and as long as they keep Eric Gagne away from the mound, the bullpen. Although Paelebon will probably have to get his ERA down. After all in the post season it is a lofty 0.00! I hate them. I will be rooting for the Rockies. I suspect I will not like the outcome of this series. My only hope is that Big Poppi can't be DH in the National League Park. The man can hit but give him a glove and interesting things happen. However, the rat bast.. I mean the Sox have home field advantage so that's not really an edge. More of a delusion.

So tonight the field at Fenway Park (another reason to hate the Sox. What a great stadium!) will be draped in the familiar red and white and blue bunting. A celebrity of some sort will throw out the first pitch. It will be the World Series in all its glory. Except it won't. Today the Super Bowl looms much larger across the sports landscape. So does the NBA finals and the Daytona 500 for that matter. Baseball is losing its lofty perch as America's pastime. Today we prefer the NFL with all its violence, pageantry and barely dressed cheerleaders. Much as Romans eschewed chariot racing for gladiators we have traded the stately game of baseball for the rock and roll fest of football. Please don't get me wrong. I like football. But I still have that decade long love affair with baseball. With my track record I have no personal knowledge of this kind of thing, but I think baseball is like a long term spouse for me. She is perhaps fading with the years and to others she is not as beautiful as she once was. But I look at her and see only the beautiful smiling young woman I fell in love with.

I think back as I sit here to the first World Series I can remember. The Dodgers-Orioles of 1966. I was 5. I didn't know the combination of Drydsdale-Koufax was supposed to wipe the birds off the face of the earth. I just knew all my friends' Dads were worked up about it and spent a lot more time playing catch with us and talking about the Orioles. I did not know it was considered something of a miracle that the Orioles won in 4 straight. I didn't know that it would be the last time Sandy Koufax would explode form the mound, curling and hurling his entire being into an exploding fastball or devastating curve ball. I just knew that my friends and I were enthralled and entranced by each and ever pitch. I fell in love with the game. I remember 1968 with the glorious matchup of Gibson and Lolich. Unfortunately I can still recall 1969 with the powerhouse Orioles being dropped in their tracks by the Mets. 1970 with Brooks becoming inhuman to the point of godliness on the third base line, the return of heartbreak in 1971 with Roberto Clemente almost single handedly beating the Birds. The long haired brightly colored Oakland teams of the mid 0's. Reggie's three home runs to become Mr. October. I still can't hear We Are Family without recalling our second loss to the pirates in 1979. Cal Ripken catching the final out of the 1983 series just days after my father passed away. One of my most vivid memories is reaching for the phone to share the moment with him before I realized he was no longer there to take the call. The earthquake series when I lived in central California. There are literally too many to recount here.

Life has changed a lot since then. It was, I suppose, the legendary oft cited simpler time. We played baseball from sun up to sun down back then. Kids play today but usually in organized Little League and the game takes a second place to soccer and lacrosse here in the mid atlantic. No organized ball for us. In the street, the field across the street, the common area of the apartment complex. We didn't care where. We played with baseballs cadged and cajoled from parents for the dollar was a big deal for a new ball. We played with tennis balls liberated from the courts of the upscale development across town. We played with wiffle balls and duct taped them when they splintered until they resembled silver orbs hurtling through the afternoon sky. Gloves were carefully oiled and wrapped each night. If it was raining on a Saturday we watched Joe Garagiola and the NBC game of the week to watch teams from across the league play. We fell asleep with transistor radios under the pillow to listen to the Robinson Twins, Belanger, Powell, McNally, Palmer and Cuellar restore justice and righteousness to the universe in the form of three run homers and blistering fastballs. There was no umpire and balls and strikes were argued with the intensity of the McCarthy hearings. Baseball. We loved, played it, watched it, listened to it, talked about it. A simpler time. Today, it moves too slow for most. The NFL and the NBA are the dominant sports. If kids play pick up games it's probably hoops. Little kids dont get to watch in breathless wonder as the home team takes the field in a blaze of popping flashbulbs against the red white and blue backdrop of the first game of the series. They are long in bed by the time the first pitch takes place. Life has changed. I look at the world around me populated with taxes, bills, ex-wives, ex-girlfriends, wish they were girlfriends, wanna be girlfriends and miss those days when all you needed were a couple of friends, a battered mitt and dirty much abused rawlings to experience the sublime. I look at my son and feel a little sad that he never had a passion for a game not involving a TV and controller. Life has changed. H&ll, look at the markets. Back then you had the American League and the National League and you had stocks and bonds. Today we have futures, options, options on futures, swaps, straddles, hedge funds, fund of funds, CM's, CDO's and virtually every other derivative and contrived trading instrument you can think of. It is a small wonder that faster paced sports have replaced the timeless game of baseball. Still, I miss it.

I shall sit this week and watch the games. I shall cheer, perhaps in vain, the Unlikely Rockies. I shall curse the Red Sox. I shalll think back to a much simpler time. In all likelihood I shall cook some hot dogs to watch the game. Instead of the cola in a paper cup of my youth it will be scotch in a lead crystal glass. But at some point I will, I hope reconnect with that little boy who held his breath as the teams took the field and the game got underway. With the teenager who could still be captivated away from teenage cynicism when Brooks Robinson stopped your heart with his spectacular play. With the young expectant father who missed his own Dad. With all the moments and times and stages of my life when in October baseball was king and the World Series was serious.



 I recently read The Mickey Mantle Novel. Mantle was a hero of mine as a child. Although he played for the despised and dreaded Yankees his feats on the diamond were too spectacular to ignore. This book is the worst piece of trash I have ever read in my life. Done in the voice of the hero, the book focuses on off field adventures of Mickey and his friends. The author manages to make drinking, carousing, and sex boring. What he does to the baseball scenes is too awful to describe. It portrays Mantle as an arrogant drunken buffoon who only lived to screw and drink in a boorish fashion. The writing is bad, the plot is bad. A waste of money if it were free.

It brings forth a question. Who will our children look up to in awe if there are no heroes? There is not a single human who can stand such intense scrutiny of their personal life. Is it important to know that A-Rod went to strip bar, or should we just care that he is tearing up the league? Do we care who Tom Brady is having a baby with this week or should we focus on his leadership and football skills?

When I was a child we had Mantle, Brooks, and Johnny U. I am sure they had their bad habits but the press did not go looking for their mistakes and foibles. Do we leave the next generation with just Harry Potter and Frodo to look up to? Virtually every public figure form sports or politics has some stain on his public image. Can we not go back to what they accomplish with the body part not between their legs, with heroic athletic achievements or stirring speeches?

We have all behaved badly or lived in a way outside of so-called normal society at one point or another. Would we have that be our legacy, or should the focus be on what we accomplished at our best?

To be a child today must be a little sad. There are no real live heroes in the world, and that’s a little sad.



 Kailua-Kona, Hawaii is the world's capital for big game fishing; 1000-pound fish are common. It's summer and the catch is on. On a typical gamefisher, a 35-64 foot luxury sport yacht, they will run four lures on four poles, one short corner three or four waves back, one a bit longer, one out deeper and one in the far corner about seven waves back. With the lures in we have a good depth for action and if they are hit the line won't get tangled and when the boat turns, the lines won't cross. When a lure gets hit, it's "fish on!" and time for a long fight.

When fishing for big game in the market, I sometimes run lures under at varying depths, say three to seven waves back, hoping to catch some big game. Sometimes only the short lure gets hit. Sometimes all the lures get hit at once and there is a lot of action with hands full and it’s time for a big fight.

Mark McNabb extends:

The boat industry is somewhat bifurcated, as the high end seems to hold while the blue-collar powerboat side is soft. Diesel in the south Chesapeake Bay is near $2.55, while in resort areas with good sport fishing in NC and VA Beach it can run $3.55 or more. After seeing Harborfest and several weekends of boating in the bay, I would say the shock of higher prices last year is wearing off for the fishing-oriented. As my friend who has run a 62' Buddy Davis off Delaware says, "Fuel is the cheapest part of owning a boat. If you cannot afford to fill it up, it is time to sell."

Tuna, mahi, and wahoo are running nicely off VA Beach and Hatteras this week. Grilled a friend's tuna catch last night with cilantro and lime over pecan wood. It's mahi or crab night at the Bay tomorrow. Our neighbors have so many blue crabs, we're getting dozens (not cheap this year either) just so they can clear the way for the ones in their pots.

Tim Melvin adds:

Around Kent Narrows, the Bay has been very busy. Mostly go-fasts and upper end cruisers. As Prof. McNabb noted the high end is fine. They have enough to afford what they want. Middle class, mid sized fishing boats, and center consoles are seen a lot less. Sailing is very active out of Annapolis but those cheapskates use the wind! It's not just a legend about the cheapness of sailors — having worked in, owned part of and spend a lot of time in waterfront bars, the difference between a tip from a sailor and a power boater is in the 100% range.

Large Vikings are selling very well, as are the Cigarette-style boats, especially Sonic and Formula. The after market in Intrepids right now is actually higher than original sale price.



Pearls Before Breakfast, which describes violin virtuoso Joshua Bell's performance on a Washington subway platform, is one of the most important articles I have ever read. The best line is:

Then, Collins said, life slowly starts to choke the poetry out of us. It may be true with music, too.

It has more market implications than I can think about right now.



If, as expected, the Cubs sell for 600 million, it will be a 13.5% compounded return since the Chicago Tribune bought the team in 1982. That's not a bad return, but some truly horrible baseball over 26 years.



2/4/2006 - As of this date, the 150 stocks listed in The Value Line 600 analysis of stocks rated #1 and #2 had an average yield of .75%.

If you think 'Growth Stocks' will give you a better return, you are mistaken. If your portfolio held the 100 Growth Stocks promoted by Valueline in October 2006, your return would be less than one-percent (.92% exactly).

The previous paragraph is a strong argument for investing in bonds and CD's rather than stocks. United States Treasury issues are returning yields of 4-5-6% - why take less?

Steve Ellison comments: 

Why take a measly 4.8% return from Treasury bonds when stocks have a better-than-average likelihood of double-digit capital gains? Using trailing 12-month earnings, the S&P 500 earnings yield is about 5.4%, compared to about 4.8% for the 10-year bond. Thus the ratio of the S&P earnings yield to the bond yield is about 1.12. The average of this ratio since 1988 is 0.79, suggesting stocks are cheap relative to bonds.

One who ignored capital gains and believed stock returns consisted solely of current-year dividends would have been bearish on stocks since 1958, when the major market averages' dividend yields fell below Treasury bond yields (maybe that is the reason the weekly columnist has been bearish all these years). The historical record does not indicate that such bearishness would have been a winning investment strategy.

Tim Melvin adds: 

Here's this year's list:


Only q and tibx are rated one. The others rank two.



 There is no one else who is saying anything about it, so naturally I will. How about those Gators? Florida whipped the ever-loving bejezus out of Ohio State last night to become the BCS college football champions. I love it when the underdog not only wins, but it also does so convincingly. Having been an underdog most of my life, I love to see a team that is told that they simply can't do something, and actually go out and do it well … Well guess what? Just as high school drop outs aren't supposed to be able to achieve a level of success in the financial industry or have several articles and a book published, Florida wasn't thought to be worthy of even being on the field with the brutes from Ohio State. Crown them champions.

There are lots of trading, market and life lessons here.

1. As always, you should have an edge. Florida found the passing seam in OSU's zone defense and exploited it.

2. When it's clear that your edge is working, exploit it ruthlessly. Once Florida knew where the seam was, it pushed the point and went back to it over and over again.

3. Respond to adversity by attacking. When OSU's phenomenal player, James Ginn Jr., ran back the opening kick for a touchdown, Florida could have been demoralized by falling behind such a heavily favored team. Instead they got a runback of their own and calmly drove in for the score.

4. Play great defense. Florida's defense refused to make mistakes last night. The Heisman trophy winner was 4 of 14 passing for 35 yards and they could never get going. Protect your bankroll at all times. Don't be afraid to push it when you have the edge (the continual blitzing last night kept Smith running for his life), but not until you know you have the edge. There have been a lot of times in the past few years where playing good defense, such as having cash on hand and selling as the market went higher, allowed me to jump on opportunities that led to profits.

5. Loyalty counts. Florida's kicker, after being all SEC last year, has had a difficult year. They stuck with him. He booted two from over 40 yards. OSU's head coach, Jim Tressel, refused to allow Troy Smith take the blame for the loss, and instead took it all for himself. People remember things like that and think better of you for it.

6. If you do lose, be gracious about it. Learn from it. Nobody likes to lose but it will happen. Jim Tressel's post game interview was a lesson in the behavior of a gentleman. There is no doubt in my mind that he will review, learn from this and be back with a top ten program again next year despite the humbling nature of being beaten so badly.

7. Know when the risk is too great. When asked about Boise State, Urban Meyer stated that he loved those guys, but he wasn't going to play them. Boise, by whipping Oklahoma, proved that they are indeed a top flight school. Florida is relieved they don't have to do a one playoff game with that tricky high octane offense.

8. When the odds are against you, study, prepare and believe in yourself. Nobody thought Florida had a chance, and that could have demoralized the gators. Instead they were there to prove a point. They practiced, and they studied film (no one else found the seam in the zone all year, so they studied hard). They believed, they studied, and they worked. Call them a champion.

Michael Covel comments: 

These are all good points. But was Florida really an underdog? Or were sportswriters in love with OSU, Michigan and Notre Dame all year to the exclusion of SEC schools? LSU had the speed to whip OSU too. Speed is the dividing line. Over the last 30 years, speed has generally been located in Florida schools and the SEC schools.



Here we are, early December. That can only mean one thing. That’s right dear readers it is time for Tim’s annual holiday classic. Each year, for some twisted reason know only to myself… well, to be honest, I don’t even know why I do it, I bastardize, plagiarize and just generally rip off some well known beloved holiday yarn, giving it a speculative, capitalist, libertarian and just plain weird spin. I of course insert characters from the spec world and sometimes from the real world to make it entertaining to all, or just because I think its funny. I like to do this early in the month so everyone has time to print it off for their holiday bedtime reading. Surely even Mr. Brooks needs a holiday classic to read this time of year, eschewing those classics his kids love, the ‘NRA Manual’ and ‘Bambi — She’s What’s for Dinner’. The quest for a new story gets harder every year… We have done ‘Yes, Virginia’, ‘It’s a Wonderful Life’, naturally ‘The Night Before Christmas’, and my all time favorite, last years immortal yet easily forgettable rewrite of ‘the Grinch Who stole Christmas’. This year, I shall tackle the Granddaddy Christmas tale of them all — ‘A Christmas Carol’ — And stand it firmly on its head. So without further ado, all the while begging the chair and da Wizz for posting a non quantitative, non musical and, well I do not know if it is kind of a BBQ’ed edition of the story, I give you A Christmas Carol of a Different sort.[Read the Rest of the Story]



Last year about this time, during a growth versus value debate, I put together a list of all the companies you could buy for the market capitalization of Google. I thought it might be fun to take a look at the results. Here’s the list of stocks that last December you could have purchased in entirety for the cost of owning Google:


All of these were stocks with one of more of the value characteristics, i.e. low price to earnings, low price to free cash, low price to book value, and were down in price and were on my watch list at the time. As a group they returned over 24% for the year.

Google? Not bad. Up about 17% over the same time.

More interesting to is what you got for your money. Google has reported earnings over the time of $2.4 billion and operating earnings (operating earnings + depreciation - capex) of about $1.8 billion. The portfolio had reported earnings of almost $9 billion and operating earnings of over $15 billion.

And Here is the list for this year. For the Google market cap of $150 billion, one could today buy in entirety:


Google has about $3.5 billion in operating earnings, whereas the portfolio sports $16.5 billion or so. If Google can continue to grow at 30% a year for seven years their operating cash flow will surpass that of the portfolio… providing the portfolio rate of return remains stagnant and none of the excess $13 billion of operating cash flow is reinvested at any reasonable rate. Should the portfolio rate grow at the 10% level, not unrealistic considering the amount of excess available for reinvestment, it takes Google 10 years to surpass in operating cash flow. Again, assuming Google can grow at 30% for 10 years and no one comes along with better or new technology and reduces their competitive advantage. Of course we all know that in the stable world of technology that is unlikely to happen.

This is a very back of the envelope study, and the portfolio companies are picked because I know them and they all have one or more value characteristics.



I have to spend a little more time reviewing the concept in my head but I may have just read one of the best books I have ever read. Present Value, by Sabine Willet (a lawyer of all things), is sort of post 9/11 Bonfire of the Vanities that raises some intriguing and perhaps necessary questions. The story follows the travails of a couple, this time she is the hard driving over achieving spouse and he is a senior member of management with a large toy company who should have risen higher but prefers sailing and running to actually caring about business and finance. He is adequate, fairly compensated but not driven by any means She out earns him by 10 to 1 and unlike most North American males, he doesn’t seem to give a good crap. The bottom of course has to and does fall out of their world with some Enron style shenanigans and the book covers what happens to them each as the world falls apart. Sabine uses the artful device of a economics professor appearing in flashback to set the central tome and ask the critical questions. It is easy in one of these books to make the business world the bad guy and make it entirely touchy feely business is bad. Sabine avoids that by having the clever professor raise the questions. We all know that the supply and demand set the value of damn anything and that the marketplace is the final arbiter. Most of us on this list live are lives by these precepts and rightly so. Ultimately at the end of the day they are true. But are commerce and marketplace the only measure of value in the world or are their perhaps others? And if they are, asks the professor, can you run on two tracks at once. Ordinarily these books break down right here and insist that only some nebulous concept of true love is worthy and you must be poor as a church mouse to experience it. The book allows you to draw different conclusions if you so desire. The use of satire and rollicking humor helps tell the story and ask the questions that we all should ask ourselves from time to time. a good read that is also fun and thought provoking. A rare combination.


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