WindLike Mary Poppins, when the wind changes direction the weather changes. When beating into the wind on a sailboat, it's rough, choppy and you get wet. When the wind changes and you sail with the wind, it is smooth. When the current flows against the wind it is rough and choppy. It just feels different. We have a tradewind in Hawaii. It's a steady strong wind from the northeast. The ships used it to sail in the old days.

The last few months have been against the prevailing tradewind, Vic and Laurel's 1.5 million percent per century drift. It kicks up chop. Now, it feels like we're sailing with the wind.

There are quantitative differences in the new bull market than the last two month's bear market.

1. No new lows, and barely any pullbacks.
2. Fewer reversals.
3. Lower ranges.
4. Of course, more up days in a row.
5. Lower volatility, both implied and absolute.
6, New daily highs. Today is the third in a row.

The list goes on and augmentation is solicted and appreciated. Besides, it feels different. Tactics and strategy have to change as well.INDU



Clipped from the recent member bulletin…..

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

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

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



SignsPolice and government officials seem to feel there is a legal distinction between rights and privileges. For example, driving is frequently referred to as "a privilege, not a right."

Despite having attended Harvard Law School (maybe I was asleep during the privilege discussion), I am unable to follow this distinction for such a basic means by which one is able to get around in modern society.

Especially for this liberty-oriented site, I would think driving is clearly a basic human right, like free speech or walking or s-x. Subject to reasonable regulation perhaps like having to take a driving test, or not having been convicted of drunk driving. But it seems to me everyone who complies with this reasonable regulation has an absolute right to drive.

While I would be wary of questioning such a favorite phrase when next stopped ("Officer, I think you are playing with words: Driving is obviously a right, not just a privilege"), is there some distinction here that means something or is it just officious silliness?

Russ Herrold replies:

tFrom ancient memories, formerly rights/privileges had differing meaning, but there is a line of cases post-Reconstruction, keying off the 14th Amendment's application of federal Constitutional limits upon the states ('Privileges and Immunities') at the federal Supreme Court. That line whittled away to nothingness the former [Founders'] distinctions of States Rights vs Federalism, and with it, the judicial need for a way to distinguish and dis-agregate rights from privileges. 

J.T. Holley writes:

I was taught by my father (a truck driver) that it was a privilege to drive on Interstates! They were built by the "Gummit" and maintained by the States. Now where I'm from anything dirt or gravel is your own and is a right.Don't know if anyone has every written or spoken of roads but to be observant you can see the straighter the road the more a privilege, the curvier the more a right! I guess out West it's a little different? If you go through rural Virginia you see wavy roads that meander. Most visitors ask "why is it so curvy?" The reason is that they go along property lines. Those lines can't be violated, and if so then it is a privilege to do so, but if you remain on your own property then it's a right to do so!



Albert J. Nock's essay "Isaiah's Job" comes to mind.

"…he presented me with arguments sound as a nut and he was a much more learned man than I." … "But still I reasoned he was not taking account of one thing… "

All this talk about how bearish things are, and how the economy is going into a freefall, and Citi's deal means that they're twice as bad as Countrywide, and housing's fall has just started, and the million other things that I've been reading about how the end is nigh, the dollar is through the cellar. The statistical talk about how many 20% declines there have been relative to 10% declines. (All that one has to do there is look at the expectation after a 10% decline has occurred for a fixed interval ahead, or until the next x% move up or down, a exercise that is well covered in various books by Daily Spec posters and founders). What does this have to do with the differential between the earnings yield + growth rate, and the long term bond yield? What does this have to do with whether it's discounted? What does this have to do with whether when news is bad or good? And what does this have to do with whether it's good to buy when it's down 10% or up 10%? Most important, when the market looks bad, is it time to sell? Remember you have to sell and then buy to catch that 10,000 fold drift.

I am too busy looking for a Morrison's where I can get seconds for free (all tennis players dress in white in the qualifiers to look alike to the cashiers in the South), or a buck to post the answers to this, and indeed, I'll go with Schoolboy's idea of a few days ago tomorrow, but Nock, if he read as much of the Triumphal Trio's work and the Lorie work as he did of the classics, would be able to write an essay similar to Isaiah's Job about the wrongness of all these abysmal end of the world memes.



If one sins against the laws of proportion and gives something too big to something too small to carry it — too big sails to too small a ship, too big meals to too small a body, too big powers to too small a soul — the result is bound to be a complete upset. In an outburst of hubris the overfed body will rush into sickness, while the jack-in-office will rush into the unrighteousness that hubris always breeds. -Plato



HurricaneI live in Florida. I own a house in Melbourne and a rental townhouse in Jacksonville which was built in a planned community by Centex homes.

My ex- is a mortgage loan officer with a regional bank here in Melbourne. I have other friends who are in the real estate business and in businesses that support real estate such as mortgage brokers, title companies, construction, and banking.

Here is my view of the local real estate market. In Florida the real estate crisis is very real. Foreclosures are a serious problem and people are being forced to walk away from their homes because they cannot afford the mortgage payments. There have been several homes in my area foreclosed on. This is one contributing factor why a vast number of existing homes are not being sold, and also why the homes that have been built over the last several years are vacant.

Individuals did the unthinkable and took out ARMs three years ago when they were very low, and thus are being refinanced yearly at higher and higher rates. This is contributing to the foreclosure rate and also is putting a tremendous strain on those who are attempting to remain in their homes and keep up with higher mortgage payments.

Taxes have gone up due to revaluations on real estate that have increased over the last several years. My townhouse in Jacksonville has seen two real estate hikes and both have been very difficult on me.

Insurance is a big problem in Florida. Many companies such as State Farm, Allstate and Nationwide have canceled homeowners thus forcing them to get higher insurance from other carriers. In places such as on the coastal areas many of us have resorted to the state insurance company to insure our homes.

Real estate prices have plummeted this year and the liquidity has dried up. There are four homes for sale on my street alone and they are all in a row. Those who want to buy a home may not be able to, due to tighter credit constraints by banks and mortgage companies. Down payment requirements have gone up and the speculators have disappeared. Inventory levels are high due to overbuilding. It will take years for this problem to go away. Those who want to sell their homes are slowly coming to the realization that this issue is going to be around for some time to come. It just will not be corrected overnight.

Buyers who are searching take the attitude that homes will be worth less in six months, so why buy now? Fear is definitely there and lethargy is ubiquitous.

The homes that are being sold are the higher end homes, $1,000,000 and up and the lower end homes below $250,000. The middle market is suffering.

Work in the real estate world is nonexistent. Brokers are whining that homes are not being sold. Listings are way down. Construction workers are out of work. Improvements such as shingles are way down because much of those improvements occurred after the hurricanes of the last three years.

I lived in Florida in the late 1980s when the commercial real estate market collapsed and I recall vividly how brutal that was. However, that affected only a small segment of society, not Middle America. This is far different. There is no way to compare the two events. This is affecting Mr. and Mrs. America and people are very concerned. I don't wish to overstate but I can say with great confidence that it is a very real problem where I live.

Affected the least are those who have lived in their homes five years or more and have seen their home's value retreat to the level of 2000. They are protected from tax increases with their homestead exemption protecting them to some degree. They still have to suffer through the insurance crisis that was touched off by the spate of hurricanes over the last three years. But is not nearly as ominous as those who bought their homes three years ago and are now upside-down, meaning that their home has declined in value and their mortgage and insurance has gone up.

I believe that if it is happening in Florida it is happening in other parts of the country with the exception to Charlotte and New York City.

The threat is very real to this economy and the Federal Reserve is aware as to how dangerous this is and how pervasive it is. Furthermore they are aware of how this could trickle down through the economy, affecting so many segments — entertainment, travel, retail, auto, consumer durables and other industries. The threat of a recession is also very real if this persists and once the genie is let out of the bottle it is very difficult to get it back in.

Let us hope that it does not come to this and we slowly and methodically work our way out of this mess.



Do you think the 12 percent drop in the market over the last couple of months is enough? The Santa Claus rally is coming to town, I believe. The statistics back me up since normally after these kinds of drops the market tends to be up the next month an average of 46 points 78% of the time. That would be a nice Christmas present and that is what I am asking Santa to bring me for Christmas.



Ed SpecI discovered Victor Niederhoffer accidentally when I chanced upon his book Education of a Speculator in Indian Pavements, a seller of used books. I immediately grabbed with both hands at the ask price. Since then it's been a long process of education and self discovery. Even my nine year old daughter Gangineni Hita understands Victor and is fond of his stories, read to her occasionally at nights. As a teacher of finance, the first reading assignment on markets I give to graduate students is "The Old Trader and the Yen" from Ed Spec.

Constantly following Daily Speculations from 2005, I feel part of this soul searching revolution. I have read and re-read discovering new meanings in Ed Spec. The contribution of Victor to financial markets and his winnings outweigh any temporary trading losses.

Gangineni Dhananjhay continues:

I find it puzzling how so many market participants resist exposure to true knowledge. Is public willing to believe half-truths rather than facing facts? So much of what I try to teach from finance text books and theoretical models also goes against intuitive understanding of markets.

As the saying goes ”when the student is ready, teacher appears”. When I try to make analogies of the market as a dancing girl who becomes a witch and other effects of Vig & Spread, students are not ready and want to believe in the text book models of Fundamental & Technical analysis. How many students realise market owes no body anything and it’s a perpetual dance replenishing the market infrastructure itself.

As M!chael L#wis puts it in his article The Evolution of an Investor ”Your [the market intermediaries] job is to turn your clients’ net worth into your own”.  Victor speaks in PracSpec about how market will not allow public to access real knowledge so that they can keep contributing. The law of ever changing cycles always keep the form away from the public. One thing that strikes me is how deep and how hard these legendary speculators swim in the markets . Many can't sustain the draw downs to experience their winnings.

“Speculator” has been defined and given a true interpretation in EdSpec. I devote sufficient time to differentiate between ” Investing, Speculating , Gambling” when I teach or discuss with students & market participants. But the lines get blurred once in thick of action in markets.



Grover ClevelandWhen I read books from long ago and it states dollar figures I'd like to know what the relative dollar figure is today. For instance, in 1893 during the Panic here in the U.S., if a bank were to make a loan of $15,000, what is the equivalent of that loan today?

I found many ways to try to give me an idea of the relative value, by using the following: CPI, GDP deflator, Consumer Bundle, Unskilled wage, GDP per capita, and Relative share of GDP.

Using the same figure as above here are the numbers computed via the Measuring Worth website:

In 2006, $15,000.00 from 1893 is worth:
$346,788.99 using the Consumer Price Index
$321,038.30 using the GDP deflator
using the value of consumer bundle *
$1,736,739.13 using the unskilled wage
$2,888,877.50 using the nominal GDP per capita
$12,838,014.07 using the relative share of GDP

*Data for consumer bundle only starts in 1900.

After viewing the numbers I still don't understand what $15k in 1893 is worth in 2006. Or, which of the above figures is correct?

Greg Van Kipnis replies:

Income has grown more rapidly than the cost of things people buy, hence a disparity in the rise of 'price' measures (CPI) and 'income or output' measures (unskilled wage, per capital GDP). Your question relates to consumption not income. However, the answer depends on the purpose of the loan.

The question you ask: "…if a bank were to make a loan of $15,000, what is the equivalent of that loan today?" Appears to be related to the general price level, hence the CPI or GDP deflator gives the right answer.

If the question were: "In 1893 it cost $15k to buy a 2000 sq. ft. house in New York City, how much would I have to borrow today?" then you would have to use a different price index. The answer might be close to $2 million.



RaptorMy son is still a little sick today and so we decided to play Monopoly. We have two different types of Monopoly games; the regular game with Boardwalk being the most valuable, and another one being the U.S. Air Force Edition, with the F/A 22 Raptor being the most expensive Air Force plane.

To make it a little more real for my son we looked up some famous Boardwalks and the Raptor .

I decided to see if we could play putting the two games together, side by side. The rules haven't been finalized and it was pretty difficult just getting around the board once without some query on how we were going to handle some particular move.

We started with double the regular amount of funds of $1500 to $3000. My 10 year-old son obtained more valuable property and utterly whooped me into financial submission within two hours of play. He ended up with over $20,000, not including the value of his properties, with houses and hotels.

I'm thinking of modernizing it a bit with the values of real boardwalk properties and Air Force machinery and equipment. For instance, if I were to buy one Raptor the cost would be $339 million. But thank goodness for their discount as I continue buying them as it's only $137 million for the next one. I wonder how much some of those famous Boardwalks would cost if one were to purchase just one?



Translated from Danish into English… original lyrics from Anne Linnet

They say that over the clouds the sky is always blue

It can be hard to understand

When you cannot see it

And they say that after the storm

the sun comes out

But it seldom helps those

Who have gotten wet

Cause when friends disappear

and life is hard

You see everything with changed perspective

You practice and slowly becomes

better at telling the difference between truth

and lies

They say that everything that happens

is always good for something

and faith is given

for us to use

They say so much but know so little

when fear has taken over

and your soul feels

illusions break

'Cause when friends dissapear

and life is hard

You see everything with changed perspective

You pratice and slowly becomes

better at telling hte difference between truth

and lies

Everything can break

a heart can break in a thousand pieces

Did you call me friend once

I'm probably still here



IndiaAt our Economic Thinking workshops for students, we often show a segment from John Stossel's great ABC News Special "Is America #1?". Stossel contrasts life and economics freedom in India, America, and Hong Kong. He shows the crippling consequences of economic regulation in India as the Permit Raj debated the merits of various businesses, denying many and delaying all.

The great news in the years since that ABC special was taped is millions of Indians experiencing economic opportunities they never dreamed would be possible. There is still plenty of poverty in India, but the progress is new, to say the least, for a society that seemed adjusted to centuries of stagnation.

Still, nearly 3/4 of India's population still lives in deep poverty (real international poverty, not trailer park/used car/cable TV American poverty). And with 1/3 of India's population under age 15, a recent Wall Street Journal article notes nearly 1/4 of the increase in the entire world's working age population will be in India.

The very good news is that planting rice by hand and guiding plows behind oxen won't be the preferred job titles for this 1/4 of the world's workers as the enter the workforce. As in China, millions are migrating to cities to take jobs with new firms.

Maybe the Indian stock market is overvalued today, but its rapid appreciation is a magnet drawing capital flows from around the world. How much capital is too much for hundreds of millions who, whenever they manage to escape India, prosper in whatever country they escape to? As economist Julian Simon argued, people are the ultimate resource. The caste system long enabled Indians to survive (well many of them, anyway) without much capital. People expected to live as their parents had and expected their children to share the same fate.

Now however, the optimism that comes with economic freedom is filtering out to impoverished Indians both in the cities and in rural areas. A great Wall Street Journal article (Nov. 28, page 1), "India's Surging Economy Lifts Hopes and Ambitions: Socialism and Castes Begin to Give Way," relates some of these hopeful stories: "My son would have followed in my footsteps 10 years ago," says an Indian worker earning $5 a day at the same job his father had. Now he says "I want [my children] to go into business, get educated, get a respected profession, learn computers, and earn for themselves."

America's modest openness to Indian emigrants over the last decade or two has allowed thousands to work and learn here and earn good livings. Now thousands (or tens of thousands?) are returning to India from America and Europe with skills, networks, and capital.

"There has been a psychological breakthrough" according to the Indian Council of Social Science Research. "Substantial sections of the Indian population believe that they are as good as anybody." (Of course America public school students are taught similar rubbish as they score low on all manner of tests. People are as good as they make themselves through their own effort and ingenuity. But in rural India, as in inner city America, few have opportunities to learn economic principles or free-enterprise first hand.)

Hundreds of millions of everyday Indians will get a taste of economic freedom in the coming years, and will have access to capital to multiply their productivity. No economist knows what returns on capital to expect from investments in India. But as in China, a sizable slice of the world's population is beginning to catch up with the developed world.

Years ago economist Michael Cox described the process: imagine four men in a dense jungle and only one has a machete. Clearly this capital equipment allows that one to cut a path faster out of the jungle. The vast capital generated by market-based economies in Europe, America, and more recently Japan, have generated tools to cut our way out of poverty. Cox continues the analogy though, noting that when the others find the trail, they can run even faster.

The late Milton Friedman, in "Is America #1?", expressed his amazement that Hong Kong, in just over fifty years, managed to race ahead of the United Kingdom with its centuries of industry and capital accumulation. By 2006, Hong Kong's per capita GDP has risen to over $37,000. How was this accomplished? Friedman concludes: "Economic freedom, absolutely, economic freedom."



NajdorfI like to collect biographical games collections of particular players, when I can get them at a good price. But my negotiations with one particular chess bookstore feature the proprietor trying to give me the book I want and then me beating him up to a higher price.

Last weekend I spyed Najdorf's life and games and it was all I could do to pay for it. "It was remaindered" he told me, "I got it for a pound". "But you've got running costs" was my retort, you need to make a profit. I tried to go higher, he tried to go lower. Eventually we settled on 3 pounds.

I still think I got a bargain, Najdorf (1910-1997) was a wonderful player and interesting personality who argued with just about everyone. I learned that he performed his fabled blindfold exhibitions so that the news might reach his family who were trapped in Poland. He left for the 1939 Buenos Aires Olympiad just prior to Hitler's invasion and found himself unable to return. The news never reached them, Najdorf and his family were Jewish.

When asked about his definition of intelligence Najdorf answered immediately that it was the speed with which someone changed their mind to meet circumstances. Despite becoming very wealthy in insurance, his view of money was to live as a rich man but die as a poor one; he didn't want to be the richest man in the cemetery. And every day he played chess with someone and reviewed some of the latest games.

I met Najdorf once and can't say that I liked him. But such people are often the ones from whom we can learn the most.



PrechterEarlier this week Bob Prechter posted on his website a contributor's view that the time for apologies is market-correlated and about to come to an end:

Prechter [1995]: "In bear markets, anger, fear and the urge to destroy overcome the social conscience. Remorse, on the other hand, is a bull market trait born of the larger trend toward inclusionist impulses… The peaking social mood has brought apologies for a host of transgressions that are decades, generations, and even centuries old. After years of bickering, the Japanese government reached a "compromise" apology for its part in World War II. At a recent press conference, President Clinton resisted considerable public pressure to ask forgiveness for bombs dropped on Japan eight administrations ago. A group of ethicists and historians has decided that financial compensation and a formal government apology is due victims of secret human radiation experiments conducted in the U.S. during the Cold War…"

Galasiewski continues: "Apologies in 1998, 1999 and 2000 made the greatest three-year total within the topping years, and there was a record one-year spike in 2002, when other measures of sentiment, such as the number of S&P 500 futures contracts held by small traders, also made their all-time peaks. Since then, however, annual apologies have not kept pace with price, suggesting that the wave of reconciliation that took off in the early 1990s is almost exhausted. Once the bear market resumes, expect the public's willingness to acknowledge past wrongs to become itself a thing of the past. In its place will be an impetus to act in ways that will require apologies later.

Last spring, several U.S. states approved resolutions formally expressing remorse over and apologizing for their role in slavery. In July the U.S. House of Representatives approved a resolution demanding an apology from Japan for its military's sexual enslavement of women in Asia during World War II. As the next chart [not included here, ed.] shows, historical apologies have increased dramatically in the past 15 years, along with the stock market. The coincidence is not random; both are driven by the wave of positive social mood that took off in 1982.

Other aggrieved parties seeking apology or compensation would be wise to push their causes swiftly, while historical wrongs still garner the public's sympathy. With the stock market on the verge of a major collapse, the window of opportunity for the redress of grievances is rapidly closing."

My question is, if the time for apologies to and among city-states is rapidly drawing to a close, what does that portend for the civil discourse more generally and intra-company dialogue in particular –that is, between spouses and family members in family-run companies, between partners in the workplace, among "teams" in corporate America, etc. and might that suggest a benefit to small-caps that, all other things being equal, have fewer intra-organizational relationships at risk?



After the biggest up days… no clear pattern to next day or next week results.

.              Next     Next
.               day   5 days
06/15/2006    -0.6%   -0.9%
08/06/2007     1.0%   -0.9%
08/17/2007    -0.1%    2.3%
08/29/2007    -0.3%    1.0%
09/18/2007     0.5%   -0.3%
11/13/2007    -0.4%   -2.5%
11/28/2007       ?      ?
Average        0.05%  -0.22%
StandardDev    0.61%   1.68%
N                 6       6
t              0.07   -0.36

Further study of the 1991-2005 period showed nothing additional of interest. What may be more interesting is that yesterday was the sixth day of 2007 on which the S&P 500 futures made their biggest one-day gain in a year, the largest number in any year going back to 1991 (1997 had four such days; several years had none).





Barriers to Riches [book]You might not think manhole covers float, but they do. As readers of a recent New York Times story learned, they float to New York City all the way from India ("New York Manhole Covers, Forged Barefoot and Sweaty in India," Nov. 26, p. A1). Every other Nov. 26 front page story was about play (college football) and foolishness (politics). But this one story was about hard work "eight thousand miles from Manhattan." Without much capital, Indian workers without shoes carry and pour molten iron by hand. It is a story of early capitalism but set in 2007 instead of 1857 or 1907. Why only now? India missed the boat when it blocked innovations and capital investment nearly a century ago.

Virginia Postrel's excellent 2001 New York Times article "Wealth Depends on How Open Nations Are to Trade" cites an MIT Press book "Barriers to Riches" [2001] by Parente and Prescott . Postrel quotes from the book: "poor countries are poor because some groups are benefiting by the status quo," and those groups use the law to block change. India has a long history of this. In the early 20th century, strikes kept Indian textile mills from increasing the number of looms each worker operated, and the government protected the old ways through steep tariffs on foreign textiles. As a result, from 1920 to 1938 textile productivity rose by only a third as much in India as it did in Japan, which was beginning its climb to prosperity." Established French textile firms similarly blocked advances and innovations by competitors a century earlier.

Government regulations in India blocked capital from iron foundries as well as textile mills. Jobs were saved, but not the sort of jobs that should have survived to the 21st Century. Even without enough capital, iron from India is competitive with U.S. foundries. India might seem a long way from New York City, but for manhole covers it is probably closer than Pennsylvania. Transportation costs are key to costs for heavy and inexpensive goods like manhole covers. Wikipedia says manhole covers weigh more than 100 pounds. Whether cast in India or Pittsburgh they have to be shipped (or "railed"?) to New York City. Going by ship has always been less expensive than over land. Railroads with their overland rivers of steel closed the difference (but dense railroad regulations widened it again). England, Western Europe, and America benefited greatly from cheap transport along plentiful rivers and ports connecting cities, compared to expensive overland transit in Eastern Europe, China, India, and Africa.

Shipping is cheap from India but capital is still in short supply. Iron foundries in India need capital to boost productivity (and, at the least, to buy shoes for workers). What rivers or rails will direct capital flows to India? Well, foreign aid and the World Bank is one tried and false route. Hundreds of millions have flowed to various projects over the years. One bright-idea from development economists was a large recycling plant for India. Millions were spend importing the high-tech recycling equipment, but India lacked enough junk to keep it running. With armies of underemployed workers sifting through waste for anything valuable, not enough valuable waste was left to feed the imported recycling plant. Another failed aid project added to the one (or two?) trillion plus dollars wasted (so far) on foreign aid.

Stock markets are different than foreign aid projects. With private stock markets, firms announce to investors their plans and offer shares of the profits to investors. A stock offering for a recycling plant for India would not have attracted many investors who knew anything about reality in India. But an iron foundry making manhole covers for New York City might. Though the average investor will have trouble discerning opportunity from fraud in faraway India, Eastern Europe, or Latin America, my friends Stefan, Simona, Ana, and Verena, from Sri Lanka, Romania, Moldova, and Argentina, along with thousands of other emerging market advisors, can help investors evaluate opportunities overseas. Young men and women from Ukraine, Romania, Kenya, Moldova, Argentina, and dozen other countries work for Morgan Stanley, T. Rowe Price, Credit Suisse, Fortis, and other investment banks and fast-growing emerging market funds.

In a sense, stocks are smarter than commodities and bonds. Stocks don't know the future and are not bound by the past. They are free to grow unbound, remaking the world sector by sector. Money is invested in an idea with no outer limit. Returns are not fixed at inception, they grow with the dreams of free men and women. Diversified portfolios can fund a range of new ideas with only few needing to succeed.. My cousin in Seattle was invited to invest $50,000 in his best friend's sister's boyfriend's new company. Who could know what the upside might be? He invested in silver instead. (Bill G.–his best friend's sister's then boyfriend– found other investors). Silver and gold might rise in value, or might fall, and as insurance they have a place in any portfolio. But neither gold, silver or bonds are ever likely to awake one morning with dreams of Windows, Excel, iPods, or iPhones.

The power of open-ended inspiration is shown in a nice WSJ piece (Nov. 28, p. D1) that compares stocks and bonds over the last 80+ years. I don't know if the 1925 start date biases the findings, but one million dollars invested in bonds in 1925 would yield an annual interest income of $48,000 a year today vs. $33,000 in 1926. Inflation, sadly, drops the purchasing power of today's income to "less than a tenth of spending power of $1 in 1926." That same one million invested in "large-company stocks" [journalistic shorthand for S&P 500 type stocks] would have done better, a lot better. "[Y]our $1 million would have ballooned to $111 million over 81 years–and your income would have jumped from $54,000 in 1926 to almost $2 million in 2006." Not bad. Stock gains shouldn't be expected every year though. Average stock prices fell in 15 of the years from 1925 to 2006, but prices rose in the other 65 years.

Why have long-term returns from stocks been so much higher than returns from bonds and commodities? Well, look at the picture accompanying the NYT manhole cover article. In the center is a man carrying a pot of molten iron glowing just inches from his fast moving bare feet. He, and the men in front and behind are thinking beings. Each day as they work (or at home, after they have recovered), some search for ways to improve their lives. Workers and managers search for productivity gains. When free to pursue opportunities they will move to better jobs, or find ways to boost production at their current firms. But without capital from savings somewhere, there is limited scope for their dreams and ideas to take hold.

As trade and investment restrictions have fallen in recent decades, capital can again cross borders. To China, India, Africa, Eastern Europe, and Latin America, fast-growing investment firms are opening the gates to capital flows from rich western investors to capital-starved millions in the developing world.

"Give me a fulcrum," Archimedes is reported to have said, "and a place to stand–and I will move the world." The place to stand is in India, or China, or Latin America, or Africa. And the fulcrum is capital from stock markets and investors around the world.



A correction in SP 500 index (1950-07) was defined as:

As of Friday, this week's low was more than 10% below the high of any of the preceding 10 weeks, AND this was the first occurrence of such a 10% drop in 10 weeks.

There were 42 instances of such corrections since 1950, and the return for the following 5 and 10 weeks was flat:

One-Sample T: nxt5, nxt10
Test of mu = 0 vs not = 0
Variable N      Mean     StDev  SE Mean          95% CI         T      P
nxt5     42 0.00079  0.06162  0.00950 (-0.01840, 0.02000)  0.08  0.934
nxt10    42 0.00395  0.08031  0.01239 (-0.02107, 0.02897)  0.32  0.751

21/42 times the next 5 weeks were positive
23/42 times the next 10 weeks were positive

Gibbons Burke adds:

Here is a graph of these results for all time frames up to t+50 (10 weeks). The peak of the bullishness occurs at the t+43 holding period relative to the event date on the 26th. The occurrence return lines are colored red or green relative to whether their return is positive or negative as of the (post-dictive) peak edge date. The thicker red and green lines are the most recent three occurrences and the most recent is the purple line, which is tracking the upper StdDev line almost exactly so far.

Kim Zussman replies:

Gibbons' interesting path diagram illustrates how traders with stops get penalized. I..e, if you stop out at -5% from initial position, you wipe out all the paths which cross -5 but go on to good profits later.

What about traders who decide to stop trading late in a good year (or greatly reduce size), to preserve year-based incentives? This is another kind of stop. Ostensibly they too are stopped out of potentially greater gains - with commensurately lower mean returns over time. And it would be interesting to speculate what effect on December is exerted by "up YTD" folks opting out and "down YTD" fellows trading furiously.




DiamondbacksI just read an interview in the Arizona Diamondbacks' magazine, D-backs Insider, given by Doug Flanagan, from the magazine, to Jonah Keri. Keri covers Wall Street for Investor's Business Daily and also contributes to

Here is one of the questions:

"Is there any connections you see between stock trading and the baseball world, i.e. number-crunching?"

Answer: "The style of writing and analysis that I do is quite similar for both gigs. In my stock market job, I'm writing for Investor's Business Daily, which prides itself on contrarian thinking and on letting the facts speak when covering the market. That's my favorite way to approach sports writing, too. Basically, the public is usually wrong. From a sports standpoint, that's what allows casino operators to make billions of dollars. Same from a stock market point of view, in a sense. Even if there's no money at stake, I always find it gratifying to stick to the facts, even if most people might disagree with my hypothesis."



Cold Reading [book]In Practical Speculation, Vic and Laurel identified a number of ways of making deceptive non-verifiable predictions, and described techniques for marketing stock prediction abilities and systems. I came across a good supplement to such methods by Ian Rowland in "Full Facts Book of Cold Reading" (2nd edition, 2001). What is "cold reading"? These are techniques used by magicians and palm readers to deceive their victims, much as many market participants are deceived by the same techniques into believing the practitioner has a method to predict the market. I will try to give some market examples applicable to the current situation from top news sources such as Yahoo Financial, CNN and my own repertoire.

1. Rainbow Ruse- Have one trait and, at times, the opposite. "The bad news out of the financial sector will continue to flow, and on the days that it does, the market will take a hit", said Chris Johnson, chief investment officer at Johnson Research. "But select stocks will outperform the rest of the market", he said, "particularly in technology".

"Robert Loest, portfolio manager at Integrity Funds, said that a late December rally could depend on what the Fed does on Dec. 11." CNN

2. Barnum Statements- General statements that fit most people (combine w/ forking). "I think we're going to have a tremendous amount of volatility and basically stay in a trading range until we get information on first-quarter earnings," said Dan Genter, president at RNC Genter Capital Management." Yahoo

3. Fuzzy Fact- General broad statement likely to be right. "An end of the year run is not necessarily off the table," said Art Hogan, chief market analyst at Jefferies & Co. He said that Wall Street still needs to work its way through a lot on the financial side. Yet, the broad selloff of recent weeks may have primed stocks for a bigger bounce back, particularly in the areas of the market that are unaffected by the credit market mess. "But there's no question of volatility," he said. "It's going to be very bumpy through the end of the year." Yahoo

4. Good Chance Guess- ("I see a blue car" or "a house with number 2 in address") I see the number 1450 in your near future. Me

5. Lucky Guess- Make 2, 3 parts. If hit, then wow; if miss, they'll forget. 1400 is going to be a support area, unless it breaks through. Otherwise, so we are likely to see some resistance at the 1450 area and if broken a run at 1500 again and then possibly new highs.

6. Push Statements- State something wrong and keep pushing it! The subprime scare is pushing stocks down and may spill over into the general economy causing recession and global slowdown.

7. Russian Doll- Statement with many possible layers of meaning; keep working till get hit. Market participants were concerned about Wall Street sold off sharply Monday as concerns about a weakening credit market wiped out investors' enthusiasm about strong retails sales over the holiday weekend. For a brief period today, there was a twinge of optimism that the stock market would be able to score back-to-back gains. Reports of stronger than expected retail traffic over the Thanksgiving holiday contributed to that view. However, it wasn't long before concerns about the financial sector (-4.1%) took hold again and knocked the market down to size.

8. Peter Pan/Pollyanna- Tell them what they want to hear. "After years of living happily beyond their means, Americans are finally facing financial reality. A persistent rise in energy prices will mean bigger heating bills this winter and heftier tabs at the gas pump. Job growth is slowing and wage gains have been anemic. House prices are sliding, diminishing the value of the asset that's the biggest factor in Americans' personal wealth. Even the stock market, which has been resilient for so long in the face of eroding consumer sentiment, has begun pulling back amid signs of deep distress in the financial sector." Fortune

9. Certain Predictions- No time frame. The market is very likely to make new all time highs despite the recent sell offs.

10. Likely Predictions Unlikely Predictions- The abandoned baby pattern seen earlier in November was similar to the pattern that preceded the big August sell offs.

Self-fulfilling- "You will make a new start" The market may see new lows before turning higher and cause uncertainty among traders creating risk.

Vague Prediction. "The market is now looking toward 2008 and a slowdown, and I find it hard to believe that we can have a year-end rally," Mendelsohn added.

But hey, there are some reasons why Wall Street might see a typically upbeat December and an end of the year "Santa Claus" rally. (From Cnn Money) (predict both sides, always right if market up or down)

Unverifiable- The pull back to resistance level provided support for the overnight rally. The Asian traders encouraged by strength in the yen decided to bid up the SP in the night market. Me.

Larry Williams adds:

Larry WilliamsThe biggest part of cold reading is called 'pumping': asking questions that give a clue to the correct answer; it is very effective in allowing someone to think you knew.

Most cold readers rely on a 11 psychological traits from a study done at the University of Michigan, traits we all share, that can be made into specific statements. The cold reader will use the first three on client A, the next three on client B , etc. so they don't hear the same thing.

Here are a few…

There is someone from your past you wish you could talk with again

There are issue with one of your parents (pump comes next, usually boys are with dads) I see a parent with long hair… they reply yes ,my mother (you agree and look very wise) or if they shake their head and the reply is, 'your mother was not the one it was your father.'

my favorite:

growing up there were s-xually awkward times and you still have unsettled areas here.

Word games can be very impressive in the right mouths.

Craig Mee replies:

Thanks Larry… I remember watching a show on this topic many years ago, which opened my insights into these people… and the following day I was an extra on a Gatorade commercial , which went on for hours, at some point I found myself, next to a very attractive young lady, analyzing what could it be that made her sit here at 2am in the morning for some spare cash… (For me no doubt it was to bolster trading capital!)… so I surmised that she must be there for a specific purpose, ie need the extra cash for something special, I then thought OK, lets go with a wedding, and she either needs a new pair of shoes or a new dress. Well at that point I turned to her and said, "who is getting married and what colour are the shoes you are buying!?"… well I struck gold, and she was beside herself… Certainly a great way to start a conversation with the opposite sex as well!



Paul BrownJust got home from watching the Browns win over the Texas Titans in a kind of 'back and forth' game and the Brown's home crowd became a factor (probably not a fear factor) but the noise reminded me of the old Brown's Stadium some years ago. My brother and his 16 year old son were up from Florida for Thanksgiving and we decided to go to the game together today. We had two tickets and traded for three together on the 20 yard line and just 5 rows up from the field… Awesome. Much effort was made by both teams, but home field advantage was a big plus in my opinion.

I note quite a bit of discussion on starting up one's own business. You need to be like a football team/coach and know your territory, playing field, be familiar with your playbook (just like a stock traders hand held manuscript) and be totally familiar with your opponent (just like familiarity with the stocks you trade).

We traded our seats three times with street ticket sellers. Suppose you could liken this to dumping bad stocks for better positioned (better seats) stocks? We took our time looking over various tickets that were offered to us. Much like one would pour over statistics, etc. before landing upon a stock to buy. We took along a diagram (from Internet) of the playing field so we knew where offered seats would be if we chose to buy. A little bit of before hand preparation paid off and we ended up with good seats and had a great time. We profited by taking our time, much as one would in looking over financial statements, etc. of a stock before buying. My late father used to say, "Plan your work and work your plan".

Drove from Cleveland to Columbus, had a great supper at Polaris Grille. My Brother has a plane to catch in the morning for a meeting in Birmingham. Dropped him off at an airport hotel and his son and me headed back to Belpre.



 Crises sell newspapers, so the press is eager to find them. Here is my "translation" of a recent Associated Press disaster article :

Saturday November 24, 12:02 am ET

AP headline: "New Wave of Mortgage Failures Could Create a Nightmare Economic Scenario"

Reality: New Wave of Mortgage Failures Have Created a Nightmare Economic Reporting Opportunity

AP reports: "…some experts say [the crisis] could spread from those already battered banks into the general economy. … The worst-case scenario is anyone's guess, but some believe it could become very bad."

Reality: Of course the "worse-case scenario" won't actually be "anyone's guess" but "AP's guess" because the AP will only report guesses that ominously predict vast economic disasters (and then call for government intervention).

AP reports: "We haven't faced a downturn like this since the Depression," said Bill Gross, chief investment officer of PIMCO, the world's biggest bond fund. He's not suggesting anything like those terrible times [well, he seems to be? -GR]– but, as an expert on the global credit crisis, he speaks with authority. … "Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth," he said. "It does keep me up at night."

Hawley / SmootReality: The Depression wasn't a "downturn" nor caused by a downturn. It was a depression caused by a series of government interventions in the economy. Lawrence Reed's essay "Great Myths of the Great Depression" nicely outlines the Great Depression's various phases. The stock market downturn would not have led to a long term depression without government intervention. Maybe that is what Mr. Gross of PIMCO expects from Congress as it tries to jump into markets to keep them from clearing, or to invalidate loans and other contracts. Mr. Gross warns of the downturn's "effect on future lending attitudes" as a problem. But is was past "lending attitudes" that were the problem (the attitude, for example, of not bothering to check a borrower's ability to make monthly payments). If people have less equity to extract from their homes to buy stuff, they will indeed spend less and probably purchase a different mix of goods and services. Prices, markets, and the economy will adjust. Of course, until the downturn not a week went by without the media complaining that people were buying and consuming too much anyway. Where are the experts the media used to quote who informed us that America's consumer society was bad, bad, bad, and people shouldn't buy so much stuff?

AP reports: "Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy. … The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida."

Reality: If this "crisis" pushes housing prices down and way down, how does that make housing less affordable? Will the banks dismantle repossessed housing, or put it back on the market at lower prices? Will people forced out of homes they couldn't afford stay out on the street, or rent apartments, or move into smaller homes, or maybe move into the same homes once they are 40% less expensive? What other solution is there for "once-hot real estate spots" where housing mania pushed prices rapidly up 40% or more? It was the boom that created the mess. The bust is just the needed clean-up process.

AP reports: "Based on historical models, zero growth in the U.S. gross domestic product would take the current unemployment rate to 6.4 percent. That would wipe out about 3 million jobs from the economy, according to the Washington-based Economic Policy Institute."

Reality: Would it be better for these 3 million people to continue building houses and other goods, and providing services that people don't want or can't afford? Again, the problem was the bubble that led to manic overproduction and over-pricing of housing in some markets.

Millions gambled that housing prices would keep rising, allowing them to quickly gain equity and refinance at lower interest rates. The vast majority of new home-buyers over the last five-ten years won this gamble, gained equity, refinanced, and now live happily in homes they would otherwise have not been able to afford. But some came too late to this particular party, especially in some overheated housing markets. And others, confused by good fortune with early housing purchases, bought more homes hoping to make a killing, or at least to retire early. They may instead retire late.

AP reports: "Many Americans are unaware that a borrower defaulting on a loan can have an impact on everyone else's well-being and that of the nation. After all, the amount of mortgages due to reset is just a fraction of the United States' $14 trillion economy."

Reality: Many Americans are unaware of a lot of things. Unfortunately, they are likely to be even less aware after reading AP scare stories like this one.



Origin of WealthThe Origin of Wealth by Eric Beinhocker applies insights from chaos theory and evolution to answer big questions relating to how the world of wealth works. It takes the most popular studies from the Santa Fe Institute, pounds some insights from the popular exegeses of evolution such as those of Dawkins and Ridley and extends the work to how to run and finance a company and an economy.

Chapter 1 covers the economic history of the world, the relative stability through thousands of years, and then the explosion the last 200, and how it was created without planning by the principal ingredients of evolution: differentiation, selection, and replication. He notes that no one could understand how to produce and distribute all the material goods of the world, considers this complex, and then suggests that the implications of chaos theory must be used to understand this complexity.

Chapter 2 describes classical economics emphasizing the limitations of its principal assumptions of perfect information, perfect competition, its trajectory to a balance point with Pareto optimality based on insights of Adam Smith relating to the invisible hand and the division of labor, and the concepts of diminishing marginal utility and diminishing marginal productivity of Bentham and Turgot. These ideas, according to Beinhocker, provide a very shaky foundation.

Chapter 3 narrates a meeting of economists and physicists at Santa Fe where the physicists questioned some of the assumptions of classical economists, and contains various anecdotes and partial summaries of data that show the actual world is unpredictable, and discusses the laws of thermodynamics and suggests they have some insights for the dynamic nature of economies.

Chapter 4 discusses the major principles of complexity economics, dynamism, agents, networks, emergence and evolution that Beinhocker says are necessary to understand the actual economy.

Chapters 5, 6, 7, 8, and 9 contain charts that are the output of various games and models, and selected empirical studies from work in the field of dynamic systems, agents, networks, and emergent tendencies that are culled from work at Santa Fe Institute by its contributors and heroes. Included are oscillation charts from the beer game, attendance charts at a favorite Santa Fe bar, diagrams of the number of connections as the nodes in a network increase, price charts from Mandelbrot that show price changes from a random walk that are not exactly identical to the daily prices changes of IBM between 1959 and 1996, and a power law fit to the number of earthquakes in Southern California. 

Chapter 9 compares the process of evolution to a contest for building with Lego blocks, with the good designs winning out over the bad designs, copying of the good designs, good tricks, path dependence, and forced moves. Three dimensional charts of fitness diagrams of Dennett are given to show that jumps from one fitness path to another are easy.

Chapter 10 shows how game theory, prisoner's dilemma games, and the game of life are helpful in understanding the distribution of wealth in an economy. The rest of the book applies these principles to the physical and social technologies, and business plans, that develop these design in the real economy, with particular applications to managing a company and the ideal political system which, according to Beinhocker, is a mixed economy with government choosing the best business plans for evolution to work on.

I found the chapter on business strategy very insightful. It suggests that the ideal business organization is one that combines flexibility with rigidity, gray hairs with young turks, sensitive antennae to follow the market, and ability to swarm on any areas that have temporary profit advantage. It emphasizes the importance of uncertainty, the transitory nature of business advantage, shows that one must be prepared with a wide variety of game plans for success due to the uncertainties and ephemera, gives some excellent examples of companies that were once leaders that fell down the wayside, like the British East India Company , that in the seventeenth century "monopolized trade in four counties, had worldwide interests in all essential commodities, had its own private army and navy, could declare war when it's business interests were threatened, and effectively ruled over a fifth of the world's populations". It went out of business in 1873. It also contains an insightful discussion of how Microsoft and Dell were able to start from virtually zero and become bigger than IBM in a few years by applying these principles. The main point of the physical technology chapter is that an S shaped growth curve naturally follows from evolution but that disruptive technologies can push you off the curve. There is a nice discussion of how the scientific revolution led to the enhanced growth of physical technologies starting with the 18th century. The main point of the social technology chapter is that the heterogeneity of people combined with the division of labor and increasing returns to scale makes transactions between individuals non-zero sum in a market economy. Beinhocker claims that we inherit an inclination to cooperate for mutual gain as well as an urge to compete.

The weakest chapter in the book is the application of these principles to finance. It contains various charts showing that a model of stock market decision making can lead to price distributions that look like real prices in some respects, and has two charts that show how proprietary methods developed by Farmer could retrospectively identify areas that apparently have some visual differences from those that would be generated by random charts. It has some haphazard and undocumented charts of that according to its author Farmer, are different from those that would appear if there were perfect arbitrage between fundamental and technical traders. The results are not predictive and not in any way differentiable from thousands of other equally plausible models, and selected anecdotal charts. It also attempts to apply the complexity principles to show that the work relating the degree of market sensitivity of a company to the cost of capital is flawed and non-descriptive in many cases.

The chapter on politics and policy is one of the weakest chapters that I have ever read in a book. There is a discussion of contrived studies that show that people wont accept 1% as a fair share of a bargain even if they are bettered by it if the other side is getting 99%. From this, he concludes that people need to feel reciprocal equities to be happy. He relates this to some of the original studies that show that corporate formation is based on increasing trust and then calls for government to intervene to create equity and trust. The chapter contains a litany of complaints about the economy as it exists, for example the distribution of wealth, the relation of parents and childrens income. No attention is paid to the work of Herrnstein and Murray in The Bell Curve or Banfield or the numerous follow ups showing the relation between incentives, intelligence, achievement, and the relative contributions of heredity versus environment. Nor is any attention paid to the fairness of redistribution after the fact, or what the impact on incentives of such programs might be. Beinhocker suggests that solution to the form of government is contained in complexity economics and that this shows that institutional structures combined with individual experimentation is the source of wealth. No attention is given to the influence of incentives, or the ability to keep what you produce that is the lynchpin of all the business plans that make up the fitness landscape.

The book is deeply flawed. There is no recognition that the very preliminary and rudimentary results of models based on complexity have much less correspondence to the bulk of economic activity then the models he would replace. Time and time again, he refers to charts that complexity models build up and notes some visual similarity to some aspect of economic activity without comparing the descriptive or predictive accuracy, or relevance of the models to alternative models. The studies of corporate growth that he relies on are not adjusted for survivor bias nor do the studies that show that most firms are not the same as 100 years ago take account of acquisitions or liquidations and the returns therefrom. As mentioned, the work on finance is completely anecdotal and non-predictive and reads almost like a prospectus for funding for the chaos institute rather than an attempt to advance knowledge.

And yet, despite its flaws, I found the ideas of the book very thought provoking. And I learned much from the chapters on management and venture capital where Beinhocker previously worked and writes with considerable insight about, and I enjoyed the wide range of examples that he cites from his wide travels around the world and his intimate acquaintance with the many big companies that he must have consulted for.

I would highly recommend this book to augment one's knowledge of how evolution can be applied to the field of economics.



D. Hoffman in MagoriumForget what the critics are saying about Mr. Magorium's Wonder Emporium. It is a delightful movie to take your kids to.

First, I doubt most movie critics could relate to the lonely hero child "Eric", simply cause he was too gifted.

Second, the magic conjured up clearly was from the inspirational genius of an entrepreneurial spirit. Praising such a movie would clearly admit such genius exists. Many in the media would like this movie to simply be forgotten.

Third, it was a tale about learning the powers an individual possesses. How this power dwarfs bureaucracy/government, and how tapping into it brings meaning to one's life.

And finally it had too many wonderful analogies and brilliant quotes in it for a critic to understand.

If you doubt my words, consider that upon leaving the theater, my 14 year old daughter asked:  "That movie was great. Do you think I could start a pet shop, soon?" And then she spent the next couple days researching how to do this dream and making lists and coming up with ideas.



1934I have never been much of a fan of Benjamin Graham, partly because, in my 16 years of investing, investment advisers who touted their devotion to his principles (including the author of "My hero, Benjamin Graham") have all too often stated that they cannot find any stocks cheap enough to buy and are therefore bearish. Once in a blue moon, such advice has been good; the rest of the time, anybody who followed it would have missed the 1,000,000% per century return from investing in equities.

Benjamin Graham's idea that the balance sheet may be more important than the income statement in valuing a company is interesting. In this respect, however, circumstances have changed since Mr. Graham's day. In today's information-intensive economy, balance sheets often do not provide much information about the assets a company uses to generate earnings. The values of brands and intellectual property seldom appear on balance sheets. (When intellectual property appears, it is usually in the form of goodwill, based on market prices for acquisitions, a method that might trouble value purists). Intellectual property is often contained in the brains of key employees. It is hard to value and hard to depreciate. In the absence of patents, one might assume a three-year half-life of existing knowledge, but how does one estimate the value of new knowledge being created? In some cases, the value of specific knowledge instantly falls 100% when a key employee leaves.  So while proprietary assets are more important than ever in valuing a company, they are extremely difficult to properly assess; a glance at the balance sheet won't do.



TaurusIt's good to remember that stocks are valued based on an infinite stream of cash flows. And any balance sheet losses on assets held just affect the book value temporarily and are lost in the fullness of the sweep of payments for risk and innovations and entrepreneurial ability . Same for whether earnings growth is going to be 1 % or 5% next year. The earnings yield versus bond yield is now at close to an all time high. The yield on risky loans has risen and the cost of debt capital has eased. Presumably if the default rate on subprimes is 10% , it is more than compensated by the increase in yield that such loans would now carry . All this comes to a head with the disruptive move at the close on Wed, down 1.5% in 30 minutes. This reminds one of the breaking in of horses featured in such novels as Monte Walsh where the unbroken horse gives a final leap into the corral fence before shuffling off with the owner paying the debt to Monte.

Phil McDonnell runs some numbers:

Recently the rate on 30 year Treasuries has fallen from about 5.3% to about 4.45%. This is a decline of about 17%. So if the long term earnings are discounted at the long term rate then a very simplistic back of the envelope calculation shows that the value of stocks should rise by something like 17%. However the reality is that stocks have fallen about 8% from when the rate was 5.3%. Together the 17% increase in value plus the 8% should combine for something like a 25% increase in stock values. Some might argue that a more sophisticated model would use the one year rate to discount expected one year out earnings and a two year rate for two year earnings and so on. That is true. But it is worth noting that all the shorter term rates have fallen even more percentage wise than the long term rate.

Bruno Ombreux extends:

Another exercise is to look at what happens when earnings are changing over time. In the discount formula, the denominator is a power. As a result, early years are heavily weighted and later years much less so.

Let's value the stream of discounting earnings as a perpetuity, because it is easy. It is earnings/interets rate. Let's use 8% which is reasonnable for a risky asset and in line with drift.

Assuming constant $10 earnings, the stock is worth 10/0.08 = 125.

Now let's assume that earnings are going to take a hit for the next 5 years.

If earnings are 0 for the next five years and then 10 in perpetuity, the company is now worth 125/(1.08)^5 = 85

This a a 85/125 = 32% drop in the value of the company.

The next few years are very important in valuing a company. It is not surprising that stocks drop on the slightest hint that they could experience troubled times ahead, even if in the long term they are profitable.

George Zachar cautions:

Notional interest rates are only one factor to consider in calculating the appropriate discount. In the current era of (relatively) low and stable rates, perhaps other variables play a increased role.

What tax rate will those future earnings bear? What is the forward trajectory of the regulatory ratchet? Are currency preferences an issue? Finally, should one use real or nominal rates to discount? That would imply the need to forecast inflation too.

While notional rates remain important, the growing/shifting burdens imposed by Washington, and the increased role of international capital pools, means yields are now one discounting factor among many.

Alston Mabry concurs:

To extend George's argument: What about projections for forex rates? Liquid capital flows across borders, and many investment equations now must contain a forex conversion factor. Must not non-domestic investors evaluate future cash flow discounted by both rates and currency fluctuations?

Gregory Van Kipnis raises an interesting point:

There has been always been a dichotomy in market valuation between the earnings discount model approach and the book value approach. If we reduce the current discussion to a P/BV versus a P=PV(E,g,i) model for assessing the market outlook, the following additional point may be important to consider. Is there a relationship between BV, on the one hand, and E and g, on the other? If BV (book value) losses were simply a drop in the net value of bricks and mortar there might not be much of a connection to future reductions in E (earnings) and g (growth in earnings). If on the other hand, much of the loss of BV is the destruction of income earning assets (mortgages and their related derivatives) then E and g are proportionately reduced as well. Since such a large proportion of the S&P earnings is related to the financial services industry the current 'neutron bombing' of the housing sector, and the associated loss of financial BVs, it is likely to translate into a more protracted bear market, I fear.



Practical forecaster's almanacEdward Renshaw's "The practical forecasters almanac" (Business One Irwin, 1992), is filled with different ideas and relationships in economics and the stock market.

Ok, I cannot agree with the conclusion of one reviewer on Amazon: "You'll eliminate the need for complicated statistics and computer programming". Ha! Ha!, I want to ask him: "ever heard about changing cycles?"… I guess not. But one does get very many ideas, for follow up on how the pattern has done lately, or just inspiration to tweaks, or for combining with our favourite concepts, and other things we always wanna do when we see a study. It is an especially interesting book if you have a longer term perspective, or want to get the bigger picture for your short term trading.

An example: Residual Volatility and the S&P (this also reminds me of a study Chair did and showed in Active Trader Magazine once, but Chair used the spread in individual stock returns if I remember correctly).Renshaw writes: "Volatility is not necessarily bad for investors if the stock market has been declining or going nowhere. In table 3.31 we calculate a residual volatility measure for the S&P index by subtracting the absolute value of the current year's financial return for the index from its annual high-low ratio expressed as a percentage point range. When the residual volatility has exceeded 16 percentage points, the financial returns for the S&P index in the following year have always been positive since the beginning of World War Two."

The "residual volatility" is currently close to Renshaw's figure, but you can of course run a regression to get a better grip. But the main point with the book is this: You will find many ideas for testing, and thus I recommend the book for the researching speculator.



Using DJIA monthly back to 11/1928, I find that following Novembers that declined worse than -3%, subsequent Decembers are up but not statistically significant:

One-Sample T: nxt dec

Test of mu = 0 vs not = 0

Variable    N     Mean     StDev   SE Mean        95% CI            T      P

nxt dec  15  0.01799  0.06046  0.01561  (-0.0154, 0.0514)  1.15  0.268

Furthermore, regression of Dec return vs prior November IF November was down shows no correlation between the variables:

Regression Analysis: nxt dec versus DN nov

The regression equation is

nxt dec = 0.0259 + 0.144 DN nov

Predictor     Coef  SE Coef     T      P

Constant   0.0258  0.0142  1.81  0.081

DN nov      0.1440  0.2419  0.60  0.557

S = 0.0515600   R-Sq = 1.2%   R-Sq(adj) = 0.0%

When the lean on history fail
Reach for the chalice
Thy holy grail





I had a great Thanksgiving at my Mother's today. Later in the day we put up our tree at my home and our daughter and her three boys helped. Boys are 8,11,22 . The 11 year old (Solomon) is something else. Taking this year Saxophone at school, loves Checkers, plays sports, loves to read, and I taught him tonight how to tie a double windsor knot .

We had pizza tonight and were all in the living room chatting and I was discussing taking out our TV's and I could see Solomon listening to every word spoken. He finally spoke up and said that cable for the TV is a 'want' and not a 'need'. He further commented that the only real needs are: food, shelter, clothing. Quite a statement coming from an 11 year old .



The beauty of the Fibonacci mathematical sequence and its cousin the golden ratios are indisputable. Mr. Glazier poses a very interesting question. First let examine one of his premises - that the market is self similar at all time scales.

Empirically speaking this is not quite true but appears to be approximately true. The market does somewhat resemble a log normal distribution but with a bit more peakedness and fat tails. It does seem to converge to a more normal distribution as time is increased. Perhaps this is caused by the fact that all distributions with finite variance eventually converge to the normal or log normal.

One interesting property of the normal distribution is that it is self-similar at different time scales. So if the market is normal at say time scales of a week then periods longer than that will be normal as well. They will simply be the sum of normal variables which is known to be normal as well. So we get the result that the market is both self similar and scales to longer time frames. So perhaps there is a grain of truth to that part of Mr. Glazier's assertions..

Let us consider the question of the magical 1.618 and its reciprocal .618. In fact these numbers really result from an underlying logarithmic growth pattern of the Fibonacci series. Check the logs on your scientific calculator. The natural log of 1.618 is .48 and the log of .618 is -.48. The reason for this is that it is a ratio relationship.

So too with music. All musical harmonies are based on ratios of the notes. Simple integer ratios sound pleasant to the ear. So if the market is really growing with a long term compounded drift then it is really nothing more than a process based upon equal ratios just as music is.

Therefore if the log normal model adequately explains the self similarity and the scale invariance of the market distribution then does that necessarily imply that Fibonacci levels will offer better than random turning points. Unfortunately the answer is emphatically no! If the model is a random log normal one then the turning points are also quite random. It is as simple as that.

There is no theoretical basis to believe that Fibonacci support and resistance levels hold any validity for traders. So the only possible rationale might be that one finds that they work empirically. To date no such credible evidence has ever been seen.



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

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

November 27, 2006

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Give Thanks for Pilgrims … and McDonalds

Our 2005 Thanksgiving piece can be found on MSN Money



Over the woods and through the hills to grandmother's house we go… okay its actually down Rte 50, into Fisherman's and to the bar for the Thanksgiving Special. For a change I do not have the kids for the day so I am not running around like a chicken with its head cut off getting ready for Thursday's dinner and I intend to take full advantage. I certainly not going to grandma's this year… in fact mom is not allowed to cook holiday dinners as her idea of cooking is to take expensive meats and poultry and cook them until they are serviceable as arctic footwear, vegetables not cooked to the consistency of porridge are considered underdone and mashed potatoes come from a box… if her cooking was indicative of southern women, there wouldn’t be a fat man south of the mason dixon line… mom never quite enjoyed cooking it seems… but all the same the Thanksgiving holiday is upon us and might as well pack up for the lovely drive, maybe a couple of lifetimes on the Jersey Turnpike or a rugby scrum through an airport to travel to far destinations to see people we are still pissed off at for tearing the head of our kung fu grip GI Joe 40 years ago, as we stand in the middle of the airport parking lot with the broken suitcase spilling on the tarmac, our significant other giving us that that quiet, thin lipped “I told you we needed new luggage” look, or in a car with children arguing at approximately the decibel level of an F16 fly-over and the radio stations blaring christmas music over the din of 5000 hopelessly grid locked cars, it is time to reflect up the year gone by and the moments and things we are thankful for, the things that make life the special wonder that it is…..

For starters I am grateful for a holiday that does not involve me having to purchase gifts for anyone, attend a mass that lasts just slightly less time than the Middle Ages, or do anything but eat enormous amounts of food and watch football whilst sipping and swigging wine… I have never figured out exactly how eating and drinking to excess while watching steroid fueled behemoths bat hell out of each other chasing a pigskin around a field is a sign of gratitude… but who am I to argue with such a fine tradition? I have much to be grateful for so I'll have an extra piece of pie, more wine than is good for me and watch every damn game that comes on the tube… for living in a land and in a time where I can screw up, blow up, start, fail and do it all over again, to be part of a culture and society that allows me get up after a disaster and start back up the stairs, where the only real limits I encounter are those I put on myself… for my family, even if my extended family is truly the bunch that puts the fun in dysfunctional, for my kids, my daughter, 23 now, going to scholol and working and just doing incredibly well. She's reading now and it's kind of a kick to talk books with your adult child and watch as they discover Cervantes, Faulkner, Hemingway and Fitzgerald. When she is 30 I'll tell her about Bukowski and Thompson… my son, the eternal class clown… working and school as well and has recently taken up fishing. Still a total clown most of the time… worst thing that ever happened to him was seeing a Jim Carrey movie… ,my joke-cracking snake-raising son. He moved in with me last year and now, after 8 years as a loner I have him, his girlfriend, two snakes, a hamster,a cat and for some damn reason, a turtle.He does love his animals especially reptiles. He learned all the breeding and care stuff on his own to the point that at nineteen, local vets will call him with questions… for those nights when they both with a caravan of friends descend on my place like a pack of locusts, consuming enough Mountain Dew code red to keep a small nation jacked up on a sugar caffeine rush and devour enough to keep several take out joints in the area in business and driving Cadillacs for years to come (I've actually come home to see them lined up three deep at the door delivering various pizzas, chicken, subs) listening to that horrid music and watching truly idiotic movies …..they re noisy, eat constantly , stay up until insane hours and I love every minute…..

For friends of course, because what is life without friends… people to talk with, laugh with, cry with, drink with, people with whom we share our thoughts, our ideas, pieces of our souls… people who put up with us not because of some birth-related accident but because they choose to… the ones who answer their phone at midnight when we have some great idea or major crisis, who call on Sunday mornings to wake us up with their latest great idea or crisis… for those whose companionship as we walk the road of life makes the journey all so much more enjoyable… for DailySpeculations, which has been a source of so many new friends ( in scattered time zones so you never know when the phone will ring), a source of ideas, of incredible conversations, intelligent arguments, new philosophies and ways of looking at life, a simple email list that has allowed me to meet some of the most incredible (to say nothing of a few of the strangest) people I have ever been blessed enough to call friend…..the oregonian, the mormon, the crazed tank-driving day-trading BMX rider, the bombastic genius of Kris, the chicago crew, the biofuels guy, the real estate mogul, the Wiz, the sun baked spec, the columnist, the authors and the editor… and of course the thrice blessed voodoo prof… there's too many to name them all but each has had a positive impact on my life over the past few years,and of course as we look over our life on Thursday and raise a glass, I think we all have to include the Chair and Laurel in our toast as it was their idea and drive that created a very unique, inspiring and worthwhile community of minds and souls…..

And the island friends. The tic-tac kid, tire guy and his fiancé (he is definitely marrying up!), rag lady, the electrician, the beach club guy, baldy, crackbaby, logistics guy and his lovely way over his head and we all wonder how in the hell he managed that wife, evil Dave, hell there’s too many to list here. You all know who you are. My god the times we have had. The boats, the beers, the food, the conversations, the moments that were almost sublime in their stupidity and fun. Air Tic-tac over the water, missing Dominos signs, late nights on the pier, football games. It is like being in a fraternity located in a resort. Each successful in their own right and blessed with an over abundance of a love of good friends, good times, open water and open bar. It was a geographical accident I chose to live where I do but I am damn glad I chose the island.

Of course, me being me I am thankful to whatever benign creator created the fairer sex, ah yes women… they have inspired me, they have comforted me, excited me, enraged me, engaged me, and on two occasions damn near bankrupted me. They are the most frustrating creatures that G_d, with his infinite sense of humor, could have ever designed… without them, I would be rich enough to retire young, still have brown hair instead of this gray stuff growing over my grey matter, I would get more sleep at night, be more productive, and have more time to spend working and studying. But I would rather be a gray-haired property settlement-paying insomniac than lived in a world where there were none….

For the other temptress in my life, the markets, with her siren song of changing notes, a constant daily challenge to get ahead and stay ahead of her dance, for the intellectual challenge of figuring her song, endless variations, price to book, high correlations, low z scores, new knowledge gained, free cash flow, arbitrage, liquidations. An endless dance and flow of ideas and strategies to test and trade… I can't imagine a more challenging or frustrating way to make a living… I cant imagine doing anything else…

For books and the written word. Writing the books and the daily column has been more fun that I can recall getting paid to do. It's been a blast and I hope this part of my career and life continues to expand. For all the ones I read, with their hours of entertainment, education and relaxation. For Parker, RW , White, Hemingway, Thompson, Russo and the dozen of other writers I have come to enjoy so over the years.

Thankful just for this dance called life, to live, experience, to learn, to fail, to succeed, to read the poetry, drink the wine, to kiss the girl… so carve up the bird, pour a little more bubbly stuff over here… hey whats the score… it's a life,,, up, down, sideways, it's a hell of a lot of fun and each of you in this group has made more interesting and enjoyable… so I raise my glass to you and say Happy Thanksgiving…



Pac-Man [1980]I am building a new max gaming PC for trading. The Nvidia 680i SLI motherboard has an interesting technology that allows the board to prioritize the bit stream to allow your trading application to have priority for data and execution of commands over other programs such as your charting program or data feed. On days such as Monday when the market moved so fast the execution platform started jumping over a point and windows of execution were short and fast, it became what I'd call a "gamers" market. The data feed and the execution platform are competing for bandwidth and CPU time. R is sucking up some bandwidth as well. Time seemed to be compressed with one weeks worth of moves in a day, a days worth of moves in an hour. It looked like the fast paced online games my son used to play when he was younger. Not that 10 milliseconds will make a big difference in the fat finger, but when you do press the button, you don't want your order lagging. This is a big issue as demonstrated in the online gaming arena where the lags and latencies are displayed, and a slow machine/data has a noticeable lag in pulling the trigger and shooting the opponent and is virtually not competitive. This is so similar to trading that I can't imagine that the lag/latency and computer execution issues are not overlooked. Reminds me of the two guys and the tiger. First guy puts on running shoes. Second guy says, "You can't out run the tiger." Second guy says, "I don't have to, I just have to out run you!"



This is my daughter's prayer of thanks for this year (note # 2 & #3!) and she even found something good to say about her brother (but don't mess with her on the soccer field, hmm, wonder where she got those competitive genes?) -

I am thankful for:

My wonderful pets: 4 cats 2 dogs

Both of my very intelligent parents

The markets that my father trades to make money

My brick houses that keeps me warm and cool

My roof that keeps me dry

The piano my dad got us

The money that buys us food

The ability to get good non-moldy food

My brother who wakes me up on weekends

My brain without which I wouldn't be alive

My ability to have the freedom of choice of who I want to be when I grow up

The ability to get clothes, more than just a pair

TSA select 96, we kick butt

My teacher and friends who like me for who I am not who they want me to be

The freedom to read books and go to school and learn

I will second all of the above and also extend my thanks to everyone on Daily Spec for the many wonderful thought provoking posts of the past year.



Nicky BarnesIn an interview in New York Magazine, the two leading CEOs of business in Harlem in the 1970s, Frank Lucas and Nicky Barnes, both depicted in American Gangster and Mr. Untouchable, discuss the merits and demerits of duopoly. They both welcomed the other's competition as it provided information efficiencies to the customers. Wikipedia has a nice article on duopoly where they list some examples of major stock market companies involved in duopoly, Moody's and S&P, Pepsi vs Coca-Cola, Airbus vs Boeing, Sotheby's vs Christie's, Sirius vs XM. I would add a favorite of mine Navteq and Teleatlas in navigation systems maps

I am creating a list of duopolies in the stock market based on their stock market value in an industry. A preliminary hypothesis is that the two duopolists perform better than the average company since they face less competition. I wish I had formulated this hypothesis some years ago as I once was a very substantial holder of Navteq and in true duopoly fashion both their outputs are being bought by competitors after bidding wars.

Steve Ellison adds:

Many market segments in the technology sector are near-monopolies, for example operating systems (Microsoft) and microprocessors (Intel). As Geoffrey Moore has documented, it is very common for a technology market segment to have an "800-pound gorilla" with 40-70% market share, followed by a "chimpanzee" with 15-25% market share and several "monkeys" with less than 10% market share. In enterprise resource planning software, for example, SAP is the 800-pound gorilla, and Oracle is the chimpanzee. In large corporate databases, Oracle is the 800-pound gorilla, and Microsoft is the chimpanzee.

Such quasi-monopolies occur because of the herdlike behavior of corporate information systems managers. These managers are very cautious and want only proven solutions whose bugs have already been discovered by others and corrected. A common statement in decades past was, "Nobody ever got fired for buying IBM." When these managers feel compelled to buy a product in a new technology category, they watch what their peers are doing. Most who notice other managers flocking to a particular vendor select the same vendor.

As this dynamic continues, the entire support structure of the industry, including consultants, solutions aggregators, and independent software vendors, aligns around the 800-pound gorilla's product. As a result, the gorilla has high profit margins. Chimpanzees and monkeys have much lower profit margins because they lack the gorilla's advantages and in some cases have no way to differentiate their products other than lowering prices.

Other 800-pound gorillas include:
- Cisco Systems (network equipment)
- Applied Materials (semiconductor manufacturing equipment)
- EMC (large storage systems)
- Nokia (cell phones)
- Google (search engines)
- eBay (online auctions)
- Qualcomm (wireless chips and licensing technology)

Bruno Ombreux remarks:

One way to measure competitive pressure or its lack thereof is the Herfindhal index. Stock perfomance vs Herfindhal index has been looked at before. A Google on "Herfindahl index and cross-section stock returns" yields 15000+ pages.



Polaris SLBMThe comment that "we need intelligence about a coming attack and then we will be able to stop it" shows everything that is wrong in current strategic thinking and why "Homeland Security" as envisioned by the government won't work… sure there is a policing function to counter-terrorism but you will never be able to "police" the terrorists completely away.

Enemies are always at the gates and they are planning "devastating" attacks on us 24/7. Our enemies are constantly sharpening their pencils. We lived under the threat of devastating attack from the Soviets for decades.

Historically what has prevented these attacks more than anything else is not analysis and timely intervention or "policing"… rather it has been simple game theory, the concept of deterrence, that is… a credible threat of retaliation in kind or the threat of overwhelming retaliatory force. You are unlikely to punch someone if you think that they will get up and punch you even harder.

To the extent that we allow that to slip, we will only make the world more dangerous for ourselves.

We see this "credible threat effect" in the back and forth in the financial markets everyday, what stops moves in the market is the credible "threat" of uncommitted capital to step in and take an opposite position. How many times have we sat watching the green and red ticks thinking "how extended is this". We always know that if we do something stupid, such as attack in the wrong way, the market mistress can really kick us hard in a sensitive spot.

Steve Leslie writes:

Tom's either/or scenario on deterrence to terrorism is flawed thinking.

The war on terrorism is an extremely complex endeavor and cannot be distilled into one simplified strategy as a solution. 

There is no one strategy that works with terrorism. It is true that some terrorists' view is that they will not attack if retaliation will involve broad onslaughts as were seen in Afghanistan and Iraq. Perhaps this is the view that Iran is taking right now. 

Then again there are zealots and maniacs who think nothing of strapping a bomb to their bodies or filling a vehicle with explosives and driving into a crowded marketplace.  No direct or implied threat will stop them from doing this. Look at Northern Ireland and the English.  They fought their war of terrorism for over 20 years.

It is impossible for Western culture to understand a philosophy of suicide/terrorism.  This is an extremely bizzare worldview.

Think back on Timothy McVeigh. He blew up a federal building in Oklahoma City and killed hundreds of people.  For what?  No amount of implied deterrence stopped him. 

How about the Unabomber, Ted Kazinski.  He sent out mailbombs to people to kill and dismember them.  The FBI hunted him for years before finally catching him. This never stopped him from his insane mission. 

Now, it would be nice to say that all you have to do is this, but this is not the world that we live in and the sand is ever shifting.

Terrorism is a risk of doing commerce in the world.  It is now a fact of life and will never leave.



NAHB LogoThe last time the average of the NAHB Single Family Indices went over 95% as a scaled measure of home builder pessimism was November 1990. The current cycle reached the same level of despair in September of this year. The mean for the historical data going back to 1985 is 39.56%. Contrary to the media meme about the unprecedented speed of the decline of the current housing slump, the sentiment for current cycle has been -to this point - only 10% more doom and gloom than the last major slump. It took 20 months in the 1990 slump for the pessimism to go from below the then historical mean to over 95%. In this cycle it has taken 18 months. This may well be the end of days, but the people who make a living deciding when to pound nails seem to be taking the usual amount of time to go from thinking "the sky's the limit" to asking "brother, can you spare a refi." It has been enough to make us loser investors in the financials want to go ALL IN, and so we have - all the while hoping and praying that the ticking sounds we hear are the tips of the old men's canes on the cobblestones.



EmmaMy daughter Emma came to me this morning and told me she could count from fifty backwards to zero. I sat and patiently witnessed her spit it out with little hesitation.

I did notice though, and light bulbs went off, that when she hit 41 through 39, and 31 through 29, there was a pause, but when she hit 21 through the teens the same pause was non-existent and she trucked it on down to zero.

She asked me to do the same thing from one hundred. I also paused at the 1-0-9 turns but not the 21-20-teens turn.

Could the markets have the same pause? Is there a natural tendency at round prices to halt, pause, take a breath?

Possible hypotheses abound. Easier to fall from 1540 to 1520 than from 1520 to 1500? Once 1500 is broken, smoother movement on through the 1490s?

We both tried counting fast and had less hesitation or pause on the way up, though, and that is where breath is taken in.



ReadingOur church and my Sunday school class are collecting 700 books for children and teens, as poor families have only one book per every 300 children — staggering! If children don't have the opportunity to learn to read when small they will never have the reading skills to read Vic and Laurel's fine books or anything else. Most of us have hundreds or thousands of books in our homes. I have over 600 books on checkers alone. I have a good checker friend in Temecula, CA who has over 20,000 books in his home! About 2,000 on the game and the rest on everything else you can imagine. My parents taught me to read at a very early age and I have benefited from that early training/learning all of my life. Just as I have from all the varied postings on this site. I may not understand everything written, but can read everything easily.

Abe Dunkelheit adds:

"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time — none, zero." [Charles Munger in: Poor Charlie's Almanack, 2nd edition, p. 6]



As in Walt Whitman's "A Noiseless Patient Spider," we traders launch our filaments, tirelessly trying to figure things out..

A noiseless patient spider,
I mark'd where on a little promontory it stood isolated,
Mark'd how to explore the vacant vast surrounding,
It launch'd forth filament, filament, filament, out of itself,
Ever unreeling them, ever tirelessly speeding them.

And you O my soul where you stand,
Surrounded, detached, in measureless oceans of space,
Ceaselessly musing, venturing, throwing, seeking the spheres to connect them,
Till the bridge you will need be form'd, till the ductile anchor hold,
Till the gossamer thread you fling catch somewhere, I, my soul.



Instead of looking at charts, one way check for similarities between periods would be to regress returns of recent period against prior periods. For example, how do the 46 weekly returns of 2007 (SPY, 1/07-last week) compare against the equivalent (aligned) 1st 46 weekly returns of the prior 13 years? One would expect that years most like 2007, in terms of weekly stock returns, would be highly correlated. Here is regression of 1st 46 weeks of 2007 vs prior 13 years:

Regression Analysis: rt 07 versus rt 06, rt 05, …

The regression equation is rt 07 = 0.00101 - 0.141 rt 06 - 0.319 rt 05 - 0.200 rt 04 - 0.007 rt 03 - 0.302 rt 02 + 0.026 rt 01 + 0.042 rt 00 + 0.026 rt 99 + 0.088 rt 98 - 0.115 rt 97 +
0.015 rt 96 - 0.000 rt 95
+ 0.228 rt 94

Predictor Coef SE Coef T P VIF
Constant 0.0010 0.0039 0.26 0.796
rt 06 -0.1414 0.2369 -0.60 0.555 1.4
rt 05 -0.3189 0.2609 -1.22 0.231 1.5
rt 04 -0.1996 0.2005 -1.00 0.327 1.2
rt 03 -0.0075 0.1651 -0.05 0.964 1.4
rt 02 -0.3019 0.1229 -2.46 0.020 1.5
rt 01 0.0257 0.1169 0.22 0.828 1.6
rt 00 0.0421 0.1028 0.41 0.685 1.3
rt 99 0.0261 0.1211 0.22 0.831 1.3
rt 98 0.0884 0.1191 0.74 0.463 1.2
rt 97 -0.1148 0.1448 -0.79 0.434 1.2
rt 96 0.0146 0.1737 0.08 0.933 1.2
rt 95 -0.0001 0.3847 -0.00 1.000 1.7
rt 94 0.2276 0.2395 0.95 0.349 1.4

S = 0.0195096 R-Sq = 29.8% R-Sq(adj) = 1.3%

None of the prior 13 years is positively correlated, on a week-to-week basis. But 2002 appears to be an "anti-2007", in that equivalent weekly returns are significantly negatively correlated. Shown here plotting SPY weekly closes for 2002 and 2007 overlaid.



TxgivingOne of the memes developing this year is that Black Friday is being de-emphasized at the margin. WalMart et. al. have started their promotional activities 1-3 weeks early, trying to capture the estimated reduced spend this season. Separately the Street usually gets their hands on very good customer count data from independent (industry specialist) research houses which triangulate physical counts, aggregate credit card data and check-cashing activity among other metrics. Hit up your friendly retailing analyst from one of the big shops for a better vantage point.

Jeff Sasmor adds:

The day after Thanksgiving is always interesting - there are sometimes spectacular pump/dumps in the stock market as the oodles of folks with their Ameritrade and E*TRADE accounts have nothing better to do that day than to lose money till 1 PM E.S.T.

There are also the sales, both in physical and virtual space. I don't go near any mall that day. You usually can't even get a parking space. How full will the parking lots be this year, with all the media talk of belt-tightening and consumer reticence to buy? With modern-day inventory systems, we will know the results over the weekend.

Kim Zussman presents his Thanksgiving analysis:

In recent years, the 30 days before Thanksgiving have been quite bullish (SPY 93-06):

One-Sample T: pr 30D

Test of mu = 0 vs not = 0

Variable N Mean StDev SE Mean 95% CI T P

pr 30D 14 0.04775 0.05824 0.01556 (0.01412, 0.08138) 3.07 0.009

However barring an explosive rally in the next 3 days, this year is not (assuming Weds closes about current levels); the pre-Thanksgiving 30D is about -6%. Which could make the pre-holiday period of 2007 the worst of of the prior 13 years:

Date pr 30D
11/24/2006  0.043
11/25/2005  0.081
11/26/2004  0.065
11/28/2003  0.013
11/29/2002  0.089
11/23/2001  0.053
11/24/2000 -0.032
11/26/1999  0.107
11/27/1998  0.179
11/28/1997 -0.013
11/29/1996  0.072
11/24/1995  0.036
11/25/1994 -0.031
11/26/1993  0.005



The Times
November 19, 2007
Camel barbecue bids for record
A French chef is claiming a record for the world's largest barbecue, right, after spit-roasting a 550 kilo (1,213 lb) camel for 15 hours at a seaside Moroccan town south of Rabat. Christian Falco, 63, from Perpignan, Southwest France, said he was recreating a centuries-old tradition begun when a Moroccan king offered a roast camel to his people.



Vic and I were contemporaries at Lincoln High and grew up in Brighton Beach contemporaneously. I lived around the corner from Vic's grandparents, across the street from the church on Ocean Parkway.

Vic and I crossed paths since I spent five years at the library as a page — across from The Tuxedo, before it relocated. Does Vic remember Maidnan, Greenberg, Heller, Hecht, Crosser, Ellis, et. al. at Lincoln? And Phil and Mitchell Margo?

The only remaining store I found in Brighton was the pizzeria off First Street. No more Lulu, Aufrigtig, Totland, Lakeland, Jade Mountain, Murray the butcher, Sam the fruit man, Sealane, New Deal, Woolworth's, Barton's, Kubrick's..

Like Vic and Laurel, I am a market fanatic. And I'm a devoted reader of DailySpec.

Victor Niederhoffer replies:

Thanks for the reminiscences. Reminds me that the handball courts on West 4th have remained, as has Wonder Wheel, and also Nathan's. The checkers tables are still there, but chess is played only by Russians. Stahl's is gone, as well as "Private Beach" and Lincoln Savings Bank (many mergers away).



The House of the CME

There is a game on the CME
They call the S&P
And it's been the ruin of many a poor boy
And God I know I'm one

My mother was a tailor
She sewed my new bluejeans
My father was a gamblin' man
On the CME

Now the only thing a gambler needs
Is a keyboard and a mouse
And the only time that he's satisfied
Is when he's playin' in the house

Oh mother tell your children
Not to do what I have done
Spend your lives in pain and misery
In the House of the CME

Well, I got one foot on the platform
The other foot down the drain
I'm goin' back to the CME
To wear that ball and chain

Well, there is a game on the CME
They call the S&P
And it's been the ruin of many a poor boy



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

Henry Gifford remarks:

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

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

Ken Smith notes:

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



16-Nov-07 05:47 ET
Google has even bigger plans for mobile phones - WSJ (629.65)

The Wall Street Journal reports Google (GOOG) is gearing up to make a serious run at buying wireless spectrum, a chunk of the airwaves that can be used to provide mobile phone and Internet services, in a FCC auction in January. Google is prepared to bid on its own without any partners, say people familiar with the matter.

GOOG's ongoing interest in acquiring 700mhz spectrum air waves could provide the platform for a national WiMax footprint, bypassing competing carriers for VOIP telephony (aka g-phone) and broadband (fixed and mobile) Internet access. Also, Mr. Brin, what about speaking with Mr. McCaw about his new WiMax venture Clearwire (CLWR) now that he is struggling with Sprint/Nextel? Someone's going to dismantle our costly, usage-fee based, cell phone telephony model with a flat fee rate model, perhaps using VOIP/WiMax over time, much like the creative destruction that the Internet brought to the legacy long distance carriers.

Stefan Jovanovich explains:

Dick TracyI realize that arguing against the ultimate wisdom of GOOG's corporate decision-making is, in terms of current elite opinion, as mulishly contrarian as questioning the severity of man-made global warming, but what the heck. The "Internet" had very little to do with the "creative destruction" of the legacy long distance carriers' retail market. That was almost entirely a product of the cell phone carriers' offering free long distance as part of their service and thereby making a successful end-run of the line of tariffs that remained from the AT&T break-up. The wire-line carriers had no choice but to adopt the same pricing.There is an underlying economic rationale for usage-based fees for cell-phones. It is the only way the carriers can attempt to limit the loads on their cells. It is not as effective as congestion pricing but it is the closest they can get.

Currently, wireless transmissions (unlike those over fiber-optic) have congestion effects: at a certain point, the traffic load degrades the local node and you have gridlock. GOOG will be faced with the same problem with its 700 mhz network that Comcast is now having to confront with its internet service over coax: the customers sending and receiving video can easily overload the system's capacity. What GOOG will also have to contend with is that wireless can't have the same through-put as wired transmissions.  It physically can't, and it won't. That may be the ultimate "legacy" myth. I blame Dick Tracy and his wristwatch phone. 



Range RoverThe ranges from high to low in S&P futures for last 13 days, starting with 11/16 2007: 19, 29, 26, 31, 30, 26, 33, 36, 23, 22, 23, 28, 23. One of highest in history, rivaling the middle of August. What would be the underlying purpose of such vol in terms of relieving the weak of their positions to the benefit of the strong?

The range on Friday, a mere 19. However, counting swings of more than five from a high to low: move from 1465 to 1450 then to 1455, then to 1447, up to 1458, down to 1452, then up to to 1465, down to 1452, up to 1458, down to 1449, up to 1457, down to 1452, back to 1460 to finish a "quiet day" at 1460. A total of 107 points of potential profit of loss, enough to live of die for a lifetime, or the whole range from start to finish for a year.

Reminds me of the good old bond days of the 1980s.

How could one fail to notice that one lost 81 points by reversing the corresponding day of previous week but you would have taken them for two points on friday 11 16 as that day up 2, a reversal of 11 09 which was down 20.

One always wishes that for just one day, time would reverse and one knew exactly what was going to happen. Perhaps the Nikkei up to close is the key. Following the Nikkei for the S&P open to close would have give you 20 points of profits over last 3 weeks out of 165 points of open to close variation.

One speculates that the moves between consecutive 3 day holidays reverse, with the move from Labor day to Thanksgiving reversing the move from Independence day to Labor day, etc . This would have to be tested for many years.

Dismaying to see the moves at end of month taking away the entire seasonal for year in bonds and stocks.

As one enters the fray with the equivalent of the 2 buck racket I bought in Berkeley in 1968 to start playing again, the competition is very stiff.

Riz Din chimes in:

A little bit more on the idea that narrow trading ranges can precede big moves: looking at the 1-minute charts in the currency markets, I have observed that the occasional narrowing of prices in the currency markets can sometimes produce what technical analysts might call a pennant or triangle (or is it called something else?), where the price range narrows ever tighter over a 10-15 minute window. I have previously ignored these little patterns, believing them to be totally random illusions. However, recent experience has told me to watch out for large moves following these formations, and for the first time, late last week, I took a trade off as the range got impossibly tight. Within a couple of minutes, cable (GBP/USD), exploded some thirty pips higher. This doesn't validate technical analysis in my eyes by any means (I just can't bring myself to believe), but it does tell me to be a student to one's experience. As with the above, the observations probably wouldn't stand up to a close scrutiny, and there is still no clue on direction of the move.



German Invents 'Spray-On' Condom to Fit All Sizes

"In a survey we conducted, men had a two-fold reaction to the idea. Some said it's a great idea and would help them because they can't find conventional condoms that fit them. Others say they can't imagine it working in practice. There's the romance factor: applying the condom does interfere with the s-x act."

From the distaff side: I think it would be erotic to watch it go on, and add to the sensual pleasure. Could be a hoot.



A nice quote I want to share (not sure who wrote it) -

Be kinder than necessary, for everyone is fighting some kind of battle. Life isn't about waiting for the storm to pass, it's about learning how to dance in the rain. 

Many of us are fighting our own battles with the Market Mistress, real estate and rental problems, etc. One thing we can do on Vic and Laurel's site is to listen to each other's problems and offer sound advice when warranted. Football is back and forth for control of the playing field just as the market is back and forth for many attempting to gain control of the big board. I look at 'dancing in the rain' as learning to cope with the many troubles facing us today.

Misan Thrope writes:

This is a hodgepodge of separate quotations: "Be kinder than necessary" is attributed to J. M. Barrie 1860-1937 (the author of Peter Pan), "be kind, for every one you meet is fighting a great battle" is attributed to either the greek philosopher Plato (427 BCE - 347 BCE) or (more likely) Philo of Alexandria (20 BCE - 50 CE) depending which web site you believe. Finally "life isn't .. dance in the rain" is from an anonymous source. A good example of Internet junk that gets transmitted like a virus through repetition and random recombination of disparate elements. 



Just a  string around your finger:
Today at 2 pm, "Schopenhauer's Loves" — Soldiers and Sailors Club, 37th/Lex. $4. 

Tomorrow at 3 pm, Mascagni's "Cavalleria Rusticana" — St. John's University in Staten Island, Student Center Gym near Howard Avenue. $20/half-price students/seniors. Taxi from the ferry. (I know, I know, I don't expect many Manhattanites. Staten Islanders, however, will throng.)



SiegeTalk about siege mentality. The market in the recent past has crossed 1450 on 30 days, which seems to be more than random. Tests last time we considered this crossing issue were somewhat problematic. Even on a number of other days when it didn't cross, it acted as a barrier within a quarter point. Even back in 2000 by rough count the market crossed 1450 38 times. Reminds me a little of the criminal trial in which the accused is asked, "how many times have you been convicted?" Answer: "six times, and this time will make seven." With the big up day and the gap up it sure looked like the Schwartz was with us and justified a day off after weeks of 24 hour days, so I went fishing. Though we caught fish, the waves were so big they were washing over the boat! Appropriate, for on return to the screen it seems the storm rages on.



TxgivingThursdays are always the most exciting days, with the most dodges and feints, and I must take my hat off to the market for a truly impressive reprise of many Thursdays where there was a huge rally after a huge decline, with the reverse this time, to say nothing of going with the corresponding day of last week, four times in a row, as well as the further divergence between the earnings yield and bond yield, and so many other completely irregular activities.

Jay Pasch recalls:

It was a Thursday that marked the August lows with a heroic reversal day (08/16/2007); it was a Thursday (10/11/2007) that the Dow hit its 2001-2004 base breakout measurement of 14200 and it's been a downhill slog ever since…

Jim Sogi adds:

Speaking of Thursdays, next week is Thanksgiving. Marty Zwieg did a study in his old book Winning on Wall Street , counting how often the Friday after Thanksgiving goes up for stocks, with a high percentage of up days when everyone is feeling good.  Vic and Laurel expanded the idea that this holiday effect is typical.  However one thing recently is that they've been jumping the gun to get ahead of the pack.



SprocketI recently had a conversation with a bike builder. I was watching him actually and we spoke in cadence, discussing colors, brakes, seats and the like as he spun a wrench over each exacting screw and bolt. I get excited when I see bicycles, more so than when I ride them. I think it might be the colors. Maybe it's the shape, or an image long held in my subconscious. The first bike I asked for was an orange bike. I didn't get it. I got a green one instead. It was accompanied by a neatly-typed note from Santa via "North Pole - North Texas Station" explaining that the cadre of elves charged with painting the bikes had lost their orange paint. The note was apologetic but firm. I was happy nonetheless. But orange bikes still make my heart beat a happy rhythm.

The bike builder told me that gadgets and foot pegs are the themes of the day. "Weird green is the most popular color." he said, his nose turned slightly upward. "The manufacturers know it…so they make more."

I guess Hunter green was the popular color of my day, I thought. Not orange. "They take what they get." said the builder, grinning, twisting a newly-devised disc brake on the back hub of a twenty-inch wheel. "Most have their favorites."

In trading I have my favorites, too. Trading provides a certain level of excitement…of newness. Is it comparable to the image of an orange bicycle? Maybe. There are some currencies that seem more energetic, more positive, more lively. I like those the best.

For the next month and a half children will enter stores with their parents. They'll grow mysteriously in love with one bicycle or another. Wheels, freedom, and color! Dreams will last forever, dashed by the reality of morning on the slow-moving days before Christmas. But, oh is that day coming! And the color of that bike will be the color of their dreams.

In that time I'll watch the Yen and the Dollar and the Aussie, Pound, and Euro.
I'll pick my favorites. I might even dream a little, if the mood strikes me.
I'll test every theory the way a child tests his dreams. And I'll invest my
resources the way a child invests emotion. I think there might be a good day coming, I tell myself. Do the banks know about letters from Santa…even those mailed from the post office in Texarkana? Do they know what I'm thinking? What I'm wanting? Am I big enough for them to care.

Please, please, don't let there be a letter in the mail! Just for this one day, this week… until Christmas. Just give me a little magic.

"Hey there!" says the bike builder, clapping his wrench across my wandering mind. "Can you hand me that orange frame?"



Barry BondsI read the entire indictment; Barry Bonds says he did not knowingly use steroids. I did not see any evidence to the contrary in the indictment. The indictment looks more like a football game of pile on; if he did lie notice how the charges are extended to obstruction, being evasive (duh, who would not be evasive under that conditions, you can bet his lawyers coached him on that — plus if you read his testimony, it does not appear evasive; he answered the questions put to him.) There is no contradicting testimony in the indictment. Will be interesting to see if the prosecutor can present factual evidence otherwise. Typical DOJ stuff.

Russ Humbert adds:

It seems to me that they are trying the "Martha Stewart" trap. They got one of his trainers or someone in the know in jail. They will tell him they broke him, hope he spills it to get even. But if he doesn't they will hope he lies about something. Since the ancient games politicians have a history of using athletes for personal gain, public villain or hero.

David Lamb remarks:

Why? I doubt it's the hallowed homerun hallowed mark. I think it's because Barry is rude to the media and to anyone who he doesn't want to sign autographs for. And what if he is rude? Matt Williams was just caught but he still couldn't hit and retired the next year. Perhaps Barry knowingly took the 'roids in order to break the homerun record. As if nobody else is trying to do the same thing on the same juice. He just can hit the ball and is extremely picky on what pitches to hit.



A few years back, in an eBay auction I was watching, I suspected two exercise equipment dealers of bidding on each other's listings to jack up the prices to closer to retail price rather than sell below wholesale due to uninterest in a "no minimum" treadmill offer. This enticed several bidders to jump in due to the apparent "smart money" high volume bidding, and eventually a bidder, following the Judas steer to slaughter, bid above retail and paid $200 shipping. Further, I suspected a wash sale would occur, if the other dealer really won the bidding. No actual delivery in that case.

MLEC does this.

1. It gives liquidity bids to an illquid market.
2. It prevents SIVs from ever having to sell because they have a floor under the market value of their assets. They don't run through their equity; as long as their booked MV of their assets aren't below trigger levels.
3. While  real transactions will occur, the rules will simply lead to a shuffling of the deck. An ace of spades for an ace of diamonds.
4. If one of the banks "cuts in line" the Feds step in and lower the hammer on them, ensuring they all play nice and follow the rules.

If it's a panic that's overblown, as most are, it will work out just fine. If it's a panic such that current subprimes are just the tip of the iceberg, this simply buys time and helps the Feds deliver life jackets.

Size is not as important, as those watching think the banks and MLEC are "smart money" and have enough skin in the game, like the retail buyer and the bidding treadmill dealer.



Maybe Fred Thompson's "droopy eyes" are because he is the only candidate with double duty… ever wonder why Bill Clinton was a tireless campaigner?



GapWe have to view gaps differently from the '90s because of 24 hour trading. Gaps are no longer real indications of direction, as more and more traders trade actively before the regular trading sessions to deal with things like economic data announcement around 8:30, 9:00, etc. In short, gaps are now partly the real gap, and partly real trading by real participants. 

Steve Ellison extends: 

Mr. Chan's comment that 24-hour trading has changed the nature of gaps is very good. In particular, the last hour of S&P 500 futures trading before the New York Stock Exchange opens, during which events such as employment reports occur, is just as active in terms of price movement as some of the floor trading hours.

For the 77 trading days ending August 28, 2007, the average absolute price change of the S&P 500 futures during each half hour was as follows (using Chicago time):

Ending      Mean abs

Time          change

00:00            0.47

00:30            0.45

01:00            0.95

01:30            0.84

02:00            1.07

02:30            1.19

03:00            1.11

03:30            0.99

04:00            0.92

04:30            1.12

05:00            1.10

05:30            1.00

06:00            1.29

06:30            1.38

07:00            1.20

07:30            2.16

08:00            1.44

08:30            1.39

09:00            3.01

09:30            2.59

10:00            2.46

10:30            2.14

11:00            2.11

11:30            2.18

12:00            1.81

12:30            1.87

13:00            2.44

13:30            2.85

14:00            2.79

14:30            2.77

15:00            4.19

15:30            1.35

16:00            0.88

16:30            0.83

17:00Mon-Thur    0.92

17:00Sunday      1.34

17:30            0.66

18:00            0.50

18:30            0.37

19:00            0.53

19:30            0.51

20:00            0.55

20:30            0.45

21:00            0.60

21:30            0.41

22:00            0.48

22:30            0.51

23:00            0.45

23:30            0.51



Training, from Russ Sears

November 14, 2007 | 1 Comment

KenyansAfter 27 years of training at or above the intensity level of most decent college distance track athletes, I have developed quite a philosophy on "practicing" or "training".

Group Activity: The secret to the Kenyans' training camps was that they trained in groups. This model has been successfully adopted in the USA . First it was brought here by Africans, who came here to race. They set up training camps in high altitudes in Arizona and Colorado . About the time I was peaking, camps for potential hopeful US citizens were beginning to be set up. The Hanson running community gets credit for one of the first long term success stories. The Hanson brothers, selling running shoes, started hiring runners whose job description included paid time to train. (Nike, Asics and others generally hired only the already successful runners; hence there was a significant hurdle to overcome, from college level to world class).

This also was the secret to my rise, at the 1996 olympic trials, seven of the distance runners I ran with at Virginia Tech ran. Seven also came from BYU that year. Plus I had a very good training partner most of the time I was in Lafayette IN.

What does this imply for you:

1. Nothing breeds success better than understanding how others succeeded. Understanding others had  weaknesses, but still succeeded, brings confidence that you are on the right path. Self-defeat is often really self-doubt.

2. Learning the tricks of the trade. Reading or hearing about them is not enough, seeing them in action helps. For example Desitin ointment for the blister has enabled many training partners to do a run with me when they thought they had to take a day off.

3. Wanting it. Running generally is boring, yet seeing others are willing to do what it takes lets you come to peace with your goals. Goals others may see as unrealistic, selfish or simply unimportant. Camaraderie of focus is vital to excellence.

4. Down time: for rest or injury

a. As David Martin, the first major running physiologist, calls it: the Do Do Principle. As he explains, it is not the running that you do that matters, rather it's the recovery that you do that makes you stronger. Seeing this in action is a major lesson for most runners.

b. Similarly seeing other runners learning and recovering from an injury is also a major lesson in patience, strength in vision and confidence in the healer and healing process. Or in some cases Healer, as some runners' recovery is a lesson in divine intervention. The body and human spirit have some amazing recovery processes if you can invoke them.

For investors this means knowing that you will be hit, but learning the lesson of the hit. The markets' constructive destruction is similar: getting to the depth of your individual human spirit and using the invisible hand and the tail wind of the market behind your efforts and recovery.

Monetary Reward: While money is always a motivator, bragging rights added to money is even better. Most runners could easily work part time and make more than the scholarship money they earn. Few male runners even earn a scholarship. Although Vic has pointed out that trying to be number one usually means taking too much risk. Often the competition within a team is what causes the runners' success.

Parental supervision: With highly motivated runners, it is the coach's job to ensure that the drive to be number one within the group does not become either a contest of taking too much risk, or a contest of spitting into the wind as often happens in unsupervised training. Many great races are left on the training track or flushed down the drain by injury brought on by showing off, often in a unrelated sport.

Record Keeping: Record keeping is a part of most competitive runners' obsession. One important statistic I used while training was called the irritability index. This index was often more predictive of my performance than how I felt physically. A high index meant: 1) your efforts were not going to be rewarded; 2) it was time to take a day very easy or even completely off, before it was forced on by sickness, injury or low quality workouts. The index measured moods that spontaneously happened. "Did you jump out of bed, blessing the new day"? (Which by the way is an excellent habit to develop). Are you glad you get to start out with a training run? Did you snap at someone?

Consistency: Runners generally take 10 years of consistent training before they will start hitting their plateau. Yet there is a cycle that training undergoes. Most marathoners learn how to peak. The Colorado Rockies seemed to do this almost perfectly, up until they meet Boston . But peaking exactly right is difficult.

A shorter distance racer generally only has about 4-6 weeks at peak levels. I suspect pitchers, like distance runners, benefit from peaking. Both need some time between performances, because the intensity is taxing. In a trading room a rotation of limit levels, who is the pitcher, for the day may bring more success; perhaps even a clean-up man for the end of volatile days.

A few Vic did not mention:

Intensity: What really made Bannister break the 4:00 barrier first IMO, was his difficult doctoral schedule made him stumble onto interval training. These are periods of training more intense than you get in racing and are more intense by faster, and by longer distances than the race. To achieve this you put breaks in between intervals.

Also, now that I am not racing regularly, I find that the intense workouts are often the least enjoyable and first to go. Yet, racing without them will never go well and often leads to the blow-up injury.

Traders recently have gone through low vol, to high vol and irrational markets. This usually produces a few blow-ups. Perhaps, training for higher intensity levels, and a rotation of schedule can help.

Keeping the Fun in it: Many of my college friends are now fat and lazy. Alberto Salazar, perhaps the most gifted runner in the late 70's early 80's, now a coach with NIKE, recently had a heart attack at only 50. Running and training can quickly change from a pleasure to a job. For the trader/entrepeneur family sometimes it takes a couple of generations before they lose the libertarian/free market spirit… sometimes it takes half a career to go from hardcore to soft.

Drug cheating is another sign of too much pressure, not enough fun. When I hear of a endurance athlete dying while racing or training from apparent heart failure, EPO comes to mind. If you get dehydrated while cheating on EPO your blood turns to sludge.



Here are the largest upward point moves in the S&P (cash) index from 1999 up to (and not including) November 13, 2007.

Largest one day point moves since 1999

(up to and not including 11/13/2007)
Rnk       Date Px Last     Chg

1   03/16/2000 1458.47   66.33

2   01/03/2001 1347.56   64.29

3   12/05/2000 1376.54   51.57

4   04/05/2001 1151.44   48.19

5   04/25/2000 1477.44   47.58

6   10/19/2000 1388.76   46.63

7   04/18/2001 1238.16   46.35

8   07/29/2002  898.96   46.12

9   10/28/1999 1342.44   45.73

10  07/24/2002  843.42   45.72

11  04/17/2000 1401.44   44.88

12  05/30/2000 1422.45   44.43

13  10/13/2000 1374.17   44.39

14  09/18/2007 1519.78   43.13

15  04/18/2000 1441.61   40.17

16  10/15/2002  881.27   39.83

17  11/13/2007  1478.6   39.42

18  05/08/2002 1088.85   39.36

19  09/03/1999 1357.24   38.13

20  01/07/2000 1441.47   38.02

Today's rise of 41.87 would be the 15th entry.

Jim Sogi adds:

All of them are from the 1999-2002 period or from 2007.  There are none from the low volatility years 2003, 2004, 2005, 2006.  The list of big down moves is similar.



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

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

Stefan Jovanovich replies:

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

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

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



VNThe importance of practice in music can't be overstated. There are hardly any musicians of great competence who took up their study after the teens, and most have been practicing intensively since the age of seven. The problem is that most people hate practice, stop at an early stage, and waste their time when they do this. Michelle Siteman in her magnificent book, "The Pleasure and Perils of Raising Young Musicians " has a chapter "Practice Makes Perfect " in which she gives 10 techniques for improving the quality and quantity of such practice.I have received completely positive feedback from musicians who have read this book that the techniques she suggests are ingenious and useful. I believe the have universal value, and I will try to apply the lessons from Ms. Siteman's chapter to improve the practice of trading with a few of my own practice techniques from racket sports thrown in. This is a subject that has received much too little attention as practice makes more perfect in every field including our own, And this would apply to any trader despite his natural proclivities and abilities. It is common to think that a quality for greatness in a field is to love to practice it. But Vladimir Horowitz, Glen Gould and many other musicians, including Beethoven, hated practice when they were young, but they were able to conquer their aversion, usually with the aid of a firm parent who applied some of these techniques. Presumably the head of a trading team should insist on practice regardless of the qualms or machismo of some of those whose recent track record is good, or believe they were to the manor born. Emulate Pablo Casals and Yehudi Menuhin, who practiced eight hours a day, every day of their lives.

It's not enough to say: practice trading. Most people don't know how to do it. And most are bored while practicing so there has to be something that makes it interesting. Musicians handle this by mixing in some easy beautiful pieces with the scales, finger exercises and and arpeggios.

1. Group activity. One universal technique for making practice more interesting is to make it part of a group activity. Somehow those who play instruments in orchestras stick with their instruments to a much greater extent than piano, and this is why many impartial observers suggest that orchestral instruments are better for a child to play than piano, because they stick with it. Practice sessions for traders should be in groups.

2. Money rewards. And what follows from this is that monetary rewards are a great motivator for musicians to practice. Some parents make their kids pay part of their lessons with their allowance money. This has a very salubrious impact on the efficacy of practice. Group trading practice should have monetary rewards. It's amazing how many of us will stoop down to pick up a $5 bill.

3. Record keeping. Record keeping is an important part of a good practice session. A systematic account of what has been learned and what the goals are is always helpful as a foundation. It's also helpful to be able to review the mistakes and winning forays that went into a successful trade.

4. Parental presence. All musicians find it boring to practice alone. Having a parent around to observe reduces boredom. If it's important enough for the parent to insist the child do it, then it's also important enough for a parent to take an interest. The same would apply to a trading manager, who all too often leaves the trading practice to the subordinates without taking an interest in it.

5. Proper logistics. Practice should be at a certain time, and a certain place and there should be good lighting. That way there's no chance that a session can be missed because of a conflict in schedule that arose because the child or trader didnt know that it was scheduled for that day and time. A proper environment without sibling or other traders squawking that they are hungry also improves results.

6. Consistency. Practice every day is essential. The markets are always changing, and after a day or two all the skills begin to detiorate. I once practiced squash every day, 365 days a year, for 10 years. A trader should practice trading each day, or if a hiatus ensues, should practice steadily for a number of days before entering into the fray.

7. Read books about the techniques that other great musicians used to improve their techniques. What worked for them probably would put you on a path that has at least been tested. Eschew the techniques of traders that were not successful, for example the boy trader.

I would be interested in ideas readers have on improving the training and practice of traders.

Larry Williams adds:

Larry WilliamsI have always thought mastery is a largely the function of repetition.

Obviously you have to repeat the right things. Today's great home run hitters all have instant access in the dugout to videos of their last time at bat to review and repeat the right techniques and stop the wrong. Many scoff at paper trading — sure, it is not as emotional, but still provides valuable lessons.

Chris Ledoux won the world bareback riding championship with very few rides in actual rodeos. He was so banged up he practised on a bucking machine (also wrote a good song about it) to prevent further injury and shocked all the bettors who had never heard of him as he accomplished his gold belt-buckle dreams.

Jim Sogi suggests:

Jim SogiMy Karate teacher said, "What is the best practice and training for fighting? Fighting. You can run all day, you can do 1000 sit ups, 1000 push ups, 1000 sprints, and 1000 punches. But the best practice is fighting with an opponent. "My father once said, " The only difference between a small case and a large case is the number of zeros behind the 1."

You can read 1000 books about trading, study data for hours, but the best practice for trading is trading. Even if you do small size, which is best for practice, it keeps your wits sharp and emotions tough and keeps you in the game.

Keep a place set aside for only trading, always ready to go, 24 hours a day without having to clean up, scoot others away. Same with music practice. Have a set aside place or room for music with all the instruments just ready to walk in and pick up and play, even for 10 minutes before dinner. Pretty soon it becomes a habit.

Allen Gillespie takes it further:

Scales and etudes and pieces played with different bowings, speed, rhythm, etc. Breaking down a passage into shorter component parts. For example, if there is a long passage of quickly played 16th notes, first practice with separate bows for each note, then two on a bow, then three, etc. then change the rhythms from just 16ths notes, then just play the key notes from the scale so the ear hears where the passage is headed as many of the notes are fillers, understand and anticipate the pattern. Learn to play by ear. Finally, Always Play/Practice Musically (i.e. even when practicing the notes do not forget to include the crescendos, etc.)

For the trader,

1) Imagine as many scenarios as possible.

2) The distance between lows or highs or between lows and highs might give an indication as to the key

3) Some notes/days are more important than others

4) Trade smaller during times of practice

5) Test different combinations of variables - first separately then two, etc.

6) Despite all the practice, sometimes the best performances are not straight from the page

7) Finally, trading is an emotional game, so play with passion and remember there is always a low note and a high note and many notes in between.

Sam Marx reminisces:

Practice is important and in my sport in high school I practiced quite a bit but always felt that I had a limit because of physical limitations. I was 6 ft. tall but my hands were below average for my size. I couldn't get a good grip on a football or palm a basketball.

Once I was seated at a dinner table next to Bart Starr, former Green Bay QB. That man had huge hands. I have no doubt that enabled him to better control the football and made him a star. Another time I was in close proximity to Gil Hodges and I noticed that he also had huge hands. I believe he was a first baseman. I could just picture him with an oversize glove catching balls or scooping up grounders that would be missed by the average infielder.

A friend of mine was an excellent boxer. His arms were extremely long, also, his head was smaller than it should be for his size. He could just move around his opponent and jab him silly while keeping his head tucked behind his shoulders. Standing up with his arms dangling on his side I thought he looked like a chimpanzee. He had no desire to become a professional boxer but I've seen professionals in the ring with those characteristics. Kid Gavilan comes to mind.

On the options trading floor I noticed that some traders could hear trades from across the pit. Their hearing was acute.

Practice is important, but don't dismiss physical and mental ability, especially abilities in the 3 plus sigma range.

Don't tell your kid that he can accomplish anything if he practices enough. Offer this advice only when justified. Tell him he can greatly improve with practice but don't offer false hope of attaining the impossible. It can be frustrating if you're not in the 3 plus sigma range in the field you're practicing in.

Nigel Davies recalls:

David Bronstein once advised me to prepare for tournaments by studying chess at the exact times the games were scheduled. And I understand that Vladimir Kramnik took this concept one stage further by solving endgame studies (particularly demanding work) during the last hour of such studies. The last hour of a playing session is known to be the most critical, with most games being won or lost at this time. And it does seem that he got the better of Veselin Topalov at this point in the games.

Easan Katir mentions:

I spent one recent Saturday evening at the Hat and Hare Pub in the basement of the Magic Castle, with two accomplished card men, Aaron Fisher and Tony Picasso, discussing their art. Aaron instructed, "to improve, perform at any opportunity, for anyone." The club was full. He said, "C'mon, let's find you some people." So he rounded up a spontaneous audience comprised of three giggly young things, and gave this amateur the opportunity to perform modestly baffling illusions.

Live performing, live trading. No solo practice or paper trading like it. Mind sharp. Managing audience expectations, unexpected reactions and distractions. The joy of good execution. The thrill of conquest. The glow of accomplishment.

Much theoretical study, counting and practicing correctly precedes such moments. For trading I suppose the advice "perform at any opportunity" could be ambiguous enough to become a way to diminish one's capital, unless one adheres to tested guidelines for what constitutes an 'opportunity'. It works for me to transfer these skills to trading.

Evan McKeown writes:

John McEnroePractice is such an important topic. I have always believed that if you do what you love, and love what you do, then success will eventually come your way. Success itself means different things to different people.

I am a 5.0 tennis player, and love playing tennis. No matter how much I played, or practiced, I never was able to reach a level much higher. Notwithstanding my dedication or love for the game, I have enjoyed other success by meeting wonderful people that share my enthusiasm and we enjoy our weekly matches. John McEnroe once said he hated to practice, so, instead, he played in doubles tournaments. John had one of the best net games in tennis which is unusual today thanks to his devotion to being a doubles player as a substitute for practice.

I am a trader. Once again, I love what I do. Trading is not a job, it is a way of life, my passion. I trade every day, and practice every day. Practice for me, comes in many different forms. Just as in tennis, there is on the court, and off the court practice time. Off the court (or ticker screen) I stimulate my mind with financial literature. The best book I ever read, and the only book I ever read for a second time, is "The Education of a Speculator." This work of art should be required reading for any college finance class. Long before this book made me any money, it first saved me thousands. Years ago, when a perfect storm of events had collapsed my portfolio and nearly had me on the verge of ruin, I sent an email to Vic and Laurel for some word of encouragement after the market had crashed through a 200 day moving average, financial condition in the market that is not unlike the one we see today.

To my amazement, Vic and Laurel wrote me back with a few simple words that inspired confidence. Not so much advice, as it was knowledge on how to handle adversity. I not only made back the 50% that my portfolio had declined, I ended the year with a 27% gain. That email changed my life forever. Instead of placing a sell order and taking a loss of half my assets, I took the pearls of wisdom and made the most of the opportunity.

Thank you Vic and Laurel, for sharing your knowledge and experience of the markets, for being an inspiration for common everyday traders such as myself, and for taking a few moments and write such an inspiring email that changed my life forever!

Pitt Maner III says:

Many years ago I went for 3 days of tennis lessons at Nick Bollettieri's in Brandenton, Florida. An evaluation was done of each player's ability and then we were separated into groups and sent out to practice for about 5 hours each day (with a lunch break at mid-day to watch films of Agassi playing). Thank God it was not in the dead of summer, but at 80 or so degrees it was still quite brutal for moderately trained weekend warriors.

One of my teachers was a former Rhodesian paratrooper named Ian who picked up very quickly on my poor footwork (even for a 3.5 or 4.0 player) and tendency to "float" or not properly set my right foot when hitting a backhand. The school also emphasized the need to follow through on strokes and to keep hitting the ball deep and allowing for sufficient height of trajectory over the net. In other words give yourself a margin of error and don't try to hit winners all the time from the baseline–play it a bit safe and wear your opponent down.

The tendency of beginning tennis players love to hit winners even at the expense of hitting several poor shots and losing games was discussed. Players were taught to recognize the importance of swing points (ie. 40-30 or deuce or 30 all) and to be more aggressive at 40-0 or 40-15. At the pro level students were shown film of Agassi running Lendl and not finishing off points right away if Andre could get Lendl to "lunge" one more time and thus exert more energy. Tennis warfare by attrition.

Tennis at the highest levels was indeed a different game then what I imagined or had gathered from watching Borg and Conners on TV or reading about in Tennis magazine.

On the adjacent court one could watch the 10 year old Anna Kournikova practice with her coaches under the vigilant eyes of her Russian mother. The tennis school had a quite rigorous schedule for the kids–lots of running in the morning, tutoring–school, weightlifting, and hours and hours of hitting tennis balls. At the time Anna said she loved to play tennis and did not mind the practice. We watched as she played practice games in the afternoon against boys her age or slightly older.

At the end of 3 days my toenails were breaking off from my swollen feet (note to file–never come to a tennis camp with new tennis shoes!) I had experienced my first and only time with tachycardia after running side to side "suicides" on the court. My game had been broken down and I was now playing like a sorry 3.0 player and not able to incorporate or integrate all the intensive things that had been taught. There was a German banker who said he worked 60-70 hours a week at home and came to the camp for "relaxation"–masochism at its finest!

But the lessons were learned and not forgotten and months later my tennis game improved and my appreciation for the game greatly expanded.

Steve Scoles makes another point:

An important requirement of successful practice is getting proper feedback in a timely manner — touching a hot stove teaches you pretty quickly not to do it again. Markets, because of their probabilistic nature, are really horrible at given this kind of feedback. In investing and risk management, the short-term outcomes are often  unrelated to the quality of your decisions and it may even take years to be proven "right" or "wrong". I don't think this is a new idea to the world of trading, but I have always found playing poker to be a good way of practicing dealing with the probabilistic nature of markets.

Poker has several similarities with investing with some key ones being:
- imperfect information
- probabilistic outcomes
- emotional involvement is in play as money is on the line and your failures and successes can be monitored & commented on by the other players.

The advantage of poker over the markets is that the decision-outcome relationship is usually more analytically simple to learn from and thus the feedback loop is a lot better than what you get from the markets.

Three things that I have found poker helps you develop that can be carried over to the markets are:

1) to learn and internalize how gains and losses are really probabilistic outcomes rather than successes or failures;

2) to improve your ability to evaluate decisions on a basis other than the outcome;

3) to improve your ability to maintain emotional stability through the various ups and downs.

Jim Sogi makes his second remark:

In Japan the Sumo wrestlers live a strict regimen of diet and training. They avoid emotional upset that might affect their appetite. This is like trading. It has to be approached as a competitive sport. Physical training, proper sleep, good food, avoiding drugs and alcohol are necessary during the trading week to be in top shape when in the fray. If something upsets me or I fall out of training, the trading can be affected.

Alan Millhone follows up:

I will speculate that the Sumo's do not watch much TV nor hear any negative news while in training ? Mental discipline in Sumo, trading, board games,etc. is critical. When I attend any Checker tournament I get my rest, eat properly, no TV when on the road. Mr. Sogi is correct that being upset is a big deterrent to functioning properly in any endeavor. Staying focused is Job # 1 and critical to proper performance. The avoidance of drugs and alcohol holds true in any event we pursue. 



I had dinner with a bunch of my old Apple programmer friends last night — I've never seen so many iPhones (and in constant motion) in my life. The general consensus seems to be that they love Leopard.



MonicaCurvy women may be a clever bet

Women with curvy figures are likely to be brighter than waif-like counterparts and may well produce more intelligent offspring, a US study suggests.

At last, a reason for all this dizzying shape! If one thinks about it analytically, the women who do not proffer capacious hips — long a man's unconscious gauge of fertility and child-bearing — and ample breasts — also a subconscious signal of fertility and nurturance — then most men interested in prolonging their line would reject these waifs as wanting in all the right aspects that would procure their seed a nice nest and upbringing into the world.

The waif is another analog for the child who might not make it. Robust children/women manage to advance into adulthood and fecundity. Waifs maintain the semblances of the undernourished and the continually childlike. Neither of these is attractive to healthy/discerning men with seed to inseminate into the ready and able.

If the waifs then get the less assertive men — because the assertives are the one with first call on all women, and will likely select the most robust women for linkage and childbearing — then the strong confluence exists that the lesser in all characteristics men will achieve their females, likelier to be less desireable than the [smarter][faster][more assertive] alpha males.

The mating of these men with the more robust women ensures children who will survive the prolonged assaults of childhood diseases, and the accidents attendant on being near poorer circumstances. That almost definitively leads to the scenarios that breed smarter offspring. Selection toward the fertile and ripe as opposed to the frail and wanting.



Musical staff

Certain consonances would have to be noted today [November 12] including the Dow below 14000, the Nasdaq 100 below 2000, gold below 800, the Vix above 3000, the Nikkei below 15000, and the Dax below 7800. All these are firsts for the last few months .

If this were a musical piece, it would be the end.

Doubtless there are others that I missed.




Ho Chi MinhMost of the people on the Left whom I know confuse the righteousness of their opposition to the draft during the Vietnam War with the justice of the Vietnamese Communists' cause. Instead of standing on the principle that the draft itself was unconstitutional and should have been repealed, they want to argue that somehow Ho Chi Minh was a secular saint. That usually ends up putting them in the position of blaming the killing fields on Henry Kissinger and joining John ("I served in Viet-Nam") Kerry in suggesting that the reeducation camps were "not so bad." Unfortunately, conservatives like Ralph Peters seem to want to play their own version of political Twister. Instead of being satisfied with the justice of our cause against fascists (past and present) and communists (past and present), they want to impose on American citizens an obligation of service that is the directly contrary to what Washington and Madison and Jay and Hamilton and Jefferson all believed were our G-d-given rights of liberty.

Ralph Peters is simply wrong when he writes that "the most privileged Americans used the Vietnam War as an excuse to break their tradition of uniformed service." Rich Americans have had a long and cherished tradition of letting other people do the actual fighting. For every George Washington, there have been dozens of Thomas Jeffersons. I don't take that as a sign of American degeneracy but rather as proof that our remarkable society is willing to place the value of individual liberty on a par with the interests of the state. For most of this country's history, the idea of a draft was unthinkable. It was the very offense that made the colonists so angry at George III and his ministers. It was the greatest single difference between Englishmen and their colonial cousins; few of the Brits could conceive of the notion that the King did not have the right to quarter troops in people's houses, impress seamen for the Navy and disarm citizens.

For almost all of our history Americans have left the fighting to willing volunteers and been willing to pay them for the real costs of that service.  Fortunately, after 75 years of conscription — i.e. compelling each male citizen of a certain age to buy a lottery ticket on his own life, we have returned to that tradition of relying on some people to enlist and do the fighting for all of us. That is the very reason we are no longer losing wars and will not lose them in the future.



Bill GatesI'm getting an Intel Core Q6666 and 2Gig RAM. Should I get Vista Ultimate 64bit version? Or just the 32bit Business version? This is for heavy number crunching and trading.

Tony Corso explains:

Unless you have a 64bit application [or you're writing you own code with a 64bit compiler] a 64bit OS won't buy you much of anything. And 64bit Vista has far fewer hardware drivers than the 32bit version. In fact, if you are using purchased software, you might find it runs faster under XP-Pro than under Vista.

As to the processor, there is a relatively cheap 2.6GHZ Quad Core Intel chip [about $275 on NewEgg; the 2.8GHz 'extreme' Intel Quad Core is more than twice as expensive]. Get one of those, and get 4Gig of RAM [make sure your motherboard can see it].

Multiple cores won't do much for you if the software isn't designed to use 'em. At the OS level, Vista automatically assigns my Firefox browser and Excel spreadsheet to different cores, and at the application level Excel2007 'auto-magically' multithreads cell recalculations across multiple cores.

And when considering motherboards, the more recent Intel motherboards have hardware RAID controllers built in [data spread amongst Redundant Array of Inexpensive Drives so if any one drive fails your machine doesn't care and your data are safe].

You might want to consider chaining four drives to that controller so that you won't be gnashing your teeth when you get the inevitable middle of the trading day hard drive hiccup.

Matthew Chlapowski adds:

I was investigating the same problem just a few days ago. To answer your question, 64bit Windows Vista is unlikely to offer you any performance improvement with just 2Gig of RAM. You would have to invest in hardware with at least twice that much RAM, if not four times, to see any improvement. Eventually systems will come with that much memory, but there is little software out there that takes advantage of the added power of such a setup, and few motherboards support it. I would just stick with the Business 32bit version right now, and maybe think about upgrading in a couple of years. That is, unless you are willing to pay top dollar for a system that supports at least 8Gig of RAM , and for the software designed to use it.

Definitely do get an Intel quad-core processor like the Q6600 for number crunching. I've seen benchmarks on those processors and they absolutely smoke anything else available. Benchmarks with Fritz 10 Chess (one of the most intensive number crunching applications on the market) showed Intel quad core processors completing calculations at nearly twice the speed of any other processor you can buy. Don't even think about getting anything else.

Naturally, newer and better things are always in the pipeline, but you have to pull the trigger and buy sometime!




My name is Bo Steven Keeley, and I have been a substitute teacher in Blythe, Ca. daily throughout this school year. I have a Doctorate in Science, Psych Tech Certificate, and taught professional sports for ten years before teaching in Blythe. I prefer sub teaching, as I recently informed the Palo Verde School District Assistant Superintendent who dismissed me, because "A sub sees each of 900 high school students in most of the rooms on campus each month, and this cycles. On the other hand, regular teachers see only 160 students in one room all year long. Subs have their ears to bottom board of education, so if you want to know what's happening in your schools, ask a sub".

On Tuesday, November 13, 2007 I was assigned to sub middle school boys' Physical Education (P.E.). The day was a dangerous shambles in the lockeroom and on the playing field. I was greeted at the start of each class with screams of, "Substitute! Yeah!" Lockers slammed like cymbals to the refrain, "No P.E.! No P.E.!" I asked five boys independently for an explanation, and they replied, "We don't like P.E. We're going to get rid of it!"

Three days earlier, over at the high school, the Chemistry teacher was "driven out" and resigned. A week prior, the Spanish teacher went to the principal and was let out of his contract. The kids in their classes gleefully told me, "We drove them out because we didn't like them!"

Back at the middle school, the uprising fueled throughout the day. Some boys and I were pinned by rocks in the lockerroom for 30 seconds. The scene on the playing field was 35 kids run amok with no means to identify them, and no radio to call backup. They hurled rocks and shoes, cursed, slugged and tackled each other. A boy jumped in my face repeatedly and waved his hands at my nose. An autistic kid cried, "Make them stop calling me a girl or I'll tell my mother!" Some kids begged to leave the field because it was "too wild", a and more wandered the canal to escape.

I got slammed in the head by a soccer ball. When the goal posts came down I hiked 100 yards to the other boys' P.E. teacher who had his hands filled on the basketball court. "Coach," one of his kids yelled, "Those are your boys on the goalposts too," and he radioed security. Five minutes later, the vice-principal marched out and sat the boys down to deliver an impassioned speech. She left, and pandemonium returned. Down with the goal posts again, and the principal came out shaking a stern finger. He left, and the revolt resumed.

At last bell, I trudged to the lockeroom to be intercepted by the vice-principal apologizing for the "school's toughest classes". I said, "No problem, but it doesn"t have to be this way. You can do what high school Phys. Ed. did to turn your crew into a drill team overnight. There are three easy steps: Give each teacher a radio, an aide, and support on referrals." She implored me to write up the day's vicissitudes with suggestions so she "can get those things". I happily wrote a 4-page report.

The next day, November 14, I was pulled from subbing for the first time in my life. It upset me knowing there were teacher absences that day and I was the most requested sub. I went to my boss, the District assistant superintendent, and asked why. He replied, "It wasn't my volition to remove you." I pressed for an explanation. "I read your report last night about yesterdays P.E.". "Yes," I said, "You were supposed to." "I also read your Hotmail last night about it." I was stunned. After school, I had driven to Palo Verde Community College and written one paragraph about the day's work, and Emailed it to my parents, brother who's a teacher, and other educators and writers I know across America, but to no one in this community.

Then the assistant superintend asserted, "I"ve read all your Hotmails for two weeks. You have a right to the freedom of speech, but I can't allow you to eviscerate us." I asked, "If there was concern then why didn"t you contact me two weeks ago?" He said, "I"ve been busy." These were private Hotmails, always factual and generally uplifting, sent only to selected people on my contact list. I stated, "I"m sorry you read them, but I stand by everything I wrote," He retorted that he'd Email me that day about my fate. The question arises, how did the Emails get to the District office? I have no idea.

The following day at 3:30pm I received his Email inviting me to meet on Monday, November 19 at the District office. I went. He stated, "Last night the superintendent and I read your Hotmails. The superintendent's concern is that you are negative to the students." I responded that I was the most requested sub by the teachers, and the students like me even better. He continued, ""My concern is the Emails." I restated the privacy of Hotmail and daily need for subs, and asked, "What's my future?" He answered, "I have concerns." I asked for the concerns in writing. He answered, "I"m not required to give it."

Four days later, on Friday, November 23, I returned to middle school to the vice-principal to obtain a copy of my 4-page report. She cradled a boy's head in her hands like Mother Teresa. His tiny face was trembled, drained of blood, with tearing eyes. He repeated over and over, "P.E. to office, P.E. to office" until the office called his parents. Then she pointed to the radio that I was to have had on the field ten days earlier, and informed, "It"s dead- The battery still hasn't arrived." She cordially provided a copy of the report, and I walked straight over to the high school to gather teacher letters of recommendation, and spoke with the Dean of Students. He stressed the daily need for subs since my dismissal, and that the regular teachers disliked covering classes for me during their free periods because it takes from their normal duties.

There's been a continual cry for substitutes at the schools in the ensuing two weeks to date, and I'm in need of work. I hadn't missed a day prior to November 13, nor worked a day since. Two teachers have requested me to fill in their long term pre-planned absences that weren't honored by the District. This is my sole means of income. I lost money during November because I got canned on the 13th, and had paid a monthly motel tab on the 7th. Basically, I'm washed up as a teacher in Blythe during its biggest educational crisis in history.

My two questions for the School Board are: 1) Exactly why was I dismissed as a substitute when subs are direly needed? 2) Exactly how did the District read "All your Emails in the past two weeks?" Seen no sub pay raise in a decade, and why the District can't attract and hold subs?

It's too easy to say that the middle school boys' P.E. class "got rid of " me as, in fact, earlier at the high school the students forced out the Chem and Spanish teachers. The pupils in these latter instances broadcast their successful strategy of "giving the teachers hard times until they quit", and purposely flunking to send the teachers begging. However, in my fiasco the kids didn't dislike the P.E. teachers, but hate P.E. class. I was not canned by the kids, but by the District.

I still like the kids, even the one who almost blinded me with a soccer ball; he made a mistake and tomorrow is another day. Blythe students are the most remarkable youngsters I've encountered in traveling to 96 countries for the simple reason that nowhere else do they treat me warmly as a human being.

So why are the kids a handful? From the teaching trenches of the Blythe public school system, my theory is that education is in a state of three year flux. For the first time in history, the town's young citizens are being held accountable for their performances via exit exams. During the next three years, I believe the students will remain disenchanted and rebellious. It's their nurture to take it out on the nearest object, their teachers. I can tell you that the one thing the District does well is recruit teachers. I've observed educators across the nation and the best are here at Blythe. These dynamic teachers within the powder keg student body, forceful administration and ivory tower District during state intervention, made each teaching day for me a revelation. I looked forward to school each morning, and more than once offered to sub during my free periods for free, or to go to any school where there was a jam, as on November 13 at middle school Physical Education.

I love education, and to understand it in this town formed a simplified model, as follows. The teachers are one point of a triangle, the principal and District are the other two points. The students are within the triangle, and outside it are the parents. These parties react dynamically, it may surprise you, from my viewpoint. The teachers in general don't trust the new high school principal because, "He"s bringing city school to a small town." The teachers think less of the District, and will elaborate if you sit with them. The principal (whom I honor) sides with the District, according to his faculty. What about the students? They dislike the principal for raising the bar, but an October student petition to oust him didn't go far. The majority of kids view school as social, badger the first year teachers mercilessly, and sit happy as larks mass flunking classes to get their way knowing they can make up classes in air conditioned summer school. From speaking with hundreds of high school students and half their teachers, I estimate that 35% of the school is flunking, but the statistic should be verified by the District. The parents, for the most part, apparently don't know the score which is the grounds for this model.

I'm not familiar with the School Board"s role in the model, which is another reason for this letter. It was supposed to have been my speech to the Board on December 4. You may ask, "Why didn"t you deliver the speech?" The reason is that on November 19, a week after being let go, the District office told me, "You have to get on the agenda before November 26 to address the Board." I returned before that date and was told, "You aren't allowed on the agenda, but have three minutes during the public session." So I gave up on the District and transcribed the speech into this Letter to the Editor.

Here is the crux of our town's educational crisis that no one seems to address. For the first time in history, Blythe students are being held accountable for their performance via exit exams. It dawns on the pupils that if they don't learn, they don't earn the diploma. That's only the byline of the great news story!

The headline is that Blythe public schools face grand days ahead in about three years. This is the transition for the incumbent students who have come up through the old school system of no accountability to be replaced by the younger students presently held accountable in grammar and middle school. Soon there will be a bright student workforce making correct change at the town businesses who shall graduate to universities. Call this turnaround compulsory education and expect the result: Palo Verde Schools Shine!

Meanwhile, there is a fast evolving Home School movement in Blythe, and I've observed the serious group at the library working quietly at task and expanding their horizons. The Blythe public schools, I feel, are experiencing growing pains within a beautiful campus, new faculty and principal, and state intervention, but with a rosy future once the present troubles are behind us.



LeverageAfter recent discussions on the site about the levered index ETFs, I became curious as to how well these products are tracking their targets. So, using daily data for 9 Nov 2006 through 9 Nov 2007, each 1-day, 2-day, 3- , 4- , 5- , 10- , 15- and 20-day % change was calculated for both the relevant index (either S&P 500 or Nasdaq 100) and the positive and inverse ETFs.

Then the ratio of "ETF % move / index % move" was calculated. For the positive ETFs, the ratio should be ideally 2, and -2 for the inverse products. (The only tricky part is that if the index move is close to zero, the ratio can go to infinity.  So, included were only x-day periods where the absolute value of the index move was at least 0.5%.)

Means and sd's were calculated for all the ratios in each x-day period. Below are the results for each of four ETFs:

length in days | mean ETF/index ratio | sd of ratios

Ticker SSO
1d   1.96   0.40
2d   1.96   0.38
3d   1.97   0.35
4d   1.99   0.28
5d   1.95   0.33
10d  1.94   0.31
15d  1.98   0.29
20d  1.97   0.30

Ticker SDS
1d   -1.98   0.42
2d   -1.95   0.45
3d   -1.92   0.39
4d   -1.97   0.35
5d   -1.91   0.34
10d  -1.87   0.43
15d  -1.84   0.40
20d  -1.81   0.42

Ticker QLD
1d   1.89   0.59
2d   1.91   0.45
3d   1.94   0.42
4d   1.98   0.36
5d   1.95   0.36
10d  1.96   0.38
15d  1.98   0.37
20d  1.99   0.53

Ticker QID
1d   -1.90   0.55
2d   -1.91   0.45
3d   -1.89   0.47
4d   -1.93   0.38
5d   -1.89   0.40
10d  -1.94   0.41
15d  -1.95   0.32
20d  -1.93   0.36    

Adi Schnytzer suggests:

Looks fairly good, but a more revealing test might be to regress daily % change in the relevant index (Y) on change in the relevant ETF (X). So we have Y=a+bX and the test would be not only b=0.5 (which is what you have done) but also the joint F test, a=0 and b=1. Why? Because if a is not zero, then there is a bias in the tracking, i.e. either there is an over/under-reaction to large changes in the index or to small changes in the index depending upon the sign of a.

Kim Zussman writes:

While waiting for this week's bombs to start flying, here is regression of (daily return = [c2/c1]-1 )SSO vs SPY since inception of SSO June 2006 (including dividends):

Regression Analysis: SSO versus SPY

The regression equation is
SSO = - 0.000217 + 2.00 SPY

Predictor        Coef    SE Coef       T      P
Constant   -0.00022  0.00013   -1.64  0.101
SPY          1.99573   0.01630  122.44  0.000

S = 0.00245947   R-Sq = 97.7%   R-Sq(adj) = 97.7%

Analysis of Variance

Source              DF        SS        MS         F           P
Regression        1  0.090682  0.090682  14991.23  0.000
Residual Error  348  0.002105  0.000006
Total                349  0.092787

Obviously a significant slope coefficient, with beta of 2. Notice however that the intercept is almost significantly negative (alpha), suggesting the ETF manufacturer is skimming something every day (probably in the prospectus). Recall that SPY is the SP500 ETF which levies its own (tiny) fee, so you are paying more for the leveraged ETF and might rather consider futures (unless you treasure your sanity).

Adi Schnytzer explains:

Adi SchnytzerWhat matters (in the way you have run it) is the joint F test a=0 and b=2, and I have no doubt you will be unable to reject it at any reasonable level of significance. Note also that 0.00022 is a teensy number. So it would seem that these are a good buy if one is bullish medium term and doesn't mind staying in the market. Mind you, there are those of us who got into the market just before the latest crash and so, mind or no mind, are in there till the recovery. That's the trouble with futures, unless you can pick your closing date far enough down the track.

Gordon Haave remarks:

Theoretically speaking, levered ETFs work in directional markets. That is, the constant leverage results in buying on up days and selling on down days. So, in certain market periods they work out just fine and are good short term trading vehicles.

Phil McDonnell summarizes:

There are three ways investors in leveraged ETFs incur costs. First, management fees, which are usually lower in non-leveraged ETFs, presumably because there is less juggling to do. Second, the leveraged half of the fund must pay interest at the going margin rate. Even if the fund uses futures or options the interest is implicitly built into the price of the derivative. Third, he constant leverage trap. The 2x funds are designed to give returns which are twice the daily return of the underlying. They rebalance daily, which means they sell low and buy high. In choppy markets and over multiple days this leads to slight under performance relative to the 2x benchmark. Mr. Mabry's study looked at multiple days and found this slight underperformance. In contrast, Dr. Zussman's study found a perfect 2.00 multiplier on a daily basis. That is exactly what they promise, 2x returns for the day. The negative alpha is due to the sum of all three costs above. Not to quibble with Prof. Schnytzer, but .00022 is about 5.5% per year in costs. Most of this is because of the leverage. It is either real or implied interest which must be paid.



E*tradeSo, it's finally come to this. The financial community is chatting seriously about the prospect of a run on a bank. E*trade Bank, specifically. From the standpoint of one who has an account with them (a modest sum, and it's not where my paycheck or regular savings goes) what are the ramifications for an insured bank failure or the bankruptcy of the bank holding company?

I will probably close my account (which is the fashionable thing to do), but strictly speaking, what is the timeline of events between a bank failure and the return of my insured funds via the FDIC? Does the FDIC encourage other institutions to assume the deposits? Do I just get a check? How long does it take? Do modern banks and thrifts have provisions to restrict or delay deposits in order to forestall a run? (I remember when I was a mere lad that my first passbook savings account had a notice on the deposit slips that the savings bank had a right to delay paying withdrawal requests for up to 90 days.)

On the topic of E*trade bank specifically, they went through a rapid ramp-up during which they paid among the highest rates of interest in the country, subsidized almost all of their routine fees, and had their customer service people pick up the phones promptly. Then, presumably when they reached some level of critical mass, all of the coddling ceased (a sort of bait and switch, I suppose). And hence, despite the convenient interface, we decided several months ago to move almost all of our money elsewhere.




retail RVs for the leftover retirees

who couldn't climb up to Sanibel Island or Naples

they sun and sweat in the traffic of tourists

both the harijans outside the

gated communities,

sharing with the time-share condo'ers

(yuppies still reaping the yippee!s

of the dot-com mad 90s)

a hop-skip-and- a-jimmie

from the Okeechobee holler and the

south-central swamps;

picture the car paths

that mishmash of minivans and RVs

SUVs and 'wagons, puff-up rafts abrim with

spanky coolers of Kool-Aid and Coors

weary, cranky moms'n'pops, forgetful,

unstrung and weavy between two lanes

their gas caps gosh, a-slosh,

white-and-tan vans

steered by big-haired blue-heads

and teeth-in-a-tumbler octagenamen

pale vestige owlick of the tippy-top sports

dreary steering whee!s

doing the white-knuckle 28 in a 55. . .

or leatherette-tan taut talkers

on their Nokias to their brokas,

swerving 'round the whooshing swooshing

monster semis with their statement roll bars

and pride-of-polish gunracks

workin' off their shifts before they hit

their Gr-8 Bowl-Mor Lounge,

the rough salad of funsters outta the

mud flats doing 89 in a 55

hurling toxic hellmouth out their

roll-downs to the tepid

tourgroups in timid seatbelt aghast,

escapism not the half of it cum

Ft. Miz'ry (nee Myers)



BowThe deer have been rutting pretty hard, with a lot of bucks chasing does. Unfortunately, the weather has not been too cooperative. It's been unseasonably warm. When it gets this warm, deer movement is curtailed. As a result, most of the chasing that I've seen has been young bucks, not the older mature bucks I'm looking to harvest. So I decided to go out and sit on a good stand with the intention of harvesting a doe. My wife ordered me to bring home some venison. We've been out for some time and venison is the staple meat in our home. 

I walked carefully down to the New Government Pond Stand (cleverly named because it's next to the government pond and just down from the "old" government pond stand), and as I made my way in, I spooked two does bedded directly under the stand! I guess they're not concerned about that stand at all! After I got myself strapped in and situated, I began a slow careful scan of the area. The best way to handle this is to slowly move your eyes from side to side and then slowly move your head to see farther one way or the other. Even though I'm firmly entrenched 20+ feet up a tree, it's still imperative that I sit still. Contrary to popular opinion, deer will look up.
I saw several does, but they were all out of range. At about 5:05, I heard the sound of crunching leaves coming towards me. There is a finger of woods that I'm hunting right in the middle of that is a natural travel corridor for deer. There are three main travel corriders that run north and south on the north side of my farm and I was hunting in the one farthest east. Usually, the deer travel on one side or the other of the finger of woods, but this sound was coming from right up the middle of the finger.
As I waited to identify the target, I grabbed my bow and got into position for a shot. Then I saw it, a nice big juicy mature doe! She came out of the finger and walked up the little road to my right. Perfect!
I could have drawn on her and whacked her as soon as she stepped out from behind tree, but decided to waited patiently for her to walk out and past me before I drew my bow. Why? Because I was scanning the woods behind her looking to see if there was a big buck trailing her. This time of year (when the rut is in full swing), a lone doe walking along casually usually means that she is in heat, and has left her fawns behind temporarily, until she is bred by a buck (actually, she is likely to be bred multiple times, probably by several bucks).
As she walked slightly past I could see down the trail and saw no buck coming, so I carefully drew my bow and anchored it. The key to shooting a bow acurately is to make sure that you anchor it the same way every time. I put my chin on the arrow/string junction and put my nose forward onto the string. This perfectly aligns my right eye with the peep site. I peer thru the perfectly-aligned peep site, put my aiming pins in the middle of peep site and the place the pin where I want the arrow to hit. Sounds complicated, but it's not. I can draw, anchor, align, center, aim and shoot in a matter of seconds. It's all about practice, practice, practice until you develop the muscle memory to do it the same way every time.
Just as I had picked center of chest as my aim point, she started to walk. Now, this is normally not a problem. A broadside deer at 20 yards with nothing between her and me is seconds away from having my tag on her. However, since I was in no rush and didn't need to take a chance on being slightly off, I decided to stop her. So I "bleated" at her…."maahhh" (a very nasal cross between a cow mooing and sheep going "baahhh").
That stopped her in her tracks. She looked back in my direction (but not up) and I carefully aimed and slowly squeezed the release. Thwack! Even standing perfectly still and broadside at 20 yards, I hit her a little high and forward.
But therein lies the beauty of my aiming process. Some guys are great archers and can hit the inner bullseye on a target nine times out of 10. Even with all my practice, I'm not that good. I'm more of a "pie pan" guy. I'll hit a pie pan (a bit smaller than the kill zone of a deer) at least four out of five times — until I can't. Then I know that's the end of my effective range. So when I aim at a deer, I don't aim at the heart (a rather small target), I aim center-mass (the center of the chest), so if I'm slightly forward, I'll hit the lungs/heart. If I'm slightly back, I'll hit the liver/spleen. I've realistically got, depending on the size of the deer, about a 6" margin of error in any direction.
I was well within that error zone. The arrow passed cleanly and completely thru her, puncturing both lungs. A double bubble! Exactly the kind of shot I want. She jumped and kicked and ran off up the hill. I heard her veer off into the finger and then I heard that magical sound. I heard her crash to ground, kick around for a moment and then nothing. I knew she was down within 30 yards of where I had arrowed her. From the time I released the arrow, till the time she expired was less than eight seconds.
Mother Nature is a vicous task master and is brutal in her kills. This was a good clean kill!
I almost got down right away, but opted to wait, as a tardy buck might be trailing her. Sure enough, about 1 minute after I had arrowed the doe, I heard the same crunching noise coming up the trail. It was accompanied by another beautiful sound. Grunting! A very nice buck was coming up the same trail, nose to the ground, tracking the formerly estrus doe. The sound he was making was a "tending grunt."
He was probably 3 1/2 years old with an incredibly wide rack, way outside his ears, easily 22 - 25 inches! On his left antler, he had four short stubby points. The longest may have been 10 inches and the shortest around six inches. Not great, but pretty good. But there was something wrong with his left antler. It was deformed, probably by an accident while it was growing. It grew straight down his head before it grew out. It looked like it came out of his ear! Then it went out just like the left antler, long and wide. But it only had one point on the main beam plus a "crab claw" on at the end.

With his antlers in this shape, he was, at best, only a high 120, to low 130 class buck. If his right antler had been normal, he would have been a high 140 class buck. I passed on nine bucks that scored 140 or above last year, so there was no way I was taking this buck. Let him have another year to get over his injury and grow another set of antlers, and then he can come see me again. The outcome will be very different!
As he followed the doe's trail with his nose to the ground, he came to the spot where I arrowed her and abruptly stopped and looked around. He knew something had happened there!
He stood there for a full five minutes looking around, sniffing the air and pivoting his ears in different directions. I stood perfectly still and watched him. He was directly down wind of me, but coudn't get my scent. I'm a scent control freak and it was paying off now.
After five minutes he continued on his trek and disappeared around the bend. I gave him a few minutes and then climbed down. I found my arrow sticking in the ground where I shot the doe. It was completely coated in bubbly blood, confirming I had hit the lungs. I looked for blood, but couldn't find any as it was getting too dark. So I opted to just walk up the trail and see if I could find her since I had heard her crash just ahead. I carefully walked up the trail, looking for signs of the deer. I went about 20 yards when I saw her lying on the ground, just ahead! 

Her live weight was 150 and her field-dressed weight was 115. I had the meat processing plant cut out the back straps (tenderloins) and grind the rest up into venison burger!

It was a good day on the Brooks Farms!

We received the following some time ago from Dean Parisian:

Sunday morning October 28 found me in the woods of south Georgia still hunting parallel to a scrape line moving very slow and occasionally getting my rear on the ground and hitting my rattling bag and grunt call in the hope of enticing a mature whitetail buck to come in close to see what the fight was about.

I happened on a large oak tree and a flash above caught my eye as I heard a grey squirrel chattering very loud above me in the same tree. In the old tree sat a red-tailed hawk and the squirrel, both close to each other, both hungry, both making no attempt to hide their presence and both wanting the tree to "feed" them, the squirrel eating the fruit of the tree (acorns) the hawk wanting to eat the customer of the diner called an oak.

I took a seat on the ground for a view of what might happen, knowing that squirrels are great barometers for the finest in falling acorns, which are surf and turf to a deer herd and thought I might get to witness a solid hit on a squirrel by one of North America's better aerial hunters as well as harvest a hungry buck.

Looking up waiting and wanting to see death instead of squirrel noise I got to thinking of some parallels to the market beast..

First, no shortage of chatter and noise in the market, the algo's are here to stay. Two, death isn't far away if you hang out on a limb without watching for who might take you. Three, don't hang with excessive leverage. Keep your foundation under you unless you are sure of the weather conditions. Four, you can't eat the obvious under your nose because you may die a quick death. There is always somebody around to feed on you. Somebody bigger, faster and just as hungry. And fifth, when danger flies away, don't relax. Eat quick and put some food aside for another day.

For the day, I saw a couple of young bucks but let them continue on to maturity. You can't eat big horns (and I hate squirrel as a food source) but they sure look nice hanging in my cabin when feasting on a big thick juicy Black Angus fillet!!! 



Very interesting Chessbase interview with Boris Gelfand. Two of his most instructive comments:

"During the tournament I was concentrated solely on my games and was not thinking at all about my chances. It is a very strong tournament and I had to ensure that I'd have maximum concentration in every game and leave aside all the thoughts which could distract me."

"But of course, you have to keep on working hard on chess, keep you motivation and health in order to compete with younger players."



Norman MailerI am sad to see Norman Mailer's passing, though I did not always agree with him. He was an exalted writer and thinker. When I worked for Esquire, I was impressed at how remarkable his 'raw' copy was, requiring little in the way of emendation or in fact any orthographic edifications. He was a thinker and moralist (though I again add I did not agree with much of his recent thinking), loved women and rambunctious s-x (five stars for that, right there!), and was a protean personality and magnificent brawler in life on tiers too many to enumerate.

Not a herringbone wobbler, he thought through his positions and expanded and elucidated them. He was intoxicating in many of his justly celebrated books, The Naked and the Dead, Armies of the Night, and others. If he occasionally bobbled the game, as he did with The Executioner's Song, he was prone to be forgiving of those who, like himself, manifested a scrivener’s gift.

I have a bolus in my throat as I write: He was not a man to easily dismiss, or one to welcome a shortage of. Who will not rue his absence in the coming sure-to-be-Vesuvial 2008 elections? Who will not miss his naughtiness and prolific expansions on everything sociological and gravitous?

A humorous reminiscence: When Citibank instituted robot paper and delivery bots, some decades ago, they called them "Norman" — because they were "Norman mailers."



Josh WaitzkinI'm Just back from Germany where I made another 3 DVDs for Chessbase (London System, King's Indian Attack and "Chess for Scoundrels"). It was also a good opportunity to catch up on some reading which included Josh Waitzkin's "The Art of Learning."

I agree with many of the things he says, and strongly recommend getting a copy. It may be of especial benefit to aspiring young players as I believe they will relate to the pressures he had to face. There are also some very deep insights into the process of mastery, and I find myself inspired to resume chess studies.



I wonder what the New Fed thinks of the recent market action, following their second rate cut and more liquidity injections.

keep looking »


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