A study shows that round numbers pack a psychological punch, motivating pro baseball players The researchers examined the batting averages of Major League Baseball hitters from 1975 to 2008, looking for evidence that crossing the .300 mark inspired unusual effort in a season's final games (including sitting out a game, or an at-bat). If it didn't, the distribution of averages from .298 to .301 would be more or less random. The researchers, however, found that the proportion of players who hit exactly .300 was nearly four times greater than the proportion who hit ..299 (1.4% versus 0.38%).



HendrixI missed the 60s. That happened because during the 60s I was an Able Seaman on cargo vessels supplying ammunition, construction equipment, helicopters, beer, cigarettes, condoms, to military in Vietnam. Back and forth, back and forth, over waves, through winds, past endless clouds floating overhead, all at 15 knots, dreary passages between the States and the Orient.

Never saw a hippie. Never saw a flower. Never smoked a joint. Never participated in an orgy.



RainbowWhy it is some look for more out of themselves than is there is one of those human psychological mysteries that will never be solved, I guess. Maybe its too much hype from gurus who cover the media with propaganda that stimulates monetary responses from suckers.

I fall into this trap, expecting more of myself. For instance, expecting myself to profit like a professional when I totally lack predictive skills.  I know, intellectually, I am gambling when I hit the trade button; yet an irrational hope lingers on that my analytic competence has correctly foreseen the outcome.

So there it is, in black and white. Prudently I ought to adjust my life to this reality. I won't, though.  The next time that hope manifests itself I will again go through the same process, mentally, emotionally, behaviorally.

Nigel Davies explains:

One of the problems with trading is that outcomes are not directly linked to performance, especially over a short period of time. This alignment is much closer in games with a smaller random element, which is what makes them a good training ground for the ego.



Old ShoesI was in Sunday School last week and the church door buzzer sounded. Door was unlocked, but the poor fellow at the door did not know this. I went to the door and found a distressed looking fellow, probably early 30s, shabbily dressed, wearing shoes that were barely on his feet. He carried a plastic bag that likely contained all he owned. His English was extra poor. He told me he needed a pair of shoes. The Salvation Army is not too far from our church and I gave him directions. Looking back I should have taken him there. I asked him if he was hungry and he nodded his head that he was. I gave him some cash, he thanked me and went off towards Sally.
Some will say they would never give anyone a ride anywhere, nor give a person like that money as he should get a job like the rest of us. I used to judge in that way, but don't anymore. I am far from perfect, but have compassion in my heart for those living on the streets. Yes, many suffer because we don't know who is legit and who is scamming. Sometimes you have to step out and take a chance and help someone in need. If I had the money I would establish a pantry/clothing center and a soup kitchen to address the visible increase of street people in my area. Some will call me crazy, that bothers me little. 

Ken Smith adds:

You were right to provide assistance. Not necessary to give a large sum, but give enough that your heart tells you it was right. In Seattle street bums are a nusiance and one never knows whether the money will go for booze or a sandwich. It's easy to get around this. Carry a pocket full of quarters or half-dollars, according to your means, and give to anyone who asks.

I was giving a dollar to a fellow with a territory adjacent to the entrance of a book store. I don't go to that store so often the dollar would break my bank.

Then a substitute was at the site, using the territory on the guy's day off. She and I talked about Toynbee and during the conversation the guy's name who owned the territory came up. Her face flushed red at the mention of it. She told me the fellow had treated her badly and more or less told her to stay off his territory. That was confirmed, as she had spoken to the staff in the store about it, asking them to intervene. Since then I have ignored the guy. Strange that a guy in sad circumstances would not have empathy. You'd think the circumstances would nurture sympathy for a fellow sufferer.



Ken Smith's Mother When I was ten years old my mother was in a sanatorium for tuberculosis. She suffered terribly. No cure or palliative relief was available in 1939. Her lungs were devoured by tubercular bacteria, wholly tuberculated. Her Pentecostal ministers and friends visited regularly, prayed their supplications, knelt in worship beside her sick bed. When the grip of death was obvious a nurse came for me, at my bed in the same sanatorium, to bring me to my mother's room; only not into her room. I and my small brother, small sister, were brought to the outside window of her room, to look in and wave to my mother through the glass; no contact allowed, for fear of contagion.

Unexpectedly my mother sat bolt upright, a startling sight given her emaciation. She was not looking at we children, however. She was looking straight towards the end of her bed. Nurses inside with her reported later that my mother had spoken to a vision of Jesus at the end of her bed, Jesus standing there with arms open in a gesture of welcome, "Welcome home."

That was my experience of her expiry. My life was never the same again; I became a delinquent at eleven, a teen alcoholic, a thief, a gambler, a convict; a man without hope.

Jeff Watson adds:

All I can say is "Wow"! I'm trying to deal with the memories of seeing my lovely wife die in my arms, and it's been hard, harder than I could ever manage. They say these feelings will subside with time, but I don't know about that. I do know that since her death, my soul-searching has lead me to make sure I fullful some promises I made to her in her final hours. Like you, Ken, I don't think my life will ever be the same again.

James Smyth writes:

I am a physician, and as an intern I did my training at Memorial - Sloan Kettering Cancer Center in New York. An unfortunate part of that training is that I witnessed the death of several young cancer patients, including a few children. At the time, I was emotionally devestated by the the loss of those patients, but I understood that I couldn't truly understand the pain of those who had lost loved ones. Five years ago I lost my daughter after a struggle with a brain tumor that consumed most of her life. She was eight years old, and she was perfect in every way. In spite of her lot in life, she was optimistic, she made friends, she sang with the most beautiful soprano voice, and she never, ever wanted me to be sad. She thought that I was perfect, and I suppose that when I was around her, that I was. I'll never meet a person like her again in my life.



Motor HomeLunched today with a couple that owns an extra nice motor home. In the past they have made several nice trips in it. Today they commented that they have a upcoming trip to their son's home in Jacksonville, FL and will take the car instead. The motor home has a one hundred gallon tank and diesel fuel to fill it is $4.17 per gallon! They indicated they will use the motor home 'some' this Summer for 'shorter' trips. I am sure the motor home industry is hurting as a result of fuel costs.

Bill Rafter remarks:

I tried to short some WGO (Winnebago) recently and could not borrow the stock.

Ken Smith writes:

Motor homes are a common approach to living on the cheap. Not too cheap, though. One can own the vehicle but must rent space in a trailer park, pay for hookups to water, sewer, electricity, phone. KOA provides free wireless Internet, has beautiful grounds, swimming pool, small store on premises with dry food stocks.

A sizable population has always lived in trailer parks; KOA is not representative of such housing. I would stay at KOA for extended periods of time; could live there nicely for total living expense of $1000 a month. But I am not a bachelor — can't make this decision autocratically.

Can live on California Coast, near Smith River, Crescent City, beautiful setting. Just give up high living, settle down to quiet, simple life style. Ride around the area on your bicycle. Fish on the river, surf on the ocean.



DaHRiFDisasters and Heroic Rescues of Florida by E. Lynn Wright recounts the stories of 22 disasters in Florida starting with the Sinking of the Plate Fleet in 1710 and ending with wildfires in 1998 and a constellation of four hurricanes — Charlie, Francis , Ivan and Jeanne — in 2004. Florida is particularly prone to natural disasters because of its geographical position between the Gulf of Mexico and the Atlantic Ocean and its 12,000 miles of rivers and streams. However, the extent and prevalence of the disasters that have visited it seems to go over and above its geographic and geologic characteristics involving what seems to me a manifestation of the kind of character, promotion, and hopefulness that is engendered by warm weather, and extensive beachfront and recreational activity.

The author believes that a common characteristic of all these disasters is carelessness, ignorance, negligence, and greed. I would add that an aura of utopian thinking that nothing could go wrong as well as a lack of appreciation that the same disaster can strike twice,and a failure to appreciate that many seemingly improbably events are linked and that their conjunction is much more likely than normal multiplication of independent probabilities might suggest.

Take the Veterans Rescue Train Wipe Out of 1935 as an example, where 600 veterans imported to build a highway paralleling the Flagler East Coast Railway were drowned by a tidal wave hurricane in a rescue train. There was the utopian idea of creating work by building a public structure with inexperienced workers without local knowledge at the heart, faulty weather forecasts of a tropical disturbance that turned out to be 200 mile an hour winds, the event occurring on Labor Day, when the holiday caused hours of delay in gathering workers to get the train to the Ismeralda rescue site, usually reliable equipment that this time turned out to need repairs, a torn cable that held them to a standstill, a crane that got entangled with the train that took another hour away, and then finally a 20 foot tidal wave that did them in.

Many of the disasters seem to have signaled the beginning of real estate disasters shortly thereafter. For example the Great Citrus Freeze of 1895 came when central Florida and Daytona were in a boom stage with the orange crops adding revenues to the vacation homes and farms in the area. Developers Deland and Stetson were so sure of the boom that they guaranteed all the real estate buyers their money back. But a freeze came on Christmas Day in 1894 and ruined the citrus crops, and then when the growers relaxed, as they at least still had the trees and had lost only their income for the year. But two months later they were visited with an even worse freeze that destroyed all the fruits and seems to have cast a pall on the area. As the Tampa Time put it, "The Beauty is all gone from Florida. Everything is dead."

Similar declines in real estate followed the Capsize of the Prince Valdemar in 1926 in Miami, which seems to have had a direct causal link with the real estate bust in Florida in 1927 and then the stock market crash in 1929, and subsequent Depression. The chain of events is eerily similar to those playing out today, at least to the extent that the real estate bust caused the stock market crash. Perhaps the flooding of New Orleans will be seen as playing a similar role in the recent chain to that of the closing of the Miami Port caused by the Prince Valdemar.

The 22 disasters that are recounted in this book provides a good caution for all investors. Utopian visions have time and time again been dashed. Disasters that seem totally impossible occur with astonishing frequency.

Sam Marx explains:

HurricaneI lived through hurricanes Jeanne and Francis, that were 2-3 weeks apart and made landfall within eight miles of each other. This was a highly improbable event. The hurricanes were Category 2 when they passed over my house, but may have been a low Category 3 (130 mph) when they made landfall.

Because of the new building requirements of 1992, (Andrew was the motivator), the damage to my house was minor.  Most of the damage was to the trees. Records indicate that the last Category 3 in this area occurred over 50 years ago in Jupiter, 20 miles south and none ever recorded north of here in the last 90 years.

The heavy damage occurs on beachfront property, which Florida Governor Charlie Crist now wants to be paid for by all US taxpayers. I live 14 miles from the shore, and with the hurricane history of the area and the new building code I feel safe, but who knows. You take the great weather with the hurricanes.

The safest type of construction is a round house made of poured reinforced concrete with reinforced glass windows on raised ground. The roof is the most critical part of a house in a hurricane and it should be firmly secured to the reinforcing rods in the poured concrete.

Jeff Watson adds:

Sam makes some excellent points about the new building codes that are required in Florida. On my key, just south of Sarasota, there is strong evidence of the new codes that are being enacted. Builders are tearing down the existing homes and building new McMansions, employing much reinforced concrete, and adding elevation. From a visual perception, it is obvious that 200+ mph winds are factored into the designs. The new housing on this key is built on such a grand scale that it has changed the whole vibe of the place. Meanwhile, our 1926 cypress wood Conch House stands out as the lone reminder of what once was. Our cottage has survived many hurricanes, tropical storms, and fires without missing a beat. The designers did a good job on our cottage 80 years ago. The floors were built with a slight peak in the middle of the rooms, to allow storm surge water to run out of the house. Living at the beach, one must appreciate the grand forces of nature, the temporary aspect of existence, and man's insignificance in the whole scheme of things.

John Tierney marvels:

SurgeVic wrote "Disasters that seem totally impossible occur with astonishing frequency," and someone added "All of this drags down property values in storm prone areas of the USA."

Why is this surprising? By definition, a storm-prone area should have lower property values and higher insurance premia. Storms in areas that have been historically prone to them are neither unusual nor disastrous. "Disaster" is a term we apply to occurrences that result in the loss of human life and, increasingly, the loss of wealth. More properly, these are natural and inevitable phenomena — they are, if you will, part of an unbreakable cycle.The cycle may be ever-changing but it is certain that these periodic maladjustments will continue to occur. And those who are uninsured, under-insured, or who paid too dear a price will be hurt — again and again and again.

As it is in nature, so it is in the market. Bad times are inevitable and as fat tails occur with greater frequency than our probability tables would estimate, we must learn to expect the unexpected. We must also realize that government intervention cannot alter the unalterable. On the contrary, intrusive government in its paternalistic actions, encourages re-building where any building, except by those willing to assume all the risks, is inappropriate; and, in the markets, continued Federal action (reaction?), has encouraged the same groups and individuals to rebuild their castles on sandy soil.

Without this insurance, these occurrences would be just as unexpectedly frequent, but less harmful to the general population: the ultimate guarantors of poor fiscal policy. As Davy Crockett, a noted Tennessean, stated of his fellow  Congressmen: “Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it.”

Steve Leslie writes:

HurricaneI moved to Florida 25 years ago and have lived in the same town since. I live on the Space Coast, equidistant between Jacksonville and Miami and 60 miles southeast of Orlando.When I first moved here, our city had swinging bridges that spanned the intracoastal waterway. They have long since been replaced with modern bridges. US1, a major thoroughfare, was two lanes and now is six lanes and cannot be expanded further. Most of the beachfront property has been developed and great restrictions have been imposed to slow down further building directly on the beach.

Commercialization on A1A is unmistakable and is beginning to look more like Daytona Beach than the sleepy town of Indialantic it once was. Beach erosion is a real problem and threatens property that has been around for decades. Laws have been passed to reduce lighting on the beach to avoid confusing loggerhead turtles who come ashore to lay their eggs.Wetlands have been exploited by real estate developers, and the challenge is to protect wildlife and retard the erosion of the Florida wetlands. The Florida panther, crocodile and alligator have been threatened species as are many other wildlife. Clams which used to thrive in the intracoastal have long since disappeared.

Probably the most profound real estate phenomenon in Brevard County is the largest manufactured home community in the state. Over 5,500 people who live in manufactured homes there. Many more manufactured home communities dot the county. This is a striking point considering the fact that Florida is particularly known for its hurricanes and unpredictable weather, especially lightning and tornadoes.

Florida is now the fourth-largest state in terms of population. Along with this come remarkable challenges. By all accounts, the trend will continue and populations will rise especially in the Latino community. Despite of what many think, not everyone in Florida is rich. There are vast pockets of poverty, especially in the Miami, Jacksonville and Tampa, that will continue to expand.

Yes, lessons have been learned, new building codes have been imposed, insurance laws tightened, yet it is like the horizon that one never reaches, it merely continues onward. There is a human cost to all thus that just can't be quantified. Yet I live here and this is my home and I will probably stay for some time. I hope I will adapt with the times and not become an anachronism.

Ken Smith extends:

LightningLightning strikes are another hazard in Florida. Discovery Channel once aired a story on a lightning belt in Florida. Government and university research people have placed structures in that belt to study lightning.

I am always excited by lightning storms, thunderstorms. I thought Florida would be ideal for living under them. Once my wife and I sat in our car — rubber wheels supporting us — on a lake in Glacier National Park, and watched a terrible, terrific, astounding display of lightning. Stayed until the little woman got nervous. I understand a vehicle should have a strap hanging from car frame to ground, although I have not researched this necessity.

The most spectacular storms I've witnessed were out in the deep ocean where only lone sailors are blessed with these visions. To see these lightning strikes accompanied by thunderous blasts of sound in the sky and 100 foot waves crashing into your home on the sea, these are ultimate experiences.

Dylan Distasio responds:

I've always loved lightning storms myself also. I remember watching a spectacular one when I was out in Arizona crackle across the wide open horizon.

Another time, I was actually caught in one while camping with my brother on a peak along the Appalachian Trail in Massachusetts, which while breathtaking, was also terrifying.

By the way, you should be fine in a car hit by lightning without a strap (or rubber tires for that matter). A car basically behaves as a Faraday cage where the charge is spread along the outer surface. I remember learning that in a physics class at some point, although I wouldn't want to test it out myself.



WomanNo one knows, really, what old age means until he gets there. Age is a disability. When I was a teen I wished to be 21. Little did I realize getting old was not desirable.

Next birthday I'll be 80 but as I look around I see I am in much better shape than most men my age. My wife is three years younger and she is in much better shape than most women her age. It's in our genes. You don't got good genes, you don't got longevity. Or you might have longevity and a crippled body, crippled mind. Genes gotta be perfect for all-around good fellow type at 80.

I was just at Starbucks, sitting in a corner watching people come and go. I observe. My sight got stuck on a lovely creature who could be 40 or could be 50. She walked in with a fellow in that age category, guy was neatly dressed in blue jeans, black car coat covering a dark blue sport coat; reasonably handsome fellow. This lady finally noticed my gaze and after the initial recognization she gave me the pleasure of looking towards me again, acknowledging my acknowledgment of her beauteous attraction.

So I don't feel so old now.



Bill Fleckenstein of Seattle, where I live, has a book out now on Alan Greenspan showing the fake PhD for what he really is. Vic and Laurel always referred to Greenspan as a fake PhD. I watched the tele-circus every time Greenspan appeared before Congress. Just as in a circus the main clown was Greenspan and the crowd were the Congressmen who were the suckers P.T. Barnum referred to when he said "there's a sucker born every minute." My study of the Federal Reserve dove into many books written by Real PhDs with genuine insights into the nefarious activities of people claiming to be economists under guise of their position. I have shown that the Fed is not an independent agency but is a tool of politics. In view of that Fleckenstein should have pointed to the pseudo-science of economists and the gullibility of Congress as the culprit in the fiascos and bubbles, he writes about. Actually, at the heart of bubbles lies the economics of Chicago, the Friedmanist fantasy that mathematics makes economics a science and deregulation, hands-off, free markets, makes wealth grow for everyone. If massive deregulation had not occurred the criminal, crocodile brain stem of financiers would not have been freed to swindle everyone into accepting the Chicago fantasy. Flooding the world with fake money is not science, it is merely political policy. And bubbles, as in champagne, produce headaches; in this case, world-shaking headaches. Oil is up around $110 but it is there because the dollar is not worth anything. Oil has a value but dollars do not; that's the root of our problems; it takes more worthless dollars to buy oil. If the dollar were solid, oil could be bought with fewer dollars. And that is were Friedman's Chicago School has got us to.

Adi Schnytzer adds:

I disagree with Ken about lumping Friedman in with the Fake PhDs of this world. If Friedman's policies had been followed, the robber banks would be broke now, the US economy would be in a depression, but it would at least recover therefrom quickly. All of these attempts to save the thieving mongrel bankers is simply delaying the collapse, not preventing it. Free markets give good folks pain but the also take out the trash like nothing else.



License PlateSome states have started mandatory use of color coded license plates for vehicles owned by individuals convicted of driving while intoxicated, driving under the influence, etc.

In this state they are considering a yellow plate. Maybe the numbers on the yellow plate will indicate the number of prior convictions. Don't know.
br> In my drinking days I spent a half day with a fellow heavy drinker, mostly on his porch and living room, swilling booze of various sorts.  In a blackout I went out to my car, unfortunately parked in his driveway, and passed out in the front seat.

The drinking buddy had a working wife who came home while my car was parked in her space.  She raised hell with her husband but could not rouse him as he was passed out on his front lawn.

She called the police department.  Big cop roused me but I was in a deep fog and would not obey his directions to get out of the car.  He pulled me out by my feet onto the pavement.  The fog would not lift and I was unable to obey his instructions in a lively manner as he directed.

This cop was a big guy, strong as a bull.  He grabbed my ankles and held me upside-down, shaking out my wallet, wanted me to show him identification.  I told him I was doing my best, maybe he should draw his gun and shoot me.  I said that more than once, stayed laid out on the house driveway — was not on public property.

That did it for him; he left in disgust.  The little lady came out again, told me to get in the car and leave. Well, that I was able to find the starter and key is just simply amazing.  All the way across town I never once saw anything with single vision; all was doubled, had to constantly calculate which of the visions I should follow.

Made it home without accident or another encounter the the Men in Blue.

Scott Brooks replies:

I'm glad Ken's drinking days are behind him. We all make mistakes, but most of us are lucky to get away with it without incident.

In 1979, my mother, who was recently diagnosed with MS that had luckily gone into remission, was able to go back to work. One day, she was rear-ended by a drunk driver.

She nearly died. The trauma caused her MS to come out of remission. The decade or so afterward, she was a total mess. Then one day her MS went back into remission.

That driver caused my mom to lose a decade of her too short life (she died from MS in 2004 at age 58).

I commend Ken for having the courage to not only talk about his past, but that he's had the courage to change and become the man that he is!



Inflation, from Ken Smith

February 26, 2008 | 1 Comment

A prominent web page should inform the public on how to take prices from the past and extrapolate them so future prices canbe determined, thus showing the public at large how much more money they will have to earn in the future to pay for the products and services they will require in the future.

The Federal Reserve should be required by law to do that, post it on their web site. The Establishment does not have a history of limiting inflation; its desire is for growth at any cost, and growth means pumping artificial money into the economy, either by government spending or by monetary action, or both simultaneously.

At one point in the 1960s I paid $8 per week for a housekeeping room. That included water, sewer, garbage, and central heating. I paid nominally for a natural gas burner and electricity for a small refrigerator and lighting for the room. That kind of living is no longer possible. In the first place all such housing has been ripped out of the community to be replaced by condos. Rentals are going for the costof buying a condo; that is, condo owners are renting their apartments at prices which cover their costs to purchase.

Thus the cost of shelter has gone from $8 a week to $200 a week. That figure represents an astronomical increase.Inflation. The same rate of increase is going on. So in another 20 years the same space will cost $5,000 per week, right?

At some point in the future, will Americans in major cities have to earn one-half million dollars per week in order to live the way they live now?



 Freemasonry has a long history in the United States. Many of our founding fathers, including Washington and Franklin, were Masons. Freemasonry traces its earliest origins from the masons who built King Solomon's Temple. The guild of masons started a ritual that has been carried down to modern times. The actual people who built the great works were known as Operative Masons. Since there aren't too many Operative Masons around anymore, during the Age of Enlightenment, Freemasonry decided to admit other members who weren't in the trade. These non-professional masons were known as Speculative Masons. The Masonic Fraternity admitted only men who were thinkers – men who would add to the general knowledge of the world. To many men joining the fraternity, the purpose was to gain more knowledge and inspire self improvement. Lodge meetings were full of fruitful discussions where they observed, sought, examined, contemplated and meditated on new facts or knowledge by experimenting and analyzing with what was already known. They exchanged that knowledge with each other, much of it in allegorical form.

Lodge meetings were roundtable discussions where participants were given facts and asked questions, drawing them into speculations. As always, the important issues of the day were speculated upon. The main purpose of this exercise was to improve speculative thinking. Newly raised apprentices and members were not immune from questioning, being forced to use their minds in a speculative manner. The intellectual give and take at those meetings drew outstanding minds towards Freemasonry. In fact, Benjamin Franklin modeled his Junto Club after the lodge discussions. He wanted to associate with speculative men who wanted to pursue knowledge and discuss it in a passionate manner.

Lodge meetings were a place where men learned to subdue their passions, and the discussions were very civil. There was no need to shout down opposing viewpoints, in fact they encouraged disagreement. Disagreement, as well as a well as a clever, well-reasoned rebuttal, was a highly prized commodity. The Freemasons recognized that one man glimpses the truth only partially. But, by speculating with others, one can see more aspects of the truth of any situation — if one will listen with unbiased respect and eager curiosity to hear another's point of view.

Ken Smith writes:

My perception is it's a businessmans' outfit. Not known for divergent opinion. On the other hand, a local group calling themselves Blue Masons accepted working people. I know this because a telephone company installer came to the house once wearing a lapel button which I inquired about and it turned out it was identifying the young fellow as a Blue Mason. He invited me to put in an application upon learning of my interest.

I did not do that because my history includes things quite unusual in regards to character profile, employment history, and other pertinent information, all of which generally dooms my applications for just about anything. I found I can be a member of political parties quite easily, they accept applications accompanied with money from just about anyone. One other thing about this, I found myself on DailySpec!

Alan Millhone remarks:

Old time Masons were operative in the fact they actually did masonry work as well as being a member of the Masonic fraternity. Today's Masons are speculative in that they no longer lay the stones and apply the mortar, etc. I have been a Master Mason, Belpre Lodge #609 F&AM, for about 30 years, and my father before me belonged for over 50 years as did my grandfather and his father.



We drove 60 miles to another city to attend a training session, all day with lunch included. We learned how political parties organize themselves.

We learned Washington State is the strongest Democrat harbor in the nation.  We learned the county we live in, the city we live in, is populated almost entirely by Democrats. We learned the Party leaders in this state are rated in the top 3-4 short list of superior men and women in the nation. I don't think they were bragging.

Since this activity was held on a national holiday, and Washington's Birthday at that, the event was well attended. Ina and I, however, were minority in that most attendees were more or less official delegates and active Party members — people already entrenched in the Party.

We learned the Democratic caucuses were attended by nearly 250,000 citizens — and the Republican caucuses attracted a mere 20,000.  What a difference!  I don't know what happened in other states, but if Washington State is anything like an indicator Republicans are going to lose the next presidential election. Place your bets.

What is more, the Clinton name was almost verboten in that gathering.   Senator Obama's majority was such a heavy presence that Clinton people must have been thoroughly chagrined, and thus silenced.

Training lectures with slide shows continued from 10am through 4pm, with the sack lunch break.  At 5pm the big awaited event occurred, a Crab Feed, a tradition for the Democratic Party here.  Crab fishermen provide hundreds of fresh crabs from the Pacifc Ocean and from the Dungeness spit area.   More than than, salmon and clams too.  Dished up by volunteers who also served cole slaw, pasta, garlic bread, and baked beans. Beer was sold at a separate counter, other end of the huge room, space rented from St. Martin's University.

Parenthetically, some of the original buildings are still standing on the campus.  One of them is brick, three stores, with full basement, housing class rooms, a dormitory, and chow hall.  This was the former St. Martin's High School, a Catholic boarding school for boys which I attended in the 9th grade before dropping out to go to sea as a merchant mariner during World War II.

The Crab Feast was filled to capacity and more. The people who attended the day training session were joined by hundreds who had subscribed to the $40 final event only.  Speakers were prominent state Democrats, with the main draw a Senator from Montana.

Crab lovers were satisfied to the full.  A guy at our table got back in line twice again after he finished his first half crab.  I don't eat the stinking things myself, as I worked in Alaskan waters where the big ones come from; these are scavengers, eat all the dead things on the ocean floor, including humans who have drowned.

We stayed at a new place for us.  Ameritel chain.  I believe it's a Mormon business, cause they are in Idaho mostly.  I recommend them.  Our price was $109 except for the added taxes; king bed, well appointed, wireless Internet which actually worked in our 4th floor room.  Included was fine breakfast service with table by a fireplace, buffet style of course. Omelette with bacon, where the usual is corn flakes.

On the way back home this morning fog slowed traffic but it never got bogged down to a stall.  Am at home to find my position stinks like the crab.



With Biblical numerology 911 is a curious date.

The number of the Beast is crucial — 666:911



Leather JacketBo Keely wrote me once when I made a comment about an expensive leather jacket that I intended to wear to my trip to his little village in the desert.  Keely admonished me, saying upscale dress was a good way to get mugged when traveling.

Of course if you are traveling first class, staying in five-star hotels, using limos to shuttle between airport and hotel, taxi to shuttle from event to event, then the journey is safe.  But I can't travel first class, I stay in motels not hotels, I walk around to avoid taxi charges, I  use public transportation systems.

So I took Keely's advice — put the leather jacket back on the closet hanger.  I have two fine leather jackets — except one is pigskin, made in China. I do not like pig, did not think of what animal the jacket skin might be when I bought it on sale — just thought of the price, was a steal; except it is pig.

The other jacket is tailored, fits like an Eisenhower. Maybe off a Kentucky Derby animal. Bought it at Nordstrom 30 years ago and it's a grand style to wear.  Only thing about it is I wore it to an AA meeting once and a recovering female alcoholic commented "Jesus, we don't need another leather jacket in this group."  I guess she was making a statement about gay dress, seeing the style for gays at that time was to dress in leather.

Steve Leslie remarks:

In the movie American Gangster there is a scene where Denzel Washington, who plays the gangster Frank Lucas, wears a mink coat with a mink hat to Madison Square Garden for a heavyweight boxing match. Detective Richie Roberts, played by Russell Crowe, takes pictures of people in the front rows around the ring. This helps Crowe in identifying Denzel as the drug kingpin that he is looking for. Up to this point, Denzel had always kept a low profile, thus allowing him to fly beneath the radar of the police. This one gaffe ultimately leads to a subsequent investigation, arrest and conviction. 

Riz Din adds:

In addition to its functional role, clothing clearly acts as a signaling mechanism. Another place where it is may be better to dress down is when taking one's car to the garage for repairs; dressing smartly signals a wealthy person who probably doesn't know his manifold sprocket from his flux capacitor.

Bruno Ombreux extends:

This is a very European attitude. In France, there is a saying: "pour vivre heureux, vivons cachés." That is: to live happily, live stealthly. I had a great aunt which had a lot of money. She dressed so poorly that one day she went to place Vendôme to one of those luxury jewelers with the intention of buying some trinkets. She was denied entrance by the bouncer: "Sorry Madam, we don't think you can afford the merchandise in this place".

In England, really old blue-blooded money consider it a lack of taste to display wealth. They'll go as far as having domestics wear their new clothes so that the clothes acquire quickly the aged patina that makes them wearable to the wealthy.



In light of current market behaviour, what are some ideas on risk control? Someone is going to say Optimal F, or related, but here I was more thinking about what you do when flying by the seat of pants as always.

You can reduce risk by:

1. Staying out of market more (always?)
2. Setting stops (which get triggered right before huge rallies and increase probability of losses)
3. Trading small (too small to ever recoup losses)
4. Staying in only for prescribed short intervals (ensuring the miss of the rally a day later)

Ken Smith replies:

DangerI once concluded I should take the first option suggested by Dr. Zussman: stay out.

My idea was if I cannot predict then do not trade. But I often fool myself, thinking myself a magician, prognosticator of great moment. Under the sway of this illusion/delusion, I do not stay out and frequently prove myself wrong.

But the problem is I am frequently right. The balance between right and wrong has played out on the positive side for some time now.

You should know I do not have money to trade. I am advising without compensation, under a tacit marital contract. So when I am wrong I suffer emotionally more than if this coin of the market were out of my own pocket.

I suppose those knowledgeable about psychology, behaviorism, that sort of thing, will recognize this pattern as typical of some concept developed by the profession.

For me it means I have to risk going into the fog under steam and do so without radar, only a whistle blow to sound out what's ahead. Primitive tool. 

George Parkanyi writes:

Ken FisherAccording to Ken Fisher, the first 2/3 of bear markets are relatively mild. Typically the last 1/3 (about 6-8 months generally) is the brutal bit. If you think this is a bear market, we have approximately 12-18 months to go, with the worst yet to come. But is it a bear market? The nature of Dr. Zussman's question suggests uncertainty. If his anxiety has increased, then a good rule-of-thumb is reduce exposure (position sizes) until something more compelling, or some clarity, presents itself. He can always scale back up if the market suddenly starts going his way. No matter what the conditions, certain fundamentals and the tape should offer a few tradeable ideas in either direction. I think the risk-mitigation strategy should be whatever his methodology generally calls for. If his risk management approach is contingent on the type of market that he is in, by definition he's going to have to market-time successfully all the time or run the risk of a large hit. Best to have one consistent risk management approach for all seasons.



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.



FootA military guy I used to drink with came down with Buerger's Disease. The docs at the Veteran's Hospital began cutting off extremities on his body. First came a toe or two. On the left foot. Then a toe or two on the right foot. Then the whole left foot, right foot after that.

He was footless. I kept visiting him at his home following these surgeries. Veteran's outfit bought him a wheelchair. Despite the severe pain he suffered because of the disease he kept on smoking, which is incident to the disease. Kept using alcohol too, along with a bottled concoction of pain medication prescribed by vet docs.

He told war stories mostly, laughed about many things others would cringe over. It would not be polite to repeat what I heard and perhaps his mind — recollections — were embellished by a bent to make a story better and then again by the drugged state of mind he was usually in.

Soon the surgeons removed one half of one leg and then most of what was left of the other leg. They took him from footless to legless.

His wife was Catholic and kept reminding him she wanted him to be baptized before he left this planet for another dimension of being. He put it off until one day I visited him with a gallon of wine and put a Catholic sacramental around his neck. Told him he would be saved if he surrendered to the magic of the sacramental.

Wife was happy — he was happy too, because the last time I drove by his house he was on the sidewalk doing circles with his wheelchair, twirling first one way then another. A wine bottle sticking out of a side pocket in the wheelchair. And he was wearing the sacramental around his neck.

Today he came to my mind as I watched the market cut off a piece of me, one little bit at a time. If this keeps up I won't have a foot to stand on.

Martin Lindkvist replies:

In the market, toes grow back!

I was struck by how well Mr. Smith's post about his friend's being amputated toe by toe, leg by leg, gives color to how he himself felt during Friday's decline. However, while real toes do not grow back, perhaps in the market they do?

For the longer term, I think Dr. Castaldo's recent update of the Fed Model might be indication that the market will stop short of amputating Mr. Smith's legs.

Medium term? Well, as one can never be quite sure what will happen in the market, perhaps we should all keep some grog handy (or sherry for those in management) in case the market amputates a toe on us every now and then.



When I was a child a little fellow owned a junk yard. The little fellow was a mouse, not Mickey, another little guy. And no Minnie in the picture. Just a little bachelor mouse working his junk yard.

Little Guy lived on the premises, a shack in the corner of the junk yard. Windows were half covered with cardboard, exterior walls scarred by weather, no paint, roof patched with this and that, hell-of-a-looking shack.

Big Cat was always snooping around. Cat was the Tax Collector. Cat suspected Little Guy was making more money than he reported and peered over the fence, through holes in the fence, knocked on the shack door in the middle of the night trying to catch Little Guy with evidence of prosperity.

Finally Big Cat got entrance to shack Little Guy lived in. Cat was surprised because inside was like the outside, a mess, complete chaos. Busted furniture, dirty dishes in the sink, toilet plugged, floor unswept, cockroaches scurrying across the floor escaping Big Cat's large paws.

No evidence of prosperity. But Little Guy had a secret. His real home was in a hidden basement, space which could not be detected from above, by any means. Little Guy entered this space via a trap door in the floor of the beaten-down shack.

In the basement a plush life style was evident. Modern furniture, the latest appliances, luxury carpeting, fine linen on the bed Little Guy slept in. And a bank-size vault where sparkling gold and green cash was laid out in perfect order.

Little Guy was really somebody; hid his real identity. Advertising his status was the last thing he wanted to do.



CBOTI probably have enough info gleaned from old-time pit traders to write a large book. I loved to hear the stories and teachings those old guys had to share, and sought out as much of it as they were willing to tell me. However, much of that information is anecdotal and it would be hard to apply the scientific method to most of it. I did learn a whole bag of tricks for extracting extra cash while trading in the pit, but most of the tricks are either mechanical in nature, or educated guesses (such as estimating how much wheat is for sale in the pit at any given time).

I did learn one slam-dunk way of pulling out money out of the pit. I worked hard at identifying new, inexperienced traders who were certain losers, and fading all their trades. This technique worked out very well for me. However, identifying certain losers is a skill in itself and takes time to develop. Pit traders can have a special insight/feel for the market, but only the net winners have that feel. A majority of those who step up to the plate to trade don't make money, and fade into oblivion.

Steve Leslie responds:

In poker, the professionals are sharks; they prey on the weak, in poker vernacular, the dead money. That is why they are called fishes or pigeons. Professionals avoid tangling with each other — it is far easier to exploit the weakness of the youthful or inexperienced rather than the wizened veteran. Therefore the professional uses time to his advantage by patiently waiting for the amateur to venture out into the waters and make a mistake. It is similar to the Highlander television show from some years back. For the Highlander to gain more power, he must kill his adversary by taking off his head. Same in poker, by destroying your opponent you assume his chips and as a result, his power.

Larry Williams extends:

While the gummint guys say, and rightfully so, "Past performance is no assurance of future success" there is one exception to this I have found and isolated: Advisors, funds, newsletters, etc., that have not done well in the past will not do well in the future. Jeff's pit wisdom does spill over to outside the pits as well.

Phil McDonnell adds:

I performed an analysis a year ago that showed that among mutual funds the worst performers were predictably among the worst in the next time period as well. The results were statistically significant for the worst group. However among the best performing funds there was no correlation. Superior performance did not persist probably because many people  mimic the trading styles of the most successful traders of the last time period. It is a bit like the generals who are always fighting the last war.

Steve Leslie writes:

Ken HeebnerI hope this complements Dr. McDonnell's work since I am sure he did some deep research on this. With respect to his comments a few points can be made.

First, I assume that he is talking about open-ended mutual funds. There are significant differences between open-ended funds and close-ended funds. And even open-ended funds who no longer accept new accounts but only money from existing shareholders. This is a very complex field, evaluating performance of mutual funds because there are so many variables that exist in the arena. Fund managers change, inflow of capital, hot markets such as large cap growth, value, international, etc. With respect to performance my first question would be how performance was measured. Was it against an index or against a peer group? For example if a fund were a midcap growth fund, was the evaluation against other midcap funds or against the Russell 1000, S&P, etc. In short, were these absolute performance or relative performance comparisons?

When I was a broker, I know that if a fund had exceptional performance the prior year, the sales rep for the company would come in and push performance. Then the brokers would take the literature and push it to the clients. Money would flow into the fund, making it more difficult for the manager to manage. Therefore the fund was a victim of its own success and performance would suffer. The most startling examples of this were in the late 1990s and 2000 when tech funds had great absolute numbers. Every sales rep who came into the office was pushing these funds. Dramatic amounts of money would flow into the funds thus putting tremendous pressure on the managers. All the clients wanted to buy were the hot funds. Nobody would buy value funds, which over the next several years would have been the proper investment.

Next is, what style does the manager employ, growth vs value, largecap vs midcap vs smallcap vs international? One year may be too short a time to evaluate superior performance of mutual funds — 3, 5, 10 year numbers are much better barometers of perfomance. Trends in the market can last longer than just one year. For example over the last 3-4 years international funds have had their day in the sun. I am confident the worm will turn and they will begin to tire. The next hot sector may be largecap U.S. growth, or other sectors. The jury is out on this. In fact, the Morningstar five-star ratings system is based on 3 year past performance. I believe the highest-rated Morningstar funds for the past three years tend to be worse absolute performers the next three. Conversely, the worst performers the last three years, the one stars, can be the best performance group. Once again the dynamics are in place for things to change.

Finally there are some fund managers who have withstood the test of time. Ralph Wanger, Kenneth Heebner, Bob Olstein, Bill Miller, to name a few, all have had stellar long term results but even they have had bad years.

Ken Smith remarks:

Performance in youth does not predict performance in aged. Performance in pre-marital bed does not predict marriage results. Performance in school does not predict performance at work. And so on.

Dr. McDonnell worked on performance of top mutual funds, found we can't predict future from present results.  I have looked at charts for many years, in fact I began at age 22.  Now just short of age 79.  Of course there was a hiatus when charts were not available.  Overall my experience determined a squiggle on a chart from five years ago will not correlate with a squiggle I will find when the market opens next year.

Marion Dreyfus agrees:

What Ken says in regard to former performance not being valid for future success should be received doctrine, and yet seems not to be. In terms of financial investments, people extrapolate out as if the law is concrete: If it returned 8% in the past 10 years, it will continue to run that way in the future. We take a lifetime to unlearn easy mistakes.



MLS OnlineFor two days I've been clicking on homes in the Seattle area, at MLS Online. Some drops in price are noted in the advertising of homes. Some homes have been updated to attract buyers.

All in all I have not found a deal that leaves profit for me in the current economic morass. I found a few properties that come with enough land to sub-divide — if I were a builder. That was the focus for many contractors recently, but I suspect they have backed off on this strategy.

There is an active group that deals in foreclosures. An auction occurs on a regular time schedule and the experts make a living with this tactic. Others are neophytes and some are fools. This old man would not venture into that game. Too many hidden traps.

I need a whole-house rewiring to bring my older property up to code. Hardwood floors need refinishing. Walls need repainting. Yard needs a landscape touch-up. I would take on these tasks if it would pay off; but my offhand guess is that there is so much competition, so many houses for sale, so few dollars available to buyers, that to remodel at this time would not provide an advantage as a seller.



KosmosKosmos has an excellent chemistry set available for the American market, and all its products are of the highest German quality, including their physics, electronics and solar sets. Truly remarkable to see in America, considering Toys R Us and Walmart don't carry hobby items any more, and it's very hard to get LBG 16 gage train equipment for kids at reasonable prices in the US. The only science items I see at the mass marketers are logo type licensing or naming-rights items associated with a quasi-governmental museum that are are totally third hand — except for the Elenco line of snap circuits and the University of Cambridge line of electronics laboratory gear, which, although vanities like the Smithsonian's, do not appear as derivative. I was responsible for getting Kosmos into the US (but it cost me, it cost me) after pining for their products for my kids after seeing their beautiful sets available only in Europe in Germany. The two best toy companies I have ever seen are Galt Toys in England and Kosmos in Germany. I wish I had more time to play with all their great products myself — my children and grandchildren will provide that function.

Marion Dreyfus adds:

With reference to trains and sophisticated toys, my friend's father has an entire room of considerable dimension set aside for a smashing Lionel railroad, with scenery and fire engines and bridges and cabooses and all manner of extremely costly but exacting trains and paraphernalia he has been pretending to fire up and furnish with more and more amazing controls and bells and whistles (literally) for so-called grandchildren. But whether he has granduns or no, he is down there playing with the immaculate miniature chuggers. He of course hopes for the rationalization of grandkids, but if they don't come, n'importe… It is always a deep pleasure to be able to take the controls and send those eight-car similacra racing over hill and dale. to be invited into this sanctum is high privilege and I cherish the engraved invites I have been accorded.

Marlowe Cassetti reminisces:

I quick search found many physics and chemistry sets from Thames and Kosmos, and on Amazon they have an array of science kits from physics to microcontrollers to perfume to fuel cells. Oh, if they were available in the 1940s when I was a child! I did have a chemistry set, erector set, and microscope. My father, a physician, valued learning. And what discoveries I made as a child — it opened up a world of wonder. Then as a twelve year-old I branched off into model aviation and that changed my life forever. My father was never supportive of that hobby. He considered it play rather that anything useful, but it taught me the foundations of physics and engineering. Years later he put my NACA and NASA research reports in the trunk of his car and would show them to anyone who asked about me. I'd finally arrived.

Ken Smith extends:

Your chemical experiments brought to mind Leon Lederman, who works with particles, enjoys the things as if they were toys. All he would want for Christmas is a new particle. In one of his books he wrote:

When I was growing up in the Bronx, I used to watch my older brother playing with chemicals for hours. He was a whiz. I'd do all the chores in the house so he'd let me watch his experiments. Today he's in the novelty business. He sells things like whoopee cushions, booster license plates, and T-shirts with catchy sayings. These allow people to sum up their world view in a statement no wider than their chest. Science should have no less lofty a goal. My ambition is to live to see all of physics reduced to a formula so elegant and simple that it will fit easily on the front of a T-shirt.

Particle physics folk are looking for a formula so simple a child can play with it, like a toy perhaps. They'd like a formula that did not cover the entire blackboard.

My trading could use a formula like that. The nearest I've found is P&F squiggles!



 One of the virtues of an appreciation for economics is that it enables you to assess the root causes of common facts, fallacies, and propaganda about ideas and numbers on the declining role of manufacturing in the US. Such items often affect the markets when numbers on such things as the factory index in New York, Philadelphia, or Illinois, the industrial production figures, or the ISM manufacturing index, or the trade deficit ares announced, rumored or discussed. There is usually a pronounced immediate move in the direction of the strength or weakness in the figures, then a correction, and then if the number was weak, the propagation of various agrarian reformist fallacies relating to the declining competitiveness of the US, and if the number is weak enough hopeful arguments from chronic bears and bond bulls that a depression of the scale of 1929 is coming, especially if the stock market has gone down big on the item.

I have come across many such fallacies, and they're usually self serving things such as the leading bond funds' mismatched scale charts showing that the number of real estate agents is rising while some measure of US manufacturing is decreasing.

The economic analysis of manufacturing versus services starts with the notion that wealth consists of what people value. Trade increases the total value because both parties are benefited. Specialization enables individuals and countries that have a comparative advantage in one good or another to concentrate on what they do best without wasting resources in what others could do better. Heyne, Boettke and Prychitko summarize the fallacies in chapter 2 of their magnificent and earth clearing economics book "The economic way of thinking" nicely. "Exchange ( and the provision of services) is as much a wealth creating transformation as is manufacturing or agriculture. Exchange is just an alternative way of producing something. " As we get richer, the opportunity cost of using our money and time for purchase of domestic physical assets such as buildings, equipment, and land increases and it becomes more profitable to purchase these items from others whose opportunity cost is not as high. The principles of comparative advantage that lead to trade hold for trade between you and the supermarket, and the decisions that companies make as to whether to manufacture their goods in one state or in another country.

Such analysis gives one a rudder when the stock market declines much and the bears predict a depression. They hoped for it after the 30% 2 day decline on October 19, 1987, and they hope for it again as the financial service companies, banks,  brokerages and real estate cos. suffer in 2007. It never comes true because they don't take account of the main source of wealth, the intangible assets, knowledge, education, skills, and training that are the main repositories of wealth as they lead to people being able to make an income. Estimates of Becker put this source of wealth at 80% of the total. With the total stock of wealth in US at 40 Trillion or so, a decline of 1 trillion, caused by a 500 point drop in the DOW for example can be put in proper reasonable perspective.

All this is very well and good except that many people buy such arguments as those propagated by the bond sponsor to support his Dow 5000 predictions as well as his current tack in fixed income. If specinvestors believe that others will trade based on such faulty economic analysis, it can cause self fulfilling prices, a stampede, or herd affect.

A little testing is in order. I looked at the movements in the market in the half hour after the report of the trade deficit, the ism manufacturing report, and the beige book to see if movements in one direction were followed by reversals or continuation in the rest of the day. I found the tendency to pronounced overreaction, ie. too much pessimism or optimism to be particularly evident for the Ism announcement on the day, but particularly underreactive on the beige book days.

There are a myriad of ideas and implications that arise from consideration of the importance of manufacturing, including the relative concentration of research in manufacturing industries, the induced output that each dollar of manufacturing causes, the outsourcing of manufacturing by countries such as US and England, the German model where manufacturing is supposedly highly efficient and profitable, but highly unionized and subsumed within rigid rules and regulations, and the general more important question of whether there is such a thing as a business cycle as opposed to business fluctuations around say a random walk. I would be interested in any augmentations and ideas you have on these or related fronts. 

Ken Smith follows up in a Ricardian vein:

In Washington State two-thirds of the total economy is based on one industry, Boeing Airplane Company [Ed.: actually closer to 25%]. Another big slice is applesauce, from Eastern orchards. What remains comes from the Port of Seattle, imports from Asian producers flow down Puget Sound in container ships, unload in Seattle and Tacoma.

Many times I've read one should not put all eggs in one basket. Do not, some say, place all funds in one asset; rather it is preferable to scatter your oat seeds here and there in the hope that one or two fields will fructify, one or two out of many.

In my experience diversification of funds has diluted returns. And in the case of Washington, hereabouts, limiting investments to one or two areas has paid off handsomely.

If wealth consists of what people value it is clear people value flight and applesauce, foremost. Second, they value shipping. Hereabouts. In Kansas they gotta grow wheat and pump oil.

And that makes trade possible. Here we trade applesauce for bread, as an example. Here are up to our ears in applesauce. We can only use so much applesauce and must find ways to trade out of it.



HGHGiven the remarkable performance of older players like Clemens and Pettitt, has anyone pointed out that perhaps one of the main thrusts of investigation should be whether there would be a beneficial effect for all of us in using moderate replacement quantities of substances like steroids and HGH that decline significantly with age?

I for one would like to know more and would appreciate article citations, book recommendations, and information on physicians specializing in the field.

Chris Cooper replies:

Such beneficial effects are apparent to anybody with an open mind. Nevertheless, the idea that a performance-enhancing drug might actually make you healthier is the kind of message that is not acceptable to the mainstream.  Aging is not "normal", it is a disease, and should be attacked like any other disease, with an eye to minimizing the deleterious effects.

What you are referring to is often called hormone replacement therapy (HRT).  The approach is to use drugs and nutrients to bring the body's hormonal balance back to what it was when you were a young man.  Is it surprising that if you achieve this, you actually feel much more like a young man?  Why does our culture consider this to be undesirable?  My goal is not simply to be healthy as it is commonly defined, but to strive for optimal health, a very different concept.

A good book to start with was written by my doctor Philip Lee Miller, called Life Extension Revolution: The New Science of Growing Older without Aging. Dr. Miller is in the SF Bay area. Also I've heard good things about the Kronos Centre in Phoenix.

Janice Dorn writes:

One of the contributors to my just-released book is a world-renowned authority on optimal health.  I took nine years of my life, and traveled 1.5 million miles outside of the United States to every country in the world (some many times) in search of life extension and radical wellness methods. Needless to say, it was an incredible journey, and it continues to this day.

Caveat Emptor. There are many charlatans out there, and we are in largely-uncharted waters. It is a passion for me, and I believe that the goal in this area of life is to delay, avoid and eventually reverse death.

Jim Sogi suggests:

SurfPerhaps a better way is hard effort. I still get out and surf 20 foot waves last week and take time to surf at least four times a week and train when there is no surf. No pill will keep you in shape without effort. Just the thought of a pill is enough to kill the will to motivate effort required to maintain and build strength, flexibility and stamina. It's like technical analysis, it offers an easy way without the work, and will lead to more harm than good. I see many men really going downhill. They don't stay active. Laird Hamilton says, "Keep Moving!" That is the best way to stay fit. I compete with the young guys everyday in a competitive lineup in the water for waves. I can't outperform them, but have other strengths which give advantage.  It's hard work. It takes hours everyday to stay moderately fit, and more to build strength. That's the problem, most don't and won't take the time and effort to maintain and build strength and gradually lose it. Strength from a pill won't help without the agility, flexibility and stamina that are the other components of fitness. Don't worry about the pill, just get out and spend the hours everyday to stay fit.

Chris Cooper responds:

BodybuilderYes, a better way is hard effort. I have gotten more benefit from the sports that I train for than I have from the drugs that I take. The drugs are an incremental benefit, though, and I am certain that I am better off with them than without them. And you may find, as I do, that instead of being de-motivating, they actually increase one's desire to participate.As an example, suppose you are taking testosterone. If you are not exercising, it will do little to build muscle. You still get the other benefits, such as general feeling of wellbeing, increased libido, increased optimism. It enables you to build muscle faster, because that only happens if you put in the effort. It's not magic, you still have to do the work — but testosterone also makes it possible for older men to train as hard as they did when they were younger, because your body will recover more like it used to. 

Larry Williams opines:

The flap about HGH in baseball is pure propaganda, based on my personal extensive testing of it. I concluded it was expensive and of little, if any help, in waging the war against old man age — a view that is now also backed up by science.

Ken Smith responds:

Studies are studies and not reports from individuals. I am an individual. The studies cited older people. I am an older people. My individual report differs from the studies as reported.

I can tell you resistence exercise will promote better body tissue and that the same exercise will tear tendons, ligiments, induce on-going pain. There came a time when the benefits diminished and the pain increased.

I am reminded of a story told by an author about his last visit with his grandmother. She was quite old, in her 90s As they conversed during her feeble days, on one of those days, her last it turned out, she asked him for a small glass of wine, told him there was a time for everything, sipped the wine, closed her eyes and passed on to the next dimension.

Russ Humbert remarks:

I would not be so quick to rule it out Growth Hormone for enhancement. The Chinese women seemed to have had much success with using it for distance running in the mid 90s. Several of the women were running times better than the men. However, they also ran extreme high mileage and were practically starved while setting several women's world records before their coaches where caught transporting drugs through customs before an international competition. Several of the stars went insane under such a regiment. 

Charles Pennington enquires:

Dr AliI'm open-minded about this, and I went as far as to buy the book written by Chris's physician, who seems like a reasonable guy. But the Life Extension directory of doctors isn't re-assuring. There is just one doctor listed in Manhattan, Dr. Majid Ali, whose website is Fatigue.net. Featured there are "Hydrogen Peroxide Baths and Foot Soaks" "The Oxygen View of Pain Management," "Bowel Detox," "Water Therapy," and "Dr. Ali's Castor-cise."

I also checked for a practitioner nearby in Connecticut. Doctor Warren Levin, in Wilton CT, is at Medical-Library.net. The general garishness of the site, the endless list of specialties — "Magnetic Field Therapy," "Juice Fasting Therapy," "Auriculotherapy" — and even the Ron Paul promotion (Ron Paul == more permissive environment for quacktitioners [which is fine]) all leave me skeptical.

I wonder if Chris's physician could recommend someone in Manhattan who has a more rigorous, scientific approach than these guys.

Chris Cooper replies:

Perhaps these links will be more productive:

American Academy of Anti-Aging Medicine

The American College for Advancement in Medicine

Steve Leslie extends:

Philip MorrisI think back to the 1960s when the medical profession and the tobacco industry discounted the evidentiary link between lung cancer and smoking as anecdotal. And for 40 years after that the tobacco industry still fights in courts as to smoking and COPD, lung disease, heart disease and emphysema — long after they have paid billions of dollars to settle various class action lawsuits and agreements with attorneys generals throughout the country and have watched 450,000 American citizens die every year from smoking related illnesses.

I watched my father wither away and die as a result of a lifetime of smoking cigarettes.

Now some want to debate that the beneficial effects of steriods and HGH in adults outweigh the anecdotal risk. And I think of those in professional wrestling such as Chris Benoitk who committed multiple murders of his family and then suicide, professional footballers such as Lyle Alzado, dead from brain cancer, professional baseball players such as Ken Caminiti, dead and an avowed steroid abuser, high school boys by the tens of thousands who experiment and take steroids and commit ‘roid rage and suicide, and the untold thousands of recreational users who develop enlarged hearts and forms of cancer such as prostate cancer while juicing just to get bigger muscles.

Chris Cooper clarifies:

Chris BenoitThere is no medically documented connection between suicide and anabolic steroids. The medical data also say, "Supraphysiological doses of testosterone, when administered to normal men in a controlled setting, do not increase angry behavior." 'Roid rage is a convenient media myth. Steroids may very well cause changes in feelings, but that is far from causing major behavioral changes like those suggested above.

Take Chris Benoit as an example. When doctors examined his brain they found that it resembled the brain of an 85 year-old Alzheimer's patient. It had suffered so much trauma and had so much dead tissue that normal function was not a possibility — while dangerous personality, behavior, and temperament changes were more than probable. During his time as a professional wrestler with the WWE, Benoit had subjected his body to head trauma hundreds of times, most notably with his signature "Flying Head Butt" as well as dozens of other highly flashy (and dangerous) moves.

Steroids are being unjustly demonized, just as marijuana was in Reefer Madness, followed by equivalent media behaviour regarding LSD, Ecstasy, and many other drugs. Certainly steroids have their downside, and just as with recreational drugs, should certainly not be used by minors. But perspective is not allowed in times like these, where fear is inflamed to further the objectives of those who will benefit. 

Steve Leslie continues: 

Taylor HootenI dispute Mr. Cooper’s assertion that the is no medical documentation connecting steroids and suicide or rage. That is ridiculous. At a Senate Caucus hearing Don Hooten testified that his son Taylor, while in high school, began using and abusing steroids and committed suicide.

Mr. Cooper furthermore claims that Chris Benoit murdered his family and then committed suicide because of years of suffering numerous concussions and possible dementia. Did he personally perform an autopsy on Mr. Benoit? Has he examined the autopsy report? Where does he draw his conclusions from? In short, what specific research does he quote? Furthermore, what are Mr. Cooper's qualifications in forensic pathology and/or psychiatry?

Mr. Cooper further argues that it is some sort of a myth, steroid usage and its association with massive mood swings and subsequent rage. He then compares steroids to marijuana and says that it is being demonized by an uninformed public. Not to stop there he equates such unfair demonizations with LSD and ecstacy and “other drugs.”

He diminishes the risks to an absurd level and I am severely shocked and alarmed.

Chris Cooper responds:

Don Hooten runs the Taylor Hooten Foundation, established after his son committed suicide. Now Mr. Hooten runs around the country telling everybody that it was because of steroids, when there is no evidence pointing to that. According to Steriod.com,

There had been no active anabolic steroids in Taylor's body for two months prior to his suicide (according to a report on the THF website) At 17, when he killed himself, his hormone levels had likely returned to completely normal, and only metabolites of nandrolone (not active compound) were still detectable.

And no, I didn't personally perform the autopsy. But here is a quote from the doctors who did, via SportsLegacy.org,

SLI's tests showed that Chris Benoit's brain had large amounts of abnormal Tau protein in the form of Neurofibrillary Tangles (NFTs) and Neuropil Threads (NTs). Multiple NFTs and NTs were distributed in all regions of the brain including the neocortex, the limbic cortex, subcortical ganglia and brainstem ganglia, and were accompanied by loss of brain cells, a condition for which no other neuropathological evidence for any chronic or acute disorder could be found.

Gordon Haave adds:

QuoteIt is silly to say that one can't quote the work of someone else. That is, one can't comment on an autopsy unless one performed it himself. If we took such an approach all of the time, there would be nothing to write about.

Furthermore, in the interest of scientific inquiry, providing anecdotal stories to a statement about a lack of research does not prove anything. I have no dog in this fight, but I admire people who challenge orthodoxy.



DadIn the checkout at Blockbuster a few days ago, a thirtysomething man with daughters in tow was ahead. There was no ring, and the kid scanned his key-chain barcode card and looked down while saying there was a $24 balance on the account. Dad shuffled around a bit and told the clerk he would come back later, then gathered his daughters and left without the evening's movie.

The girls looked a bit puzzled, but they were still young enough to revere him and didn't question as they skipped gayly ahead. Maybe he would read to them this night. Probably television.

Once you recognize the syndrome, you see them often at family restaurants and theatres on the weekends. They are a secret society — the living dead of the hormone wars. Shepherds of the gene-product ransom extracted from ageing stallions of all species.

Ken Smith remarks:

About single dads.. Last day or so Comcast News had piece about a school teacher in Florida, heavily in debt, behind in child support, harrassed by lawyers and court officials, with two children, and former wife living with a woman.

Stresses were too much for him. He could not think his way out of despair, out of debt, out of his relationships; could not get relief from court system, could not get sympathy from ex-wife, relief from her demands.

He was at a dead end as a single dad. Made adecision — shot two kids, shot wife, shot her roommate, shot himself — all dead.

His problems were resolved by violence. We spend billions in social programs in this country and yet things like this occur.

Stefan Jovanovich explains:

The billions "we" spend on social programs are not spent on the poor or the needy but on the nice, middle-class children who are credentialed helpers. It is leaf-raking in the park for the offspring of the "educated". No wonder most Americans trust the military far more than any other bureaucracy. Even with all the perfumed princes in the D-Ring, it is still the only place where you can get a government job without having spent a fortune on tuition first. The reason Americans are adamant about protecting Social Security and Medicare is that those are the only programs where they actually get to see the money. Everything else "we" spent somehow never quite gets to the supposed beneficiaries. Perhaps that is why the currency has said Trust in G-d. His were the only words that could be taken solely on faith.



Gordon HaaveWhat is a credit crunch?  At least in simplistic terms, one would think that it is a situation where credit is hard to come by.  Yet, per this graph prepared by the St. Louis Fed, bank lending is holding up just fine, despite a brief dip a few months ago. Yet, we hear constantly about a credit crunch, and the difficulty in borrowing money.

Let me explain something very, very clearly: If you put a lot of money on your credit cards, and default on them, you are going to have a hard time borrowing money shortly thereafter. That is not a credit crunch. Similarly, if you borrow a lot of money in order to lend to unworthy credits, you are going to have a hard time borrowing money shortly thereafter. That is not a credit crunch, it is the most basic works of a free market system, where capital is moved rapidly from productive uses to non-productive uses.

The capital markets have realized that it was a mistake to allocate vast amounts of capital to SIVs and hedge funds who added no value, but merely leveraged up loans to risky borrowers and/or sliced up assets a million different ways and passed them around in a daisy chain, while adding on a huge fees for their "genius".

Their losses have caused dislocations in the credit markets, and there me be worse things yet to come.  But, entities that don't actually add any value in the world should have a hard time borrowing money, that does not mean there is a credit crunch.

Alston Mabry explains:

A credit crunch is when I have trouble covering my action.

Anything else is natural market forces, clearing prices, etc., etc.

Russ Humbert writes:

While agreeing with much of what Prof. Haave said, there is a credit crunch of sorts, a loss of confidence in the rating agencies. A quick look at the investment grade ratings credit spreads confirms this. Going from year lows OAS spreads of 33, 54, 74, 104 for credits AAA, AA, A to Baa. (9 year lows ); Jumping to 84, 153, 179, 222 at end of 11/30, with AA reaching record spreads; higher than 2000 and 2002. The AA to Baa spreads seem to be moving in parallel while this occured. Hence rather than simply fleeing from poor credit, the risk premium has increased for most of the investment bonds equally. It would be as if, in your analogy, many deadbeats found how to sneak in an raise themselves to a very high FICO score — ruining your high credit rating.

Ken Smith ruminates:

Seems to me no one in government is producing a graph that extrapolates the above data to the future. What about that? Kurt Vonnegut inquired aloud "Why is there never a Secretary of the Future?" Government has Secretary of Defense, Secretary of Agriculture, etc. but no Secretary of the Future.

In short, no one is dedicated to plan for the future; every bureaucrat and every CEO and every householder is dedicated to short-term goals.

You might chime in to say everyone in the financial industry is dedicated to the future; with due respect I decline that argument. Yes savings are now in the form of 401k and IRA funds, these purportedly are future-thinking instruments. Purportedly. That's the joke. None of them have calculated taxes and inflation that occur in the future.

Taxes and inflation wipe out all gains that purportedly will occur in the future. A simple experiment with extrapolation will prove this to any and all who take on the task of proof. We cannot escape three things in life: taxes, inflation, death.

Three things. But of course there is more. Health, for one thing. A health issue can and does and provedly wipe people out — financially. Who can plan an individual future with such an issue? We don't know ahead of time if we will wake up one morning with dementia. 

Greg Van Kipnis critiques:

I am not sure who Prof. Haave is debating or criticizing, however,…

… a credit crunch usually can be defined by the result of a general drying up of short-term credit such that the yield curve inverts. Many things can cause such an outcome, but they are all destructive to economic activity in the near-term.

In the current situation we have something different happening which I am calling a mal-distribution of credit. Obviously the yield curve is not inverted in the treasury market, but it seems to be for poor credits as evidenced by the widening of credit spreads at the short end.

The leading issuers of credit are hemorrhaging equity due to mortgage-related asset write-downs more rapidly than new sources of equity are being tapped to create credit to satisfy the needs of traditional borrowers. Good credits are still able to offset lost access to money markets, e.g. witness the shrinking CP market, by raising money by other means, which currently are lumped by the Fed into the C&I category. As your graph shows that category is exploding. Poor credits are getting rationed out. Many anecdotes are showing up in recent weeks to underscore that development.

If everything happened simultaneously the negative effects of the mal-distribution would show up immediately. The squeeze is likely to intensify as more financial institutions are credit downgraded. To head this off the brighter firms are doing what UBS did and the rest will wither. The 4-fold Fed/Treasury actions of the past month (MLEC , mortgage-terms jawboning, FF/ Discount rate drop, TAF/Swap-Lines) are all attempt to speed the restoration of the mal-distribution of equity. Collectively these are unprecedented historical developments.

So far no one has been "bailed out", whether they are stupid derivative issuers or investors, or stupid mortgagees or mortgagors. There will be bankruptcies, shot-gun marriages, and arrangement of necessity before this is over. The key for the monetary/fiscal authorities is to replace destroyed credit with new credit so the general economy will not be crippled. To pull this off successfully will require extraordinary good luck and judgement.

Gordon Haave responds: 

I wasn't debating anyone in particular, but rather the global meme that the financial system is in collapse.  It's not. Credit is being denied to people who are bad risks.  Because those people tend to be somewhat powerful, they have created this credit crunch meme in order to try to get bailed out. So, I agree with almost everything that you wrote, except that I disagree re: the monetary and fiscal authorities having to replace destroyed credit with good credit.  They don't need to do anything. All they need to do is let the markets clear.  

A few months ago,everyone said that the monetary authorities needed to do something, meanwhile the markets have been clearing, the prices have been set (as seen by the equity injections into the banks).  There is nothing to do except let the markets clear.

There is a market rate for credit.  It reflects time preferences.  If the Fed creates extra credit, it distorts the markets, it makes it appear that people are demanding more investment than they really are (hence the real estate boom).  When it becomes clear that was not the case, that investment gets cleared out. The answer is not to keep distorting the market, but simply to let it clear.

Carlos Nikros remarks:

Like the definition of an asset price bubble, there's much subjectivity in the definition of crunchiness. Although I mostly agree with Prof. Haave, some aspects of the current economic backdrop are not favorable for borrowers with good credit, as opposed to impeccable credit. For instance, A2/P2 commercial paper isn't an easy sale right now. Yes, the corporate bond market is open for business, but if an issuer is not a well-known credit, it has to fight for attention in order to get its deals done smoothly.

Gregory van Kipnis concludes:

Amish BuggyFor an analogy for how we can be of the same moral-philosophic persuasion yet have significant differences, consider different 'sects' of Amish. One splinter group was called the 'motor-Amish' and another the 'electric Amish' and the third the 'mirror' or 'image Amish'. The first believed that using motor vehicles for certain applications was OK, the second condoned the use of refrigeration and phones for a subset of the congregation to satisfy the FDA rules for milk or getting emergency help, the third did not ban mirrors or any reflective metals from the household. They were all still Amish, but they fought like heck on Biblical interpretation.

Well, I do believe that markets will clear and should be left to clear. But, just as a winding mountain road without guardrails will clear itself of many foolish divers who will go off the cliff, many innocents will be carried away as well. If the damage were only limited to single drivers I'd be content to leave things as they are. Even the most ardent Austrian School adherents understand social costs and the proper limited role of government to address them, however. If markets were atomized with numerous buyer and sellers, no impediments to entry and exist, and wide distribution of information, the 'clearing' process would be swift and fair. Our markets are semi-rigid and relatively concentrated due to complex institutional arrangements. They won't clear neatly. Many innocents will be carried away.

So when I spoke of replacing destroyed credit with new credit, I had in mind the lessons learned and taught by Friedman and Bernanke (among others) in their studies of the causes of the Great Depression. They were clear that many stupid things were done to trip the economy into recession, but when credit was extinguished, partly due to loans' being called in to meet runs on banks, and was not temporarily replaced by some Governmental agency, the recessions cumulated into a disaster.

I know, I know, I can already hear a response from someone that "once you start with regulations to protect people in the name of the people (men united in councils), then lies and deceptions will begin" (I badly paraphrase Tolstoy and Leonard Read). That is the risk we take when we create government. If we are led by men of high standards, who vote their conscience and willingly take personal responsibility for their decisions, the risks are small. I believe the Fed, at least, is governed that way today.

Stefan Jovanovich voices his dissenting view:

The revised standard version of 20th century American history that Dr. van Kipnis is preaching is very much the current gospel. It is what William Poole means when he says that "(m)acroeconomists today do not believe that policies to stabilize the price level and aggregate economic activity create a hazard. Federal Reserve policy that yields greater stability has not and will not protect from loss those who invest in failed strategies, financial or otherwise. Investors and entrepreneurs have as much incentive as they ever had to manage risk appropriately. What they do not have to deal with is macroeconomic risk of the magnitude experienced all too often in the past." Poole quotes a passage from David Cannadine's recent biography of Mellon as an indication of how truly awful things once were before we had professional economic management. "Mellon constantly lectured the president on the importance of letting things be. The secretary belonged (as Hoover would recall) to the "leave it alone, liquidationist school," and his formula was "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate."

Alas, what Governor Poole fails to note is that this is very much Hoover's version of history. To the end of his life Hoover blamed Mellon for questioning Hoover's presumption that he could "re-engineer" the American economy in the same way that he planned food relief to Belgium and Holland after World War I. Governor Poole and Gregory would seem to share the former President's abiding faith that the application of science could domesticate the feral wildness that results from unregulated buying and selling. What they also share is a complete absence of any skepticism about the unintended effects of allowing "some Governmental agency" to "temporarily replace" "extinguished credit". When the government tries to manage economic risk, it either debases the currency by handing out far more money or promises of money than it can reasonably expect to take in or it establishes a world where prices are administered, not negotiated. In either case, the efforts of "men of high standards" (sic) to "stabilize the price level and aggregate economic activity" create a hazard that is far greater than any credit crisis. They destroy growth and pricing itself, and they risk turning nearly every citizen into a lobbyist or (worse) a lawyer. Friedman and Anna Schwartz are quite clear that the primary causes of the Depression were (1) the passage of the Smoot-Hawley Tariff (which Mellon literally begged Hoover to veto) and (2) the Federal government's attempt to administer the economy through the NRA, etc. Compared to Mellon's prescription (which was to let the markets find out on their own what stocks and farm land were worth), the Hoover-Roosevelt solution was the one that truly ended in liquidation.

There is no way that limited or unlimited government can "address" the problem we have right now without creating greater harm. The mountains of imaginary wealth created by loans against the security of 1800 sq. ft. stick and stucco 1950s bungalows in Pacoima are simply not worth what people thought they were - just as RCA stock was not worth what call loan supported buyers bid it up to in 1928. One does not have to be an economic fundamentalist to believe that common stock valuations usually have some discernible relationship to companies' cash flows from operations. It is also more than a matter of faith to think that, as wonderful as California real estate is, its prices most of the time have at least some distant connection to the ability of their owners to pay their mortgages. Until the homes in Pacoima once again have some vague relationship to what new buyers can afford to pay, the crisis will continue; but it will end - just as past real estate slumps have ended. But, if the wise men (and occasional women) of the Federal Reserve, the Treasury and the Federal government decide that they can "fix" the problem by legislating price levels for the paper issued on the security of those California bungalows and New York condos, we may see the People's Republic of Santa Monica bring the rent control to Iowa. "Credit creation" that tries to restore former unrealistic price levels in the midst of a panic is a bit like having alcohol for breakfast as a cure for hangover. It will - temporarily - take the edge off, but it only makes matters much worse later on.



SombreroI live near the University Village mall, just down a hill from the University of Washington, where 20,000 students and 5000 faculty play out their lives. The mall has had ongoing remodeling activity, for years and years. It's not owned by a major outfit like Simon, but local owners. The storefronts are always being updated, it seems. Currently two sites are being updated, with construction crews hard at work.

The brightest place, it turns out, will be a Mexican cafe, food outlet, bright and shiny colors. I spoke to a carpenter to inquire what the place was going to be. And that was his answer, Mexican cafe. I replied "There seem to be more Mexican eaters now." He said "There's more of them than me." His voice and demeanor indicated he was unhappy about being a minority among workers; he was Caucasian, twenty-something.

There is already a thriving Mexican restaurant nearby. So now two in the immediate area. And Mexicans all live in the opposite end of this city, the south end, this is the north end. So who's eating the food?

James Wisdom replies:

I am. Big white guy delighted by the endless appetizing combinations of beans, rice, tortillas, peppers, tomatoes, and cheese. And let's not forget about the Margaritas. And the hats. Such spacious hats.

As a fan of Mexican food, I've not visited a Chi-Chis in years and will always take a local Mexican joint over the chains. We had an independent open in our town recently whose menu was entirely in Spanglish and inexplicably had a huge callout for hot dogs of all things. But, the guacamole was to die for (as were the entrees) and the servers, if mystified by the group of six boisterous gringos, were very nice.



RazorCan anyone suggested a friendly, old-time style barber shop in midtown Manhattan or the Wall Street area?  As my hairline slowly recedes, my focus on what constitutes a good haircut experience no longer centers on the coiffure, but rather the dexterity and consistency of the barber, as well as the opportunity to get a close shave with the straight razor. Valuing such qualities as skill, cost, and character/setting (in a Damon Runyan-esque sense), I'd love to hear if anyone has a favorite place to get groomed in New York.

Charles Pennington replies:

I like the shop on 52nd St and 2nd Avenue. The $16 charge includes a haircut, a shave of the neck with a straight razor, and a hot towel. Usually they have "Ultimate Fighting Championship" DVDs playing in the background. They're all Israeli immigrants. Magazines are things like Men's Health ("Get rock hard abs!") and Maxim. With the $16 price, you can just hand them a $20, and that conveniently leaves a >20% tip.

Craig Bowles suggests:

Damian between 2-3rd Place on Court St in Brooklyn is tops and costs $10. Preferable to speak Italian as the oldtimers still play bocce ball up the hill. I used to go to 87th or 88th just west of Lex. Guy close to window is the best and cost was $7 but probably a bit more now. Great barbers and cheap prices leaves more for a good tip.

Scott Brooks writes:

Pattern BaldnessAs one whose hairline has stopped receding, I'll throw in my two cents: If you want consistency and a good experience, get a buzz cut. I get a cut every three weeks and can tell any barber/stylist exactly what to do:  

1. Use a 1/2 blade on the sides
2. Use no guard on the top (cut it right down to the skin)
3. Blend the hair on the sides into the "no-hair" on top (don't want a "ridge-line" where the skin and hair meet)
4. Square or round the back — I don't care which — and blend it
I don't know if you have a Sport Clips in Manhattan or not, but I've come to like them. Sports on all the TVs in the place. At your cut station, you have a private TV to watch whatever's on ESPN and the stylists seemed to be trained to do one of two things:
1. Talk about guy stuff (sports, hunting, fishing, etc.)
2. Figure out quickly if you aren't interested in talking
I hate going into a place to get a haircut (Great Clips is my second choice for a haircut and I run into this problem there too often) and having to listen to a stylist talk about her boyfriend or kids/grandkids, or whatever inane subject is on her mind. Most guys just aren't interested in that kind of stuff. Plus, at Sport Clips, I get a cut, massaging shampoo, hot towel/facial massage, and then a vibrating back massage, all for $20 plus tip while watching Sport Center or some game.
But they don't give shaves, and if you've ever seen that picture of Albert Anastasia lying on the floor of a barber shop, gunned down during his shave, you might consider shaving yourself at home! 

Ken Smith extends:

Wild Irish RoseWhen I was about 18 years old, some 60 years ago, the price of a haircut was 50 cents at the Barber College down on Seattle's skid row, a shop nested between flop houses and cheap taverns where alcoholics roamed the street looking for another cheap bottle of wine. Winos, they called them.

People did not have money and jobs as they do now, so a trip to skid row for a haircut was in the economic order of things. The local indigents could also get a bed for the night for the same price, 50 cents. Called flop houses, they were dormitory floors, like in an army barracks or concentration camp.

Rod Fitzsimmons Frey responds:

If you had taken that $0.50 and invested it at 6% interest, Ken, you'd have had $17.36 today. About the price of a haircut. Or a dorm room. Difference is you'd not have to go down to skid row to get either, unless you wanted to.



PipeA roofer came here last year or so to give me his bid to re-roof my carport. He slipped a contract down on my dining room table, all pre-prepared while he sat in his really, really expensive pickup truck outside.

He wanted me to sign a deal for $2,500 for the job. The carport is 20 x 10 feet. 200 sq ft. So that's $12.50 per sq ft. I declined. He said I could finance, I looked at the finance charge and it amounted to about 20% — and that's how inflation is created. People buy stuff, order work done and use finance — instead of using self-discipline to say no. And I said no and did the roof myself at less than $200 but I did injure a knee carrying a 50 lb bucket of tar up the ladder to the rooftop.

This week I asked a plumbing company to send a guy over because I have smelled sewer gas during the night, somewhere in the system a problem exists and although I am pretty good at copper plumbing work I am not a drain-waste-vent person. Don't like to deal with the stuff that goes down drains.

Anyway, the plumber was a master at his trade and an all around good fellow to get acquainted with. He could not find the problem for certain but suggested a code violation in regard to the washing machine waste discharge which if corrected probably would solve the sewer gas issue.

He bid $1,500. Well I had to decline that also. The parts for drain-waste-vent work are cheap, just plastic. The job is like cut and paste on a computer in that one measures pipe and cuts it for the purpose it's to be used for then you use a common glue to paste the parts together.

Yesterday I went to a new Barnes & Nobel store with a coupon they mailed me and bought a Crack & Pecker plumbing book that details exactly how to work with plastic pipe for drain-waste-vent systems; cost me $23 with the coupon. I will do this job for a few bucks worth of plastic pipe.

That's how inflation comes to us. We are lazy, don't want to learn how to do things for ourselves, pay exorbitant finance charges and increase inflation, because, you see, inflation if created out of debt, and I can prove it because I have done my job, research.

Dan Costin writes:

I live in the UK. Had an Indian fast food dinner last night with my wife, two chaat appetizers and a prawn curry, a lassi, a glass of mediocre wine: £30. Under £5 if I'd made it myself. Then went to see a movie: £20. £4 if I'd watched it at home. I drove there, gas is over $8/gallon. Could've walked an hour. Or stayed home and fixed the toilet. But I'm letting the plumber do it. Who knows how much he'll charge. But it keeps everyone happy. Skill specialization is the only way we can get a complex civilization like ours to work. Otherwise I'd be busy making jams for the winter about now, trying to figure out how to keep my corn dry, and my cows happy. Then there'd be no time for trading, the ultimate specialized trade, at the pinnacle of our civilization.

Russell Thomas adds:

I also live in the UK. I was thinking only yesterday about some building quotes of around thirty thousand pounds for a dormer extension to my bedroom and a small utility room, which are situated effectively in my roof. I would gain an upstairs bathroom situated on existing floorspace , and an extra eleven metre square of standing room for this cost. I appreciate that time, knowledge and tools come into effect, and hopefully over the years an increase in property value. But at most the raw materials of such work would be five thousand pounds. That leaves twenty five thousand pounds labour for a four-five week project. Now if I added that thirty thousand pounds total to my mortgage like most people do in the UK. Over the term of my twenty year mortgage, I will effectively be paying sixty thousand pounds for the whole project! In a nutshell, the builders walk away with 25k after a few weeks work and I am left with a debt to pay over the next 20 years which will effectively double the initial amount paid. Anyone know any hardworking migrant Polish builders?



Orange CoverallsFrom my small part of the globe (Belpre, Ohio) I can see the economy getting tighter for many. The ketchup bottle remains on the counter in an inverted fashion. My being-evicted renter (Nov. 30 at 2:00 PM is the eviction court date) has not been back to the unit for a month. I can tell because I put a penny in the door when closed in a certain way, so when the door is opened it falls and I know he has returned. My new smoke detector was hanging over his bedroom door (I can see this through his curtainless window); now it is on the bedroom floor. In Ohio, there's nothing I can do till I get him in court and he is evicted by the judge — then I get the unit back that day. The other night I noticed a late model Cadillac with Texas plates in front of his door and a 'donut' spare in place on one of the car's rear tires. I called the police to come and check the car out and found that my being-evicted renter gave his key to his cousin from Texas and let him move into the unit! Nothing I can do, even though the rental agreement is in the one person's name only. The police ran the Texas plates and 'rousted' the fellow as to why he was in the unit. I was standing there and he told the police and me that his cousin gave him the key and that he had no place to stay (homeless). The young fellow even apologized to me for being there! Then last night a deputy sheriff drove through the property and I asked him who he was looking for and he told me (fellow I am evicting). Guess he was a 'no show' in court for underage consumption and resisting arrest a time back. Things have gone from bad to worse for this young man. That evening he came back onto the property with another fellow to pick up the Texas cousin at my unit and I called the police. They arrived and took the fellow away in cuffs. The fellow from Texas is broke, no place to stay. Being-evicted renter may appear for his eviction hearing in prison orange coveralls. I see the economy tighten for people I rent to, and, comparing notes, other rental property owners have similar stories. Real estate is still a great investment — but not for everyone!

Henry Gifford remarks:

Interesting lesson for all in your rental headaches. I had some good, some bad tenants until I started using a broker to find tenants. They found only good ones. People with more time than money scour the classified ads, while people with lives use a broker. It's the best filtering mechanism around.

I had a tenant rent his mailbox to a drug dealer who stabbed me in the chest, and he's still in the apartment. When I was an active landlord, a really "clean" eviction case flew through the NYC courts in about a year if uncontested, longer if contested, which basically meant showing up. Sublets to non-payers could take a couple of years, with of course huge legal fees that cost more per month than several other tenants were paying. You have it easy out there in Ohio!

Ken Smith notes:

In Seattle a rental house can have up to 12 occupants, if I am correct on this. So when a renter is short of money he can advertise for people to share his domicile. Renter has the lease and can sublease. There are ways out of being evicted if willing to share. Place across street from me once had 12 occupants, all moving in to assist with the rent after the original lease holder lost his job. They moved in incrementally. First one, then a couple, then a mom with two kids, etc. 



Just left a university library, reading books on the shelves. Section was on medieval life, crusades, knights, power struggles, poverty of serfs.

Throughout years without end, war has been initiated by those in power. I could not see that common people were well served by any conqueror.

Stefan Jovanovich replies:

Liddell HartEveryone from Marx to Keynes to Mises to Ron Paul concedes that individual enterprise is the unique attribute of what we commonly describe as capitalism. What is not often conceded is that the origins of that form of commerce cannot easily be separated from war. The Italian system of counting that the German silver barons sent their sons to Florence to learn — what we know as double-entry bookkeeping — arose from the need of those in power to keep track of what they paid their common soldiers. As noblemen under the obligations of honor, knights did not have to be paid, but the crossbowmen from Genoa were not willing to offer their services without coin. Still worse, within a very few decades, those same common people had formed "companies" to hire themselves out to the highest bidder. It was the need to come up with ready money that led to those same Germans and Italians developing what I suppose would now be called sovereign finance — i.e. lending would-be conquerors the money with which to buy their hoped-for conquests. The notion that the "common" people are always and only helpless is the ultimate snobbery. It is also very bad history.

Some things remain constant. 40 years ago Basil Liddell Hart in his book on Strategy wrote "if you wish for peace, understand war." Those with a more classical turn of mind may prefer Flavius Vegetius Renatus (375 C.E.) "Igitur qui desiderat pacem, praeparet bellum."

Ulysses Grant admired and respected Robert E. Lee, and he thought he and Longstreet and the other men of the Confederacy were terribly wrong to have taken the side they did. But, he never once spoke about any of them with the scorn with which he regarded the Copperheads. As Ayn Rand put it, "There are two sides to every issue. One side is right and the other is wrong, but the middle is always evil. The man who is wrong still retains some respect for truth, if only by accepting the responsibility of choice. But the man in the middle is the knave who blanks out the truth." War is often futile, but it is rarely as completely meaningless as the easy pacifism of the safe bystander.



Trading DeskLike the Jedi, the Day Traders have returned. Having all but become extinct in the low vol OIF [Operation Iraqi Freedom] bull market, the surviving Day Traders now enjoy multiple 2% intraday swings, 1% gaps and 2% per hour moves. Its like the good old days at the turn of the twentieth century when even beginner traders could follow intraday momentum and make bank. There's a definite shift in the market ecosystem favoring the fast movers. You really haven't heard much day trader talk at cocktail parties either. No one really seems to want to talk stocks anymore. That's a good sign.

The theory of evolution and theories of geological and climactic change seem to model slow moving change. But the reality is that evolution and climactic changes occur much more rapidly and with more abruptness than might seem due to the correlation effect in complex systems. When many inter-related nodes, previously uncorrelated, become correlated, whether due to stress or merely, as Alston Mabry pointed out, due to increased variance, there can be a massive and rapid shift in the system which would not be expected under a linear model. Evolution sees large regimes of mass extinction. Climate changes, ice ages, occur much more rapidly than thought.

The same might be true in financial markets. The assumption of continuity of prices itself is breaking down with the large regular gaps. The increased variance increases correlation, as pointed out in the discussions of currencies, equities, bonds, and global economics in an as yet to be quantified manner. Prior data histories provide limited guidance with numbers crossing into new territories. Rather than seeing separate exchanges and markets in different countries might the new paradigm be one big global interrelated market? What new relationships might be uncovered there? So much data, so little time.

James Lackey writes:

Before daytraders come here and start telling us that all we need to do is buy the Nazz limit-down or wait for 2pm every day to buy, let me remind you we had this bashing in 2001. I was disassembled in 9 months. It took meeting Vic and Laurel over a year later to get me profitable. For this I am grateful.

I would like to point out that there are daytraders reading this site. There are guys who have profited all these years. These men are one in a million. To have the temperament, the financial backing and years of not profiting to learn how to trade this way is too much for the others to learn. Two nights this week I was up at 1am and traded all day.. 

Ken Smith adds:

During the daytrading mania, reporters from the television show 60 Minutes interviewed daytraders, and to show contrast and to demonstrate how little guys get smoked, interviewed the head trader at a major firm, I think it was Goldman. The head trader sat down at his screen saying "If you stay at your screen you will lose" and promptly put in a large order to buy on a stock headed down. Immediately ten thousand daytraders had to cover their shorts. He then sold his inventory as daytraders climbed aboard. The next trade he made jerked thousands of daytraders around to sell what they had just bought.The Big Players can place a billion dollar order, a 5-billion dollar order. Daytraders were playing around with their parents' mortgage money — and lost it.

Guys like Lackey used to make 200 trades a day, taking quarter points, even less. That's a lot of work and one mistake wipes out the profits from 200 wins — sometimes. Trader has to begin life all over.

Traders with a niche, Vic and Laurel for instance, are not trading by the minute, I suspect. On the other hand, traders can mix up their activity according to the analyisis of 24 symbols on their screen. I really can't say much on this — nothing worked for me for very long, in the short term bull ring.

Bo Keely worked in the Vic and Laurel trading room off and on, whenever they could get him out of the closet he lived in under the stairs at the mansion. Keely told me once, "Money is made slowly, lost fast."

Kim Zussman recently pointed out a similar strategy. Bought on August 16 and held — didn't say when he made his exit, but I have confidence it was a profitable one. Buy and hold, that's the ticket. The secret of that trade is not the buying, it is how long to hold. Not to buy and hold forever, but to hold, like you hold an amorous relationship until it wears thin. 



Sen. Carter GlassHistory says deregulation created instability. Glass-Steagall was implemented to correct market excesses in speculation with gimmicks. In recent times this Act was rescinded. We will have to live with the consequences.

Phil McDonnell counters:

Rarely is increased regulation good for the economy or the markets. Ordinarily we would be tempted to ask if our friend Ken has any source or statistics to put on the table to support the statement that deregulation causes instability. The converse of that proposition is that more regulation decreases stability.

The two Glass-Steagall acts were passed in the first half of 1932. So that year is the focal point. Here are the weekly standard deviations for the Dow industrials for 1931 and 1932.

year std
1931 5.6%
1932 7.1%

It looks to me as though the Dow volatility increased during passage of the bills and immediately thereafter. Certainly 1931 enjoyed lower volatility.

Charles Pennington replies:

I'm anti-regulation, in general, but I'm surprised Dr. McDonnell would put these stats up to make the case that regulation increases market volatility. Isn't it plausible that Glass-Steagall was passed in response to the higher market volatility, rather than the other way around, that the market volatility resulted from Glass-Steagall?
Anyway, here are root-mean-square monthly moves for 1931, 1932, and 1933:

1930 8.1
1931 14.1
1932 16.8
1933 14.1
1934 4.8

Ken would surely say that after volatility soared from 8.1 to 16.8 from 1930-32, the benevolent government officials took action, and their efforts resulted in the steep decline in volatility from 16.8 to 4.8 that occurred from 1932-34.



Senior GolfersMy daily walk takes alternate routes through the week.  Each route takes me past many property "For Sale" signs.  Most houses up for sale are unoccupied — owners abandoned, flew the coop, gone with the wind.

Now the first of the boomers are retiring, with homes for sale, the only asset they have other than the fat hanging from their bodies, which they can burn off during the time it takes to sell their property.

Boomers will want to engage in the activities they have been dreaming of for the past 50 years. Golf, travel, visiting grandkids in far flung places, moving to a warm place for the winter.

They are in for a surprise.  If they can sell their property, when they sell, they will find prices for their retirement dream will exceed what they obtain.

We have visited retirment villages in the Pacific Northwest.  A small one-bedroom apartment rents for $5,000 a month, including three meals. Parking for a car is extra, small storage if available is extra, phone extra, gotta tip the maid or give an Xmas bonus, etc.

If boomer has a home fully paid-for and can get $500,000, then pays out $6,000 per month as cost of living and travel, then the $500,000 will keep 'em going for only seven years. They'd better plan on euthanasia.

How many boomer homes are fully paid for? Their homes have been ATMs for the past 20 years.



SalvationWhat to join? I think it matters a lot. People join groups for advantages, and weigh advantages of one outfit aside another. Choosing an outfit to join is crucial to success in many walks of life.

I've heard a lot about networking. It's supposed to be more important than many other strategies. I am a loner and have never had the advantages derived from memberships. I've always been disconnected.

One can think of the hypocrisy involved, but humans probably don't. Survival mechanisms are not based on ethical principles, they are based on the reptilian brain, that small core mass of tissue which sits between the end of the spinal cord and then beginning of the larger brain. Can be likened to crocodile brain tissue.

A recruiter for Opus Dei mailed invitations to me for a couple of years, maybe got my name from The Catholic Wanderer, or parish list where I attended daily 6 am mass for a long time.

I read a lot about Opus Dei, and declined the invitations. I just could not join. I can say I joined the Teamsters Union and the Inlandboatman's Union and the Sailor's Union of the Pacific. These were job related, so to survive, membership was mandatory.

Thinking back in time I remember going to a summer camp with a Boy Scout group, but did not join as my family was poor during the Great Depression. My tuition to the week long camping experience was probably funded by members of a Pentecostal Church where my mother played music, sang gospel, and preached to skid-row indigents, drunks, homeless characters, prostitutes, as the folk in the Salvation Army used to do. Play music in the streets, draw a crowd and voice invitations to sinners to be saved.

I thought about joining the Salvation Army once. I got tired of looking at my wardrobe daily, trying always to decide what to wear for the day, the trip, the movie, the event. I noticed the Army members always had just one outfit, a uniform. It seemed efficient to me that if I joined I would eliminate the stress of deciding what to wear every day. Just put on the uniform.

But joining just for the fashion would've been hypocrisy, huh?

Stefan Jovanovich extends:

One of our family's favorite movies is Grosse Point Blank. It is excessive and self-indulgent at times, but it has true wit. Our daughter Nora loves it because the music was done by Joe Strummer, her all-time favorite rock and roll musician. What we all love is the absurdist subplot in which Dan Aykroyd's character is trying to organize a union of assassins, and he is recruiting John Cusack's character to join. Aykroyd meets with determined sales resistance, and by the end of the movie he and Cusack are trying to kill each other in a gun battle. But, they still have time to carry on the discussion about the assassins' union while shooting at each other. At one point Cusack asks "Are there any meetings?" Aykroyd replies "Of course, there are meetings." As he returns fire, Cusack shouts "No meetings!"



I am thinking the debts will not be paid. No one will suffer for paying that debt. May suffer for something else, however.

All nations will simultaneously declare a Jubilee Year, and all debts will be forgiven. Life will begin from square one.

This idea stems from readings in Leviticus, Chapter 25.

Practically speaking, how would it work out, could central banks arrange a Jubilee with hedges and counter hedges, with derivatives and fiat illusions?



Don't automatically select as lifetime mate the gal you spent a few hours with in the back seat of your old car. It was probably dark there and you couldn't see the details that are important. Just as females have different hair color, skin color, finger size, you know, different anatomical structures, as some have knock knees — so they have different genitalia.

Female s-x therapist Betty Dodson published a small manual in 1976 on the subject. She obtained a graphic artist to work with her in her therapy sessions. This artist took part in group sessions where females sat in a circle naked, assumed positions that enabled a good view, and the artist drew each female's genitalia. These drawings appear in the little manual on s-xuality which Dodson published. There are 15 drawings.

Every man should have this manual to get an assessment of what type is most interesting to his own senses. Then go out and seek to find.

Dodson's work, detailed in her manual, helps women overcome reticence to look at themselves and helps them find joy in pleasuring themselves. Manual is instructive. Should be read by all men that nature has prepared.



Starry NightI have spent the day looking for knowledge I don't have, useful knowledge. I constantly run across material, facts, history, information that is more or less new knowledge, but it is not useful, not specific to my needs.

Discovery is a wonderful pursuit. Always on the lookout as a way of life can be satisfying, can be disappointing. Today it's disappointing.

No wonder folk turn to Sufism — something beyond what they know is known, what they figure is possible. Looking for the impossible, a fact that's stimulative.
Again, there's lots out there I don't know and I am the first to acknowledge this circumstance. But all that is not useful to me in specific ways, in assistive measures. Encountering all the non-assistive knowledge out there ends in ennui.

Maybe the lone miner, prospecting in isolated hills, looking for the single purest diamond in the known universe, this guy, he's feeling my feeling.

No wonder the sports stadiums are crowded, folks have been overcome with ennui, gave up hope, tired of the journey, the rattlesnakes across the trail, the endless sand, the scorching futility; desert of plenty in a sterile universe.

I'm bored with the stars; too many of them to be of use. Only need one bright star to stand on. Where is that telescope, the one that will locate my star? Where is the spaceship to take me there? I believe I'll find it, spent my life at this task, searching.



HumbleI had a wonderful conversation the other evening with Rudolph Hauser. What an exceptional man. A true treasure of a person. He was introduced to me through Janice Dorn, a profound friend to whom I would entrust my life.

To date I have had the honor of being able to call Janice Dorn, Stefan Jovanovich, Scott Brooks, Rudolph Hauser, Laurence Glazier, and of course Vic and Laurel, friends.

Stefan is a gentleman above all and a true family man who loves his wife and daughter and who is cut from fine cloth. Scott has a heart of gold, and Laurence is a true British gentleman. I have also corresponded with Jim Sogi, Kevin Depew, Larry Williams, John Bollinger,  Alan Milhone, Pam Van Giessen, Marion Dreyfus and others.

I thank Vic and Laurel for the introductions through Daily Speculations.

Ken Smith extends:

I was just speaking with my spouse about an issue and I expressed concern about being able to solve something. She replied I would work it out because "You are smart."  I told her I am the only person who knows how much I don't know.  She thinks I am disparaging myself, but I speak truth.



GrapevineTowards the end of my heavy drinking days I lived in an efficiency apartment located within walking distance of several taverns and cocktail lounges, a liquor store, and a supermarket with a selection of cheap wine which could be purchased by the gallon.

I bought for $3000 the first Epson desktop computer to hit the market and sat for three years writing a manuscript, citing Scripture and an array of authors who had had a similar experience. I wrote an Index to the Big Book, which Alcoholics Anonymous Headquarters declined to authorize, but giving the rights to another writer after I had submitted my manuscript along with a request for permission to quote ÅA literature.

Of course Headquarters  had some reasons — I did fall off the wagon frequently, never showed any length of time sober while in Alcoholics Anonymous; was a complete failure in the outfit.  Nevertheless I wrote well and the Index was very good, if I say so myself.  They did publish several of my submissions to their monthly publication The Grapevine.

I was ten years in that apartment, making my tour of the neighborhood, the various iniquity dens, declining the solicitations of ladies of the night on the way to destinations, drinking establishments, since, after all, my compulsion was booze, not sex.

I give credit to Jerry Falwell's outfit for putting together a booklet to send out to those who heard the message on the airways.  That little booklet explained a life that was better and described in exact detail the steps, attitudes, and behaviors that would save folks.



Fear, from Ken Smith

September 4, 2007 | 2 Comments

PumpkinBad news is always around. Bad news and dire predictions are reasons to dump holdings and perspicacious traders are aware of this. They game the news, game economists, game everyone. Fear drove me out of a position Friday; had I held I would have had a profit to take as of half an hour into the trading day. I let fear temporarily overtake logic.

Eric Ross adds:

Join the team! Fear and emotions have driven me out of trades, have prevented me from taking positions. Today, after dawn patrol, I wanted to enter the market, but emotions prevented me. It seems one should just buy the dips and not look back, accept the risk of a drawdown.

Alan Millhone remarks:

I wonder if we had no TV, did not look at magazines or newspapers, and stayed focused on the data at hand — would that exclude emotions and thus make traders more successful? The news media can twist anything — and when you see something you automatically believe it!



GenniferLike elephants, humans retrace. In my 20s a lady friend, whom I had been dating for a couple of years, ended our relationship. But I kept retracing my steps to her threshold. Kept the phone line open to her abode. Wrote notes. For quite some time. Couldn't give up. Not stalking, mind you, nothing rude.She reinforced my behavior by occassionaly allowing me to seduce her. Her desire for my embrace had not burned out. I retraced to her doorstep, her phone number, again and again, sometimes to be rewarded. More often to be denied.

And it was fruitless in the long term.I look back on that and wonder about my common sense.

After March 2000 I retraced my actions in the markets, time and time again, only to be randomly rebuffed or rewarded — but mostly punished. Kept retracing the trades that had rewarded me so much for so long. I could not believe this had turned against me irrevocably.

And it was fruitless in the long term. I look back on that and wonder about my common sense.

Marion Dreyfus explains:

Intermittent reinforcement is actually more powerful than the usual normal, regular reinforcement, and explains our futile return to occasional love-objects as well as to the volatile and heartless Market Mistress. Both give us a seductive taste, then whip it away, but the chance of succeeding again is so tantalizing we hate to give up that chimera of opportunity/reward.



Oak TreeIn August, the stock market ended up, but with the interest rate vs. earnings yield differential at its all time high. Disruptive moves abounded. The Fed established a reversal in policy, cutting the discount rate. Through history, the average run of Fed moves in the same direction has been about eight. A 10% decline occurred in the S&P 500, and a 1000 point decline in the Dow, events unseen in five years. Some hedgefunds lost, some gained. Exchange margins were raised many times. In niche markets where the strong had ample capital, much fear was raised and many weak longs were washed out. Earnings continued apace, with some sectors down and others up — housing terrible, technology good.

Now the market can go its merry way with much less baggage. A nice replay of 1907, with a few actors changed. All this was brought to mind by the calmness and serenity of nature, exemplified by a few stately oak trees I saw at the Bronx Botanical Gardens today,  trees with their horizontal perimeter as great as their vertical, and many branches on each side, starting very low.

Ken Smith remarks:

Reading of charts indicates most years were good years for the stock market, in that regression to zero has never occurred for a major index. 1987 and 1998 took some percentage off the top, yes, but a recession of drastic dimensions did not occur. In an essay Causes of American Business Cycles, 1998, Temin claimed the only crashes that had a severe impact on the economy occurred in 1903 and 1929.



Bo Keely has moved into the Oasis Motel in Blythe CA and has begun new job as substitute teacher in local high school. His first call to work to sub was yesterday.

His vision of life on the road has been modified, I believe. Maybe temporary, because Bo has a lust for the road, is of restless character. Yet strange things happen in this universe. He may settle down, and should, in my thinking, because he has a lot to offer students in the way of life experience, is cunning, with creative methods in teaching.

Maybe we will see Bo move out of his desert retreat, take a steady job, set himself up in a Blythe condo with swimming pool, get a business suit, start eating in upscale establishments instead of the free food kitchen.

Riz Din adds:

I found a handful of old YouTube shorts on Bo and collected them.



 Left to right: GM Nigel Davies, Dr. Phil McDonnell, Prof. Gordon Haave

This year's Spec Party had a different feel than other years', a more mature, more focused, a more comfortable, intimate feel. We had specs from all around the world: India, Ireland, Scandinavia, Zurich, France, Italy, London, Hawaii, California, Nevada, Tennessee, Georgia, Delaware. A truly remarkable international diverse experience. The depth of knowledge, expertise, and perspective was simply mind boggling. Though there were fewer, the group was more intense, more hardcore quantitatively philosophically naturalistic in the Niederhoffer/Kenner tradition.

We spoke of survival of volatility, diversity, adversity, ecologies, as we strolled from jungle environment to desert environments at the Haught Conservatory Greenhouse at the New York Botanical gardens bringing to mind the radical and swift regime changes and the necessary adaptations in nature and the markets.

We rode out to Shea Stadium to see the Mets play Florida. Baseball has so many parallels to the market. The long periods of hard effort with no score. The long innings of playing from behind, the maximum effort required while in a losing position. The rapid reversals as the Mets lost the game to a home run in the bottom of the 8th. All lessons valuable to the specs who braved adverse windy wet conditions, an anomaly in an otherwise sunny, warm, beautiful New York summer.

We went back in time to the 60s and 70s in a nostalgic trip out to quaint Coney Island, near Brighton Beach where Victor grew up, per the stories from Ed Spec. We swam in the ocean, discussed waves, rode the Ferris wheel and had a wonderful day in the sun. I had a very nice discussion about India with Sushil Kedia, and a lengthy discussion about chess, strategy, and markets with Grandmaster Davies on the way back.

The Dinner at Delmonico's was the highlight of the weekend, with a great collection of specs celebrating with Victor and Laurel in the tradition of the giants from the history of Wall Street. I can imagine that years in the future a Wall Street legend will tell of how Niederhoffer threw lavish parties and took over the whole restaurant for his friends. The food was delicious and the tap dancing and Hula from the traveling Von Sogis of Hawaii added to the fun of the evening. Among the likes of David Wren-Hardin, Bill Egan, Chris Cooper, Dan Grossman, Andy Moe, Tim Humbert, Easan Katir, John Floyd were fascinating discussions about cutting edge microstructural theories, fundamental considerations in currencies, statistical chemistry and the drug industry, and the creation of unintended toxins. But the evening was just starting; next was the Tim Melvin pub crawl to the usual midtown Irish bar where many a very tall trading tale was retold with flourish and where Melvin was characteristically seen in the arms of three beautiful blondes at once. James Goldcamp was heard to have had a really good time.

The weekend ended up with a serious and quite profound and relevant discussion of current market conditions at the Rose Garden in Central Park under beautiful blue skies and cool weather, with raccoons scurrying in the lush green arbors as Victor and Laurel espoused their theory of the markets as the mechanism that mediates between government and the the populace, and the need of the financial ecology to support its overhead and extract the maximum amount from the weak, causing not only the obvious capital allocation but also buffering the power of government to protect the needs of the populace through price and capital demands. It is a novel theory that I have never heard discussed anywhere else. The market itself is the mechanism that effects large scale-social and political change through changes in incentives, attitudes and demand, and is more than merely shuffling money. Understanding the markets as a social and political driver can lead to long term trading strategies and keep the trader on the right course.

New York was vibrant, alive, clean, young, safe, friendly. New York has a noticeably disproportionate number of young people, and slim attractive young women dressed nicely compared to other areas, something Galton himself was known to count. Even Dr. Zussman noticed this anomaly. At many clubs and bars large groups of attractive women attended, and late at night there were more women out and about than men. The taxi drivers, restaurateurs, hoteliers, and people about town, subway riders, citizens, restaurant-goers, theater-goers, were all courteous, friendly, intent and focused on discharging their social obligations and expectations. I saw no antisocial behavior, no arguments, no outbursts of anger, almost no vagrancy or homelessness. The subways were clean, very clean, well lit, and uncrowded. Even the traffic had less hornblowing and argumentation. To me, who grew up in the bad era of the 70s in the city, a real low point when the city was on the verge of bankruptcy and crime and vagrancy were rampant, it was a remarkable and enjoyable weekend in a magic kingdom.

For these wonderful and life-changing experiences and lessons in life and markets, available in no other forum, and for the creation of this unique, international, eclectic, esoteric, erudite group, and for their huge contribution of expense and time in the midst of tumultuous market conditions, we have the true genius, generosity and broad thinking of Victor and Laurel to thank. I extend my heartfelt thanks and love to them both for a truly wonderful weekend I will cherish my whole life.

Ken Smith writes:

Glad the Specs had a pleasurable weekend. I couldn't be in New York. It's a 6,000 mile round trip for me. Anyway, I do not talk sports, don't care about politics, played golf only once in my life, can't remember who the current boxing champ is, have forgotten books I've read, don't remember any poetry, can't read music or play an instrument, have no bragging to do since I never got anywhere, can't remember names of people I meet for as long as even five seconds, hate chit chat, small talk, and big talk, and daydream during conversations, all of which makes me a poor guest at a dinner table.



NEW YORK (AFP) - Mother Teresa, who is one step short of being made a Catholic saint, suffered crises of faith for most of her life and even doubted God's existence, according to a set of newly published letters.

Probably every saint, and we are all saints if Catholic, all of us have a dark night of the soul, descend into the underground of spirits, feel angst in every molecule of spirit, and some are never able to climb out of the darkness.

To write about this nun as if having doubt makes her less deserving of recognition is part of what goes on in human life, a drive to take away her prestige so others will not follow her saintliness.

David Lamb remarks:

This reminds me of Newton's manuscripts housed in Jerusalem wherein he kept secret all his life of his disbelief in Christianity's central doctrine, the Trinity. He was a minister at the time. He read the bible in numerous languages and concluded that this doctrine was not true. Denying the Trinity was illegal so he kept quiet.

James Lackey writes:

I lived most of my life in Chicagoland and Florida, and after a year in Tennessee, people from NY, CHI or LA have no clue how much of the so called bible belt really is full blown, full time, church-going, non-cussing, non-drinking patriotic Americans.

Many think people From TN, KY, NC, SC, GA, AL and southern Indiana and Illinois are from a different world. Yet people from here, unless they are newsmen or bible-salesmen who preach against society's ills, really don't give much care, thought, time or concern to what people in LA think. The joke around here is: stars from LA talk about the poverty and war in Africa and Iraq. People from here are in Africa doing the mission work for the church or in the 101st Airborne, just back from Iraq.



 Is it, "Life offers so many parallels to trading," or "Trading offers so many parallels to life?" I'm not sure which is more correct, but our little family experienced an event this past week from which I could easily draw trading parallels.

We have a seven pound yorkipoo dog that's one year old and the pride and joy of both my wife and 8 year old daughter. Of course, my brothers and I (who live on the same street), being the machismos that we are, usually refer to her as a "rat dog", or "little yapper" just to do a little teasing toward that "wimpy" dog.

We live on a little over one acre out in a more rural setting. One early morning, around 1:30 AM, I took our little yorkipoo out in our backyard to do her business. I usually stay out there with her but I had a "pressing matter" to take care of myself. So, as she scampered toward the darkness of our backyard, I slipped in the house where there was a bathroom right by the back door.

Just as I was stepping out of the bathroom and putting my hand on the door knob to go back outside I heard this extremely loud and piercing cry or yelp, over and over. I quickly turned on our floodlights which lights up the whole backyard, and opened the door. I ran and jumped over a planter to see what was continuing to cry and I saw a very large coyote that had the little yorkipoo pinned down and biting her. I ran after it as fast as I could and the coyote took off.

I picked up the little dog and ran back inside to take a look at her wounds, as she was still alive, barely. She was bleeding from multiple wounds on her body and I tried to clean them off. I then rushed her to the animal hospital and they were able to diagnose her wounds and needs. She had 10 puncture wounds in her from the teeth of the coyote (a couple of them were dime size).

Needless to say, I wouldn't have shared this experience if it didn't have a happy ending. With antibiotics and other medications she has recovered and we have to keep her from running and bouncing around all the time.

How did this happen? First of all, we don't have a fence surrounding our property, which would have offered a preliminary defense. Secondly, I took my eye off her for about 40 seconds and in that time the coyote went in for the kill.

A few months ago I placed a trade and neglected to check for announcements. Zeal without knowledge! Within 9 seconds, after the announcement, my trade was down $45,000, and a Lobagola was not experienced, much to my dismay. I had only about half of the puncture wounds that our dog experienced. I survived too, but what a lesson! And, yes, I do feel like a yorkipoo in a pit of ravening wolves when I often trade. But I'm getting tough.

Kenneth Womack responds:

I too live in heavy coyote territory (both species). What I plan to ask my father on his next visit down to see the grand-kids is, what is the nature of a coyote?

It appears at once to be mostly opportunist, skittish to the extreme and easily agitated in the retreating sense. Yet there are times when I've seen them overly aggressive, and not always during times of urban encroachment. They seem to be perpetually hungry but their raw speed makes one think it could facilitate an easy meal at the drop of a hat…or chihuahua.

Either way, my sense of the coyote is not a positive one. There's something too rangy, too suspicious about them. And I do detect coyote-like behavior in some markets and their denizens. If coyotes could speak and write I trust they'd be employed designing Forex web pages and working as cabaret doormen.

Ken Smith remarks:

I am in touch with the critters. On a drive to the ocean I once saw a coyote on the other side of the road, a road kill. He hadn't been hit again and was still fresh. I stopped the car and got out to look at him. Dead as dead can be. But he was a predator with great cunning and I have respect for the critters. I opened the trunk of my car, put the fellow in, and aborted my trip to the ocean, returned home and buried him in my back yard. 

Scott Brooks explains:

 Coyotes gulp meat while dogs chew.

Take some ground beef, put it in a plastic trash bag, seal it (so nothing can get to it), and set it on your roof for a few days, making it good and rancid.

Get a sponge and cut it into small fist-sized pieces. Get some cotton twine (it is crucial that it be pure cotton). Wad the sponge up into as small a ball as you can. Wrap it in the cotton twine so that it remains small (like the inner part of a baseball).

Then get a clothes-pin (for you nose) and some latex gloves.

Retrieve the rancid meat. Put the clothes-pin on your nose (it will stink), put on the surgical gloves, and cover the cotton bound sponges with the meat, making little meat balls.

Dogs chew their food (make sure the final product is between a golf ball and baseball in size), so they won't swallow the cotton/sponge part.

Coyotes gulp the food down. Rancid meat and cotton will break down in the coyote's digestive tract. The sponge will not. End of coyote!

Or if you're rural enough, put some rancid meat in the yard at night, get one of those "rabbit squealer" tapes and play it. Sit on your roof with a .22 or .17 caliber. Whack 'em and stack 'em.

Spread the dead bodies of the coyotes out along your property line. The coyotes are not stupid. They will figure out fast enough that the cost associated with the "trade" in the lamb yard is a much higher "vig" they may be willing to pay. You'll have to do this for a while, and again every few years.

If you're not rural enough, an arrow works just fine, too! So do traps. If you use traps, you'll need to be willing to follow up with an arrow or a .22.

Pitt Maner adds:

As an alternative to the medieval "sponge" method (probably quite effective) you might want to try marking your territory with wolf urine/scent. Coyotes have invaded many areas where wolves once kept them in check.



The engineering student who did the fabrication of an air conditioner on top of his sedan is a marvel of ingenuity and individualism. Bo Keely out in the California desert might think of doing something like this. Keely built structures in the desert so he could live there, where there is no water, no electricity, no plumbing, no transportation, no telephones, no computers. The fire department could never get there in time to snuff out a blaze. The Air Force flys overhead with jet blasts and drops bombs three miles from his hole in the ground where his intimates are rattlers, insects, rats, tarantulas, scorpions.



Wyatt EarpChess master Shelby Lyman writes:

I am reminded of a much different protagonist, the lawman Wyatt Earp who famously survived many gunfights.

His adversaries usually emptied their gun or guns as rapidly as possible in his direction. Earp's modus operandi was markedly different.

Not succumbing to fear or desperation, he calmly and deliberately aimed and fired with devastating accuracy and results. Aware that the revolvers of his time were clumsy and hard to aim, he maximized his chances by emphasizing accuracy rather than speed.

The story of the gunfight reminds me of my college roommate who earned money in the summer as part of a Wild West show. It was not so much a show as it was an experience. Tourists would come to town and my roommate Matt, along with his father, brother and others, would be dressed as real cowboys in a real saloon or blacksmith shop. The whole town as supposed to be authentic (except the tourists). Staged bar fights would break out from a poker game gone bad, live cattle would be corralled. You name it; they had it.

Matt's job was as a gunfighter (same as his dad and brother). People would challenge Matt to gunfights. He would take them out on the street, face them and draw. The winner was the one who shot first (no points for accuracy when shooting blanks).

Matt and his brother made a lot of money betting people that he could beat them in a draw. He never lost. He would even give his adversary the advantage of holding the gun out in the front pointed directly at Matt. Someone would count down, 3, 2, 1, and then they would shoot at each other. All the adversary had to do was pull his trigger before Matt drew his gun and fired it. Matt never lost.

Sound's hard to believe, doesn't it? It did to me. As Matt was telling me this story in our room in the fraternity house, I told him I didn't believe him.

So Matt went and got out his revolvers. He and I both confirmed the chambers were empty. He let me pick whichever gun I wanted. He strapped on the gun belt and holstered the other one. He told me to point my gun right at him and cock the trigger back.

I didn't even need to fight the hammer when pulling the trigger, I simply needed to lightly pull the trigger and click, I would win.

Matt stood in front of me, his fingers lightly feathering his gun. He asked me how much I wanted to bet. Not being stupid (I could smell a hustle and was beginning to doubt my earlier disbelief), I decided we'd do it for fun.

He said, "I'll count to three and then we'll draw." He even did a dry run (of counting) so that I could get the cadence down. He asked me to not pull the trigger before he said 3 and I agreed.

He counted.

3, 2, 1, click.

He won.

To tell you it was a blur would be an understatement. So we repeated it again, and again, and again. He won every time.

Being a good friend, he gave me some lessons drawing a weapon.

First of all, in the movies they show guys drawing their weapons, raising them and shooting. That is all wrong. Matt would grab his gun, withdraw it from the holster while tilting it toward his adversary, and at the same time, the tip of his thumb would be pulling the hammer back and his index finger would be depressing the trigger — all of this happened simultaneously.

When the gun was level and pointed at the adversary, all he had to do was slide his thumb off the trigger (only the very tip was on it) and click, the gun would go off. The gun never left his side. He did not raise it in front of him, he simply slid it out of the holster and shot from the hip. In the old West, as Matt told me, the gunfighters actually wired their triggers back (the trigger was already pulled back), so all the had to do was pull the hammer back with the tip of their thumb and release.

He had been doing this for years, practicing for years and was a master of the quick draw. It was a real treat to watch a true master at work. And it gave me a whole new respect for what it took to be a quick draw artist in the old West.

I would have to surmise that most quick draw artist didn't have very long life expectancy in the old West. Watching Matt, I concluded that no matter how fast you were, the bullet couldn't travel fast enough to make a difference in the nanosecond between the fastest and the second fastest. They would certainly kill each other.

The only way to really win at fast draw was not to play. There is always at least one loser, and sometimes two.

I've found that sometimes in the market, people take things too seriously and feel they have to beat the other guy. They have a sense of competitiveness and ego that requires them to trounce whomever they consider their opponent. The beauty of the market is that no one necessarily has to lose. Since there is a long term positive drift of around 10%, everybody who can stomach the roller coaster ride will win. Sure, there will be bigger winners and lesser winners.

The discrepancy between the big winners and lesser winners comes from ability to exploit human nature coupled with a clear understanding of what the rules are, how the game is played, and that there are true masters out in the world that you simply can't beat, or at least can't beat often enough to make it worthwhile to step in the arena against them.

Unlike a fast draw contest or gunfight against my friend Matt, or John Wesley Hardin or Billy the Kid or Wyatt Earp, where you stand almost zero percent chance of surviving (let alone winning), when playing the market, a simple understanding of the rules and how the game is played, will allow everyone to step into the arena and come out a better and wealthier for having played. 

Ken Smith remarks:

Fast draw gunslingers in real killing events did not fire from the hip; it's done only in movies and tourist shows. You can't aim from the hip, at a vital target, a specific body part, as the heart — which is a killing event.

The best guy with a gun took aim and fired, letting the hip-ster beat him to the draw. The draw was not the critical element in the shoot out; it was the aim, the gun the shooter used, the firepower of the load; these were the critical elements.

So, next time an armed criminal draws his weapon, don't worry. Let him take a quick shot while you calmly get a firm shooting grasp of your weapon and take a stance. 



 One of the few pleasures I have in old age is traveling by automobile. We have journeyed around more than half of America, highways and byways.

We arrived at Lake Chelan without a reservation and stopped at Best Western, the nearest lakeside accommodation. The place was nearly full if the parking lot was an indicator. I inquired the rate and was told $200 plus per night. I said it was too high; is there a place around for half that, like $100?

As a senior citizen with a shaved head and no teeth my appearance must have induced empathy. She said she might be able to find an alternative. She picked up the phone and called a compatriot in town. She got us a room at a riverside inn for $105 with tax.

As we left I asked the desk clerk "what if I get there and I don't like the deal?" "If you come back I'll give you a 40% discount." She indicated her recommendation was so convincing in appeal I would not be returning.

Sure enough, the place she recommended was very suitable for $100, set by a small park, on the river bank with a walking path around the river via two bridges set a few blocks apart. Lots of trees for shade in the Eastern Washington heat.

Not only that, the small motel had been renovated with new electric outlets, plumbing and paint. The room was very small, but efficient. The place had been done with a maritime theme. The owner was a retired submarine commander.

Naval symbolism was everywhere. The restroom adjacent to the dining area was labeled "Head." Photos of subs were on the wall; a painting of the commander between two photos of his submarine. Nautical terms were used for items. Bollards and cleats were in the yard, an anchor too.

I did not feel comfortable around the commander. When talking to him his gaze was too pinpointed, too direct, almost aggressive, as if his vision was penetrating, x-raying my brain. I mentioned my work as a tankerman and he said he had seen us in his periscope.

Greg Rehmke writes:

I highly recommend Lake Chelan. I spent many summer weekends there through my twenties. Lake Chelan is 50 miles long, winding into steep hills to the small town of Stehekin, which you can get to only on foot or by boat (a long ride on the Lady of the Lake). Most of my friends in Chelan were in the apple business as the lake was long surrounded by rich green orchards. Now many more houses are scattered among remaining orchards, and in recent years, vineyards. Tsillan Cellars opened next door to my friend Steve’s place. Wapato Point is on the far side of the lake, past Chelan.

President Bush signed an act of Congress for a 99-year lease in March to allow a new development nearby in the town of Manson, on Lake Chelan. This Bureau of Indian Affairs land is apparently managed by BIA for 33 American Indians who are descendants of former Chief Moses. And of course, there is a casino nearby (Mill Bay Casino). 



From Point and Figure Charting by Thomas Dorsey:

Page 5: "A long time ago when I was a stockbroker at a major firm on Wall Street, I learned there is no Holy Grail."

Page 367: "It wasn't until 1978 that I came across the Point and Figure method of analysis purely by accident. When I learned it, I realized I had found the Holy Grail of investing."

Ken Smith remarks:

I still have a booklet published by Chartcraft in 1990, written by Michael L. Burke: Point & Figure Construction and Formations. I believe very little has changed in the basic approach since the first use of this method.

What Dorsey has done is market the method. His marketing includes seminars and workshops. He's been giving them for years and has a large following. His book is just a starter. His total program for subscribers is the meat of the method.

What makes it successful is the great number of subscribers. Chart constructions are simple to evaluate. But when an unknown large number of subscribers jump on a pattern the predictions in the pattern become self-fulfilling.



 The claims imputed by how-to book titles ought to impinge sharply enough to discourage shoppers in the how-to shelves at book stores.

It takes a long time, maybe 10 years, to learn to discriminate among titles. Discernment, that's the word.

I've found how-to books useful if they teach practical skills like wiring, plumbing, cement mixing, roofing, carpentry — all of which helped me maintain my home for the past 37 years.

These books provide a foundation for trial-and-error experiments. After a few trials most such skills develop fast. You blunder a few times, but if your brain cells are healthy you will quickly learn to do-it-yourself.

Other skills, however, like learning to write, play music, or paint a picture worthy of an art gallery — these must begin with genes, I believe.



Regarding short interest as posted by Bloomberg, has this been tested? That IWM short interest being the highest, is that an indication for buying since a squeeze is possible. How would this be tested?

Bill Rafter replies: 

We have done considerable testing of short interest data. I am on vacation and must speak anecdotally, but let me give our generalizations. The results suggested that half the time the shorts were dead right and the other half they were dead wrong. Very little middle ground. An exceptionally large SI value had no particular significance. That is, it gave no edge to the trader to pick subsequent direction.

Our research was attempting to approach the data differently from the way Phil Erlanger approaches it. Erlanger first identifies market direction, and then looks for possible short squeezes that will extend a rally to a more substantial level. Since we found no edge doing it our way, we have to conclude that until shown otherwise, Erlanger's approach was valid. We did find that it took a long time for short interest to be covered. That is, the rally durations were substantial as to both price and time. The shorts were slow to believe they were wrong. Sell-offs of stocks with high short interest tended to be less substantial as to both price and time.

One might simply conclude that drops occur fast and rallies take longer, and that the SI figures were of no significance at all. We disagree. That is, we think SI is certainly a contributing factor. It may not be a meal, but it certainly is seasoning.

We also watch and calculate some other sentiment indicators, including a price-based intra-day sentiment value. Looking at subsequent market performance with it is identical to what we learned from observing and testing SI: Sentiment indicators have an extending effect when they are wrong and a moderating effect when they are correct. 

David Wren-Hardin writes:

In this case, you have to think about what IWM is. Most of the time when people short a company, they do so because they think it isn't very good, that it should be priced lower. IWM, however, isn't a company. It's an ETF tied to the Russell 2000 index. So now you have to ask "Why would someone sell this?"

Some sellers, I'm sure, think the Russell should be lower, and happily sell IWM. But others might just be doing it as a hedge. If you wanted to hedge your Russell 2000 exposure with a basket of stocks, getting clean fills would be a nightmare, as would tracking the 1900+ individual names, most of which trade by appointment. You think it's hard to borrow IWM, try borrowing some of these tiny names. But with IWM, you can get the entire index in one shot. One can even spin a tale that if people are selling IWM against a net long exposure, that the IWM short interest is, in fact, a reflection of overall long sentiment.

The other thing to consider is that you can't look at short-interest in IWM purely in terms of percentage short vs. amount out there. An ETF is created when someone hands the trust the complete basket of stocks, getting the ETF in return. Now, IWM may be short equal to the float of all the stocks in the index, but more likely, given the basket example I used above, it's simply a pain in the rear to assemble complete baskets of stock and turn them into more ETFs. 



 Younger people lack impulse control. Some grow into adults without gaining control of their imagination and impulses. Many young are unable to foresee consequences, visualize the future, understand the possible results, see alternatives.

Too bad, this. Prisons are full of such individuals. We call them criminals because they have been convicted of breaking laws. But the label does not describe their character adequately.

I characterize a great number of this population as irrational. Meaning, they are not bad, bad youngsters but are humans with undeveloped minds, undeveloped emotions, undeveloped control systems. Many are just plain ignorant.

Stefan Jovanovich remarks:

 As a junior officer who was never the Captain's favorite, I drew the short straw for deck watches whenever we were in port in the Philippines, Hong Kong, or Japan. I was also the designated Shore Patrol officer. Later, the Navy decided that twenty months supervising the lawn crew at the base in Key West was the appropriate punishment for someone with my charm, wit and sterling character.

My lawn crews were the kids who had washed out of their training at the Fleet Sonar School. I had them until BuPers decided where to send them next. Once some of the kids learned that they could turn tricks in town for money, drugs, alcohol, and sleepovers, they passed the word on; and they became less than law-abiding citizens.

As the officer in charge of the Lawn Boys, I ended up spending a lot of time at the Monroe County Sheriff's Department and the brig. It was a terrible sad/funny experience. I have thought about those times, but before reading Ken's post had never been able to put what I thought about them into words. 



 Men and women born just after WWII are soon reaching retirement age. Interest income is important to retirees. They can't depend on volatile markets. They require something fixed, sure, a financial instrument that keeps food on the table, will pay the doctor, dentist, pharmacist, and funeral director.

There is more on the Fed's table than inflation and unemployment and corporate profits. Financial institutions and insurance companies for instance will be looking for yields that accommodate these needs.

Long bonds support fixed income; these yields must not fall if the future of retired voters are to be accommodated. A yield of 5%, in my experience, is insufficient to cover present inflation. How are retirees going to make out? The Fed is not independent from political and cultural forces. They will create a favorable situation for baby boomers. How does that affect stocks?

Stefan Jovanovich replies:

The first retirees in history were the merchants, schoolteachers, ministers, army and navy officers and imperial civil servants who lived into old age in the last third of the 19th century in the United Kingdom. They were the customers for the annuities that British insurance companies began selling in large numbers; they were also the audience for Gilbert and Sullivan.

The insurance companies looked to the bonds issued by the governments, railroads and utilities of the U.K. and the imperial territories, principally India. The recent anxieties about new home sales and re-sales and Congress's eagerness to "fix" the mortgage market suggest that the funding for the promises sold to American retirees is more likely to come from mortgages than bonds.

This does not answer Ken's question, but it may dampen some of the enthusiasm for finding in Great Britain's recent history the analog for America's predicted imperial decline.



 The US is short by about 20,000 tractor-trailer drivers. I have a Class B license for my International dump truck with air brakes. Class A is much tougher to get and keep. Many drivers have too many fines, and trucking companies, for insurance reasons, will not hire those with a bad record. Fewer drivers will restrict supply, thus higher prices on trucked goods.

Ken Smith replies:

My brother died of truck driving. He owned two sleeping cab tractors, one 40' flatbed trailer, and two 40' boxes. He slept in the cab of his favorite tractor, urinated in a bottle, ate greasy food, smoked two packs a day to pass the lonely time away. He got home infrequently for sex and when he did, found someone else had already been there. Spouses of truckers are like spouses of sailors, soldiers, and traveling salesmen. Most of the money he made went to keep his equipment going.

Drivers are sometimes found dead behind the wheel of a big rig that has turned over in a ditch at the side of the road after tearing up a lot of dirt and ditch. Drivers stay behind the wheel long hours, keep two sets of books, one set for the inspectors and one set for real travel time that they get paid for. They are paid by the miles they drive. In the old Soviet Union, officials would move unemployed autoworkers into truck driving.

Drivers don't make a nickel sitting empty in a truckstop parking lot. When you own your own equipment the job is better but still a hassle waiting for a dispatcher to give you a load or a half load. I don't doubt there is a shortage of qualified drivers — if they can get something else they will; except for guys and dolls addicted to that lifestyle, as traders are addicted to what they do.



 The local natural gas company installed a new pipeline in the street I live on. All driveways off the street were destroyed and replaced with asphalt after the pipe was laid.

Today a crew is out there on the street removing the asphalt and preparing to lay concrete where the former concrete had been in place.

The crew knows what its doing. They have a Plan. Obviously they have done this many times and have every phase down perfectly; execution of the details goes without a hitch. When they finish a segment of the Plan one sees the product as a work of art, a work of perfection. Skilled workmen with a Plan.

From watching the crew work I return to my computer to see what markets are doing. I am struck by what I see, realizing there is no Plan visible on my screen.

The crew working outside arrives early in the morning and begins executing the Plan knowing every detail of the Plan from step to step. They complete one step, which logically leads into the next step. The Plan is laid out in their minds as step one, step two, step three, and so on. They are never at a loss as to what to do next.

When I look at the possible trades appearing on my screen all that's visible is step one. The subsequent steps are known, but in contrast to what the crew is doing in the street out front, these steps are variable. The crew laying the new cement does not have variables.

At the end of the day the cement crew will have a paycheck. At the end of the day I will have probabilities.



 I believe in trends. They seem ubiquitous; how can they be ignored as if nonexistent?

There are trends in skirt length for women of fashion. The shortest lengths are the hottest trends. The longer lengths with slow curves attract different investors, long-term thinkers, which many women prefer, and trendy lookers too.

There are trading trends, for technicals for instance. At times John Bollinger's Bands are the trend, then Larry Williams's %R gets trendy, then point and figure become the rage.

News becomes the trend. Everyone gets on the news bandwagon, then news fades away to be replaced by math wizards, computer wizards, and fortune tellers who look into the guts of technology for signs of trends.

There's always a trend. Trends never go away, they just fade away, dematerialize, then surface in different forms. One can always find a trend.



There is still an enormous number of subprime and stated income loan programs available for people with low credit scores and few assets. Only the programs for the most marginal borrowers have been taken from the market. And new creative programs have been introduced to fill the temporary void at startling speed. It has truly been a marvel to behold.

Far from being the contagion I was expecting, the mortgage markets and residential real estate markets have not only absorbed this shock but are exhibiting signs of even greater confidence and liquidity now that the underlying concerns about fraud and irrational underwriting in the mortgage markets and loose appraisals of collateral have been acknowledged.

There will still be more headlines but those unscrupulous players not already knocked out are quickly being isolated from participating by the mbs markets. Underwriting to exact specifications for each loan program has returned following the sloppy underwriting that was at the heart of the real problem in the mbs market.

This tension release and resulting rapid tightening up of the industry appears to have worked amazingly well and amazingly quickly.

Charles Sorkin writes: 

Just throwing this notion out there, but is it accurate to say that "home-ownership for all Americans" is a stable economic regime? For instance, jobs for all Americans (i.e. 0% unemployment) is widely considered unstable, and would lead to sporadic regional labor shortages and is associated with inflation pressure.

Is there a NAIRH (non accelerating instability rate of homeownership) associated with the American economy, much like the much-debated NAIRU concept?

An insightful reference to housing stock, homeownership, and the means of financing it, are referenced in Paul McCulley's monthly commentary on the Pimco website.

Ken Smith writes: 

The next step in America will be to follow Britian which in the period 1979 through 1997 converted municipal housing to ownership housing. Well over a million former tenants became homeowners.

This was the era of privatization. In 1979 British government institutions owned much or all of coal, steel, gas, electricity, water, railways, airlines, telecommunications, nuclear power and shipbuilding, and had a significant stake in oil, banking, shipping and road haulage.

The agencies responsible for these changes were called Next Step Agencies. So the next step in America is conversion of municipal housing to private ownership by individuals or corporations.

The Bush Administration has voiced, many times, the goal of home ownership for all Americans. It appears the goal is to implement this program without regard to ability to pay. I can see a way to profit from this. Get the loan without ability to pay, peddle the property for an appreciated value, pay off the loan and keep the difference. Do another flip, and another.

So what happens when everything falls apart? When jobs are lost, as in Illinois, Ohio, and other hard hit states? Nothing bad happens. Since anyone can get a property without income then anyone can pay up for the property being flipped. So another person steps in, without income, to purchase property that has been appreciated by an appraiser willing to be part of the game, for compensation, of course.

Is this magical thinking? Is this reason? Is this logic? Is this traditional? Is this paradise? Is this the new economy? Is this a bubble?



 I don't play golf. Occasionally I watch golf on TV, just to admire the landscape at Augusta or Pebble Beach, or to catch a dramatic last-round showdown. And I know the big names: Tiger, Ernie, Vijay, Phil. And even Retief. And the older guys such as Freddie and Davis and Ian. And, of course, Arnie and Jack.

But I'd never heard of Troy Matteson. He finished tied for 84th at the Masters this last week. He's ranked 83rd in the world right now, according to the PGA site. Take a random survey and ask people who Troy Matteson is. Take a survey of people who actually play golf and ask them who Troy Matteson is.

Who is Troy? He is a young man from Rockledge, FL, who went pro in 2003, at the tender age of 23. And Troy has made about $2.8 million playing golf since then.

Ever heard of Kenny Perry? He's # 113 in the world right now. Steve Stricker? He's # 41 in the world and tied for 77th at the Masters. Dudley Hart (# 224)? Eric Axley (# 232)? Chris Riley (# 369)? No? What about lowly Len Mattiace who is # 997 in the rankings?

Don't feel sorry for Len. Here are some stats:

Rank / Player /     Year Pro / Approx Lifetime Earn
# 41 Steve Stricker     1990   $11.1M
# 83 Troy Matteson     2003   $ 2.8M
#133 Kenny Perry       1982   $20.5M
#224 Dudley Hart       1990   $10.2M
#232 Eric Axley          1997    $ 1.5M
#369 Chris Riley         1996    $ 8.6M
#997 Len Mattiace      1990    $ 6.7M

You don't have to be the best. You don't have to be famous. Just being good, and being persistent, can really pay off in the long run. 

Steve Leslie writes: 

Disclaimer: I am not an attorney nor claim to know much about contracts or labor law. I leave this up to my friends who are. However I do know a bit about the various sports and I have known more than a few professional golfers who have played on the PGA tour.

Golfers are independent contractors and do not receive a salary nor guaranteed paydays. Therefore whatever they win in tournaments is theirs minus personal expenses such as travel, food and caddie fees which can be 7-10% of the check.

They are free to play in corporate events and other events get paid for public speaking and can be paid appearance fees in other tournaments around the world. The PGA does not allow money to be paid for appearances in domestic tournaments. In essence, they are their own entity and their own corporations, therefore the elite players own their own planes and helicopters and use them to travel to such events.

They also have to have a touring card that can be acquired in a variety of ways.

They can go to the qualifying school that is held once a year and has different stages of qualifying. The final q-school is a six-day tournament and the top 30 qualifiers and ties get a PGA card for the year. They can finish in the top money earnings from other tours such as the nationwide tour and foreign tours.

They keep their card if they win a tournament or have won past major tournaments or finish in the top 125 money earners from the previous year.

They can receive medical exemptions to play on the tour and there are sponsor exemptions that allow a player to play in a tournament with the sponsor's blessings. Michelle Wie has taken advantage of this allowance.

Certain events such as invitationals which include The Masters, gives the event organizer latitude to establish their own criteria as to whom and how many they may invite. The Masters has the smallest field of any of the 4 majors, currently 90. They have a tradition that anyone who has ever won the Masters is invited to return for life, however they actively discourage those who are no longer competitive from returning to play.

Other tournaments such as the U.S. Open and the British Open have separate qualifying pre-tournaments and criteria that players must meet. The most difficult aspect of the PGA tour is getting a card, then keeping it.

Of the 4 major sports, there are major differences in the contracts and in the collective bargaining agreements that coincide with the sports.

Baseball has guaranteed contracts and a soft salary cap. There is a luxury tax imposed on the teams who spend over the cap. In a year, there will be approximately 750 players in "The Show" at any one time. The minimum salary is $380,000 and the average salary is $2.6 million. Alex Rodriguez has a 10-year $252 Million dollar contract. I read that his agent Scott Boras wanted to include in the contract that he would always have to be the highest paid shortstop in the game. The problem with that language would have been if Derek Jeter had that same clause in his contract then the contracts would escalate to infinity. They also can go to arbitration for disputes.

Football has signing bonuses that are guaranteed. But except for quarterbacks there aren't guaranteed contracts. Peyton Manning and Donovan McNabb have $100 Million guaranteed contracts. Thus an injury can eliminate the earnings potential of a player permanently. There also is a hard salary cap. I remember a statistic that the average lifespan of a running back in the NFL is less than 2 years. Thus Emmett Smith and Ladanian Thomlinson are dramatic exceptions to the rule. Ricky Williams is currently being sued by the Miami Dolphins for his signing bonus because he retired from the game and they want a pro-rata share of the signing money back. Approximately 1500 players are on rosters for a football season. The minimum salary is $260,000.

Basketball has guaranteed contracts and only 360 players. They have maximum salary contracts at $400,000 for rookies and a sliding scale for years of service. Shaquille O'Neal makes well in excess of $25 million per year. Other huge contracts are Kevin Garnett and Kobe Bryant's.

Hockey has suffered the most, especially after the 2004-2005 lockout year. They essentially caved in and gave the owners tremendous leeway. The minimum salaries are $450,000 and the maximum is $7.8 Million. Because the revenue of hockey is far less than that of the other sports their salary cap is the lowest of the major sports. They also have 750 players in the league at any one time.

Ken Smith writes:

The observations on a sport where being in the sport is enough in itself to guarantee superior money returns, without any necessity to be a top performer, is an important story.

Golf is characterized by players who travel to events around the globe to compete for prizes. And just to be part of an elite group of golfers is enough to guarantee winnings that put the golfer in an earnings class way above the average American.

Professional golfers are doing what they enjoy most, playing with a stick and a little ball, getting their exercise on lavish green turfs maintained by establishments at no cost to themselves. Sports in general are like that. Players at the bottom of the status list bring home earnings superior to the average worker or professional in America or Europe.

Alston summed his view by writing:

"You don't have to be the best. You don't have to be famous. Just being good, and being persistent, can really pay off in the long run."

That observation should be encouraging to traders who are not pulling down headline bonuses and profits. Making a living is enough, in the final picture, if passion for this game is your raison d'etre.

Victor Niederhoffer notes: 

I started out with about 10,000 under management.



 Errors are rewarded in strange fashions, ways which are abnormal and thus unperceived by individuals with normal perceptions; meaning a right-minded person does not expect strange types of reinforcements to be in the mix of rewards.

One instance of strange reward I know of is referred to in some circles as a drive for self-destruction. Normal individuals perceiving an individual persisting in error that is harmful will not catch on that the error is accomplishing a reward, that reward being harm, and harm not generally acknowledged as a reward.

The hawkers of doom who get paid for their opinion to be persistently gloomy are being rewarded by an audience who appreciate the darkness. These readers return again and again to renew subscriptions with enthusiasm and this rewards the hawkers. In brief, doom hawkers speak to an audience of believers.

Stefan Jovanovich writes: 

Marshall McLuhan's theory was that the advertisements in the newspaper were the "good" news; the "doom" was the necessary bad news that allowed the ads to stand out. I suspect that, if McLuhan were alive today, he would stand by his theory but point to Google instead. The news is usually gloomy but the paid search ads promise wealth, happiness and good looks all for the low, low price of $xx.99. McLuhan would probably also suggest that the relative decline of newspapers' ad revenues compared to their Internet competitors was an indication of the fact that "good" news these days was more about price and less about image -just as it had been in newspapers' heyday (1870-1925).

Victor Niederhoffer adds: 

A correspondent from Canada writes to me that the move today in oil up and down in the five minutes after the Ahmadinejad awarding of the medal, lead him to query ways of generally profiting from such false and ephemeral signals.

I immediately thought of the many times that it looked like a vivid event that had been associated with the tremendous market decline might be occurring again, and the many opportunities that provided. Indeed, I have a confession. During the summer there was a time that I was short a line of stocks. And a former Yankee pitcher played too near an apartment building. The rest of the story is too sad to tell. However, all parents should play "a boy stood near a railroad track" for their kids.

But this method must be generalized. It only happens about five times a year, and the 50 or so points you'll make from it each year must be counterbalanced against the expert sage Mohammed's view that big risks are not properly priced so that the one time you lose, let's say in 10 years, it will be more than 500 points.

Here's one attempt. I wonder if there is a very big list out there in cyberspace of people who like to read about scandals and failings among liberals, and negativity. Much of the economic news on such a list I would presume is planted. I would assume that the source might not be an overly reliable in informant or forecaster for various reasons. These include the lack of evidence of forecasting ability of the planters, their temptation to feather their own nest (except for their high moral turpitude and altruism and the checks and balances that the receivers and transmitters of such info must have), the anonymity of the source, and their insulation from the consequences of good or bad calls.

I would speculate that such economic news would tend to lead to ephemeral moves that are copperful to the caned when directed south. Such would happen, I would speculate, much more often than 10 times a year.

However, one seeks to generalize on this subject. We all know such people. Why can some people be wrong so often and yet maintain a following? We all know such people, the financial weekly news columnist for example is one icon in this regard. The economist who is always bearish in public but even more bearish in his private briefings is another. The technician who always sells the lows and buys the highs is another. The person who writes a book that's very persuasive and then starts a fund and loses hundreds for his clients but then rises up again and again like the Phoenix in another context. A consultant is another (doubtless many of my enemies will use this opportunity to say this about me). The self-indulgent authoritarian chief executive with a terrible management philosophy who hangs on and on is another.

Still another is the old eminence Arcadian who hasn't changed his views about anything and wants to do things the same way as the past and who eschews modernity like Chair Volcker (who, when I saw him in 2004, told me he sees no need for modern things like tape recorders).

I have written on Delphic forecasts. A condition for these people to hang on is often the couching of their statements in fuzzy irrefutable terms. That would apply to most of the ones I know.

But also, the ability to retaliate with force when their views are found to be falsified. This would apply to the Jonestown type error person as well as to the adviser who will sue you if you say anything about their record.

I would add that in the cases where the errorful have good motives their inabilities seem to be inordinately associated with a lack of education. They tend to be unaware of current scholarly work in their field, but hide behind a veneer of pseudo scientific talk as described by Marin Gardner and exemplified by Velikofsky, et al.

I'd be interested in augmentations, even example of why errors persist so that we can try to reduce the hard and persistence of same.

Jim Sogi adds: 

It is gratifying to disparage our opponents, however, even as we dismiss the turtles or news oriented lists, breakouts/breakdowns which have not worked for years seem to be occurring more and more as ranges widen again. The market seems "newsie" moving on Fed news, oil news, war news, and economic announcements. Contempt can breed complacency. 

From J.T. Holley:

Two things stick out for me: the lack of recognition of change, and laziness. The pack, herd, society, for the most part, don't like change. They would rather hang themselves and repeatedly take the easy way out than utilize anything remotely scientific that requires blood, sweat, and toil.

Miller's Willy Loman is a wonderful example of this. He would rather stick to his old sales ways than change like the young guns. Get rich quick schemes involving his son show this as well by Miller. Even in the end, Willy tries to leave more for his family by suicide but fails. This was laziness and lack of effort involving changing his ways.

I don't know. My PaPa told me on his deathbed to embrace change. It was like they were the most important words to me than anything else he had taught me up to that point. From that moment on I have always seen that as a sign of success in others, their willingness to be flexible and bend.

The persistence of errors-types would rather die in all forms than change! They'll take their hardheaded ways to the grave. This is laziness. Why else would someone be willing to succumb to such? How could you face the truth dead in the eye and not change? Denial must have its talons deep within people of this nature.

Once a charismatic type possesses both persistence of error disease and gathers a congregation it becomes lethal and the flock thrives.

Guys like us who are individuals, hardworking, non-altruistic, and embrace change, don't have big congregations! We just have empathy to fire us up occasionally.

Abe Dunkelheit writes: 

The errors persist because, psychologically, there is no alternative. One could go on and on, but everything would come back to the same basic thing: the impossibility of living without repression.

"[M]an is the more normal, healthy and happy the more he can … successfully … repress, displace, deny, rationalize, dramatize himself and deceive others." [Otto Rank]

The whole dilemma is perfectly elucidated in the Pulitzer Price winning book The Denial of Death, by Ernest Becker. But I am not sure if one should want to know too much about it.

When we say neurosis represents the truth of life we mean that life is an overwhelming problem for an animal free of instincts. The individual has to protect himself against the world, and he can do this only as any other animal would: by narrowing down the world, shutting off experience, developing an obliviousness [to facts] to the terrors of the world and to his own anxieties. Otherwise he would be crippled for action. (p. 178) 



One has to hand it to the market mistress in that Friday was totally disruptive, going below the low of the week at 1418.5 and above the high of the week at 1440 and ending just unchanged.

One could write a book about that one day in the life of the market. The last chapter would be, "It Ended Unchanged." There are so many reasons that the mistress loves it when the market is unchanged, but most of them have to do with homeostasis. When the market moves too much from close to close it causes disruption. Institutions must be adjusted; some floor traders and their ilk, who reverse every excess, might actually lose for a day. Moreover, the ideas that have the world in their grip, i.e., agrarian reform, and return to nature, envy, and egalitarianism, might suffer a temporary upheaval.

Of course all this must be quantified with respect to Friday, March 30, 2007, moves of this nature, and what that portends for the future. The market mistress can't do the same thing too often or else the public might not do the wrong thing as much as is necessary to absorb the expenses of the massive infrastructure.

Ken Smith writes: 

Ordinarily I am not a news watcher. I ignore headlines. But this past week I did notice the Bloomberg page, the subheads where the sez and talking heads reveal their market engineering.

Every day during the period Vic mentions the news there were different warnings and different sez's. One day there were positive scams and the next day negative scams. One only needs to understand every sez is a scam and the mystery of why in one day the world is upside down is solved.

Victor Niederhoffer adds: 

Indeed, one notes that a Friday high and Friday low, both at extremes for the week, has happened only seven times since 1999. The last happened on April 7, 2006, with the last five occurrences being relatively non-predicitive but with very high standard deviations of future change relative to the norm. 

Robert Ray adds:

There are moments when one feels free from one's own identification with human limitations and inadequacies. At such moments one imagines that one stands on some spot of a small planet, gazing in amazement at the cold yet profoundly moving beauty of the eternal, the unfathomable; life and death flow into one, and there is neither evolution nor destiny; only Being. — Albert Einstein 

Victor Niederhoffer replies:

A beautiful quote. Einstein felt the same way about the mysteries of blindfolded checker and chess play. Brings to mind Pillsbury's playing 20 games of checkers and 20 of chess simultaneously, with his back to the boards, while engaging in a game of ping pong and carrying on repartee with the spectators. 



 The market's repertoire of rhythms extends past human grasp. Sometimes it seems to make no sense at all, at least to me.

Sometimes, things seem to become clear. Just as in Afro-Cuban music, a strong voice - the "mother drum" in bata - dominates the counter rhythms of the smaller drums, sometimes the Fed's announcements dominate the backdrop of lesser voices — Chinese monetary authorities, fixed-systems followers, and what have you.

Earnings season has a peculiar rhythm. But it's ever-changing, based on which companies are strongest at the time.

One quality the market shares with music, good music, anyway, is "always the surprise." Bach, Mozart, Beethoven were all masters of deception and expert at weaving rhythms across bars. Beethoven's sforzandi, unexpected sharp accents, and sudden pianissimos, will be appreciated by all traders.

Back in the '90s, when I was the editor for the stock coverage, a humorous bond reporter at Bloomberg had a saying when stocks had yet another amazing jump: "Stocks ONLY GO UP," he would say, rolling his eyes knowingly, meaning just the opposite. No good musician plays loud all the time.

Victor writes: 

I am thinking of ways to quantify the rhythms of markets. Instead of looking at what others do, critiquing it, and then augmenting, I thought I'd just take a crack at thinking of it my own way.

Music rhythms would seem to be a good starting point. The rhythms that kids are taught are those they can step or clap or slap to. They can be fast or slow to start with. And I would look to see if the number of moves in a minute is fast or slow and how this changes. The slapping would involve moves from separate markets occurring in the same time period. When we step, the first step is the accented one and that's a good way to look at moves within a period. Is it the first step that's always the biggest, and what happens when the second or third step in a period is the biggest?

I would look next at the rhythms of big moves. They obviously are reversing now, with some big Tuesdays: February 27, -58; March 8, +22; March 13, -28; and March 20, +8. Naturally this kind of stuff isn't predictive in general or else it would come out in the standard time series programs. But on occasion, it comes back and forth to an inordinate degree and the question becomes how to find it.

Animals often migrate at the same time of year to the same places even when transported geographically. One wonders if the migrations of markets after big moves have a fixed place in the price firmament that they go back to. Or is it just in time, like the conventional seasonal stuff that one can expect from the migration? Last year, prices went way down in May and migrated back the last part of the year. This year the migration started in February. The month ended with the three old bags ("a woman her age would never show her posterior to a camera") acting in concert with the rhythmic release of the perennially bearish message from the Sage.

The rhythms of political announcements always seem to follow a circular path. They start with a loose cannon doing something that hits into something else. Then others join the act. One typical sequence involves worry about inflation, based of course on a preview of an upcoming release, then the release of the number, then the big bond fund guy saying he's bearish, then the perma-bears finding other inflationary things, then the opportunistic movement in certain nations that benefit from this or that energy price, and finally the rhythm ending with the release of the next number, or the quieting influence of an open market meeting.

has some great diagrams of rhythms in the body. And the body has different rhythms that it responds to as molecules bounce into each other and create disturbances throughout other more complex molecules, thus upsetting the usual homeostatic methods. One market makes a big move, perhaps silver, and it spills over into others in a rhythmic sequence, perhaps an up in energy, and then a decline in stocks. It's not over until the initiating market has its move back down as was the actual case with the recent bloodbath and recovery, which seemed to have the elements of rhythm of all the ones I mentioned.

Of course, the rhythms have to be combined with the melodies. The speed of the moves has to be counted with the steps between those moves, sometimes big and sometimes small. And I like the way they quantify melodies in the Joy of Music and in the statistical studies of music intervals that have so much resonance with markets.

A more humdrum approach to rhythms, which I take, is to look at the rhythms of patterns. How often do the 3-day moves with their eight possible directions: —, –+, -+-, -++, +++, ++-, +-+, + — repeat? Is it a first order Markov process vis-a-vis these eight patterns, and what is the correlation between the closeness of each of the last three moves to these three patterns, and future moves? I recently ran some rhythm stuff with open, open to close, and open, and found some ministerial randomness with t's all below one, but enough evidence of non-randomness to get me thinking about rhythms on the whole.

I know enough about rhythms to know that they feel like the basic rhythms come from within the body, like the beating of the heart, and they can model it with rhythms based on the mathematics of African rhythms. Whatever quantifications they are making in bringing African rhymes and Latin rhythms into the heart beat problem would seem to be a natural for extension into the market.

I am fortunate to know someone with perfect rhythm and she is the coeditor of this column and I am going to ask her how she would try to trade in the market if she knew nothing else but markets. Perhaps other musicians with perfect rhythm might have similar expert opinions as to where market moves would be going based on their knowledge and oneness with rhythms in markets. Certainly these experts would be more prone to give good calls than the eminent people who have passed the tests of the mystical societies of America that are licensed to forecast the market.

The market's open now, and I haven't read any of the dozens of books I have on rhythms lately, but after I do and study it on the Net, perhaps I'll have some other ideas. For sure, my colleagues will be able to augment my preliminary fast ideas on this and guide others and me in proper directions.

George Zachar comments:

Perhaps other musicians with perfect rhythm might have similar expert opinions as to where market moves would be going based on their knowledge and oneness with rhythms in markets. Certainly these experts would be more prone to give good calls…

An interesting way to test this would be to submit representations of various tradeables in various time increments to musical prodigies who are naive about markets. I am thinking particularly of junior and senior high school students, who could have sufficient musical training and experience, without having been exposed to what passes for financial and economic wisdom in the popular press. 

Ken Smith writes:

In harmony with Victor's piece on music, rhythm, I attempted to write a melody with three notes. I am having difficulty conveying this little ditty because the note symbols for music are not available in email text messages.

I've tried before to get symbols to end up as they were written when they appear after I've sent them. Somewhere in the Internet circle symbols sent in email get warped, become hijra. Meanings are thus distorted.

So maybe someone can help here. The musical symbols for this simple melody would be symbols for the Dollar, Mark, and Yen, just three notes.

Create a melody using these notes - they are real notes, after all. Then choreograph a dance for the melody. Add lyrics. Create permutations and program computers to trade dollar, mark, yen - according to the melody.

"A salient feature of markets is temptation." (Syncreticus)

Todd Tracy writes:

Everyday I am inspired by the list and become more humble. In the business of music I had done well being rather sure of myself. That confidence came about from having practiced hours daily for 20 years. And even then I had much to learn. Afro-Cuban percussion was one of those things I knew nothing about until the day that my roommate brought home four percussionists. I didn't know at the time that they would be living and practicing in my living room for two years. And yes, they had many percussionist friends. The neighbors didn't seem to mind. They played all day, ten drummers strong, and then went on to their gigs at night.

One guy, Jacques, studied African rhythms. His guru was Babinga. Another guy, Blake, studied Cuban fusion. His guru was Giovanni Hidalgo. Davey was into Indian drums, Egyptian bells, and all sorts of experimental world music. Josh was a well-rounded guy who did it all. Their friends were mostly jazz funk kit players.

At any rate, I was doing 80 hours a week at the record company but on occasion they would let me sit in with them during rehearsals. When it came to the Congolese and Senegalese rhythms I had to learn to play the pattern given to me and not concentrate on the patterns the other guys were playing. The African stuff doesn't resolve like western music. Each part is simple; the complexity comes from the layering. Euro rhythms resolve every measure. Four beats to a measure at tempos ranging from 60-130 beats per minute. The African stuff would resolve many measures out, like ten equivalent western measures. It felt as though it was random until, with incredible anticipation, the resolution was at hand.

The Latin stuff was different in that the Cubans, Haitians, and Puerto Ricans had fused the African rhythms with western melodies. The most important part to the rhythm was the clave (wooden sticks that ring out when struck). The clave would be a simplified version of the rhythm. Then came the congas. They would play a rhythm called a Tumbao. Again, you had to concentrate on your part but synchronicity was achieved and resolved after just a couple of measures.

I was completely humbled by all that I did not know. But soon, through repetition, I found I had a whole new arsenal. These guys would play until their hands bled every day as they developed the incredible muscle memory needed to counter western rhythmic intuition.

Now the straight up rap beats are simple in that they are looped (kind of like rock music). But it is the anticipation of that resolution that concerns us with the market rhythms. In hip-hop the kick is on the one and the three; the snare is on the Two and the Four. The snares are played late to increase the anticipation. This lateness is the most important part, in fact, so important that rap artists actually consider the two and the four as the one and the three.

All of the rhythms resolve. There are problems in programming the beats in that there is a finite number of places to put each beat within a measure (460 ticks per beat) and the velocity of each beat is set at a value 1-127. We can, however, increase the resolution by doubling the BPM and by fine-tuning these anticipations and resolutions. I am studying the Quantlet Booklets so that I could one day break down the market rhythms as is being shown to me by the list members through the graciousness of Victor and Laurel's benevolence.

As far as what I think the S&P index will do from a musician's perspective is resolving to 1450 after channeling a bit more.

Laurence Glazier writes:

It is very tempting to apply my knowledge of music in selecting trades, though I like to follow grounded mathematical principles at this stage. I would note that much of what we consider the theory of music was derived by the posthumous analysis of the works of the one and only JS Bach (the Moses of music?), which like much technical analysis is seductive but not necessarily predictive. I work on the principle that part of this analysis represents laws of musical reality empirically testable, but not in the normal way. As Leschetitsky said, "Where words end, music begins."

Of the technical analysts of music, Schenker is particularly interesting, while those who have enjoyed "The Glen Miller Story" may have observed the appearance of another significant analyst, Schillinger.

Having said that, I believe the analogies with market rhythms, while not necessarily predictive, would be very valuable as part of a real-time virtual reality program reflecting the current state of play in the markets, and pose the question whether users of such a system would do better if they were more musical.

Victor Niederhoffer adds:

There is something rhythmic in the moves of bonds and stocks together, over and above the comparative rates of return that the Duo and Dodger have quantified. And it's like the monkey rope that Melville describes, where when one goes down and the other has to follow. But there is much thrashing around as the turbulence from the whales temporarily overrides the inextricable bond.

And in that context the bonds, after setting a 19-day low at 11,202, are still up 2/3 of a point or about 1/2% on the year. And the stocks, after setting a 19-day high at 1445, are up about 1/2% on the year. Regardless of that it's what I used to call an ugly day and the rhythm is very bad for both when a big decline in one occurs in conjunction with a big rise in the other. Something has to give, and as Berlioz would say in reviewing Beethoven, you know it's going to return.

George Criparocos writes:

The two days preceding the big note (02.27, the resonant, memorable one) had the bonds making a rhythmic intro analogous to what is expected when the largest instrument of all, the bass, announces a change in melody.

Since then, the contrabass, cellos, and violas (10s, 5s, 2s) are keeping the resonance, while the bass returns. The clarinet (Yen) is hanging around its 200MA set like a rope, refusing to let go of the anticipation and the piano (stocks) are all over the pentagram, in 1/16th intervals: four days low, four days high, four days flat, four days high.

The rhythm seems to be analogous to a symphony, lets say in F major. The allegro is in progress and I anticipate that the andante should follow in a molto mosso way.

James Sogi adds:

Todd's analysis of African rhythms resolving over eight or 12 bars or multiples rather than the simplistic four beat 16 bar square "rock" structure is right on the beat.

One of the most basic rhythms popular in the blues is called the shuffle. It is a short-long, short-long, short-long, similar to the heartbeat or train on the track, da-dum, da-dum, da-dum. This basic rhythm underlies many more complex patterns.

Applied to the market after a small beat, there the long bar, the "shuffle." The count often does not capture the rhythm, just as European musical notation does not carry information relative to rhythm. That is an odd omission. A shuffle might be notated as straight quarter notes, but played as doted quarter and eighth note sequence and designated as a shuffle, all the musicians know right away what it means.

The rhythm can get behind the pocket, giving a laid back feeling, like the end of last week. Or the rhythm can get ahead of the beat, like disco, like last month's drop.

The middle of the pocket of the beat is the march's oom-pah, oom-pah, even beats. The rhythms will swing from behind the "pocket" and give the music different feels. This is very difficult to quantify because the interaction of the multiple players is complex and the "feel" is a subtle thing to capture. Musicians know this.

To capture this in the market is a difficult matter. The main difficulty is the time structure. A structure stretched out over weeks is difficult to feel for human rhythmic sense as our rhythm is based on the heart and walking, and resides in the feet and heart and head motions. So it's hard to feel the market rhythm without condensing the time and looking at the numbers or speeding it up on a replay as an interesting exercise.

Russ Sears writes:

To Be With Me
by Russ Sears

Chic chic ca dee!
The Bluebird on our clothes line sings to me.
Come home, come home,
To be, to be,
 to be with me.

Kar Reeee! Kar Reeee!
The Bluejay mocks the hawk in perfect key
Go! Clear! Go! Clear!
Not free, not free,
No meal is free!

Tit tit ra lee!
The glorious Lark boost for all to see
Stay back, Stay back,
Match me, match me
You cant match me.

From Vincent Andres:

I am thinking of ways to "quantify" the rhythms of markets.

I didn't test it yet (will probably do so sooner or later) but the already known track of Hurst/Hölder/ exponents seem to me to be a possibly good piece of measurement.

Another possible tool could be wavelets.

Also, I recently came across a paper melting wavelets + Hölder curves : L'analyse par ondelettes, in Science, Vol.119 Sept. 1987. Yves Meyer, S. Jaffard, Olivier Rioul. The paper is in French. Very certainly progress have been made since this paper was published.




 The Derivatives Expert writes:

I just had to withdraw a piece from publication. The copy editor wanted to "improve" the sentences. I pulled it out immediately upon hearing claims that she represented the "general public," with the assumption that she knew what the "general public" needed ? not realizing that she was talking to an empiricist who despises impressions (based on anecdotal evidence) and pompously stated superstitions. There is an expert problem with copy editors particularly when they are self-appointed representatives of the "general public." ("Advice" from book editors reminds me of Warren Buffet's comment about people in limos taking stock tips from people who ride the subway). Fooled by Randomness was not copy edited (with close to 200 typos in the hardcover edition). My next book will not be edited. An edited text is fake. Really fake. It is as shameful as ghostwriting [read more].

One doesn't have to believe in the black swan and the man behind the curtain to find the Expert's website, as messy as it is, dare I say, entertaining. OK, I admit I have been reading it. The text in French and his translation of Plato's passage on apology are highly entertaining. I was very critical of his book, yet he somehow manages to entertain me even despite all his scientific flaws.

I respect a guy who appreciates the writings of Voltaire. Voltaire's Histoire d'un Bon Bramin and Madame du Chatelet's Discours Sur le Bonheur are two well-chosen works, and I have to agree with the expert's recommendations. And I find his ramblings on Socrates and on Greek and French literature more enlightening than his stock market remarks.

Elsewhere on his website, he talks about how book reviewers hurt writers' feelings with bad reviews. I hope I didn't hurt his feelings with my bad rating of his book, but unfortunately I still hold that the book was scientifically flawed and can lead to vast losses in practical, day to day, humdrum trading.

That said, I would highly recommend his website.

Ken Smith adds:

HedgeFundGuy, writing on Mahalanobis, says the Expert "thinks his genius must be unedited and unrefereed."

But poetry need not be submitted to an editor. If edited it would not be an original poem. We do not expect a painting to be changed by an editor. Would a famous expressionist painting be authentic if it were edited? Would an Ayn Rand character submit to editing? 



Former Broker Tells Cautionary Tale About Criminal Past, by Brooke Southall, March 5, 2007

SAN FRANCISCO — A former bad apple held the crowd captive at the Investment Management Consultants Association conference here last week.

Patrick J. Kuhse, a former stock broker and supervisor at Planner Independent Management in San Diego, riveted the IMCA faithful with tales of defrauding clients and paying his debt to society in penitentiaries and a Costa Rican "dungeon."

"Everybody in [prison] looked like people in this room," Mr. Kuhse said. "That startled me."

In 1972 a high level director of parole and probation in my state asked me to give a talk before a large audience of police and justice-type folk. I've forgotten my text, but do remember I said the very same words as Mr. Kuhse said to his audience. That is, "Everybody in prison looks just like everyone in this audience." They laughed in disbelief, as if physiognomic comparisons could not be made.

They had a belief that people who don't like the laws that have been made, and so violate those laws, are in some way distinguishable by appearance.

Marion Dreyfus adds:

Robert Mitchum spent some time in the clink for possession and use of controlled substances. When asked later by a reporter what it was like in prison, he deadpanned, "Like Palm Beach, but without all the riff-raff."

Michael Olds writes:

I hope Ken will forgive me if I suggest that the phenomena he and the others mention here is somewhat more complex than the simple bias he suggests.

First of all the humor/shock expressed by the statement that everyone in the room looks like a criminal is more than likely a reaction to self-recognition; virtually everyone here today is a criminal or thinks that something that they are doing is criminal behavior for which they have not yet been caught.

Do I need to make a list?

Workers take product and tool. Twenty percent of your children are criminals because they are stealing your prescription medications and using them. Millions are made criminals as a consequence of activities that 'ain't nobody's business but they own.' Every New Yorker is a criminal when he j-walks. All women in California are criminals when they talk on their cell-phones while driving and putting on their make-up. It is illegal here in CA to drive in the rain without turning on the windshield wipers. Etcetera.

We call our politicians "law-makers." Naturally it is their conclusion that they are not doing their job unless they make laws. So what could be accomplished by one righteous king, three laws and a wise and educated judiciary is instead done by a massive self-serving misguided and ethically corrupt bureaucracy spewing out laws absurd in both number and quality.

The self-serving, misguided and ethically corrupt lawmaker, being dependant to some extent on an electorate that would desire its leaders to be high-minded, ethical, and altruistic, encourage the confusion of the legal with the ethical. Those in the position to offer moral leadership decline to pass judgment on the law.

The confusion of the legal with the ethical has in turn resulted in the corruption of the ethical standard and a population that largely acts unethically without reflection because what they are doing is not illegal.

Do I need to make a list?

I read a survey a while back that said that some 70 percent of people lie (I suspect some 29.9% of the rest lied to the survey-taker). The police are allowed to lie to trap criminals. Scott Brooks is allowed to coach children to hit other children because the rules allow it because it's the elbow or hip, not the fist. It's not just ok, it's something admirable! An indication of the sort of character we seek in our future leaders, that is to say, training in the interpretation of the letter of the law so as to permit unethical behavior.

Coffee sellers can call it Kona when it has as little as 10% Kona beans in it. That's just one example of what advertisers can say to deceive deliberately. I'd hate to tell you what may be called "organic" food today or what is called a "natural ingredient." There was a time in recent history where Jews and others were arrested, their property confiscated, and they were exterminated without popular outcry because it was all done legally. Here a while back it was OK to kill Native Americans and steal their land because it was legal. Etcetera, Etcetera, Etcetera.

So the man sitting in the audience listening to Ken say that he looks like a criminal smiles and gives an involuntary laugh, because he is not sure if Ken is referring to his unethical behavior that is legal or his legal behavior that is unethical.

But where Ken is missing out on the lesson to traders is in the fact that he has identified the man as a criminal through his appearances; that little involuntary laugh gives him away.



 The cry "ship ashore," a call for action for wreckers to save the hands and cargo of a foundered boat, has traditionally galvanized coastal communities into action. Fortuitously, my recent vacation to Key West, the richest city in the US during the mid 1800s and whose economy was built in the main on the profits of the wreckers, coincided with a foundering in the market. Thus, it became appropriate, perhaps even imperative, during this visit for me to visit all the wrecking buildings and museums in the area, and see what lessons could be drawn.

To put this in perspective, a good way to start is to consider 5% declines in the market in 5-day periods, events that are current as the market declined from 1454 on 2/23 to 1372 on 3/5, a decline of 5.6%. Such events have been followed by an average move of 2.5% from the close of the event to the close 10 days later with a 75% chance of a rise, and a standard deviation of about 5%, with a t unadjusted for overlap of 3 during the period. Thus there are profits to be made, a la cane trading during such periods. This is the case despite low confidence since there were only 21 independent events during the period. And the last such decline occurred January 27, 2003.

The economics of the wrecking business were good in Key West from 1820-1900 because the Gulf area around the Keys was littered with uncharted coral reefs, currents that were among the most treacherous in the world, and lighthouses were not available. Moreover, shipping was very active as this was the major port of entry for European, South American, and Caribbean ships exporting to the US, often via the Mississippi and the Great Lakes.

It is documented that the wrecking business was so profitable during this period in Key West that along with New Orleans it was the wealthiest city per capita in US.

One of the key aspects of the wrecking business was the specialized equipment that the wreckers used to ply their trade. The most visible were the watchtowers that extended 200 feet high above the roofs of the wreckers' places of business. The watchtowers were equipped with lights and telescopes and railings to prevent being blown off. The search for the wrecks was supplemented with ships that sailed among the reefs waiting for the wrecks to occur and to provide an early warning. A signaling system between rival ships developed so that no wrecks could be missed. As might be imagined, there was considerable folklore that the wreckers themselves induced the wrecks by false lighting and even direct damages to ships in peril.

The ability to spot a wreck is crucial in the market. The attempt to spot one is determined by many technical tools, such as moving averages and breakouts. Regrettably, many of them are prone to false signals. And those who make their living by waiting and hoping for them often find the pickings very slow. Many players make their entire living by waiting for wrecks and then plundering them. Unlike the wrecking ships of the day, that were required to save the passengers on board first, the legend is that those in the wrecking business in markets today are more interested in the plunder than saving the passengers. Indeed, in the days before 1820 when American Indians served as wreckers, the custom was to take the boat-hands as slaves. Instances of this were much more common in markets in the old days. When foundering occurred the wrecked party might been asked to work as a night clerk, watchman, or sports coach for the plundering party in exchange for his liberty. However, the wreckers of Key West were kept in line by reasonable checks and balances including a good admiralty court in the area. Similar authorities seem to provide a reasonable balance today.

The specialized equipment of the wreckers consisted of ships with shallow drafts and large holds. They were able to maneuver flexibly and quickly near the wrecks, and to store the plunder once they were able to get it. The market wreckers of today use split-second communication devices to get to the wrecks quickly, and Dow Jones reports. For example, they are now coding their messages so that the content can be analyzed electronically before the message can be read, to take account of all the fast moving participants that follow critical announcements. The holds of the wreckers are large because financial resources are necessary to inventory and hold all the baggage of the wreckers. And often it takes considerable time to auction off the proceeds of the wrecks.

Other specialized equipment that the wreckers carried were heavy anchors, heavy ropes, and large fenders to secure their boats to the wreck and to stay in the area. Such equipment would correspond to the infrastructure that big firms have today to deal with the wrecks. This includes teams of lawyers, lines of credit with banks for such special opportunities, and ample capital structures to absorb the goods in an emergency.

Key to the wrecking business was getting there first. The captain that did so was entitled to orchestrate the wrecking process. This involved setting the shares for all the other boats that were required to help in the process. Divers were critical to the process, too, and in the Allertown wreck they report that the divers who could hold their breath 6 minutes were paid $500 a day versus the $1 a day for those who hauled the proceeds.

This aspect of the business brings back one of my favorite anecdotes from my employees on the floor. One, Mike Desaulniers, who is as fast as lightning, said that during a crisis when prices flew every which-way and spreads were enormous, he was often knocked down, and outrun in the pits by much older and more ruthless participants. Another of my employees, one with a very dear place in my heart, found herself blocked out from participating in crisis situations by a circle of men about 3 times her weight and 25% taller. I am also reminded of Wilt Chamberlain's report that he must have had heard 40,000 people claim to have seen him score 100 points (March 2, 1962, as a Philadelphia Warrior against the New York Knicks) when official attendance for that game was listed at 4,124. I have met hundreds who have told me that they made their entire fortune during the October 1987 or 1997 blowups at the expense of the Palindrome or of others to whom I have been or are close.

One of the key questions I had was what induces a man to risk his life to become a wrecker? The danger is great, as their trade is plied during periods when others have met disaster, the weather conditions are bad, the ships they are plundering are in danger of toppling or burning. It's a 24/7 job and there is immense competition from others sharing a life or death mentality. The answer is incentives. The wreckers received about 25 to 40% of the profits from the goods, the owners got about 25%, and insurance companies another 30%. With about 200 wrecks a year in the 1850s, it was enough to risk life and limb. Almost all the fine houses in Key West, including the Hemingway House, the Washington House, and the Audubon house, and the Taft Museum were built from the profits and, indeed, the wood and pegs of the wrecks.

Studies of the economics of individual companies that are near bankruptcy indicate a persistent tendency for them to underperform. As memorialized in an excellent paper, "A Wrecker's Theory Of Financial Distress," the key finding is that the stocks of distressed companies vastly underperform those of financially healthy firms, because the wreckers and inside controlling interests siphon off much of the profits.

Alas the wrecking business ended in the early 1900s. Indeed, Key West itself went into bankruptcy during the 1930s. The demise was caused by modern technology and light houses and railroads. A business that only receives its revenues sporadically, like buying during panics, is often not as good in the long run as one based on the steady drift of commerce.

I would suggest that whatever the profits available from the business of wrecking during market panics, they are inferior to the buy and hold.

Steve Ellison writes:

One 19th-century Key West preacher reputedly used his elevated pulpit to advantage in spotting wrecks. If he noticed a wreck during the sermon, he would call for the closing hymn and lead the congregation in a processional exit. Once outside, he would dash to the wreck ahead of all the others who were still filing out the doors. 

J. T. Holley recalls:

 One of the deceptions Blackbeard would employ on the Coast of North Carolina was causing ship wrecks by raiding the lighthouse and turning the bright light off, then having men on horseback comb the beaches at night or in storms with large lanterns in hand. From afar this would be the direction that the ships would sail — right into the hands of Blackbeard and his men.

Those moving averages and fixed systems are Blackbeard's men! Wreckers that plunder and pillage.

Ken Smith adds:

The movie The Shipping News tells the story of a house once occupied by a family that made their living (killing) by moving fires that were beacons for ships sailing along the coast, some set to enter a nearby harbor. Moving the beacons set the ships on a course to ground on rocks. The family went out like pirates to slay the sailors and steal the cargo.

Great movie starring Kevin Spacey and Judi Dench. The story takes place in Nova Scotia. Bitter, howling winds, icy storms. How could they live there!?

George Zachar replies:

 Nova Scotia is physically spectacular, and well-situated for shipping and fishing. Halifax was a major seaport for all of North America in the heyday of sail.

Also, given how apparently widespread the practice of false beacons was, why didn't captains adopt other navigation strategies? 

Stefan Jovanovich adds:

Until the widening of the St. Lawrence, Halifax was the principal seaport for Eastern Canada. It is the site of the greatest man-made disaster (other than a battle) in the history of North America — one for which the people of the city still hold an annual memorial.



From Wikipedia's entry on the Dust Bowl:

 On November 11, 1933, a very strong dust storm stripped topsoil from desiccated South Dakota farmlands in just one of a series of bad dust storms that year. Then on May 11, 1934, a strong two-day dust storm removed massive amounts of Great Plains topsoil in one of the worst such storms of the Dust Bowl. The dust clouds blew all the way to Chicago where filth fell like snow, dumping the equivalent of four pounds of debris per person on the city. Several days later, the same storm reached cities in the east, such as Buffalo, Boston, New York City, and Washington, D.C. That winter, red snow fell on New England.

Abrupt changes occur as natural consequences of invisible butterfly activity in far corners of the planet. Temperature inversions occur in a minute. Ice age abrupt changes are historical facts. Spontaneous combustion occurs when least expected. Methane gas explosions occur unexpectedly. Tornadoes come in the middle of night, wiping out whole villages. Lightening strikes out of nowhere. Typhoons take lives and property when people least expect disaster.

Financial chaos occurs too. Abrupt drops in market prices are as historical as other natural disasters. We can say such drops are natural, are integral to the nature of things. The record is clear. Risk is inherent. Risk that is unaccountable, appears out of nowhere, cannot be foreseen.

Or can it be foreseen?

Nothing comes to mind that is more important to trading than finding hypotheses that provide insights for predicting the unforeseen. The Holy Grail is out there, somewhere, and as long as my mind is working I'll be looking for it.

Kim Zussman adds:

In comparison to recently a volatile stock market, Tuesday's 4% decline was quite unusual. In further tests, SP500 index daily returns (1980-07) were checked for instances of declines more than 3%. The absolute move was compared to the prior 20-day standard deviation, as a ratio, to rank big declines relative to recent market climate.

Variable = (abs(decline))/(standard deviation prior 20-day).

Turns out, Feb 27 was the biggest relative decline since 1989 and ranked 3/38, behind only such instances in 1989 and 1987 (and even greater than 10/97).

In regressions of the next 10 or 20-day returns as a function of the ratio, the following returns were positive and were not significantly related to the ratio.

Here are the dates and decline ratios (2/27 was 8.9):

Date |ret|/sdev
03/24/03 2.22
09/27/02 1.85
09/19/02 1.89
09/03/02 2.02
08/05/02 1.24
07/22/02 1.84
07/19/02 2.30
07/10/02 2.06
09/20/01 2.15
09/17/01 4.57
04/03/01 1.84
03/12/01 3.78
12/20/00 2.03
04/14/00 3.77
02/18/00 2.25
01/04/00 5.21
10/01/98 1.36
09/30/98 1.17
08/31/98 4.50
08/27/98 2.86
08/04/98 3.56
10/27/97 7.31
03/08/96 3.78
11/15/91 6.72
08/06/90 3.42
10/13/89 11.85
04/14/88 4.10
01/08/88 4.04
12/03/87 1.99
11/30/87 2.06
10/26/87 1.54
10/22/87 0.73
10/19/87 11.47
10/16/87 3.61
09/11/86 5.16
07/07/86 3.60
10/25/82 2.83
03/17/80 2.89




 Tsunamis occur for which the orgin is unknown in that no source has been discovered. They are called orphans. This week a shock, like a tsunami, hit China and the shock wave extended around the globe. It could be called an orphan. Not accompanied an origin.

Orphans appear out of nowhere, are not predictable, and leave damage that takes time to repair. Lives are lost.

In Japan, officials recorded an orphan tsunami — unconnected with any felt earthquake — with waves up to ten feet high along six hundred miles of the Honshu coast at midnight, January 27, 1700.

So far I've not heard of lives lost this week, no accounts of stockholders jumping from high windows above streets teeming with anguished investors and traders.

Only accounts that were weak suffered losses. However, shock waves reverberate and second waves are common. Today is all we have for knowledge; what happens at the open tomorrow is unknown.

Jim Sogi adds:

Interesting how the wave traveled and continues to travel around the world, and how Japan follows US action later in the evening. The flu pandemic, which there will be at some point, will follow a similar path, and change many things, such as travel and free trade, more so than terrorism did.

Many lessons from DailySpec are coming in handy these past few days, on such topics as canes, leverage, liquidity, and survival. More heed might have been taken though to the bears' arguments the past few months, as they were not entirely wrong or foolish. Never underestimate the opposition. It is easy to be self-deluded as we, the market, were.

The biggest drop since 9/11, oddly, since there is nothing really wrong, as there was on 9/11. Just one of those panics that come with the regularity of the seasons, or the years, as the case has been. The news is good, the economy is good, the market is good, and even the price is good. Anyway, seems like a good time to get long, as it has been difficult to do so for months now.




Here is a link to Vaclav Smil's recent piece on Peak Oil.

Ken Smith writes:

In fact, when the price at the pump hit $3.00 a gallon last summer, it was America's number one gripe.

Filled tank yesterday, price of gas was just short of $3 a gallon for premium. Bought 12 oz of coffee at Starbucks for $1.80 plus tax, just short of $2. There is no shortage of coffee beans. Shortage or supply has nothing to do with price of coffee. Demand for coffee in relation to price is economically irrational since a cup of coffee is mostly water.

What is the cost of water per cup? A cup of coffee and a gallon of gas, what the hell are people bitching about when they buy gas? They should be bitching that coffee cost so much. Gasoline is a bargain. Coffee is expensive.

Kevin Bryant writes:

 The professor (Vaclav Smil) may be an expert in many things oil related but I'm not sure he understands the definition of peak oil, at least as Hubbert expressed it. Hubbert himself is sometimes blamed for the confusion until he clarified his methodology in 1982.

Hubbert's theory
proceeds from a graphic representation of yearly production divided by cumulative production (an expression of production rate) on a y-axis and cumulative production on the x-axis. On this graph, "peak oil" is that point at which half of total reserves have been produced. Estimates of total reserves are of course up for debate; however, Hubbert's graph can be used quite neatly to extrapolate this value.

After the early production years, data points on the graph form an uncannily straight line. The theory or the main point of the graph is not to predict annual production or even when annual production will decline, rather, it highlights that the ability to find oil is principally determined by the fraction of oil yet to be discovered. One of the best analogies I've come across is the one about fishing in a pond: the more fish you catch, the harder it becomes to catch the next fish. Unfortunately oil has no offspring making the comparison less dramatic than it could be.

Corollaries from Hubbert's main theory then suggest that once peak is reached, production begins to fall precipitously and/or the marginal cost of production increases geometrically. Actual production experience for single wells seems to corroborate the significance of the halfway point. There may be a lot of oil left in the ground but getting it out in ever increasing amounts becomes an increasingly vexing and costly challenge - the Canterell reserves and the tar sands of Canada are prominent examples of these dynamics in action.

For a more detailed discussion of "Hubbert's Peak," Ken Deffeyes (dismissively referred to in the professor's article), also a geologist, has written two books on the subject: Hubbert's Peak: the impending world oil shortage and beyond oil, and The View From Hubbert's Peak.

Stefan Jovanovich adds:

 Hubbert will, of course, ultimately be right; there is only a finite amount of petroleum and other usable hydrocarbons in the earth's crust. What Vaclav Smil ("the professor") and others in the oil & gas business have been trying to point out is that most of the planet has not had anything close to the intensive exploration that the United States' lower 48 had gone through when Hubbert first shared his magic curve with the world. They also find Hubbert's "discovery" of a perfect bell curve evidence of how little he understood the "erl" business.

Global Reserve estimates are like CBO projections of future deficits - very big numbers that have only political meaning. "Proven reserves" - the amount of oil and gas that a company knows is there under the ground because they have verified that it - never go out more than 2 decades of current production. The reason is very simple: "proving" that the stuff is there (as opposed to simply pumping it out of the ground) is the major variable cost. This is why the pond analogy is all wet (rim shot, please!). The size of the pond is a function of the amount of capital and ingenuity people are willing to put into the discovery of new reserves, and the present value of any discoveries they make.

Hubbert's Peak as a theory is analogous to a professor from the business school measuring Wal-Mart's inventory against its revenue history sales and "discovering" (sic) that the Walton brothers were running out of peanut brittle. The Walton brothers were (and measured against historic sales) always will be running out of peanut brittle. Hubbert's "methodology" is an accounting truism about any business that has an inventory; it's called the inventory to sales ratio.

I once asked Buster Turner about Hubbert. Buster had an advanced degree in petroleum geology from the University of Oklahoma, and his best fishing buddy was the State geologist who was a full professor at I.U. He was not a man who scorned academic learning. Quite the contrary. But he thought Hubbert was a perfect example of academic arrogance, what he called "the damned professoriate." Hubbert, he said, didn't even understand how much the tax code had favored finding and pumping oil and gas out of the ground in the domestic United States instead of exploiting overseas reserves. As Buster put it, "Congress had been sending everyone in the oil & gas business a telegram for 50 years that said 'Drain America First."' And so they did.

Kevin Bryant adds:

 You put your finger on the key issue it seems to me, moving from the theoretical to the practical. Enlarging the pond requires capital. Investing capital requires appropriate risk/return. There's a reason there haven't been any super giant oil fields discovered in the last thirty years. All the low hanging fruit has been picked. Further discoveries will require significantly more investment relative to output.

Again, Canterell and the tar sands are evidence, in my opinion, that further discoveries will be found only after significant time (I understand several years will be required to bring the "new" Canterell discovery to production if further tests bear out its potential) and expense. Otherwise, neither project would be as seriously pursued given their less than ideal economics.

Whether or not oil depletion is decades away or centuries away, the costs of exploration and production are likely to increase dramatically, which points to higher oil prices over the next decade.



 Yesterday I sat with a Honda salesman, agreed to price for an Accord, pulled out my checkbook to pay in full. The salesman shoved papers at me to fill out. These asked personal questions that in my view had nothing to do with the sale.

You got a car. I got cash. That's all there is to it as far as I'm concerned. No. Must to complete the papers and sit with the finance officer.

What kind of business is that? Should be like buying a sack of onions, go to the cashier and pay, walk out with onions. I walked out. Still looking for a car dealer to take my offer.

James Lackey writes:

 Yes, back to the good old days when we waited three days for a check to clear, then marched ourselves down to DMV to register the car before we drove it.

Oh, and how could that pesky finance man try to sell us something after securing a loan for 4% under the Fed Funds rate? Do not take the Japanese rate of 0.9% — best deal Honda offers is 3.9% for 60 months.

Never pay a 2% premium on a Honda for a full factory 100,000-mile warranty. Let's all just complain that our four-year-old car with 70,000 miles on it broke down and cars are much too complex to work on nowadays. Worse, we can just trade in and buy new cars every 2.5 years once they reach 36,000 miles.

New Honda tech that is wonderful unless it breaks:

1. A Drive-by-Wire throttle system helps to smooth the power delivery. And the Maintenance Minder system monitors how you drive and reminds you when it's time for service. VTEC adjusts valve timing and lift to increase low-end torque as well as high-rpm power. In the 2.4-liter engine, i-VTEC adds Variable Timing Control, boosting power and economy.

2. The Accord automatic transmissions use Honda's Grade Logic Control system. This system differs from other computer controlled shift programming because it can detect vehicle driving situations and then set appropriate shift points for the car. This avoids gear-hunting on uphills and descents, and downshifts for added engine braking.

3. Vehicle Stability Assist with Traction Control is a sophisticated safety device that aids the driver in retaining control of the vehicle if wheel slippage is detected. When the driver is cornering or must make a sudden maneuver, the system can sense over steer and under steer and can brake individual wheels and/or reduce power to restore the driver's intended course.

4. Power sliding doors — my favorite on the minivans!

And this is the simplest of mass-produced cars. You should read the Lexus tech specs. Unreal. Awesome. New cars and the deals are amazing. If anything, they are "too good" to the consumer — as far as stocks and profits go.

George Zachar adds:

Lack's hosanna prompted me to ping the CPI database to see how these advances showed through to the reported price data. Thanks to hedonic adjustment and price compression, the government's CPI series for "new vehicles" shows prices are unchanged since September 1994. For geeks, the series is CUUR0000SETA01.

Roger Arnold adds:

 My 1999 Nissan Maxima GLE with all the options had a sticker of $32,000. The new loaded Maxima has a lower sticker. In real terms, without hedonic adjustments, that's 30% lower. With hedonics I don't know what it would be, but as James pointed out, it has to be a lot.

Nissan said they would give me $10,000 for my 1999 with 94,000 miles and get me into a comparable new car for an extra $20,000. Is that a good deal? My 1999 is perfectly fine and in near-new condition.



 On a television channel dedicated to religious topics, a clip of Daily Spec contributor Larry Williams appeared within a segment on Bible Codes. Larry, a journalism graduate, dug up information about Moses and wrote a whole book on the material he found. I was surprised to learn of Larry in this context, since he is best known for other marvelous achievements.

The Bible, according to cryptographers, is replete with predictions written centuries ago and found to be accurate by the events unfolding in our time.

Kudos to Larry for investing his time and expertise, his flair for language, in this remarkable project.

Nigel Davies writes:

This is highly analogous to searching for Codes within the markets, with many of the same problems applying. I understand that one of the bones of contention is the asking of the questions and that sceptics have found apparently similar Codes in Moby Dick and elsewhere.

One of my acquaintances ended up becoming ultra-religious on the strength of Bible Codes. I guess he might have wanted them to be there or he'd have tried to falsify them before donning the black hat.

Such proof would also contradict one of the major philosophical ideas of Judeo-Christianity in that any 'struggle with G-d' would essentially be over once 'proof' were discovered. I guess they figured it was more important to get bums on seats.

Adi Schnytzer replies:

There have been (unsuccessful) attempts by statisticians (but what would they know, right?) to refute the Codes, but I don't want to spoil Nigel's day with facts. If he really cared about this beyond heaping contumely on it, a little Googling would go a long way. 

Gordon Haave responds:

Please! Let's not get into fantasy. Numerous statisticians have shown what a fraud the Bible Code is. But, even if you want to go back and forth between competing websites, all you need to know is that there have been no "predictions" at all. After certain things happen, the Bible Coders go back and data-mine the bible to see if the event was predicted. When they predict something unlikely in advance (not a vague "there will be trouble between Israel and Palestine") then get back to me. 

Adi Schnytzer retorts:

Well, I guess I'm going to have to blind you with facts! The paper that studied the Codes was written by Doron Witztum, Eliyahu Rips, and Yoav Rosenberg and is entitled Equidistant Letter Sequences in the Book of Genesis. It was published in the very respectable journal Statistical Science in 1994. An attempted rebuttal was published by Brendan McKay, Dror Bar-Natan, Maya Bar-Hillel, and Gil Kalai in 1999. See Ralph Greenberg's site for links. For myself, this will do:

"The present work, represents serious research carried out by serious investigators. Since the interpretation of the phenomenon in question is enigmatic and controversial, one may want to demand a level of statistical significance beyond what would he demanded for more routine conclusions… The results obtained are sufficiently striking to deserve a wider audience and to encourage further study."

H. Furstenberg, the Hebrew University
I. Piatetski-Shapiro, Yale University
D. Kazhdan, Harvard University
J. Bernstein, Harvard University"

Laurent Glazier remarks:

I am not sure what this particular example might mean, but because a Canadian academic has succeeded in finding similar patterns in the text of Moby Dick it has been widely assumed that this invalidates all Bible Code findings. Similarly the artificial construction of small scale crop circles in England has led people to conclude that all such formations, including those on a huge scale, are artificial. These conclusions are appealing, and may be true, but are not logical.

The Bible Code discovery I found most intruiging was that the encoded occurrences of the Hebrew names for tree species are nearly all found hidden in the verses describing the Garden of Eden. Designing statistical tests to prove the likelihood or otherwise of such patterns, found in context, has caused great difficulty in the past to fine minds, largely because preconceptions can interfere in setting up the tests.

Testing for geometric patterns in star formations is another matter, especially Mark Vidler's unpublished discovery of the clustering of bright stars at multiples of 10 degrees from Regulas, as seen from Earth. Another issue entirely would be looking for a cause of any established patterns.

Kim Zussman adds:

 The movie "Pi" (3.14159…) is about a mathematician who suffers from severe migraine and mental illness, and is deciphering hidden numerical codes like Fibonacci series in The Kabbalah. He is pursued by a rabbi who is also a mathematician.

G-d's commandment is to index: shouldering the risk of capitalism while not attempting to gamble or covet other people's wives is written in the WSJ between the mutual fund quotes.



 One of the 10 million things that the Specs have said either on Daily Spec or to me personally in the past five years that made complete sense is how the first priority for the evildoers is to get you to question not your facts or even your beliefs but your own version of reality.

They do this by attacking you on a very personal level such that you begin to question your own ability to think clearly about an issue, to use your abilities to reason. This is accomplished generally by intimidation, by peer pressure, or by insinuating that they have access to knowledge that you don't, thereby denigrating your intellect. Then into that vacuum of logic they can insert their own ideology. 

J. T. Holley adds:

 A very good example of this is shown in the movie, "A Bug's Life," by Disney via Pixar. The following is the logline from Yahoo! Movies:

"A colony of ants is threatened by a gang of grasshoppers led by the evil Hopper. Flik, a common ant and a misfit, has an uncommon vision when he tries to rise to heroic proportions by enlisting a band of circus fleas to help him defend his colony from the grasshoppers."

The amazing story is how the libertarian heroic Flik utilizes individualism and technology to bring about change in the ant colony and helps them realize they have the strength and the numbers to stand up against the evil Hopper and his grasshoppers. Up until then the way the psychological edge was maintained by Hopper and Tom's "questioning your own ability" was wonderfully demonstrated. No one single ant ever challenged Hopper due to this very thing.

Nice to see Heroes and Individualism rising above "Colonies" thoughts and overcomes in the end and is a great lesson for children! That is one movie my kids love to watch over and over!

Incredibles! is another also Pixar! I know Jobs is high up the food chain there at Pixar, but there has to be some other Libertarian, Rand-loving someone who keeps cranking these brilliant movies out every five years? Anyone know who?

Tons of hypothesis and good speculating questions are espoused during the film as well by the way.

Ken Smith adds:

Propaganda is the mechanism of the market also. Money seeping away from investors at a higher rate than should occur is the consequence of the media's flooding the public mind with anodyne.

Investors can ameliorate the losing process by cancelling the Wall Street Journal, Financial Times, Money Magazine, and so on; additionally cancelling all subscriptions to advisory letters.

What's more put a block on emails from services that recommend stock picks, ETFs, puts and calls, and those that promote trading platforms such as Metastock and Tradestation.



2/4/2006 - As of this date, the 150 stocks listed in The Value Line 600 analysis of stocks rated #1 and #2 had an average yield of .75%.

If you think 'Growth Stocks' will give you a better return, you are mistaken. If your portfolio held the 100 Growth Stocks promoted by Valueline in October 2006, your return would be less than one-percent (.92% exactly).

The previous paragraph is a strong argument for investing in bonds and CD's rather than stocks. United States Treasury issues are returning yields of 4-5-6% - why take less?

Steve Ellison comments: 

Why take a measly 4.8% return from Treasury bonds when stocks have a better-than-average likelihood of double-digit capital gains? Using trailing 12-month earnings, the S&P 500 earnings yield is about 5.4%, compared to about 4.8% for the 10-year bond. Thus the ratio of the S&P earnings yield to the bond yield is about 1.12. The average of this ratio since 1988 is 0.79, suggesting stocks are cheap relative to bonds.

One who ignored capital gains and believed stock returns consisted solely of current-year dividends would have been bearish on stocks since 1958, when the major market averages' dividend yields fell below Treasury bond yields (maybe that is the reason the weekly columnist has been bearish all these years). The historical record does not indicate that such bearishness would have been a winning investment strategy.

Tim Melvin adds: 

Here's this year's list:


Only q and tibx are rated one. The others rank two.



I found out the hard way that one should not trade unless one is an expert gambler and also unless one knows how the market works.

How the market works is explained, in part, on my website. I am not an expert. I am not a professional. I am not a loser either … in the sense that I learned my lessons by losing.

If you cannot predict what will happen then you should not trade; to do so is to gamble.

Nevertheless and regardless of warnings, people will trade and people will gamble. Those who make money in the market and casinos are those controlling the flow: the House and its occupants. Get a job with the House.



 I asked the doctor, "how did evolution create vision?" His quick reply was that because of predators, individuals must be able to detect them for their survival, and thus vision developed.

Well that's quite a story. But what is behind the intelligence that creates the marvelous, intricate organ like the eyeball which coordinates perception with neurons in the brain? It is really startling to think about my vision.

David Wren-Hardin comments:

Vision almost certainly didn't arise from an attempt to spot predators, but rather as the development of a phototaxic behavior. Remember, light = energy, and if you're the sort of organism that can convert energy to light, or if you eat the plants and algae that do, then you need a way to find the light. The arms-race in vision probably began when predators on these organisms used their photoreceptors to find areas that were likely to contain their prey. Now there is pressure on the preyed-upon to evolve ways of using their photoreceptors to spot predators first.

Once you have one photoreceptor, building an eye is a snap. Nature loves adding extra features to organisms, whether it's extra segments, limbs or other peripherals. Pick up a bunch of random cats, for example, and you are assured of finding a few with non-standard numbers of digits. Once an animal has a grid of photoreceptors, it can now map visual space, and build all sorts of cool edge and looming detectors very easily.

Uncomfortably for the Intelligent Design crowd, the mammalian eye is a lousy design. The wires that carry the signal from the photoreceptors run across the surface of the eye, and leave it in a cable that forms a blind-spot in the receptive field. This would be like an engineer at Sony who decided the best way to build an LCD TV is to have each wire for each pixel run across the front of the TV. In addition, the retina is composed of many layers of cells, and the actual receptors are buried under these layers; the light has to go through them to get to the rods and cones. The octopus, however, did it differently, with its photoreceptors in front, and the outputs running out the back. So either there were a couple of intelligent designers running around, or there were trial versions, and we got the short end of the stick.

keep looking »


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