# Time for books about time

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.

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.

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.

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.

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.

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.

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?

# Arrival of the Queen of Sheba - G.F. Händel, from Nils Poertner

A music piece by Händel - the Arrival of the Queen of Sheba. One could tell that the organ player is enjoying himself.

So many of us finance do terribly well - financially speaking. But then we see it as toil. Some go to the theater or listen to concert in the eve- but perhaps we got it all backward then?

## Laurence Glazier writes:

Let’s remember that Handel was enjoying himself too.

## Nils Poertner replies:

Wasn't he a pretty good investor as well?

Most (good) musicians experience life in greater fullness than ordinary folks (like us) and express it via their music, eg, the late US singer Johnny Cash…same thing with him. also good lyric with toil and feeling depressed and the sun comforting him etc. some of my more narrow minded friends are like: "I am rich, I can buy happiness." No, you can't. It is an illusion.

i listen to verdi whenever i need cheer. every one of his arias and chorus pieces is bite sized to enjoy. verdi was a genius in all things like mozart and brahms. a great investor also was about the richest man in Italy when he passed. maintained amazing secrecy about his mistresses also.

## Jeff Watson offers:

Whenever I need cheering up, I listen to Steve Fromholz sing his epic Texas Trilogy, and his Man With a Big Hat. (If that one doesn’t bring a tear to your eye, have someone check you for a pulse.)Beautiful music that celebrates real men, freedom, and the open range.

Thank you for the share, Nils. This is a fun piece… I've played arrangements of it literally hundreds of times in church services and weddings, etc.

By the way, if any of you play piano, Handel's keyboard music is vastly underrated. Almost all of it is super accessible and a real joy to play. Worth checking out!

I've been more successful in the past few years finding a balance between my artistic, creative life as a musician and the markets. It's a terribly hard balance to maintain and I haven't quite got it right yet.

## James Lackey writes:

The Blues Travelers Run Around, the blues brothers and the prison movies Shawshank Redemption, Clint Eastwood Alcatraz always cheer me.

Verdi is fantastic for its simple yet full and rich chord structure and the similar movie sound tracks. Or how about that chord and crescendo on the TDX patented movie surround sound vrrrrmph there is nothing like the sounds of a properly tuned full blown racing engine at idle then a single thump of the throttle and shut it down to silence.

Simon and Garfunkel the sound of silence is wonderful with the remakes of recent rockers.

The sound of silence trading is one thing, like sunshine itself that is either one of the most beautiful things a day or annoying. The sounds of a single fan on in a room across the hall, a car door, mumbled sounds of laughter on the next block. In a panic as your fingers cut plastic keyboard buttons and you search for an honorable retreat. A big rally, the escape with a proper reduction, back to even you laugh as your holding what you’ve got for the duration as we mumble we should have had the balls to hold all to close.

Then like the sun rising over a few covered manicured field of dreams. You whisper, Put some music on brother…Why is it so quiet in here?

Life without music is death.

## Laurence Glazier responds:

Nicely put, Lack, with a great rhythm and turn of phrase. Music is a force of nature we cannot tame, but we can be its instrument.

A quote from the painter David Hockney's latest book, Spring Cannot Be Cancelled:

I intend to carry on with my work, which I now see as very important. We have lost touch with nature, rather foolishly as are a part of it, not outside it. This will in time be over and then what? What have we learned? I am almost 83 years old, I will die. The cause of death is birth. The only real things in life are food and love, in that order, just like our little dog Ruby, I really believe this and the source of art is love. I love life.

## James Lackey :

Larry as you know "trading for a living" opens up self - I we me - to the world in a very simple output PnL and you can not fake it for long. To complete on the worlds stage full time is to immerse yourself. If you give the market 80% effort perhaps you’ll end up with a 20% loss. Give it 98% maybe you’ll get a 2% profit after expenses and paying yourself a working wage. Go all in and it’s literally limitless. All the money fame fortune a many can ever want.

Take back 2% of your time? The mistress of the market is a very jealous person. If she doesn’t kill you your cohorts running at 100% will.

Trading is one of the best things that has ever consumed me and mine. Yet it consumes me.

Better the passion is in the art than the artist.

## Nils Poertner writes:

well said. there is nothing wrong with some healthy ego. but the ego that modern man (modern woman) has formed is perhaps way too narcissistic. We are co-creators in fife and that spirit is encapsulated in many religious books- even by Ralph Walter Emerson. one has to feel it - it has nothing to do with IQ.

In The Gospel of Emerson, Ralph Waldo Emerson is quoted as saying:

"There is a principle which is the basis of things . . . a simple, quiet, undescribed, indescribable presence, dwelling very peacefully in us . . . we are not to do, but to let do; not to work, but to be worked upon."

The gist of whatever m saying comes from my dad and army guys and y’all:
Give a smart man time he finds problems.
Give a real smart guy time he finds solutions.
Give a genius time they find the right questions.

With leadership all 3!work together and create the undiscovered unlimited human potential. Alone without leadership and a dose of pain you get what my dad called "lost souls". Time is the 21st century issue most have too much time to think of problems. Those with solutions have no voice as they live in fear. The genius sit alone talking to the connections.

The genius around the globe never before without a middle man or government wishing some one would take charge and get it done. What is it? That list is now so long it’s an infinity symbol. No begging. No end.

## Alston Mabry suggest:

Speaking of music, the Fresh Air podcast has a 3-part Sondheim
retrospective. It's really interesting to hear somebody at that level

Part 1

Part 2

Part 3

# J. S. Bach, from Nils Poertner

JS Bach was once asked why he wrote so much music.

1. "To the glory of God" (not sure whether he meant it, nevermind)
2. To amuse himself.

Maybe some like this piece here as well:

Bach - Concerto in D minor BWV 596 - Van Doeselaar | Netherlands Bach Society

In the first notes of the Concerto in D minor, performed by Leo van Doeselaar for All of Bach, it is immediately clear that this is not the usual Bach. This piece is an organ version of a concerto for two violins and orchestra from Antonio Vivaldi’s L’Estro Armonico. Vivaldi’s music was popular throughout Europe and Germany was no exception. During his years at the court in Weimar, Bach made a series of arrangements of Italian concerto music for organ and harpsichord, including six concertos by Vivaldi.

From 20 arguments for the existence of God, from Prof. Peter Kreeft, Department of Philosophy, Boston College:

17. The Argument from Aesthetic Experience

There is the music of Johann Sebastian Bach.
Therefore there must be a God.

You either see this one or you don't.

## Alston Mabry writes:

There is a scene in Professor T (Antwerp version) where T is talking to his cellmate and says very sadly something like, "Is there a God?". And his cellmate says something like, "There is Bach. Bach is God." And T smiles and says "Yes, Bach is God."

## Peter Saint-Andre offers:

A quote from Pablo Casals:

For the past eighty years I have started each day in the same manner. It is not a mechanical routine but something essential to my daily life. I go to the piano, and I play two preludes and fugues of Bach. I cannot think of doing otherwise. It is a sort of benediction on the house. But that is not its only meaning for me. It is a rediscovery of the world of which I have the joy of being a part. It fills me with awareness of the wonder of life, with a feeling of the incredible marvel of being a human being. The music is never the same for me, never. Each day it is something new, fantastic and unbelievable. That is Bach, like nature, a miracle!

## Nils Poertner responds:

that's great. I always try to listen in the moment - whatever works for ppl - life works a bit by invitation anyway. one can't force stuff. a basic sense of joy and harmony is certainly missing in our era (the media, the drama etc outside).

## Jeffrey Hirsch recalls:

An English professor whose class I was in asked the question why people write poetry. Answer: Because they have to. Similar reason why Bach wrote so much music. Because he had to.

## Richard Owen wonders:

Does Bach have an Onlyfans? I can't see it in the search.

## Laurence Glazier suggests:

There are free versions of Sibelius. May I recommend the pleasures of composing now available to all?

Thank you Laurence, an answer from a real musician of note I think? I should therefore disclose, because you are a decent and proper individual of good character and standing… my question was touched with satire. Google Onlyfans via google news, and you might learn something about the debasement of our culture.

## Nils Poertner makes a connection:

btw…I always wondered whether one could re-train a musician becoming good trader? Why? Coz good musicians (of any style) tend to enjoy the process of learning - and are the complete opposite of end-gainers. perhaps they are not interested in financial markets enough- otherwise it would be an interesting project. any idea?

## Duncan Coker writes:

I am not in the class or universe of LG in terms of composing, but I do write country songs as a hobby. One thing I have found useful is, often I have to throw something away that I thought was good, a melody, a lyric and start from scratch. The more easily and quickly I scrap an idea, the easier it is to start over. You can't force it. This is true for trading.

## James Lackey expands:

Dunc is not gonna get mad at me because we never argue. However sure we can force it and to add to the comment of "those people". As if a career makes a man!?)@“”

Anyways path dependence omg I sound like the geek I am. Ok in a sport or music the pleasure has to be the process of practicing or doing it every damn day. As parents we teach this as in brush your hair teeth good girl boy kiddo! The pleasure of rewriting written words must be higher than start from scratch or least effort kicks in no?

I do not care if she likes my poems. I love them. I’m not sure if it’s a coin toss but I can’t fathom whether I like the poems I wrote in one blast or over 6 hours weeks days or? Good is good and great is better than 6 years ago and awesome is when she says so.

I wrote an awful poem once. Many bad but awful because you can hear the blood hit the floor. I gave it to a song writer buddy and he said damn that’s awesome. I said write a song. He said no man you never write over another mans blood sweat or tears.

In trading the get the joke one liners or 5 lots are cute and won’t hurt anyone much can’t kill you but will never inspire romance. The all in big line can and will get you the one, the forever girl or death one way or the other every 7 years death to the marriage of business and of the romantic life.

They say you’ll get what you need out of trading the market. I think perhaps that’s what separates us from the other guys. We need we want we just can’t help ourselves, we need everything. We want it all!

I do think there are some fairly intense connections between music and successful trading/investing. There are the obvious issues of "sticktuitiveness" and grit… I'm currently working my way through one of the Bach Partitas and spent about 4 hours yesterday on 2 measures of music. (For reference that's probably 4-6 seconds, when performed). That degree of focus on detail is absolutely normal for musicians, but is not normal for most peoples' experience, at least in the modern world.

In markets, we get kicked in the head (if we're lucky) or the balls (or, more likely, both) on a regular basis. Some degree of stubbornness and a willingness to just not give up.

I think there are also some profound tie-ins in terms of pattern recognition. For me, I think this worked both ways… after taking a decade away from music I discovered my "musical brain" and compositional skills were probably better than they were, in some ways, when I was focusing my life around music. (My keyboard technique emphatically DID NOT improve, as that's something that does take a fair amount of maintenance.)

Serious, important, and maybe even interesting epistemological questions lurk here.

It's hard to have a favorite Bach piece… his works are surprisingly even in quality across his output, but let me share one that is at the top of my list. This has always been one of my favorites:

Bach: Trio Sonata in G major BWV 530 - I. Vivace - Koopman
(And, for sounding so simple and transparent, it's a nasty little nightmare to perform!)

## Gyve Bones harmonizes:

I first heard this performed in the 1970s by Walter/Wendy Carlos on the “Switched-On Bach” on Moog synthesizer, and it has remained a favorite piece of music since then. There are various settings of the piece for guitar and piano as well. Here is a full symphony rendition… It is a song of gratitude to God for his many blessings.

Bach - Sinfonia from Cantata BWV 29 | Netherlands Bach Society

## Peter Saint-Andre responds:

I had a similar experience with one of the Bach Cello Suites last night. There is much effort (both time and concentration) involved in learning these pieces. And he probably just dashed them off!

BTW, many years ago there was a software company that specifically recruited music majors because they were highly trainable for programming. And music majors also scored quite high on the even older IBM Programmer's Aptitude Test.

And he probably just dashed them off!

This, for me, is one of the biggest and probably eternally unanswerable questions in music history. I suspect our performance standards today are probably far higher than they were historically. It's possible we have an army of at least highly technically competent instrumentalists who've devoted more time to, say, the Chopin scherzi than he ever did himself. We know that Beethoven's playing of his own pieces was, according to contemporary accounts, thrilling but filled with mistakes. When Czerny (a student of Beethoven) proposed playing Beethoven's pieces from memory, Beethoven replied that it was impossible to get all the details without looking at the score… and then admitted he was incorrect on that assumption.

Reading between the lines of what CPE Bach wrote (the Essay on the True Art… is a must-read) I suspect contemporary performance practice was much more improvisatory and perhaps less detail-oriented than we'd expect. We know many of these Bach cantatas were written, rehearsed, and performed in a week. These performers were not super human… the only thing that makes sense to me is that our performance standards and expectations (which approach technical perfection, due to the advent and growth of recording) might be much higher than in past ages.

But perhaps I'm wrong on that.

Interesting on the programming front. I would think those are two quite different modes of thinking (and knowing the expertise is domain-specific in many cases), but I'm a far better programmer than I should be given my level of actual training in the discipline. Maybe there's something to that.

## Peter Saint-Andre writes:

In his book "Baroque Music Today", Nikolaus Harnoncourt notes that before music was recorded, people most likely heard any given piece of music only once and didn't want to keep listening to the same music over and over as we do but instead continually sought out whatever was new. Perhaps there was a sense of discovery as composers explored the potentials of the tonal system; once those potentials were exhausted and composers started to produce extremely chromatic or even atonal music in the 20th century, listeners were turned off by the new and sought refuge in the old (thus Western art music ceased to be a living tradition for most listeners). Thankfully composers like Adam Grimes and Laurence Glazier are bucking that trend!

## Laurence Glazier writes:

One would expect coding and music skills to be correlated. A symphony is partly an encoded instruction set, whether performed by a computer or an orchestra. The conductor is the "crystal", the timer that pumps the flow. But oh, so much more, than that.

It would be very hard to combine the music and trading fields. To be attentive to the Muse and the S&P at the same time? Surely both are all-consuming. But trading, with its psychological dimension, of self-awareness and development, is a fine path. Alexander Borodin managed to combine composing with a distinguished career in science, as did Charles Ives in insurance.

# Energy - Things that make you go hmmmm, from Zubin Al Genubi

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

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

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

## Tim Melvin notes:

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

## Pamela Van Giessen writes:

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

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

## Laurence Glazier writes:

It’s getting reminiscent or the Atlas Shrugged movie.

## Nils Poertner suggests:

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

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

## James Lackey writes:

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

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

## Duncan Coker notes:

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

# Symphony No 2 in D The Hello, by Laurence Glazier

Symphony No 2 in D The Hello

Fellow spec lister Laurence Glazier knocked this one out of the park. This piece can only be described as "delightful." The man certainly has musical chops.

Thanks Jeff and of course, Laurence. Loved watching the musical arrangements for the entire orchestra simultaneously. It's like watching the ticks in multiple markets go together. A little ditty from gold, then the bonds … suddenly the euro and yen rise - all to the beat set down by Sanchez. Beautiful!

## Laurence Glazier writes:

Yes, it is market-like. Taking in data - melodies and fragments which come to mind - and putting them together, constructing positions, treading a narrow path between excesses of caution and exuberance.

# Music and Math: The Genius of Beethoven

Music and Math: The Genius of Beethoven

Very nice, I would add that Bach was the engineer who enabled Beethoven and everyone else to write in lots of different keys. 1.5^12 and 2^7, in music 12 fifths and 7 octaves, are almost but not quite the same. Bach fixed this with a tuning system which averages out the difference.

Indeed, there were a lot of tuning systems developed around then: Neidhardt (seemingly Bach's preferred system), Werckmeister (he developed several), etc. Just last night I read all about them in The Esoteric Keyboard Temperaments of J. S. Bach. These folks were the quants of their day!

Yes, the problem with getting good fifths and good octaves in the same scale is find a power of 3 that is equal to a power of 2. This is because a fifth is a ratio of 3/2, and an octave is a ratio of two.

Of course, there is no power of 3 that is exactly equal to a power of 2. There is a fairly good match at 3^5=243, and 2^8=256. The power of 5 on the 3 means that this corresponds to a pentatonic scale. And 3^12=531,441 while 2^19=524,288, (proportionately a better match) which as Laurence says is the basis of a diatonic scale.

Because the matches aren't exact, something's gotta give, and this is what Bach's temperment ideas addressed (as Laurence said).

There are other near matches at larger powers, but a scale with dozens or hundreds of notes has limited appeal.

## Laurence Glazier writes:

Excellent attachment on the tunings, esoteric is the right word. The fact that this is being rediscovered after hundreds of years, is of special interest to me.

I have built and played harpsichords for many years. When you play harpsichords, you also tune them. A lesser-known fact is how quickly this instrument goes out of tune… you can have it in tune for a concert and then it will need a touch up at intermission.

So, harpsichord players quickly become very familiar with these tunings. Some are much more useful than others, but it also explains what composers meant when they talked about affects or emotions associated with certain keys. This was a very real thing, in some of the older tuning systems, but has been completely lost (for better or worse) with modern equal temperament.

Another interesting aside is that I find these historical tunings don't work that well on the modern piano. Completely aside from the temperament issues, there's also the issue of inharmonicity (the deviation of a physical string from the theoretical ideal). All strings have this, but the piano has A LOT because of the thickness of the strings. (Certain types of harpischords (Italian) have scalings that are much closer to the theoretical ideals.) A piano is tuned ever-sharper in higher octaves so that it is in tune with its own overtones rather than the actual pitches. It's subtle, but it's real and important… and it also obliterates the precision of these historical tunings. (Another interesting aside is that once your ear learns to hear in these historical tunings, moving back to ET is a kick in the gut. You'll sit down at a piano, play a chord, and think "wow. everything really IS out of tune." which is the compromise of ET. (For the record, ET is a beautiful and useful thing, as well.)

What I don't see much value in are the microtonal modern experiments, but I understand what drives that line of thought.

For any musicians, if you haven't had the experience of singing pure-tempered intervals against a drone I'd highly encourage it. You can spend hours or even weeks exploring the beauty and power of these resonances… and you'll know musical materials as an EXPERIENCE of resonance rather than a sound or a theoretical construct.

One might imagine that it was these experiences of resonance that encouraged early humans to sing, to seek sound, and maybe even to seek language… maybe in those caves where they left us paintings of mystery and power… somewhere a very long time ago.

But, seriously, go get a bass drone sound and sing some pure octaves, fifths, and thirds against it. You'll never hear the same way again.

Each open tuning has a special resonance that is different than the same notes played in concert. Similarly chord inversions carry different overtones from base fingering.

I love Fripp’s New Standard Tuning, CGDAEG. The mnemonic for recalling it is “California guitarists drop acid every gig.”

yeah but slightly different. Fretted instruments are ET. You could potentially bend some notes, but you're still working in an ET world. (Scordatura certainly changes the timbre of instrument, and resonance of open strings, etc., but is a substantially different thing from temperaments.)

## Laurence Glazier writes:

When transcribing from inspiration, I am sometimes unable to use the note I hear in my mind, which lies somewhere between a pair of adjacent semitones. As my software uses ET tuning, I have on occasion resorted to using MIDI control instructions to nudge the pitch into place, but in the light of your post, I now see that the issue may be with the tuning system. On one of the historical keyboard instruments, the note I require might simply be there.

I have enjoyed writing music in the past for clavichord, because of the pressure sensitivity, but am now writing mainly for orchestra.

As you say, experience trumps academic construct. I personally consider music to be an elemental force of nature, and species evolve to sense it along with every other aspect of reality. It's also interesting that lunar and planetary orbits often lock into similar ratios. The Pythagorean Comma has a counterpart in the slight divergence between the lunar and solar calendars. The term live music, in my opinion, is literally true.

Clavichord is a beautiful and intensely problematic (at least in my experience!) instrument.

I own one. The intimacy of it is incredible… it puts the player's finger in almost direct, expressive contact with the vibrating string… but that brings up so many issues of control and it's such a different technique than any other keyboard instrument. To say nothing of the whisper-soft sound level (that defies amplification, which might seem to be the obvious answer.)

And you're right… all those "in between" notes exist as a possibility on that instrument. Not hard to imagine someone playing in a remote key and instinctively bending the out of tune notes into an acceptable range.

Guitar players always bend notes giving infinite micro tones. Squeezing the string to approach the note can give great feeling. Of course singers all do it too.

## Vic is reminded of a Beethoven story:

During a performance of one of his piano concertos Beethoven was the soloist, and he got so carried away with conducting that at one point he forgot to play the piano. He flung his arms wide and knocked the candlesticks off each side of the piano. The audience burst out laughing, and Beethoven got so mad that he ordered the orchestra to start over again.

Two choirboys were enlisted to hold the candlesticks out of harm's way. One of them got increasingly intrigued by the piano score and came in closer and closer just as a loud passage broke forth. Out went Beethoven's arm, knocking the choirboy in the mouth so that he dropped his candlestick. The other choirboy, having followed Beethoven's motions more cautiously, ducked, to the complete delight of the audience.

Beethoven fell into such a rage that on the first chord of his solo he pounded the piano so forcefully that he broke half a dozen strings. Die-hard music lovers in the audience tried to restore order, but failed. After that debacle Beethoven became increasingly reluctant to give concerts.

From Wisconsin Public Radio: The Catastrophic Conductor

# The Artist Question

## James Lackey writes:

I'm formulating a good question.  The artist question.

I'll write an essay with my experience in management of artists. We can look at the brutal management of music movies from LA from the roaring 20s til today.

The bad question is how do we profit from artists?  That's an apparent oxymoron.  I get cognitive dissonance.

I lived in Nashville for 12 years. I made friends will all kinds. I met some rock stars current and retired.  An interesting move was the logistics biz of the industry moved from LA to Nashville to cut costs.

A bad question was why not Indianapolis the best center that my race car brothers use.

The answer is obvious.  Artists can not live in order. Artists turn chaos into order. The hood gets graffiti then Lack moves in and digs the vibe but I hold a job. I pay to improve my homestead . Then the kids see me and set up a bike shop A coffee shop.. Then as Jordan Peterson says the developer comes in and builds condos. The property values skyrocket all the yuppies move in…

The Artists bail. Chaos turns to order.

I've had enough helping my friends turn their paintings or tunes into production projects.

It's not emotionally profitable and we all know writing isn't financially feasible.

If I opened a body shop to fix cars I have an artist problem.

It's actually easier if I wanted to build 100k show cars!

The daily grind to do the backlog of let's say the current market you need painters.

Painters make 100k a year. The management are idiots and think that's too much.I fixed that by saying ""you paint it.""

The management quickly gets the joke.

The next problem is the talent is paid for 60 hours of labor rate at 50% of the payable. So for every dollar of revenue they collect fiddy cent. That kills management.  I say that's the market let's focus on what we can change.

The logistics of the shop require let's say 100k of equipment per 1 million on gross. I quickly pointed out the under utilization of capacity is almost as bad as church buildings.

They said "we cant"

I know you can't but if you could how would you do it?"

""make these lazy guys that only work 50 hours a week and make 100k work more! ""

Umm omg no! They are happy. That's the point of life.

"Ok…lack hire more painters and keep this shop humming 24 7.

""I can't find qualified techs.""

Omg stop! Quit blaming society or my goodness the markets for your losses or lack of problems.

I sound like my trading brothers here when I had losses or no profit when everyone else was doing fine.

The artist will clearly do his own thing

It's a bit more complicated lol

Yea Lack it's complicated Allright don't go into biz for profit when you need must have artist.

OK what if I have to?

Help! Haha.

## Laurence Glazier writes

The most opulent road in London, The Bishop's Avenue, was once a trendy artist neighbourhood, and is now full of derivative mansions and lacks charm. The Studios where I am based, whose inception seems to have encouraged eateries and other studios to set up, have now been taken over by a developer. I think this will be good in the long term.

A relationship between agent and artist is often to the benefit of neither. Gombrich said "There is no such thing as art. There are only artists". https://tinyl.io/46hl

I met his wife once. She was an exponent of the Leschetitsky piano tradition and I think may have known the great man. She would take no money for showing me how to play a scale, and it was a great experience.

# The Man Who Invented More Than 800 Iconic Toys

## Richard Owen  writes:

Eddy Goldfarb, who is ninety-eight, created such classics as the
bubble gun, chattering teeth, and Kerplunk! Here’s how he did it.

Well I was always optimistic.
I always believed things are gonna turn out okay.
I annoy people with my optimism.
People who, why don't you face reality and stuff?
Well, I think I'm right.
I think being optimistic helps me a lot.

Before going to sleep the night before
I usually go over the events of the day
and review the problems encountered in my work.
During the night, everything becomes much clearer,
and even some of yesterday's problems are solved.
I sometimes think that I got a little help
from family and friends that are no longer with us.
Rain or snow, cloudy or sunny,
it's a new, wonderful opportunity that we are given.
It's going to be a big day.

## Laurence Glazier writes:

Such an inspiring film, thank you.

The story quoted was, I think, meant to be exactly 100 words. A game in the spirit of Oulipo,

The final three lines I am guessing summarise, like the closing couplet of a sonnet.

## Laurence Glazier writes:

In Sci Fi the Peter Hamilton trilogies and Adrian Tchaikovsky's tales.

But my main find in 2020 is the app Notion - notion.so - and among other uses for it I have been applying Tiago Forte's Second Brain method for storing favourite snippets for future access. If anything I find more wisdom in fiction than non-fiction. in a sense that makes it truer.

## James Goldcamp  writes:

Hi Laurence - Can you expand on how you use this app and Second Brain method.  I've actually been contemplating some kind of note app particularly for the purpose of putting excerpts and ideas from things I read or thoughts I have more at my fingertips. I've willfully resisted such technology to this point but think something along these lines might be useful

## Leo Jao writes:

Just checked a bit on Notion, can't yet recommend about its advantages, but have noticed major drawbacks of a note taking software.  In the past years, I have tried and used quite a few of them.  Of course in this age, a key feature is being able to sync notes across devices.  The big names include Evernote, OneNote, Keep, in addition to other lesser known one's.  One issue is at some point in time, one gets concerned about privacy and security of the contents, as with these sync'able platforms, contents are all stored in their servers.  For this or other reasons, one wants to switch to other platforms at some point.  There then is a key issue: one can't easily take the contents away!  Notion has these two issues.  I see that it can export a single note, but misses a feature of exporting all notes.

For the past year, I settled on an open source software called Joplin.  For syncing, it provides various ways without having to use a public server.  Notes can be easily exported.

## Michael Chuprin writes:

In no specific order:
1.The Psychology of Speculation: The Human Element in Stock Market Transactions
2.Fourteen Methods of Operating in the Stock Market
3.The Mad Dog 100: The Greatest Sports Arguments of All Time
4.Wealth, War and Wisdom
5.The West of the Imagination
6.Darwin
7.Regression Analysis and Linear Models: Concepts, Applications, and Implementation
8.Man on Earth: A Celebration of Mankind: Portraits of Human Culture in a Multitude of Environments
9.Voices of the French Revolution
10.The Decline and Fall of the British Empire, 1781-1997
11.Lone Star Rising: The Texas Rangers Trilogy

# Going Vegan, from Zubin Al Genubi

I've been vegan for 2 weeks and feel great.

Low inflammation and congestion, clearer head, breathing and sleep is better.

Good recovery from surfing sessions.

Trying a large variety of new food, new recipes and new sauces. Will post some vegan BBQ ideas.

It might be one of the best ways to longevity.

## Laurence Glazier writes:

In composing music the devil is in the detail. The final 5% can make the difference between the mundane and the ethereal.

# Go Champion Retires, from Jeff Watson

December 1, 2019 | 1 Comment

A Go grandmaster has retired because he believes that computers can never be defeated. What does that portend for individual, human participation in the markets? Are humans who manually enter trades destined to go the way of open outcry? Can humans have an edge over algorithms?

## Bill Rafter replies:

The following is guesswork. Anyone with a different voice is welcome to comment. (i.e., no need to flame)

I believe that the AI trading of the markets to date has centered on trades that have an almost zero risk of failure. Thus they have mainly worked in the extreme short run, mostly by picking off the marketmakers or the spread. There are many trading shops who do not permit their traders to take a position overnight.

Therefore if you wish to beat the algorithms you must pick a different venue, specifically longer-term trading. Maybe that's 4 days, and maybe it's 400 days, but it must be different from what the AI shops use. That of course means greater risk, but specs are in the business of taking risks.

Sooner or later, some of the AI people will invade this longer-term space, and they will do so by picking portfolios rather than individual stocks. But they cannot eliminate risk, and as long as risk remains, profit opportunities remain for the individual.

## Larry Williams writes:

The basis of all profits is trend.

Trend is a function of time.

The more time in a trade the more potential for profits.

As long as losing trades are stopped out so they are not turned to big ones by time/trend.

## Zubin Al Genubi writes:

I believe humans can still beat computers in trading. Maybe one human can't beat one computer, but the computers as a group will have a distinct behavior that can be regularized and gamed. Its the group dynamic, as even computers will tend to a group think. This is especially true if they are learning, and if they are reactive. The fixed systems are still pretty easy to beat because they are still beating the same old dead horses. I've found, as Larry mentioned, that a longer time horizon seems to work better now days. Hard to out speed the computers. Probably easier to out wait them. For example I seem to use 4 hour / day bars now rather than 5 min/30min bars in years past.

## Laurence Glazier writes:

Such factors lean me more seriously to composing music than playing chess. What defines us as human?

## Ralph Vince writes:

I posit that about 50% of all human action is a feint, a misdirection of the opponent, a lie. Camouflage is the dress code on the planet, and we have a several million year jump at the game of deception the machines must learn, must catch up on.

The machines are so-far, trusted–trusted not to lie or deceive. Once they do, how will they be able to compete with us i that higher arena?

Even in music, Laurence, a variation on them, a little bending around of a melody, is a feint, an indirect lie, as it were.

## Laurence Glazier writes:

I've found fractal mathematical techniques of structuring music that have a ring of truth, however writing from inspiration, like painting from nature, must be a battle and a humbling one, with no concession to vacuous prettiness - nature's colour schemes seem always to work in the visual world, and I posit also in music, though I try to figure out more accurate methods of transcription.

# The Space Between, from Jim Sogi

Between notes are important in music. It's not only rests but also the density of instruments and the bandwidth each note is taking up in the mix. In modern hip hop the number of notes and instruments is low, but the bass can take up the entire bandwidth. In markets it's useful to count the time between events rather than just the magnitude of changes of the events themselves.

## Laurence Glazier writes:

You don't want too many gaps between notes as that can undermine the effect of a later cadence. I like to run motifs together, sometimes overlapping, unless there is a functional pause coming up.

# A Query to Elmer Kelton, from Victor Niederhoffer

A query to Elmer Kelton at 80 by a kindergarten class he lectured at to make ends meet. A six yer old asked him, "when you were my age were you good with the girls?"

He was sheep and goat reporter and his said sheep were much more profitable for ranchers than cattle. He won the spur award from 1852 to 2007 as best western novelist. He admired Louis L'Amour who sold more westerns than all the western writers combined from beginning of time.

Highly recommend any of his 50 novels which he wrote in evenings and weekends. He liked to write about subjects where there was change in the air and the heroes and badmen had there were neither black or white.

If Elmer Kelton wrote easterns not westerns he would be lionized as one of our greatest writers. As it was he never made more money from his books than his sheep and goat reporting for a local news weekly. [Here is a New Yorker article on him].

## Laurence Glazier writes:

…but the world would have been the poorer.

# LMS Youtube Channel, from Laurence Glazier

Check out the London Mathematical Society's youtube channel. It has many fascinating lectures.

# Humbly Egoistic, from Sushil Kedia

January 19, 2019 | 2 Comments

Humility, without a doubt, is a celebrated value for speculators. Not just here on Dailyspec but anywhere trading is a means to self-actualization.

A humble man is a learner. Taking responsibility for mistakes is the attitude that allows the flowering of the virtue of humility on the tree of cognition. But what if humility is the antidote to ego? Is humility the absence of ego?

No! Humility is a sub-set of the Anti-ego or Un-ego (kindly allow this word as anti- is an extreme and un- only a nullification).

A humble mind has only adapted to overcome one of the three primary perils of the human mind (hard wired over the journey from chimpanzee to man). That one peril is that the human mind is coded to prove its superiority.

The other two primary perils are that the human mind loves to posess and control on one hand and loves to enjoy. Those amongst the humble who haven't been working on addressing these two default states of the human mind are the Humbly Egoistic.

To overcome the desire to possess & control it seems one good approach is to be the custodian of the risk capital at disposal. Even if one is 100% shareholder of his firm, such a person sees the firm as a distinct entity from himself.

Such a person will be able to accord due respect to risk, risk capital and the human resources around. This creates a greater shift from ego towards un-ego than being just one who is quick at accepting mistakes.

The devil however, is the primordial wiring in each mind to enjoy. The pursuit of joy is not the same as pursuit of happiness. The pursuit of joy then naturally has to keep meeting with agony, disastrous drawdowns and such things. If one can start working on ignoring the neural circuits that motivate one to find joy one lays a conjecture the same neural circuits are the ones that create a sense of being evaluated, being judged, producing suffering. Abandoning a path that is sub-optimal is the iterative process to seek the optimal. For such a mind then work is a responsibility & fulfillment of this responsibility the stepping stone to satisfaction.

All the three states of humility, state of custodianship and abandoning the path of self-judgements combine together to create the ego-free man. The unegoistic trader (it's an asymptote obviously, of an idea and not the absolute ever) is then the one closest to reason. Any other man not working at freeing himself from each of the three primordial hard-wirings is then at risk of not acknowledging the most potent idiosyncratic risk, i.e. the self or the origin of ego.

Getting back to the first couple of sentences in this note now, the whole idea of self-actualization is a powerful oxymoron then. In actuating excellence the whole crux is in leaving the self aside! Is that what the Chair does when he leaves shoes outside his trading room?

Nature hasn't designed a single variety among the species with vision that can see itself. At most we can see our transposed mirror images. That's the natural design. So ego is a perception derived from observing with our three primordial mental lenses how the universe is treating us. That explains why traders prefer to trade alone, replace phone ring tones with beeping lights, mute the #NB# tubes etc. etc. No, its not being alone. Unegoistic state of mind is being without the imaginary perceived notion of the self.

For all the accusations of selfishness on a trader, the truth stands placed well thus, a trader has to be self-less to remain in the game. Neither humble, nor humbly egoistic and certainly not egoistic a trader true to his grain is self less. A trader is a state of mind where only a responsibility to capital and a focus on risk exist. Rest is left with the shoes, outside the dealing room.

## Laurence Glazier writes:

Thanks for posting this. The question of ego is interesting, because it normally relates to expectations of society and colleagues, and in this sense it is a diversion, but a sense of self-worth would preferably not depend on the opinions of others.

Every work of art is in some way a self-portrait, and every trade reflects the trader, which makes the activity very useful for self-observation. And humility, aside from the basic truth (that, from a distance, we are dots living on a dot), helps remove noise from the signal. But beyond the floating bubble freed from ego, there needs to be direction and force, and it is there that resistance to progress is very helpful in developing the core, for without resistance can there be growth?

In fact, resistance appears to home in on every nascent growth, and tests our mettle. Ayn Rand had many rejections from publishers before Atlas Shrugged saw the light of day, though it should have been evident to them all that here was a fabulous book.

## Sushil Kedia writes:

Laurence,

Thanks for the thanks. But why only art? Every human output has some reflection of the self. That precisely is the point that the human mind has become hard wired with the 3 perils enumerated in the post. Goal for reaching a state that produces excellence is to overcome & bypass these three default factory states we come packaged with.

For example, the necessity of counting is to bypass the self. If counting validates a theses, a trade is fired. There is no self in this. The self is so tightly coded into our personages, for example, that soon a counting based trader will brag "I do not let any trade happen here that are not validated by counting". The I has to be cut down to the size it deserves to be. Not sure if many here give credence to NLP, it works out well at this end of the world. So this sentence when changed to "without validation from counting trades do not happen" removes the I.

In fact, with my EQ trainer who I have accepted as my Guru in every way, the pact is to avoid using three words in any conversation with him, "I, Me, Mine". Instead he has approved sentences such as "Sir, would you care to meet Sushil" and not "Sir, would you care to meet me".

As we practice being less and less conscious of the illusory perceived image of the self by not giving it so much importance the mind shifts closer to higher EQ states.

If it is the "I" that suffers fear, greed, lust, anger an endless spectrum of idiosyncratic emotions then this "I" is the most vulnerable piece of code that hangs around without due acknowledgment on the trading desk. Once acknowledged that it is the I that is the biggest source of idiosyncratic risk a trader starts getting trained to ignore it and focus on the defined processes.

A trade or piece of art that doesn't carry the reflections of the self is super. Let us acknowledge the shades of grey and paraphrase this line. A trade or piece of art that reflects less of the self is superior.

## Laurence Glazier writes:

I would agree with a lot of this, and we might indeed abandon use of the words me and I, and refer to ourselves by our names, and perhaps even them place them in quotation marks, like "Sushil" or "Laurence".

We live in an age of automation, which started long ago and develops now with AI. A trading system which is fully automated with signals for going in, adjusting, and coming out, can be done by a machine, and it is a special interest of mine to be less like a machine and be more essentially like a human.

Removing the I, if such a thing is truly possible, would create a tabula rasa. How much great art has come from such a state? If such a blank slate is achieved, one might prefer to inscribed it with new patterns, a new identity informed by inner qualities rather than influenced by the culture and education of our childhoods. But such a planned approach may not be as good as natural development. I am all for the "considered life", however.

While trading is for many people an art for its own sake, art - in the sense of painting, writing and composing - can be a transcending activity. Charles Rennie Mackintosh put it well:

"Art is the Flower - Life is the Green Leaf. Let every artist strive to make his flower a beautiful living thing, something that will convince the world that there may be, there are, things more precious more beautiful - more lasting than life itself."

Picasso thought that every child is born an artist. A plant may flower in nutritious light and soil. Leonard Cohen wrote - there's a crack in everything, that's how the light gets in.

Being in a comfort zone is not always a spur to creativity. Without resistance, how can the spirit progress? In my experience questions are of much more intrinsic value than answers. Some questions from me:

Would you rather buy a painting or paint it? In what sense can a painting be owned?

I'm always glad of the opportunity to reflect on these things!

# The Spirit Free’d, from Laurence Glazier

Apologies for my prolonged hiatus. I had a bereavement in December and sought refuge in the inspiration which has graced my life. I love still the noble art of trading, to which I have started to return, and there are structures in common which I use in each. However, just as in music, I doubt that the use of Fibonacci and Elliott are predictive; they can help in viewing what has happened after the event, or help a composer or painter in the process of construction.

Following my father's death, I worked through the musical and poetic ideas that came through me, leading to "The Spirit Free'd". This will be played tomorrow evening in London [last Saturday], and I would be happy to meet Specs who come. As a trader, I must point out there is a significant reduction in price to those who phone ahead of time for a ticket.

I designed this violin concerto to pass through the keys of D-(E)-A-D. What it means I do not know. My late father believed all his life in survival after death, and reincarnation. For my part, I have been true to the terror of mortality, my violin-soul ebbs away at the end in nothingness, offering no solace or religious message. Perhaps this existential view makes life the more poignant and beautiful. What really happens awaits us all, though my sequence is borne out by some NDE (near death experience) accounts.

There is an audio sim here.

The concert is at George the Martyr Church, in Borough, London, opposite Borough Tube Station, starting at 7.30. The soloist in my violin concerto is Godfrey Salmon. It is the second work on the program. The venue is near the Shard. For advance bookings ring 07765 147324 (this number not for the web please).

All the best

Laurence

# Time Ratio Analysis, from Laurence Glazier

December 13, 2012 | 1 Comment

My transparent, stretchable Fibonacci overlay seems to be successfully identifying price levels around which the main indexes cluster. This in itself does not predict the future, it identifies where the holes are on the bagatelle table, but not which one the ball will settle in. Moreover it may reflect a self-fulfilling prophecy rather than a rule. Nonetheless, the information can be useful in constructing multiple-leg options positions.

But my overlay is not predicting timing. All the pundits mention Fibonacci but this does not seem to be the case, has anyone tried other methods? Interested in any pointers.

Looking forward to stepping back in the water, but want to maximise the acuity of my toolset first.

I found this nice online chart for streaming SP500, also gives longer term charts.

## Jim Sogi writes:

Not sure what you're doing, but I've been pondering time and time frames and relationships of time. Some systems using returns have time exits and a study of time seems like its important. Not sure exactly how, but the idea is to maximize return based on time while minimizing loss. The relationships change by cycle. It seems time itself and speed and roc volatility all have cycles in time. Perhaps survivorship times give some info.

## Bill Rafter writes:

The question is whether one wants to value time or eschew it. Both can be done, so it's up to the practitioner.

Valuing time is easy, as most economics is time series processing. And most all market data comes dated. Shunning time is trickier; do you want to avoid just some time, or all of it?

Point & Figure analysis is what most subscribe to if they want to eliminate some time, and they do that by defining "box sizes" or the minimum move they consider significant. The theory is to define the noise level and throw that noise away. Sounds great, such that someone would be willing to be a tad late on a move if the signal had a higher degree of accuracy. Our extensive research says that P&F is certainly a tad late, but there is a decrease in accuracy. Here's another caution: most of the literature on P&F is written by those lacking native intellectual capacity (IMO) who have no concept of research. To them P&F is a religion akin to animism.

A more successful approach than P&F is not to create box sizes, but to drop all "inside days". I say more successful in that you eliminate insignificant data, and do not lose accuracy. However we have not been able to increase accuracy over normal data analysis. But we are still working with it, and may find something. You still get a time grid, but with lots of the days missing.

The most effective way to eliminate all time is to use Lissajoux patterns. That link will give you an animated example of such with two sine waves. There are lots to be said about this, but I don't think many have the appetite for it

# Software Generated Elliott Wave Counts, from Laurence Glazier

September 21, 2012 | 5 Comments

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

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

## Anatoly Veltman writes:

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

## Tim Melvin writes:

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

## Anatoly Veltman writes:

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

## Phil McDonnell writes:

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

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

## Leo Jia writes:

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

## Steve Ellison writes:

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

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

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

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

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

## Anatoly Veltman writes:

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

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

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

## Laurence Glazier writes:

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

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

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

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

## Gibbons Burke writes:

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

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

## Jason Ruspini writes:

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

## George Parkanyi writes:

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

# Very Historical Data, from Laurence Glazier

It has proven hard, even in this internet age, to find a full record of the DOW for pattern study. Yahoo goes back to 1928, but before that there is little. Possibly a difficult period as the markets were interrupted in 1914 (though surely trading continued?).

Finally I found measuringworth.com which gives closing prices since 1885. There are no open, high, low values, has anybody found some better datasets?

Reading Wikipedia on the 1929 crash, I noticed an attempt by bankers to heal the market by buying blocks of shares above their value, which reminded me of recent Bank of America action, though of course the motivation for that investment is different and answerable to shareholders:

"At 1 p.m. on the same day (October 24), several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.[11] The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other "blue chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. The Dow Jones Industrial Average recovered with a slight increase, closing with it down only 6.38 points for that day. In this case, however, the respite was only temporary."

# The College is a Waste of Time Meme, from Jeff Sasmor

May 30, 2011 | 7 Comments

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

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

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

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

On the other hand my wife and I went to CUNY at a time where the cost was $35/semester. That's not a typo. But I still wonder what's behind the impetus to discredit higher education? ## Ken Drees writes: I get the vibe that the intent is more of a cost justification issue. You don't send a kid to college who gets middle of the road grades and majors in marketing anymore. The job market out of college is poor and will continue to be poor. College now will set you back serious money as a percentage of household income and there will be serious debt burdens on the student and parents upon graduation. You can't put the college payments on the credit card or the home equity loan anymore. I believe that a college bound child needs serious career planning up front, which is tough to do since kids sometimes do not know what they want to do prior to going off to the higher education arena. Like the union bubble which is feeling the backlash from the debt riddled state pockets empty reality, colleges need to step back, cut back, stop the pay raises–else enrollment is going to crater and the pie shrinks. ## Victor Niederhoffer comments: A college education will always serve as a signaling device to employers and partners and parents that one is capable of being admitted under highly competitive circumstances and then has the fortitude to stick with the program, and finish the requirements, and the moral fiber not to have been kicked out. The signaling will always be of value and the rate of return from college should stay relatively constant. ## Russ Sears comments: Very similar qualifications could be said about homeownerships, commitment to paying a mortgage and good citizenship of being a good neighbor. When a persons limit to leverage has no bearing to what they could reasonably expect… many with nothing to loss will gamble with somebody else's money. This of course creates a bubble in some areas where there will be large oversupply of X degrees. For instance everybody will think in 2022, "what were they thinking taking forensic science and$100 grand of loans?"

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

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

## James Goldcamp writes:

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

## Thomas Miller writes:

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

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

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

## Ralph Vince replies:

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

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

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

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

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

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

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

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

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

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

## Jim Lackey writes:

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

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

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

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

## Jeff Sasmor writes:

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

What Are You Going to Do With That?

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

By Beckie Supiano

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

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

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

## Laurence Glazier writes:

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

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

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

## David Hillman writes:

Very astute observations.

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

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

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

## Kim Zussman writes:

The "education ruins thinking" argument has value, but simply looking at dollars a college degree pays more than just HS diploma. BLS stats below shows increasing income with formal education: about $400/week more for college grads - which of course does not include harder to value assets like volume of learning, tutored critical thinking, facility of life-long learning, status, access to better mates, good memories, signalling, etc. One would need about 10 years of the additional (median) college grad salary to pay for 4-year private degree (ignoring taxes). Would the degree be worth it if it took 20 years to pay off? Unemployment rate Education attained Median weekly earnings in 2010 (Percent) in 2010 (Dollars) 1.9% Doctoral degree$1,550
2.4            Professional degree         1,610
4.0            Master's degree             1,272
5.4            Bachelor's degree         1,038
7.0            Associate degree           767
9.2            Some college, no degree           712
14.9            Less than a high school diploma       444

8.2                     All Workers                        782

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

Earnings are for full-time wage and salary workers.

Source: Bureau of Labor Statistics, Current Population Survey

## Rudolf Hauser writes:

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

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

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

## David Hillman writes:

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

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

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

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

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

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

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

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

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

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

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

## Stefan Jovanovich writes:

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

## Jeff Rollert writes:

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

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

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

## Tim Melvin writes:

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

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

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

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

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

## Stefan Jovanovich writes:

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

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

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

## Dan Grossman writes:

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

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

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

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

# Laurence Glazier on Purpose and Truth

A chess player once told me that his purpose in playing was looking for the truth. A throw-away remark which stayed with me.

Time zones and the Pond enable me to spend some time composing before the Market opens. It is a quantum like world. One can start with virtually nothing, the simplest chord sequence like I V I. Then by opening a curtain from this “nothing” is revealed limitless opportunity to develop emotional themes and developments pursuant from the chord progression, each leading to other vistas. But — like a quantum measurement — the material is not available until noticed by the artisan, and is then fixed in its character, for ever affecting what is to be found next. Now what is more real (or more enduring - if these concepts are the same), the chair on which I sit or the musical ideas I thus frame?

Then comes the Market, another limitless sea. My spreadsheet securely lashed to the broker API, I watch the tide wash in and out, waves from each position move up and down tick by tick. I mainly watch the numbers change, using graphs only where it helps, and although I am now able to channel them into virtual reality I will do so only if/when it helps see what is going on. Some positions — generally the larger ones — are more prone to move up and down, and some more often than others, and this latter concept, a slightly different one from volatility, is not yet coming over visually.

It is a challenge to communicate the maximum meaning with the minimum components, which faces me every day in Music and Market.

# In Search of a Trading Purpose, from Martin Lindkvist

I often ask myself what is the purpose of my trading. Yes, I know, I do it for the money, for the intellectual challenge, and all that. I also understand how the markets function by allocating capital and signaling value, etc., and how I am a small, small part of that. But I mean it from a different perspective. Having worked a lot with business planning (mostly with LOTS) in different companies, I often think of how I would characterize my reason for trading if I were to write it in a business plan format. If I sold some gadget for example, I would ask: What is the purpose of the selling of the gadget? Who benefits from it? What is the underlying reason that there will be a value gained from my selling the gadget, from which I can make a profit. I think that the same applies to trading. Furthermore, a good purpose should also function as a day to day rudder and make sure that I do not deviate from my niche. To do that, it should encapsulate what we should do, why and for whom. With a well thought out purpose, we should be guided both in our every day activities as well as our important long term decisions.

During the talk this year in Central Park, Mr. Wiz mentioned something that perhaps is not spelled out as a company or trading purpose, but which I nevertheless think was one of the best fitting purposes I have ever heard, as far as I understand the underlying thinking in the company. He said: “We provide the market with liquidity in fearful situations”. Well, it seems to have worked out quite nicely, and I think there is a lot to be gained by all traders from being very clear with what it is their niche is in the market, and spelling it out in a “trading purpose”.

Providing the market with liquidity in fearful situations is tantamount to buying low. The flip side of this coin is providing the markets with liquidity during the great times, which is tantamount to selling high!

This is an investment philosophy that I invented years ago … it is called “Buy Low and Sell High” … (I know, you’re shocked, you did not know I was the inventor of “buy low and sell high”)

But seriously …

This was described to me by a college professor as the “good guy school of investing”. It works like this:

If someone wants to sell you something for far less than it is worth, be a good guy and buy it from them. Conversely, if someone wants to buy something from you for far more than its worth, be a good guy and sell it to them.

The “Good Guy School of Investing” is providing liquidity to the markets during fearful situations (and also providing liquidity when the party the market mistress is throwing is at its crescendo.)

In between, just take advantage of the long term positive drift!

I recall Viktor Frankl’s Man’s Search for Meaning. His conclusion was that we are not in a position to ask life it’s meaning - life will ask you to determine it’s meaning.

Something like ‘what you get out of it is proportional to what you put into it.’ Even if you lose, or under-perform various benchmarks, you get to be ironic.

For some, trading has analogies in most aspects of the universe, and can become self-consuming. To others it is just money; and Buffett, Soros, Ken Smith, etc. all put on their pants one leg at a time and suffer the same frailties we all do.

Laurence Glazier contributes:

This brings to mind the great Armstrong lyrics:

If I never had a cent I’ll be as rich as Rockefeller Gold dust at my feet on the sunny side of the street [More]

So above all let us trade for the love of it! Trading is a two way process and equally important as our purpose is the realization that it shapes us, acting, like other arts, as a mirror.

GM Nigel Davies mentions:

Something I’ve noticed with many very strong chess players is that they don’t need to think about purpose, they are simply at one with the game. And one of the best ways to nobble a tournament leader is to congratulate him on his excellent play and ask what it is that he’s doing right (not that I’d use such a tactic myself).

Accordingly I suggest that one of the goals of mastery is get past the stage of awkward consciousness and discussions such as the present one. For a chess player it should be enough to say ‘I crush, therefore I am’, and the trading version would be ‘I’m profitable, therefore I am’. And the strategies required should be in one’s blood, things that are so well studied and deeply ingrained that one uses them as naturally as breathing.

In Trading and Exchanges by Larry Harris of USC discusses why People Trade. People trade to invest, borrow, exchange assets, hedge risks, distribute risks, gamble, speculate, and deal. Understanding the reasons different people trade and the taxonomy of traders, including ourselves, allows understanding the opportunities that arise. Interestingly a smaller percentage of participants are true investors, and even fewer are speculators. Of those even fewer of what he terms informed speculators are the statistical arbitrageurs, of which we compose a small part. Oddly Many do not trade to profit but for other reasons. This is where the speculators purpose in the firmament comes in, and for which we are rewarded, to facilitate the other purposes of the other participants. They pay us for that privilege. Dealers are the ones who sell liquidity, not the speculators. The above does not answer the heart of Mr. Lindkvist’s query, but it does set the framework for the answer which must vary according to each of our purposes and which niche into which we fit in our respective operations.

Larry Williams mentions:

Years ago we did a personality profile at seminars asking traders to list the 3 primary reasons they traded.

None of them listed as the first reason to make money.

Answers were like, “Excitement, Challenge, to show my brother in law I’m smarter than him, etc”

Kim Zussman creates a masochist/self-loathing correlation matrix:

 Long Only Bought Hold Sold Too Soon -$-$ -$Too Late -$ -$-$ Too Long -$-$ -$ Long/Short Short Flat Long Market Up Up/Down Down  Short Only 100 Year Return -1,000,000% Steve Ellison comments: There is a technique used in ISO certification called SIPOC. In this technique, an organization identifies its suppliers, inputs, processes, outputs, and customers (hence the acronym). The organization divides its processes into those that create value, triggers for value processes, and supporting activities that do not themselves create value for customers but facilitate value creation. This technique can help an organization articulate its value proposition and focus its processes on value creation. Participating in a SIPOC exercise this week challenged me to consider how I might apply this technique to trading. A trader might create value in any of several ways, including providing liquidity, moving price closer to true value, assuming risk that others wish to avoid, and providing psychological relief by taking other traders’ losing positions off their hands. ### Nov #### 20 # Memories From Before The Web, from Laurence Glazier November 20, 2006 | Leave a Comment In a land far, far away, almost thirty years ago, I worked on a mainframe with hundreds of terminals, and it occurred to me that I could write an OS script to enable users at different screens to have text conversations with each other. As perhaps the only person in the building with any interest in so doing, when the script was finished I had to test it by informing colleagues that I had written an AI program. When they typed the appropriate command at the prompt (on teletype printers I think rather than screens) they would be presented with two options — Psychology or Polite Conversation. By this time I had disappeared to my own console ready to don my Freudian or friendly hat. Not everyone guessed immediately what was going on and some polite conversations or analyses were able to develop — I was eventually quizzed by my boss who I suspect was not entirely unamused. Ten years later, it was the birth pangs of the Web and bulletin boards were already popular with techies and those with access to equipment at work or school. I set up a math group on one of the UK boards and set a programming puzzle that seemed of technical as well as philosophical interest — to write some code (in any language) whose output is the same as the code which drives it. I think someone solved it by using a print file command where the said file was suitably set up first — if I ever set this poser again I must be sure to exclude printing files. Thankfully the web came along and now one has to be truly original to be original. I love the way we all act as synapses and what used to take years can now happen in a day. Sam Humbert comments: "To write some code (in any language) whose output is the same as the code which drives it" is a well-known idea, at least nowadays. This is called a Quine, after the philosopher W. V. Quine. ### Oct #### 12 # The Power of Potential, by Dan Grossman October 12, 2006 | Leave a Comment To me the most significant lesson of recent international military undertakings has been how a country's taking action risks sacrificing what that country previously enjoyed in the power, reputation and deterrence of potential action. For example, going back to the 1967 and 1973 wars, the Israeli military had the reputation of being unbeatable by its Arab neighbors. This gave Israel very valuable deterrent protection against its hostile, far more populous enemies. But when Israel launched a major attack on Hezbollah in Lebanon and was unsuccessful in that Hezbollah was able to fight it to a draw, major damage was done to Israel's military reputation and deterrent power. Israel is now far more vulnerable to attack by hostile neighbors and by major terrorist organizations. With the benefit of hindsight, Israel should never have risked its reputation and deterrent power in a voluntary war unless it was virtually certain of prevailing and thus keeping its reputation for invulnerability and deterrence in effect. Similarly, after the First Gulf War, the bombing campaign in Bosnia and the impressive early destruction of the Taliban in Afghanistan, the US had an awesome reputation of being the world's sole superpower, with virtually unlimited high tech military power several orders of magnitude above that of any other country. But for the US to undertake a major invasion of Iraq that turns out unsuccessful, to become bogged down in a losing war against militarily unimpressive enemies, has done incalculable damage to the US's ability to cow hostile nations with its military potential. Again with the benefit of hindsight, the US should have thought long and hard about risking the unparalled military reputation and deterrent strength it enjoyed. Now that the US's perceived military strength and ability to deter is far less, Iran can do what it wants in developing nuclear weapons and funding/arming Hezbollah, and even North Korea can feel pretty safe in its provocations. The degraded military reputation of the US also gives it far less ability to influence Russia and China to help with Iran and North Korea. And Russia can also feel free to strongarm our ally Georgia (the country, not the state) with little or no complaint from the US. (I am not dealing here with the question, moral or libertarian, of whether the US should be attempting to deter or influence other countries. Only with the question that if it wants to, whether it has the power to do so.) Finally, the relevance to investing of giving up the power of potential is, I believe, tenuous. It is true that when one moves from cash to a committed investment not easy to sell, one loses the potential to invest in other things or to remain in cash. But there is no reputation or deterrent value that one is giving up, since stocks and other investments are not capable of being threatened or deterred. (Except perhaps in rare cases where an extraordinarily rich investor like Icahn or Kirkorian is threatening to buy a massive amount of a company's stock if the company refuses to do what he wants.) Prof. Marion Dreyfus replies: A deterrent power that is never invoked, on the other hand, becomes a straw man, and ankle-biters will proceed to a series of provocations to test the level of tolerance of that so-called massive deterrent potential. Israel had been repeatedly provoked by thousands of Kassams and Katyushas against northern cities, and precisely how many thousands of incursions it can sustain is not an exact science. Nor is it in her interests to permit little gangrenous groups to pick off her soldiers and murder them at will. This leaves out the concomitant scandalousness of the unpreparedness of the IDF. Both in terms of tank platoons and soldiers guarding the perimeter, there was a feebleness of deployment that stuns most of us familiar with the power of the IDF. A major contributor to the lack of overwhelming force and the triumph of the IDF, too, was the constant effort to save civilians, which is no way to win a war against soulless automata. had the Israelis conducted the war in the way most nations would and do, it would have won inside of a week. Craig Cuyler replies: These points could also be related directly to proper means of speculation, ballyhoo deflation and scientific method in trading. The US government has ignored almost every rule of proper speculation and here are just a few off the top of my head: 1. The US got itself into a war based on spurious correlations (the link between Bin Laden and Hussein) 2. Hindsight bias (Bush snr's previous Iraqi war in which the US came out relatively unscathed with its reputation intact) 3. Data mining (the Hunt for WMD's and the Yellow Cake uranium from Niger, both which didn't exist) 4. The doomsday scenario (pre-emptive attack on Iraq would prevent further attacks on US) - Iraq was never going to attack the US it didn't have the means, 5. Trading on tips and unsubstantiated rumours (the US being conned by Big Oil and others with their own agenda), 6. Trading with too much leverage and no risk management (how long can the taxpayer pay for this mess in Iraq, how many more innocent people on both sides must die before the stop loss is hit?). As Dan says, the situation has weakened America's military position and standing in the global community and the direct beneficiaries are the Iranian Mullahs and psycho's like Kim Jong Ill who are now emboldened to develop their own nuclear arsenals. This is similar to when hedge funds like Amaranth get themselves into trouble and the market knows that it can press its advantage until the protagonist capitulates - this is what Iran, Jordan, Hezbollah, Taliban, North Korea and others will do. When an investor or a speculator puts on a trade for the above reasons there can be only one outcome - failure! Stefan Jovanovich responds: The 1973 war (what the Israelis call the "Yom Kippur War" and their opponents call the "Ramadan" or "October" War) was the worst crisis in Israeli military history. Within the first week the Egyptians crossed the Suez Canal and breached the Bar-Lev fortifications in what was probably the greatest feat of Moslem arms since the Turkish defense at Gallipoli. The Bar-Lev fortifications had cost$500 Million (in today's dollars roughly 1/3rd of the 2007 Israeli defense budget) but they were breached with water cannons, rubber rafts and hand-carried weapons and the battalion holding them was effectively wiped out. There are other details of the war that match the failure of the Bar-Lev line, but it is enough to note that, immediately after the war was over, a special commission headed by Chief Justice Shimon Agranat of the Israeli Supreme Court was appointed to investigate "why Israel had been caught by surprise and why so much had gone wrong during the war itself". The commission's report, completed in January 1975, was highly critical of the performance of the IDF on several levels, including intelligence gathering, discipline within the ranks, and the mobilization of reserves. Among the facts in the report was the disclosure that the IDF needed the emergency airlift of $1 billion of ammunition (in 1973 dollars) from the United States to avoid literally running out of bullets. To gain a proper sense of the scale of this potential disaster, it is useful to know that the entire cost of the war for the Israelis was$5 billion. (One of the bitter reflections that we Viet Nam veterans try to avoid considering is whether the 1975 Democratic Congress would failed to fund the reinforcement of the IDF as cavalierly as they refused to resupply the ARVN.) The Yom Kippur War ended the political future of Moshe Dayan. Ariel Sharon was lucky enough to have retired as commander of the Southern front 3 months before the war began. Had he remained in command, he, too, would have seen the end of his career as a figure in Israeli politics.

The tactical difficulties the IDF experienced against Hezbollah have a great deal in common with the mistakes of the Yom Kippur war. The Israelis badly underestimated the usefulness of anti-tank weapons against infantry (most of the IDF casualties were from blast and shrapnel, not bullet wounds) just as the IDF underestimated the lethality of Sagger missiles.

As for American bombing in Bosnia (sic) (the air strikes were in Serbia proper), the American after-action reports are almost sarcastic in their assessments. The Serbs, displaying their native criminal ingenuity, managed to shoot down an F-15 using cell phones and 1970s-era Soviet missiles. The USAF was unable to even "bounce the rubble" since most of the "targets" destroyed in Kosovo turned out to have been decoys. The U.S. Army had to wait a month to cross the Danube while the combat engineers (not under fire) rebuilt the bridges. When they finally made it across, they discovered (surprise, surprise) that their M1A1s were too heavy for the roads. The war ended General Wesley Walker's military career and began his political one.

Fortunately, both the IDF and the U.S. armed forces have learned from their mistakes and will continue to do so. The wars being fought in Iraq and Lebanon (yes, it is still going on) have taught both militaries that tactical intelligence can no longer sit even at the brigade level; it has to be down at battalion and even company level. Both militaries have also learned that they have to have the ability to jam enemy electronic signals not just in the air but at the street corner level. These are revolutions in military affairs comparable to the development of armor and automatic weapons.

To conclude  that "US's (and, I presume, Israel's) perceived military strength and ability to deter is far less" is to go against all the known facts of what those countries' enemies are actually doing. Both the Russians and Chinese are working as fast as they can to abolish conscription and reduce overall troop strengths. Both have effectively conceded to the Americans permanent air and space superiority by ending their next generation fighter programs. The field strength of Hezbollah, Al Qaeda, Taliban and the Baathists has been reduced to the level of banditry and local thuggery, and their internal documents speak of reduced levels of financial and military support and, in some cases, of outright despair. Their only hope is to win the battle of CNN.

I can go on, but what would be the point. That the New York Times and Washington Post and CNN remain unaware of what is actually going on in the Middle East and East Asia is hardly surprising, given the fact that their correspondents no longer spent any time in the field but leave that to their native stringers. That members of the list continue to retail the daily "everyone knows" historicisms of the "authoritative press" is disappointing.

Laurence Glazier replies:

More than 20 years ago, I remember reading media assessments that Israel was unlikely to survive more than a few years. I think this is still a good case to be contrarian. Other things being equal, Israel is and will even more so be one of the economic powerhouses of the present century.

There are — as ever — challenges.

Aumann may shine in game theory and bible code analysis but Buffett gets the nod in buy and hold.

J. Klein replies:

It was not only media assessment. 30 years ago I bought land in Israel, and all my friends advised against it, Israel couldnt last, too much risk, what a meshugge thing to do. It turned out to be a hit, by far.

Israel government has announced that it is planning a second wave of settlement erradication. The idea is to cut ourself free from our turbulent, violent, suicidal, no-good neighbors by a good fence. It is only expectable that Prof. Aumann, a believer, would argument against it, since we are giving up land aka Promised Real Estate.Nobel Prize does not make him a prophet, and less so in his hometown.

# Book Review by Victor Niederhoffer: The Math Behind the Music

The Math Behind the Music (Cambridge University Press, 2006) by Leon Harkleroad, will be of interest to musicians, mathematicians and marketicians. In a form that is accessible to every layman, the author describes the elementary mathematical principles behind sounds, instruments, compositions and visual aspects of scores in just 135 pages with a nice section of references and an included CD that covers examples of music that used math. No background is required as even such simple lower-school concepts as the factorial are developed by counting.

The first chapter is about the connections, history, common abstract patterns, and the composers and compositions that used math. The second chapter is about the physical basis of harmony, pitch and timbre that make up music. Considerable attention is paid to the frequency relations of various harmonies, and it's a good refresher for those who don't remember off the top that a fourth comes from any note by raising its frequency by 4/3, a fifth by raising its frequency by 1/2 and an octave by doubling. Sine curves are introduced to encapsulate the frequency patterns of various notes produced at different pitches by different instruments. Overtones are explained simply as the ratios of higher frequencies that a note produces that don't block out the original frequencies and the relation between harmonies and overtones is shown.

The third chapter discusses instrument tuning systems consistent with all the overtones and frequency relations between the notes of a scale.

The fourth chapter is the most interesting in that it shows how themes and melodies can be varied with simple rules such as opposition, inversion, and transposition. The relation between these simple rules and group theory are examined, and various ways of notating and combining the rules are covered.

The fifth chapter is about bell music, which is merely a variation of permutation and combination theory.

The sixth chapter is about randomization in music, with many of the same methods used to construct music as we use for simple simulations in markets.

The seventh chapter is about an attempt by one student to find the common basis, the patterns of harmony that make up the most popular songs. The eighth chapter is about how scores of music can be developed from visual cues, with rules to go from visual to music.

The ninth and final chapter is about failed efforts to combine music and math, with particular reference to George Birkhoff's efforts to develop a complete theory of aesthetics by developing a scale of beauty based on the simplicity-to-complexity ratio of a composition.

I found myself thinking many times of the relations between music and markets as I read the book. The combinations of opposites and inversions (where the intervals above a note and played the same intervals below, and transpositions (where the same theme is repeated a given number of intervals up) happens every day in the markets. The notation that musicians have developed to grapple with these techniques, including the summary of horizontal and vertical movements in visual sightings that the composer Villa-Lobos used to construct symphonies that depict buildings in a city, seems like a very fruitful field to augment technical analysis of markets.

The book is full of anecdotes and charts and methods that will be right on the top of the page for market practitioners, and will spark many a fruitful extension by those who wish to take the pencil to paper, and systematize what they have been doing in markets or charting with the work of some great composers and mathematicians in this related field.

Laurence Glazier offers:

This sounds a fine book. Abstract shapes indeed can be used for thematic material, in my chess days I considered using the outline of pawn structures like black's in the Dragon Variation. My mentor uses the letters in his friends' names. Music is developed by changing patterns in various - ever-changing! - ways, whether transposition, inversion, speed-changing, and I would add to the list in the book the use of rotation, a technique Chris Sansom and I used in the Fractal Music software. All this (except presumably rotation) applies in trading. The issue is whether it is predictive for traders, and that is akin to trying to predict what a Bach would do, the patterns are especially evident once they have happened.

# Option Valuation Using Historical Stock Data, from Dr. Alex Castaldo

Thanks to a helpful hint from my colleague Vince Fulco I have recently become acquainted with an academic paper that I do not think I had seen previously, and would like to remark on:

Michael Stutzer: A Simple Nonparametric Approach to Derivative Security Valuation, Journal of Finance, Vol 51 #5, December 1996, pp1633-1652

As my friend Kris Falstaff often points out, the Black-Scholes framework for option valuation is based on an erroneous assumption, that stock price changes are lognormal. Of course alternative models can be and have been developed, such as those that incorporate jumps in prices and fluctuations in volatility, to get around this limitation. But then Kris could reply "that is not the real stock price process either."

A more radical approach is to make no assumptions about the distribution of stock price changes but just use the actual changes that have been observed in the past. This would amount to using a histogram of price changes instead of an analytical form for the distribution (for example the lognormal form). If the observation period is sufficiently long this should give an accurate representation of real life stock price changes. This can be called a 'nonparametric' approach or a 'historical' or 'empirical' approach to option valuation. ('nonparametric' in this context simply means "without assuming a distribution"). The Stutzer paper gives a simple procedure to implement this approach.

In brief there are three steps:

1. Using a large amount of historical price data, compute the empirical distribution of stock price changes over the time horizon T of interest (T= the maturity of the options we are trying to value). This gives a vector RH of all the possible price changes that have occurred over intervals of length T, and a vector PIHAT that assigns a probability to each. Since we have no reason to assume any one outcome is more likely than any other to occur in the future, all the entries in PIHAT should be the same, i.e. an equiprobable distribution. For example if we have 1000 different entries in RH, we should set PIHAT(i)= 1/1000 for i=1 to 1000.

2. We transform the empirical distribution found in (1) into a risk neutral distribution. Stutzer argues this should be done using the Kullback-Leibler Information Criterion. The vector of possible outcomes RH remains the same, but the probabilities PIHAT associated with these outcomes are replaced by a different set of probabilities PISTAR. The beauty of the Kullback-Leibler Criterion is that it gives an explicit, relatively simple way to compute PISTAR:

PISTAR(i) = \frac{exp[\gamma RH(i) / r^T}{\sum_j exp[\gamma RH(j) / r^T}

where \gamma is a constant given by another relatively simple expression, and r is the interest rate.

3. We can now compute the value of any option (or other European-style derivative) by taking the expectation of the payoff under the risk neutral distribution. For example to value a call option we would compute the expectation of Max[S-E,0] over all scenarios contained in the RH/PISTAR vectors.

It is a very interesting algorithm. The part that I am not completely convinced about is the idea that the Kullback-Leibler criterion is the correct one to use to find the risk neutral distribution; Stutzer has an explanation that makes it sound plausible, but somehow it was not completely persuasive (or rigorous) to me.

This is the best published paper on empirical option pricing in my opinion (although there are not many published), and it forms the basis for Emanuel Derman's Strike-Adjusted-Spread concept, that we can talk about next time.