A reader writes:

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

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

Laurence Glazier writes:

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

A reader adds:

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

Andrew Aiken writes:

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

Nils Poertner responds:

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

Laurence Glazier comments:

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

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

A reader responds:

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

Penny Brown writes:

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

Laurel Kenner enthuses:

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

Zubin Al Genubi writes:

I've read pretty much every Michael Connelly book.

Laurel Kenner adds:

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

Ashton Tate writes:

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

Jeffery Rollert responds:

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

Laurence Glazier adds:

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

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

Penny Brown offers:

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

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

Kim Zussman replies:

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

Larry Williams adds:

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

Laurel Kenner replies:

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

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

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



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.

Vic adds:

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.

Adam Grimes writes:

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.

Larry Williams suggests:

Food and love?? How about air? How about something to be passionate about—like trading or whatever turns you on.

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.

Laurence Glazier comments:

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."

James Lackey adds:

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
talk about his work.

Part 1

Part 2

Part 3



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

His answer:
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.

Gyve Bones adds:

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?

Richard Owen admits:

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!

Adams Grimes writes:

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.

Adam Grimes comments:

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.



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

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

Jeff Watson adds:

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

Tim Melvin notes:

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

Pamela Van Giessen writes:

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

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

Laurence Glazier writes:

It’s getting reminiscent or the Atlas Shrugged movie.

Nils Poertner suggests:

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

Laurence Glazier adds:

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

James Lackey writes:

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

Jeff Rollert adds:

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

Duncan Coker notes:

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



Symphony No 2 in D The Hello

Jeff Watson comments:

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.

Andrew Moe adds:

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:

Thanks both for kind comments.

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

Laurence Glazier comments:

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.

Peter Saint-Andre adds:

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!

Peter Grieve comments:

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.

Adam Grimes adds:

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.

A reader adds:

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.

Jeff Watson adds:

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

Adam Grimes responds:

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:

Thanks Adam, fascinating thoughts.

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.

Adam Grimes responds:

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.

Zubin comments:

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



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.

Now your on it!

""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.



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.



December 3, 2020 | Leave a Comment

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: 

Victor's contribution to this thread:
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
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



 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.



 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.



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 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.

Victor adds: 

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.



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



 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: 


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!



 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).

More info is at the Facebook event link.

All the best





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



 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.



 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."



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

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

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

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

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

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

Ken Drees writes:

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

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

Victor Niederhoffer comments:

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

Russ Sears comments:

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

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

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

James Goldcamp writes: 

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

Thomas Miller writes:

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

Russ Sears comments:

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

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

Ralph Vince replies:

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

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

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

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

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

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

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

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

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

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

Jim Lackey writes:

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

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

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

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

Jeff Sasmor writes:

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

What Are You Going to Do With That?

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

By Beckie Supiano

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

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

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

Laurence Glazier writes:

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

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

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

David Hillman writes:

Very astute observations.

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

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

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

Kim Zussman writes:

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

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

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

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

8.2                     All Workers                        782

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

Earnings are for full-time wage and salary workers.

Source: Bureau of Labor Statistics, Current Population Survey

Rudolf Hauser writes:

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

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

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

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

David Hillman writes:

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

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

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

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

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

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

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

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

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

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

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

Stefan Jovanovich writes:

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

Jeff Rollert writes:

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

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

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

Tim Melvin writes: 

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

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

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

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

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

Stefan Jovanovich writes:

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

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

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

Dan Grossman writes: 

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

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

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

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

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

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

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



As I learn more I am tightening up my conditions for buying options, to the extent that the level of IV is precluding nearly all my potential trades (perhaps others are homing in on the same options, or perhaps volatility is generally high at the moment).

Therefore I am considering switching to vertical spreads, where the pros and cons of low/high implied volatility should cancel each other out. Do the options experts here think IV can effectively be ignored (within reason) if one uses the spreads instead of the single options?

I've seen a lot of charts today, but been unable to set foot in any of them, and hope to ameliorate this situation tomorrow.



 Wolfram has added a new toy to their magnificent engine. They added age pyramids to their distribution data, which should be fun to play around with. Pretty soon, they will have many other pyramids that a curious person can play around with and tweak. It is of my opinion that every speculator should be well versed in using the Wolfram products.

Jim Sogi writes:

Very interesting to see difference in distributions for Japan/US vs China. China is young. Japan is old, bulging in 60+ band. US middle aged.

Laurence Glazier writes: 

What is the value of Wolfram Alpha for us. I've been meaning to try it out for possible trading benefits. I would love to be able to ask it for the 100 most trending stocks.

So I just did, and while it has not obliged me, the same question posited to Google has provided some likely looking links. Has anyone found a summary of useful adaptations by traders for this tool? 



 In designing first movements, Sonata Form has often been used, and musical material of various, sometimes contrasting types, needs to be distributed in ultimately balanced sequence and quantity (not that one can simplify such an ineffable art), and it reminds me very much of the need to sprinkle bullish trades with bearish ones, the lack of such being brought to my attention right now.



Composing in an art studio, I have tried a few ways of showing music alongside paintings. What I am thinking of for the next occasion in June is to put my music on the wall as flattened scrolls, to be read from left to right.

A notice would tell people to text a code to a number, which would result in them automatically being sent an MMS message inviting them to hear the piece on their phone. This would give an immediate, independent and private experience, preferable to the jukebox programs I have been using till now (which needs me there all the time to tell them what to do), and preferable to giving them links to online sources (in the context of an exhibition).

I have found out how to send music files to phones - the missing link for me is how to set up a service which responds to the person sending a text message code, which is common in business (e.g. talk radio auctions "text your bid to this number . . ." so I wondered if anyone on the List can shed light on how to do it.

Another approach which comes to mind involves those mysterious square boxes which look like Aztek patterns, but which I gather enable a smartphone user to point their device at the pattern and then be directed to a weblink, which I would of course ensure led to music - has anyone information about said patterns (I have only been noticing them for a few months)?

Dylan Distasio comments:

Hi Laurence,

I can't really help with your first question, but I can hopefully point you in the right direction on the second.

The Aztec looking patterns you're referring to are what is known as a 3d barcode. There is pay software that will generate these, but it sounds like for your purposes, this free web barcode generator will work. It lets you enter a URL and will generate the corresponding barcode for you to print, copy, etc. When users scan it with their phone camera and barcode software it will translate back to the url.

Hope that helps!

David Hillman elaborates: 

 Not to nitpick nor be contentious in any way, but to be precise, as I wrote Laurence off list this morning, the Aztec codes, including the QR code to which Dylan refers, are in fact what we in the industry refer to as 2D barcodes, i.e., they're constructed to contain data in the X and Y axes and are read by 'imaging' the code rather than 'scanning' it.

The difference is that, in imaging, an image of a 2D code is taken and decoded into digital data, where as in scanning, light emitted by a laser [typically] is shown onto the code, then reflected back to the scanner, where the difference in the reflectivity between the spaces and bars is measured and decoded.

The more traditional barcodes one sees, e.g., UPC codes found on retail product, are referred to as linear or 1D barcodes, i.e., the data encoded therein can be read only along the x axis by scanning and decoding the variations in the vertical bars and alternating spaces.

One might correctly observe that a linear code has a second dimension. Yes, technically, there is the y axis. But, data cannot be encoded vertically in a linear code, thus, we refer to a code's dimensionality by the number of axes along which data may be endcoded and stored. Think of chess. A traditional board has both an x and a y axis. 3D chess, however, having a z axis as well, is played in 3 dimensions. So it is with barcodes.

In addition, there are 'stacked barcodes' which are in fact a series of linear 1D barcodes stacked upon one another along the y axis presenting the general appearance of a 2D code, when in fact, it is not. Because these are 1D, they can be scanned rather than imaged by passing a laser slowly across the code from top to bottom.

There are indeed 3D barcodes, also called "bumpy barcodes", but those must have dimension beyond the x and y axes, i.e., a z axis. Therefore, for a barcode to be 3D, it must be embossed on [or depressed into] a surface in a process called direct part marking, or DPM, so that all three axes are present. 3D codes are then read by special devices designed to detect variation in height as well as along the horizontal and/or vertical axes.

There is another twist, though, which is the addition of color to a 2D barcode, including the QR of which we speak, which gives that code another dimension, however non-spatial it may be. I believe the use of color on QR codes was pioneered by the Denso Corp. of Japan, but I do not deal with them or their products, so I cannot speak informatively to that technique.

The Aztec code in question was developed in 1995 by Andy Longacre [quite a brilliant fellow, btw, a mathematician and pretty fair operatic singer] of Welch Allyn, a company with which I dealt for many years prior to its being subsumed by Handheld Products and that then by Honeywell a few years back.

That code as well as all other varieties are referred to as 'symbologies' and there are scores, some more or less industry specific, e.g., UPC used in retailing, while others are more widely utilized. The most widely used 2D codes are the 'matrix' codes, but Longacre's code, which is now in the public domain, was one of the first.

The advantage of adding a dimension to a barcode, from 1D to 2D, or from 2D to 3D, is that each added dimension greatly increases the amount of data that can be encoded. For instance, while a 1D code may hold 9 or 10 digits in a horizontal inch or two, a 2D code that requires less real estate than a postage stamp may hold 200 to 300 characters, and a 3D code in the same space may contain thousands of characters.

It is also important to understand that while imagers designed to read 3D and 2D codes can read a 1D, a laser scanner designed to read a 1D linear barcode cannot read a code with more than one dimension. It is critical in designing a system or application to ensure that a proper scanner is employed. The consequences of not doing so should be obvious.

That said, as far as I know, there are no smart phones currently capable of imaging and decoding what we in the industry call a 3D code. Given that new technology is released at the speed of light and I am not a telecom guy, there may well be some of which I am not aware. However, there are many phones very certainly capable of imaging a 2D code, including the one I wear on my belt that sports such an application.

The crux of the issue here is that when planning to use barcodes there are a few things of which one needs to be aware.

1. Barcoding isn't rocket science, but it can be complex and takes expertise to get it right. Seemingly inconsequential factors such as too much ambient light, refraction of reflected light, the angle at which scanners are held, inadequate contrast of the bars and spaces in a code, and near-invisible abrasions among many others can all make the difference between success and failure.

2. There are many people, including trained IT folks and engineers, who think #1 is BS. Among these are the many who call a pro to fix what went wrong when they tried to do it themselves and failed. DIY can be frustrating, not to mention extremely costly.

3. There is much misinformation regarding barcoding out there and the lingo is often misused, even by some quasi-professionals.

Otherwise, it appears Dylan has done his homework and the online barcode generator he has referred looks as if it may work nicely for Laurence given one's understanding of what he wishes to do. The only argument I have with the reference is the use of the term 3D barcode instead of 2D to refer to QR, which one sees referenced incorrectly on any number of websites, but it is still incorrect according to AIM [Association for Automatic Identification and Mobility, the preeminent trade organization] standards.

It may seem like a small point, but I make it given the 3 above items and in the hope of saving potential confusion and frustration in Laurence's endeavour, which, FWIW, I happen to think is brilliantly conceived and is something I'd love to experience.

One other thing learned in almost 25 years of doing this. Paraphrasing Dave [Richard Dreyfuss] Whiteman in 'Down and Out in Beverly Hills' speaking about owing his wealth to manufacturing coat hangers……barcoding ain't sexy, but somebody's gotta do it and it keeps a nice roof overhead.

Still, there are wistful moments during which I think it might be a bit more fun and exciting to be an international jewel thief. It's always about risk/reward, n'est-ce pas?



 I am sorely tempted, having bought a far out of the money position expiring in October, to offset the cost by selling nearer term options in the coming months. Were it a blitz chess game I would play this move immediately. But as I am resolved to stay within a rigorous preset plan, I am sitting on my hands.

Phil McDonnell adds:

One strategy you could think about is calendar rolls. Sell the March, let it expire, then the Apr and so on. If the underlying reaches the strike price, dump it all. That will be your peak profit.

Laurence Glazier responds:

After thinking more I've realized it is probably best not to sell nearer term calls against the one I hold. A good job I sat on my hands.

My positions are carefully selected to have a chance of doubling in value, and if this happens I close them.

I imagine that converting to a calendar spread would not be compatible (the short call would weigh against the profits). But selling a call expiring at the same date but more out of the money would, I suspect, make doubling more likely and might increase my choice of candidate positions - though there would be more commission charges.

Of 10 positions I have thus far closed since starting this strategy in November, 5 doubled– so I think it worth keeping the plan going. 



 I don't know if any specs in London are coming to my performance this Friday, but anyone coming may wish to print out the lyrics to the piece, since there may not be room on the concert leaflet.

Other info: 7pm start. From Bank station walk down Cornhill past Finch Lane, and St Michael Church is on the right opposite the Cooperative Bank.

After the concert, I will likely be in a local pub for a little while.

There will also be a piano recital (including my Andante in Eb) the following Friday evening, in Lauderdale House, Highgate.



Having arrived at only this candidate stock by a process of selection from the 3000 optionable stocks, the anomaly from 27 September stood out, and I changed the low to be interpolated equally between the days either side.

I have no idea what caused it, I guessed that it was - perhaps? - earnings day, but it seems to have no bearing on matters, and I have offered a trade based on the assumption of what should have happened that day. Should it be accepted, there will be an overhead in daily charting; strange that logic should direct me to the one of the few charts with such an anomaly.

Alex Castaldo adds:

Current data shows the following for PGN on September 27, 2010: Open 44.63 high 44.69 low 38.38 !!! close 44.43.

This is after correcting for cancelled trades on that day:

Sept. 27 (Bloomberg) — Fifty-three trades in Progress Energy Inc. occurring prior to the stock being halted under market-wide circuit breakers were canceled on the Nasdaq Stock Market, according to data compiled by Bloomberg. All of the transactions occurred at 12:57:42 p.m. New York time before trading was suspended when the shares slid to $4.57 apiece, a 90 percent decline from the previous close. Progress Energy rebounded to $44.48 as of 2:33 p.m. in New York.

It appears to have been caused by an inaccurately entered sell order. A "circuit breaker" was triggered, based on a 10% decline in 5 minutes.



 Alan Greenspan is on CNBC at the moment. He says he watches the 10 year for an insight into what's happening (he was lamenting that the LIBOR gets too much CNBC screen space in comparison).

Therefore (I think this is a logical deduction) I ought to watch it too, but I have no idea why and wonder if someone could enlighten me.

I may, on occasion, be able to spot a pattern and create an options position judiciously, but so far in trading I feel I am a tactician and need to progress to strategy, for a better understanding of this art.

He also discloses he is, maybe, working on a book The Econometrics of Human Nature, which seems to be prompted by a whim, or more likely, a muse!



To deter me from forgetting a decimal point when entering a price and placing trades unduly large, I have sought for a maximum allowable trade size in TWS, and think I have found it at Configuration, Options, Precautionary settings, Total Value Limit. This is Option as in the much beloved method of trading. Has anyone tried this and verified that it works?

Another thing I'm thinking of doing, as I am away over virtual manuscript paper for much of the time, is to preset closing orders for when my position reaches a target. Seems logical, though I would rather do it "by hand" somehow. The obverse closure, to reduce losses automatically, I would never do, as one suspects a price might temporarily, as if by magic, reduce to scoop up my offering before returning to its prior level. Such things should not happen but one imagines they do.



It was yesterday, in the muggy heat though largely shielded from the midsummer sun by cloud cover. We had traipsed through the overgrown footpaths to the barely used church, no longer open for regular worship.

A turns the key and pushes open the old door, and we cross the boundary which has seen at least seven hundred years of history. He turns to close the door and lock it - experience has shown that this is wise, and our session is to be a private one.

We walk past the stained glass windows to the organ - there is room only for one to sit, and that is a tight squeeze. I stand behind the bench while A turns on the power and the whine of the pump is the only sound as the instrument stirs from slumber.

A explains the stops, the swell and the great, sitting inside the music which is steered by feet and hand. Eventually we turn to look at the sketches I had brought, for my setting of the Blake. In the distance the clunk of a door closing. "Ah, someone must have come in," says A.

For the first time the chord sequences are heard on the organ, as intended, though lacking the voices marked on the score. The sharp clicking of footsteps from the main part of the church. A plays again the chromatic voicing below the words "He who shall train the horse to war, Shall never pass the polar bar." More footsteps in the following bars as the anguish of the harmony recedes. I step back and look into the main part of the church. No sign of anybody. Oddly, the noise appeared to have come from higher up, but there was no gallery or staircase I could see.

Not wishing to move away from the organ (despite my curiosity), I returned. The footsteps sounded again. "I don't see anybody", say I. "Sometimes people come in," says A. We focus on the music, and the mysterious walker is silent from then on.

Later, as we leave, A signs the book at the entrance which logs all callers. "Whoever came," he says, "did not sign their name". He unlocks the door, we step outside into reality, and he relocks it, securing the boundary between worlds.

"Is the church haunted?" I ask. "We have just heard footsteps and there was nobody there."

"Sometimes I feel a presence," says A, who would no doubt ignore any distraction during his regular visits to the old instrument.



[When it comes to the war on terror,] we need to show the world in absolutely clear terms not only what we can do, but that we are willing to do it.

Unfortunately, there are far too many people in this country who are under the mistaken impression that [people everywhere] want the same things we want, and respond to the same set of incentives that we do, or respond to the same set of values that we do.

They don't.

Yet, we naively apply our "higher standard" to them. I almost hate to say it, but this is akin to the animal rights wacko's who actually think that they can give rights to animals. You can't give rights to anything that isn't capable of understanding them, or who is incapable of handling the responsibilities that go along with those rights…..let alone reciprocate and respect your (our) rights.

You have to deal with an animal at the level of that animal.

Laurence Glazier comments:

Is this not false logic? The mentally handicapped have rights which they may not understand. The rights of the human fetus are the subject of fierce debate. One could argue that the propensity of humans to wage war is a form of projective identification to avoid facing the moral question of the abuse of animals. Those that have resolved the latter issue in their own minds are not noted for forming battalions.

Moreover referring thus to the level of animals is unfair to animals which are less violent than humans.

In the UK animals have limited rights and there are frequent cases of conviction for cruelty to animals. Progress is slow in this area as we are still in the secondary cannibalistic era.

Jeff Watson writes:

The 9th district court in California gave Dolphins (Porpoises) the right to sue the Navy. Somehow, the rights of animals were being denied when the navy was training them to place limpet mines on ships and other tasks. Animals have rights, in fact, those rights should be extended to spirochetes, and they should be able to file a class action suit against the makers of penicillin which is the Zyklon-B of their species..Never mind service animals, the labor board ought to look into their working conditions, no pay, and hazardous duty. Equal rights for seeing eye dogs! As for slaughterhouses and eating animals, we need, as humans to go back to foraging for roots, berries, and lichens in order to protect the dignity and rights of our bovine and porcine citizens.

Kim Zussman comments:

Does it make any sense for the species at the top of the food chain to debate hunting (cultivating, slaughtering, farming, taxing, etc) its lessors?

What if we were somewhere in the middle: "Well, they ate our children again. But really, they deserved to die; in order to feed and perpetuate more successful species. And in any case the Good Book says we were put here for that purpose…"

Jeff Watson writes:

One of my favorite places to surf in the world is New Smyrna Beach, Florida. Best wave in the state, funky beach town vibe, very cool, mellow tropical paradise. It also has more shark bites than any place on the planet. It's a rather disconcerting feeling when I'm out on the water and realize that I'm not at the top of the food chain. http://tinyurl.com/49wgkf



one of the great pattern searchers --leonardo fibonacci

Since the publication of Luca Pacioli's Divina Proportione in 1509, many artists and architects have proportioned their works to approximate the form of the golden rectangle, which has been considered aesthetically pleasing. Wikipedia.

When it became apparent that we would have to move our rented art space to a new location, I used 3D modeling software to draw up a design for a new set of studios. I based each unit on a golden rectangle, and did the same with the entire block. I found a way to maximize the amount of light entering each studio in a scalable multi-floor design, and by the end it looked like a set of holiday apartments.

This vision remains in Sketchup, but the studio to which we transferred (serendipity!) is a rectangle very close to being Golden — length / width = 1.618.

It feels good to be and work there. I wonder if there is more than psychology to this effect.



lamb in the grassResponsibility for recent financial history is being projected on to the banks and investors, whereas in reality the issue is one of individual choice. Every person who is a party to a risky mortgage can say — this trade does not meet my criteria, I shall rent instead (and would that education enable every child to know how derivatives can give a safer alternative to owning the underlying outright).

Yet some Eliadean beliefs are so cherished anything will be done to protect them. Banks are not too big to fail unless governments decide they are. The concept of ownership of land is so much part of an underlying religious belief that people cannot see it as such, along with its cousin, a belief in ownership of animals.

Trading is an age old art, like music, and is as impervious to legislation (and the fashions of the day) as the laws of addition.



What is the equivalent of an open versus a closed game in market trading, and under what conditions is each better or worse?

Nigel Davies writes:

An open game is a volatile one in which the ball comes onto the bat very fast.

Laurence Glazier comments:

Perhaps it can be quantified by the amount of risk the trader is taking, as the greater number of possibilities in an open game steer the players closer to the cliff edge. But there the analogy finishes, as in chess the reward/risk is ultimately for the same prize, whereas in trading, more risk increases the stake.



 What is my purpose in life, or more accurately what is my comparative advantage?

I am half way through reading Heyne's Economic Way of Thinking which has been on my list for a while and it has sparked some thoughts about economics but also some thoughts on the bigger questions in life. There is no doubt in my mind that in markets and societies the rules of economics, competition, comparative advantage, low transaction costs, and free exchange all lead to the greatest good for the greatest number of people. But the question I pose is can these same rules be applied to ourselves to answer the big questions we face in life like, what should I pursue as a career, where should I live, should I marry and if so whom, how should I spend my time and doing what, what is my purpose,and where will I be at the end of it all?

As we go through life making decisions and choosing different paths the concept of opportunity cost is ever present, whether we acknowledge it or not. For each road we go down there is another forgone. If we chose to go to Harvard, we give up a chance at going to Yale. If we spend our time trading we give up maybe a job in sales, or time surfing or skiing. We chose what brings the most economic value or perceived wealth. There is a simple but deep definition of wealth in the book, and that is "that which we value." So wealth is a very personal thing, certainly not just money.

Another concept in life and economics that we encounter every day is that of scarcity. Examples of scarcity are everywhere; apartments in New York, school admissions for one's toddler, jobs in trading or openings at a college. Scarcity leads to competition as we vie with others to obtain the things we value. We spend time searching for apartments, studying to be better students and competing to be the best at our careers. But other things in our life are scarce too. The aesthetic things we value are scarce — a sunset over the ocean, the view of the mountains, dinner with your family or friends, reading a non-trading book, watching a fire crackle, time outside. These aesthetic things all have a time scarcity associated with them. Indeed time itself is ultimately our scarcest resource.

Can the economics concepts of scarcity, opportunity cost, competition and comparative advantage which I know to be the best as applied to markets and allocating resources, also help me the individual lead the best, happiest, fullest life I can? When I chose a career I balance the wealth this brings me against the opportunity costs, not only of other jobs, but of the value I place on leisure time as well as those aesthetic things mentioned before. So I suppose the richest among us will be those that get the most of what they value most. If this is a lot of money, so be it. But if you place high value on say fishing or taking walks with your wife and two year old, spending time doing that will make you a wealthy person. We all have to "pay the light bill," but with any luck there is time left over to pursue those things we value most. So I think economics can help in answering those big question mentioned earlier. Also it helps me to prioritize. Once you know what it is you really value it makes going about getting it easier.

Laurence Glazier comments:

A moment of futurology:

As we get deeper into the era where useful things can be produced ever more automatically and cheaply, unsubsidized jobs may become rare, even if shared out part-time. Passage to such a changed society is unlikely to be calm, however it will give people the chance to develop their creativity, an essence-ial part of us all which education quells until, if one remembers, retirement. And those who have jobs would consider it an immense privilege.

It is a future I look forward to (indeed there is no need to wait). Yet, as a chess master once said, "Between the opening and the endgame the gods have placed the middlegame." And society will resist being dragged by the wind of technology to this endgame, as surely as the artist, alone in the studio, resists looking in the pitiless mirror.

Laurence Glazier is a British musician, artist, philosopher, chessplayer and speculator.



 Of ten principles I drew up earlier this year as guidelines for artists, the eighth states "Do not make ideological or political art." Here I imagine the artist to withdraw from personality and get on with doing the job without identifying with the fashions of the day.

Looking at trading as an art (which I believe it to be), this suggests to me that the political provenance of a trader may be irrelevant. A communist and a capitalist may be able to practice it equally well, as they might similarly play the piano or chess. To the trader's art, capitalism (if untrammeled by government bail-outs) functions as the rules of a game. Since I got involved in trading, I have found politics less relevant to me. Similarly, the more I write music, the less I listen to it.

Laurence Glazier is a British musician, artist, philosopher and speculator.

Jim Sogi replies:

I respectfully take issue with "Do not make ideological or political art." I submit that all art has ideological and political elements. The fact that you make it, is proof.

Secondly, my opinion is that it is important to listen to music to write. Other music provides the language people are speaking.



iPhoneThe failure of one of our aging Windows Mobile PDA phones has prompted a review of what to get instead, and is an opportune time to consider the iPhone, despite (and because of) the religious fervor surrounding it.

At first touch, the screen is wonderful, the method of zooming and compressing first class. But I started to wonder why the buttons were so big, and why list programs were never in small font, and realized that it cannot work with a stylus. (Googling has revealed some attempts at these). I presume those using programs like OmniFocus (and word processors — such as they are) must be zooming in and back out all the time as they edit.

And digital art must lose its spontaneity, if drawing requires expansion of the canvas so that a finger width translates back to a thin line. It is such a shame that this beautiful screen responds only to a blunt tool.

The array of icons on the home screen, and the limited number of lines displayed in many programs, together with the beautiful physical form, reminds me of the Palm V, which I loved in an earlier era.

I would guess that in the ensuing battle, Apple will play Palm to Google's Microsoft.

Admittedly there are many who have benefited from the design - I have received photos "sent from my iPhone" from sources not known to be geeks in the past. But for us, multiple application users, I think we will stay with Windows Mobile, staying with the creaky system that has done us well since the days of Palm, living with near daily "soft resets". Now the TouchFlo HD looks nice…

If I am about to miss my chance of Nirvana please put me right — I'm feeling almost guilty as I think of the joyous hordes around the Apple "Temple" on Regent Street.



M o NA popular bureaucrat some odd weeks ago passed away at the age of 77. That reminded me of an observation I once read about long ago and never forgot. People tend to pass away from this earth on or near multiples of seven years. True statistic or not, I always compute "the seven" when I hear about someone's death age. It's a habit of mine.

So it goes that if one can make it past 49/50, you then have a strong chance of making it to the age of 56, and so forth. I pulled The Mystery of Numbers by Annemarie Schimmel from my bookshelf.

It's an interesting book that gives a comprehensive view of how numbers and number systems developed over the course of world history. It shows how religion (Jewish, Christian and Moslem) and culture contributed to similar understandings concerning numbers. It relates how luck (good and bad) can be cast upon certain numbers based on religious practices. The book brings together diverse historical references to each important number in a most readable way. It also integrates biology, nature and other systems to illustrate why certain numbers have meaning and significance. It's a nice enjoyable read, providing an eclectic mix of scholarship.

For example, regarding the number eleven, I paraphrase and summarize:

Number 11 is the Mute Number. Standing between 10 and 12, both round numbers that have significance, 11 was always interpreted in medieval exegesis ad malam partem, in a purely negative sense. 11 had no good part to it. The 16th century numerologist Petrus Bungus claimed "11 has no connection with divine things". The Muslim Brethren of Purity consider 11 as the first "mute" prime number beyond 10. 11 is found in Babylonian myth and in Greek mythology in similar negative fashion. Soccer has eleven players and the Germans call the penalty kick, Elfmeter (11 meters?). Psychologist Friedjung sees the 11 players in soccer and other games as an allusion to human imperfection. But, 11 could also mean bounty-even more that 10. And the German Rhineland carnival season begins on 11, 11 at precisely 11:11 am-to amuse our minds.

The number Seven is a large chapter in the book. One part relates to changes in a person every 7 years. "The Jewish philosopher Philo of Alexandria points out at seven years you get teeth. The next 7 puberty, at 21 youth sprouts a beard, the fourth heptad is the high point, the fifth is time for marriage. The sixth heptad is intellectual maturity, the seventh is for the soul to mature, the eighth perfects reason and intelligence, and at ninth passions are tamed." Backed by Psalm 90, Philo asserts that age 70 is best for death-as 3 score and ten is said to be man's lifespan.

MayanWhile the Mayan culture was quite advanced in counting, astronomy and date forecasting, some cultures did not develop significant counting systems. The un-advanced culture counter becomes confused after 9 or 10 items-not having words denoting 14 or 15, but this same person could look at a large herd and know precisely how many there are or if any were missing. How does this occur? Can I see large systems and remember their traits with a glance? I glance at my quote screen and quickly can tell if something is amiss.

Tom DeMark
's counting work influenced me early on. I made trades based on extended counts of stocks that were close to exhaustion trend count limits, as defined by Tom. Today with supra-hedge fund leverage, market moves are much faster, the counts seem compressed.

When is termination of trend? Stocks seem to have life force. Stocks seem to have a birth, youth, maturation, old age and death phases. Stocks have counts, like heartbeats or steps along a path. Base 10, base 6, base 3-I like to count things as they appear to me as rhythms.

But for now as we wait, and in terms of breathing here on earth, lets all keep pushing to and through our next "7". Push on and through to a new count and into a new heptad of perfecting oneself.

Laurence Glazier extends:

In the days of Gottlob Frege some of the vitality of mathematics was removed by the use of equivalence classes of convergent sequences of "random" numbers to define quantities which still have poetic names, like "transcendental", yet a flaw in that old argument, is that "random", by definition, can never be defined, and if one discounts those old constructions and uses instead a form of computability, then it is possible to create ever newer numbers. (There is obviously a political and ideological aspect to the notion that numbers — as with people — might be random.)

If we are talking of sevens, this is a number important to any musician, and it can go beyond music. George Gurdjieff's cosmology was based partly around this number, and as one who uses harmony to affect emotions, I take it seriously. It is a difficult cosmology as it is not Copernican, a paradigm virtually without possible dissent except among creationist communes.

In music, the fourth level has a natural tendency to fall back to the third, if there is insufficient energy to take it further in the octave. At eight it starts again. In chess a pawn is often stalled at the same point in its progress to a new life at the eighth rank, though of course it cannot fall back. And I was amused to notice recently, that were a space voyager intrepid enough to go beyond the fourth, red, planet of our System, the barrier of asteroids before the fifth, giant orb, might incline a retreat to Earth, the Third.

If trading, along with the natural psychological lessons which accompany it, were to imbue a more sensitive appreciation of numbers, that would more than suffice for me.

Phil McDonnell reminisces:

Tom DeMark’s counting work influenced me early on. I made trades based on extended counts of stocks that were close to exhaustion trend count limits, as defined by Tom. Today with supra-hedge fund leverage, market moves are much faster, the counts seem compressed.

DailySpec contributor Larry Williams collaborated with Tom DeMark on the early work on sequential counts. My sense of such things is that to the extent they work they have more to do with human psychology and less to do with any intrinsic mystical properties of numbers.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008



ChessmenIt is interesting to speculate on which people in one's life have characteristics of chess pieces. We have only a limited number of people who are the significant players on our own "team." The design of chess (unlike Go or checkers) incorporates pieces which may symbolize psychological types, and as it works so well in the game, in life do we notice someone who:

The king can also represent spirit or essence which grows through the layers of personality which have long protected it. In this vein gestalt analysis can also be applied to a single personality. We have a part of all these types within us. As chess has evolved to a design that defies all attempts to improve it, its structures may have wider application.

GM Nigel Davies adds:

An interesting idea that is close to others I've considered. The most obvious extension is that the pieces all represent aspects of the personality (psyche, soul) and that our struggle to coordinate the pieces symbolises our attempts to be 'complete personalities'. The forces of the 'other side' are there to provide the necessary resistance that inspires us to grow.

GM Davies is the author of Play the Catalan, Everyman, 2009

Legacy Daily asks:

The people/personality spectrum is perhaps far richer than the chess glasses allow but the situations in which we find ourselves are indeed as diverse as the possible combinations of pieces on a board. But how do the three outcomes (win, lose, draw) mirror life? Also, in life the “queen” or some other piece decides to sacrifice another piece or move in a direction. While in chess the player rules and dictates all of the moves. Who’s the “player” in life?



A chess playing friend of mine who is also a poet told me recently that while playing chess, new fragments of poetry flow through her mind.

This rang a bell for me, and I experimented today with setting up an internet chess game on one monitor, and adjacent to it a music manuscript window. I found that while the chess was going on, I was able to take dictation in a similar way on to the music file. (This was very bad for the level of chess moves, but they were there merely to oil a mechanism.)

I have no idea how common it is to have this combination of interests (as a search on Composer and Chess brings up chess problem composers). The well known precedent was Philidor whose music is outstanding. Mendelssohn was also keen on chess. But I am unaware of others. Musician chessplayers are of course numerous.

The novel I am reading right now, The Eight by Katherine Neville, has Philidor among the dramatis personae. I have not read enough yet to be able to recommend it. There are one or two technical errors about chess, but it has made me start wondering again about the origin of the game. It is newly reprinted from the eighties as she has just had a sequel published (The Fire).

GM Nigel Davies replies:

It will dismay many to learn that chess and other board games are descended from religious rituals in which delineated space represents the battle ground between our attempts to have good triumph over the dark side. The conflict between forces under our control and those of chaos (the pieces at the other side attempting to wreck our plans) reflects the battle people face in creating order (sanity) within their own minds.

With music you have what is essentially the same battle in the attempt to create harmony in sound which separates it from the chaos of noise. Of course here you don't have the issue of an agent that is actively trying to destroy your attempts but the process is very similar in many respects (abstraction, harmony/pattern etc).

Markets have some similarities in that there one is trying to find moments of order within the chaos of price movement. Here it's even harder because even the definition of what constitutes harmony is constantly changing.



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

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

Nigel Davies writes:

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

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

Jim Sogi adds:

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

Laurence Glazier writes:

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

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

Laurel Kenner writes:

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

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

Jim Sogi adds:

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

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



 Like Bach's contrapuntal motion playing mirror images of a theme, the market seems to be playing rather striking mirrored images of price sequences over two day periods and around the round. Market, like music, seems to like a theme and a key. The intervals are larger now, say 100 points and the notes larger, say 12 points.

Some rules from Wikipedia on musical "rules" for composition follow below. I wonder if any might provide "rules" for the markets. Take the idea of consonance, as the market returns to its round this Friday afternoon. I have actually been studying the various modes in an effort to extend my guitar playing skills and have these ideas in mind. Intervals are very important. The same scale can be played at different levels. Surprise is often a pleasant mode of musical creativity.

(Following quoted from Wikipedia)

Students of species counterpoint usually practice writing counterpoint in all the modes except Locrian (Ionian, Dorian, Phrygian, Lydian, Mixolydian and Aeolian). The following rules apply to melodic writing in each species, for each part:

1. The final must be approached by step. If the final is approached from below, the leading tone must be raised, except in the case of the Phrygian mode. Thus, in the Dorian mode on D, a C# is necessary at the cadence. 2. Permitted melodic intervals are the perfect fourth, fifth, and octave, as well as the major and minor second, major and minor third, and ascending minor sixth. When the ascending minor sixth is used it must be immediately followed by motion downwards. 3. If writing two skips in the same direction—something which must be done only rarely—the second must be smaller than the first, and the interval between the first and the third note may not be dissonant. 4. If writing a skip in one direction, it is best to proceed after the skip with motion in the other direction. 5. The interval of a tritone in three notes is to be avoided (for example, an ascending melodic motion F - A - B natural), as is the interval of a seventh in three notes.

And, in all species, the following rules apply concerning the combination of the parts:

1. The counterpoint must begin and end on a perfect consonance.
2. Contrary motion should predominate.
3. Perfect consonances must be approached by oblique or contrary motion
4. Imperfect consonances may be approached by any type of motion
5. The interval of a tenth should not be exceeded between two
adjacent parts, unless by necessity. 6. Build from the bass, upward.

Finally, in species counterpoint it is important to remember that the interval of the perfect fourth is usually considered a dissonance.

Laurence Glazier replies:

How nice to find this post on Daily Spec, as I am spending two days per week in the studio applying these rules, an activity even more fascinating than trading.

Both pursuits relate strongly to human emotion.

I have come to the conclusion that principles like these are valid in the way other empirical observations are. There are ideological battles over it in which I am involuntarily part of the fray, ultimately the defense rests with the music.

These contrapuntal rules are describing two part counterpoint. It is worth playing through Bach's 371 Chorales, the rules play out over four parts, applied to each pair of voices 12, 13, 14, 23, 24, 34. If pawns are the soul of chess (Philidor, the composer/chess player), then chords are the soul of music.

Arnold Schoenberg goes into these principles in great detail in his book Theory of Harmony. A good read. Even he has difficulty rationalizing the effect of consecutive fifths (as a revealing footnote shows), a principle to be added to the Wikipedia rules. I used to think of those in terms of information theory (a succession of perfect fifths adds no new information), but the same is true of perfect thirds from fa and so, which sound OK.

Interestingly in jazz, whose genius has turned everything on its head, it can be nice to build the chords downwards from the top, in fourths.



 Many were the portents of doom in the final weeks of John Major's administration in London. Much wailing was there, and gnashing of teeth. Far be it from me to allude to any augurs here, and nor do I imply any philosophical support of positive discrimination (for discrimination cannot be made graceful by a pretty adjective, no more than can "labour" or poor music be given stature by the prefix "new"), but after many years the Tower of London still stands, and despite cameras on every corner, our administration is, as it has always been, far too muddled to set up either a dictatorship, or do much of either good or harm.

The major issue which has come to light on either side of the Great Sea has been the obsession with property ownership. This has been treated as a shrine, a Golden Calf to whose wind all caution has been cast. I could not believe the risks the outgoing U.S. administration has taken in underwriting these failed bets, as should the strategy go wrong the only resourse is to print money, and we must remember that what has happened in Zimbabwe could happen anywhere. Property ownership should be considered with the risk assessment any of us traders would otherwise use, namely a small, limited proportion of our assets. To treat property ownership almost as a human right has greatly inflated its price. However, if property ownership is viewed as land ownership, we must consider what that means philosophically -as we are on this fair planet as but guests and cannot aspire to own any part of it (though we try to enhance it). This is similar to the even more universal belief that our fellow creatures are likewise there for our ownership, distribution, and an end which poses the question who is to be pitied more, the animals or us?

The most we can ever hope to own, and even this is not certain, is our capacity to think freely, and to follow our own personal agendas.



I find the paper Simulating Collective Misbeliefs in the Journal of Artificial Societies Simulation interesting.

Notable how it predicts a tendency for cults to grow based on the beliefs of dead individuals.

I think the same techniques may be applied to look at trading systems and trends, as shared beliefs can become self-fulfilling prophecies, sometimes weakened when a bubble bursts. In life it is equally hard to distinguish between consensus belief and reality. Even time and space are human concepts, although when people look for aliens they scan with their telescopes the vast reaches of outer space.

Sushil Kedia adds:

Wonderful. May I be permitted to generalize Mr. Glazier's statement further that everything that mankind debates as within the possible and not within the possible is again a matter of the human cognitive faculties. Recognition is subjugate to cognition. Observation, testing, conclusion is but a chain in the ever improving cognitive processes.

What would the list suggest be a good way to read, learn and think about the history and or the evolution of human cognition? What may be the must read sequence of works in that area?

"Cogito, Ergo Sum" - Rene desCartes



Stock market indices have the same problem that chain calculations of the cost of living have, but the difficulty of assaying what is added, left in and taken out should not deter us from accepting the common sense observation that wealth increases in open and competitive societies. It does so even though governments are always clipping the coins we use each day. The positive drift of the market seems to me the inescapable consequence of the increase in savings that comes from people having the liberty to trade. Part of that liberty is the ability to pick up and move to another jurisdiction where the local authorities are lying and cheating less. That freedom to light out for the territory with one's money has been the genius of our Federal political system. Every time wiser heads decide that open capital markets for money are a bad thing (Nixon, Ford and Carter's successive attempts at exchange controls being the most recent example) the drift stops being positive. If one needed proof that otherwise very smart people can refuse to learn this central lesson of American history, I offer Paul Volcker's recent proposal that the solution to the world's banking problems is to have a single currency. Fortunately, Americans and others throughout the world still have the ability to let Gresham's law work. When the competition among sovereign monies is eliminated, there will soon be no real drift at all no matter what index we use.

Laurence Glazier notes:

At an options seminar I attended last week, it was pointed out that there is an artificial aspect to the upward drift, as when indexes are rebalanced, dogs are dropped and stars added. The implication was that in fact there is no directional drift, as the ever growing index does not remain the same index. I don't believe it, but I had never considered this point before…

Phil McDonnell responds:

In some sense this kind of study has already been done. There is a fairly popular strategy that tries to predict when a stock will join the S&P 500 index and which ones will be dropped. For the most part it is a mechanical exercise based on market cap. Just before stocks join they tend to rise. Before they are dropped they tend to fall. But as an afterthought the dropped stocks rebound after being dropped. In other words this effect does not account for the drift because it tends to cancel out.

Another way to look at it is from the Dimson, Marsh & Staunton study of all major countries and all listed stocks for the last 100 years or so. This study did not look at existing indices where a pre-joining bump might be in effect. Rather it compiled its own comprehensive index of all stocks.

For another perspective consider the cap weighted vs. equal weighted indices. Over the last 3 years the Wilshire 5000 cap weighted has underperformed the Wilshire 500 equal weighted by about 15%.

Vince Fulco adds:

As for the quant desks on the Street, traditionally they start pumping out research as early as Feb-March trying to game the upcoming Russell rebalances in June. 



TAWe often look at patterns — whether they be in the stars or the charts — and say, that triangle is a coincidence, or it is chance that the former support becomes the new resistance. And this seems especially moot in the case of an industry average. Reasoning behind some technical analysis often comes with hand-waving. But perhaps we need to look at the possibility of emergent behavior arising out of the individual actions of millions of traders to produce real patterns, which would lend credence to some patterns of technical analysis which look at the market en masse. The starlings do not deliberately set out to make striking geometric patterns as they fly, nor do termites consult a blueprint before constructing complex mounds. Has anyone applied the techniques of cellular automata to model trading? In theory, thousands of alternative definitions of automata could be run — like a Monte Carlo simulation of Monte Carlo simulations — and if certain patterns showed up irrespective of initial conditions it would be interesting.



I am currently reading "Get Everything Done and Still Have Time to Play" by English life coach Mark Forster.

He has some interesting and original ideas. For example he prefers the use of must-do lists over to-do lists, and gives an exercise to develop the necessary will power.

He says time management is really attention management, and that we have a limited amount. It is impossible to give more than 50% of one's attention to more than one thing — though many try — and balance is to be achieved by delegation or reducing the number of objectives.

He provides a critique of popular methods using a fable of a princess and a luckless suitor who has inherited a business, who tries each system in turn and finally seeks solace in the pub.

Notably, and this is a good example of his original approach, he does not believe in prioritization (except in crises) and points out that there is some sense in choosing low priority tasks to action, so that they are dealt with long before they become a potential crisis.

In summary, he writes about quality of action and strength of resolve, and is not formulaic.

Russ Herrold adds:

A long time ago, when I was drowning in paper, I found Stephanie Winston's TRAF|S system on a couple of pages of her book "The Organized Executive" (Norton, 1983) and have been using it, and teaching it when consulting, ever since.  As it has been passed by with later writings by her (not so concise, not so focused), I see that Amazon has it for a penny used.

I do a five minute presentation (a bit of 'acting') with sight, sound, and humor to give and set the lesson on its use. I do this with others who are drowning in issues who seek my help, to give us a common vocabulary and problem solving rubric. The beauty of this little system is that one never touches an issue more than three times before resolving it. Nothing gets lost.



LG wrote:

What is wrong with my logic here?

Over the course of time, accurate brick laying and other construction tasks will become automated using numerical control processes pioneered in the aviation industry.

This will bring down the labor costs of building as well as reducing construction time..

Therefore the price of property is likely to reduce

Based on my experiences in the machine shop my father had in the basement, on my building of machinery to automate factories, and my experience building buildings, I think little will be automated in the construction industry.

Many have tried, with prefab bathrooms, prepackaged piping sets for kitchens and baths, and other things that make sense but don't catch on. Today in the US some 5% to 15% of new houses are factory built (depending on where you draw the line between "house" and "trailer"), but even they are not very automated - they benefit from protection from weather, stockpiling of materials, easier quality control, etc., but not from automation.

The main difficulty in automating construction tasks is setting the machine up for the many different sites, methods, dimensions, etc. Everything is already set up to be done by unskilled or semi-skilled labor.

Interestingly, after each building boom ends, the materials, codes, technologies, and economics change enough for the whole industry to have to reinvent itself for the next boom. During the last boom (just ending) insurance became major, and the ability to get a bond became a major cost of entry, effectively barring new entrants to the industry for the last few years. Labor got relatively cheap as material prices boomed, but that ratio has shifted back and forth many times in the past, as it will presumably do again in the future as Bacon's principles describe.

As for automation having a significant effect, it hasn't started yet, and I see no signs of it yet, but who knows.



 We have read a fair number anecdotes, biographies and controversies, but perhaps another way to look at Bobby Fischer is to think about what we can learn from him in terms of both life and any applications of his life and chess as they apply to the markets.

Independent thinking and willingness and adaptability to live in any number of places: Iceland, Japan, Philippines, and Hungary. Having been to or lived in all of them I can attest to the fact they are all vastly different. Fischer also demonstrated his ability and the longevity of his talents by making a comeback, on his own terms, as in his match with Boris Spassky in 1992. Or, when it seems as victory is improbable to make a dramatic and hard fought comeback as in his 1972 match against Spassky. How many times does the market make us question our own abilities and how needed it is to focus on ones methods and talents while still evolving and improving to achieve success? The need to be aggressive at all times whether it is attacking or using subterfuge as seems to be the case in his match against the grandmaster Robert Byrne.

This is not a suggestion to disregard or ignore his many faults but rather so that we can focus and learn from many of his positive attributes as well. Fischer's almost single-mindedness on Chess and his many transfers and incarnations also seem to have limited the scope of his achievements and therefore what could have been learned from him. As in nature when a tree grows, or is transplanted, it needs the root structure to support a broadening of the branch material and growth above.

Not being an expert on chess or Fischer, or life, I welcome all other suggestions and observations.

Laurence Glazier adds:

An icon of my youth gone, and the same applies for many of us.

It's a big question what to do about great artists who became antisemitic. Most notably in music, Wagner; and there is an open debate in Israel whether to hear his music.

I was never a fan of the recently late Karlheinz Stockhausen, but I listened to him no more after he psychopathically described 9-11 as a great work of art.

We have to take a broader view. Should we deprive ourselves of the works of DH Lawrence and TS Elliot because they were tainted as children with pervasive cultural prejudice? To boycott all literature by antisemitic English authors pre 1950 would leave very few (George Orwell a notable exception).

Bobby Fischer?

Probably not an Icarus, more a Narcissus who, lacking a mentor to grab his shoulder, fell - ever unaware - through the squared pool into muddy waters.

GM Nigel Davies adds:

I think there are many things to be learned from Fischer. Here's what comes to my mind:

1) Work rate: Fischer's 'remarkable' comeback becomes more comprehensible when one realises that all he ever did during his 20 year break was to study chess. I heard stories about his time in Hungary, that anyone seeking an audience was well advised to send in some of the latest chess books and magazines as a peace offering.

If you read 'Bobby Fischer goes to War' the comparison with the Russians becomes clear. In their training camps they studied a little chess in the mornings and then got the cards and booze out at midday.

2) Ascetic Lifestyle: Bent Larsen told me a funny story once about how he had to rescue a bottle of cognac from Fischer when the latter was intent on pouring it down the sink. Fischer also took a lot of exercise during his best years, mainly swimming I understand.

3) Learning from history: Fischer had a remarkable breadth of knowledge, studying the old games as well as the new. Amongst the openings Fischer rehabilitated were the Bishop's Gambit, the Evans Gambit and the Exchange Spanish.

4) Will to win: Fischer's disdain for short draws is well documented, one of the most famous examples being to laugh when Geller (who had a big plus score against Fischer at the time) offered him a draw on move 7 in their game at the Sousse Interzonal.

5) Preparation: Fischer took opening preparation to new levels of excellence, a trait which Garry Kasparov was to emulate in later years.

A few more will probably occur to me, Fischer was a truly remarkable player whose play was greatly respected (feared) by his rivals.



I've recently switched to an index trading strategy using QQQQ options which I now want to broaden, spreading my risk into similarly priced very liquid option-based instruments which are not very correlated with the main market indices, or each other, and am looking to maintain four such positions. However I'm having trouble finding low-correlation instruments with liquid options that I can use in the same way as I treat the QQQQ. Do Daily Spec readers know of ETFs with highly liquid options, or some other similar instruments?

George Zachar mentions:

The Select Sector SPDR correlation tool might be of value to you.

Phil McDonnell warns:

Careful! Before you rely on it, you want to make sure their correlations are based on net changes — weekly, daily or whatever.  Correlations based on price levels are spurious.  I did not see any mention of their methodology on their page so it would be good to check.




I've been studying complex variables lately because I find the imaginary very important these days, and I had to brush up on them for one of my daughters.

It led me to consider the imaginary part of the moves during a day or week, and the real part. Consider last week. O/H/L/C:

9/28 1538.20 1545.20 1519.00 1538.10
9/21 1491.80 1552.00 1485.20 1534.40

The real part of the move, from 1534.40 to 1538.10 was 3.70. The low of the week 1519 so there was a -15.40 point imaginary negative part, and the high was 1545.20 so the imaginary positive part was 10.80.

A similar calculation could be done for the day, looking at the amount below the previous close, the amount above the close, and the final move.

We can look at the two points on an Argand like diagram. I claim that the length and the angle between the two lines connecting the negative and positive imaginary could be useful as a predictor. Better yet, the two angles themselves and the real part. Similarities might be useful. Such angles should be quantified , classified, and subjected to prediction and falsification.

Another example. The week of August 17 showed a real move of -1.10 and a negative imaginary of -76.00 and a positive imaginary of 21.50.  A small real move but non-negligible imaginary moves.

Laurence Glazier adds:

I'd also be interested in trying volatility as the orthogonal parameter (it is to do with the imagination after all.)

Michael Cook follows up:

I love complex variables - it is one of the most beautiful subjects in mathematics. Everything comes together and illuminates and integrates everything that's gone before in the traditional mathematics curriculum.

I don't understand how you are defining the imaginary part of price moves - can you clarify? I am intrigued!

Alex Castaldo explains:

If I understand Vic correctly, he defines two complex numbers, the AboveMove and the BelowMove:

AboveMove = (c[t]-c[t-1]) + i (h[t]-c[t-1])
BelowMove = (c[t]-c[t-1]) + i (l[t]-c[t-1])

And plot these as two vectors on the Argand diagram. The real parts are the same, but the imaginary parts are different (and always of opposite sign). Next you can get the angles and the lengths.

Adi Schnytzer queries:

Are these the complex components of the change simply because they exceed the bounds of the price at the start and end of the week? If so, why a week and not a day or a month? And perhaps more to the point, can the maths of complex numbers then be used to predict? Analyze the moves?



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

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

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

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

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

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

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

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

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

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

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

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

Laurence Glazier adds:

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

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

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

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

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

Alston Mabry writes:

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

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

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

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

Vitaliy N. Katsenelson remarks:

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

Nigel Davies writes:

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

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

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

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

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



A Wrinkle in Time"Who is Charles Wallace?"

Those to whom this question resonates will likely have appreciated the masterpieces of Madeleine L'Engel, who died a few days ago.

A Wrinkle In Time, and to some extent the later work A Wind In The Door, discuss the full battlefield on which the human story has unfolded and continues to unfold.

Much as Ayn Rand inspires independent thought and action, L'Engel gives a resonant perspective to the work of artists, whom she regarded as soldiers in a metaphysical war.

When I solve a challenge of harmony or structure, I feel like a soldier who has dispelled entropy. I know I have added to the coherence, logic and beauty of reality, even though a musical idea cannot be grasped in the hand, but needs eternal practice, or indeed vigilance. While we must measure what we can, I know at its core that reality is measureless.

Her depiction of the battle ranges from within the body (illness), to planetary and interplanetary zones, everywhere that differentiation tries to assert against the forces of uniformity.

Good books for children. Even better for adults.

James Wisdom writes:

AntL’Engle’s books were favorites of mine when I was a child of eight or nine, and I reread the Wrinkle In Time series a few years ago. For me, the inclusion of abstract concepts such as tesseracts into the storyline, along with simple line illustrations to explain them, truly set her work apart. Her explanation of the “folding” of space and time as an ant crawling along a string opened my eyes to a whole world of creative possibilities as a child (and began a love of Sci-Fi that lasts to this day).

Further, her characterization of the light and darkness in the world is discomfiting and adds a wonderfully frightful tension to the story that compelled me to keep turning pages despite being well past my bedtime (both then and now). It’s a shame that she passed on but I have no doubt that her work will last on for many, many years.



Vegetarian skeuomorphy — e.g. "Tofurky Roast" — why? Aren't vegetarians at peace with vegetables qua vegetables?

Laurence Glazier observes:

One assumes the aliens observing us still fear the cooking pot should they send missionaries.

James Wisdom writes:

It’s also a question of texture — while the whole vegetable universe certainly offers a wide variety of textures, many vegetarians still posses a yen for a meaty texture to masticate. Tofurky in particular has a certain chewy texture that no vegetable can imitate.

There’s an all-vegan Chinese restaurant in our neighborhood that features a huge variety of faux meat with varying results. We’ve had meat-eaters to the restaurant who have been literally amazed by the Pepper “Steak” and the “Pork” in the Hot & Sour Soup. But I must admit that the “Shrimp” Toast is a far cry from even faux crabmeat.

Furthermore, some flavors aren’t a great match for veggies — the one that comes to mind is “Buffalo” - both Boca and Morningstar have faux-chicken products that feature “Buffalo” flavoring (one nuggets, the other a patty) which are personal favorites. Perhaps I lack creativity but it’s hard to imagine “Buffalo Eggplant” or “Buffalo Corn”.

Mr. Albert replies:

As a long-time vegetarian, I am usually satisfied with non-meat food not looking like meat. But occasionally, especially at BBQs, with hamburgers and hotdogs, I want to eat what everyone else is eating and especially to partake in all the fixings. So at these times, I'll want a veggie burger or tofu dog.
That said, tofurky has always seemed extreme and too ersatz to be good. But who knows, maybe they captured to dryness of turkey perfectly. 

Scott Brooks explains:

TurkeyProper turkey is not dry — it is succulent and moist and the favor explodes with each bite!
It's all in the feeding, gathering, handling, preparation, accoutrements.

By the way, think about this logically for a minute: Turkeys eat vegetables and we eat turkeys — therefore, turkeys are simply a great delivery system for vegetables. Since we've cleared that up, you can go back to eating meat now! You can thank me later.
Feeding: Put out good food plots, with lots of clover and alfalfa for the turkeys as well as milo, soybeans, and corn. That will provide lots of nutrition for the birds and also attract bugs, which turkeys love to eat.

Gathering: I'll make this simple:
Me: Cluck, cluck.
Turkey: Gobble.
Me: Cluck, cluck.
Turkey: Gobble.
Me: Bang!
Handling: Grab the bird, throw him in your knapsack. Go behind my Morton Building, take a sharp knife, cut the breast skin away and peel it back. Carve out the breast meat. Take it inside and wash it in cold water to remove feathers, dirt, etc.
Preparation: Cut it into small very thin pieces and let it marinade in a balsamic garlic mixture for a few hours. Heat up a wok. Put butter in the wok. Add balsamic vinegar, garlic, and onion powder. Throw in the thin strips and quickly remove them just before they are finished. If you've sliced them thin enough, they will continue to cook on the cooling plate.
Accoutrements: Fresh corn on the cob. A tomato, red onion, crumbled bleu cheese salad covered with balsamic vinegar. Add the fresh fish your kids caught that morning from your pond, fried up in corn meal. Make cheesy mash potatoes.
Dig in! That meal will cure anyone afflicted with vegetarianism!



 As work on such things (among other distractions) can interfere with trading, one tries to bear the market in mind. In writing the first half of a sonata form movement, one proposes two themes in the tonic key, bridging then to two themes in a contrasting key, usually the dominant or the relative minor. Now the proportion of time spent in tonic compared to the other key is significant.

If the tonic section is too short it does not allow enough gravitas before moving to the other key. This is all about emotional response to the establishment of dynamic tension. Is there a parallel in the Market?

I am using a phi-mous ratio, with the contrasting section approximately 1.6 times the tonic section. So I would be interested to see if similar ratios are found in the triumphs and otherwise of the S&P 500, and if not to re-evaluate patterns again after some kind of normalization which removes volatility; this latter being akin to the conductor gesturing accelerando or rallentando (in music irrelevant to the number of bars).

With my old stock-based calendars gradually being replaced by new spreads based on indices, I'll be giving such ideas more attention in the coming months. I guess it would also be timely to learn something about P&F.



 I find that there is a much wider range of financial books available than a few years ago, when everything was Sage related ('when will this conglomerate reach its appropriate value at book?' etc.).

I recently bought Point and Figure Charting by Thomas Dorsey, which has a million anecdotes about stocks that worked out, with no tests whatsoever, but is suggestive. I also bought The Volatility Course by Geoge Fontanills and Tom Gentile, which has many strategies for staying the course in low and high volatility environments, a discussion of put/call ratios, and much discussion of implied versus historic volatility with the kitchen sink of chart patterns, Bollinger bands, and media to read and watch.

Fat-Tailed and Skewed Asset Return Distributions by Rachev et. al. contains a nice workman-like introduction, at a level just augmenting elementary statistics and statistical methods for understanding volatility. This appears to be a very useful addition to the quantitative traders collection. Also, The Encyclopedia of Trading Strategies, by Katz and McCormick, which I have bought five times already, but regrettably forget that it only covers data through to 1998, and has no awareness of the principle of ever changing cycles. It does however provide a reasonable methodology for finding systems that worked in different environments which could be ready to expose the fixed system trader to losses in future.

I believe that instead of reviewing these next, I'll review the Ring Lardner Reader which has many timeless stories from the 20's and characters that are similar to so many we meet with in trading today.

From Laurence Glazier:

I received a copy of The Volatility Course unexpectedly and enjoyed the read. It is to some extent an advertisement. Not unheard of in trading books. There is a useful table of optionable instruments to use, e.g., easy ways of trading the dogs of the Dow.

As for the basic premise that one should buy low implied volatility, if that were so, one would have to question the judgment of the selling market maker, or is that too simplistic? A better reason for me would be that there is less risk of volatility crush in the low IV purchase.

I like their risk profile charts but they are suggestive of risk from the outset of the trade rather than from the current position, so what appears to be a favorable graph may in truth be shouting, "Take some money off the table".



 I have witnessed the Darwinian, dog-eat-dog world on numerous occasions. It is truly a world of fang, claw, might, and brawn. There is very little tenderness in the wild; there is mainly an indifferent or fearful view of other animals towards each other.

There might be some tenderness in higher mammals towards their young, but that doesn't last long. Adults will take care of themselves first and foremost and eventually try and dominate the young who will someday return the favor.

As a hunter I can appreciate the unpleasant side of the contract. But I'm not sure that is an apt description. For me it is not unpleasant. I actually enjoy the hunt, the whole hunt. I enjoy the process of getting ready, the exactness of detail to be truly prepared if the moment of truth were to arise, and the beauty and relaxation provided by Mother Nature.

There is one unpleasant side the hunt, though. Every so often, you're going to be involved in an ugly kill. I don't like it when these happen. I don't like it all. I figure that somewhere around 5 to 8% of kills are ugly kills. I define an ugly kill as one in which I don't make a clean killing shot.

But after years of hunting, hunts that have included ugly kills, I can tell you this with great certainty: I am the most humane killer in the woods. All deer/turkey will die. The best death they can have is at the point of my arrow or the point of my gun.

Jim Sogi writes:

Before we get too bleary-eyed, animals can be vicious in their quest to propagate. It's vicious out there in the wilds and the markets. Rarely is quarter offered in reality. 

Laurence Glazier writes:

HirogenThe comments about the turkey are not dissimilar to actions of humans to humans in distressed parts of the world, e.g., Sierra Leone. We are fortunate enough to be domesticated animals, but the wild human being is fearsome.

Now, the creatures sharing Scott's wonderful land are fortunate to have such a considerate steward, but though they are usually unaware of the moment of their transition, perhaps they live their lives in a more heightened sense of insecurity than otherwise, observing other members of their group being removed from their tribe, and being sorely missed if they too are taken. How is a balance kept between animal and human interests, both the good and the gory episodes?

The sound of a cow bellowing for days on end after its calves are taken is testament to the anguish of separation animals can feel.

So the question is, how do we act to animals? And that depends on our perception. In what way were aboriginals perceived to enable "wise and intelligent" people to hunt them?

I would also note that the tools and practice of hunting and warfare go hand in hand, and wonder if these histories will always be linked. Without wishing to sound like Kenny Schikler, of Goodnight Burbank, Star Trek dealt with this well in its allegory of the Hirogens.

Scott Brooks replies:

I'm not sure the cow is bellowing from anguish over the loss of its calf. Calves are frisky, much like small children, and want to run and play and explore. They have a tendency, like small children, to wander off. The mother calls them back with her bellowing. If a calf disappears the mother will keep looking and bellowing to call the calf back in. It may be instinctual or hormonal. She calls the calf because it's bred into her genes. Or maybe as her udder/teets burgeon with milk, she may be compelled to call the calf to come eat.

On my farm, calves are able to wander onto the grass between their fence and roads — "grass is always greener on the other side of the fence" situation. But they won't wander too terribly far from mom, who will eventually call them back. And every year there are a few calves that are rejected by their mothers and have to be hand-fed by the farmer/rancher.

I can't say for sure that cows don't feel anguish, but from what I've seen, I doubt they do. 

[Editor's comment: There is a fascinating discussion available online, on research in this field, which is called Cognitive Ethology.]



Arnold SchoenbergI have often tried to figure this out. Using harmony means there are lots of cycles of fifths that often intersect each other, and pivot chords with dual harmonic contexts, so it is hard to make a geometric picture. Schoenberg had his "regions" but these shift like mirages if one goes through different keys. But I have not found mathematical structures like groups or rings sufficient. Perhaps this explorer has found something that works? Given time I will try out the software.

Usually such things (which crop up from time to time) are Procrustean beds; but I always review them.



 This "Bubbles" study was posted some time back. It is difficult to know if it is predictive in the current climate.

In the past housing 'busts' have had longer lasting and more extensive GDP effects than stock market busts. To qualify as a bust the housing market has to lose more than 14% of its peak 'boom' value. So I understand that the US is now there.

From Laurence Glazier:

I am sure that the human spirit will drive the market ever forward, along with the entropic force that requires participants to have at least a minimum incentive. But the use of what seems to the uninitiated (like me), like complex credit derivatives, along with wide acceptance of multiple mortgages, leads me to images of bubbles and pins (quite apart from finely balanced domino structures).

One hopes to learn more and be reassured.




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

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

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

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

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

Victor writes: 

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

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

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

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

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

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

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

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

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

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

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

George Zachar comments:

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

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

Ken Smith writes:

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

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

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

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

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

Todd Tracy writes:

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

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

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

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

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

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

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

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

Laurence Glazier writes:

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

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

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

Victor Niederhoffer adds:

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

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

George Criparocos writes:

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

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

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

James Sogi adds:

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

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

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

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

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

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

Russ Sears writes:

To Be With Me
by Russ Sears

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

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

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

From Vincent Andres:

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

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

Another possible tool could be wavelets.

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




 I was asked by Laurel why I think that out of the clear blue sky we've had two days that were larger in magnitude than any of last for years. My immediate response was they can't take it down permanently so they wish to have a violent move so that they can let it to go back to where it's going to be without losing money and making everyone panic.

The violent moves are the ones that always come when it's going the other way. When they want to take it one way, they keep you in. It is sort of like the frog that's put in cold water that is gradually heated up. They couldn't take it down the way they did last year in May because they don't have the Israeli war and the increase in good faith in their hip pocket. So they had to do in one week, much earlier and sharper, what they accomplished in three months. That is to say a doubling in volatility and a decline of 90 points, because they can't keep it here with stock returns 11 or 12 percent and bond yields just 4.5 percent.

The stuff about sub prime is part of the dynamic nature of capitalism. These companies get compensated for accepting risk. Some years they win and some years they lose. Their return is probably like ours, with a nice little something for the risk they take. We can only expect the sage to say something like it's terrible that so many take risk like that when there are only certain insurance companies who are genetically programmed to take it at double the rates, taking account of the complete likelihood in their rates of total meltdown, like this should be. And it's terrible that there's a derivatives market that allows those who don't wish to take such risks to offset them, as these companies have so much risk. But of course all this must be tested.

Laurence Glazier adds:

The Sage did make some interesting remarks to his favorite CNBC interviewer Liz Claman. For example that it was wrong for him to be paying a lower rate of tax than his receptionist and that the very significant rise of the market is in the long term inevitable and born out by history.

I enjoy the Sage's interviews, something warming there. CNBC has many good points. I like the literary asides from Mark Haines. He often quotes Poe, "the tintinnabulation of the bells," during those August ceremonies. 

Sam Humbert remarks:

The Sage has spent his entire career sedulously arranging his affairs to minimize taxes — and now bemoans paying too little? This brings to mind the boy who slew his parents, then pled for clemency because he was an orphan.

I would have awarded extra points for 'artistic merit' if the Sage had made these 'interesting remarks' in Pinch's famously untaxed newspaper…

Vincent Andres adds:

From a violence specialist: "La force d'une armée, comme la quantité de mouvement en mécanique, s'évalue par la masse multipliée par la vitesse." ["The strength of an army, like power in mechanics, is the product of the mass by the velocity (speed of action)."] Napoléon I



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

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

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

Nigel Davies writes:

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

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

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

Adi Schnytzer replies:

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

Gordon Haave responds:

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

Adi Schnytzer retorts:

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

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

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

Laurent Glazier remarks:

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

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

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

Kim Zussman adds:

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

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



 Although it has been quite a challenge, I have been able to place some trades and face the test of covering short options in the upcoming expiry week.

The InterMat terminals at the Nirvana are fun; it helps to know a little Hebrew, and to have a Google personalized home page. Yesterday a chap asked me how much net access cost as he needed to place some stock market trades. Turned out he was trading options on the TA25. He departed in haste, perhaps as that market was changing directions. "It's crazy here," he told me.

Farther afield, in Ein Bokek, is McDonalds, surrounded by hotels. This generous company provides free Wi-Fi. It has unaccountably stopped working for me, however, so I have moved to a nearby hotel.

This country definitely exists, despite being generally missing from weather maps (bracketed on Sky by Qatar Airways ads) and BBC Middle East business programs. One suspects these deals - if deals they be, are conducted with a knowing glance, as with the persecution of actors accused of communist ties in the days of McCarthyism.



When magic of the markets is felt every moment, why is there no organized market for magic?

For New Years Eve, one chose to be at the Mela restaurant, (Mela a word from the Indian vernacular means the village fair). Among a host of activities from a village fair, the restaurant specializes in bringing a personal magic show to your table for a small fee, and the question arose right there at the dinner table as to why is there no organized market, not even a national or trans-national company that specializes in retail or wholesale magic?

There are several national and international companies with listed stock in the arena of restaurants, hotels, movie making, movie screening, bowling alleys, vacation organizing, vacation sharing, culture companies, etc., but there is not a single listed stock or organized magic company. Why?

Here are some possible explanations:

Many more ideas come to mind, but then the thoughts have stayed lingering around this one point about being personal. All other human endeavours in the arena of entertainment and services that have been able to overcome the personal factor and lend themselves to being productized, standardized, predictable, mass-emulated, mass-transported, mass-communicated etc. have come to evolve into giga-corporations. Individualistic personal pursuits of acting, dramatizing and magic have failed to turn the magic of the markets to their advantage.

So, is the magic really in the crowds rather than in the magic itself. What important lessons could one derive from the failure of magic to draw the magic of the markets to its advantages?

Easan Katir adds:

This weekend I had a front-row center seat amidst a sold-out house at the Geffen Theater in L.A., to view up close a talented sleight-of-hand master, Ricky Jay and his 52 Assistants, directed by David Mamet. Consequently, I have been contemplating similar corollaries between the conjuror’s art and the trader’s art. Certainly there is plenty of misdirection and deception in both arenas. There is also plenty of explanation to convince one that the impossible is normal. Mr Jay produced winning poker hands, and explained that a card cheat must not only give himself a good hand, but give the suckers good enough hands to inspire them to stay in the game.

Steve Ellison offers:

An important parallel between magic and the markets is the role of patter in distracting customers’ attention from the sleight of hand. A thing to which a magician is drawing the audience’s attention is almost certainly not the main event. The weekly enumeration of reasons to be bearish is an example of market patter.

Laurence Glazier comments:

Magic is also a matter of political or sociological point of view. Is our very existence magic, or the random walk of chemicals? If I construct a chord progression which moves the e-motions, is it science or something more? The magician who bends forks and keys - the process often continuing after after he has ceased touching them - wil never convince the “component parts” of science, and likewise neither would those who have vibhuti.

I am not sure that music works well in the market - where it is there the market - a la Adorno - may affect it adversely, and similar considerations may apply to real magic. If life is to be magical, it must have magical qualities. It is easier for children to see them, though, so let’s stay young.

Andres Vincent counters:

Forgive me for disagreeing, but DNA strands, crystal organization, life itself, a snow flake, clouds, animal life, glass, light, rainbows, electromagnetism, classical mechanics, relativity, etc., etc.. The whole universe is magical, so to see magic there is no need to hallucinate. Just read the book of nature. But to appreciate this beauty its complexity must be (at least a bit) understood, i.e. we have to observe, to work, to learn — in other words, try to become adults.

If adults stay young, and that’s unfortunately the case of the majority, the only magic provided today is overconsumption and/or religion, i.e. deceptions.

Bruno Ombreux mentions:

I would add geology and botany to your list. I got undergraduate classes in both of those, an it is incredible what learning about these subjects does for you.

After studying geology, for instance, one sees the world in a different way. Walking in the countryside — you don’t see the normal countryside any more. You can see how landscapes came to be, you can see millions of years of evolution, movement, shocks, erosion, chemical reactions. And you don’t see rocks anymore, you see names.

You can call a stone by its true name, that is magic. It actually kills all the poetry of a walk in the countryside though, so I am glad I forgot my geology classes.



One must repeat that the unconditional drift of the market is 10% a year. Whenever you are short, you have a drift going against you. When you wish to go short, chances are that the drift of the market will be above 10% a year. That’s because you and others think there’s a bear market retrospectively, and require a higher rate of return to be invested. In addition there are frictional costs to being short. Put them all together, and I’ve never seen a short seller who’s made money, nor has the Palindrome. It does give psychic value however in that it lets you vent your hatred of the system and yourself. It also gives stature because you are always on the negative which seems so much more poignant than the positive.

Since you always are giving away money on the short side, on an expectational basis, it is best not to consider it as the wind is against you unless you are truly insecure. The question of when you should go short is the wrong question. A better question is when you should increase the leverage of your long investments. I would propose a hypothesis that it is good to do that when the market has suffered a decline with a given period of a certain magnitude or more.

I believe the above reasoning, as well as the questions I ask bears about whether things are truly so much worse than before, and whether if they are, is this bullish or bearish, which I have made repeatedly since 1960 but also for the last four years, during which the market has doubled, has prevented many people from self destruction.

Dr. Janice Dorn provides a different perspective:

Part of the profundity of Victor’s remark is that the bears make poignant arguments which are almost tailor-made to touch something very deep inside of those who are always watching and waiting for some disaster or catastrophe. The bearish arguments tend to be more scholarly, detailed, laced with Latin words and appeal to the limbic core of the brain (which holds memories of fear and terror and sees them even in their absence), as well as the higher neocortical areas which are, in some way, hard-wired to process, consolidate and retain bad news more firmly and longer lasting than good news. Bad news is stored as pain and that pain can be evoked in almost any situation. Good news tends to be more fleeting and there is more difficulty reaching into the brain stores to retrieve the memories of euphoria. Perhaps the neurochemistry of euphoria (be it dopamine, serotonin, norepi, or any of the thousands of neurochemicals) is configured in a way as to be more transient, spontaneous and non-entrained. Depression, disaster, danger lurking around every corner is much more “reachable” in terms of our psyche. Once again, this is likely a function of the way that the cortical neuro-pathways are laid down and communicate electrochemically with each other in the vast cortical landscape.

In any case, the rah-rah cheerleaders are often seen as buffoons, whereas the permabears are the scholars and masters of Latin.

“A mass of Latin words falls upon the facts like soft snow, blurring the outline and covering up all the details. The great enemy of clear language is insincerity. When there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink”
–George Orwell, writer (1903-1950)

John Bollinger adds some numbers to the discussion:

S&P 500, 1950 to date, returns by month, ex dividends mean = 0.734%, standard deviation = 4.085%

Dr. William Rafter explains the professional’s dilemma:

Dear Mistress Market,

To second the chair’s remarks about the risks of being short, I emphatically state that “a friend” has never made any money on the short side of equities. Even in profound bear markets, the friend has gotten nothing but frustration out of the short side. Conversely the friend has been able to make money on the long side in those same profound bear markets. But the friend has a problem: people who hire his services want him to add a short component.

More than a quarter of the hedge funds pursue a long/short (”L/S”) style. Let’s assume that our friend had a very successful fully-invested long-only (”L-O”) strategy. The funds don’t want to employ his L-O strategy because they are under the impression that a market-neutral strategy of L/S is less risky. But our friend knows that the short side is just wasted; he can prove that his L-O strategy beats a L/S version of the same thing. By beating it, we mean in every way: higher Sharpe Ratio, lower drawdowns, etc. Now the friend is looking for an allocation of X dollars in his L-O program, but the funds only want to give him .3X or .5X. Since he clearly cannot make money on the short side, he has adapted by finding a strategy that will go nowhere - and that’s what he shorts. (He cannot short the index, because he knows that also will go up.) By his little charade he gets his full allocation, and the fees that go with it.

But this irks, as there are inefficiencies all around: extra transaction costs, risk of errors, extra man-hours, etc. Furthermore, our friend assumes that he is not unique. Others must have the same problem. With more than a quarter of the hedge funds using L/S strategies, how much is being wasted? Is our friend on ethical quicksand by giving the “professional client” what that client says he wants?



Laurence Glazier asks if Optimism in the Markets Exists for More Simple Reasons:

Putting it very simply (or too simply?) is the positive drift in the market an inevitable manifestation of human potential and the innate cheerful optimism we all have, or at least were born with?

Scott Brooks provides his perspective:

I would say no.

Most people are not innately positive or optimistic. Most Americans are blessed by capitalism simply by accident of birth. If they had been born in a communist country, they would simply be sheep there (as they are sheep here) albeit much more unhappy sheep with a greater sense of hopelessness.

Growing up where I did and being surrounded by the people (and their negative destructive attitudes), I don’t think most people are innately optimistic. Any optimism they have is because they are surrounded by an environment of capitalism which breeds some optimism because here they are at least safe (no secret police to break down your door in the middle of the night), they are well fed (no mass starvation, or really, any starvation here), there is consistency of rules (rules and laws are not based on the arbitrary whim of whomever is in charge) and they can see that what is happening around them is consistent with what they innately know is the philosophy of life (as opposed to the propaganda they are exposed to in statist countries…innately they know its a load of cr-p).

No, people are not innately optimistic. Capitalists are. Think about it. What we have today is because of the skills and mind set of very few men. Rockefeller, Carnegie, Edison, Gates. Or men like Jefferson, Franklin, and Henry. Or scientists like Currie, Oppenheimer, Watson and Crick, or my uncle Bob.

What we have as a country is the result of just a few people who were truly optimistic and had the strength of character to fight through all the naysayers and negative busybodies (the Elsworth Tooheys and Wesley Mouchs, Dan Rathers, Paul Krugmans, Alan Abelsons, etc. of the world).

No, people are not optimists. They are negative pessimists who will almost always resort to the lowest common denominator of gossip, destructive thinking and thinking the worst of people.

Just a few of us actually create something of value in this world.

The rest of the world rides on our coat tails….and most of them are dragging anchors behind them or throwing rocks at the back of our heads, or climbing up on our backs to whisper in our ears all the negative things they can think of…but the nice thing is that on our coattails there is also an odd person or two (not very many mind you) who are glad to be on our coat tails…

They appreciate what the men of the mind do for them. And they fight the negative naysayers dragging anchors, throwing rocks or whispering in negativism in our ears.

They are known by many names…but most on this list would think of them as the “Eddie Willers” of the world.

Prof. Gordon Haave Disagrees:

No. The things you cite explain the growing economy. The positive drift is simply what the market pays you to part with your $$$ to put into volatile investments. In fact, the more optimism you have the less the market would have to pay you, so that would actually bring returns down, which of course highlights the important to us optimists of people like Abelson. If everyone thought like us, returns would be lower.



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.



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”.

Scott Brooks adds:

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!

Dr. Kim Zussman comments:

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.

Jim Sogi adds:

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.



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.



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.



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.



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.

Laurence Glazier comments:

This is very interesting and it would be good to see a worked example. It does rest upon an assumption that previous stock price movement is to some extent predictive of the future. Can we test if this is so? Also if Black-Scholes or similar is universally believed in by options traders does that not make it effectively true in a cultural context? I would be most interested in pricing theory to see an account made of the latent energy of an option, i.e. as the stock drifts slowly up, the option is gearing up, tensing to jump to the next level, and we want to identify this point so we can buy just beforehand. I am thinking here of a spiral motion up from a kind of Argand plane — when a full revolution is made the real option price moves up.

I think the weakness of Black-Scholes is the use of Vega, which is like the god of the gaps. It is a truly useful piece of social engineering, however, which enables the industry to run.


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