Hi Victor,

I attached a recent find which you might be interested in reading, Story of a Speculator written by Arthur Cutten. The book form was a private publication but originally was a three part serial in the Saturday Evening Post published in late 1932. There are many similarities between Cutten's views and your editorial, The Speculator as a Hero.

Perhaps you are already aware but if not, Cutten swung such a large line at the CBOT in wheat that it prompted the gov't to begin position limits in futures.

I'd also like to apologize for taking "french leave" from the Spec list almost two years ago now. Originally it was meant to be a short break to aid my focus throughout the day by having less distractions from the trading screen and it's worked so well that I haven't joined back up but still follow DailySpec. The education and friendships I formed from the SpecList were amazing and I'll always be grateful to have been a part.

Thanks again and I hope you're doing well,




 The biggest effect of the past year was the realization that I need to start wading into the real economy rather than spend 100% of my efforts speculating.  One industry that is well suited for traders is building a web application since it's similarly dynamic, wide open to new interpretations and the real economy is so inefficient compared to the futures markets.

Recently I came upon a book entitled Getting Real that is a collection of essays from the founders of 37signals, a Chicago company which creates project management software.  It was so refreshing to read a book that pushed the ideas that have worked so well for their company and which also fit my personality such as rushing into things but adjust as needed later.  The concept of Getting Real is about doing it, not about planning, theorizing or talking about things but actually creating something tangible.  Both the tech and speculative worlds are full of dreamers who don't take action which is why Getting Real should resonate well in both fields.

The book is even free to read on line if anyone doesn't want to purchase the pdf or printed book.

The company also has a blog entitled Signals vs. Noise where they post random mind droppings.



VNI often find that without the privilege of talking to the Secretary of the Interior every day, I have to look for other fields to attempt to stay even with the fray. I always find it easier to learn about how not to lose than how to win, so I like to study how the Knicks and Jets, two of New York's worst teams, manage to lose so often. It's easy with the Knicks. They have no foundation to their game. Their men are overextended, their shots are random from 100 feet out, there's no percentage. Sort of like the man who has leverage of 10 to 1 near the close, and is waiting for the other side to stop him out. That's easy. Near the end of a season, a game, a fray, the other team, which has a foundation, can overrun them at will. But for the Jets, one has to delve deeper, as sometimes they win. It was with pleasure therefore that in looking at the results of their Nov 15 loss, I learned a few things about how to lose. The Jets were up 22-21 with a minute to go. The Jags on the Jets 14 yard line. The Jets coach Ryan tells the Jets to let them score. But Jones-Drew refused to score stopping at the 1 yard line to set up a field goal with 2 seconds left. they made the field goal and won 24-22. Okay, both coaches used second and third level deception. First the Jets trying to let the Jaguars score, and then the Jaguars refusing to score the touchdown. There has to be a market situation. Let's take all the times very near the end of the day when the market is down just a hair compared to the times the market is up just a hair. Which is better? As you guessed, the coaches had it right. With the market down a hair, I find a 0.05% rise in the last x minutes before the close with a z of 1. With the market up a hair, I find a very different situation with a z of -2… The situation calls for further study.

 Steve Ellison comments:

Turnovers are a good way to lose. The San Jose Sharks turned the puck over in the defensive zone last night in overtime, and within two seconds the Chicago Black Hawks put the puck in the goal to end the game. Roy Longstreet's 1967 book, Viewpoints of a Commodity Trader, which I have quoted here before, has a chapter on how many games the Bart Starr-era Green Bay Packers won simply by making fewer mistakes than their opponents. There are numerous unforced errors a trader may make that are analogous to turnovers. For example, deviating from my trading strategy and entering impulsive trades have cost me money nearly 100% of the time.

 Ryan Carlson responds:

I'm fortunate to have Blackhawks season tickets and spend many nights deriving speculative analogies from watching such games. Last night in particular was fruitful because the Sharks are the best team in hockey so the margin for error was particularly slim for the Hawks although they were able to win.

Some other insights from last nights game was the Sharks scored their second and third goals 45 seconds apart to pull ahead 3-1. Quite often, it's easy to get down after a bad trade and be unfocused like the Hawks were after each of the three unanswered goals and that lead to getting them further in the hole.

Another potential Sharks goal was later considered "inconclusive" by video review and that kept the Hawks from getting buried further with a three goal deficit. Using the break they were given, the Hawks came out flying for the rest of the game and finished hard for the win. Sometimes, the market lets a guy out and when that happens, it has to be used to it's full advantage.

The Blackhawks have a great team to watch and one of the best to observe different combinations of risk and reward in their entire group of Defenseman. Some of the defensive corps is paid to strictly move the puck up ice to the forwards with high risk/reward but they are paired w/more steady and defensive players who cover for the risk. No matter which defenseman hangs back, they always ensure that they never leave their goalie exposed no matter how enticing an offensive opportunity is.This year my best insights have come from watching 21 year old Patrick Kane who is only 5'10" and 178 lbs. Granted he has amazing hands to stick handle and shoot with but that along with his instincts were all honed to survive as a small player. Since he doesn't have the size to compete for the puck, Kane has developed an amazing sense of where to be or not to be. Similarly, I've found that a good trading niche for me is to focus on where not to be and work on staying flexible to handle quick opportunities as they arise.Recently I read a book about another smaller player, 5'6" 180lbs Theo Fleury where he noted that the reason why 6'5" 244 lbs Eric Lindros suffered so many concussions was that he could skate w/his head down and get away with it in junior hockey as others would just bounce off him. Once Lindros got to the NHL and played against guys his size or bigger, he was unable to break that habit and those concussions ended his career and his brother's as well who played a similar style. Fleury noted in Playing With Fire that if he himself played that way, he would've gotten killed.Last nights Sharks/Blackhawks game was fittingly Jeremy Roenick night so we were treating to lots of video showcasing the dedication, passion and perseverance that it takes to become a impact player like Roenick. Looking back on his sacrifice and dedication, it was clear in Jeremy's eyes that it was all worth it when he met the crowd.

Somewhat relatedly, an interesting article linked below came out on the Blackhawks and the superstitions of each player. I personally rub the cornucopia of a statue outside the office and won't touch anything on my way in each morning with that hand, not too bizarre I don't think.

Steve Ellison responds:

The Sharks' TV announcers commented that they had not seen any team persist in attacking Sharks' defenseman Douglas Murray the way the Black Hawks did. Douglas Murray is a very tough player who, when he sees an opponent about to check him, likes to brace himself and move his upper body explosively in the direction of the opposing player, sometimes leaving the would-be checker sprawled on the ice.

On Mon, Nov 16, 2009 at 1:41 PM, Ryan Carlson <> wrote: I'm fortunate to have Blackhawks season tickets and spend many nights deriving speculative analogies from watching such games. Last night in particular was fruitful because the Sharks are the best team in hockey so the margin for error was particularly slim for the Hawks although they were able to win.



My performance as a trader this year is my worst since 2000. The whole situation is making me work harder and discover new things. A Reader.

An amazing amount of energy has been withdrawn from the market, looking at how most major futures volumes have shrunk as measured by the Futures Industry Association with y/y numbers [click to enlarge] from the first half of the year.

A friend was joking that "hanging in there" used to have an entirely different meaning and the saying previously was used to indicate that a guy wasn't having a record year. Working on trading edges through the downturn has taken my knowledge of software, data and the marketplace up to the next level. When the market cranks up again, ooh la la…



Pennington jerseyEvidence is accumulating that football, at least at the professional level, is causing dementia and other cognitive problems among retired players.

"..the Michigan researchers conducted a phone survey in late 2008 in which 1,063 retired players — those who participated from an original random list of 1,625 — were asked questions on a variety of health topics. Players had to have played at least three or four seasons to qualify. Questions were derived from the standard National Health Interview Survey so that rates could be compared with those previously collected from the general population, the report said.

"The Michigan researchers found that 6.1 percent of players age 50 and above reported that they had received a dementia-related diagnosis, five times higher than the cited national average of 1.2 percent. Men age 30 through 49, for whom the national average is 0.1 percent, showed a rate of 1.9 percent, or 19 times that of the general population.

"The paper itself questioned the reliability of using phone surveys to assess prevalence rates of diagnosed dementia, as did several experts in telephone interviews. For example, some of those affected might not be reachable; then again, N.F.L. players may have greater access to doctors to make the diagnosis, and so on."

The study already seems compelling. There could be some promising ways to test the idea further and learn more, such as measuring the dependence of cognitive problems on:

– years played
– self-reported number of diagnosed concussions over football career
– height and weight at retirement
– "safety" of position played, as rated by some independent source.
(e.g. punter and kicker would probably be rated safest)

Obviously this may cause some worries among high school and college players. One can hope that the problems don't really kick in until the play reaches the weight and speed level of the NFL.

Victor Niederhoffer generalizes:

HeaderThe study the Professor alluded to reinforces my long held belief that soccer is an evil sport, and the body is not meant to be banged up, especially the head, and that this causes early death and dementia. In addition to the heading shot, which must be involved on at least a third of all goals, I find soccer objectionable for my kids because kids with no other means of recreation or occupation play it from the day they are born, and by the time they compete with Americans who have to go to school and develop other interests, they are much too good for the Americans to compete against . Also, I hate that you can't play it without great effort after you graduate from college so it's not a life long source of recreation. My father Artie always said, whatever you do, don't let your kids play football. And I would add soccer and boxing.

Jordan Neuman opines:

I always thought that the rise of soccer in the suburbs over the last generation was just an extension of liberal politics because everybody can play. If someone has no talent they just stick him on defense. (I am speaking of school kids, obviously at higher levels of play this does not apply.)

On the other hand when my kid is pitching, he is on the stage. When he is throwing good strikes it is beautiful. When he gets lit up you have to tip your hat to the hitter (also on his personal stage). I always thought all those volumes expended on "America is baseball" were wasted, and most are. But there is a reason that baseball is a uniquely American game.

Ryan Carlson digresses to his favorite sport:

One of the many reasons why I find hockey to be such an honorable sport is that cheapshots and any unsportsmanlike conduct is dealt with through "the code" that such behavior has to be answered through fistfights. The code serves as a check and balance for problems to be addressed quickly and so liberties aren't taken when the ref is looking the other way. An entertaining book for those interested is The Code: The Unwritten Rules Of Fighting And Retaliation In The NHL

Scott Brooks continues:

GassoffHaving grown up a big St. Louis Blues fan and overall general hockey fan, I watched more than my fair share of hockey. We had season tickets to the Blues when I was growing up in the 1970s. My dad ate at a restaurant by his work that was frequently attended by Blues players. Dad was on first name basis with such greats as the Plager Brothers, Garry Unger, Bob Gassoff, Noel Picard, Chuck Lefley and many others.

Watching the dynamics of hockey growing up, it was clear that every team needed at least one good enforcer. This was the guy that would go out and beat up whoever on the the other team "breached protocol". If someone smashed into the Garry Unger (the Blues main scorer back in his day), he'd have to deal with one of the Plager Brother or (even worse for him), Bob Gassoff!

My father knew Plagers and Bob Gassoff and would tell me regular stories about what nice guys they were — but on the ice, holy cow! They were animals!

Pound for pound, there was no tougher, meaner group of hockey players ever to step on the ice than those Blues teams in the early/mid 1970s. The Plager Brothers were two of the toughest men ever to play in the NHL. And the best pure fighter to ever step on the ice was Bob Gassoff!

Bob Gassoff was the ultimate enforcer. Even the Plager Brothers — easily in the top 25 best fighters to ever step on the ice in the history of the NHL — would defer fights to their teammate Bob Gassoff.

Of course, there is always the image in my mind of the Blues going up into the stands fighting with the crowd in Philadelphia (a city known for its toughness).

And of course, there is ultimate showdown in the history of the NHL: Bob Gassoff vs. Tiger Williams as to who was the toughest man in the NHL. Both coaches agreed in advance to not let the players on the ice at the same time. But with around three seconds left in the game (and the game already won), there was a dead puck face off. The coaches put Gassoff and Williams on the ice at the same time. They lined up next to each other in the circle, looked directly into each others eyes, nodded to each other and proceeded to drop their gloves and go at it!

What a spectacle! After the fight, Bob Plager grabbed a bloodied Bob Gassoff and skated him around the ice holding his hand up like a referee does for the victorious prize fighter. Gassoff had won the ultimate hockey battle!

I think the markets would be a lot more interesting if we could have enforcers. If someone squeezes you out of your position too many times, you just send over your equivalent of Bob Gassoff to let him know he'd better not do that anymore!

Vinh Tu gets back to the subject of using the head in sports:

HeaderWhen I was between the ages of 8 at 12, my parents signed me up for soccer, and made me go play it, even if it sometimes meant they had to tear me from my Apple II computer. Doing clever things with one's feet was fun, and I'm sure that all the running was beneficial to me, physically. But I also remember heading practice, where a beefy coach would force 10-year-olds to use smack their heads against a flying ball. I remember that I only once, after much trepidation, allowing a ball to hit my head. I immediately knew that the feeling in my head after the impact was not at all good. After that, I could not help but flinch or duck during these heading drills, despite feeling intimidated by the large, angry, frustrated coach. Meanwhile there were a few kids on the team who really took to it and were gleefully smacking their heads against balls launched at them by the coach. It would have been interesting to follow up on my team mates and see if there has been any correlation between being a keen header and intelligence, and a few decades from now, dementia, and also whether there are correlations with other behavioural traits (perhaps lack of caution and restraint, impulsiveness?) and genetic correlations.

Stefan Jovanovich reassures:

BoxingThe most important question to be asked about getting smacked in the head is "where?". The upper forehead and the forward peak of the skull can take a severe impact without any damage; the same blow to the temple will kill a person. There is no question that football players and professional boxers have problems with dementia from the repeated blows to the temple. Vinh Tu's beefy coach was an idiot and bully. The first lesson in learning how to head a ball is teaching the kid to watch the ball into his/her forehead, and the best way to teach that lesson is to have two kids soft-toss the ball back and forth, as if they were playing pepper.

There is very little risk of head injury in amateur boxing; if it is properly worn, the head gear protects the temples and the upper jaw – the two places where you can get hurt.

What is stupid about the design of football head gear are that the helmet is allowed to float; compare the design to military headgear where the webbing and the helmet are cross-braced so they move together.

Tom Marks is skeptical:

InjuryA humble postulate: Nearly all orthopedic and neurological injuries related to professional sports stem from the fact that eons of evolution hardly designed the human body for the unique stresses these activities put on it.

Sports-related head and knee injuries aren't going away anytime soon, especially the latter. Somebody could design a more efficient helmet, but only nature could design a knee that could better withstand the unnatural rigors of playing running back in the NFL. And there's nothing hasty about nature. It tends to deliberate long and hard.



Day OneA new book, Day One Trader, is one of the finest accounts of life on a futures trading floor and is the best trading floor book since Charlie D. was published over a decade ago. The author, John Sussex, recounts his experiences of being a young pit broker from the first day the LIFFE trading pits opened in 1982 and continues to the transition of electronic futures trading, including his role as an exchange director when the LIFFE Connect system was developed which eventually closed the pits.

Many books regarding the trading floor are sensationalized but Sussex wrote a straightforward memoir regarding the camaraderie, risks and culture that transcended every trading pit. Besides exciting tales of the characters which seemed to be drawn to the exchange floor, Sussex offers a broad perspective since he was much than his primary role of a pit broker, particularly his creation of a dominant floor brokerage. Eventually Sussex Futures transitioned to electronic trading and one of the most insightful parts of the books was his experience dealing with a rogue trader during the early days of electronic trading which nearly bankrupted his firm.

It's quite rare to get a tasteful but frank impression of how the trading pits operate but the author succeeded in doing so better than any other attempts I've seen. I really admire his energy and observations because after decades spent in the pit, most guys are down to two brain cells and one of which is waving goodbye to the other.

The book will be released in the US next month but is already available in the UK. At 172 pages it's a quick read and has broad appeal for anyone with an interest in financial history, particularly the development and evolution of futures trading.



Tyler BrûléFor those that haven't read an issue of Monocle, the new May issue makes a wonderful introduction to the magazine. The cover story is of the Danish navy on pirate patrols off the coast of Somalia but the issue is also extensively filled with stories on Belarus, Hobart in Tasmania, Tunis, and Dubai's conservative neighboring emirate of Sharjah amongst many other broad features that range from the economy to design and fashion to the personal transport of Congo's president. At $10 an issue, it's quite expensive for a magazine but I would continue to find good value in the issues for double that price. Monocle's editor Tyler Brûlé writes the Fast Lane column for the weekend FT and previously started Wallpaper magazine before launching Monocle.

Jim Sogi adds:

Hobart, Tasmania is a lovely town, and on a lovely island. You can buy oceanfront commercial for 0.5M. Acreage also inland. Like California about 70 years ago.



 Recently I finished reading Ken Dryden's The Game , which is widely regarded as the best book on hockey and one of the best sports books ever written. Ken is a very deep thinker who graduated from Cornell and earned a law degree from McGill while goaltending for the Montreal Canadians. In his 8 season career, Ken won the Stanley Cup 6 times before deciding to retire at age 32 and currently serves in Canadian politics. It is a timely book to read as I've been thinking over the state of trading, what works or no longer does, and most of all how 'the trading game' relates to myself. The book opens with a couple quotes I found interesting for him to choose:

"The trouble with people like us who start so fast….is that we soon have no place left to go." - Pomeroy in Joseph Heller's Good as Gold

"I leave before being left. I decide." - Brigitte Bardot

Continuing with the theme of impending retirement, Ken wrote:

“I have thought more about fear, I have been afraid more often, the last few years. For the first time this year, I have realized that I’ve only rarely been hurt in my career. I have noticed that unlike many, so far as I know, I carry with me no permanent injury. And now that I know I will retire at the end of the season, more and more I find myself thinking —I’ve lasted this long: please let me get out in one piece. For while I know I am well protected, while I know it’s unlikely I will suffer any serious injury, like every other goalie I carry with me the fear of the one big hurt that never comes. Recently, I read of the retirement of a race-car driver. Explaining his decision to quit, he said that after his many years of racing, after the deaths of close friends and colleagues, after his own near misses, he simply ‘knew too much.’ I feel a little differently. I feel I have known all along what I know now. It’s just that I can’t forget as easily as I once did.”

The above citations stuck me not because I'm looking to step away from trading but perhaps looking to retire certain methods and strategies that are losing their effectiveness. But it's not easy to reinvent oneself and drop old ways while they still work.

To share another quote that Ken opened up a chapter,

“More often than I like, I am saddened by a historical myth….. I can’t help thinking of the Venetian Republic in their last half century. Like us, they had once been fabulously lucky. They had become rich, as we did, by accident…..They knew, just as clearly as we know, that the current of history had begun to flaw against them. Many of them gave their minds to working out ways to keep going. It would have meant breaking the pattern into which they had crystallized. They were fond of the pattern, just as we are fond of ours. They never found the will to break it.” – C.P. Snow, The Two Cultures and the Scientific Revolution

Further in the same chapter, Ken described how the Soviets, in the 1972 Summit Series against NHL All Stars, changed from playing a game which was "too patterned, too predictable" to a more ambiguous way which left him with the following conclusion:

“So where do we stand? There can be no more illusion now. We have followed the path of our game to its end. We have discovered its limits. They are undeniable. More and better of the same will not work. The Soviets have found the answer to our game and taken it apart. We are left only with wishful thinking. We must go back and find another way.”

The cycles of change being reimposed on competitors is something common to the markets and I'm grateful for having read this book during my search for a new formidable edge.



It's been over 6 years since I was last in Shanghai but I remember being overwhelmed by the amount of construction cranes then. Now there aren't more than a few from what I could see today in Pudong. To be completely fair, a couple financial buildings were going up that weren't in the photos but it looked like construction was slowed on them.





I also noted that the number of local Chinese tourists greatly outnumbered foreign ones and the local tourists appeared to come from rural provinces. As these aren't people with a likely income stream while they are away, I view this as bullish for the lower income consumers. 

Charles Pennington inquires:

The thing that stands out to me in your photos (and especially in this one) is that the air looks like it's filled with smog. Was that noticeable to you, and did it provoke any lung problems? 

Ryan Carlson replies:

No, I didn’t have any problems breathing and imagine it’s as clear as it gets. A few days shouldn’t be a problem but I wouldn’t want to live here.

The weather today in Shanghai was around 80 F and the prior day was rainy since an early evening arrival on. My paranoia pertains to the food I’m eating rather than the air. Last time through, I bit into a coil of wire hidden inside a Shanghai dumpling and won’t eat on the streets in China anymore.



Here's part of the Economist's review of The Billionaire That Wasn't, the story of entrepreneur/philanthropist Chuck Feeney, which I recently read:

An Irish-American, born in New Jersey in 1931, Mr Feeney made a fortune by co-founding Duty Free Shoppers (DFS) which first sold tax-exempt goods to American soldiers abroad and then tapped into the rise of mass tourism. When DFS was sold in 1997, it had delivered nearly $8 billion to its four main shareholders, of which Mr Feeney was the joint biggest, with 38.75%.

Tax avoidance is the flip side to Mr Feeney's philanthropic coin. He is addicted to it. “Chuck hates taxes. He believes people can do more with money than governments can,” says a friend. In 1964 a young New York lawyer, Harvey Dale, told Mr Feeney that changes in the tax laws threatened his business, which was running risks that could put the founders in jail. On his advice, Mr Feeney and his co-founder, Robert Miller, transferred ownership to their foreign-born wives, from France and Ecuador, respectively.

In 1974, through a deal with the American government, the firm turned the Pacific island of Saipan into a tax haven. Then, in 1978, Mr Feeney grouped his various investments, including his shares of DFS, in a holding company, General Atlantic Group Limited, in tax-free Bermuda. To escape the American taxman, everything was still registered in his wife's name.

Mr Feeney carefully shunned all outward evidence of wealth. But as soon as DFS became reliably profitable, he started the practice of giving 5% of his pre-tax profits to good causes. In 1982 he created a foundation, the Atlantic Philanthropies, based in Bermuda. Two years later he signed over his fortune to the foundation, except for sums set aside for his wife and children. His net worth fell below $5m. When he broke the news to his children, he gave them each a copy of Andrew Carnegie's essay on wealth, written in 1889.



McDonaldsJust caught on the news that Mc Donalds will add a 'coffee bar' and make more dramatic changes to their drink menu than they have in the past 30 years. I enjoy their Bravo coffee and am sure I will enjoy the drink additions when they reach my area. Mc Donalds is apparently still setting the pace in many areas as it was also announced that Starbucks now plans to make changes.

Sam Marx adds:

Although Starbucks gets a different niche of customers, this not good news for Starbucks .

A coffee bar and wi-fi at McDonalds, then Starbucks really has a problem.

Adam Robinson reflects:

I've always believed that the ethos of a corporation pervades, DNA-like, throughout all manifestations of the corporation, however small the "cell." If you want to discover the values of a company, you can look anywhere, from its choice of stationery down to the cleanliness of its floors.

Back to Starbucks. It was telling for me regarding the company's values that, living as I do five blocks from the former World Trade Center, I was shocked that in the days following, when rescue workers, many of them volunteers, flooded the area to begin cleanup, the local Starbucks was selling bottles of water. I'm as much a capitalist as anyone, but the outrage this opportunism occasioned in the local community, and subsequent bad publicity — Starbucks quickly reversed its policy and began handing out bottles for free – rankles to this day. The positive publicity it could have garnered by donating the water to relief workers would have more than paid for the negligible profits "sacrificed."

Ray Kroc was fanatic about cleaning his stores, and making everything perfect. Moreover, McDonald's franchisees are a powerful force for innovation and market research. I doubt that Starbucks has any such credo. And were I a fundamental investor, I'd bet on McDonald's in the race with Starbucks.

Ryan Carlson adds:

A worthy read about McDonald's is Ray Kroc's Grinding It Out. My favorite passage:

The key element in these individual success stories and of McDonald's itself, is not knack or education, it's determination.  This is expressed very well in my favorite homily: 'Press On: Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.'

Henry Gifford dissents:

Starbucks and McDonalds offer entirely different products in terms of the cultural experience they sell.

On Broadway in Manhattan, two blocks from me, there is usually a homeless person "working the door" at the McDonald's, opening the door for customers and asking for spare change. Once McDonald's put a guy with a bow tie there to open the door for free, but that didn't last long, and the homeless guy is there every day. Also, the workers in McDonalds don't hesitate to stand around and chat and ignore customers.

At Starbucks a block away I've never seen a homeless person "working the door," (nor at any of the other stores nearby), I don't see homeless people sitting there, and the workers have a spring in their step.

Jim Rogers counters:

As someone whose first career was in the hospitality industry, I can state that McDonald's moves markets in more ways than one.

The difference in demographics, however, is a present condition and certainly not a necessary condition. McDonald's has always put its eggs in two baskets: families (especially those with small children) and value. In the past, their offerings were weighted more heavily on the family side of the spectrum. Now, thanks to a number of cultural shifts (including those driven by Starbucks), McDonald's has realized that they can capitalize on the public's perception of additional value. Before, it was all about quantity (the Super-size phenomenon). Now, it's about quality (better coffee, more aesthetically pleasing decor, fresher menu items). In the past 24 months, the majority of McDonald's top line revenue growth has been driven by menu items at the top of the price scale, especially new salad offerings. There are a couple of interesting points that McDonald's has embraced: the masses (or at least a historically large percentage of the masses) will pay for quality, and design makes a difference. It made a difference in attracting the kids thirty years ago, and now it's making a difference as it re-attracts adults (with or without children) with Wi-Fi, coffee, and more pleasing decor.

Marion Dreyfus opines:

Whatever the relative merits or demerits of the individual loci, the Starbucks habituee will not 'descend' to the perceived downmarket of McD's, which is a brand-association drummed into our consciousness by millions of ad messages over decades. The food may be better, the prices definitively so, at McD's, but the smart set will not cotton to the overbright, plastic-dominated perceived lower-ranking environment of kid-friendly McD's.

The escalation of prices for a simple beverage to unheard-of stratospheres is one thing that has, to date, ensured the rarefied perception of Starbuck's as being compatible with the upward-striving status-jumper.

So unless McD's radically alters its branding, the trendoids will find it distasteful to step lively in those swinging doors, even if their coffee tastes more acidic and sets them back more by a factor of twice or thrice the McD's coffee.

Ken Smith comments:

Ronald McDonald is five blocks east of me in Seattle, a short walk downhill a ways. Property they have is also just a short walk uphill to Childrens' Hospital. Parents can stay at Ronald's place while visiting kids, many with cancer. Ronald's facility is commendable for its architecture. One can have nothing but praise for Mr. Ronald, whose plastic body is standing out front of the facility, smiling with welcome. Kids love him.

Vitaliy N. Katsenelson analyzes:

SBUX stock is transitioning from 'growth' to 'value' investors. However, it is not cheap enough for value guys. At least not yet. Also, with current news cycle it will likely see the other extreme of its valuation. In the not so distant future it will probably have to rationalize its store base, close some underperforming stores and slow its growth expansion.

Jim Rogers notes:

Fast-food restaurants, due to their staffing policies, are much more likely to employ legal immigrants than you might think. The biggest offenders in the food world for using illegal labor: high-end restaurants, because they lack the institutional oversight and back-office support to adequately check a lot of prep cook and porter staff applications (and some are simply dishonest). If you're looking for a trade opportunity in the event of some strict anti-immigration policy, short higher ticket restaurant groups.

Scott Brooks writes:

McDonalds will have to work hard to overcome their persona. They have cultivated that image for a long time. I have often joked (with an air seriousness to it) that one of the greatest inventions/innovations of the 20th century was the McDonalds Playland!
I absolutely hate the food at McDonalds and will move heaven and earth to not eat there. But my kids like it. So when the wife needs a break and the kids want to go play, I'll take them to McDonalds, buy a few Happy Meals and let the kids play and eat.
Actually, they don't so much eat as graze. They play, come back and grab a few fries and bite or two of their burger/McNuggets and go back to playing.
As much as I don't like the food at McDonalds, they are an incredibly innovative company that I respect immensely. And with their distribution chain and the demographics of America changing, don't underestimate what McDonalds is capable of.
That clown may look stupid, but underneath there is a shrewd businessman!

Nigel Davies ponders:

I'm just wondering what the real appeal of McDonalds is and what really gets people in the doors.

I often eat at McDonalds during tournaments because there's usually one around, probably they won't poison me and if they do (and I live) I can sue them.

On the other hand my five year old son much prefers the relatively civilised atmosphere of Pizza Hut, so much so that I can use the 'Would you like to go to McDonalds for lunch?' gambit as a threat. Now it turns out he quite likes pubs that do food, but the big thing here was getting him in the door and outside his comfort zone. Now he does miss the balloons but there again he's taken a liking to turkey.

So it seems to me that a lot of this is down to parental choice, the main driver here being cost. Of course most parents are going to be struck by severe pangs of guilt should there be even a whiff of a rumour that the food served up is unhealthy. So with BSE (Mad Cow Disease)/cholesterol etc appearing on the horizon, it was inevitable that McDonalds would take a hit until it overhauled its menus and image.

In this respect I see the coffee/WiFi as being a really clever means of making them look like Starbucks and feeding off the modern, trendy and healthy image of the coffee house chains. But are they a 'competitor'? I really don't see it, and I don't see a Starbucks denizen suddenly switching to McDonalds because of the cost. To me it looks more like an image thing to get the old customers back in the doors.

Julian Rowberry submits:

Starbucks never really caught on here in Australia. Its brand name and attempt at exporting US culture is a tad brash for the local market. Plus there's already a vibrant cafe scene. The Maccas Cafe has been here for years. It's aiming at the fast and convenient 'healthy eating' market that companies such as Subway feed on. Not branded wanker latte drinkers.

Alston Mabry recounts:

Burger KingAt Burger King the other day (I'm not a big fan of fast food, but I am a Coke addict, and my dogs love the burgers on the dollar menu), I hit the drive-thru, and when I pulled up to the window, the Latina there said they needed to cook the burgers and would I mind pulling into the parking lot in front for about three minutes (they know their cooking times). No problem. I don't mind waiting in the car because I always have a good book to listen to, this time Adventure Capitalist. I'm listening away, and the pooches are quiet in the back, when I notice it's been almost ten minutes. So I go back through the drive-thru, and there is a young guy at the window this time. I start to explain, and he thinks I'm placing an order. His English is good, but he is obviously from Mexico or Central America. I show him my drink and the ticket and he gets it and starts rattling away in Spanish with the staff. I realize he is the shift manager. He comes back, apologizing profusely, and explains that they accidentally gave my food to somebody else who was also waiting, that they will cook fresh burgers for me and that he will bring them out to me personally. I think he was worried that I would be angry, but I wasn't at all. We park again, and a few minutes later he appears with the food and apologized otra vez.

The point of the story is this young guy. He was a good-looking kid, maybe twenty. He was running the show, working hard on his English, taking reponsibility for the results, apologizing for mistakes and personally delivering the goods. And here was Burger King providing the structure for him to be successful. Not a dead-end job at all, not for this guy. I was very impressed.

Scott Brooks adds:

I had an funny thing happen in fast food to me in about 1985. I was a manager of a Taco Bell, putting myself through college. We had hired a new girl who had previously worked at Burger King. It was her first day and I had her working the drive-thru.
The drive thru "dings" with her very first customer. She says into the microphone: "Welcome to Burger King, can I help you." I thought it was pretty funny, she thought it was pretty funny, but the guy in the drive-thru began laughing hilariously.
But he placed his order and pulled to the window. The reason he was laughing so hard? It turns out he was the guy who owned the Burger King where she used to work.



Here's some scattered observations from my three week trip across the Middle East.


Complete alcohol ban throughout country inducing Melvinian nightmare with realization that nearest Irish pub was two sovereign borders away by land. I had to drink this: Budweiser NA

The currency states, We Seek Gods Assistance, Central Bank of Kuwait

Like most of the region, Kuwaiti leisure time is largely spent at shopping malls in order to keep time spent outdoors to a minimum. In addition to other factors, the inactivity of the locals has pushed diabetes rates to 13% of the population in Kuwait but that shocking figure is less than 20% in UAE, 16% in Qatar and 15% in Bahrain! The Gulf diet is largely to blame for the health figures as well with the large influx of Western favorites like Applebees, Ruby Tuesdays, KFC, Pizza Hut, McDonalds, Krispy Kreme, Hardees, and TGI Fridays.

Its a common saying in the Gulf that the only nationals a visitor will meet are those who stamp your passport in and out. Although it doesn't apply in all cases, that's how it was in Kuwait as 90+% of Kuwaiti citizens are employed in some form by the government. Of the population of approximately 3 million, only about a third are Kuwaitis which is a pretty small pie to split 10% of world oil reserves amongst.

Moderate construction activity but generally focused on smaller housing as opposed to vanity office towers. Wealth is easily observed but nothing too flashy. Another view of the skyline. 

Offers little to nothing for tourists and with exception of visit to Kuwait Towers, most of two night stay was spent anticipating departure.


Its clear that Bahrain has large ambitions to enhance it's position as a financial center in the region with the development of Bahrain Financial Bay . The project remains largely in its infancy although I have doubts about it finishing before the cycle changes.

My basic sniff test of financial integrity failed numerous occasions with just trying to get an honest cab fare. All the taxi drivers are native Bahrainis which makes it worse and I think the experience on a five dollar transaction extends directly to larger sums as well.

Nothing of note to see as visit was over a holiday so it can be considered nothing^2. Made visit to halfway point of causeway linking to Saudi Arabia but only because of lack of other sights.

No Michael Jackson sighting.


The building boom in Doha is as impressive as anything Ive seen in such a concentrated area, perhaps best described as the equivalent of building an entire downtown metropolis in five years. It boggles my mind on how they will fill the office buildings with enough productive workers to justify all the construction but I definitely plan to return in a few years time to follow up once this phase is complete. The entire population of Qatar is just under a million people and of that figure, only about 20% of the population are Qatari citizens so I'm under the assumption that a large surge of professional expats are expected.

Here is a panoramic shot from my hotel: foto1 foto2 foto3 foto4 foto5

As with the prior two countries, I found very little to do for the visitor and I imagine that luring foreign professionals will be an expensive endeavor. Its often been a concern of mine that the talent pool of expats is quite shallow to being with and once the buildings of Doha get completed, finding competent workers is going to be very difficult. However, the region will present great opportunities for young and aggressive professionals to get responsibilities and opportunities far earlier in their careers than they would in their own countries.

Qataris are forbidden to get lower end jobs and perhaps all these buildings are just meant to be part of the great government employment agency. I have no firsthand experience working with Gulf Arabs but have heard from others that they have a terrible work ethic and that is why the government has to absorb the workforce rather than the private sector. An otherwise chatty expat I spoke with clammed up regarding Qatari work ethic, knowing to keep his mouth shut, but prior to that spoke of how family and prayers come first in the workplace.

Tourist highlight was desert excursion but found landscape and tour far inferior compared to similar excursions offered in Dubai.

Qatar has unique alcohol restrictions according to wikitravel: There is one liquor store, Qatar Distribution Centre, in Doha. To purchase things there, you must have a license that can only be obtained by having a written letter of permission from your employer. You can only get a license when you have obtained your residency permit and you will need to get a letter from your employer confirming your salary in addition to paying a deposit for QR1000. The selection is good and is like any alcohol selection of a large supermarket in the West. Prices are reasonable although not cheap.


I was prepared from all the warnings that there's not a lot to see or do but didn't care as I came to stay in the Emirates Palace . The hotel is rated with the mythical seven star status, which I've heard compared to Spinal Tap turning their amps to 11, but enjoyed the two nights I spent there and feel it fully deserves the rating. At a cost of over $3 billion to build, its not at all economical but the government of Abu Dhabi built it as a showpiece which is meant to overwhelm anyone who steps inside.

The journey from Abu Dhabi to Dubai is slightly over an hour by taxi and it was the first time I've made the drive. There isn't much to see between the cities and that was actually a nice break from the orgy of construction taking place all over. The break was short lived however as the first sign we were closing in on Dubai was when we reached Jebel Ali on the far west side of Dubai. In addition to being one of the worlds largest ports, it has a huge future once the new airport gets developed to become one of the busiest in the world.


The real deal! In my opinion, Dubai is the most interesting city to visit in the world and will continue to be for the near future. I think Im getting harder to impress but with my fifth visit in four years, my opinion of Dubai continues to grow. To see Dubai is far beyond description and every effort I've seen others make doesnt do accurate justice to what's unfolding.

The blank slate of desert allowed the ruling clan to create a sort of SimCity and every new plan is bolder than the last. Just driving around and viewing the audacious projects being constructed gave me sensory overload. Ive been inspired on each visit by the city as it challenges every notion of possibility and shows the limitless potential some visions have.

One of the extensive infrastructure projects is creating a metro rail which I find absolutely amazing since Ive never seen that before in a city. In the past Ive encountered horrible traffic congestion but avoided it entirely on this visit.

The most audacious project is the Burj Dubai (Dubai Tower ) which has topped out as the worlds tallest building (foto ) and has an immense amount of construction (foto ) going around it as well.

From what Ive heard, the Jumeriah Palm already has residents on it but as a visitor, I couldnt get past the security gate since the hotels havent been finished on it yet.

I had my first stay at the Emirates Towers and feel that its the definitive place to stay in Dubai. The ruler of Dubai, Sheikh Mohammed bin Rashid Al-Maktoum, has his office in the adjoining tower if that tells you how great the view is. 


The country is in a tough spot with accommodating Palestinian and Iraqi refugees, leading to official unemployment rate at 15% but likely double that. Very nice and welcoming people though!

Amman is a bit of a mess and has no redeeming qualities to it that I could find. City was known as Philadelphia in Roman times and is burdened by lack of proper planning. foto1 foto2

Petra was much better than I imagined and really enjoyed the one kilometer walk through The Siq before encountering The Treasury.



Clipped from the recent member bulletin…..

FINDINGS: On October 23, 2007, a panel of the Pit Supervision Committee found that on October 12, 2007, F*r poured a milkshake on another member in the Eurodollar Options pit. The Panel found that in so doing F*r violated CME Rule 514.A.9, a minor offense.
PENALTY: The Panel imposed a fine of $4,000.
FINDINGS: On October 23, 2007, a panel of the Pit Supervision Committee found that on October 18, 2007, G*n struck and spit on another member in the Standard and Poor’s 500 Stock Price Index futures pit. The Panel found that in so doing, G*n violated CME Rules 514.A.7 and 514.A.9, minor offenses.
PENALTY: The Panel imposed a fine of $10,000.

FINDINGS: On October 23, 2007, a panel of the Pit Supervision Committee found that on October 17, 2007, L*e poured a bottle of water on another member in the Eurodollar Options pit. The Panel found that in so doing L*e violated CME Rule 514.A.9, a minor offense.
PENALTY: The Panel imposed a fine of $4,000.

FINDINGS: On October 23, 2007, a panel of the Pit Supervision Committee found that on October 17, 2007, P*r threw sunflower seeds at another member and those seeds struck several other members and Exchange employees in the Eurodollar Options pit. The Panel found that in so doing P*r violated CME Rule 514.A.9, a minor offense.
PENALTY: The Panel imposed a fine of $2,500.



WheatWith the amazing moves in wheat lately, I'd like to recommend The Plunger by Edward Jerome Dies. Published in 1929, The Plunger focuses on Benjamin Hutchinson, a legendary Chicago trader. 'Old Hutch' was King of the Wheat Pit in the late 19th Century and I read in awe about how he dominated trading at the CBOT. There are reprint editions made in the mid 1970s at a reasonable price.

Alex Castaldo adds:

As a reminder of how difficult it is to hedge a generalized deflation, let us look at a chart of wheat prices from Kindleberger's book The World in Depression, on page 88. If wheat prices in 1929 are set at 100, they subsequently plunged to under 50 in 1931, 1932 and 1933 before gradually recovering and reaching 100 again in 1938.  In the prosperous year of 1925 they had reached a maximum of 120. A terrible time for wheat producers indeed…

J. T. Holley remarks:

I have on the back of an envelope somewhere a study I did on softs/grains. I did this study to learn scale trading. The counting that stuck in my head is that when corn, soybeans, and wheat reached the top five percentile of their historical price distribution they were significantly lower two years from the date of entry. My staring point was that 1974 high of 650, which was probably breaking massive statistic rules!



The new issue of Conde Nast Porfolio has some great pictures of trading floors around the world:

Nepal Stock Exchange
Nairobi Stock Exchange
Dubai Stock Exchange
BM&F Sao Paulo
Tehran Stock Exchange
Kuwait Stock Exchange
Hong Kong Stock Exchange

The instant I first saw a futures trading floor in person, I knew that was what I wanted to do in life!  Even better than the pictures in Portfolio, I have photos from Getty Images of all the futures exchanges past and present hanging on my walls.  All the stock exchanges look like a tea party in a retirement home compared to the futures floors.



The federal tax on each cigar could rise from 5 cents to $10
Published July 17, 2007

It's no mathematical error: The federal government has proposed raising taxes on premium cigars, the kind Newman's family has been rolling for decades in Ybor City, by as much as 20,000 percent.

As part of an increase in tobacco taxes designed to pay for children's health insurance, the nickel-per-cigar tax that has ruled the industry could rise to as much as $10 per cigar.

Now they are trying to take my cigars away! The maximum tax of $10 would destroy most of the manufacturers who rely on relatively high volume sales of $5-$10 cigars. Some good friends of mine will be instantly out of business.

The high-end Fuentes (Opus-X, Forbidden-X, God of Fire, and the Ashton VSG and ESG Lines), Padrons, Davidoffs, and, of course, the $500 Ghurka stick dipped in billion year old cognac, will not be as adversely effected.

A consequence of the higher tax will be even greater demand for the finest Havanas, which would mean everything you buy in Mexico and Canada will be either fake or seconds (lower quality cigars). London, Spain, Switzerland and Dubai are the best in that arena. 

Ryan Carlson muses:

Can cigar smokers tell different brands apart?

Recreational smokers (a few cigars/month) probably couldn't distinguish between most brands but they can definitely tell the difference between a good or bad cigar. There is a large difference in the strength of brands so perhaps that'd be a better reference point.

I have a few favorites and could probably pick them out of a large selection but try not to go beyond a few brands, so I'd be clueless on the rest. 

David Hillman explains:

 I don't know of anyone who can tell brands apart blind, even experts. Cigars are rated in blind tests; the properties are evaluated, just like wine, but that's merely subjective. They're also like wine in that they're made of tobacco of different vintages, from different origins, often blended, and though manufacturers attempt to maintain some consistency, there can be substantial variation, even from cigar to cigar within a box. The proliferation of seed worldwide, such as Honduran tobacco grown from Cuban seed, and variations in aging make the task more difficult as well.

For instance, one of my favorites, Perdomo's La Tradicion Cabinet Series, is constructed of Cuban-seed fillers grown in the Dominican Republic, Honduras, and Nicaragua, with an Ecuadorian binder and wrappers from Connecticut. Their milder line, Tobaccos San Jose, uses a blend of fillers from the Dominican Republic, Honduras, Nicaragua, and Brazil, binders from the Dominican Republic and Connecticut wrappers. The bolder Dos Rios line is primarily Nicaraguan filler with some Dominican Republic tobacco as well, the binder is Nicaraguan, the wrappers Ecuadorian. There are sub-series within the Cabinet Series, as well as the limited Champagne sub-sub-editions, so there's great variation within brands, too.

Moreover, cigars can/will acquire aromas and tastes of those they're next to in the humidor, so it's important to separate them from one another. Also, as with wine, good cigars improve over time, becoming smoother, more flavorful and complex with age if stored properly. I believe it might possible to tell a frequently smoked cigar with a reasonable consistency apart from others in the blind. I'm nowhere near good enough and don't smoke enough to with regularity, but I might have a better chance than the average Swisher Sweets smoker of batting, let's say, 2%. On the other hand, expert Grade seven rollers and master blenders are certainly capable of carefully examining a cigar and determining the type of tobacco used and its origin — is it a Cuban Cohiba or a Nicaraguan El Fako?

A novice wanting a good, reasonably priced smoke might sample a Monte Cristo #3, the Perdomo La Tradicion Cabinet Series R Champagne Robusto, or the La Flor Dominicana #100 (Tubo), all about $8.00 per. There are many others, these are simply a few that suit me.

All this talk of puros has gotten me fired up, but one last thing in this regard before I head out to the deck to chomp on one of the said Tubo #100s: It would be wise to refrain from entering into a high-stakes blind cigar tasting with a certain former world leader (whom I revere for his ingenuity in tobbaconistic matters). He may very well have found a sure-fire way to gain an advantage in distinguishing his 'brand' from all others in a blind taste test.

Aaron Krizik responds:

A lot of parallels can be drawn to oenology. I am highly confident I can tell the difference between branded cigars from Nicaragua vs. the Dominican Republic and certainly Cuba, but I doubt I could tell the difference between 10 randomly selected Cubans. It's easy to tell the difference between a Merlot and a Cabernet Sauvignon, but 10 randomly selected Merlots would be a challenge for most wine drinkers.

A Nicaraguan cigar like a Padron is just completely different from an Ashton with Dominican filler and a gorgeous "shade" wrapper from Connecticut. I could easily tell the difference between the two — or any other cigar I regularly smoke. Tobacco from Esteli, Nicaragua is simply very different from Vuelta Abajo tobacco from Cuba.

Larry Williams remarks:

With appologies to Guy Clark

Too much smoking gives you cancer
Too much cocaine's not the answer

Too much invested just on margin
Too many lawyers come in chargin'

 Mike Desaulniers extends:

I got back from two weeks in the motherland on Sunday. Caught some excellent weather in Vancouver, and not one local offered me any BC smoking material. My record for unsolicited offers walking through Washington Square Park in New York (granted, on the diagonal) was five.

There were huge displays of patriotism on Canada Day, more than I ever remember on previous visits. Everyone in the West End (downtown residential) had flags out windows. I saw more than one group walking on Robson St. shopping district, singing Oh Canada. It was quite striking. The Canadian dollar's rally must be going to their heads, eh?



 For years I've been meaning to make it to Pamplona to run with the bulls but I hadn't been able to until this week. It's regrettable that it didn't happen sooner because to show up younger and dumber would've made it even more exciting.

An hour before the run, the streets are washed clean and then about 30-45 minutes before, the runners are contained within a plaza to wait while the sweepers remove all debris. About five minutes before the run, the police allow everyone to leave the square and get into their preferred position. There aren't many rules except that cameras or backpacks aren't allowed and the runner must be at least 18. The police use the dispersion before the race to take any violators immediately off the raceway.

Positioning is extremely important and I opted to meet the bulls near the end of the run at the end Calle Estafeta as the route takes a soft left turn into an area called Telefonica and then to the tunnel of the bullring. My reasoning was that the bulls were slower after running uphill on Calle Estafeta, on the left side were wooden barriers I could escape through, the momentum of the turn would lead the bulls to my right, and that I could make it into bullring since it closes after the last bull gets in. Another precaution I made was not to run on the weekend when it's the most crowded.

From watching videos of the run, it seems that many of those injured are someplace they shouldn't be doing something they shouldn't be doing. What really surprised me was the complete ignorance and lack of planning many other tourists did as it's too dangerous a situation to just get out and run.

The most important safety rule is that if someone falls, to cover their head and stay down until another runner taps them and says it's all clear. The only foreign runner ever to die was an American about 10 years ago who fell, got up to look for the bulls and was gored. My plan was to stay on my feet and simply just keep moving forward and left until I got into the ring.

The few minutes leading up to the run and two minutes of the run itself were some of the happiest and most exciting of my life. Running up Calle Estafeta with the balconies filled with people cheering, not knowing what would come in a few minutes was exhilarating.

One rocket booms to let everyone know the starting gate for the bulls is open and then a second rocket follows once the last bull leaves the pen. As I was near the end of the course, I planned to count to 75 to begin running but took off at 60 since so many people sprinted by me with complete panic in their face.

I was equally concerned about other participants as I was of the bulls because of all the accidental shoving, tripping, and blocking which made it more dangerous. Luckily, I managed to stay on my feet and ran alongside the bulls from about three body widths away which is about where I wanted to be.

The run through the tunnel and into the bullring was a glorious moment to be met by all those cheering in the stands. High fives all around with my fellow runners and then we waited for the baby bull with rubber covering its horns to be brought out that everyone could play amateur matador. After the run, it was time to celebrate with a cigar that I picked up on a layover in London from the world's greatest humidor at Davidoff on St. James.

When I ran on the 9th, it was a pretty clean run and the bulls tended to stick together. When the bulls get separated, serious trouble begins because they'll hit anything that moves. The run on the 12th shows what happens when separation happens and how the confusion causes the bull to act.

Without a doubt the experience exceeded my imagination but I probably won't do it again. There are certain memories that I feel are so pristine that I can't recreate them because the additional times aren't nearly as good. For instance, hang gliding off the cliffs over Rio was so amazing that I won't spoil the memory even though I've gone hang gliding elsewhere since and been back again to Rio four times.

The atmosphere in Pamplona is definitely a party scene but more mature than say Bourbon St. in NOLA during Mardis Gras or the Lapa neighborhood during Carnival in Rio. Locals were extremely inviting, particularly those we met watching the bullfights in the evening.

The bulls which ran during the day are the ones which are to be killed in the evening bullfight. I was awed at the grace of a Spanish bullfight and it's worth the trip alone to see.

Steve Leslie counters:

Bull-fighting is the worst display of the barbaric nature of man. It ranks with cock-fighting and dog-fighting, and below fox hunting. It is cruel and horrid.

It is a bloodsport where the animal is led through a series of stages designed to weaken it and ultimately set it up for its demise.

First it is stabbed in the back with a lance by picadors to lower its blood pressure so the animal does not have a premature heart attack and thus shorten the spectacle.

Next a group of men called banderilleros stab the animal along its shoulders with lances to further weaken it through blood loss.

Finally, after the animal is severely weakened and defenseless, the matador enters the ring of death and performs a ritual of maneuvers with a cape –choreography of sordid and macabre design. Then he thrusts a sword through the shoulder blades of the spent animal and into the heart.

There is no majesty or glory in such a grotesque display. There is no redemption, as the end of the play is written before it is begun.

Ryan Carlson replies:

According to the book, Running with the Bulls: Fiestas, Corridas, Toreros, and an American's Adventure in Pamplona, the bulls that fight lead a life of freedom on the open range and are given the best food and quality of life. In exchange, they pay with their lives by dying in a bullfight. Counter that with all those animals which simply exist in a feedlot in order to fatten them up and die by getting stunned by electricity and their throats slit. I would certainly take the route of the toro bravo!  

Scott Brooks writes:

I can see both Steve's and Ryan's point of view. Bulls, and animals in general, are tools to be used by man as we see fit. However, that doesn't mean that we have the right to be cruel to them.

When I hunt deer on my farm, it is in my view an exchange of value. The animals on farm live a life of relative comfort, security and abundance. I create a habitat that is conducive to their needs, creating lots of quality cover including sanctuaries that are off limits to humans (except in very rare instances). There is plenty of water, and safe travel corridors to get from bedding to water areas. There is more food on my farm, planted specifically for wildlife use, than the wildlife can eat.

Some would say I do all this for the animals, but that's not the case. I do it for me, my family, my friends and my clients. I want a great place to hunt, to recreate, to watch and observe wildlife, and to get pure organic meat for my family. The benefit to the wildlife is simply a byproduct of my desire to create an environment that supports my desires.

So the wildlife benefits from my efforts, and all I ask each year is a few sacrifices.

But when one looks at the manner in which the sacrifice occurs, one will notice that it's a humane manner in which I, or my guest, inflict death on the animal we're hunting. Death in the wild is usually horrid. And to top it off, the end is usually the most hideous part, as other animals (the carnivores) zero in on the dying animals and attack. To be eaten to death is a slow and horrible process. Sure, smaller game animals may die quickly (as their backs are snapped in the jaws in a larger predator), but larger animals such as deer or bulls die slowly as Kipling states: under the tooth, fang and claw of predators.

I usually kill an animal quickly and virtually painlessly (many times it's painless and instantaneous). But there are times when it's not a good kill — what I call an ugly kill. I hate those, but they are a fact of life in the wild. And I can tell you from first hand experience, that most non-human inflicted death in the wild is hideous! So what keeps me coming back after an ugly kill? It's simple. I know that even my ugly kills are much more humane than the vast majority of non-human inflicted deaths in the wild.

So what is the connection to this and the bulls of Pamplona? Those bulls are killed in a manner that many would find offensive. It's off the beaten path of a quick humane death in a slaughterhouse. But when you compare their death to the alternative deaths in the wild, you will find, as I have, what looks like a draw-out spectacle of death inflicted by the matador is actually a better alternative to the myriad of horrid (and much more likely to occur) deaths in the wild.

Mother Nature is the older and crueler sister of the Market Mistress. The Market Mistress will just take your money and laugh at you. Mother Nature will slowly and cruelly kill you — while laughing at you! 



 My best friend since kindergarten has a filter business. He has a clientele of businesses that he goes to and changes the filters on their heating and air conditioning units. It's a steady business and affords him time to go hunting and fishing. But it's also a luxury business.

Since people don't need their filters cleaned, if they are experiencing any financial difficulties, they usually cut him back or even stop his service altogether.

He and I were talking on the phone today and I asked him how his business is going. He said he's having to work harder to bring in new clients to make up for the one's that either cut back or cut his service off completely. He informed me that times were tough right now in his normally steady as a rock business.

‘Why,’ I asked?

He said that there seems to be a direct connection to his prosperity and the price of gas/oil. His filters are petroleum-based and the prices of his filters are up 25%. Plus he drives around all day between his businesses so the price of gas affects his bottom line. But the biggest thing that affects his business is gas over $3/gallon. He said there seems to be a direct psychological effect on people when they see gas go over that number. Sure, the increased prices affect his bottom line, but when gas gets over $3/gallon, customers start cutting back or canceling his service.

He says the business attitude and environment are completely different when gas is under $3/gallon than when it's over $3/gallon. And even though my buddy has a blue collar business and gets his hands dirty for a living, don't think that he's some dummy. He's a sharp guy with a good business sense and a better people sense. But he's not very bullish on the economy right now, and since the core of his business is serving other mom-and-pop businesses, he's got a good feel for what is going on in.

So, to lessen the chances of me being a labeled a bear, I would submit that the focus of this would be (as always is the case with me), ‘how do we profit best in this environment?’ I'm not asking that rhetorically. One thing I'm considering is doing something with my buddy. He's getting burned out on his current business and is considering selling it. He's not sure what he wants to do, but he's got a nose for finding things.

I wonder what opportunities are going to be popping up in the coming economy? I'm going to keep my eyes open for them! Especially opportunities that create passive income streams. 

Ryan Carlson writes: 

My feeling is that the US is split between those who have a lot of money or owe a lot of money. To profit from the latter, I got some ideas from an article on publicly traded debt collectors, Two Stocks Poised To Profit From A Debt Collection Boom.

I don't own the stocks mentioned yet, but it's an idea I'll investigate further. The risk to these debt collectors is that the politicians change the rules of the game. 



 The local Singapore business paper had an article breaking down performance of local equities in various sectors. There is triple-digit performance in the construction sector, 40 to 50 percent performance in the finance sector and healthy rises across the board.

Swanky new nightspots are mushrooming and expensive cars are seen in greater numbers. Property sells for record prices with each new development. Recently there was a story of professional speculators who purchased condos to get on their boards in order to urge residents to agree to flip the entire building to a developer, essentially merger arbitrage in real estate.

From Ryan Carlson:

Yesterday, I just returned from a week in Singapore and am wildly bullish on it as well. So bullish that I'm planning on moving there in about six months and this trip was to help lay the groundwork for it.

Apparently, I'm one of many. The current cover of Time's Asia edition is on Singapore and the lead story is Singapore Soars.

In regards to construction stocks, besides riding along for the sharp upturn in local real estate values, I think it's a great way to play region growth as many have projects in China, Vietnam, Indonesia, and other countries where I wouldn't/couldn't invest directly.

The mention of expensive cars really is a great wealth indicator judging on how expensive it is to have a car in Singapore. I certainly won't have one once I move. An easy estimate is that whatever a car costs in the US, double it for there.

I strongly believe Singapore is the most dynamic place to live in the world today, and if I had to choose what investment I would buy and hold for the distant future, Singaporean equities, real estate, and the currency would be my choice.

Geographically, it's at the hub of three of the four most populous countries in the world (Indonesia is the 4th), which makes it an excellent place to watch developments in those other countries. No other place in the region can even remotely offer the quality of life or cleanliness and I firmly believe that wealthy citizens of India, China, Vietnam, Indonesia, etc, will all aspire to live in Singapore's cleaner, safer and more orderly society. If not full-time, then perhaps a pied-a-terre as a hedge against trouble in their homeland.

Regardless, the most important thing that will find a home in Singapore is capital. Private banking in the country has been a particular highlight as bank secrecy laws are in some instances stricter than in Switzerland. As the saying goes, "when it comes to large amounts of money, it's advisable to trust no one." And I certainly wouldn't trust the banks in other regional countries to hold a large amount of my money.

To help with inviting capital, Singapore offers favorable low tax rates, doesn't tax capital gains, and also provides numerous incentive programs including one aimed at attracting derivatives traders. I agree with the method of taxing consumption rather than income, which is generally how the system allows for a lower direct tax.

A reason why so many policies are correct in my view is that almost every Singaporean I've ever met was educated at a university overseas in the UK, US, Canada, or Australia. In turn, they take back home the best policies but also get a firsthand view of damaging policies elsewhere to avoid.

Those civil servants who enact and draw up policies in Singapore are some of the highest paid in the world. Although there is understandably some backlash to government officials paid so highly, I like how it retains those who would be bid away to the private sector. It's hard to take care of others if you can't take care of yourself first and the policy discourages corruption.

Quite often the mentality of Singapore is summed up simply with the word 'kaisu' which translates from Chinese into 'afraid to lose.' The small island has to compete globally in almost every facet and most notably with Malaysia in terms of many regional competitions. Because of the mindset and no shortage of competitors, Singapore will always have to continue the pace of development to drive the economy. Those in Singapore have built a tremendous global city through their ingenuity, and I hope that I can make my contribution by moving there myself soon.

Nigel Davies asks: 

Why is Singapore considered to be a good place to live? Is it really freedom, or is there an unspoken 'biggy-like' respect for property rights? Here are some sample laws in Singapore:

  1. Bungee jumping is illegal.
  2. The sale of gum is prohibited.
  3. Homosexuals are not allowed to live in the country.
  4. Pornography is illegal.
  5. As it is considered pornographic, you may not walk around your home nude.
  6. Failure to flush a public toilet after use may result in very hefty fines.
  7. It is considered an offense to enter the country with cigarettes.
  8. Cigarettes are illegal at all public places.
  9. It is illegal to come within 50 meters of a pedestrian crossing marker on any street.
  10. If you are convicted of littering three times, you will have to clean the streets on Sundays with a bib on saying, "I am a litterer."



 Whilst looking around the internet for pictures of my buddies and I on the trading floor, I noticed that Deutsche Bourse has cornered the market on Andreas Gursky's photos of exchange floors:

Also I found an old CME ad promoting the beginning of the E-mini S&Ps. My, how far has that contract come!

The CME has put out some really cool promotional stuff in the past and I'm working on a collection. When a contract would be launched or some sort of milestone was set, they'd give out buttons for everyone to wear. Stuff like, "15 minutes please" to ask traders to make an appearance where a new contract was trading and give it a shot, or such as celebrating 1 million open interest in eurodollars (it's 10 million O.I. as of yesterday), and the launch of new contracts, most of which failed.

In the 70's they put out posters and ads ridiculing the Communist system such as How Come There's No Moscow Mercantile Exchange?

"Millions of tons of potatoes, cabbage and other commodities change hands in the U.S.S.R. every year, but not a ruble's worth is traded on any futures market. In a regulated economy, the price of a head of cabbage is exactly what the government says it is –no more, no less. Does their system work? Apparently. Does it work as well as ours? You've got to be kidding."

How Come There's No Peking Duck Exchange? "Difference of opinion — openly aired — is as essential to a free economy as it is to a free society. That's why great commodity exchanges can flourish in this country and not in the People's Republic of China. You can't have free markets in a regimented society. And you can't have regimented markets in a free society."

How Come There's No Havana Cigar Exchange? "It just wouldn't work. A commodity futures market such as those that flourish in the Uniter States and other free countries simply can't operate in a highly regulated economy. Free markets — or controlled? When you get right down to it, that's probably the single biggest difference between their way and ours. Except, of course, for the standard of living."

There is also a Budapest or Belgrade ad out there but I don't have my paws on it yet.

I'm not sure if they put any promotional material out under the phrase "Free Markets for Free Men" but I'm certain the meat pits didn't let it be known their unofficial phrase was/is still? "Wide Markets for Wide Men."

One thing that makes me livid is that I was travelling and didn't know that Nick Leeson's jacket was up for auction until after it ended. To follow up, I emailed the liquidator and they said all the other Barings coats were sold as well.

While on the topic of the trading floor, I might as well plug a new book that I enjoyed recently and is an easy read, Out of the Pits: Traders and Technology from Chicago to London by Caitlin Zaloom. Another thing I dug up on the net is a 51 second youtube clip of Robert Downey Jr. on the floor of a NY futures exchange and he concludes with his opinion on the types of people who inhabit the floor.

If anyone knows of any Futures industry memorabilia for sale, please let me know.



 Here's a funny story. About five years ago, some guy in Kansas City who was mad about gas prices went to the Board of Trade there with a pistol that he used to tap on the glass of the visitors gallery. The entire pit scattered off the floor as soon as they saw him and it being Kansas City, a couple traders went to their cars to get their guns and roamed the halls looking for him.

I might as well recount another story. The day before I started as a clerk there (July 1st, 1998, one of the happiest days of my life) a female clerk got her car bombed in the parking lot across the street. Someone walked up, broke a window, threw in some sort of explosive and ran away. The resulting fire roasted the cars next to it as well and could be seen from the trading floor. From what I heard, the female clerk was pretty crazy and slept around but I never met her as she left the floor after that day.

It's these types of stories I'll entertain my grandchildren with someday after the floor is long gone.



I'm really enjoying Supermoney by Adam Smith, republished by Wiley. I question, however, some mention of the Bank of International Settlements.

Smith wrote,

 "The stock of the bank is held by the member governments: the United States, Germany, France, Japan, Italy, and so on. Every once in a while there seem to be a few stray shares floating around, and so there was this day. For something like $1,100, I bought one share. Then the stockholders were the United States, Germany, France, Britain, Japan, Italy, and Adam Smith."

Upon reading that passage, I scrambled to see if I could buy some shares. But I read on the Internet that the public shares were forcibly bought back from private hands. Can anyone provide color on the performance of the BIS shares whilst held by the public? Were they a home run, just a steady performer, or a slow mover? More important, are there any similar organizations with small and obscure share offerings?



 One thing I do my best to track down while traveling is a Financial Times each day. Finding myself with the Asian and European editions, along with global currency tables this past Monday, I ran some numbers to see what it costs in different countries.

Seventy countries had prices listed between the two editions and the overall average was 3.56 US dollars.

(Prices are in USD)

New Zealand - 6.89
Lithuania - 6.46
Ukraine - 5.40
Czech Rep - 5.35
Japan - 5.08

Pakistan - 1.32
India - 1.70
Sri Lanka - 1.83
Gibraltar - 1.93
Philippines - 1.96



 Electronic payments is an industry that I perceive to be fertile for large growth, and I am invested accordingly. Two books worth reading on the subject are The PayPal Wars and Paying With Plastic .

My favorite of the two is The PayPal Wars which was written by an early employee of the company. Besides offering a great entrepreneurial story which described all the tribulations that nearly sunk the company on multiple occasions, it's about a business that was founded on Libertarian thinking.

The author quotes PayPal co-founder and current hedgefund manager Peter Theil's vision in starting the company:

"Of course, what we're calling 'convenient' for American users will be revolutionary for the developing world. Many of these countries' governments play fast and loose with their currencies. They use inflation and sometimes wholesale currency devaluations, like what we saw in Russia and several Southeast Asian countries last year, to take wealth away from their citizens. Most of the ordinary people there never have an opportunity to open an offshore account or to get their hands on more than a few bills of a stable currency like U.S. dollars."

"Eventually PayPal will be able to change this. In the future, when we make our service available outside the U.S. and as Internet penetration continues to expand to all economic tiers of people, PayPal will give citizens worldwide more direct control over their currencies than they ever had before. It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or Pounds or Yen, in effect dumping the worthless currency for something more secure."

The other book, Paying With Plastic, is an in depth book that describes just about everything one would ever want to know about electronic payments. I'm a bit apprehensive to buy anything published by MIT Press but it wasn't as dry as I imagined and kept me interested.

Describing how important the development of the industry is, the author offers this perspective:

"Although cash and checks may not be toppled for generations, if ever, payment cards have nonetheless wrought a revolution. Humankind has seen only four major innovations in the most routine aspect of economic life—how we transact with one another; the switch from barter to coin around 700 BCE; the introduction of checks by the Venetians in the twelfth century; the shift to paper money in the seventeenth century; and now the payment card. Let's be clear again, though—it is not the card, it is the digits, and as we will see, when it comes to the electronic transfer of funds, plastic cards are not the only game in town."



 Every so often I get the desire to sample the intoxicating perfume of the developing world and nothing else will satisfy me short of that wonderful combination of open fire smoke, dust, exhaust fumes and body odor in a new, strange land. The scent of cherry blossoms in Japan, kitchen aromas in Italy, or fresh Rocky Mountain air can't so effectively fire excitement about what unknown days lie ahead. When one of my best friends and I decided to head off on a guy-trip, there was no doubt that the best place to immerse ourselves in the developing world was Africa.

This trip was taken for many different reasons but a prominent one was to spend the truest wealth we have, our youth. I once heard a person mention that any older, monetarily wealthy person would give their entire fortune just to be young again. At 27 and financially comfortable, I'd give it all up to be 19 and broke once more. The worst thing I could imagine is to sit on my rocker at 80 years of age and have regrets about squandering youth and the opportunities that passed me by. Maybe it's just because I'm approaching 30 and believe that 30 is the new 40 when it comes to midlife crises that I'm thinking about these things.

Sir Richard F. Burton described the beginning of a trip best:

"Of the gladdest moments in human life, methinks, is the departure upon a distant journey into unknown lands. Shaking off with one mighty effort the fetters of Habit, the leaden weight of Routine, the cloak of many Cares and the slavery of Home, man feels once more happy. The blood flows with the fast circulation of childhood. Afresh dawns the morn of life."

The first stop was a two-day layover in Dubai that captivated me enough on visits a couple years ago that I wanted to return and see how it's continued to develop. I was amazed to find that construction hasn't visibly slowed down and projects that were initiated a couple years ago are still being completed. The Burj Dubai is still a couple years from opening as the world's tallest building and I figure I'll have to return by then to view the audacity of it all. Certainly the most surreal experience in the Emirates was snowboarding at the new snow slope in the Mall of the Emirates and then later that day going sandboarding in the desert during a break on a dune bashing tour in a Land Cruiser.

I arrived in Uganda at one of the most infamous airports, Entebbe, although the buildings that were around during the Israeli hostage rescue have been replaced. Because the Entebbe airport is on the breezy shores of Lake Victoria, it doesn't give that developing country smell immediately which normally kicks me in the face the first step out the door. Certainly one of the most unpleasant travel experiences is getting a taxi at a third world airport that lacks a taxi queue, which is virtually all of them. The most aggressive driver generally gets the fare. That is why I was happy to realize that I could somehow arrange for a driver to meet us and avoid the charade.

Kampala is by African standards quite safe, jovial, and entertaining. The capital appeared to have quite a large middle class with enough disposable income to support a relatively large number of restaurants and bars of good quality. Serving as the economic backbone to much of the country was the Indian population which owned many businesses that I frequented such as hotels and higher quality shops. The ownership of many successful businesses by Indians has led to an underlying resentment by the local black population similar to that experienced by the Lebanese in West Africa and Overseas Chinese in Southeast Asia. But as Idi Amin found out, the Indians are needed for the country to function. When it comes to functional ease as a tourist in Africa, I firmly believe that it doesn't get any better than being white, male, American, and young, all in that order.

 One of the highlights of Uganda is the opportunity to go gorilla trekking in Bwindi Impenetrable Forest National Park in the southwestern part of the country near borders with Congo and Rwanda. It also has a mountain gorilla population. Generally you can see the same wildlife over much of Africa but the only place to observe mountain gorillas is this region. It's quite refreshing to experience a safari on foot because the only way to get to the gorillas is a one to four hour hike up a 45-degree slope in the dense forest. Thankfully, we pursued the closest gorilla family and reached them in less than an hour.

So as to not disturb the gorillas too much, tours are limited to around a dozen people and can only observe them for an hour. The other restriction is that the park won't allow anyone with a communicable disease (flu, etc) to go on the trek because the mountain gorillas share about 97% of their biology with humans. Like most wildlife in the region, the gorillas are used to tourists and went about eating leaves the entire time we were there. Observing the gorillas, particularly the silverback, from less than a meter away was an amazing experience that I cannot accurately describe to others. It was also great to hike through the forest because much of Uganda has been cleared from slash and burn agriculture, which has left much of the countryside naked.

The other overwhelming highlight of Uganda is whitewater rafting down the Nile, just slightly below the source of Lake Victoria. A few years ago I had a great time rafting on the Zambezi below Victoria Falls and the guide mentioned that the only other place to experience high volume, warm water rafting was Uganda. So I knew such a visit was inevitable. Due to the large amount of flat water which required paddling, I thought the Nile was more arduous than the Zambezi but enjoyed it regardless. My main concern wasn't the class five rapids but what health problems that can result from the water. Most books I read advised against simply swimming in the Nile or Lake Victoria. But I happened to swallow multiple mouthfuls of water as the raft often flipped.

The final stop was 24 hours in Cairo to get a quick refresher glance at the pyramids, which if built today would still be stunning. As the pyramids at Giza were built in 2500 B.C. and have been receiving visitors since, the local population has had plenty of time to master the art of ripping tourists off. I'm not saying that all Egyptians are like this but simply around the tourist areas there is a hustling culture that is unmatched. I'm particularly annoyed that Middle Easterners like to call me friend while they're trying to rip me off.

It's also a shame to have such a wonderful tourist attraction as Giza. But the grounds of the pyramids could use some serious enhancements which only private enterprise could undertake. With the push into infrastructure assets, why not have someone like Macquarie Bank (with local partner of course) bid for the rights to oversee the attraction, clean up the place, and add much-needed improvements to facilities in return for a lump sum and a slice of revenue?



 The Dutch flower auctions are renowned throughout the world for their pricing and distribution of flowers and plants. In 2004, they jointly generated sales of almost 3.6 billion euros. The auctions are cooperatives, in which breeders have united to organize their sales jointly. Initially the auctions were local cooperatives. In 2004, the largest auctions had members throughout the Netherlands and even abroad. Breeders generally have to sell their entire production through their own auction. That rule forms the basis of the auction system in the Netherlands. At the moment there are 4 auctions in the Netherlands: Bloemenveiling Aalsmeer, FloraHolland, Veiling Oost Nederland, Veiling Vleuten.

The function of auctions is to concentrate offer and demand. Everyday approximately 10,000 specialized breeders deliver their products to the auction. From that offer, approximately 5000 buyers make their choice. An important instrument is the auction clock, by which batches or individual units of products are sold by Dutch auction to the customer that first causes the clock to stand still. Handling approximately 100,000 transactions each day, the auctions distribute a vast, homogenous offer among a large number of different parties. The auctions work as an international marketplace.

Initially, the auctions handled only sales by local breeders and later by regional breeders. Nowadays, however, members of other auctions can offer their products as well. Towards the end of the 1970s it was decided that the auctions would also admit products from abroad. At this time imports constitute approximately 15% of the offer for the clock. The principal countries for import are Kenya, Israel and Zimbabwe. In this way, approximately 60% of the international cut flower trade is handled by auctions in the Netherlands, which thus have a pivotal role in the international trade of flowers and plants.

For traders the auction provides a virtually complete, deep and wide, range of 16,000 floricultural products on a single site. For producers, the auction guarantees their daily sales and the payment for them. The auction also offers a transparent market and an objective operation of the price mechanism. A minimum price is set for each product. It a batch is not sold, it is withdrawn (and destroyed). This leads to a stable pricing system, which in turn promotes a stable offer and stable demand.

Not all products are sold for the clock. In recent years direct sales between sellers and buyers, breeders and traders have become increasingly important. For houseplants and garden plants, approximately 50% of sales are realized through direct sales, almost always under forward contracts. For cut flowers, a day-fresh product, direct sales have no more than a marginal role at present. More than 90% of cut flowers are still auctioned.



The competitive side of me says push on and make more money (make hay while the sun is shining). Don't change the model (assuming your model works) and press on.     -Scott Brooks

A point Jon Krakauer wrote about in Into Thin Air is that mountain climbers need to haul ass when the weather is good since they have to expect bad weather rolling in at some point and they won't be able to move. In my experience, good markets are infrequent and that's the time to trade with full effort. When the opportunities dry up, it's best to hunker down and spend the day surfing the internet or taking a vacation.

I've seen many traders ease up when the goings good and then be in a desperate position to trade when the market is quiet. Being wrong in both situations always leads to an early exit in the business.

Ryan Maelhorn comments: 

Suppose it is February 1st, which it almost is, and suppose that already, your fund is up 20%.  This is amazing for any given month, and pretty good for the YTD as well.  I don't know what 20% sounds like to everyone here but that is double the drift of the market as a whole, so I will assume for this writing that ending the year up 20% is seen as a pretty good year.  This being the case, how long should one go without making a trade?  Should the fund close up shop for the rest of the year?

How does one measure time as risk?  At some point, it becomes illogical not to make another trade.  We can think of this on the maximum scale — the length of our lives, and realize that if we never make another trade for the rest of our lives, nor any investments, our money would start to be riddled away by various expenses, taxes, and inflation.  What are the concerning factors such as having a good year early, the possible closing of the fund next year and the desire to try for a record year, etc.? What is a good formula to value time as risk?  How many hours of non-involvement in the market should one percentage of our total capital buy?

Russell Sears offers: 

Don't invite me to Vegas … I can't take it, too nerve racking. Everything within me rebels the longer I stay, knowing that the house will grind me down. Every loss hurts twice, once the wallet, second the mind.

However, stocks are different. You have the edge. You are the house and time is on your side.

At the start of 2006, I believe I counted the average return when the economy is not in a recession, and when it is in a recession. The bottom line is that unless you expect a recession, stocks are the place to be. If 2007 gives the average return of no recession, which I think is likely, the S&P would be at 1602, which is very close to what Markman predicted in his MSN money column.

Russell Sears adds: 

At the start of 2006, I believe, I counted the average return when the economy is not in a recession, and when it is in a recession.

This is an excercise that I believe a reader should do by hand, at least I found it a learning experience.

Alan Millhone comments:

My father began building spec homes in 1955 and he always did remodeling and insurance repairs. I began working with his crew when I was 13 during the summers and he always expected more out of me than his regular crew of carpenters. I have had new employees who were amazed that I could tell them how long it should take to move a dump load of gravel or sand by wheelbarrow or how long it takes to tar coat a basement wall and then install a French drainage system around the perimeter of a home. I do have years of experience in construction and I mostly learned from the ground up, and have been around several good contractors over the years and have always listened to what they expounded on 'tricks of the trade.' Owning and renting apartments is another 'niche' in the market that is not for the faint of heart! Most think all you have to do is collect the rent … However, you have maintenance of units, renters who will not pay, and you have to legally evict them. You need to be a little bit of a handyman if you own units, so it is not for everyone. Also, you have to know when to raise rents. I was asked once by a fellow who owns a lot of rentals if I knew the best time to raise rents. He told me at Christmas time! … People cannot afford to move then. Yes, a bit cold harded, but many renters will not give you any breaks. The best time to raise rent is when a unit becomes empty. I always scout around the area and get a feel of what other apartment owners are charging. I would not mind building a few new units, but material prices are currently too high to make the numbers work.

Now in return for my treatise on renting, I expect the spec. list to help educate me a little on investing.

Victor Niederhoffer responds:

You seem to do very well in real estate. For someone who knows the field, I imagine real estate is as good as stocks. Jim Lorie once told me that the main difference between the returns of stocks and real estate was that you could get a very good return from stocks through index funds without knowing anything about it, but in real estate to get that return, you had to know a lot about it.

James Sogi adds:

It's up 20%.

How can one maximize gains? Say if it's up but it does not want to liquidate, could a trailing stop on a portion give a synthetic option? We've discussed them and they are inefficient, but path dependency prevails, so they might have function. Another way to think about the question is say you are up 2% on a trade on your margin, do you liquidate with the idea of buying back lower? Let's assume your risk factor has gone up. Do you lighten up? I think our conclusion last time was to adjust leverage in a market with drift to protect gains. That seems to be the answer to catching further gains, but reducing risk ala. Gardiner Principal: be small when wrong and large when right. The corollary of which is to adjust leverage to the probabilities thereof.




 There are a few travel books that really make me wish I was immortal so I could travel and see even more of the infinite experiences this vast world offers. Here's my top three:

National Geographic Atlas of the World, Eighth Edition
It's simply the best and most expansive atlas out there. If I were banished to a desert island, this would be the book I'd take with me.

The Travel Book, A Journey Through Every Country in the World, published by Lonely Planet
This book consists of two page spreads, which provide wonderful insight into the culture and highlights of each country and territory, replete with big, beautiful photos.

The Cities Book: A Journey Through The Best Cities In The World, published by Lonely Planet
It's very similar to "The Travel Book," but the focus turns to the top 200 cities around the globe. I don't necessarily agree with the order they are listed in, but the list is comprehensive enough.

Other honorable mentions:

1001 Natural Wonders: You Must See Before You Die
This is a beautiful book, and it is great to pull ideas from.

1,000 Places to See Before You Die: A Traveler's Life List
Most of the listings are accompanied by upscale options, but I've found it to be a good resource and then I do it with cheaper methods.

The Concise Dictionary of World Place-Names
A good quick reference that sated my curiosity about how towns like Rotorua were named.

Two conversations I remember with fellow travelers in Brazil on different occasions always push me into taking a trip when I'm undecided. Sitting around with other twenty somethings, one guy mentioned, "ya know, if we're lucky, we'll only be able to live, what, another 50 years?" The other conversation arose when I discussed taking a lot of time off with a former technology executive who's been traveling for seven years straight, and to this someone mentioned, "you can always make more money, but you can never make more time."

In addition to the portrait of Sir Richard F. Burton that hangs in the place of honor in my apartment, I also draw inspiration from books such as A Sense of the World, which is the story of a blind man who traveled extensively throughout the world in the 19th century.

To close, I found the excerpt of an Alexander Pope poem that an author included in a book about Burton, which is also appropriate to describe many on the list,

With pleasure too refined to please,
With too much spirit to be e'er at ease,
With too much quickness ever to be taught,
With too much thinking to have common thought, You purchase pain with all that joy can give, And die of nothing but a rage to live …



 A few days ago my travels took me to Buenos Aires and I met with a friend I haven't seen for a few years. We met in a Beijing hostel as the Argentinian peso was devalued in January 2002, and months later I took up his offer to visit his country but I haven't returned until this week.

I was asking him about the changes since "the crisis" (his words) which he mostly noted were positive but spoke of some lingering aspects. Regarding the banking system, I was told that many people have been turning pesos into dollars/euros and simply putting the cash into safety deposit boxes rather than deposit the funds in a bank. Seriously, I replied, who does that? He told me that he does and so do many of those he knows.

I think it's troubling to hear that from someone who I feel represents the average Argentinian. There's an angle for speculators but I don't know what exactly, maybe a rush of deposits if Latin American bank credibility is ever restored. Just joking …. Buenos Aires is such a beautiful and inexpensive city that I'd like to return soon and investigate it further.



Probably one is the last to know, a sure sign of the top, but as of this week I now spell ‘prosperity’ K-u-a-l-a L-u-m-p-u-r. From the moment I looked out the plane window at the endless new construction, to anecdotal evidence during dinner with the Deputy Trade Minister, and several “Datos” (the equivalent title to a British knighthood, bestowed by the Sultan), it is everywhere. The big news here is the merger of three palm oil plantations to create a US$9.8 billion behemoth, suitable for world-scale institutional investment. Palm oil seems to have acquired new respect as a healthy cooking ingredient, as well as a suitable bio-additive to diesel.One hears, of course, the boom is happening all over India as well, but reading about it in the WSJ in my overstuffed armchair vs. feeling the buzz up close are viscerally dissimilar …

Ryan Carlson adds:

Perhaps a lot of the construction in Kuala Lumpur is the lead up to the 50th anniversary of Malaysian independence which will be celebrated in 2007.

From a short visit to K.L. earlier in January this year, I never encountered an honest cab driver, and as a rule wouldn’t invest in a country with such experiences. If I can’t trust the local population with a $5 transaction, I wouldn’t sink thousands into their stock market. However, I’m a huge bull on Singapore.



I used to be a member of the largest athletic club here in my city. One thing I noticed is that the greatest attendance at the club was unquestionably on Monday. I suspect this was due to the couch potatoes after a long weekend in front of their TV screens watching sports and consuming large quantities of alcohol and trans fat laden foods, venturing out and cramming a weeks workout into an hour and a half. As the week progressed attendance would drop consistently until Friday came when there was but a few diehards left who were working out. If Friday was the last workday before a 3 day weekend forget it the gym looked like a ghost town. Also the peak hours of workout were from 5pm to 7pm. The aerobics classes were completely full and it was elbow to elbow. If you wanted to lift weights you had to share your bench with another. Furthermore, January was the highest attendance month and December the weakest. Naturally the Summer months June to August were thin.

When I was a broker, we did most of our commissions on Monday as much as 60 percent and by Friday noon our work week had effectively ended. Plus most of our commissions were generated in the morning rather than the afternoon.

I see similar phenomenon at work in the U.S. Stock markets. Whereas Monday mornings are the most hectic and Friday afternoon the most benign. 9:30am until 10:45 am are the most active, 12pm to 2:30pm appear to be listless until the lunch bunch returns to balance their books for the day.

I am sure there are fundamental reasons for this. As a speculator and swing trader, I would be very interested in hearing from the list their comments and observations, methods they use to exploit this and perhaps an article or paper that would support this thesis. It would seem to me that timing as to purchases and sales or securities would then be taken into consideration as to when one would consider and consummate them.

One theory in particular is to buy the S&P near the end of the month and hold it for the following 4 trading days. Are there others?

Jeff Sasmor responds:

I use NY Sports club in NY. Trainers there have commented to me that they see a lot of new members in January because of New Year's resolutions. They usually attend for a while then stop coming — they generally have signed up for long-term contracts because they in good faith felt that they would keep going for their own good.

Perhaps daily-ness in the stock market is similarly tied to emotions. Maybe a lot of people sign into their Ameritrade and Schwab accounts on Sunday and place buy and sell orders to execute in a vast swath at 9:30 AM on Monday. This isn't exploitable. Unless you work at one of these brokerages…

But to depend on such patterns could be fallacious as they (in my limited experience) seem to shift, advance, and precess. One doubts that the oft-related scheme of buying near the end of the month and holding a few days is reliable (I am sure someone will tell me I haven't tested this but I think that this has been previously debunked on the spec-list).

There are definitely intra-day patterns, lulls, rushes, and so on but these are of no use to you unless you want to day trade (and Dr. LACK will probably try to talk you out of it).

Getting back to gym-going: at our gym each machine has a little LCD TV hooked up to cable TV. I have found that if I am watching Bloomberg or CNBC (yes, I know) then people will come up to you and ask your opinion of the market. Yep. I have only one answer for them.

Ryan Carlson replies:

A lesson I learned early on at the Merc is that pretty much the only ones trading on Friday afternoons are guys who lost money and are trying to make it back. Anyone that's had a good day is gone by lunch and at either the gym, playing golf or the CME Merc Club drinking. Sure, it applies to most other days as well but especially Fridays.

Perhaps it's easier to gun at other's bad positions on a Friday afternoon but the killer instinct in most is generally gone after 4 1/2 days of trading.



 A printed note on the clothes I receive from my local laundry says "We Love Our Customers!" It makes me think of the general question of consumer sovereignty, and the motto of South African company Pick n' Pay, which is "treat the customer as a queen and you will become a king." How could the importance and efficacy of the attention paid to consumer sovereignty by a company be measured, and what is the best way to measure its effect on returns? Also how do our friends devolve so often from our ongoing business contacts, and how does this relate to the economic analysis of friendship as a utility maximizing activity? Are there intangible assets of consequence on a company's balance sheet, related to reputation and brand name and repeat purchase likelihood, that might help us to value value companies? One wonders how to test such things and what your thoughts on the importance of consumer sovereignty for investments and life might be?

Steve Leslie adds:

A great place to start with this thought is at your local church, synagogue or temple. In an environment where one is expected to give personal money and private time to have the religious organization thrive, it is critical that the needs of the members and guests are attended to. Plus when you look at it on a large scale, competition is fierce, as all denominations and independent groups are essentially preaching the same or similar message, and it is available 24/7 through cable and Internet, so continually seeking out new members is vital. Take a look at the most successful ones — what are their defining characteristics?

A feeling of importance, convenience, and involvement are critical components for success, in my church especially. I am a member of the largest Southern Baptist church in my city. We have a very organized Sunday School that thrives, due in a large part to a very active Minister of Studies.

Each Sunday, we hold two Sunday School sessions. Members are strongly encouraged to attend. There are a large variety of classes to choose among.

Classes are offered with respect to ethnicity, age, marital status, race, language, time and almost any other variable you might think of. For example we have a Caribbean class where discussions are held in French.

The goal is to afford every member and guest an opportunity to meet with others who have something in common. From there, bonds are created, relationships are forged and ministries are built.

We also have a nursery, day care and youth facility to meet those needs.

Our church understands that a thriving Sunday School flows into greater attendance in the Services and thus the offerings are more generous. It all begins by getting the individual involved in more than just coming to worship service for one hour and leaving.

Plus, from there other outgrowth ministries are developed. For example, We have a wonderful hurricane relief group that is mobilized on demand whenever we have a disaster.

It is a platform that works very well, and when running at peak efficiency is a wonder to behold.

Similar events can be observed in the secular world with the mega auto dealerships in vogue today that now have movies, hair emporiums, gymnasiums, food courts, and Internet access on site. This flows from the premise that once you get a customer you want to retain him and make his experience as pleasant as possible.

Ryan Carlson Offers:

A selection from Nock's Memoirs always struck me as the ideal way to run a business:

A salesman for the great house of Bagstock and Buggins, wine-merchants in the City ever since Charles I was beheaded, is a very different breed of cat from a high-pressure salesman of mass-produced gimcrackery. Bagstock and Buggins have always had about as much trade as they can carry comfortably, and their clients are their old hereditary friends, whose tastes and wishes they know as well as they know their own merchandise. So, when the salesman goes out he is aware that the House is distinctly less interested in his drumming up new clients than in his taking proper care of those he has.

Merchants of this type can be found on St. James Street in London and I have made a habit of frequenting there on every visit to London. My favorite store on St. James is James J. Fox, cigar merchants since 1787, and in the back of the store is a museum where one can light up and browse the history of the store which includes many items that Churchill ordered. Although the Davidoff store at the top of the street has a better humidor, it does not have anywhere to sit and smoke, or the ghosts of so many historic customers.

Also on St. James are wine merchants Burr Brothers and Rudd who have been on the street since 1698. My only purchase there was a moderately priced bottle of Scotch from their house label, and it felt as if they desired to make me a life-long customer, with wonderful service.

The world's oldest barbershop is now on St. James also, although it moved there in 1994. For guys, I think their shaving products are worth the premium and someday I will go for a hot lather shave.

A couple other shops of St. James are Gun & Rifle Makers William Evans and Lock's Hatters.

In regards to the market, does a company's unwillingness to split a stock and not cater to more pedestrian investors help or hurt it? Do companies which were established more than a century ago use their credibility to bring in and satisfy their new investors better than standard benchmarks?

My thought process would run a lot deeper if I were sitting in Winston Churchill's old chair at Fox's, enjoying his namesake cigar.

Gary Rogan offers:

Monopolies have similar economic characteristics to customer friendly companies. It is hard to tell one from the other from financial statements, but it is relatively easy to tell that it is either one or the other. All you need is return on invested capital. If it is (a) unusually high (b) unusually consistent over a number of years you have got a winner. If you look at real capital as financial capital plus intangible capital, then you can state that over time market forces will bring the return on real capital to the average rate of return available to investors. If the return on financial capital remains consistently high that means that there is a permanent intangible component symptomatic of either monopoly power, repeat customer loyalty, or both.



Taking Out the Cane

September 25, 2006 | Leave a Comment

A recent article from The Times, noticed by Sam Humbert, and another from Pearsons Magazine dated 1901, found by Ryan Carlson.



I got my paws on a 1897 CBOT telegraph code book which provided shorthand words to describe market activity. Rather than type the entire phrase, individual words were designated to substitute.The chapter ‘State of the Market - Upward’ provides 80 different ways to describe rising prices and provides 16 blank keywords for individuals to create additional phrases.

A few examples:

Plebian — Short sellers are buying freely
Pledge — Everything offered is being taken
Pledging — More disposition to buy
Plentiful — Everything on the market has been taken
Plenty — Good enquiry and few sellers
Pliable — Good enquiry

It ought to be republished and issued to many in the trading community as Financial Phrases on Demand.


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