Laurel Kenner on Substack: Nobody Asked Me, But…



A reader writes:

Time's Arrow by Martin Amis, is a novel which plays on topsy turvyness - everything being upside down, time is moving backwards, what is good is bad and vice versa. E.g, the pimp dishing out cash to the prostitute, doctors killing patients, and garbage men adding more trash into the bin.

In our hyper-rationale world- of cartesian thinking - those novels tease the reader and stretch imagination. Saw pics of overflowing trash bins in NYC - so at least one of the examples could be true today?

Laurence Glazier writes:

Thanks for the reference, I didn't know of this book. I have read some of his earlier, more frivolous books, and also some of his father's, Kingsley Amis. I love time-bending themes, but might find this one harrowing.

A reader adds:

inversion theme - also a link to mkts? novice trader: fundamentals first, then price action, whereas more seasoned trader can see the implicit -and more nuances, eg. house price stocks moved up in 2009, then housing boom in the US etc for yrs to come etc. or spiritually - one can find a few other things ….Castaneda /Gurdjieff - on topsy turvy ness of human perception.

Andrew Aiken writes:

Philip K.Dick’s novel, Counter-Clock World, was published in 1967. By a quirk of physics, time in this future is running backward. In this world, people disgorge whole food, greet with “Good-bye” and part with “Hello”, pregnancy ends with copulation, libraries busily eradicate books, and the dead come back to life in the world’s cemeteries. Because libraries control the availability of knowledge, they have absolute power. Even militaries and police are terrified of the libraries. A departed cult leader, whose following has continued to flourish after his death, comes back to life, with devastating implications.

Nils Poertner responds:

yeah, a number of authors of the previous centuries probably could not take it anymore with society's linear attending to the world and wrote books like these. Lewis Carroll's Through the Looking Glass is another one. some are more light hearted and fun to read than others. good for stimulation of novice traders.

Laurence Glazier comments:

Music is interesting here, as whatever I write is heard linearly, even though I sometimes create it as a non-linear fractal structure. It nonetheless works.

Wondering where the Gurdjieff Work comes in re Time’s Arrow? Phillip K Dick was certainly an extraordinary individual.

A reader responds:

Music is about vibration and energy - and more harmonious energy is good for us and vice versa. We constantly rec and send energy even if we don't think so. I'm not huge into Gurdjieff or Castaneda - only know a few bits about this topsy turvyness in perceptions and tend to concur. Would not interest others here perhaps anyway. Will have a look at Philip K Dick.

Penny Brown writes:

I loved Martin Amis's last "novel" - put it in quotes because it's more of a memoir - Inside Story which chronicles some of his early relationships and the death of his closest friend, Christopher Hitchens, and his literary father, Saul Bellow.

Laurel Kenner enthuses:

Androids DO Dream of Electric Sheep! Reading ALL Dick’s books.

Zubin Al Genubi writes:

I've read pretty much every Michael Connelly book.

Laurel Kenner adds:

I have read all of Michael Connelly, William Gibson, Alexander McCall Smith, John Grisham, John D. MacDonald, Walter Mosley, Eric Ambler, Martha Wells, Earl Derr Biggers, Robert Graves, Gene Wolfe, T.S. Eliot, George MacDonald, and Phillip K. Dick. I recommend Epictetus, Publius, Shelley, Keats, James Burnham, and Curtis Yarvin on Substack. Merry Christmas to all Specs.

Ashton Tate writes:

P.D. Ouspensky, a student of Gurdjieff wrote the novel, Strange Life of Ivan Osokin. It can relate to markets as the story tells of a man who meets a genie who is willing to grant him any wish. The man (Ivan Osokin) wishes to be able to go back in time and replay certain pivotal moments in his life with the caveat that when replaying these events he is aware of the things he did the first time in these instances so that he doesn't mess up again. The genie grants him his wish but assures him that even though he may know what not to do in replaying these scenarios, he will still make the same faulty decision anyways, to which he does, again and again. There is a rumor that this book was used as inspiration for the movie Groundhog Day.

Jeffery Rollert responds:

That idea came from Sartre, in Les Jeux Sont Fait (The Die/Dice Are Cast), and should be required reading by all.

Laurence Glazier adds:

Keith Pearson has written several light-hearted, but well-constructed novels on this theme.

Ouspensky believed in a theory of recurrence, in which lifetimes could be repeated. I don’t think that was connected to Gurdjieff’s teaching, though in Beelzebub’s Tales he suggests that themes in history repeat.

Penny Brown offers:

My greatest literary experience this year was listening to the 1862 classic, Oblomov, which came as a free addition in the Plus Catalogue (Audible). The narrator, Stephen Rudnicki, has a beautiful resonant voice and adds just the right amount of ironic inflection.

"Oblomovism" or "Oblomovshchina" is a term has made it into the vernacular as representing all the negative qualities of romantic inaction.

Kim Zussman replies:

Do you mean the qualities of an inactive lazy indolent being? The sentient women I have known would not consider such inambition very romantic.

Larry Williams adds:

Laurel did you read this one: A Friendship: The Letters of Dan Rowan and John D. MacDonald 1967-1974. Like you I read every novel he wrote.

Laurel Kenner replies:

Thanks for the tip, Larry. If you believe, as I do, that politics are not on a right-left spectrum but are more like an elliptical orbit with totalitarianism at the nadir and freedom at the apex, read Thomas Pynchon, With a salt shaker handy.

One additional recommendation: Louis-Vincent Gave published Avoiding the Punch in August, and I think it's the best book of the year. Chair and I had the pleasure of dining with him and his brilliant father, Charles, at the lamented Four Seasons restaurant and found them kindred spirits.

Some chapter titles:
The Asch experiment we inhabit
CYA, the guiding principle of our time
Fighting for relevance [central banks]
Who will survive the unfolding Marxist clash?
Are US treasuries set to fall from heaven?



 Thanksgiving is about sharing prosperity, and it's a good time to think about where prosperity comes from. The Pilgrims figured it out in 1623. We'll retell that story as we celebrate the way it lives on in countless U.S. families and companies today. And in particular at one company, McDonald's (MCD, news, msgs), that in its humdrum way beautifully demonstrates the source of prosperity and the American way of life.

The Pilgrims started with so little. They had to hide in England because the authorities considered them dangerous. They fled to Holland but found themselves compelled to take menial jobs. On the way to America, many of the company died. They lost their way to Virginia and landed in Massachusetts just as winter set in. The Virginia Co., their backers in London, went bankrupt and couldn't send relief supplies.

To cope with want, the Pilgrims made the same mistake that so many countries do even today: They divided all their land, efforts, supplies and produce in common, to each according to his need.

As always in such systems, need surpassed supply.

The Pilgrims spent their first three years in America suffering from hunger, illness, cold and infighting. People stole from the common stores "despite being well whipped," according to William Bradford's "Of Plymouth Plantation."

Bradford, governor of Plymouth Colony, records what happened next: "They began to think how they might raise as much corn as they could, that they might not continue to languish in misery. After much debate, the Governor decided that each settler should plant corn for themselves."

Under the Land Division of 1623, each family received one acre per family member to farm. That year, three times as many acres were planted as the year before. Prosperity was not long in coming.

The Pilgrims turned from their Old World system of common ownership to incentives. They didn't go that way out of ideological conviction, but because they didn't have the luxury of waiting for support to come to them.

How many families in America tell the same tale? "When we came here, we worked hard and our lives were better."

But that wasn't the end of the story. Before the switch to incentives, the hungry settlers were at each other's throats. Hard workers resented receiving the same portions of food as those who were not able to do even a quarter of the work they did. Young men resented having to work without compensation to feed other men's wives and children. Mature men resented receiving the same allotments as did the younger and meaner sort. Women resented being forced to do laundry and other chores for men other than their husbands. Many people felt too sick to work.

But when they were allowed to farm their own plots, the most amazing thing happened. Everybody — the sick, the women and even the children — went out willingly into the fields to work. People started to respect and like one another again. It wasn't that they were bad people, Bradford explained; it's just human nature. Adam Smith came to the same conclusion later, and Friedrich Hayek updated Smith's ideas for the 20th century. But we don't need to go back to New England for understanding. Similar outcomes can be seen at McDonald's every day.

For centuries, people on the lower rungs of the social ladder weren't able to eat meat. They ate grains and beans. But people like beef. And chicken.

When McDonald's started popping up in every neighborhood, all of a sudden there was an affordable place for families to eat. Previously, one of the main differences between the upper and lower classes was that the rich could eat out. Even if the poor could afford the tab, they couldn't hire baby sitters, and they couldn't bring their kids to the elegant establishments designed for the rich because they would have disturbed the other diners.

Most kids don't like fancy restaurants anyway. They want fries, not polenta with wild mushrooms. They want fried codfish, not turbot. They want burgers, not lamb chops.

How many people has McDonald's made happy? How many families has it brought together? How many Happy Meals have been eaten there? How many kids have enjoyed the playgrounds? How many tired workers have been able to catch a quick meal? How many women are able to pursue careers and other productive activities and dreams because McDonald's has freed them from the task of having to cook every night?

The Pilgrims might have served 200 or 300 American Indians at their Thanksgiving feast. McDonald's serves 26 million customers a day at 13,700 U.S. restaurants.

For the traveler, McDonald's is a home away from home, offering so much for so little. The restrooms are clean. And McDonald's serves hot strong organic coffee in smooth cups of some wonderful material that keeps liquids hot without burning the hand, shaped to fit into the cup holders that just happen to be in your car, with carefully designed tops that permit just the right amount to be sipped.

No regulator, no fascist dictator, no socialist planner decreed sip tops or cup holders. But how many late-night drivers have died for the lack of a good cup of coffee? What could be more munificent than saving lives?

And the story doesn't end there. Consider the employees of McDonald's. How many people have worked there and learned the most important lesson in America: The customer is always right?

The anti-this-and-that people who demonstrate against profit incentives and free markets like to single out McDonald's as a symbol of modern capitalism. (They don't mean that in a nice way.) As the McLibel Support Campaign puts it: "(McDonald's) has pioneered many business practices that have been taken up by others, and have come to represent a symbol of the way that society is going –'McDonaldization.'" But when have you ever seen an unhappy customer at McDonald's? There couldn't be too many of them, because about 10% of America eats there each day. Given the choice of cooking at home or going to other restaurants — and competition ensures that there are other restaurants — people go to McDonald's because they trust they'll find good food, quick service and value for money. What could be more munificent, more representative of sharing the fruits of hard work than McDonald's?

McDonald's and the Pilgrims are the essence of America. The people work hard, motivated by the chance for profits. They provide a welcome to others, whether to Indians joining in harvest celebrations, or to customers looking to satisfy their hunger. Their work results in high quality, low costs and family togetherness.

Those humdrum, everyday attributes are what makes America great. That's what we should be celebrating. It's the source of all our munificence, from the first Thanksgiving to today.



The Speculator: 3 lessons from ace investor George Soros

Kim Zussman comments:

I don't think there is such a thing as an unconditional friend. Everyone wants something - what is friendship if you get nothing out of it?

The same with 'unconditional love'. I had a conditional friend who was a feminist, and she said that her cat loved her unconditionally. I told her to do this experiment: Every day when you come home, find the cat and kick it (obviously just a thought experiment because never be cruel to any animal). After a month tell me about your cat's unconditional love for you.

Stefan Jovanovich adds:

Friendship and love are exchanges, contracts of shared interest and sentiment. Those of us who have endured bad partnerships and been sustained by good ones know that the people who sink the ship are those who are incapable of sharing good sense because they want people to promise to sacrifice "everything" in the name of the perfect union.



those who know about music: it is well known and accepted that beethoven couldn't multiply and couldn't dance. yet he wrote many pieces with complicated rhythms like 13/12 in the Appassionata. and many other unusual rhythmic pieces - how could this be? wouldn't he have had to notate such pieces? and wouldn't that require a very high degree of mathematics?

Laurel Kenner responds:

No, musical rhythm is not like, say, linear algebra. It’s even different from multiplication. Beethoven was a master of syncopation. He probably didn’t get dancing lessons. 

Christopher Tucker comments:

A lot of mathematics can be done without the use of numbers and their operators.  A lot of it can be done visually without ever mentioning numbers and I think it is safe to assume that the same applies for auditory - tempos, rhythms, scales, finding notes that are all in the same key without having to think about it in a way that is normally associated with doing math. 

Peter Krupp adds:

We all have an innate sense of rhythm, to a higher or lesser degree, which can be developed. I was fortunate to have studied for a few years with a professional pianist who was a student of Artur Schnabel, one of the great Beethoven pianists of the 20th century. She played and demonstrated many of the Beethoven sonatas and had me listen to many of Schnabel's recorded performances. Not once did she count out the rhythms or do any sort of mathematical analysis. She demanded "feeling & sensing" the rhythm. I never developed the pianistic skill that she had. I played for my own pleasure. My first love was science and mathematics but prior to her tutelage I lacked awareness of music as a sensory-based art. My experience with her completely changed that outlook.

An historical note:

Statistics of Mental Imagery
Francis Galton (1880)
First published in Mind, 5, 301-318.

Laurence Glazier writes:

The inspiration comes ready made. The composer has to write it out. A steady rhythm is a social construct. The blackbird and nightingale know nothing of it.

I am just now orchestrating Andaluza by Falla, and have been removing a beat from some of the bars which sounds more natural to me.

Had Beethoven actually used the time signatures which came, maybe, to his mind, there would have been resistance from the players. He had enough trouble anyway getting people to play well.

A corollary - the not dancing is helpful, as that would have predisposed the mind to a steady rhythm. However you can be sure of his math prowess.

Nils Poertner writes:

the use of the trampoline (the mini-rebounder) can be a very useful tool on the aspect of re-learning rhythm.

it is probably the case the vast majority of the population these days has got some aspect of blockage or a lack of sense of rhythm - and also learning disabilities - except they don't perceive it that way.

here is good old Ray Gottlieb (former eye doctor from Rochester, New York- who inspired me with his work):

Attention and Memory: A Stress-Point Learning Approach

James Lackey adds:

Army marching singing cadence they are very good at every task as the US Army tells you what to do, how to do it and even explains why.

Anyhow it was 1% that CAN'T dance. It's a heck of a lot lower than all think.



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Austin Lackey  writes:

Hey Specs,

Does anyone have any experience with the idea of tokenizing fungible assets/commodities? Idea being that you have a lot tracked asset that has the ability to be used in production and/or traded. It may trade hands 1,000 times before it's used, or used by the first buyer. The token coordinates with an exact lot in a warehouse or vault, and would be "burnt" if the owner ever took physical delivery. Has anyone seen (or worked with) anything similar to this, and what pitfalls do you see? I've seen JPMorgan is doing something similar with gold on their platform Quorum.

Laurel Kenner writes:

The chair's son is an expert in this subject. 




October 23, 2020 | Leave a Comment

Zubin Al Genubi writes: 

Murakami writes,"convenient approximations bring you closest to comprehending the true nature of things.

Laurel Kenner writes: 

 Also:  Walter Mosley's two series of noir set in LA and NYC, with heroes East Rawlings and Leonid McGill.  Inherent Vice and the Crying of Lot 49, by the paranoid master Thomas Pynchon 

and Raymond Chandler for the ultimate portrait of prewar LA. 

Peter Saint-Andre  writes: 

My wife, who is a big fan of the Bosch series, also recommends the Joe

Gary Boddicker  writes: 

I’ll second the C.J. Box recco, but I’m biased. Chuck was my next door dorm neighbor many years ago at Denver U and a friend. He would disappear into his room (even in the midst of a party) and we’d hear the typewriter banging for hours as we waited in anticipation…out would come a double-spaced, creative, plotted, story…usually things had “gone Western” and the bad guys met a very satisfying end. 

He is a wonderful example of someone who always knew what he loved to do, kept working at it until he got a break, and is now among the best in his field. He’s been banging out one or two a year for many years now and you won’t be bored. Especially appealing to those who appreciate the modern West, it’s people, the outdoors, and a good story. 



Laurel Kenner  writes: 

Gentlemen, your assistance is requested. As my son enters high school, I am earnestly seeding guidance on how to be a good mother during these next four crucial years. As I understand it, he needs validation and a clean house in all senses of the phrase, and not too much direct advice. I don't want him to become an adult with mommy problems, and I don't want him to go so wild that he spoils his later life. Specs, please share your thoughts. What are your most vivid memories of your mother during these years? How did she help or hurt? What makes a mother of a teenage son good or bad? 

kurtsskurtss writes: 

Avoid all lecturing/preaching/cajoling.  Instead, ask questions and try to act like a friend or confidante, way more than a parent.  If he trusts that you will not be judgmental, but instead will be a good listener and help him to recognize potential outcomes for various actions, he will be willing to share more of his life with you.  

Zubin Al Genubi writes: 

Give him well defined specific tasks he must do to get his allowance or a specified reward of his own choice. He can choose the tasks. Could be wash dishes twice a week or clean his room one a week. Could be all A's. Control behavior using incentives. Use of authority is useless as is an appeal to reason. Kids don't think. 

Write down the tasks on a calendar and check off performance as an agreed contract. Put in writing for bigger or long term rewards such as a car for no smoking or drugs till 16.  

Big AI writes: 

One thing i'll offer is this: once the average boy crosses the puberty

threshold, it's like somebody poured gas on him and lit him on fire.

most of his mental bandwidth becomes focused on girls and negotiating

all of that, especially in school where there are all these girls who

have crossed the threshold too.  and at the same time, this new

dynamic that is dominating his life is something he doesn't want to

talk to his mother about.

Paolo pezzutti writes: 

We are parents.  Not friends nor advisors nor confidants…..

Not even task organizers.  Our role in my view is to transmit values. Just that. Transmit values which are the main tools to live their life. They will then choose their objectives. Establish their priorities and tasks. Live their sex life. Values are the core issue.  

larry writes: 

Teach him to cook, wash clothes and iron.  It will make him self sufficient

Jonathan Bower writes:

I'll second this. Additionally, in Scouting many ideals are worthy of pursuit to round out a person's character and skills.



 With the murder of my friend George Carroll, New York City just became a lonelier place.

I first met George when I moved to Tribeca in 2008. He was managing a little coffee-pizza place on Reade, and made the only decent latte in the neighborhood in those pre-Starbucks, pre-Pain Quotidien days. He was a good guy and became a friend and confidant. After he left and the owner cashed out her real estate, I would occasionally bump into him on the street. He was one of the genuine people. He grew up poor in Texas, but he was a likely, bright guy and was reinventing himself.

I hadn't seen him in some years, but I thought about him. On Friday, he was stabbed by a couple of thugs hanging out on school steps — right, school steps — while apartment-shopping with his wife in Greenpoint, Brooklyn. The news stories said the attack was random, senseless, unprovoked, and started with one of the kids asking "What you looking at?"

I can see the scene. My friend, running. His wife, screaming. The two kids had been causing trouble in the neighborhood for some time and under another mayor would have been locked up.

It's a bad day when a man can be murdered for nothing at all.



 Here in Hawaii tax collections are up 4.5%. There were 40K new jobs this year and unemployment figures are down. Anecdotally, tourism is bustling. There are for hire signs at all the businesses. Traffic is bad, and there a lot of new mainlanders here.

Typically Hawaii lags a year or two behind the mainland, both on the ups and the downs.

Laurel Kenner writes: 

In New York, the economy has become all about real estate. A tax-dollar-funded ZIRP boom. Commercial rents have tripled and quadrupled. Non-chain businesses have mostly closed. New bank branches have filled the larger spaces where restaurants and small shops once were. Many landlords have opted for building luxury condos. Scaffolding is everywhere. Entire lanes of streets in this already clogged city have been given over to construction material storage. Walk anywhere, and your face will be covered with construction dust. There are more cranes than in pre-crash Dubai, a city-state once pithily described by one of chair's former business partners as a real estate promotion. The socialist NY mayor's office is under federal investigation for selling zoning changes to developers for millions of dollars. I live by the Hudson, and private helicopters fly by once a minute, drowning out conversation as well as the sound of birds and cicadas. The helicopter companies are big-money contributors to the mayor's slush funds. More homeless, more subway delays and slashings. It is a bubble that will end when it ends; meanwhile, New York becomes more dystopian. 



 1. Most journalists are "change-the-worlders" of the collectivist, "government should do more to…" sort.

2. Too many journalists were liberal arts students and are deathly afraid of math…any sort of math, even the common-sense kind.

3. Too many journalists regard their role as writing down the "he said-she said" rather than as working to find the facts.

John Bollinger writes: 

The AG's report on Ferguson is so rife with errors in the usage of statistics that it could serve as the course material for a "Mistakes Not to Make in Stats" course or a second edition of Huff's "How to Lie with Statistics". The report features many of the errors commonly seen in analyzing markets. For example, it appears no attempt was made to find the actual distributions to compare discovered distributions to and in no case does it seem that the negative hypothesis was formulated or tested. The interesting thing is that no one seems to have noticed/ objected. The media just picked up the report and ran with it, rather than dowsing it with a dose of critical analysis and skepticism; just as few notice/ object to poor usage of stats in market analysis and run with them. Since a lot of this is common sense rather than math, one wonders why.

anonymous writes: 

"One wonders why": The reasons are identical, I think.

Facts are made to fit a particular agenda. An attempt at applying objective truth of the kind that puts a satellite in orbit or makes the technology in an iPhone function never enters into the equation. That is the difference between politics and ideology and an actual, legitimate applied science– unless the science being applied is willful deception, which is realistically what is actually going on. 



 I'm waiting for our specs to give me examples from any field of things as exciting as the S&P last week and these racket things from table tennis or this.

Boris writes: 

Lake Placid - Olympics final, Team USA vs. Soviet Union.

Laurel Kenner writes: 

How about the gladiator contests of ancient Rome? Fed would be the patron with the thumb. Up/down.

Alston Mabry writes: 

One of the exciting things about tennis (and similar racquet games) is a function of the game's structure: No matter what the score is in a tennis match, the player on the verge of losing can come back and win the match. Contrast this with a game like American football, where there is a clock, but also where a team far behind in the score can take big risks (long passes, onside kicks, trick plays) to try to get back in the game.

The natural question for a trader: Does the market have a game structure, say, during the course of a single trading day/week/month, that constrains the possible outcomes or the nature of risk-taking? For example, once the relationship of equities vs bonds (or USD vs the €Mark or crude vs whatever) gets to a certain point, does the game require that a rebalancing occur?

anonymous writes: 

America's Cup, 2013 with the U.S. having to win last 8 in a row to win 9-8.



 To what extent are speculators like the wolves in this very interesting brief documentary on Yellowstone's ecosystem?

Gary Rogan writes:

Clearly the both the wolves and speculators improve their respective ecosystems, so in that sense they are alike. As far as I can tell speculators provide one main benefit to the world: they remove irrational anomalies from markets by making a profit off any irrationality they are capable of perceiving. They also provide liquidity under difficult circumstances, which could be thought of as a special case of the previous function. Is it the same as controlling the overgrazing deer? Seems like a stretch, but if I were on debate team where I'd have to argue this point, I'm sure I could come up with some plausible arguments.



 Manifesto 2015
Government has no right to confer economic benefit.
The benevolence of individuals, not government, creates a just community.
Rich and poor share responsibility to build society.
The greatest philosophy of governance is the balance of executive, legislative and judicial authority.
Civility is a worthy goal.
Government is incompetent in most areas in which it is currently active.
Theocracy kills.
Our challenges are planetary.
Humans are lonely without animals.
Glorifying thugs is civil suicide.
Union members are not the only people who work. 
Be circumspect in speech, for sowing wind reaps the whirlwind.
Propaganda attacks reason.
Wealth is a great good.
Benevolence is a great good.
Achievement is a great good.
The family is a great good.
Friendship is a great good.
Happy New Year, one and all.

Laurel Kenner




 Hypothesis: inflation is rampant but hidden by federal subsidies. Prove me wrong or prove me right. If I am right I will go into politics.

Jim Sogi writes:

This seems to be what Gross at Pimco is saying as well. Credit growth fuels asset price. Credit deflation may result in asset deflation. Seems to be what is affecting stocks.

The alternative theory is to follow the Fed's explicit explanation that the Fed is preventing deflation, and that removal of the stimulus will allow prices to deflate. This as they say is the greater risk.

Ed Stewart writes:

That makes sense to me. Credit growth or fed asset purchases have created asset price inflation relative to the rest of the economy, which is known as "the rich getting richer".

Deflation of assets is harmful as it impacts the money supply that leverages off of asset prices via credit. Kind of a different dynamic than what most people think of when discussing inflation based in consumer prices. One thing Mises said that I like is that money creation is never neutral across the price structure. It enters in specific ways and impacts specific prices relative to others. I used to think someone must understand how these things work, I now wonder if it is that things change enough such that understanding is not possible.

Gary Rogan writes:

Presumably asset inflation is related not just to the growth of the money supply (a large portion of which sits as excess reserves right back at it's point of origination and isn't contributing to anything other than bank earnings) but also to the intent of the Fed. Otherwise why would relatively tame tapering result in some deflation even while a huge amount of money is still being printed?



 Black Friday lived up to its reputation as the biggest shopping day of the year at my little store yesterday. We just about sold out of the glass water bottles, priced below my cost as a promotional item. Sales topped our record by 70%. I opened shop this morning ready for a big rake-in.

Four hours into the day, I have sold one $5 water bottle. People come in and say, "How cute," and shuffle off. Perhaps the overdid it with the credit cards yesterday and are feeling too guilty and burdened to further extend themselves?

Nothing has changed except for one thing. My Jamaican assistant, who has taken care of me and various family members since 2002, was at work yesterday. Chair and I have employed Lorna as nurse's aide, nanny and housekeeper. We appreciated her as a person of brains and discretion. We knew she once had a T-shirt business back in Jamaica. But we little suspected that beneath that gracious exterior were sales and bargaining abilities so profound as to put even the most expert diamond trader or car salesman to shame.

When I tell people I have a special deal for them their lip curls. Disbelief glints in their eyes. When Lorna tells them, they believe. Better yet, they buy. She tells them we are throwing extra bottle seals to show our love. The believe that too! I couldn't even think of saying it with a straight face. All I have to do is show a mild interest in the customer to send them running for the door.

Aubrey is another great sales talent. We first noticed this when he invented a, what shall I call it, a sales dance when we set him up in the lemonade business at age 4. A customer comes into the booth and he jumps to their side, explaining, demonstrating…and ringing up the sale on the iPad.



Check out this product: Jia Canisters .

Hi. Laurel here, co-founder of Daily Speculations and now running Glassery.Com, with a gift idea. Most of the men who walk into my Glassery shop go straight to these black terracotta airtight storage jars and exclaim how wonderful they are. Men don't generally buy themselves kitchenware, but these jars seem to hold such an attraction that they could make a very welcome gift.

You won't find these in any shop in America, and you won't find them anywhere at the price I can offer here. If you bought them separately, they would go for $151. I can do a special price of $125 for the set.



 The surprise bestseller of my first three weeks as a world retailer is a glass water bottle with a glass stopper that goes for $5. All vendors here were asked to offer one exclusive for the market and I chose to mark them down from $12.

I have a theory that most people are glad to pay up. Set the price too low and the bad connotations of "cheap" enters the buyer's calculations. At the extreme, a giveaway is considered of no value.

Exceptions exist. Children still believe things are free, living as they do in the golden time of innocence. Business minds like Chair will demand a 50 percent discount as a matter of course, being familiar with markup conventions. Chair also says buyers are vulnerable to Schadenfreude and are particularly happy with the idea that a purchase will come out of the seller's hide, completely without profit. And some people, as shown by my water bottles, find pleasure in being shocked by an unexpected bargain. "That's my bottle!" cried an ingenue. "I bought mine in Paris for $30 and broke it!" She was so happy to find the bottle that she overcame any disgust at the price. Perhaps she imagined herself at a Parisian flea market.

I am always experimenting with prices. If someone says, "That is so cheap!!" I mark the price up 50 percent as soon as they clear the door, if they don't buy. The same bottle that goes for $50 one day might be $40 the next and $60 the next.

I love people who bargain. We are collaborators then in the comradely game price discovery.

A deep exposition of this can be found in the Spec classic Horse Trading by Ben Green, recommended to us by a Yale games theorist and professor of great sagacity.



Laurel Kenner extends a special holiday season invitation to DailySpec readers to visit www.glassery.com. You can find beautiful holiday presents, lovely hostess gifts and a wide range of glass containers for food storage. Here is our holiday catalog. Or, call us toll-free at 855-707-8800 and let us put together the perfect gift package for the people on your list. We specialize in corporate gift-giving.



 For 20 years, I've been hearing nothing but accolades for China, from Jimmy Rogers and many others. So when I finally had the opportunity for a visit, I went prepared to be wowed.

I was wowed, all right. As in, "Wow, this is the most depressing place I've ever seen. When can I go home?"

Aubrey and I spent 20 days in China. We signed up for a typical, plain-vanilla tour sponsored by Harvard Alumni Association: Beijing, Great Wall, Xian, Chongqing, Yangtze River cruise through Three Gorges, Shanghai.

In Beijing, pollution was so severe that the city was dark all day. A Chinese friend who showed us around said that a sighting of blue sky is a noteworthy event. I saw entire cities of giant public housing projects, as unimaginative as any in Russia or Manhattan. I heard over and over of the central government's plan to move farmers into cities, where they are expected to build more public housing projects and hundreds of dams to keep the economy going. I heard of educational quotas designed to keep provincials in the provinces and out of the universities of Beijing and Shanghai. I walked miles along a Shanghai shopping street entirely devoted to Western brands at 100% markups. I experienced the airport delays that result from the military's control of 90 percent of China's airspace. Everywhere I went, I saw unimaginably wasteful public spending.

The happiest people I saw were a family with a farm just out of reach of the water that submerged tens of thousands of other farms in the Three Gorges area after the construction of the dam. They were grinding corn with a wood-and-stone appliance, and allowed Aubrey and the other children on the tour to have a turn. Bunches of sweet-smelling medicinal herbs and food were drying in the courtyard. A fruit tree provided shade.

Among their neighbors was one of the 1.3 million people displaced by the dam project (that "Damned Dam," as people call it.) Mao, 76, received money in compensation for his lost farm, and the government built him a three-story villa large enough to make a Manhattanite envious. A large magnolia tree provides some shade, and a grape arbor is on the rooftop. We sat in his spacious, almost empty living room with an electric fan running. Yes, he has electricity supplied by the dam's hydroelectric power, for 30 yuan a month (about $5). But he doesn't have running water. Why not? "He says the water tastes bitter," our interpreter told us. "He prefers to draw the water from a well." So this elderly man fills a pail with water when he wants to make a cup of tea, or flush the privy. He is alone most of the time, because his family members work in distant cities.

The Three Gorges power project was supposed to supply 6% of the China's power; it now supplies 3%, and silt is clogging the river.

The most out-of-control development I saw was in Chongqing, where the now-disgraced governor Bo Xilai spent tens or even hundreds of billions of dollars on public works and housing projects. He also led a revival of Maoism and the Cultural Revolution. His trial was supposed to begin this month, and dozens of reporters showed up only to be told that there was no trial. Bo was a demagogue who represented a throwback to China's dark days. American leftists liked Bo Xilai because he talked about narrowing the gap between rich and poor. Wikipedia has a good summation.

In sum, I saw everywhere evidence of pharaonic power making moronic decisions. The Cultural Revolution officially ended in 1976 with the death of Mao, but I believe it continues. I have never seen a country destroy its own past quite as effectively as China has done. As a result, it is a country without charm, with a likely future that bears much more resemblance to the post-industrial nightmares of William Gibson and "Blade Runner" than to a shining city on a hill.

I was therefore astonished to find Jimmy Rogers extolling central planning and the one-party system in in "Street Smarts." I have regarded Jimmy as a kindred spirit since first hearing him back in 1994, and I was delighted to meet him at Vic's libertarian junto. I have enjoyed reading all of his books, and his determination to have his daughter learn Mandarin inspired me to enroll Aubrey in Chinese lessons. As much as I admire him, I suspect that he has, incredibly, committed the trading error of falling in love with his investment. I'm not privy to information about his financial holdings; I mean the investment he made by selling his New York home and moving his family to Asia. He writes that he did so because he wanted his daughter to grow up speaking Mandarin. Jimmy doesn't just defend Singapore's one-party system; he rates it superior to American democracy. The Rogers family lives in a nice villa in Singapore. Has Jimmy visited a Singapore family in their cramped public housing apartment, as I did when I visited in 2004?

As owner of a retail glassware business, I trade with Chinese suppliers. I find that the people I work with are hardworking, responsive and willing to experiment with new designs and ideas, unlike some of their American counterparts. I wish them a better future.













 This is some good reporting about yesterday's interesting mini crash:

"Fake Post Erasing $136 Billion Shows Markets Need Humans "

Like aligators lurking just below the surface, gazelles and wildebeast are pulled under by deception. From a micro mechanic point of view, such a fat finger drop might weaken the support structure of the depth by eating away supporting bids despite the subsequent rise. Testing needed.

Laurel Kenner writes: 

When the crocs have eaten they get sleepy, and the other members of the herd can then cross the river.



I was skiing in Vermont recently and as is usual for skiing in the northeast, the slopes weren't as deeply covered with snow as one would wish. When one attacks a steep run in these conditions, it is guaranteed that the center of the trail will be bereft of snow — thin cover is the term we use euphemistically to indicate ice and rocks — mostly ice though. When this happens, there can usually be found some snow piled on the edges of the trail, it having been pushed there by previous skiers who made all their turns in the center, their scraping edges clearing it away off of the underlying hardpack and pushing it to the sidelines.

Skiing in such conditions can be done, but not without incurring greater than normal risk. And it is usually not as satisfying as skiing using the entire available path whose deeper, more sweeping turns are somehow more satisfying and which provide greater control. But under these conditions, staying in the center is deadly so advanced skiers will stick to the edges of the trail, making all of their turns in rapid succession on what is in effect a trail only two or three feet wide. This means that turns must be small in degree and therefore must happen very quickly so as not to allow the tips to remain pointed straight down the hill and therefore incurring excessive speed. This kind of skiing requires conditioning, linking extremely rapid turns is exhausting and one must not attempt this when fatigued as the resulting inability to really push hard and dig can be catastrophic. It also requires some nerve, for one, keeping near the edge puts one in dangerous proximity to the treeline (or the edge of the abyss -as the case may be) and one slip at high speed and it's all over. And it means high speed, even while carving one edge after another in succession, the lack of available surface on which to gain traction means keeping the tips pointed perilously close to straight down the fall line. Mistakes at these speeds tend to have greater than normal undesirable consequences.

As I enjoy the speed, I will make one or two runs in these conditions just for the thrill of it, but this kind of tight skiing in a narrow and steep path requires tremendous concentration and loses it's appeal rather quickly. I will spend the majority of my time on tamer runs with more snow, even though they may be more crowded, so I can make the more gratifying, longer, carving turns that I prefer.

Jeff Watons writes:

That's just like surfing big waves vs small waves.I am not comfortable in the brutal conditions Mr Sogi San surfs on an every day basis. In those conditions, I will look for the rip current to get outside, paddle and make a bottom turn, and ride it in. Like typical Sunset. I don't stay out very long as I did when I was younger when it is big. But if the waves are 2-3' overhead, I'm good all day long. I'll still find the rip to make paddling out easier, but I'll attack the wave harder. But some of the very best days are those waist-chest high waves where you cruise on a long board, and catch the glide. However, during calm conditions I have suffered the greatest traumas while surfing. Broken vertebra, herniated discs, tendon and ligament damage, broken nose, etc. Somehow, being relaxed while it's calm is more dangerous then when it's big. Or maybe I'm more careless when the waves are small, and a bit reckless thrown in for good measure. Carelessness happens in the markets also. You start taking your profits for granted. It's humming along nicely with all your positions in the green, then wham, the Mistress gets a little PMS(no sexism intended) and throws the whole system off balance or upsets the cart, and your account suddenly needs a tourniquet. The lesson here is to keep your guard up at all times.

Jim Sogi writes:

 Just back from backcountry skiing in the Eastern Sierras. The conditions were snow that was about a week old, with very cold temperatures, and no wind. The sun made a crust where solar energy hit, so the powder stashes were hidden on north facing aspects where there were old growth trees. The cold had dried out the snow making it sparkle and soft and creamy sugar which was excellent for skiing.. Though it had not snowed for over a week, in the shade, on the north facing slopes shaded by old growth pine where the sun did not affect the snow there was beautiful sugary soft powder. It took some doing finding these niches and some hiking to get there and fighting some pesky brush at lower elevations. No one else seems to have discovered these hidden stashes of nice powder. This reminds me so much of the markets, when even in less than optimal conditions, there are hidden stashes of unridden goods. It takes understanding of the underlying processes that create and destroy snow, the equipment and will to get there, and the ability to ride those conditions. Its surprising in such a huge mountain range that only in such limited conditions would there exist such fine skiing. The last day, new wet snow came and turned everything into the famous Sierra cement.

Laurel Kenner writes:

I took Aubrey to our favorite ski place, Telluride, a couple of weeks ago. A drought was on and the mountain was brown, but the resort's snow-making machines had been at work since November and most runs were open. A few patches of grass were visible in some popular places — enough to send a skier head over heels in the old days. The new equipment was somehow able to ride it out, although caution was still warranted. That strikes me as like the market; if you're well-equipped enough with margin and numbers to ride out the rough patches, you can still do well in adverse conditions.

Steve Ellison writes: 

I ski 10-15 times per year and encounter a wide variety of conditions. Light is an important factor. An overcast sky causes what skiers call "flat light". I slow down in flat light because the lack of shadows makes it hard to spot irregularities on the surface until one is nearly upon them. Dense fog is even worse. I have been in fogs in which I could not see the trees on either side and momentarily lost track of which way was down.

I like fresh snow, but there can be too much of a good thing. One day right after a 2-foot snowstorm, I started down my first run and fell on the very first turn when my outer ski caught some snow. I pushed off my hand to get up, but my arm sank into the snow all the way to my shoulder. It took a few minutes of wiggling and maneuvering to get back on my feet.

Wind is another factor. The Sierras sometimes have very high winds, which blow loose snow off exposed areas. The result is alternating ice and soft powder (in the spots in which blown snow settles). Going too fast at the transition point can result in a fall. On one traverse I often ski, I use moderate wind to my advantage by letting the wind slow me down as I ski into it with no effort on my part.

Duncan Coker writes: 

When backcountry skiing which Mr. Sogi describes another key element is the approach. There are no lifts, so you hike uphill for every turn you will make downhill. It can be exhausting, but also very rewarding and you get to know the terrain including snow pack, the location of rocks, couloirs, tree wells, cliffs and the grade. After enjoying the view at the top you can descend focusing mainly on execution, making some nice turns. Skiing the steeper, untouched terrain has more dangers but is more rewarding.

I love the surfing analogy of "never taking the first wave" alluding to the dangers of being tempted by the first big wave in a set, after a lull. In skiing there are times when it is better to take pass on a run as well. Condition may appear good, but dangers are still there. Ultimately though we all have to "drop in" at some point for whatever activity we are pursuing, and taking some risk is certainly worth it.



The Daily Speculations annual tradition is that we link to Jack Schaefer short story (4,800 words) "Stubby Pringle's Christmas", about the adventures of Stubby Pringle, a young cowboy at Christmas time. We hope you enjoy it and have a Merry Christmas.



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

Kim Zussman writes: 

Volatility is a collective hug.

Daniel Grossman writes: 

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

Laurel Kenner writes: 

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

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

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

Leo Jia adds: 

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



Despite the TV poli-drama, a $2 billion loss carries absolutely no significance to JPM Chase given the size of its asset base. It could be looked at as a rounding error.



 Being a mother is the greatest blessing of my life. (And with a son like A____y, I am grateful every day to be part of a bright new life.) One of motherhood’s great gifts is to draw out all the knowledge and wisdom learned from my own mother and grandmothers. Here is a very small portion of what they taught me. I hope it will make others remember and feel the lovely feeling of gratitude. (Sorry for the departure from the quantitative).

My mother taught me:

- — To test a pineapple for ripeness: Pull on one of the top leaves. If it comes out, the pineapple is ready to eat. (She knew this from working in Hawaii during WWII.)

- — To make spaghetti and chili without a recipe.

- — To look for the good in other people.

- — To apologize

- — To give warm comforting hugs

- — To look on the bright side

- — To get along with little

- — To finely mince garlic.

- — To make garlic bread in the broiler.

- — To make gingerbread cookies and Christmas breads

- — To make gifts

- — To invite the neighbors over for parties.

- — To make shabu-shabu.

- — To eat salads.

- — To cut out recipes.

- — To know that it is possible for a woman to knock down walls with a sledgehammer.

- — To create nursery schools, clothes, pottery, baskets, paintings, Girl Scout troops, friendships.

- — To love plants.

- — To use fish fertilizer on everything growing in pots.

- — To smile at others.

- — To swim.

- — To play piano.

- — To read.

- — To put my shoulders down.

- — To enjoy bouillabaisse.

- — To have a gentle sense of humor.

– To not drag my feet.

My mother’s mother (祖母) taught me how:

- — To test a watermelon for goodness. Knock on them and listen for resonance. She knew this from growing up in the South

- — To make a great coconut cake without a recipe.

- — To heat the pan and sprinkle it with salt before throwing on the lamb chops.

- — To harangue butchers for fresh meat.

- — To tell stories.

- — To keep sit with legs together.

- — To use nail polish.

- — To dress up for Easter.

My father’s mother (奶奶) taught me:

- — – To speak in a musical voice.

- — To grow vegetables and berries by the back door.

- — To know that it’s possible to settle down and thrive thousands of miles from home.




 I saw the movie Jiro and was very moved by the idea of shokunin, which I understood to be humbly doing the same work day after day and always trying improve on it. We had written about it in our book. I also was touched by the father-son dynamic — the father's care in training the son, the son's challenge in succeeding a master. I had much joy in hearing the inimitable auctioneers in the Tokyo fish market, although they spoiled it by underlaying a percussion track. Sad to see that the tuna on display was much smaller even than what I saw when I visited in 2001 — as Aubrey noted.



 I'm wondering why Jamie Dimon is so popular with the media.

He's always treated with kid gloves.

Even today's $2 billion was referred to as a "rare black eye".

Is he married to a black woman? Or gay?

Or have some other fact in his background that leads to his being treated as such a good guy?

I'm so out of things I have no idea what's going on here.

Victor Niederhoffer writes: 

The more one thinks about it, the more that one believes that Dimon and Buffett have the same hallmarks that make them beloved by the intellectuals and the media. What those hallmarks are, I can't put my finger on exactly. Perhaps it's a zacharian, "your own man says that you must be low".

Anonymous writes: 

It's what I call the no-bullshit bullshit factor. Americans like leaders who say, "The buck stops here. And I screwed up." Buffett took a 300+ million dollar whack on some energy bonds that collapsed. And he stood up and took the blame. And no one blinked. He does that regularly. I think the press likes to hear people stand up and say, "I screwed up. I was wrong. I take responsibility. This was bad and stupid." There are countless examples of this in politics, sports, commerce, etc. They don't like people like Audrey McClendon who say things like "I apologize." But who never stand up and say, "The buck stops here and I was wrong."

Victor Niederhoffer adds: 

One doesn't admit "I was wrong" when there are likely to be lawsuits as this wouldn't seem very good to a jury when defending yourself against damages. There must be an exemption from civil and regulatory liability for such activities in support of the greater good here that enables one to take blame for such "egregious" behavior and at the same time get it past your lawyers. 

Laurel Kenner writes: 

The Administration needs a whipping boy, and Lloyd was tired of the job. Anyway, Dimon likes harpooning whales in a highly public, loss-producing way. Remember what happened when he announced to the world that he would be liquidating Salomon's book. Call him Ahab.

Victor Niederhoffer writes: 

Perhaps he serves as a depository and station stop in the revolving door for former flexionic officials when they need money in various forms. Also, as a symbol of the trillions of bail out moneys that were taken away from the forgotten man, and given to the banks to invest in such useful activities as synthetic credit derivatives at the CIO's office (note the symbolic name sort of like showing the tv showing bush war activity while beggars starve on tv during a movie to show you're a fellow traveler), he must be shown to be Holier than the Pope to symbolize the verisimiliture, the halcyon nature of the transfer of the trillions and the reason for the lack of jobs.

Rocky Humbert writes: 

Folks, we can debate the politics, but don't miss the macroeconomics here. If they had done this by making a few hundred billion in new loans, people (but perhaps not the shareholders) would applaud (at first).But if they do the same trade by buying the CDX index, it confuses people. But it's really the same thing. Therefore, I think it's a multi-dimensional cognitive dissonance. Between the people who want the banks to loan. And the people who don't want them to use derivatives. And the people who hate Jamie Dimon. And the people who love Jamie Dimon. And the fact that as a multiple of price/tangible book value, their stock is among the most expensive money center bank. Lastly, the 10Q says that if the yield curve steepens by 100 basis points, their 12 month pretax earnings go up by $549 million. And, their credit losses made a new cycle low.



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

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

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

Victor Niederhoffer adds:

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

Tim Melvin writes:

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

Laurel Kenner adds: 

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

Steve Ellison adds:

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

Kurt Specht comments:

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

Ken Drees adds: 

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

From wikipedia

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

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

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

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

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

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

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

Gary Rogan writes: 

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

The Upas Tree

by Alexander Sergeyevich Pushkin

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

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

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

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

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

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

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

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

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



 My friend is counseling his daughter who wants to pursue a career as a classical musician to double major. My daughter also is a music major and we have discussed this with her quite often. She is a freshman oboist in Chicago. You basically have to be a superstar in classical music, or close to it, to earn a good living and not be hugely dependent on income from teaching. If you love teaching, then its not so bad, but the competition for the larger orchestras is very intense. Plus, several symphony orchestras are cutting back, so the strained economics are more true now than ever. My daughter is on a double major track and it will be a year-by-year assessment process to determine what she does after graduation. Continue on with the oboe in a masters program, if the signs are reasonably positive that she can make it long term, or look for work (and probably a masters too) in her other field. Likely to be accounting or economics.

Laurel Kenner writes:

Studying music confers a multitude of qualities useful in business: discipline, an appreciation for timing, devotion to perfection, the ability to comprehend different voices, a readiness to "hear" change, competence in meeting deadlines, comfort in communicating with an audience. (And music can bring great personal joy.)

Not so long ago, classical musicians were mere servants in the households of the nobility or employees of the church. Even professional musicians today usually experience significant downward mobility from their parents' lifestyle. The pressure to be mobile — to accept jobs far and wide –makes it very difficult for them to maintain stable marriages and establish families. I recommend "Mozart in the Jungle" as a cautionary tale. The oboist in the story ended up becoming a journalist and wrote extensively about the economics of classic music today, as well as the pitfalls of the musician's personal life.)

I applaud the double major as a way to avoid starting at the bottom in an alternate career. But those kids are going to have to work twice as hard as anybody else.

Yishen Kuik writes: 

Certain doubles can be pulled off quite easily - many classes can be applied to several majors. Statistics, for example, is a common requirement for many fields. Skilful negotiation can obtain cross credit approval for a class not yet listed as such.

The most unusual double/triple majors however will be the left brain right brain ones, which tend to have very little overlap. I have yet to meet someone else with my combination : math, economics, history of art.

I have noticed also that just as many Asians of my generation who went to good schools started their careers in the West to obtain better opportunities and experience, post the 1997 recession in Asia, I bump into many young Europeans and Americans starting fresh from school out here in Asia.

These economic migrants as it were have little to lose, no family to hold them back and can be found in all parts of China and Asia in junior jobs. I would not be surprised if in ten years, these intrepid job seekers return to Europe and the US as the next important community of business people who can move seamlessly between Wichita and Wuhan.




 The best returns on investment will be in the U.S. over the next decade. That’s the word from Louis Gave of Gavekal Research, a research firm that provides consistently smart, independent macroeconomic analysis to Wall Street.

The three defining trends of the past decade – skyrocketing U.S. spending on guns and butter, the economic rise of China, and the single European currency – are all coming to a screeching halt. That’s why, says Hong Kong-based Gave, “all of the clients we’ve seen on this trip have been exhausted and grumpy.”

Looking forward, according to presentations by Gave and his colleagues at the University Club in New York City on Dec. 15, the picture brightens in the United States. Government spending, for the first time in decades, has slowed to zero growth. Private job creation has resumed growing. Increasing automation in manufacturing will encourage factories to be located once more in the United States, to minimize transport costs. To get dollars in the future, countries will need to sell not manufactured goods, but assets, and the dollar will strengthen accordingly.

In the self-admittedly Panglossian Gavekal analysis, fears of a 2008-style disaster emanating from a freeze in European banking or a bursting bubble in China are overblown.

Despite all the noisy headlines about European foot-dragging, the European Central Bank has in fact been much more active than the U.S. Federal Reserve in assuring that no Lehman-like event occurs in Europe. The ECB’s decision to provide unlimited liquidity to the banking system for the next three years is the key, rather than any announced deals between Sarkozy and Merkel. The world is already moving ahead. Central banks are preparing for an orderly breakup of the euro. The downside risks have largely been discounted (and no surprises on the upside are possible, given Northern Europe’s unwillingness to assume the collective liabilities that would necessarily accompany a US.-style fiscal union.) The bad news is that European consumer and government spending will decline massively, according to Charles Gave, the senior member of the father-son Gavekal team. The good news for the U.S. is that Europe’s decline will bring about lower commodities prices, a change as significant as resulted from the fall of the Berlin Wall.

As for China, Louis Gave predicts that China will be able to keep its economy growing strongly by moving beyond fixed lending rates and credit quotas to develop a true capital market. The first step was the establishment of the renminbi-denominated “Dim Sum” bond market in Hong Kong at the beginning of this year. The government’s goal was to establish the Chinese currency in Asia as the medium for trade, displacing the dollar – a step as significant as the rise of the Deutsche Mark in postwar Europe. (The French idea of curbing German power by creating the euro has turned out to be less than happy.) The Dim Sum market had a shaky start, as China’s trading partners had a limited appetite for Chinese government bonds and Chinese corporate bonds to hold in reserves. Lately, a parade of U.S. multinationals has been doing $500 million bond issues in Hong Kong with, one assumes, gracious notice taken by the Chinese government.

The bottom line, from the senior Gave: “Buy Schumpeter.”



 Good afternoon everyone,

Would anyone be able to suggest any alternatives to the US dollar that I would be able to put my money into? What currencies or commodities would be worth using to reduce the risk of dollar? I must admit I know very little about this particular subject. I'm not necessarily looking at this as an investment in which I'm trying to get rich, I'm just looking for something that will hold its value better than the US Dollar. As I put money aside for various things in life, I would hope there is something I could have that would be worth the same ten years from now as it would today. Any insights or suggested reading material would be appreciated.



Tyler McClellan comments: 

If you want to buy things in dollars in the future then you'll want to hold dollars.

Gary Rogan counters: 

That's like saying, "if you want to put gasoline in your car in the future you need to own gasoline today". Given the 90%++ loss of purchasing power of dollars in the last 100 years there just could be better alternatives than holding them today. If the point is that nobody knows what they are with any degree of certainty, that's a valid point. 

Anton Johnson writes: 

Inflation protected (at least to the extent of official figures) US series I savings bonds seem to be a decent savings vehicle, especially when they are accumulated over time. Unfortunately, there are minimum ownership periods and the maximum annual purchase is limited to 10K per person.

Craig Mee advises: 

Beware of selling the low, Corban, effectively adding size in a market that's been trending south for some time.

If Euro goes to the dump, and USD goes bid a la 2008-09, then that may be a nice way to offload USD then and say buy Aussie at 60c to the USD. (We do have stuff in the ground that helps, although with interest rates cuts just coming through, it appears some goodwill that was present at the start of the year is being priced out of the market against the USD).

Good luck. Oh…beware of the Fed, or in this case FEDS, to up end things at any time…. though if history only always repeats to the letter, it would make investing a wee bit more straight forward…

Alston Mabry writes: 

With a decent time horizon, you could put some money into corporate bonds and good divvy-paying stocks. That way you get the divs and also exposure to cap gains. just happen to be researching some recently, so here is a diversified group of sample tickers:


Leo Jia adds: 


This is an age of vast changes. For that reason, we can easily lose our vision into the future in terms of what will be more valuable. Even though there are many discussions around the topic, I can't decide easily if the US dollar will be more valueless than any other currencies in the future. Many argue that it will lose more value, but I tend to think that it perhaps will be more valuable than most other sound currencies, for the very simple reason that the US has a more fundamentally solid mechanism of being a most promising country. The very fact that the people with big money are not running away from the US demonstrates it.

There is the notion (as Gary Rogan pointed out) that the dollar has lost 90% of its purchasing power over the last 100 years. While I agree that there has been a devaluation process going on, I don't think the notion should really be understood literally. Many things around any purchase (including venue, environment, safety, transportation, etc) have vastly changed from 100 years ago. All these add legitimate values to the product and hence cost for the purchaser. One can argue that the egg he buys today is not that different from that his grandfather bought 100 years ago. Yes, sure, but things in a social economy can not be taken separately. Many things in it are vastly different from 100 years ago: farmers' lives, air-condition for the chickens, refrigeration along the transportation, etc.

As to what can hold value better for the future, I would like to have agricultural commodities (hope to hear other arguments). I buy into the view that because people in China and India (accounting for nearly 40% of the world population) are getting richer, they will be demanding more higher-scale food like meat which then will demand more amount of lower-scale produces like corn or wheat (I have been actually experiencing the above view personally for the last 10 years in China). Sadly, the production of these lower-scale produces can not be increased easily, so these prices must go up. In the long term, the pressure for the price rise due to the imbalance of demand and supply will be added to the legitimate price rise (as I seasoned in the last paragraph), resulting in much higher prices in dollar's term. One note to add is that the inherent volatilities associated with these commodities along the way should be carefully considered.

Additionally if I may add as an option to where to put your money, it should be into your life, your personal and business interests, and perhaps some interests of any community you are in. My feeling is that this might be more important than anything else.

Laurel Kenner writes: 

 There are no safe havens any more. People have been remarkably complacent about the obvious rigging and zombization of financial markets, the transfer of power to lawbreaking elite firms, the restrictions on capital movement out of the country, the baldfaced lies about the nonexistence of inflation, the steady fiscal confiscation of personal assets, The fact that we still can have a meal at pleasure and joke about our plight means nothing in terms of economic freedom. Unfortunately, the one point that holds true is that the foundation of individual liberty is economic liberty. We have merely slipped back into the iron pattern of historical kleptocracies. Maybe that is why there has been so little effective resistance. Those who protest are marginalized by the mainstream propaganda machines. Case in point: Did the Fed just bail out Europe without anyone blinking an eye, and what does that mean for the global future?The only advice that I have found to make sense at all lately is "Be flexible." We are playing against a relentless statist enemy. Some Specs recommend Australian and Canadian currencies. That's merely a play on commodities. I need not remind anyone here that in the past century, the U.S. government made it illegal to own gold, and that a few upward ratchets on certain margin requirements would kill the commodities market. I don't speak from lack of experience. We are all traders; we all like the freedom that brings; and our livelihoods are in jeopardy.

Good luck to us all. The world has changed, and continues to speed with reckless blindness toward a future that I doubt will turn out well.

Alston Mabry writes:

Here is a question that might elicit some interesting answer:

Let's say you have $X (USD) that you must commit for the next five years. Where would you put it? Leave it in dollars? (Though a 5-year Treasury would make the most sense for "cash" with a 5-year lockup.) Gold? Stocks? Some other currency? Norway bonds? And why?

I don't have a good answer to that yet.

Steve Ellison writes:

My starting point on this question would be that diversification, including international diversification, reduces risk. The US economy and the Eurozone have roughly equal GDPs. Japan and the UK are smaller but still quite significant. China is tied to the US dollar. Therefore, a diversified cash portfolio might be 40% US dollars, 40% euros, and 5% each of yen, pounds, Swiss francs, and gold (in recognition of gold's historical role as a form of currency). One could fine tune this allocation to include small percentages of currencies such as the real and Canadian dollar. I would think of this allocation as the equivalent of an index fund, before considering the insights of the many on this list that know more about currencies than I do.




If there has been one consistency in the past two weeks, it is that market reactions have been the opposite of what might be logically expected. I look around three times when I say that for fear that reactions will now switch to the obvious.

Alex Castaldo adds:

Another example today 2011/08/08: The newly downgraded 10 Year US Bond went down in yield by 24 bips.



 Tone is as important to music as pitch. You've heard a new violin player playing the notes on the chart but the tone is awful. Yo Yo Ma plays sweet modulating tones. Focusing on just price without regard to tone leaves out relevant and important information.

The market has tone. Quiet, jumpy, weak, anxious, thin, bullish and dense internals. The environment, political, news, economic, social, international also establishes a mood and tone to the market that cannot be ignored except at your own risk. The prior tone is also relevant as music is not discrete tones and notes, but a integrated statement over time. Emotion is the main vehicle of music and also with the markets.

Tone both creates emotion and is the result of emotion. Voice carries emotion: The cry of a baby, the angry tones of politicians, the whine of the complainer each has distinct tonal qualities. The tone carries meaning and has persuasive force. The question is how to quantify it or even qualify it to learn the meaning in the market.

Emotion also has established patterns: Denial, anger, acceptance; fear, capitulation, numbness; catastrophe,catharsis; infatuation, love, boredom, hate. If tone both reveals and creates emotion, understanding the tone of the market will reveal its emotional state and reveal its emotional stage giving a clue to the next phase.

Jordan Low writes: 

The yogis believe in seven chakras in the human body, each corresponding to one of the seven pitches, each corresponding to a different emotion. The stages of grieving you describe go from lower chakras/pitch to higher.

Soros reacts in his gut, which is one of the lower pitches — probably a survival type of emotion. The tone probably is the intensity of the energy at that chakra — I am thinking market volume. We are probably saying the same thing — I find it interesting but am adding quite little.

BTW, the chakras also correspond to the colors in the rainbow, red with the lowest frequency is below.

Laurence Glazier writes:

 For these reasons I find alternating attention between composing and trading congruent, as they are carriers of emotion at different scales.

From my point of view the Elliott Wave framework fits well, being a sequence of eight stages whose final three are labelled A, B, C. As I often use a fractal structure in music, that is another similarity. I may be slow, but it has taken me years to internalise patterns which are lately becoming clearer to see.

Yesterday I put sixty years of the S&P into Advanced GET. The astonishing rise from the doldrums must, in part, be a distortion reflecting the love of printing money, but even were this transcribed from dollars to ounces of gold, I think the ascension of computer followed by internet technology would show how much these developments have added to the wealth of the world.

As I move between Monthly, Weekly and Daily views, the software messes up the precision of my placement of wave counts, and I am thinking to move the whole thing into a graphics program, with the different scales, whether grand or minuettes, callable up via layers. This would help me watch day by day what's going on, a work of art within an art program.

It is impossible to experience in full a piece of music from a short excerpt, and I think likewise the Market, with all its waves and eddies, needs attention from up close and afar.

Also, the rainbow, the universal belief that there are seven colors in it may stem from Isaac Newton's assertion, which was based on his mystic ideas about numerology.

However if you look at a rainbow and count, it is not clear whether blue, indigo and violet are really three colors or two. Also the yellow band is very narrow, though often depicted as equal to the others.

I think context in time is part of what the Market (like a human being) experiences, so as well as volume one might want might look at moving average based indicators, and fractal perspectives.

Laurel Kenner writes: 

Mr. Sogi is exploring an endlessly fascinating topic with his exceptional lucidity and depth of experience. Great performers play the heartstrings by varying tone within phrases. (They also vary dynamics and duration of individual notes in phrases.) They learn how to do this by spending years with master teachers and figuring things out on their own. That's why synthesized music can sound only like an approximation of the "real thing." Because the market is a bazaar of human voices, expressing workaday practicalities, aspirations, fears and strategies, I don't think it's unduly anthropomorphic to look at it as a great performer. And while some of a great performance is spontaneous, much involves muscle memory that training has made reflexive, and must therefore be susceptible of being "sussed out."

Rocky Humbert writes: 

 There's an old game/tv game show called "Name that tune". The gist is that competitors would try to identify the title of a song by hearing only the first X notes; the winner would correctly name the tune in the fewest notes. Human memory being what it is, it was possible to name many popular pieces and classical symphonies by hearing only the first measure of a piece.

However, if one picked a RANDOM measure from somewhere in the middle of the same piece, it was vastly more difficult to identify the title correctly with the same consistency.

This is a reflection of how our memories work; and this phenomenon may have relevance for people looking for patterns in the middle of time series — as opposed to the beginning and ends of time series.

Alan Millhone writes: 

Hello Rocky,

My old friend and top Master checker player, Karl D. Albrecht from Michigan was walking around the playing room full of players at the Tennessee tournament. As Karl walked by many games that were being played into the mid-game he could by sight and memory accurately tell you from what checker opening each board position originated. I found this remarkable.





 In the summer reading vein, I very much enjoyed Alex Berenson's first novel, The Faithful Spy, with his main character, John Wells. The next two books in the series, The Ghost War and The Silent Man, were very good, too. The next book, The Midnight House was just okay, and Berenson's most recent effort, The Secret Soldier, is unfortunately a failure.

Jim Sogi writes:

My son turned me on to the spy series by Vince Floyd, including Transfer of Power, The Third Option, Extreme Measures. The books are surprising well written current historical fiction with three dimensional characters with full backstories and touching personal details. The bad guys are complex but the series has a decidedly non PC attitude, so that's fair warning. Its good entertainment though and hard to put the books down. Great for airplane or vacation reading. The main character is an assassin but has realistic doubts and feelings. I briefly compared it to Clancy, but it is astonishing how the technology just a decade back seem so archaic and outdated. I have them downloaded to Kindle for iPad.

David Hillman writes:

And given our particular interest in markets here, one might enjoy the David Liss's "Benjamin Weaver" series. Set in early 18th Century London, Weaver is a former pugilist and highwayman come "thief-taker", i.e., private detective. The son of a Jewish Portuguese stock jobber, his cases involve intrigue and deception revolving around the relatively newly formed stock exchanges, combinations, Bank of England and corporate giants of the time.

Liss' has also written "The Coffee Trader", set 50 years before in Amsterdam, the locus of which is cornering the market in the newly discovered "coffee fruit" and "The Whiskey Rebels", set in America just after the revolution focusing on the attempts of those whiskey rebels on the western frontier attempting to bring down Alexander Hamilton and the Bank of the U.S.

Liss began by writing his first Weaver novel, "A Conspiracy of Paper" while a doctoral candidate at Columbia. All are well written and offer looks at finance and markets, many pretty familiar, not to mention murder, a large cast of ne'er-do-wells, prostitutes and a pretty frank look at the cultural and social biases of the time. He even has a Watson-like sidekick for Weaver, Elias Gordon, a likable bounder of a Scottish surgeon given to bleeding and such, who also schools Weaver in scientic method and probability. A lot going on, fun and good stuff.

The Collab writes: 

William Gibson plays with the theme of pattern recognition in his technologically edgy, subversive books. One of the books, in fact,is called "Pattern Recognition." I have devoured all of them as soon as they come out. The newest one, "Zero History," contains the throwaway insight that when/if someone succeeds in aggregating order flow, the market will cease to exist. Hubertus Bigend — not a hero or a bad guy, but rather a nexus — is one of the most fascinating and ambivalent characters in fiction — comfortable with unpredictability, glinting Bertelsmann, Ralph Lauren and Goldman Sachs.



I am reading "Battle Hymn of the Tiger Mother," the book excerpted in the WSJ article for which Mr. Coyle kindly posted a link. Aubrey is taking Mandarin from a disciplinarian Chinese native, and I said I'd be interested in her opinion. Her reaction to the article: She was furious. She had grown up under just such a mother, and it wasn't a happy memory. Her mother would say, "I would rather have given birth to a piece of roast pork than you" to shame her, and the recollection still stung, years later. We may admire the Chinese kids for their "A" report cards, but they in turn envy the American ability to think "out of the box," innovate and found big enterprises.

I like Ms. Chua's style, and the book certainly is thought-provoking. I agree that the best way to self-esteem is to master a skill. However, the short biography she provides in the book provides an unwitting clue as to the drawbacks of the Chinese approach. At Harvard, she was unable to ask questions in class, as her instinct was to simply take notes on everything the professor said. When it came time for a job interview for a Yale professorship, she found herself tongue-tied and wasn't hired. (She did get the job seven years later, after writing a cutting-edge book on how ethnic conflicts doom democratic majority rule in the Third World.)

Dylan Distasio comments:

David Brooks responds to Amy Chua with piece titled "Amy Chua is a wimp ".

I have the opposite problem with Chua. I believe she’s coddling her children. She’s protecting them from the most intellectually demanding activities because she doesn’t understand what’s cognitively difficult and what isn’t.

Practicing a piece of music for four hours requires focused attention, but it is nowhere near as cognitively demanding as a sleepover with 14-year-old girls. Managing status rivalries, negotiating group dynamics, understanding social norms, navigating the distinction between self and group — these and other social tests impose cognitive demands that blow away any intense tutoring session or a class at Yale.



 I don't have kids, but this article on "Why Chinese Mothers Are Superior" seems to relate to some of what has gone around before about raising kids and Asian children generally being ahead of the curve vs their Western counterparts.

Nigel Davies comments:

The Chinese authoress, Ching-ning Chu, described this tradition as '5,000 years of child abuse.

Steve Ellison writes:

Since the reaction to this article so far seems 100% negative, I will put in a good word for it. My (Korean immigrant) wife and I had a similar parenting philosophy, although not as extreme. Most American parents demand far too little of their children. I appreciate the author making the point that parents have a right to demand high standards and achievement.

My son attends a school for highly gifted students. Even among this population, some parents complain there is too much homework. By contrast, we hosted an exchange student from Korea in our home. This student while in Korea had gone to school as required from 8:00 am to 3:00 pm every day and then attended another school until 11:00 pm every night to get ahead in academics. This regimen is typical for children of families of means in Korea.

The author of the Journal article came to the US not from the People's Republic or a Chinese-majority jurisdiction, but from the Philippines, where there is a small Chinese minority that is far wealthier than the general population and is hated for it. The author's aunt was murdered by a mob during ethnic violence. The approach outlined in the article was probably necessary to survive in the Philippines.

Nigel Davies writes:

I see your point Steve, but to me the whole thing looked like an ill-tempered rant because the lady concerned attracted disapproval at the party she went to.

As a chess teacher I've taught youngsters from many different cultures. The ones I turn down flat are the pushy ones who have decided their kid will be a champion. The reason I refuse is simple - I've seen these kids burn themselves out as they try to perform well enough to be loved. On the other hand there are kids that genuinely developing excellence with full parental encouragement and support.

These two approaches may seem very similar but they're most definitely not; one comes with conditional love. And I think that it may be more valid to try and correlate the article's recommended approach with the kind of political regime that exists in China; brutality fosters brutes.

Laurel Kenner writes: 

I am reading Battle Hymn of the Tiger Mother, the book excerpted in the WSJ article for which Mr. Coyle kindly posted a link. Aubrey is taking Mandarin from a disciplinarian Chinese native, and I said I'd be interested in her opinion. Her reaction to the article: She was furious. She had grown up under just such a mother, and it wasn't a happy memory. Her mother would say, "I would rather have given birth to a piece of roast pork than you" to shame her, and the recollection still stung, years later. We may admire the Chinese kids for their "A" report cards, but they in turn envy the American ability to think "out of the box," innovate and found big enterprises.

I like Ms. Chua's style, and the book certainly is thought-provoking. I agree that the best way to self-esteem is to master a skill.

However, the short biography she provides in the book provides an unwitting clue as to the drawbacks of the Chinese approach. At Harvard, she was unable to ask questions in class, as her instinct was to simply take notes on everything the professor said. When it came time for a job interview for a Yale professorship, she found herself tongue-tied and wasn't hired. (She did get the job seven years later, after writing a cutting-edge book on how ethnic conflicts doom democratic majority rule in the Third World.)

Charles Pennington writes:

This is a fascinating and valuable book, which I've halfway completed. It is a defense of her unfashionable parenting philosophy, and she is not afraid to describe how it works in real life, complete with many anecdotes that make herself look bad. I think adults end up appreciating the special efforts that their parents made to impart on them a special skill. Maybe by now even Andre Agassi can appreciate his father's unrelenting efforts to turn him into a great tennis player.

I value the book because it gives me a realistic picture of the trying times that my wife and I can expect when we harness and over-ride our children's impulses and push them in a better direction.

The article has generated thousands of written comments, many of them harshly negative, even vicious. Ms. Chua gets some extra points in my book for boldness and bravery.

Russ Sears writes:

Beyond talent, it take a combination of the three c's of developing and spotting genius are commitment, confidence and creativity. The trick is that non of these can be crammed down a child but nurtured and grown. Further, children will react differently to anyone method so the instructor/coach must tailor the methods to the child. Last, but also perhaps most importantly, each discipline, talent or endeavor each requires a different combination of these c's and a highly expert opinion of how when and where to apply them, in order to obtain greatness.

For example a high bar, can create drive in one kid, perfectionism in another and burnout (as Nigel suggest) and pattern of quitting in others. As the Chinese example shows simply demanding commitment leaves even the obedient fearful lacking in confidence and reliant on the instructor to guide them stifling creativity. Teaching a child to love a sport, hence commitment is a necessary groundwork, and a parent/ coaches first job, but not sufficient. The idea that you can out work everyone is a fatal flaw to many scholars athletes and business men. The greats are all highly committed and their love and understanding will always out perform those that simply are counting on toughness and commitment.

Confidence, however, is only in moderation or it become hubris. It too must be developed and work. Testosterone can give a nature edge. Steroid abuse on the other hand may give a physical edge, but also tends to develop overconfidence superman syndrome. This is why I believe most of the athletes that get caught started taking them after they already developed some level of greatness. However, if you are to thrive in times of great stress rather than choke you must have confidence. Enough confidence that you do not over think the process or the exam, but enough practice, talent and knowledge than your instincts are spot on. The opposite of confidence is of course anxiety or unnecessary fear. 1 in 8 American suffer from an anxiety disorders. This therefore would be a good place to start in understanding how behavioral psychology effects investors.

Creativity by itself generally need disciple of commitment and confidence to be applied right. When to make the exception to the rule? When to trust yourself rather than the authorities? What is the right question to ask? Answer these creative questions correctly and you are on your way to greatness. Creativity however, often is either completely ignored in recognizing genius. Or it is often thought to be the only thing that matters. Both views kill the budding geniuses.

Jeff Watson writes:

Reading all of this parental preparation makes me feel like I dropped the ball as a parent as I did very little except to minimize hangups, teach my son right from wrong and allow him to be the happiest kid I know with a million friends and several beautiful girlfriends.. His mother was instrumental in making him into a scholar and she didn't have to work at it very hard at guiding his inquisitive nature as there was genetically coded DNA ensuring his "Knack" for the classics. There was an expectation that he would always learn, do well, think critically, and we were not done with force, coercion,punishment, or any other psychological devices. I was there to teach him to be a man, to do sports, surfing, skimming, and skating, shooting, archery, golfing,, bandage his knees and elbows and tape up knees and shoulders. I was also his biggest cheerleader, proofreader, outline fixer, and science teacher, who also taught him to cook and bake like a chef and prepare BBQ like a Black Southerner from Memphis.. My son might not have Mandarin under his belt, but he has Latin, Greek, Spanish, French, Italian pretty well down, both conversational and written. The jury is still out as his grad school is looming and we don't know what will be his choice. I offered him a year off after school just to hang out and surf before he either resumes his career or schooling. I wish someone had given me a year long surf break at his age as I think I would have done better in all my business because I wouldn't have been uptight for a couple of years. Of course, the theories of Galton correspond with my family and the previous generations , and I expect them to continue into the future. Hopefully, the children of the list members can also improve their progeny by marrying well, creating the right circumstances, and not pushing the kids into overload as there's a delicate balance. Just being members of the list is indicative that your kids won't be hanging out in pool halls, OTB, Illegal Pokers and numbers games, and that's a very brilliant head start that 70% of the fellow New Yorker kids can't get.

Yishen Kuik writes:

Perhaps one notion that might be useful is the "casualty" rate.

When we say such-and-such a profession is a "rock star" business, we usually mean that the number of winners in that industry are few, most of the rest are struggling, and the winners take a massively disproportionate amount of the prizes in that industry. The "casualty" rate is very high. Being a musician or an artist is a rock star business, being a doctor is not.

In Singapore, parents push their kids and will go to great lengths to sacrifice for their education. In general, we are a law abiding, conscientious, well educated and pragmatic people. However we are not known for thinking big, taking risks or innovation. And while most Singaporeans are close to their extended families, dining with them once a week, it is unusual that parents enjoy close friendships with their children. The relationship is largely characterized by respect and filial piety.

Because of this system of strong family networks, strong interest in pushing children and demanding academics, not many Singaporeans fall through the cracks
- we are a low casualty rate society. Not very good at producing rock stars, but quite good at not producing bums. This is great for kids who need the discipline and guidance and would otherwise grow up to be bums, but one could argue limits the potential of those who could have been great.

This has worked well for our small country - a stable system and a non-striking, non-unionized, trouble free and educated labour force has proven to be a winning formula as a service providing small nation that supports business between larger nations. But clearly this is not a formula for a large industrialized country, which needs to depend on the innovation of the few to create sufficient large scale value. Perhaps a system that sacrifices the many in order to locate and promote the elite few is the natural solution for an innovation driven large economy? I do not know what the answer is.

Nonetheless, Singapore is a very young country and has only been wealthy since 1980. I would expect attitudes between parents and kids to shift in the next generation.

Alston Mabry comments:

Very nicely articulated, Yishen.

An interesting thread overall.

I heard the author of the book in question speak briefly on NKR today and heard that the subtitle of the book is:

This is a story about a mother, two daughters, and two dogs. This was
*supposed* to be a story of how Chinese parents are better at raising kids than Western ones. But instead, it's about a bitter clash of cultures, a fleeting taste of glory, and how I was humbled by a thirteen-year-old.

Jeff Watson adds: 

I don't know, all these people drag out scientific ways to raise kids to be smart, to be champions. They push the kids pretty hard , aiming for Harvard, Yale, etc and one might expect some blow-back from that harsh regimen.. Fact is that parenting isn't an exact science and if you raise a responsible, happy, free from baggage, healthy, well spoken kid, you have 80% of the battle won.(I don't know what studies show but would suspect that well adjusted, happy kids probably do better in college than their non-adjusted peers) The schools previously mentioned like a story for admissions, and not the same story and school path and activities to get there that the great washed multitudes present them. So many in this world are competing through their children and I suspect that the outcome in this type of contest will not bode well for either child or parent especially if the child doesn't get into the first couple of choices..

Sometimes, a kid just needs to take an afternoon off, lie on his back and look up at the clouds and just imagine. Does a world of good in so many ways. If a kid is meant for an IVY school, he will get into an IVY school as there's always more than one way to skin a cat.

Jim Sogi opines:

Many modern children are horribly spoiled. It doesn't do them any good in the future. Their parent's are afraid of harming their delicate psyche's and end up with spoiled monsters that no one likes. You don't have to lay weird trips on them either, mostly that has to do with withholding love, or disapproval both of which create their own sick repercussions. A simple well defined set of expectations and rewards and time out or denial of reward is enough. Love must be unconditional. I see parents doing the absolutely wrong thing all the time, rewarding bad behavior and ignoring the good.

David Hillman writes:

I don't have children either, but I'm not certain having children is a prerequisite for recognizing common sense and good parenting. Is it that difficult to distinguish the difference between yelling at a child who's about to put his/her hand to a hot stove and yelling at a child skipping up the aisle at Walmart harming no one, i.e., just being a child? Or, what about a swat on the backside when a kid is being particularly rowdy and inattentive to commands to stop versus a backhand across the face to "put the fear of God in him/her"?

It was my great fortune to be born to parents who loved unconditionally and nurtured, yet they employed measured discipline and never spoiled. They told us "you can be anything you want to be and do anything you want to do if you apply yourself". The sky was the limit and we believed them. The only thing they absolutely insisted upon other than a "yes, ma'am" and a "no, sir", was that we were going to college come hell or high water, but what we did with our lives beyond that was our choice and they provided appropriate guidance. They led by example, not by threat of punishment and in the end produced a couple of reasonably well-balanced and self-satisfied [term used rather than 'successful' as the definition may vary from one to another] offspring.

Still, to this day, they occasionally lament their parental failings ["in retrospect, we should have…", "if we had it to do over again,……"]. While I, too, recognize some of their missteps privately, I tell them no instruction manual pops out of the womb with a kid, they were great parents, did the best anyone could, which was better than most, and I believe that to be true.

This discussion of parenting methods brings to mind a couple of items from long ago that provide contrast.

One, the clarinet lessons of my youth. Sister Mary Rasputin, a wizened, 4' tall 80 pounder taught me to play using the 'threat of physical abuse and eternal damnation' method. Her metronome was a 15" wooden ruler slapped rhythmically in the palm of her hand. She 'coaxed' exercises and pieces from my ebony Schmoeller & Mueller Bb licorice stick with red-faced, narrow-eyed, bared-tooth, shrill, 100db, spittle-laden complaints, insults, beratings, accusations and threats. Instead of motivating, however, I found intimidation worked quite the opposite with me. No matter how prepared, I dreaded the weekly 'lessons', hated the practice assignments and fell out of love with the clarinet. Eighth grade graduation, still a few years off, couldn't come soon enough. Yet, as it came and went, this instruction appeared fruitful as I wound up with 1st place medals from statewide competitions and was seated 2nd chair in the high school orchestra. But, I learned by intimidation and rote, didn't learn much about music theory until decades later, played mechanically, not with passion, and can't help but think I'd have been better off sitting in my room studying my Rubank Elementary Method and mimicking my Acker Bilk records.

Fast forward to interaction between two former mutual acquaintances. One was a very assertive sort who grew up in a middle-class family with a 'tough love' father, the other grew up in a somewhat disadvantaged but reasonably loving family. The former had had some business success, but even his own brother once told me "He's a great guy to be around, but I'd never do business with him." The latter had not made his mark at that point. He was ambitious, but more or less muddled through life looking for the 'big hit'. The former had material goods and proudly showed them off. The latter judged his own self-worth by comparing what luxuries he didn't have with what others had. The former often publically berated and ridiculed the latter in an effort to motivate him. The latter did not respond well. All the berating did was help him feel worse about himself than he did and perform poorly.

For one who is not a parent, it is still comforting and often poignant, and it gives me hope for future generations, when I see parents stopping in the grocery to quietly instruct a child on proper etiquette or behavior rather than employing a 'terrible swift sword' approach to discipline. And, I will frequently approach that parent and complement him/her on the obvious parenting skill. The reaction is always positive. I can't help but think that kid is going to be of more use to society than will one who's had good behavior pounded into them.

Yes, fear can be a strong motivator. We all know that and there are plenty of clear examples of success and heroics motivated by fear. In my own case, tho', I went to college and have done well because of it, but I haven't played my clarinet in years. A persistent nurturing and explanations of 'why' seems to have won out over terror in the long term. That was what worked for me, not a good skull cracking.

The point is there are many methods of parenting and of motivating and of instructing. I've had some parents say to me, "Sometimes you just have to say 'Because I'm the mom!', and I suppose that is so. I suppose also some kids need a 2×4 upside the head to get their attention. But not all methods work for all people. The trick seems to be knowing one's child or student [or employee or patient or spouse or recruit or client or you name it] and trying to recognize and employ the method or combination of methods that will be most fruitful. Not the easiest task and the stakes are often extremely high, especially in the case of child-rearing.

I always thought I'd have been a good parent. Maybe, maybe not. It didn't work out that way. I was either too selfish or not courageous enough to pull the trigger. But, I've compensated by becoming every kid's favorite uncle. And, since I've learned through observation the best kids are like the best dogs and like friends with boats…..you get to enjoy them, but they go home with someone else who has to maintain them, being the favorite uncle works for me.

Yet, I have great respect for those of you who have chosen to repopulate this planet with your 2.1 kids and thank those of you who take the time to know your kids and raise them well and give them the tools they need to help them grow into decent human beings. 'Cause what they become, how they behave, and what they do, will in some way impact me and all of us in some way, and that kinda makes them my kids, too.

George Zachar writes: 

No amount of common sense, good intentions, or book research, prepares one for parenting. 

Jim Sogi comments: 

David's advice to patiently explain in detail the expected behavior is the proper method of parenting. The common wrong method is to say, "No, don't do that." It gives the child no clue as to the proper behavior. Set expectations in writing. For example: Wash dishes once per week, or no allowance. This is clear, since the consequence is obvious. The wrong way is to say, "You're lazy and no good, and I will withhold my love if you don't help around the house more." It is too vague, and the repercussions are not commensurate with the behavior. Yet it is the common tactic I see over and over.



UPDATE 1/31/2011:

Contestants Summary:

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

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

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

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

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

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

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

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

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

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

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

Contracts Summary:

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

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

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

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

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

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

Victor Niederhoffer wrote:

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

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

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

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

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

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

David Hillman writes: 

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

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

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

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

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

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

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

Market direction picks are wanted:

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

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

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

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

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

Bill Rafter adds: 

Suggestion for contest:

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

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

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

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

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

Ralph Vince writes:

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

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

I'm going to sit and do nothing.

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

Gordon Haave writes: 

 My three predictions:

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

Dollar ends 10% stronger compared to euro

All are actionable predictions.

Steve Ellison writes:

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

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

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

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

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

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

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

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

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

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

Jan-Petter Janssen writes: 

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

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

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

Vince Fulco predicts:

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

Additional points/guesstimates are:

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

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

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

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

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

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

Potential negatives:

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

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

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

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

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

Mr. Albert enters: 

 Single pick stock ticker is REFR

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

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

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

Dan Grossman writes:

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

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

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

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

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

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

Best to all for the New Year,


Gary Rogan writes:

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

Wildcard: Short Netflix.

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

Equal Amounts in:

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

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

12/30 closing prices (in order):


Bill Rafter writes:

Two entries:

Buy: FXP and IRWD

Hold for the entire year.

William Weaver writes:

 For Returns: Long XIV January 21st through year end

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

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



Ken Drees writes:

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

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

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

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

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

Happy New Year!

Ken Drees———keepin it real.

Sam Eisenstadt forecasts:

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

S&P 500       1410

Anton Johnson writes: 

Equal amounts allocated to:

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

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

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

Scott Brooks picks: 


Evenly between the 4 (25% each)

Sushil Kedia predicts:


1) Gold
2) Copper
3) Japanese Yen

30% moves approximately in each, within 2011.

Rocky Humbert writes:

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

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

Dylan Distasio comments: 

Gawin mo magsalita tagalog?

Gary Rogan writes:

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

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

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

Tim Melvin writes:

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

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

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

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

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

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

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

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

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

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

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

Other than that I am clueless.

Kim Zussman comments: 

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

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

A ball of confusion!

4 picks in equal proportion:

long XLV (health care etf; underperformed last year)

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

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

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

Alan Millhone writes:

 Hello everyone,

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

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

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

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

Happy New Year and good health,



Jay Pasch predicts: 

2010 will close below SP futures 1255.

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

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

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

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

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

Chris Tucker enters: 

Buy and Hold


Wildcard:  Buy and Hold AVAV

Gibbons Burke comments: 

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

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

2) Ride your winners.

3) Cut your losses short.

4) Keep the size of your bet small.

Then there are the "special" rules:

5) Follow all the rules.

and for masters of the game:

6) Know when to break rule #5

A prosperous and joy-filled New Year to everyone.



John Floyd writes:

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

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

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

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

A Mr. Krisrock predicts: 

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

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

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

4…commodities are peaking ….

Laurel Kenner predicts: 

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

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

Pete Earle writes:

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

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

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

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

Happy New Year to all,

Pete Earle

Paolo Pezzutti enters: 

If I may humbly add my 2 cents:

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

J.T Holley contributes: 


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

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

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


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

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


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

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

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


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

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

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

Sex and Speculation:

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


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


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

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

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

Long - Common Sense.

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

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

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

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

I had to end on a Long note.

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

Russ Sears writes:

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

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

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

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

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

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

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

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

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

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

Yanki Onen writes:

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

Now the ideas;

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

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

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

-Sell contango Buy backwardation

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

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

- Leveraged ETFs suckers play!

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

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

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


Yanki Onen

Phil McDonnell writes: 

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

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

SLV closed at 30.18 on Friday.

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

Net debit is .50.

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

George Parkanyi entered:

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

BUY SILVER at open

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

SELL and then SHORT SILVER at open

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

COVER and then BUY SILVER at open

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

3 JAN BUY PLATINUM and hold to end of year.


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

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

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

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

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

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

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

Marlowe Cassetti enters:

FXE - Currency Shares Euro Trust

XLE - Energy Select

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

GDXJ - Market Vectors Junior Gold Miners

AMJ - JPMorgan Alerian MLP Index ETN

Wild Card:


VNM - Market Vectors Vietnam ETF

Kim Zussman entered: 

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



I am so sorry to hear that Bill has passed on August 15th, 2010. He has been a highly valued friend and mentor since 1992, when I was aerospace reporter for the Daily Breeze in Torrance. I left Southern California for New York in 1994, but we stayed in touch over the years.

I had hoped to introduce my four-year-old son to him. Aubrey is obsessed with space exploration, and I had wanted him to know Bill, who will be remembered as one of aerospace’s brightest stars.

My deepest sympathies to Bill’s family.

An obituary ("William “Bill” Everett Haynes, 86, decorated Vietnam fighter pilot, of Rancho Palos Verdes, CA") appears on his web site timeleft.org

Alex Castaldo adds:

Here is a passage Bill wrote many years ago reflecting his appreciation of Daily Spec:

[DailySpec] is often a window on the souls of its members.

And a window on our own souls is often opened when we read what

Others write here.

It is lessons on life.

Chess strategies.

Investment in markets, life, family, nation and the future.

It can be and often is profound and superficial; deep and shallow and always enlightening, even when a writer may not be.

It sends out tendrils seeking answers and finds them, coiled about ideas we would never have found alone.

The [site] lives and throbs with the insights, prejudices, wants and experiences of the members.

There is a selection process at work here, as some find an intellectual home … others move in for a while and then move on.

Those who remain don't always agree and contention boils up, simmers and fades, sometimes leaving a residue of hostility but never, never boredom.[…]

Surely we, the weavers [of this tapestry] are much the better for it, and must acknowledge the debt each of us owes to each other, and to the two who first spread the warp and the woof.
Thank you Victor; thank you Laurel. Bill

Also interesting was his post on the national debt from March 31, 2008. (Though the figures today are completely different).

Notice to readers: to honor Bill we will stop updating Dailyspec for the next 24 hours.

Laurel Kenner adds:

Bill Haynes embodied the ideals of courage, persistence, mastery and friendship. Young at heart to his death this month at 86, he stayed clear of the cynicism, apathy and fear that often silence those who can offer innovation and guidance to realizing daring visions.

I met Bill when he was in his seventies and nearing the end of a remarkable career in the space industry. I was an aerospace reporter at a Los Angeles daily newspaper. Bill was then working for SAIC, a top space consulting firm. He took on the daunting job of educating me about the industry, inviting me to aerospace conferences where he would be found exchanging choice anecdotes about the beginnings of the aerospace industry or holding serious talks with groups of brilliant young engineers who looked to him as a mentor. He passed along to me his outrage about waste in the industry, but he also inspired me with dreams of unbelievable adventure that might just lie right the corner: voyages to Mars, commercial space exploration, cheap space launches. He introduced me to the ideas of geniuses like Gerald K. O'Neill http://en.wikipedia.org/wiki/Gerard_K._O'Neill and scientists exploring the barriers of longevity.

Bill was doing 100 pushups a day well into his 80s. The Friday before his fatal car crash, he flew the ultralight plane he had just finished building this year. 

Outspoken to the last, the essay he posted on his poignantly titled "Time Left" blog in April of this year succinctly summarized his vision:

*Human Space Exploration <http://timeleft.org/?p=215>*

*The primary current barrier to space exploration is cost; the exorbitant cost of getting into low earth orbit, currently in the high thousands of dollars per pound.  (Space News Apr 21-27, ’97, pg 3: $22,222/lb on the Sp Shuttle; ref NASA) But I see that as a transient problem.  Without going into what we will do specifically to lower the cost of getting in to orbit (although there are a number of efforts under way), we can cite historic precedents for saying that the cost will come down.  Every means of transportation known to humankind has gone through a cycle of high initial costs succeeded by steadily reduced costs until the transport means is available at low cost to everyone.  The earliest example is walking; Luke tells us in the parable of the prodigal son that the father welcomed his son’s return by telling the servants to bring him a robe and sandals. The sandals were generally reserved for persons of stature and were a symbol of authority two thousand years ago. A later example is the horse, which in medieval times was generally reserved for the nobility, so much so that it is called the age of chivalry, from the French “cheval”, for the horses ridden by chivalrous knights.  A modern example is the jet airplane which began as the high cost, limited domain of the military and has now become the transport of choice for millions of people.  That space transportation will be the first exception to this rule seems unlikely,  but the effects of cheap space transportation on our civilization will be much more far-reaching than these older examples.  Cheap access to space will lead to mankind populating the solar system, yes.  But far more important, it will give us access to unlimited raw materials and energy.  Combined with the access to information created by the computer revolution, this will give mankind all three elements necessary for unlimited wealth: unlimited energy, raw materials and knowledge.  The unspoken assumption is that we will exhibit the wisdom necessary to exploit those elements.* 

Among those attending Bill's memorial was his long-time friend, Apollo astronaut Buzz Aldrin, who said meeting Bill had been the best thing about the Apollo program.  Another friend, Rand Simberg, wrote on his "Transterrestrial Musings" blog:

*Remembering Bill Haynes

*He flew for the military from the post-WW-II era to Vietnam, was a jet test pilot, was an F-100 squadron commander, risked his life many times for many years, and continued to enjoy commanding high-performance machines all of his life, when ironically, it suddenly and unexpectedly ended with him losing a battle of momentum between his Mazda sports car and a Toyota Highlander, on his way to church, a devout Lutheran who spent his life dreaming of the stars, now at final peace with his God. In that regard, he reminds me, sadly, of Pete Conrad, who after commanding a mission to the moon and back, and becoming a leading light of entrepreneurial space, died riding the motorcycle that he loved on a tight curve just outside of Ojai.* 

*Bill Haynes used to tell the story of when he joined the US Army Air Corps in the 1940s, and told them that he wanted to go into space. “Better put down ‘extreme high-altitude flight,’ son,” the recruiter told him, after thinking for a bit. “The army doesn’t have a space program. Yet.” It still doesn’t, of course, because not long after, it spun off the Air Corps into the Air Force.*

*I first met him in 1981, when we were both working for the Aerospace Corporation in El Segundo. He was working the Military Man-In-Space program, which was looking into military applications for humans in space, which would be tested with military astronauts on the Space Shutte, which was just going into service. After his military career ended in the late sixties, he had worked on both Skylab and Spacelab, and probably knew as much about space station design issues as anyone at the time. He was highly critical of the space station studies occurring at Marshall and JSC at the time, and predicted many of the problems that the program would encounter over the next decade and a half before it finally started actually launching parts into space.* 

Victor and I have a four-year-old son, Aubrey, who is mesmerized by space launches and knows every stage of the Apollo mission. Hardly a day goes by when Aubrey doesn't "go to the moon." One of my fondest wishes had been to introduce him to Bill, so that he could learn from the best and kindest of masters. Goodbye, old friend. Thanks for being a star.

Timeleft.org Obituary:

William “Bill” Everett Haynes, 86, decorated Vietnam fighter pilot, of Rancho Palos Verdes, died Sunday, August 15, 2010, while driving his little red sports car to church. His loss is deeply felt.

Bill was born in Paris, France, on January 18, 1924, to Everett Campbell Haynes, a noted jockey in Europe between the World Wars, and Edna Heise Haynes. The Haynes family, including his younger brother, John Barrett Haynes, returned to Oklahoma in 1933, and moved to Los Angeles in 1942.

Bill relentlessly pursued his goal to be a fighter pilot and his dream of space travel. In 1943, he volunteered for the US Army Air Corps, where he served until the end of World War II. He obtained his undergraduate engineering degree at UCLA in 1949, and immediately joined the US Air Force.

His Air Force career took him and his family to Arizona, Germany, Ohio, Oklahoma, Southern California, Florida, and Virginia.

Prior to his service in the Vietnam War, Bill continually educated himself on the principles of flight and aircraft design and maintenance. He graduated from the Air Force Institute of Technology at Wright-Patterson AFB, Ohio, in 1954, and from the USAF Experimental Test Pilot School at Edwards AFB, California, in 1956. In 1965, he earned his Master of Arts from USC in research and development systems management.

Bill worked in the Minuteman missile program in Cocoa Beach, Florida, starting in 1965.

From 1967 to 1968, Bill bravely served as the commander of the 90th Tactical Fighter Squadron (nicknamed the “Dice”) at Bien Hoa AFB, Republic of South Vietnam. Bill flew 187 combat missions over the Ho Chi Minh trail. He was decorated with the Distinguished Flying Cross, the Bronze Star, the Air Medal and the Vietnam Cross of Gallantry. For the rest of his life, Bill enjoyed keeping up with his fighter pilot buddies via email and reunions.

He capped his Air Force career with a year in the Pentagon. He retired as a Lt. Colonel.

Following his retirement, Bill worked from 1969 to 1991 with various defense contractors, including Martin Marrietta, Nord Micro, Dornier System, Goldsworthy Engineering, Aerospace Corporation, and SAIC, in Colorado, Germany and Southern California.

Bill moved to Rancho Palos Verdes in 1977, where he lived with his beloved wife, Christine Apelles Haynes, until his death.

Bill is survived by his wife, Christine, his daughters Susan Ellen Roberts, of Dallas, Texas, and Kirsten Michele Howland, of Palos Verdes Estates, his sons John Barrett Haynes, of Los Angeles, and Richard Craig Haynes, of Pilot Point, Texas, and his grandchildren, Emma Kent Roberts and Caden Everett Robertson Howland. His parents and his brother, a Korean War veteran, predeceased him.

In retirement, Bill enjoyed anything involving flight. From 1998 to 2004, he worked with a team building a replica of the original airplane flown by the Wright Brothers. After that, he flew his own hand-built Ultralight airplane. His most recent flight was last Friday.

Bill continued to be actively engaged intellectually until the end. He held US Patent no. 4,828,207, for “fluid lock” technology. He wrote and published articles on various scientific issues, including the presense of “Square Craters on the Moon.”

He deeply loved his grandchildren, his pet parakeets and holding forth on the great issues of the day.

Bill was a loyal member of St. Paul’s Lutheran Church, Rancho Palos Verdes, for over 30 years.

Prior comment by Laurel Kenner (5/25/10):

Department of Happiness and Heroes:

Specs who know Bill Haynes will be glad to hear that last week he successfully flew the plane he built. [To see picture of actual plane, see our prior post from April 23]

The flight took place in the turbulent conditions over the mountains near Chino, California. Bill noticed shortly after takeoff that his throttle automatically went to idle, so he spent the next 45 minutes holding the throttle in his right hand and working the controls with his left hand. "If you're flying a plane for the first time, you don't want to land it right away," he told me.

Ha. I would have wanted to land it right away. You may remember that Bill is 86 years old.

In addition to being a tough ex-fighter pilot Bill is a rocket scientist. He's also a helpful and optimistic person, which puts him right in tune with DailySpeculations.Com .

Jeff Rollert comments:

Bill was wonderful, in giving me and my kids a tour of the aircraft he was building at the Compton Airport. Yup, that Compton.

He was a classic gentleman and a refreshing person. Not a single shred of ego (though he was really proud of still being certified to fly the Wright Flyer).

We'll miss him.



homebuilt aircraftDepartment of Happiness and Heroes:

Specs who know Bill Haynes will be glad to hear that last week he successfully flew the plane he built. [To see picture of actual plane, see our prior post from April 23]

The flight took place in the turbulent conditions over the mountains near Chino, California. Bill noticed shortly after takeoff that his throttle automatically went to idle, so he spent the next 45 minutes holding the throttle in his right hand and working the controls with his left hand. "If you're flying a plane for the first time, you don't want to land it right away," he told me.

Ha. I would have wanted to land it right away. You may remember that Bill is 86 years old.

In addition to being a tough ex-fighter pilot Bill is a rocket scientist. He's also a helpful and optimistic person, which puts him right in tune with DailySpeculations.Com .

His web site: www.timeleft.org



The young man wakes up, sings, "Those Magnificent Men in Their Flying Machines , They go uppity up up, they go downdity down down."

Were Orville and Wilbur in it?

"Orville was, but he didn't win because he had to help a German. Those Frenchies always know where they're going."



One of the most fascinating characters from our early MSN Money articles was Mark F. Kessenich, Jr., the bond trader.  We interviewed him in November 2000 when he was already suffering from Lou Gehrig's Disease; he passed away on March 20, 2001.  For those interested ten years later, here is a link to our original article "A Trader Triumphs as His Era Ends."

Suffering through the health care system can be almost worse than the disease, and patients with MDA/ALS (Lou Gehrig's disease) have a rough time. Patients need help to breathe, eat, move around, communicate and cope. Families need counseling and practical help. Mark Kessenich saw the need for a multidisciplinary approach. Insurance companies didn't pay for it. So Mark raised a $3 million endowment to establish a center at the University of Miami that would provide that care. Mark's son, Paul, tells me that the Kessenich Family MDA/ALS Center continues, supported by the annual Kess ALS Cup Golf Tournament. To make a donation or learn more about the golf tournament and the center's work, visit the university's Kessenich Family MDA/ALS Center Web site . Vic and I were very inspired by Mark's bravery, and he makes life worth living for many for years to come.



"Took me about 9 years to complete it from a kit, of which about a year was getting the d!!! FAA bureaucrats to sign the Air Worthiness Certificate," said Bill. "I shudder to think of the same kind of people now running our health care!"



 It is common sense that the stock market anticipates what will happen in the economy after some time. The invisible hand of the market driven by millions of investors who make decisions according to different quantity and quality of information eventually represent the best way to encapsulate and synthesize the current status and prospects of the world's economy. But is this always true? Or for some reasons markets are resilient to change and slow in timely reading the information available?

If this is the case, what are these reasons and when does this happen? Can markets be manipulated by strong hands or there are simply forces that render decision making viscous and create a breakout friction before markets actually change the course they are following? Like a ship takes some time before reacting after the wheel is turned.

These questions are relevant today as they were before the beginning of the crisis two years ago. As loan underwritings standards deteriorated, the securitized mortgage market developed a bubble in housing prices that continued for quite some time until it finally popped. Even if we now read on several reports that it was clear to many what was about to happen, until the very last moment almost everybody continued to play the same sheet of music. Investors, regulators, government. The markets went on with huge inertia along the tracked lines of unrealistic risk assessments, walking on quants' clouds and careless of gravity. The longer they continue the more violent is the reaction eventually.

It seems to me that currently markets are in a similar situation. After the impressive injection of liquidity in the system (like an adrenalin shot to the heart) aimed to restore confidence and normal functioning of shaken markets, prices of assets have reflated for over a year now. In order to do this, sovereign debt in Europe and the US is increasing to levels that everybody knows are unsustainable. Still, for political reasons nobody wants to take the bitter medicine that would be needed. The show goes on with cheap money poured into assets that go up with a regularity and pace that is almost unprecedented. Regardless of unemployment, housing prices that in some states are going down again, the contracting credit to consumers, some states and cities are very close to bankrupcy, banks continue to be seized by the FDIC, industrial production levels are still 10% lower now than at the pre-recession peak, durable goods orders are almost 20% lower now than they were before the recession began. Finally, equities are up 75% from the lows, but earnings are still almost 40% below their pre-recession levels.

Is this manipulation? When and how is this going to finish? Or actually this time markets are reading correctly what is going on and are simply anticipating a global recovery and the consequent future increase in corporate profits?

Laurel Kenner writes:

The wonder is that the market didn't go up much more, given the trillions of stimulus. Since '07, the market has made short-termers of all of us– at least, of everyone fortunate enough to still possess enough liquidity to trade. We're all dancing in the dark until the tune ends. Meanwhile, the music has changed in the bond market.

Russ Sears writes:

It is my contention that the markets are good at forecasting what is predictable. However, much is not forecastable, like the weather.

I will be presenting a paper Tuesday that Dr. Dorn and I have authored in Chicago Tuesday.

In it we content that faulty risks evaluations can cause neurotic outcomes, in individuals, companies, sectors and even whole economies.

The markets can become, and apparently did become, a mechanism to trade short term gains while coming at the expense of increasing long term risks from over-allocation of resources. The risks of over allocation is often a chaotic system, meaning it is impossible to predict specifically when and how hard it will crash. Statistically, this could be thought of as trying to predict when the correlations will become a self reinforcing mechanism approaching 1 . Or is more practical examples when would over- building of housing in California, Arizona, Nevada etc. lead to deflationary spiral and foreclosures and inability to refinance all across the country and world. Another example would be the over allocation of delta hedging and portfolio insurance in Oct 87.

I am hesitant to make predictions, especially after Bear Stearn then Lehman and AIG and a government run mortgage market in Fannie and Fredie. But I am not as pessimistic as many that this is only a short term bounce. This stems from my belief that while the mortgage markets securities economic value are difficult to predict… the markets are giving at least giving them a more realistic view of their worth given this uncertainty. If this discount for uncertainty is as healthy a discount as I believe; there is still considerable liquidity and value that can return to the markets once these values are realized and known. The markets, at least in my modeling, seems to still give a considerable chance to the deflationary spiral returning.

Mick St. Amour writes:

Paolo, thank you for sharing your thoughts. I like your comments on inertia because that is at work. I see this all the time with retail investors and as of right now that dynamic is at work in that those folks still haven t taken a bullish slant and have been slow to change their minds. most investors are slow to embrace a change in thought when conditions change and they tend to ignore what market prices tell them. They tend to get locked into some ideology and usually only change their belief until after bulk of gains are made. Best trades are made when you can find inertia still at work and market prices begin to shift in different direction opposed to prevailing view. I have found those to be the best low risk trades.



Happy Thanksgiving 2009 to all our readers.

Our 2005 article "Give Thanks for Pilgrims… and McDonalds" can be found at MSN Money.

Or see the 2006 version.



RingI was hoping some one here may be able to help me out. After four years of dating my girlfriend, I have finally decided to ask her to marry me. I am in the early stages of looking for a ring and am obviously wanting to get her the best ring I can. Unfortunately what she deserves and what I can afford are two different things. Therefore my hope is that someone on this list knows someone that would be able to get me some type of deal on an engagement ring. I'm not looking for a hand out by any means, I just want the best value for my money. I'm also looking to get it pretty soon as I believe both of us would like to get married before I leave for Afghanistan next year.  Thank you in advance to anyone who is able to help me out!

Dylan Distasio replies:

Good luck with the proposal! Unfortunately I don't know someone who can give you a deal on a ring. However, I would highly recommend checking out Blue Nile. They have beautiful diamonds at all price levels, quality levels, cuts, etc. at very low prices compared to retail. I am incredibly happy with them from personal experience. I was able to get a very high quality diamond for an engagement ring that my wife is now wearing. They also offer settings if you want to one stop shop. They ship quickly, and the diamond appraised at approximately 50% higher than what I paid. Most importantly though, it is a beautiful stone. My co-worker also had great luck with them. I'm not a Blue Nile shill, just a satisfied customer.

Charles Pennington weighs in:

T BoxBorsheim's is pretty good. With them I don't think you have to worry you're getting ripped off. You can call them on the phone and just talk with them about how much you're thinking about spending, and they'll provide a host of options for you. If you want, they'll even ship one or two out to you so that you can have a look. If they do rip you off, you can go complain to Warren Buffett at the next Berkshire Hathaway shareholders' meeting!

Caution: She may want a ring from Tiffany, even though you both know the extra money is just for the blue box.

Dan Humbert takes an unconventional view:

Don't waste your money on something so ridiculously overpriced as a diamond (especially since you indicate you are short on funds and are off to Afghanistan, meaning you'll have a lot more important things for you and your fiance to spend your limited funds on). If you and your fiance want an engagement ring, cubic zirconiums are nearly as good, and I understand there are now even better man-made diamonds that a jeweler cannot distinguish from natural diamonds — it takes an expert with sophisticated equipment. Exact types and prices are well-covered in the recent book Spent by Geoffrey Miller. No one else will be able to tell, and you and your fiance have no obligation to confess that you were not so wasteful as to buy in to De Beers's monopoly and ridiculous advertising that you should spend 25% (or whatever obscene portion of your year's salary) on the diamond.

Taking it a step further — this being a libertarian-oriented site, why get married at all? You and your love should set the terms of your own wonderful relationship rather than letting the government, courts and lawyers dictate the terms. It's a lot more romantic to voluntarily win each other's love each day, than to be obligated by the government to stay together unless and until expensive and debilitating proceedings involving lawyers and judges allow you to change the terms.

The dissenting view gets support from Kevin Humbert:

Dan offers excellent diamond advice. After losing a number of "real" diamonds to both women and thieves, I decided to look into synthetic diamonds as an alternative some time ago. At the risk of sounding cynical you don't blow through as many ring-requiring ceremonies & occasions as I have without incurring significant financial loss… and that's before the rings are even factored into the equation. Man made diamonds vary wildly in price & quality. Even so, the discount to comparable high quality diamonds is high enough to make something man made a no-brainer for me. As for whether anyone notices if it is real or not, I can't recall having met anyone outside of the jewelry industry who is impressed with a diamond wedding ring one way or the other, either real or synthetic.

But Laurel Kenner interjects:

Gentlemen! A fake gem sends the wrong message. And relationships without marriage usually turn out to be fakes, too. Just ask a wife whether her marriage is real or not.

An anecdote from Chris Cooper:

I once had an employee who had already made a lot of money from stock options owned by her husband and herself as executives at a big tech company. When they got married he told her she could have a one-carat ring now, or for every year she waited he would increase the size by an additional carat. After several years she caved in, and could be seen flaunting a 5-carat flawless solitaire in important business meetings. A stone of that size does tend to attract the eye.

Legacy Daily sends a specific suggestion:

Congratulations! Engagement and marriage are indeed very special life events. I have jewelers in the family who would be happy to help. I just called them to let them know that they might hear from you. Feel free to contact Artinian Jewelry.

John Lamberg looks back:

A word of advice: When your wife to be picks out a wedding ring, no matter what price, run, do not walk, to the counter and purchase it. Do not repeat the mistake I made many years ago and say, “let’s think about it…”. Some mistakes are never forgotten.

Victor Niederhoffer also reminisces:

I bought mine for 25 cents at Woolworth on 86th and Third Avenue. And as the poker player said after he took his real diamond from her the day of the wedding to throw into pot, "she's still wearing it."



Every year at this time we like to repost Jack Schaefer's short story about a young cowboy's adventures on Christmas, and send our best wishes for the holidays to all our readers.  



Happy Thanksgiving to all our readers.

Our 2005 article "Give Thanks for Pilgrims… and McDonalds" can be found at MSN money.

Or see the 2006 version.



 I agree with Vic that level of market probably (more than) reflects future difficulties in the economy.  But in case this not so, I have been unable to find good articles or explanations of worst-case scenarios, i.e.:

1. What would happen on the downside if credit crunch/market seize-up continues?

2. What in some detail would a "depression" as opposed to a "recession" mean in today's modern context, with all the changes built up since 1930s?

3. Probably most relevantly, what are the downsides of bailing everyone out and of new, larger stimulus packages, which are paid for by borrowing trillions of dollars –not so much how it is repaid, which it never will be, but what gets gets closed out when resources are diverted in this way?

4. Also, downside of uncertainty of continued government measures, and of delaying or not letting markets clear, of keeping bankrupt companies in business, keeping housing and other asset prices from falling to a level that would cause money on the sidelines to come rushing in?

I have not seen good articles or opinions of smart economists or financial writers on the above — can anyone point me to some of these?  Or can any readers who have thought about give a quick opinion?

Kevin Depew responds:

1. what would happen on the downside if credit crunch/market seize-up continues?

If the market were allowed to fail, there would be great devastation as many bankers and their friends, including the captains of the so-called "good industries," would go out of business. Then, chaos would ensue as enterpreneurial-minded men and women create untold ways to save and then re-direct capital to all manner of business ventures we can scarcely even imagine.

2. What in some detail would a "depression" as opposed to a "recession" mean in today's modern context, with all changes built up since 1930s?

"We live in a world of euphemism. Undertakers have become "morticians," press agents are now "public relations counsellors" and janitors have all been transformed into "superintendents…But pretty soon the word "recession" also became too harsh for the delicate sensibilities of the American public. It now seems that we had our last recession in 1957-58. For since then, we have only had "downturns," or, even better, "slowdowns," or "sidewise movements." So be of good cheer; from now on, depressions and even recessions have been outlawed by the semantic fiat of economists; from now on, the worst that can possibly happen to us are "slowdowns." Such are the wonders of the "New Economics." - Murray Rothbard (1969), "Economic Depressions: Their Cause and Cure"

3. Probably most relevantly, what are the downsides of bailing everyone out and of new, larger stimulus packages, which are paid for by borrowing trillions of dollars (not so much how it is repaid, which it never will be, but what gets gets closed out when resources diverted in this way)?

"[T]he government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom. Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing." - Murray Rothbard, "Economic Depressions: Their Cause and Cure"

Rothbard wrote this stunning essay in 1969. Today, a mere 39-40 years later, we have succesfully ignored every paragraph, contravened every prescriptive statement and chosen the diametric opposite of every word he wrote.

Nigel Davies writes:

Chess players use the term 'unclear' for such situations, there's no precedent so who knows. So good articles will, by definition, be a contradiction in terms as there's no way to establish an opinion based on any kind of historical precedent. The case of Japan may be very misleading because they experienced a deep recession whilst doing business with a world which was booming (or at least bathing in temporary liquidity).

Of course things may be more understandable when one adjusts one's time scale. When, for example, did we last have three closes up?

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005

Laurel Kenner writes:

Mark Pittman, whom I'm glad to have helped hire at Bloomberg some 10 years ago, reported yesterday that the U.S. government has pledged $7.7 trillion to ease the credit crisis. The total U.S. debt just topped $10 trillion, and does not include most of the new pledges. Mr. Pittman has been way out in front of his media peers on this story.

My other favorite source is Amity Shlaes, a scholar who writes excellent columns for Bloomberg. This year, she published The Forgotten Man: A New History of the Great Depression, and it is quite illuminating as to how the New Deal affected the economy.



 Much has been written on Daily Speculations about the correlation of music and markets. I've found quite a lot of literature comparing charts with the notes on a musical score. Vic and Laurel have written extensively about this, and quite a number of articles have appeared in Daily Speculations comparing music with markets and trading. I, myself happen to be blessed/cursed with perfect pitch. I was diagnosed with this affliction/talent at a very early age, and my parents always attributed it to the amount and variety of music we had around the house. Later on, I did some reading about it and found much so contradictory information regarding perfect pitch as to render it useless. The curse of it has been that I simply cannot listen to things like beginning orchestras, or bad karaoke singers, which are like fingers on a chalkboard to me. I find myself out of my comfort zone when listening to "less than perfect" pitch which appears quite frequently in day to day living…

I've noticed that perfect pitch also can help me stay out of a bad situation when I'm in the market, and all of the sudden where it's trading effortlessly in what could be compared to a C-Major scale, then it suddenly shifts to a to a C-sharp minor. Such shifts are often a good indicator of the ever changing cycles in the market, especially when a flat note appears out of the blue. It has been my observation that my perfect pitch has allowed me to keep from stepping on the many landmines that the mistress of the market spreads in our path, however this is anecdotal and cannot be proved… I would be interested if any psychologist has ever studied the prevalence of traders with perfect pitch (sometimes referred to as absolute pitch), and the effects of such. I would also be interested in any anecdotes from Vic and Laurel, or any readers of their experiences with perfect pitch. Perhaps I'm going up another blind alley, but this is a subject that should, or ought to be quantified. One blessing of perfect pitch is that I can tune any stringed instrument by ear, which amazes my friends.

Nigel Davies writes:

N DaviesStrong chess players are similarly pained when they see a move which isn't in keeping with the position. And coming from a musical family I've long been fascinated by the connection between music and chess, outstanding practitioners of both having been Mark Taimanov (GM and concert pianist), Lajos Portisch (GM and singer), Vassily Smyslov (GM and singer) and Andre Philidor (the leading player of his day and operatic composer).

One theory I have is that whilst music represents harmony within differentiated sound, chess has a similar kind of harmony within differentiated space. Is it too fanciful to believe that markets are similar in having a harmony within differentiated price? I don't think so, and it's interesting to speculate that many list members have an interest in all three disciplines precisely because of this similarity.

Jim Sogi adds:

The physics of many musical instruments do not allow them to be in consistent tune on the various octaves. For example, a guitar is not perfectly in tune along its neck and for open strings at the same time and requires some fiddling with the nut and bridge to get the notes to be consistent along the length of the neck. The Buzz Feiten tuning system is a corrective measure to address these issues. I submit that the mechanics of the market do not allow perfect tuning and harmony, and some discordance is inevitable.

Laurence Glazier writes:

Seeing the similarities between music and market is bound to be helpful, but is unlikely to be predictive. They remain two different fields. An analogy in music would be to take the first several chords of a Bach Chorale and try (without sight of them) to predict the next few chords. Or likewise to predict the next few moves of a great chess player. So while the Market may walk with a recognizable gait, that might be as far as it goes.

I'd also suggest that while it seems that the rules have broken down, it is just that things are playing out faster, Volatility nudges the metronome setting - but interference by government is stirring the pot. When writing music one may adjust the harmonic rhythm for dramatic effect, perhaps there is are equivalents in the market to changes in the durations of chords in a chorale, or to a series of measures on a dominant pedal.

Laurel Kenner writes:

I play a lot of chamber music, and learned recently that string players tune to A=441. Pianos are tuned to A=440. The strings tune to the higher frequency for more "presence."

The market abounds in such slippage, and sometimes it pays not to argue over a the odd quarter-point.

Jim Sogi adds:

J SogiOne more comment on this subject. Playing music, one never really hits a perfect pitch. There's no emotional content to it. That's why those funky Kmart keyboards sound so bad, they are in perfect pitch. A good singer, a guitar player, a violin player, all waver around the note with vibrato, or bend up to the note or bend down to the note, and move it around, stretch it, giving it much more powerful feeling of discomfort and resolution in a subtle manner.

Let's take today, Friday, in the market. A straight run up after the gap would not have had nearly the emotional impact the midday drops to new lows, the wavering about the bottoms, and the strong surprise finish. That's emotion.



I've never heard anyone correlate market success with perfect pitch, although the people I've known with the ability to identify pitches have all shown superior talent, intelligence, intuitive ability and imagination in music. My piano teacher regarded it as such importance that in my initial interview with him, he had me turn around and identify a note.

Some thoughts on the musical aspects:

1) The imperfection of pitch. Only if a melody is limited to a diatonic scale is it possible to attain perfect fourths and fifths — leaving out entirely the question of just what is a major third, etc. But we live in a musical world of chromaticism, and this means compromises. Natural philosophers such as Pythagoras, Da Vinci, Descartes and Galileo were absorbed by the problem of tuning, and debate raged over the proper proportions of pitch. The development keyboard instruments with 12 tones in the scale — e.g., harpsichord and piano — were a nodal point in musical science and philosophy. Bach arrived at the great compromise and celebrated with the great "Well-Tempered Clavier," two sets of preludes and fugues in each of the 12 major and minor keys. A fascinating philosophical history of musical science was given to me by the directors of the New York Chamber Music Society, and I highly recommend it: Stuart Isacoff's "Temperament: How Music Became a Battleground for the Great Minds of Western Civilization."

Because of the compromises of equal temperant, different keys carry different emotional connotations for musicials. Beethoven's compositions in C minor have a meaningful continuity. Brahms D minor concerto could simpy not be played in F minor, nor could the B-flat have been in C, even though it would have been physically possible for them to be played in those keys.

When I was studying music at the university, one of the musicology professors told me that he amused himself at home by transposing the preludes and fugues of the Well-Tempered Clavier into all 12 keys — a sort of idiot-savant feat both astonishingly difficult and astonishingly useless. But the skill can be useful accompanists for top singers can transpose at sight into any key.

And all this is not to mention the intentional, artistic pitch-bending and microtonal language of the master violinist with vibrato, the singer of blues or Cuban music, the artistry of a Mideastern stringed-instrument master like Keihan Kalhor.

2) Sensitivity to bad singing. While I love the hollow-reed sound of Japanese and Cuban singing — attaining the proper hoarseness is a part of the art –incompetence in singing is another matter. I have been to many operas and orchestral concerts with the Chair, and he will turn to me with a pained expression at the least hint of an indiscretion from a trumpet or French horn or a wobbly vibrato for a soprano. I'm often able to ignore such slippage if the rest of the playing is good — but I can't bear an out-of-tune tenor or baritone.

3) Timbre. Different instruments play pitches differently. A minor third, a major third… a world of difference on a violin, a horn, a piano. A master violinist can break your heart with vibrato.

4) Taking off from the question of pitch, the recent discussion of counterpoint in markets is a good scaffolding for a consideration of the harmonic developments of later music and its relation to markets. For example, a parallel-fifth step from A major to A flat major is integral to the structure of a certain harmonic progression in the scherzo of a Brahms trio I have been practicing. Sure, it breaks the rules… but the trading in the market breaks all the rules just about every day now! One might say counterpoint is two-dimensional, while harmonic progression and combinations of different timbre bring in the third and fourth dimensions, and the market is a subtle mistress.



Brian, the H@rvard Club chef, made Aubrey a hat just like his. Aubrey poses with Helman, our waiter:



TricoteuseListening to the mainstream media, with all of the hyperbole, could cause one to think that the sky is falling. Partisan bickering, grandstanding, and strong invective by our elected officials has spilled over to the already roiled markets, especially since we're so close to the election. More than a few of my mystic, non-thinking acquaintances have been advocating revolution, with Capitalism being replaced by a kinder, gentler Socialist system. Their true desire is to punish the evil greedy speculators, hold all the rascals accountable, who with the minority party have decided to ruin this great country. Their anger is palpable, and their ultimate dream is to become a tricoteuse. Theirs is only a dream, as sitting at the guillotine would require courage.

Misan Thrope is incredulous:

Didn't Lehman, Washington Mutual, Wachovia, AIG, Freddie, Fannie, Merrill Lynch and Bear Stearns just go down the tubes? Or is it a figment of the MSM's imagination? Might not [insert your favorite name here] get in trouble next if nothing is done?

Stefan Jovanovich explains:

The hyperbole is in the argument that but for the bailout payroll-checks will bounce. I did a Google search, and I could not find a news article about a single company that had been unable to make its payroll because the Federal government had failed to reflate the real estate asset-backed securities market. The connections between the "financial system" and the actual private business being done in the country may once have been real, but they are now largely a fiction. Small businesses that I know operate on a cash basis and don't need/aren't granted bank loans nowadays.

Eastsider concurs:

I think we're seeing a classic availability heuristic bias in the public analysis. The clients of DC looter-lawyers need the bailout, and engineer hysterical media coverage of the problems. The press is now just a firehose of bull____, drowning out all competing viewpoints.

It's a tired cliche to say we're racing toward the world Orwell and Rand forecast, but that analysis seems increasingly, depressingly, apt.

Laurel Kenner adds:

The American Enterprise Institute, W. Isaacs and  others fingered the so-called "Fair Value Accounting" rule as a post-Enron creation run amok, a major cause of the credit freeze.
Up until tonight, the SEC said no, the rule just reveals what lousy investments the firms had made. They just announced sensible modifications to the rule.
I can only wonder what can the SEC possibly say to the seven major U.S. firms that have fallen because of this rule? Sorry, we were a little too enthusiastic… too bad about you.
In any case, I'm sure the new Tricots will love this one.

It seems we are in agreement, when Clive Burlin intervenes:

Ms. Kenner, that you, of all people, would say  that! The whole issue of FASB Statement 157 is a total waste of time; from start to finish.

George Parkanyi ponders:

The news about Fair Value Accounting is interesting, especially to see to what extent it moves the log-jam in the credit system.

With foreign aid, sometimes you can have nasty unintended consequences. For example, when food aid is distributed for free for too long, local agriculture (and self-sufficiency) can crash because the farmers can’t compete with the free food.

In observing the behaviour of LIBOR lately, one wonders if institutions are simply waiting for the government (the patsy) to sell to at relatively inflated prices rather put in the effort to value the securities and try to trade with each other? Could the government’s presence actually be detrimental to a resolution?

An Anonymous Contributor Adds:  

While I am not an accountant, I believe both type of "Guidance" ("active market" and "distressed sales")  just raises the hierarchy of guiding to a higher level. (Could someone enlighten me if I am wrong). I believe FAS 157 pamphlets originally used both these cases as examples of when to use "intrinsic value" versus "market values". What is really new?

Because "active markets" and "distressed sales" are both judgement calls, rather than defined terms, good luck getting your auditor to sign off on them. They remember Arthur Andersen too well and seem sure that there are no penalties for being too strict on interpretation, but get busted for being too liberal.

SEC seem to be taking the stance that "some accounting mistakes were made, but not by me". So they are willing to sell their brother to save themselves. Perhaps as close to an admission of guilt as you can expect to get from a government regulator. 



 Aubrey (age 28 months) conducting the Park Avenue Symphony , All Saints Church, New York, September 25, 2008. Photograph by Roy G. Niederhoffer.





 The biggest political story today is the global ascendancy of state economic power and the fading of the free market as the world's big economic idea. Even here in New York City, former center of the financial universe, the subprime mess has supposedly discredited the philosophy that less regulation is better. This is all rot; the anti-free market trend will mainly serve, as it always has, to help ambitious would-be power-wielders to reach their career goals. Lack of regulation didn't do the financial system in. Plenty of blame has to go to the regulators themselves. A series of power grabs and subsequent attempts to control unintended consequences led to even more unintended consequences, until the threads were too tangled to follow.

Begin, for the sake of beginning somewhere, with Greenspan's attempts to be a hero for all seasons by turning the spigot off and on, again and again, and proceed to the subsequent heavyhanded attempts to eliminate all risk from pension fund portfolios after the Nasdaq crash and earnings fraud at Enron/WorldCom. Pension funds couldn't invest in stocks the way they had been doing — too risky! What could they do to meet their payout obligations? Wall Street had a wonderful new invention –top-rated mortgage and asset-backed securities. Unfortunately, they weren't exactly risk-free. Was lack of regulation the problem? No. And neither was the desire to get rich. The problem is that the bright minds of Wall Street can come up with contorted solutions when they have to satisfy their customers while dealing with regulations designed to eliminate risk. Unfortunately the whole debacle may become the excuse for a massive power shift to the federal government. Larry Summers had a piece in the FT last week calling for the government to save the economy with infrastructure spending. Sure, let's get the Army Corps of Engineers back to work redesigning natural waterways so they never work properly again. Back in the '80s, Reagan was attacked for his supposed simplemindedness, but in the '90s, his basic ideas had become the consensus. So much that as VP, Al Gore's main hobbyhorse was cost-cutting. Nowadays, it's hip in Manhattan to trash the free market. Our leadership abdication comes at a bad time, because the money nowadays is in the hands of people who care nothing for economic freedom. Nobody is aspiring to avoid the Road to Serfdom. China's free market is largely an illusion; prices for commodities are set by the government, not the market, the currency is still not freely convertible, the government still has a tight grip on far too much. The aspiring Mideast financial centers are being thrown up with royal-family money and control. Russia–
let's not even go there; the replacement of democratic aspirations with a systemic corruption is too sad to contemplate. Fortunately nobody can block people who want to be free forever. But there is no political freedom without economic freedom. Those pseudo-Socialist Realist posters of Obama that look like Che give me the shivers.

I am indebted to the brilliant Louis-Vincent Gave for some of the ideas set forth here, but any errors, misunderstandings or misapplications are mine alone.

Stefan Jovanovich replies:

Laurel should take heart. My niece, who hopes to join the regulatory clerisy by becoming a member of the California Bar, has just publicly declared Obama the savior. She has been infallibly wrong about American politics for almost two decades now, and the more emphatic she is (Bilbray doesn't stand a chance was her last vocal pronouncement) the more reason there is to take the other side of the trade. Money chases freedom; that is why it has been flowing west in this country for nearly two centuries. What has changed in California in the past two decades is that the desire for economic regulation has overcome the "Don't Tread on Me" spirit that allowed us to be the world's greatest collection of fruits and nuts. But, that is also changing. The Democratic candidates lining up to replace the Governator (who is term limited out in 2010) make lots of noises about how terrible things are, but they are careful to limit their tax-raising rhetoric to "closing loopholes". None has said a word about tax rate increases. Gavin Newsome, San Francisco's mayor, revived gay marriage as an issue after the California Supreme Court rewrote our State's constitution because it is a safe issue for the Democratic primary and not one that arouses any great passion among Independent voters. It also avoids the question of where the bureaucracy is going to get the money. The voters have already made it clear that the answer will not be from new taxes, even on the rich. The Sons and Daughters of Liberty are still alive and kicking and asking for lower tax assessments on their real estate.

George $oros wrote:

Because financial markets do not tend towards equilibrium they cannot be left to their own devices. Periodic crises bring forth regulatory reforms.  That is how central banking and the regulation of financial markets have evolved. […T]he reflexive interplay between financial markets and the financial authorities is an ongoing process. The important thing to realize is that both market participants and financial authorities act on the basis of imperfect understanding; that is what makes the interaction between them reflexive. […]

[Some people] blame market failures on the fallibility of the regulators and they are half right: both markets and regulators are fallible. […] The fact that regulators are fallible does not prove that markets are perfect.  It merely justifies reexamining and improving the market environment.



[Editor’s Note: This is one of our favorite stories at this time of year. We hope you enjoy it, and we wish you Merry Christmas. — Victor Niederhoffer and Laurel Kenner.]

High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.

[For the entire text of the story, please follow this link or this link].



 Amazon just came out with a new wireless e-book device, and I'm going out on a limb to call it a winner. Yes, other e-books have come and gone without a splash. But this is different. The others usually involved sitting in front of a PC, or carrying a clunky apparatus. Personally, I found them to be a pain in the neck to use. Amazon's Kindle is designed for mobility — light enough to slip into a pocketbook, briefcase or backpack. A new technology allows for very clear text. Best of all, you can adjust the text size — a huge advantage for people like me whose eyesight ain't what it used to be after decades of working in front of monitors. Ten years ago, I used to dream about a device like this, and now it's here.

Vic believes that the Kindle is a terrible development, as he loves books — the look of them, the feel of them, the ability to pile them up and read 10 of them at the same time and to make notes on them. I'm a major lover of books as well — I have more books than profits at the moment, and I have a dozen ceiling-high bookcases, all completely full — but the charm of wireless reading is irresistible. Over the last couple of years, I have spent hours squinting at Bloomberg News on my Motorola Q while I'm out and about. As for other news sources, the print is too small. While I love my Sony VAIO, I don't like lugging it around. Now, for less than $100 a month, I have my choice of the WSJ, NYT, Washington Post, Reuters Business and Slate.com, on a device I can carry easily in my purse.

Amazon lets you buy books and subscribe to newspapers or magazines either from your amazon.com account on your PC or by using the device itself.

I must confess that the Kindle library, while already encompassing thousands of books, is disappointing. My first choices for science books — Ridley, Steve Jones — aren't available, while the type of thing that populates the self-help aisles at B&N is about as plentiful as you'd expect. But you can download Shakespeare's tragedies for $7.49. Huckleberry Finn goes for a quarter. I bought Ayn Rand's Anthem and the Daring Book for Girls.

No, you can't buy EdSpec or PracSpec on Kindle, yet, but I'm pitching Daily Speculations for their blog offerings, for all you early adopters out there. I don't claim to be an E.A. myself, but sheer frustration with small print has driven me to it. So far, I love Kindle.



We reprint here our Thanksgiving articles for 2006 and 2005.  Happy Thanksgiving to all our readers. 

Thank the Pilgrims for eBay, by Victor Niederhoffer and Laurel Kenner

November 27, 2006

The story of the Pilgrims' first years in America shows how a change from common ownership to private property led to the feasting celebrated today at Thanksgiving. Similar tales of expanding harvests and benevolence are told wherever people can keep the fruits of their labor and trade them as they please.

The story illuminates why eBay and Chicago Mercantile Exchange Holdings, the owner of the Chicago Mercantile Exchange, were among the two best-performing stocks in their class during each of the last two years, and it provides a useful signal that other markets now preparing to go public might be good investments.

After landing at Plymouth in November 1620, the Pilgrims endured a cold, hungry winter during which half of them died. Promised supplies failed to arrive from London. The 1621 harvest wasn't as big as hoped, nor was the 1622 harvest. More famine seemed inevitable.

And then the colony began to talk through the problem. The London merchants who financed the Pilgrims' settlement specified "that all such persons as are of this colony are to have their meat, drink, apparel, and all provisions out of the common stock and goods of the said colony." In 1621, the Pilgrims planted 26 acres, according to Judd W. Patton, an economics professor at Bellevue University in Nebraska. In 1622, they planted 60 acres, but that wasn't enough to keep hunger away.

People began to steal by night and day, "although many were well whipped," Gov. William Bradford reported.

The system made no sense to anyone. The hard-working subsidized the slackers. The young and ambitious didn't want to do work for anyone else and get nothing for their trouble. The wives of some of the men objected to be commanded to wash clothes, dress meat or do other tasks for other men.

As Bradford would later write in "Of Plymouth Plantation 1620-1647," "At length, after much debate of things, the Governor (with the advice of the chiefest amongst them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves, in all other things to go on in the general way as before."

In what's known today as the Land Division of 1623, each family was allotted land at the rate of one acre per family member and told to go out and produce. More than 184 acres were planted that year. And, Bradford reported, "This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn."

What is apparent from this history is what we all know from our experience: When you can benefit from working hard, you work harder. Under the system of common ownership, there was stealing, shirking and malevolence. Under the incentive system, there was good feeling, hard work and benevolence.

News of the success at Plymouth and other settlements like it attracted more and more immigrants to the New World. And everyone who lives in America today has a personal story that is part of that great continuing tale.

The impulse to improve one's conditions through greater effort and trade is as natural as breathing, and this has been so since the beginning. New York University economist Haim Ofek, in "Second Nature: Economics Origins of Human Evolution, argues that trade helped spur the growth of the brain.

"Exchange requires certain levels of dexterity in communication, quantification, abstraction, and orientation in time and space, all of which depend on the lingual, mathematical and even artistic faculties of the human mind," Ofek writes in the introduction to his 2001 book. "Exchange, therefore, is a pervasive human predisposition with obvious evolutionary implications."

Relatively flexible and acute people had an edge in trading. They survived and prospered, they had bigger, healthier families, and their descendants became dominant.

The success of eBay since its founding in 1995 shares many similarities with the Pilgrim story. Now a public company with a market value of around $75 billion, eBay has created an electronic network of niche markets that takes account of the infinity of human tastes and aptitudes and specializations. The stock is up 72-fold since its September 1998 IPO, from a price-adjusted initial price of $1.50 to $109.42 as of Nov. 15. That is after a 77% drop in the tech crash of 2000.

Like the Pilgrims, eBay gives each of its sellers a piece of land (though in virtual space) to carry out his or her business. A spirit of benevolence is apparent in the company's feedback system; in almost half the transactions, both buyer and seller rate each other, with almost all them highly favorable. But to us, there is one overriding reason for eBay's success: It unleashes the desire and provides a forum for buyers and sellers to improve themselves by trade in a million ways every day.

The CME, odd as it sounds, also bears some similarities to Plymouth Colony. Founded in 1897 as a member-owned organization, the Merc started out as a market for the trading of foodstuffs. Its activities and goals were torn between the interests of the members and the interests of the public. A low point was reached in 1989, when a widely publicized sting operation uncovered conflicts of interest and failures to give the public a fair shake.

For years, the Merc had been content to play a sleepy second fiddle to the Chicago Board of Trade both in volume and number of products traded. In 1972, an inspirational governor — in this case, Leo Melamed — decided it was in everyone's interest to match members' interests with the growing public interest in financial products such as currencies, Treasury bills, Eurodollars and stock market futures. Growth exploded in 2000 as the CME prepared for the shift to public ownership by converting members' interests to shares. Since the Merc went public in December 2002 with its shares listed on the New York Stock Exchange, the stock has risen nearly six-fold, and it has stayed in the top 10 of NYSE performers.

In effect, the CME transformed itself from a tradition-bound club with the image of a raucous den where men shouted at each other to get an edge on the public in trading pork bellies. Instead, it became a pioneering company that lets hardly a week go by without introducing a new electronic product designed to give the public more ability to improve and hedge their ownership of stocks and debt.

The table below shows how acreage planted and revenues grew at Plymouth, the CME and eBay.

The Plymouth, Chicago Merc and eBay experiences
Year Plymouth acres planted CME revenue* eBay revenue*
(1621/2000) 26 $226.6 $431.4
(1622/2001) 60 $387.2 $749.8
(1623/2002) 184 $453.2 $1,214.1
(2003)   $526.1 $2,165
(2004)**   $743.8 $3,260
* In millions **Analysts' estimates

The Pilgrims originally agreed with the London merchants who financed their settlement to hold their land and its products in common, a sort of forced socialism, much as the communists imposed on Russia after the 1917 revolution.

And the Pilgrims learned, as the Russians would, that the system led to misery and poverty. Whenever trade and its rewards are permitted, well-being and output improve across the board. The principle is so mundane that it's hard to believe that it could ever be forgotten. But it was. The Soviet economy broke down because people had no incentive to reduce costs, to produce a quality product, to provide the kind of gracious service that an American expects from even a humdrum retailer.

If it weren't for those who risked death — literally — to start private enterprises on the black market, the Soviet system would have collapsed long before it finally did.

Everyone knows a million examples of how people respond to incentives. It's no accident that when President Bush won a reduction in taxes on capital gains and stock dividends in May 2003, the S&P 500 ($INX) responded with a 27% rise. Incentives to buy stock increased, so prices rose. The after-tax returns from stocks increased, so the public decided to place more dollars into stocks versus the alternatives.

In Plymouth, thanks to the gift of the Land Division of 1623, trade was created, and it did what it has always done:

  1. It allowed economic freedom. The Pilgrims borrowed the money to start their colony. Their decision to redistribute the land allowed rapid repayment and the freedom to practice their beliefs as they wished.
  2. It financed new enterprises. The Virginia Company of Plymouth served its own interests by lending to farmers, giving the company a chance to increase its agricultural imports.
  3. It increased output. When each Pilgrim family gained the freedom to labor as they wished in exchange for the freedom to keep their crop, yields increased.

We believe the successes of the Pilgrims, the CME and eBay are not anomalies. And we will predict success for any company or country that lets people trade as they are predisposed to do by instinct and common sense. If the International Securities Exchange and Chicago Board of Trade follow through on plans to offer shares to the public and if the New York Stock Exchange ever goes public, we'd recommend buying those stocks.

Give Thanks for Pilgrims … and McDonalds

Our 2005 Thanksgiving piece can be found on MSN Money



LeschetizkyA family member recently asked for my advice on piano lessons for her 3-year-old daughter. I devoted many years to piano studies and teaching, and have performed for most of my life. Specs might find my reply of interest, for children and perhaps even in other matters:

– Right from the start, realize that the most important thing is not what she can play but what sounds are in her mind. The ears are more important than the fingers. You don't "talk down" to her in conversation; don't do it with music, either, by limiting her aural intake to kiddie songs. Let her listen to great music performed by great artists. Have her listen to orchestral music, jazz, opera, choral music -– not just piano. No need to limit the genre of music — have her listen to jazz, classical, rock. But it should be really, really good. James P. Johnson for stride piano, Martha Argerich, Wilhelm Kempf, Vladimir Ashkenazy, Sviatoslav Richter, Arthur Schnabel, Frederick Gulda for classical. Take her to concerts and have her sit close up so she doesn't feel apart from the performers.

– Start by simply letting her experiment on the keyboard. Applaud her efforts. Play with her. Don't let anybody plunk her down on a piano seat and insist that she slog through one of those dreadful kid books. The music in those books is mostly really rotten. Furthermore, it is a very complicated affair to coordinate fingers, brain and ears enough to read a piece of music and perform it.

– The problem with most kiddie books is that they impose a five-finger regimen of "C, D, E, F, G" that is unproductive in building a good technique, as well as physically and mentally constricting. Let her apply the technique outlined in the Leschetizky method. He taught all the great 19th and early 20th-century pianists, and he knew what he was doing. One of his students wrote an excellent book on his technique.
– When she starts learning the system of musical notation, don't let anybody start her off with "C, D, E." No, no, no. Do A, B, C, D, E, F, G — like the alphabet. Then teach her the ledger lines: In treble clef, "Every Good Bird Does Fly" and FACE; in bass clef, "Good Birds Do Fly Always: and "All Cows Eat Grass." Let her discover the black notes. Somewhere in this, show her "middle C" – but if you start there, it could easily end there.

– Don't get just any teacher — attend a recital of students, see if they can play, evaluate their poise and the musicality they're able to project. If you can't sit through the playing without being bored or going crazy, why would your daughter benefit?
– It's crucial to help her learn an excellent piano technique early on so that she can reach a level of accomplishment that will allow her to enjoy music and get as good as her path allows. A poor technique will lead to an inability to express herself, even serious injury.

– Once she starts learning pieces, by all means make sure that her teacher is devoted to performance. She should have an opportunity to perform once a month in a big-deal recital where she can showcase her achievements to her peers and to you. When I was a girl, my teacher had monthly recitals that would include all his students, from the tiniest to the teen-agers. There would be a little musical dictation, a little talk about the pieces, and always be a big cake afterward. Somehow the excitement of competition, the joy of showing an accomplishment, the interest in observing other kids and the sweetness of the ultimate reward combined to make an atmosphere conducive to learning.

– Obtain the best instrument possible. If she is to develop an ear for sound and a fine technique, the piano must be properly responsive. If her technique is good and yet the instrument makes an ugly sound, she'll never be able to express ideas and to find the beauty of the piano.

– Don't let her become a little circus monkey. Make sure that she gets theory and musical coaching. Make time for her to learn about the lives of the composers and the history of music. Lessons should not be run-throughs of pieces while the teacher beatifically nods.

– A good piano teacher will include sight-singing and dictation as part of the training.

– Regular practice is key. It should be in a perfectly quiet environment, without distractions. Use a timer. A good teacher will send her home with a list of things to practice, to keep her moving onward. Don't sit with her — discipline is something that must come from her, not you. The discipline of piano playing will unfold into many beautiful qualities and gifts.

– Send her to music camp. A summer sojourn at a music camp is worth years of regular lessons. The chance to be with other musicians, play music together and learn more than usual is an expansive, life-enhancing experience.

– For heaven's sake do not let her think of piano as a career. It's just not possible these days to make a comfortable living as a pianist, if indeed it ever was. Pursuing a music career will ensure decades of financial weakness that could lead to an envious, malcontented existence. If by some misfortune she actually does make a career of it, she will spend two-thirds of her time on the road. Tell her that music is to be enjoyed, that the goal is to be able to play beautiful music both alone and together with other people, that the better she gets the more people will want to hear her. If, despite everything, she wants to become a great musician, then teach her to invest and trade so that she can support herself!
The Pleasures and Perils of Raising Young Musicians: A Guide for Parents, by Michelle Siteman (Vic's college girlfriend!) Her son, Benny, is now assistant conductor of the San Francisco orchestra. Michelle is a terrific writer and a smart mom.
Leschetizky's Fundamental Principles of Piano Technique by Marie Prentner. The teacher approved this book, written by one of his students.

Laurence Glazier adds:

CzernyI concur with Laurel's recommendation to follow Leschetitsky's teaching methods. He studied under Czerny, who was a pupil of Beethoven. There are still in most major cities pupils of pupils of Leschetitsky. That makes them, musically, great-great-grandchildren of Beethoven. They are worth seeking out.

Some of the Leschetitsky exercises I saw are straight out of ki-aikido, but invented long before. He reputedly had a sign on his door stating "There is no Method." Perhaps he was very responsive to each individual pupil's needs, giving rise over the years to differing accounts of the "Leschetitsky Method."

I spent a valuable hour with one elderly pupil of the great man. We looked at how to play a simple scale in great detail. "Listen to the sound," she said.

The pleasures of music can exceed the benefits of a secure income. Van Gogh was prolific though he sold only one painting. There are different kinds of capital.

With the advent of excellent music notation and playback software, there is an argument for piano lessons to be accompanied at an appropriate age by composition lessons. At this stage there are not many pianist-composers but the new technology suggests there will be many more in the future.

Alston Mabry writes:

I'm reminded me of a favorite anecdote, from Charlotte Joko Beck's book Everyday Zen:

Many years ago I was a piano major at Oberlin Conservatory. I was a very good student; not outstanding, but very good. And I very much wanted to study with one teacher who was undoubtedly the best. He'd take ordinary students and turn them into fabulous pianists. Finally I got my chance to study with the teacher.

When I went in for my lesson I found that he taught with two pianos. He didn't even say hello. He just sat down at his piano and played five notes, and then he said, "You do it." I was supposed to play it just the way he played it. I played it - and he said, "No." He played it again, and I played it again. Again he said, "No." Well, we had an hour of that. And each time he said, "No."

In the next three months I played about three measures, perhaps half a minute of music. Now I had thought I was pretty good: I'd played soloist with little symphony orchestras. Yet we did this for three months, and I cried most of those three months. He had all the marks of a real teacher, that tremendous drive and determination to make the student see. That's why he was so good. And at the end of three months, one day, he said, "Good." What had happened? Finally, I had learned to listen. And as he said, if you can hear it, you can play it.

Vitaliy N. Katsenelson remarks:

My 6-year old son is taking piano lessons. His heart is not in it. We try not to push him very hard and encourage his progress. I listen to a lot of classical music, some Oscar Peterson and Queen. My son loves listening to Queen, but my wife is concerned that he should not listen to rock music. My argument is that this is a closest crossover from rock to classical/opera music you can find. Well, she doesn't buy it.

Nigel Davies writes:

F & CI was born into a very musical family and my parents did everything they could to encourage me to play something. They had me on the violin, piano, cornet and clarinet and at school I learned the xylophone and the recorder. They had some early progress as I played the xylophone at one school concert and won a couple of prizes on the recorder at a local music festival. But I would later turn my back on music and turn to chess, which nobody approved of. One day I remember being forced to go out into the sunshine instead of sitting over my board. Of course there was only so much they could do with one small, stubborn boy.

Thinking back, it had something to do with the social dynamics of my family. My sister, a couple of years older than I, was a very good musician, certainly better than I was. On the other hand I was soon beating family members at chess, then family friends and then schoolmates. This had everything to do with early success, this was something in which I could win. I felt special, which provided the encouragement to do it more and be even more special.

Let's fast forward some 35 years. Now I'd really like my 5-year old son to play chess, and it's not because of any frustrated ambitions of my own. There are several compelling reasons: He has the right kind of mind/personality for it, I got a lot from the game myself (education, self-worth and many friends and associates) and it's one of the few things I can teach him with much authority. There's also the thought that if he gets to play chess we can go to tournaments together.

What's my method of encouragement? Well there are lots of chess sets around (both live and on computer screens), not to mention the garden-sized one which adorns my living room floor. And he plays around with it a bit and now knows what the pieces are called. I haven't tried to teach him any moves. The next step is to interest him in a DVD produced by Chessbase called Fritz and Chesster, which is a cartoon that familiarizes kids with chess concepts and moves. I don't have any plans beyond that, my intention being to play it by ear and see if it sparks any interest.

What I would never do is set him up for early competitive failure. Based on my own experience I believe success and self-worth are inextricably linked to the enjoyment of an activity. Music is easier — it's enough to listen to your child play (no matter what level) and pretend to enjoy it. With chess I might have to team with my son against the computer. I'll cross that bridge when we come to it. But I definitely want him to win a few games in his early attempts.



Charles MurrayTonight our monthly Junto meeting will hear Charles Murray, a foremost expert on human intelligence, expanding on his essay on "Jewish Genius" from the April 2007 Commentary magazine. Charles Murray first came to national attention in 1984 with the publication of Losing Ground: American Social Policy 1950–1980. This was followed in 1988 by In Pursuit: Of Happiness and Good Government, in 1994 by The Bell Curve: Intelligence and Class Structure in American Life (with Richard J. Herrnstein), in 1997 by What It Means to be a Libertarian: A Personal Interpretation , and in 2003 by Human Accomplishment: The Pursuit of Excellence in the Arts and Sciences, 800 B.C. to 1950. His latest book is In Our Hands: A Plan to Replace the Welfare State (2006).

He's a fine speaker who always knows his subject thoroughly. I hope Daily Spec readers will come and hear Murray, and say hello to us. There's no admission charge, and please bring your friends. We meet at the General Society Library, 20 West 44th St., in Manhattan. We have a general discussion period starting around 7:30 pm, then the speaker comes on at about 8 pm, and after he presents his case there will be plenty of time to question him.



 It is with great sadness that I report the death of one of our own, John Kuhn, of a heart attack. He was beloved by all who met him. He was a great family man, a great scholar, a great athlete, a great writer, and a creative person who was loved by everyone who met him. I had the pleasure of giving him some happiness from time to time with instructions in tennis.

He was a good man, always optimistic, totally busy with a hundred interests, always learning new things and always striving.

Charles Pennington writes: 

I was very fond of John. I knew him mostly from limited visits, however, even in that amount of time it became clear that he was a very good man, just as you describe, and curious to learn new things. He would chat with me about programming. Mr. Kuhn had a good tennis game as well, and he always got out on the court and gave everyone an enjoyable game. It's very disappointing to hear of the loss. I hope we can convey to his family our appreciation for him. 

Laurel Kenner recalls:

John Kuhn was wise and funny. I only met him in person once, but he went out on a limb for me in a personal medical matter, treating me like a family member. It happened in 2005 and I was scared. John heard about it, and arranged for me to go up to Harvard, where his niece Lisa is an important physician who specializes in the pertinent field. I went up to see her, and she was wonderfully kind and superbly efficient. She was so good that I went back to her for a follow-up just two weeks ago. She squeezed me in. No problem in either case, but a lesser doctor might well have messed things up. 

Here are some of John's posts that show what a great storyteller he was, what a smart guy, and what an individualist. I'm sorry for this loss.

At: 1/29/05 14:18

"I trade for myself," I say if asked, as it helps me not touch client portfolios of common stock which can often do better if left alone. Another thing I no longer mess with is home financing. After much diddling in the past, I’ve converted and would recommend a fixed mortgage. When things go awry, the last unpleasantness one wishes to heap on current troubles is a rising monthly mortgage outlay.

Increasing costs happen anyway. Heat, water, electricity, etc. Where I live, real estate taxes compound at over 5% per annum (since I installed my first computer tracker about 11 years ago) despite prop 2 1/2. Communities roll with the economic times and when times are good, the town managers are ingenious at coming up with vital "extras", new fire house, new high school, etc., which the town approves in haste. These become part of the compounding base. Your real estate taxes will go up each year and if your experience is like mine, always by more than you expected.

The only thing that has grown faster than real estate taxes is home value. Again a vindication of a good principle: if you are young, get the biggest house you can handle.

In the past few years the most consistent mis-estimate has been expectation of increasing interest rates. Again now the sentiment is heavily tilted against duration by the bond gurus. Perhaps they will be wrong again. But all this tells me, after living in all kinds of unpredicted rate environments, is that consistent accurate prediction constantly confounds the experts.

It is very hard to move to a fixed rate at say 6 3/8 having passed on a 5 3/8. But if you have a fixed at 5 3/8 that is not several years old, it's easy enough to roll it to a lower fixed.

At: 4/25/05 10:14

Times have changed: I worked in Paris (Banque Morgan as it was then called, Place Vendome) in 1960. In those days the extreme strength of the dollar combined with very cheap prices to make even the best meal equivalent of half a dozen Big Macs. Perfectly potable wine $.20 the bottle. At the bank you were fed free lunch, usually outstanding quality. And you could get a bottle of wine for an extra 30 cents.

We lived at the time 50 km south of Rome on a nice hunk of land with a beautiful farmhouse acquired for $12k. Good governance was seldom discussed. Even there the food was too distracting as was the stunning beauty of the Italian countryside.

Buffet was already buying stocks for the long haul. Our villa would have been a good spot to park some money as well. We put 10k in and due to dad's death in '85, had to sell for $300,000. 1985 was a while ago. Dad was always a bit lucky and his time to depart this mortal coil was one more example, as thence the cost of living in Europe, with dollars or even local currency, began a very earnest escalation, and the quality of his life, physically, socially, and financially was beginning to decay. And contemporaneously with his death the idyllic period when in Rome one could live like a king with relatively little died too.

I'm not sure if one can't point to overall degradation of currency worldwide combined with prosperity of a more real sort creating a far more intense competition for just about everything. Locally this year, to provide the creature comforts our students deserve along with paving the cracks in the road, it's another $500/year from this taxpayer. Real estate taxes here have compounded at 5.5% under prop 2 1/2 over the past dozen years. To insure myself and wife with good health plan, $16,000 a year. Data I have read recently on the lack of advance of most of the workforce in terms of real wages for many many years suggests that the challenge for all of us is to stay at the top 5% of the wage earner universe, or learn to appreciate less worldly pleasures — and shop at Wal-Mart.

Secrets and Lies

For the biggest of the older bucks, it's the stock market front and center now and forever. And the biggest of the bigs not only own stocks, they own investment management companies, venture capital companies, and now LBO companies. The maximally moneyed types have been doing VC investing at least since I was in my teens, 40 years ago. That's in the US. Also I had a wealthy Swiss client 20 years ago who kept a rolling stable of a dozen money managers around the globe, weighting the contributions on performance and strength of the local currency.

When I was sacked, the agent comforted me with, "Well, you outlasted all but three of the of the dozen on board when you started." They paid the highest fees, found the best managers and those that did not keep up, "aufwiederluege." Hundreds of millions in the old days, when that amount could really spend.

Still, one of the best way to make big money is to print it. That's VC with other people's money, ownership participation and performance fees. If you can hit a really long ball, it can become a gift that keeps on giving. I just Googled the first WASPy VC name I ever came across, Greylock Partners, and up popped a list of three of its best competitors, and on top of that list was the second VC name that had come to mind, Accel Partners, much younger but of similar lineage. I think too of Bessemer and Morgan Stanley. Even J. P. Morgan. It may not take money to make money, but it sure helps. When William Weld ran for the governorship of my fine state of Massachusetts, he was asked by a reporter, "Where are you going to get the money to finance your campaign?" Weld, displaying his intuitive grasp of the common touch, replied, "We don't get money, young lady. We have money!"

The old rich get blasted for a variety of reasons, not all without merit. But whatever their faults, they endure, as they've long known the basic secrets in plain sight about the stock market, not only about the long-term upward compounding of the market, but also the huge benefits available with leveraged compounding that redounds from the judicious application of huge chunks of other people's money.

When I was about 40 I started to wonder, "If the market mostly always goes up, why aren't there more management companies out there owning stocks and claiming the pleasing increases in clients' portfolios were the result of the intense sweat of their own brows?" And collecting the ever-increasing fees the market mistress hands out with pleasing generosity irrespective, within tolerable limits, of whether one's relative heap had been "naughty or nice." Now that there are more mutual funds than stocks and the hedge fund population is at all time high, what was in my youth a mysterious and seemingly almost private realm is now the province of all.

It reminds me of professional golf. We see the names of a handful of top players, and are ignorant of the others in the top 150 beavering away in the sun, making from one to several million a year.

In the money management game, there are thousands of me-too companies, nowhere near the top 150, providing tens of thousands of portfolio managers and analysts and support staff with very nice lifestyles despite the well-broadcast reality that investing directly in the S&P is available almost for free and does better than most of the money managers. The market supports so many. I'm most amazed by the crumb feeders: remora getting paid for their variations on the books.

Jeff Beckwith adds:

I am very sorry to hear that John is no longer with us. I too was a recipient of his counsel. About this time last year I asked for advice on a particular situation my family was facing and John responded. He sought out a couple of his long-time friends from college to help with answers and in the end provided my wife and me with some very cogent and valuable information that helped clarify our decision on the matter. The world lost a very good man. 



 It’s so entertaining to see the media sophists try to explain the post-Fed meeting rally. Before the meeting, Wall Street was said to be waiting for the Fed to cut the market some slack by saying inflation was no longer a worry. When that didn't happen and the market rallied anyway, because it wanted to, they had to say it was because the Fed thinks the economy will continue to expand.

James Lackey notes:

Your auto-news generator count not have possibly kept up last week. There was a blizzard of bearish stories that reminded me of the movie "JFK." There was a scene where a black ops man was explaining to the prosecutor how quite miraculously all the background info on Lee Harvey Oswald was released via newspapers globally, seconds after his arrest.

Unlike the movie, no one screwed up and got their time zones incorrect. That is to say no one released the pre-planted stories by accident before the actual release by the banks every hour of every day last week.



 I have heard that the cause of Cyril Burt's death was gallantry to women. He insisted on walking a lady back to the subway in the rain, and died of flu a few days later.

We often see this trait in old men; an unholy courtliness to women, especially attractive ones, that borders on fixation and would be inappropriate for anyone under 70.

Certainly the Greenspan transcript on 9/11, with him showing off that he does not like the cutoff in a certain chart and that he has been fooling with his short wave radio, even as the tragedy unfolds, is a sign of sickness.

What is the general tendency of men to be overly chivalrous and boastful? This is something that is a certain mark of decay in people like the Sage, the weekly financial columnists, and the fake doctor.

I wonder if this tendency is more prevalent among chronic pessimists, and is it a symptom of something much worse?

Vincent Andres adds: 

It makes me think strongly about so many mothers who infantalize their children consciously or unconsciously? This point is not clear to me. Some women may have a real pathological and uncontrollable drive to remain mothers. Their goal seems very clear. Remain a mother. Remain a needed mother. Remain young.

Such mothers what to show the neighborhood "see how well I educate my child," and doing in fact exactly the opposite. They actually poorly socialize their kids to keep them dependant on their mom, the "only one able to understand them". The number of very precise and efficient tricks and tactics used to accomplish this is amazing.

Of course the concerned child also remain young. At 30 always at mom's home (or in jail), depending on mom's money, etc. Could any child escape this kind of situation? How? It's so cool to stay a child. This seems much more common today than 20 years ago.

Janice Dorn replies:

It is my experience that this situation differs from person to person with aging. Men of an older age tend to view themselves and women in a framework which exaggerates that which they held when younger. In essence, personality tendencies of youth are magnified in adulthood.

A depressive tends to become more depressive, a person with obsession or compulsion tends to become more obsessive and compulsive. There are certainly instances where dementia and other sorts of degenerative brain injury can lead people to behave erratically (go naked in public, go after young boys, other inappropriate behavior).

For the most part, however, "normal" aging appears to reflect exacerbation of qualities present when they were younger. You will always find those who are a sucker for a pretty face and youthful body (think of any number of women and men who use this and exploit it as a lifestyle).

By the same token, misogynists become more so. I believe that these are normal so-called defense mechanisms which individuals use in an attempt to not lose themselves.

In other words, the magnification of the personality traits with aging represents the strong need to hold on to those aspects of self which the person senses they are losing.

George Vaillant from Harvard has done some very nice lifestyle through the ages work, including study of the ego. I believe his earlier work was a bit more serious than that recently where he appears to be directing more to the masses, happiness and spirituality.

David Hillman mentions:

"Becoming a caricature of oneself," as I'm fond of calling it, was evident in corresponding for some time with a famous author who had written his magnum opus and done other good work in the '60's.

For the next 40 years, he continued to hammer away at the same off-beat theme to anyone who would listen. Increasingly fewer would. His reaction was to pump up the volume. The longer he kept it up, the more tiresome he and his theme became.

Rather than appearing to be the life-sized, thoughtful guy with interesting theoretical ideas he once was, he looked to be a ranting, bloated, washed up, parade-balloon-sized radical who hadn't had an original idea in years and couldn't let go.

At the time of our last correspondence, he was actually still quite a vital and active near-nonagenarian, and a really nice guy, but who would have known? It makes a pretty strong argument for introspection and re-inventing oneself from time to time.

Also, in this respect to 'an unholy courtliness to women,' I highly recommend Memories of My Melancholy Whores by Gabriel Garcia Marquez.

….García Márquez's slim, reflective contribution to the romance of the brothel, his first book-length fiction in a decade, is narrated by perhaps the greatest connoisseur ever of girls for hire. After a lifetime spent in the arms of prostitutes (514 when he loses count at age 50), the unnamed journalist protagonist decides that his gift to himself on his 90th birthday will be a night with an adolescent virgin. But age, followed by the unexpected blossoming of love, disrupts his plans, and he finds himself wooing the allotted 14-year-old in silence for a year, sitting beside her as she sleeps and contemplating a life idly spent….. — Amazon.com

Laurel Kenner quotes:

SENEX AMANS (from Latin "ancient lover"; also spelled senex amanz in Old French):

A stock character in medieval fabliaux, courtly romances, and in classical drama, the senex amans is an old, ugly, jealous man who is married to a younger, attractive but unhappy woman. He is often a poor lover (or even impotent) with bad breath, wrinkled skin, and grey hair.

He is frequently cuckolded by a younger, handsome, virile man who secretly seduces his wife. We find examples of the senex amans in Chaucer's "Miller's Tale" and "The Merchant's Tale," and in various other fabliaux. Likewise, the motif also appears in the medieval French lais such as Marie de France's "Guigemar" and similar works such as Tristan and Iseult.

The motif of the senex amans often becomes useful for fast characterization, since it often can quickly cast a predatory light on an elderly male antagonist. An example of such use would be the old king of Ghana pursuing the young Imoinda in Aphra Behn's Oronooko, or any of the aging aristocrats sadistically pursuing young innocent girls in Gothic novels. [Read More]



 Hi Laurel,

Given your extensive background in financial journalism I was hoping your could offer insight into an investigative journalism project I've been assigned for a class at UCLA. I'd be grateful to hear your thoughts and wisdom relating to a few questions I have. The questions are followed by my thoughts and experience thus far.

How did you learn to manage the news writing process to not always write about doomsday or sounding alarmist? Are there ways to able to spin a story to appear that you are selling doomsday, but between the lines you are actually speaking truth? Is a story "news" if people don't read it, read it and but don't consider it news, or disregard it because it doesn't coincide with their chosen bias?

I started with the idea of a story on Sharesleuth, a venture funded by Mark Cuban, created to use investigative journalists to dig up corporate dirt, write up a report on the findings, trade on the information, and then release the report. Some consider this unethical and some even mention insider trading. I didn't believe this represented either of these, and because people want negative news, a story on this concept would probably not be interesting to many. Like you and Vic say, people are optimists and want the negative news. They don't want to hear from the Miles and the Beckys of the world.

I paired up with a woman investigating deaths and injuries on amusement park rides. At first I didn't think this was a problem worth paying attention to. And after an hour of research I realized this was the smallest problem of all mankind. She refused to comprehend the numbers. There has not been an increase in deaths since the mid-80s, and the trend has been 1 to 2 deaths a year. I could go no further with this.

Clinical trials seem ripe for investigative journalists to rip. Take, for example, Gerson Lehrman consultants and the doctors leaking info. Then I saw a story written by David Evans of Bloomberg, an in-depth series on his view of the shady dealings of clinical trials and taking advantage of participants. After more research, and a surprise visit to a clinical trial facility here in LA, I knew I couldn't write about this side of the story either. There will be bad companies out there in every industry, but clinical trials are a critically important necessity to the process of bringing drugs to market. I also just read an article documenting (though not tested through the scientific method) the corresponding decreases in trial participants after seeing numerous negative articles in the paper.

I was thinking of doing a number of numerical studies on the percentage of bad clinical trial sites, ones that had been sanctioned, ones with the most consumer complaints, and showing what a minuscule percentage it is. Maybe tie in that it's not the Contract Research Organizations specifying that participants be low-income immigrants, but rather an equation of supply and demand. If these people have no better income alternatives then they chose to go and sign up for a trial for financial benefit. They say how bad the consent forms are. Is that supposed to be unique to this industry? All consent forms are barely readable. They are legalese because if they weren't they would be worthless in a court.

Do you have any suggestions where I could take one of these stories? What perspectives do you find interesting surrounding any of these topics? Thanks so much and any of your thoughts on the subject would be greatly appreciated and thought about deeply.

Thanks again,

Kevin Kirkpatrick

Laurel Kenner replies: 

Dear Kevin,

Your questions are all excellent, and I got a kick out of the dead-end stories, So many editors try to unload such stories on the public by getting hacks to do the work. It takes courage to tell them that there is no story there, but at the end your integrity will earn respect.

I believe you could go far in journalism, but you may run into a lot of grief along the way. Journalism today is in a shameful state.

The important thing is to always seek and tell the truth. Don't worry about hiding your optimism. Don't be afraid to be different. Be bold and be big.

I would be happy to respond in greater detail. I happen to be in L.A. this week, and you would be welcome to join me for breakfast or lunch at Shutters in Santa Monica (Pico Boulevard at the beach) tomorrow, Thursday or Friday.



 The musical scale that Pythagoras invented and that forms the foundation for all Western music is based on relationships between small integers. Both the frequencies of musical notes and the intervals between them are ratios of certain integers, as follows:

Scale of Just Intonation

Note            C    D    E    F    G    A     B    C'

Frequency  1/1  9/8  5/4  4/3  3/2  5/3  15/8  2/1

Interval      9/8 10/9 16/15 9/8 10/9  9/8  16/15

How could similar relationships be uncovered for the S&P? As a first step we might force all S&P daily moves into bins one point wide, that is we could call all moves of 1.0 to 1.9 points "one point moves," and so forth.

We calculated the number of occurrences of each integer move, and also the number that would be expected if we assumed a normal distribution having the same mean and standard deviation. The result may be familiar to some readers but new to others, so we show it here:

S&P Daily moves in increments of 1 point

1999 to 2007/2/28

 LO HI Cases ExpCases  
-500 -40.1 10 2.46
-40 -39.1 1 0.63
-39 -38.1 0 0.79
-38 -37.1 1 0.98
-37 -36.1 2 1.21
-36 -35.1 3 1.49
-35 -34.1 3 1.83
-34 -33.1 1 2.22
-33 -32.1 4 2.68
-32 -31.1 7 3.22
-31 -30.1 3 3.85
-30 -29.1 9 4.58
-29 -28.1 2 5.41
-28 -27.1 9 6.35
-27 -26.1 8 7.42
-26 -25.1 6 8.62
-25 -24.1 5 9.95
-24 -23.1 13 11.42
-23 -22.1 13 13.03
-22 -21.1 20 14.79
-21 -20.1 16 16.69
-20 -19.1 13 18.73
-19 -18.1 15 20.89
-18 -17.1 16 23.17
-17 -16.1 17 25.55
-16 -15.1 19 28.01
-15 -14.1 24 30.54
-14 -13.1 28 33.10
-13 -12.1 29 35.67
-12 -11.1 39 38.23
-11 -10.1 43 40.73
-10 -9.1 53 43.15
-9 -8.1 46 45.45
-8 -7.1 55 47.59
-7 -6.1 52 49.56
-6 -5.1 52 51.31
-5 -4.1 54 52.82
-4 -3.1 60 54.06
-3 -2.1 70 55.01
-2 -1.1 79 55.66
-1 -0.1 76 56.00
0 0.9 94 56.02
1 1.9 85 55.71
2 2.9 91 55.09
3 3.9 89 54.17
4 4.9 74 52.95
5 5.9 69 51.47
6 6.9 54 49.74
7 7.9 52 47.80
8 8.9 59 45.67
9 9.9 53 43.38
10 10.9 35 40.98
11 11.9 43 38.48
12 12.9 38 35.93
13 13.9 28 33.36
14 14.9 26 30.79
15 15.9 25 28.26
16 16.9 17 25.79
17 17.9 18 23.40
18 18.9 14 21.11
19 19.9 14 18.94
20 20.9 10 16.89
21 21.9 7 14.98
22 22.9 6 13.20
23 23.9 5 11.57
24 24.9 6 10.09
25 25.9 15 8.74
26 26.9 4 7.53
27 27.9 8 6.45
28 28.9 7 5.50
29 29.9 2 4.66
30 30.9 2 3.92
31 31.9 3 3.28
32 32.9 2 2.73
33 33.9 2 2.26
34 34.9 1 1.86
35 35.9 2 1.52
36 36.9 3 1.24
37 37.9 0 1.00
38 38.9 2 0.81
39 39.9 4 0.65
40 500 16 2.52

The main features of the distribution as compared to the normal are: an excess of small changes (say from -6 to +6 points), a deficit of medium sized moves (of about +-16 points) and a modest excess of very large moves (+-35 points or more). A description in terms of these three features is a better one, in my opinion, than simply focusing on the size of the negative tail (as too many people do). 

From Laurel Kenner:

In mathematics, Dr. Castaldo is on Parnassus and I am on the "Gradus ad." I do know a little about music and writing, and so I will nevertheless venture to observe that Pythagoras did not actually invent the musical scale. As Stuart Isacoff puts it in his masterful book "Temperament":

"Pythagoras's discovery was that the most 'agreeable' harmonies [e.g., the octave, fifth and fourth] are formed by the simplest kind of mathematical relationships. If the vibrations of one tone are twice as fast as the vibrations of another's, for example, the two will blend so smoothly the result will sound almost like a single entity [he is referring to an octave]. The separate constituents of this musical marriage are oscillating in the proportion 2:1."

Closer to our day, Helmholz wrote that consonant tonal relationships are embedded in the essential physical structure of notes — the sound waves. Look at a graph, and you'll see greater spikes in intensity around the octave, fifth, fourth, etc. These spikes are known as harmonics. Their intensity levels depend on the shape of the instrument that produces the sound, and the resulting mixture contributes to the distinctive sound of each instrument.

(Hold a bass note on the piano down and strike the same note, stacatto, a few octaves higher and listen closely — you'll hear sonorities of tones still higher. Or experiment with harmonics on a vibrating guitar string.)

The market's ever-changing significant levels might be viewed (heard) as harmonics of past turning points. The Chair's insights on the continuing psychological impact of catastrophic events would seem to be in this genre.

The mathematical relations found in music are tempting to apply to the physical structure of the universe, and people have done that at least since Pythagoras. But I will leave that to the physicists.

Todd Tracy adds: 

We might be socialized to market intervals in much the same way as to musical intervals. I found this interesting.

Evolutionary Effects by Robert Fink, 2004

General human evolution has provided us with voices that are acoustically musical, and with ear receptors that are appreciative of, or attracted to, acoustically-musical sounds (i.e., not noisy). Why this evolution?

Without these physiological capacities, then:

* Mothers would not coo to their babies; nor would the babies love the sound of it;

* Nor would evolution of language and the socializing sounds of the voice have been as possible;

* Nor would the noisy (i.e., not-acoustically musical) sounds from any nearby destructive event or attack, or of the sounds of breakage, screams or cries of pain, have served as a noisy warning [unattractive or repelling] to alarm or alert us — Some sounds make us come, others make us run….

And, as a result, our collectivized survival might not have been as efficient, and we could have gone the way of the extinct Dodo.

All those same capacities [regarding being able to distinguish noise from "musical" sound] also served to allow the development of musical systems to arise and evolve wherever there were curious people with time to play or experiment with the stimuli around them.

Tom Ryan extends:

I find this Pythagorean scale discussion fascinating and have thought about various applications of musical scales and notes to market prices often over the years. Pythagoras believed the universe was an immense monochord and many of the Pythagorean teachings at Crotona are remarkable insights, especially with respect to what we now call string theory.

Pythagoras believed that by studying music mathematically, one could develop an understanding of structures in nature. One of the more interesting aspects that I have found in this is the lambdoma table, which is a 16×16 dimensional matrix of ratios starting with 1/1 and ending with 16/16,

1/1 1/2 1/3 1/4 1/5 1/6 1/7…….1/16
2/1 2/2 2/3 2/4 2/5 2/6 2/7…….2/16
3/1 3/2 ………..
16/1 16/2 16/3……………….16/16

The lambdoma is composed of two series. The first represents the divisions of a string which represent frequencies or tones. The second level represents harmonics. For example the first 16 harmonics of C are 256 hz (C), 512 hz (C), 768 hz(G) 1024 hz(C) 1280 (E) 1536 (G) 1792(B-) 2048(C) 2304(D) 2560(E) 2816(F#) 3072(G) 3328(A-) 3584(Bb-) 3840(B) and finally 4096 hz (C again since 4096/256 =16/1). This series represents the overtones or partial and whole harmonics of C and are represented by ratios in the table

Through the ratios one can study other types of natural structures as well. Botanists in particular have studied geometrical structure and many plant structures (leaves, flowers) have been noted to be geometrically developed in consistent ways where the key geometric ratios fall into a contiguous grouping or overtones of a fundamental, i.e. a pattern of squares within the lambdoma matrix. Leaves for instance often have simultaneous ratios of thirds (5:4) and fifths (3:2). The Renaissance studies including Da Vinci's notebooks note that the human body develops along particular lines as well, namely an abundance of major sixths (3:5) and minor sixths (5:8).

These whole number ratios or pattern of harmonics, as Laurel noted, form the basis for musical scales,

Octave 1:2
Fifth  2:3
Fourth  3:4
Major sixth     3:5
Major third     4:5
Minor sixth     5:8
Minor seventh   5:9
Major second    8:9
Major seventh   8:15
Minor second    15:16
Tritone 32:45

The question is whether specific harmonic patterns occur at times in the market and whether these can be quantified in some way. Victor discusses market prices as music in his book EdSpec.

One way would be to classify movements as ratios, and see the patterns of ratios as they unfold, classifying movements in price as patterns on a scale or within the lambdoma. From that one might be able to find a few meager predictable patterns. But there is a problem with this: to calculate ratios in a contiguous strip of real time prices one must arbitrarily choose reference points in order to calculate the ratios.

This means that there is a substantial level of subjectivity in developing the ratios from which the patterns can be studied. But one could arbitrarily divide the day into segments and look at ranges or deltas within those segments (say 30 minutes) and then calculate ratios of adjacent periods. There are probably an infinite variety of ways to segment and calculate ratios and therein lies the dilemma.




 Aubrey Niederhoffer (11 months) with the Primer on Statistical Distributions.



 Stuttgart Chamber OrchestraI heard one of the greatest living musicians, Leon Fleisher, conducting and performing tonight with the Stuttgart Chamber Orchestra at the Metropolitan Art Museum. Like my own piano teacher, Aube Tzerko, Fleisher studied with Artur Schnabel in Berlin until they all fled the Nazis. Schnabel was one of the giants of 20th century piano: passionate, humble, humorous, serious, refined, wild, without pretense, never dull. Many of his recordings are now available in a collection, "Maestro Espressivo." Tzerko died in the 1990s and my last lesson with him was 30 years ago and I did not become a pianist by profession, but his spirit is with me. I think of him every day.

Leon could not perform for 30 years after injuring his right hand through over-zealous practice. He began conducting, and his life took a new turn. The only thing more glorious than making music on a piano is having a whole orchestra do it for you; most concert pianists never make it to the podium. (Ashkenazy was an exception. Paderewski got to run a country — better still!) "Suddenly, I realized that the most important thing in my life wasn't playing with my two hands: it was music," Leon wrote in the notes to tonight's concert. "The instrumentation becomes unimportant, and it's the substance and the content that takes over."

Substance, not form, guided tonight's choice of pieces. The program was not one of the grab-bag "surprise" models, invented in the 19th century for enthusiastic but unsophisticated new concertgoers. The typical pastiche consists of three pieces from three different periods: a "warm-up act" of a little harmless something followed by a concerto, intermission, then a big romantic or modern piece. The concertgoer is thereby forced to listen to what he does often not wish to hear, in an earnest, heavy-handed attempt to educate him. Leon's program, by contrast, was sweetly rational:

Boccherini: Symphony Opus 12 No. 4, "The House of the Devil"

Mozart: Piano Concerto in A, K 414


Mendelssohn, String Symphony No. 10 in B Minor

Hayden "Farewell" Symphony

I had never heard any one of these pieces performed live although I have been attending concerts in America's two biggest cities for decades. What a pleasure to hear good music and share Hayden's little joke. I won't spoil it for you, as you may be lucky enough to hear it performed live some day.

Leon has regained the use of his right hand after 30 years through a new medical treatment, and performed the piano concerto. Hearing him play is like breathing fresh sea air - I will not be a critic. He is on tour with the amazing young musicians of the Stuttgart; if they come to your town, do not on any account miss them. 



 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.




 In retrospect, the breakthrough of the Dow below 12,000 at 12:12pm, and the subsequent move down to 11,940, was a classic signal for cane. The momentum players were waiting for the lowest low of the year. Others were waiting for a pivot at Dow 12,000 to sell. Others from the public held onto their positions until worries about the subprimes finally made them capitulate. Those who were frustrated with the Dow's not dipping below 12,000 got their release. It was perfect for a close above the round number of 1400 in S&P futures, up from 1376. That was a nice range of points in the S&P.

There was much excitement among the permabears, finally able to crow about the Dow's breaking 12,000, if not about a 10% decline in S&P. There was much kibitzing from significant others. "The market will always be there another day."

Not to be forgotten is that the indexes were within half a percent of their 90-day lows, so that when they went below, they gained from the ephemerals who sell the breakouts and extremes in the S&P. Nor should it be forgotten that the Fed Model was at its most bullish, with earnings yields having risen yet another 1/2% above bond yields.

All this reminds me of a song Laurel and I once wrote:

Just in Time

(Music by Jules Styne; original lyrics by Betty Comden and Adolph Green)

Intro: I was resting comfortably face down in the gutter
Life was serene, I knew where I was at
“There’s no hope for him,” my brokers all would mutter
I looked like something dragged in by the cat

A. Just in time,
Stocks rallied just in time
Before they rose my funds
Were running low.
I was lost
The losing dice were tossed
My brokers all were cross
Nowhere to go

B. Bulls in debt
The stocks looked like they could be heading
Down still lower yet
But something changed
Stocks rallied just in time
They rallied just in time
And put me in the black that happy day.

C. Just in time,
Stocks rallied just in time
To save me from
That margin call
Five down days
My mojo went away
It looked like fund flambé
I tried to stall

D. Clearing said,
You’d better lighten up or
Else we’ll all be in the red
Then something changed
Stocks rallied just in time
They rallied just in time
I had a nice bounce back that happy day.

B. Bulls in debt
The stocks looked like they could be heading
Down still lower yet
But something changed
Stocks rallied just in time
They rallied just in time
And put me in the black that happy day.



 The more sagacious detectives often say sadly at the end of a particularly tragic murder, "why is it always romance?" The particularly tragic move in the market last week needs a Rumpole to put things in perspective. But with his attentions fixed on crime in the English aristocracy and Oxbridgians, I will have to take a feeble crack at it.

It's clear to every thinking person that Ben Bernanke is a much abler chief than the fake Dr. Greenspan. He's thoroughly familiar with the academic literature, understands the full sweep of the interactions between markets, and is diplomatic, clear, and positive. What a contrast to his predecessor who was a academic manqué, prone to query about steel ingots and blast furnace stats in his bathtub for guidance as to what was happening in the economy.

Yes, the fake doctor must feel very chagrined that he's been displaced and shown to be such a straw wizard. What can he do but try to gain the spotlight with ridiculous non-falsifiable statements about "the probability of recession is 1/3?" Who is there who doesn't believe there's a probability of recession? But aren't there a million macroscopic inertial indicators in the market that tell us about them, and a boatload of forecasters that are not prone to look at the old-line heavy manufacturing sector as the key to our continuing expansion?

It is sad to see an old man or old lion displaced from the head of his pride. But what a boon it would be for the market if the fake Dr. G would stop trying to look big and "snarling" at his successor. "I'm trying not to make it hard for Ben," he said. There are people that still believe that he has insight. This just exposes them to so much more loss than they would have to face as the lieutenants of the bear raid spread their hopeful messages of doom with the fake doctor's support.

Along the same lines, it is invariable that in late February, the sage from Nebraska will say something doomsday-esque about the market. It has to get worse and worse each year or else he loses his position as the supreme moral force of abstinence for everyone else but himself. What he needs, he says, is a successor genetically programmed to avoid risk. But no, what he needs is something that Rumpole knows about, or that Hammerstein wrote about in South Pacific, that he ain't got anything besides the sunlight and the sand, the moonlight on the sea, mangoes, and bananas.

This time his message was that saving and deficits are going to cause anything but a soft landing. And you'd have to be crazy, except if you were he, to hold onto anything. Regrettably, he is completely oblivious to the economics of the matter, whereby individuals voluntarily hold debt at a price, and the current account deficit is triggered by the desires of foreigners to invest in the US. The two old curmudgeons came together in late February and their old guard of lieutenants was able to spread the old-hearted message.

It wouldn't be so bad if they were relegated, as they will be in 50 years, to the rogues gallery of old-hearted who decried the economic miracle of the enterprise system just when these pillars of Americanism, entrepreneurialism, competition, immigration, technology, trade, and respect for property rites were spreading throughout the world and setting the base for an economic expansion that will eventually bring the rate of return from stocks to close to the current bond rate, rather than close to a double, thereby proving a 100% increase in base stock values.

Only a Rumpole could do justice to it.

Victor Niederhoffer and Laurel Kenner chime in:

 Old-Hearted Men

(Sung to the tune of Stouthearted Men, from The New Moon. Music by
Sigmund Romberg, original lyrics by Frank Mandel and Oscar

Spare me from men
Who are old-hearted men
Who've been short ever since '82.
Who always call
For the market to fall
Who have always the same point of view
Shorting the dollar,
They don't like the dollar,
They don't like the market at all!
Spare me from old men
Who don't like high vol or low vol
Cynical old men,
Who don't like
Anything at all.

Give me some guys who buy stocks when they dive
And get out when the panics are through.
Give me the spec that will rise up from wrecks
with an optimist's point of view
Spare me from old men
who don't like growth or tech or vol
Cynical old men
Who don't like anything at all.

John Tierney writes:

 If there is one line that runs through Rumpole and that will outlive the series, it is his characterization of his wife: "She who must be obeyed." This line, like our recent correction, can be tentatively linked to romance, but not the more elevated kind that sadly led to the murders Rumpole was forced to solve. Rather, it's the tawdry love of a couple of harlots who deserve little but demand much. The first is the China doll, a wench who has taken much, stolen more, and given little. I believe George Friedman's assessment was partially correct: the Chinese government engineered this little play to teach its increasingly avaricious populace that you can't get rich in the market…fast. (Can you imagine members of the U.S. Fed dealing out a similar dose of reality to the American public?)

But I believe it goes beyond that initial purpose. The last time I looked out the China Doll was still firmly controlled by a communist cadre and all the good thoughts and market innovations in the world will not make them go away. It's mooted that an increasingly prosperous middle class will lead to the eventual downfall of this current ruling class. Are we to assume that this claque of engineers (well schooled, well disciplined, and with all the compassion of the Notre Dame alumni after a losing season) is unaware of this? That they will stand by meekly as their positions are voted away? History would argue otherwise. Just ask Google or Yahoo how much freedom is being dispensed.

We have been engaged with that country for 35 years now and despite repeated and numerous investments there, the big winner has been China…without costing it as much as a kiss. Many, many foreign companies have opened there only to discover that once the assiduous Chinese learned their methods, they quickly established cheaper competitors, drove them out of business, and took over their facilities. Nevertheless, our bankers, perhaps among the most venal individuals this country produces, continue to invest billions directly or indirectly. Billions are shipped over for minority stakes in some of the world's most corrupt and financially troubled financial institutions, copyright suits are brought repeatedly against the country, and theft of intellectual property is so common that it hardly merits news coverage anymore. (Meanwhile the Doll has stashed away quite a hoard with which she is purchasing natural resources, weak governments, weak presidents, and arms which can be shipped to Iran…or Iraq…or Syria…or Venezuela).

You want this woman? Take her, but when she breaks you, remember you could have read about her infidelities regularly on the pages of world's newspapers. In fact, you probably have read it, but her "opportunities" are so voluptuous it matters little, now. The second lady is much better known and has been around, in one guise or another, for some time. Her name is Carry Trade and she walks any street on which the swinging d**ks of the hedge fund world are located and within blocks of the banks which will provide the funds for leverage. She has been a generous consort for a long time now but has recently shown indications of retiring. This would be unfortunate, as she would leave behind a significant number of unfunded liabilities insured by firms without the wherewithal to cover 3% of them.

Of course, she has done this before, but a smitten lover is easy pickings. Finally, the most dangerous romance is the one that appears repeatedly in stories going back to the Achaeans and the Peloponnesians — we have become smitten with our own histories, accomplishments, and heroics, the pillars of Americanism. There exists a mentality, a very prevalent one, that because historically we have risen to the challenges, we shall continue to do so. Like Narcissus, we have fallen in love with our own reflection. And there are whole industries devoted to convincing us that the vision we adore is true. One is called Politics, and Greenspan and Bernanke are both its handmaidens. Another is called Finance, and it will tell us (as my grandmother used to), "Every day, in every way, things get better and better." (Does anyone really believe that the recently crowned "Greatest Generation" is really superior to those men who populated this country in the late 18th century?)

There are apostates. Just this week Goldman's chief global economist Jim O'Neill said, "There has been an amazing amount of leverage on currency markets that has nothing to do with real economic activity. I think there are going to be dead bodies around when this is over."

Pretty rough stuff. But for every O'Neill there are a dozen Abby Joseph Cohen's whose unfailingly bullish bellows prevail. Are our love affairs fatal? Can we win our tart's hearts - and minds - and business? Can we drag ourselves away from our mirrors of reminiscences long enough to address today's problems? Maybe, maybe not. But to pin the dip on the old dip who uttered the R word is a reach. This started in China and the maestro has little standing and less influence there. I think Rumpole would dismiss him as a suspect.

Rod Fitzsimmons Frey writes:

Freedom begins with property.

Somebody owns everything. By "own" I mean controls it, controls what gets grown there, what can be built there, who can pitch a tent there. That somebody might be the church, or more modernly, the state. But somebody owns it.

Those who own property, whether state or individual, control those who do not. Without property, one relies on others' goodwill for the most basic needs, food and shelter. One must do what the owner wants — grow wheat, send one's sons to the Middle East, work in a factory — to obtain the basic necessities. Possessing property liberates one from that tyranny. One can quit work and open a store; one can put up a windmill, dig a well, and buy a cow; one can rent out the property for income. Freedom.

Modern finance extends the freedom of property to the entire population, to those who have been denied property throughout the rest of history. Bankers are the modern Moses, leading citizens from servitude into liberty by extending the ability to own property to everyone. Of course, freedom is riskier than servitude, and not all succeed, but that cost is inseparable from emancipation.

All bets are off when the property rights aren't real, of course. Then the ownership of property is illusory and of no benefit. That is why the continuous, almost feverish defense of property by citizens of the United States is so magnificent and glorious, and why those of us in the rest of the world owe them such a debt of gratitude.



Valentine's Day, a chance encounter on a busy street — and the start of something big. Plus: Vic's V-Day market pattern.

Not only did he never hesitate, but he never imagined that he could hesitate. — Albert de Musset, reviewing Casanova's memoirs.

 I first met him around Valentine's Day 1999. He was limping across an intersection in midtown Manhattan, near where I worked. In one hand he grasped a sheaf of computer outputs that flapped in the breeze, and in the other was an ancient copy of Casanova's memoirs. He carried a cane under his arm. It was the dead of winter, but he wore a blue-and-white cotton seersucker suit.

"May I help you across the street?" I said. "Your papers look like they're going to blow away in the wind." And you do, too, I thought to myself.

"Yes," he said. "If you promise me one thing. I've often admired your sweetness, wit and bearing on television, and I've read your columns on the wire. Please don't unload any untested stuff about moving averages or buying on up-volume on me."

"I won't," I promised.

"In that case, as Casanova said, 'Opportunity is like fortune — one must seize it or it will run away and not return.' Would you consider it overly presumptuous if I suggested we leaven the quantitative analysis of the predictive properties of interactions between stock prices with a bit of food?" he said, allowing me to take his papers. "I guarantee that it will not be entirely without profit to you."

"I don't even know who you are," I said.

"I'm just a speculator," he said. He handed me a card. Revolutions fomented, it said. Damsels rescued. Ballyhoo deflated.

Something clicked. I had seen this man on a book cover playing checkers.

"Do you fancy yourself a Casanova with damsels?" I asked.

"I admire Casanova for many things," he replied. "He was a great speculator, a gifted gambler and mathematician, and translated many of the great French masterpieces into Italian. He was the first to design a derivatives product in the fixed-income market, and created the first French lottery. His memoirs provide the best depiction of 18th century European life. His escape from prison in Venice is one of the great flight stories of all time, and we all could learn from the careful attention to detail that led to its success. Regrettably, I lack Casanova's aptitude in the romantic arts he is so well known for."

"What's the cane for?" I said, curiously. He had a lurching gait, but he wasn't using the cane.

"I always carry a cane after the S&P 500 ($INX) has declined more than 4% in the past week," he replied. "That's how the old-time speculators made all their money. When panic came to Wall Street, they'd buy to the full extent of their bank balances. Casanova, for example, often profited from buying stocks during panics and was quite generous with the proceeds in his chivalrous adventures.

"Cane investing still works," he added. "Over the past six years, there were 64 weeks when the S&P fell more than 4%, and the average change during the next seven trading days was a 3% rise."

"That seems rather humdrum."

"Well, the numbers can be fascinating. If you come tonight, I will show you a special Valentine's Day pattern. Will you come?"

"Mind if I take my laptop?"

He started laughing. He said that reminded him of the scene in "The Fountainhead" where Gail Wynand comes back from a publishers' convention all ready for a private evening with Dominique Francon and she tells him to get dressed because they're going to see a play, "No Skin Off Your Nose."

He said it would be ideal if I brought my laptop. The salad bar at a certain nearby restaurant had some great imitation crab, he said, as well as an electrical outlet by the soft-drink machine for my computer. "I will await your arrival with zeal, young damsel."

I surmised that my new friend's interest in Casanova may have been strengthened by the latter's frequent speculative losses in foreign markets and subsequent struggles back to prosperity in the derivatives markets. It seemed entirely possible that similar misfortunes were forcing him to entertain at the local deli.

I handed him back his papers and told him I had an appointment with a value manager. This seemed to greatly agitate him. Casanova, he said, often found that the best antidote to waiting was a little speculation, and accordingly he planned to do a little speculation of his own while I was away. He appeared somewhat mollified when I told him that the manager just wanted me to hype his stocks, and that I would be careful.

First, Some Necessary Diversions

The value manager was waiting for me when I arrived at the bar of the St. Regis. I swung into the booth. "So, Alan. Tell me what you've been buying."

"I picked up some Bethlehem Steel (BS, news, msgs) the other day," the man said. "P/E of 5."

I couldn't help yawning. "Yeah, and sales are growing at about 7%. The stock has been going down for 20 years."

"My screens say that the stock is a great pick," the man said, a little huffily. "Why, it was a member of the Dow Industrials ($INDU) just a couple of years ago. We're also recommending Carmike Cinemas (CKECQ, news, msgs)," he said. "It trades at 1.7 times book value. By contrast, the rest of the market is trading at more than six times book."

That doesn't mean Carmike won't go to 0.08 times book, I thought to myself. I escaped after three-quarters of an hour and went on to my next appointment. Jack Flanders was a famous technical analyst, and I wanted to persuade him to send his updates to us before he gave them to Brand X. Jack needed no prompting to talk.

"I have spent over 10 years developing a technical indicator, the Guaranteed Known Thing (GKT), using number sequences that occur throughout nature," he said. "It has made me a fortune. The GKT is based on the work of two famous mathematicians, Johann Heinrich Lambert (1728-1777) and Leonardo Pisano Fibonacci (1170-1250).

"Lambert is renowned among physicists as the founder of the theory of light measurement, and his Cosmological Letters are famous among astronomers. Lambert attempted to explain the structure of the universe in these writings. My GKT uses Lambert's series of color-triangles, which proceed from 45 hues built from yellow, cinnabar and azurite to smaller, brighter triangles with hues numbering 28, 15, 10, 6, 3 and finally 1, a total of 108.

"I check the entire universe of stocks for action around the 45- and 108-day moving averages, then look for golden-hued crosses at the moving averages corresponding to the hues in Lambert's other triangles. I then screen the surviving stocks for Fibonacci Fan and Arc intersections. So powerful is this analysis that I caught the start, top and bottom of the entire Internet move.

"But I am not greedy, and have decided to divulge the stocks picked by the GKT indicator on my new hotline, the King's Ransom. You can be my first subscriber."

"Have you back-tested it?" I asked.

"That would be difficult," he said. "But it works."

"Do you give complimentary subscriptions to the media?" I asked. "Since you've done so well…."

"Sorry, gorgeous. Can't do it. What will you have to drink?"

I don't drink the hard stuff, but at that point I might gladly have tossed back a double Scotch. Instead, I politely excused myself and slipped out through the glass doors, winking at the doorman. What a bunch of mumbo jumbo, I thought.

The Romance of Stocks

Finally it was time to see the speculator. As I walked the few blocks to the deli, I realized that I had been thinking about him all evening. Somebody had already claimed the table by the soft-drink machine. I sat down and took out my laptop anyway and was scrutinizing the latest earnings reports when he suddenly appeared at my side. I hadn't realized how tall he was. His blue eyes alight with amusement, he handed me a plastic container of imitation fish. I opened it and stuck a plastic fork into the red-and-white contents, hoping he would be satisfied with a gesture of polite intent.

"What do you do when you're not playing checkers?" I said.

"I conduct experiments."

"What kind?"

"I look for patterns that investors haven't seen yet. That's why I came to you. I saw those stories you wrote about how 'Moby Dick' and the All-Star break are related to the market. That kind of writing gives your readers a meal for a lifetime. Much better than the usual stuff that reporters write, quoting tired advisers with mediocre records hyping the stocks they finished buying a few days or weeks ago, or back-patting themselves with reports of their timely sales."

He put his computer outputs on the table. "If it's knowledge, it's quantifiable," he told me. "For example, I've noticed a special Valentine's Day pattern. The V. It happens when the S&P falls more than 10 one day and then rises more than 10 the next day."

"Anything significant?"

"Quite. It will make you about 1%, on average, by buying at the close of the rising day. And as Casanova said, 'Money can buy the same degree of happiness whether in Italy or France.'"

We talked about the market all evening. My companion told one fascinating story after another.

"Do your patterns work with individual stocks?" I asked.

"I don't trade them," he said. "Futures are more liquid."

"But you're missing half the fun and romance, Vic. Individual stocks have stories. The great entrepreneurial themes are like instruments in the market orchestra."

"Perhaps we could hoist our sails together," he said, looking at me with interest. "I understand there's a good port in Seattle that's open to this sort of union. You could help me with the stories, Laurel, and I could help you with the numbers."

And that, dear reader, is how this site began.

P.S. One of the gravest errors in the area of testing and counting is the assumption that if something is statistically significant in one period it will be predictive in the next (in markets or life). Oh, how many fortunes and dreams have been, and will be lost because of this error. In the above article, which was written on 02/14/01, we look at a Valentines pattern, that was statistically significant — It was bullish and frequent and significant in the five years ending in 01. Regrettably it has hardly ever has happened since. I asked Doc. Castaldo to update the study for the prospective period, the out of sample period, or the period within which the pattern would have been approved by the old duck hunters club et al. … An excerpt of his report follows:

"Regrettably…. the effect has completely disappeared. From 1996 to 2/15/2001 buying the S&P after it was down more than 10 points one day, up more than 10 the next, gave profits of 5.5 S&P points for the following day, statistically significant, z=2.2. After the publication of the article, that is from 2/15/2005 to 1/30/2007, the profit was 0.6 S&P points, statistically indistinguishable from zero." What seasonal studies have stopped working, what fixed systems have gone from black to red, because of the crucial neglected factor?"



As I left the Singapore trading floor, (as computers took over), I turned to a local Singapore trader and mentioned I might board a plane to Shanghai, and see what riches may behold me, his response “don’t bother, the bid offer spread up there will be totally soaked up. There is no thought process of hey he’s not a bad guy, adding a little bit of value, lets give him 2% of the cut it just doesn’t happen” …. Since the Aussies are in East Timor, go and try and export coffee or cane sugar out of there, you’d have more luck making a dollar”

This has always stood firm in the back of my mind, reinforced by Chinese New Year, in Singapore, when on going to work at 6.30 in the morning their was a group of 100 locals standing outside the UOB Bank at Raffles rubbing the money machine and the outside of the bank for luck and prosperity. I’m with Jim Rogers — the Chinese to all appearances are bigger capitalists than any of us westerners, and the dollar is king.

We had a fine Junto Meeting featuring Wharton Prof. Francis X. Diebold on December 7th. More than 100 were there to hear Diebold and participate in the discussion on market volatility and risk. We enjoyed meeting and chatting with many Daily Speculations readers, and look forward to our next event. Video of the event should be on the site soon.– Vic Niederhoffer and Laurel Kenner

George Gilder, editor of the Gilder Technology Report, will be our Junto guest on Thursday, January 4th. His topic is “Supply Side Investing.” As usual we will meet at the General Society Library, 20 West 44th Street — between 5th & 6th avenues in midtown Manhattan. We will chat, socialize and discuss beginning at 7 pm, and Gilder will start at 8 pm. Admission is free and you can bring as many people as you like. — Vic Niederhoffer and Laurel Kenner



Kuznets’ course was valuable not only for the substance of the material but also for the way that he used the material to transmit the art of measurement. He repeatedly demonstrated that the central statistical problem in economics was not random error but systematic biases in the data.

This is from Robert Fogel in A Life in Learning. Might one also say that the same applies to the fundamental studies of the low p/e group led by the twins FF, and the contrarian DD in individual stocks, as well as the much more blatant problems in the Shiller and Siegel work.



The story of the Pilgrims’ first years in America shows how a change from common ownership to private property led to the feasting celebrated today at Thanksgiving. Similar tales of expanding harvests and benevolence are told wherever people can keep the fruits of their labor and trade them as they please.

The story illuminates why eBay and Chicago Mercantile Exchange Holdings, the owner of the Chicago Mercantile Exchange, were among the two best-performing stocks in their class during each of the last two years, and it provides a useful signal that other markets now preparing to go public might be good investments.

After landing at Plymouth in November 1620, the Pilgrims endured a cold, hungry winter during which half of them died. Promised supplies failed to arrive from London. The 1621 harvest wasn’t as big as hoped, nor was the 1622 harvest. More famine seemed inevitable.

And then the colony began to talk through the problem. The London merchants who financed the Pilgrims’ settlement specified “that all such persons as are of this colony are to have their meat, drink, apparel, and all provisions out of the common stock and goods of the said colony.” In 1621, the Pilgrims planted 26 acres, according to Judd W. Patton, an economics professor at Bellevue University in Nebraska. In 1622, they planted 60 acres, but that wasn’t enough to keep hunger away.

People began to steal by night and day, “although many were well whipped,” Gov. William Bradford reported.

The system made no sense to anyone. The hard-working subsidized the slackers. The young and ambitious didn’t want to do work for anyone else and get nothing for their trouble. The wives of some of the men objected to be commanded to wash clothes, dress meat or do other tasks for other men.

As Bradford would later write in “Of Plymouth Plantation 1620-1647,” “At length, after much debate of things, the Governor (with the advice of the chiefest amongst them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves, in all other things to go on in the general way as before.”

In what’s known today as the Land Division of 1623, each family was allotted land at the rate of one acre per family member and told to go out and produce. More than 184 acres were planted that year. And, Bradford reported, “This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn.”

What is apparent from this history is what we all know from our experience: When you can benefit from working hard, you work harder. Under the system of common ownership, there was stealing, shirking and malevolence. Under the incentive system, there was good feeling, hard work and benevolence.

News of the success at Plymouth and other settlements like it attracted more and more immigrants to the New World. And everyone who lives in America today has a personal story that is part of that great continuing tale.

The impulse to improve one’s conditions through greater effort and trade is as natural as breathing, and this has been so since the beginning. New York University economist Haim Ofek, in “Second Nature: Economics Origins of Human Evolution, argues that trade helped spur the growth of the brain.

“Exchange requires certain levels of dexterity in communication, quantification, abstraction, and orientation in time and space, all of which depend on the lingual, mathematical and even artistic faculties of the human mind,” Ofek writes in the introduction to his 2001 book. “Exchange, therefore, is a pervasive human predisposition with obvious evolutionary implications.”

Relatively flexible and acute people had an edge in trading. They survived and prospered, they had bigger, healthier families, and their descendants became dominant.

The success of eBay since its founding in 1995 shares many similarities with the Pilgrim story. Now a public company with a market value of around $75 billion, eBay has created an electronic network of niche markets that takes account of the infinity of human tastes and aptitudes and specializations. The stock is up 72-fold since its September 1998 IPO, from a price-adjusted initial price of $1.50 to $109.42 as of Nov. 15. That is after a 77% drop in the tech crash of 2000.

Like the Pilgrims, eBay gives each of its sellers a piece of land (though in virtual space) to carry out his or her business. A spirit of benevolence is apparent in the company’s feedback system; in almost half the transactions, both buyer and seller rate each other, with almost all them highly favorable. But to us, there is one overriding reason for eBay’s success: It unleashes the desire and provides a forum for buyers and sellers to improve themselves by trade in a million ways every day.

The CME, odd as it sounds, also bears some similarities to Plymouth Colony. Founded in 1897 as a member-owned organization, the Merc started out as a market for the trading of foodstuffs. Its activities and goals were torn between the interests of the members and the interests of the public. A low point was reached in 1989, when a widely publicized sting operation uncovered conflicts of interest and failures to give the public a fair shake.

For years, the Merc had been content to play a sleepy second fiddle to the Chicago Board of Trade both in volume and number of products traded. In 1972, an inspirational governor — in this case, Leo Melamed — decided it was in everyone’s interest to match members’ interests with the growing public interest in financial products such as currencies, Treasury bills, Eurodollars and stock market futures. Growth exploded in 2000 as the CME prepared for the shift to public ownership by converting members’ interests to shares. Since the Merc went public in December 2002 with its shares listed on the New York Stock Exchange, the stock has risen nearly six-fold, and it has stayed in the top 10 of NYSE performers.

In effect, the CME transformed itself from a tradition-bound club with the image of a raucous den where men shouted at each other to get an edge on the public in trading pork bellies. Instead, it became a pioneering company that lets hardly a week go by without introducing a new electronic product designed to give the public more ability to improve and hedge their ownership of stocks and debt.

The table below shows how acreage planted and revenues grew at Plymouth, the CME and eBay.

The Plymouth, Chicago Merc and eBay experiences
Year Plymouth acres planted CME revenue* eBay revenue*
(1621/2000) 26 $226.6 $431.4
(1622/2001) 60 $387.2 $749.8
(1623/2002) 184 $453.2 $1,214.1
(2003)   $526.1 $2,165
(2004)**   $743.8 $3,260
* In millions    **Analysts’ estimates

The Pilgrims originally agreed with the London merchants who financed their settlement to hold their land and its products in common, a sort of forced socialism, much as the communists imposed on Russia after the 1917 revolution.

And the Pilgrims learned, as the Russians would, that the system led to misery and poverty. Whenever trade and its rewards are permitted, well-being and output improve across the board. The principle is so mundane that it’s hard to believe that it could ever be forgotten. But it was. The Soviet economy broke down because people had no incentive to reduce costs, to produce a quality product, to provide the kind of gracious service that an American expects from even a humdrum retailer.

If it weren’t for those who risked death — literally — to start private enterprises on the black market, the Soviet system would have collapsed long before it finally did.

Everyone knows a million examples of how people respond to incentives. It’s no accident that when President Bush won a reduction in taxes on capital gains and stock dividends in May 2003, the S&P 500 ($INX) responded with a 27% rise. Incentives to buy stock increased, so prices rose. The after-tax returns from stocks increased, so the public decided to place more dollars into stocks versus the alternatives.

In Plymouth, thanks to the gift of the Land Division of 1623, trade was created, and it did what it has always done:

  1. It allowed economic freedom. The Pilgrims borrowed the money to start their colony. Their decision to redistribute the land allowed rapid repayment and the freedom to practice their beliefs as they wished.
  2. It financed new enterprises. The Virginia Company of Plymouth served its own interests by lending to farmers, giving the company a chance to increase its agricultural imports.
  3. It increased output. When each Pilgrim family gained the freedom to labor as they wished in exchange for the freedom to keep their crop, yields increased.

We believe the successes of the Pilgrims, the CME and eBay are not anomalies. And we will predict success for any company or country that lets people trade as they are predisposed to do by instinct and common sense. If the International Securities Exchange and Chicago Board of Trade follow through on plans to offer shares to the public and if the New York Stock Exchange ever goes public, we’d recommend buying those stocks.

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