Dec

8

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

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

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

James Wisdom replies:

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

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

Dec

7

 Victor and Laurel have suggested that a fruitful area for market research may lie in replicating the methods of Brahe and Kepler. Brahe scrupulously gathered very precise data though years of observations. It was left to Kepler, his student, to develop the first model. Kepler first identified planetary orbits as elliptical.

Suppose we have two planetary bodies with periods P1 and P2 respectively. A quick review of Kepler's Laws reminds us that his third law is as follows:

P1^2 / P2^2 = R1^3 / R2^3

where R1 and R2 are the semi major axes of the two bodies. It is interesting to note that there are no linear terms in the above relationship. It can be read as the ratio of the squares of the periods are equal to the ratio of the cubes of the axes.

In the markets we know that the Efficient Market Hypothesis tells us that the market price change today should have no linear correlation with the price change tomorrow. Empirically this seems to be true most of the time for most markets. However a strict interpretation of EMH says nothing about the existence of non-linear relationships.

In particular when we evaluate the squares of changes we find they are significantly correlated. The same holds for the cubes at similar lags. It is left as an exercise for the reader to calculate the magnitude and direction of such correlations. So at first blush there may be an application for Kepler's third law in the markets.

In order to see if there is any similar Keplerian relationship in daily price series the data from the table on page 121 of Education of a Speculator hardback was studied. Using the midpoints of the classes in the table the model used only the squares and cubes of change to predict the next days performance. It turns out that the fit is statistically significant. Notably there is no linear term in the model. Checking whether a linear term would help, the data showed that it would not be helpful. Although the regression model was statistically significant it was based on out of date data and would have to be redone with current data.

Michael Cook remarks:

Kepler was not a student of Brahe; he came to Brahe's observatory because Brahe had good data, continuous night by night observations of the planets. Kepler was desperate to prove that the orbits of the planets were circles, because the circle is the perfect shape, consistent with the beauty of the divine Mind. He decided to work on Mars because it seemed to be closest. After much work he realized the ellipse was a better fit. His comment: "I set out to show that the universe was based on the eternal harmony of the spheres. Instead I showed that it rests on a carthill of dung [the ellipse]."

The other beautiful law of Kepler's is that the planets sweep out equal areas in equal times.
 
It is also significant that all of his laws can be deduced mathematically from the inverse square law of gravitation.

Adam Robinson replies:

As I'm sure Dr. Cook realizes, the point was that the law of gravitation can be deduced from Kepler's laws, as indeed Robert Hooke (whose insights into force and inverse square relationships were at least contemporaneous with Newton's) was able to do.  Newton's genius (in that regard, there were many instances of course) was in showing the equivalence of the acceleration of a falling object with the acceleration of an object in orbit.

Newton, in other words, gave the relationships a theoretic underpinning (until then Hooke's insights, along with Kepler's, were mere "curve fitting," in the literal sense of the phrase!), just as Einstein did, since numerous scientists at the time (Poincare for one) had come to similar conclusions (e.g., the Lorentz contraction), but lacked any overarching theory to explain why such phenomena had to occur.

Dr. Cook's quotation of Kepler also reveals the extent to which aesthetics can hinder the progress of theory as much as promote it.

Michael Cook responds:

Actually, I am not aware of any derivation of the inverse square law from Kepler's laws. I believe Hooke claimed to derive Kepler's laws from an inverse square law, which resulted in Newton's publishing his proof of the result. Hooke never published an actual proof — it's hard to do without calculus. Feynmann has a paper in which he does so, which I don't think he would have published it if it were already in the literature. 

It is incorrect to say the law of gravitation can be deduced from Kepler's laws — Kepler's laws are descriptive, and don't by themselves imply any causal mechanism.

Adam Robinson replies:

I refer Dr. Cook to the letters between Hooke and Newton; there was much controversy between the two about who had which insights, when. Hooke's insight was more of a conjecture, not a formal "derivation" as such. Not surprisingly, of course, since Hooke's inverse square law with springs contains a surprising analogue with gravitation.

Kim Zussman writes:

Jim SimonsA recent Bloomberg article on Jim Simons of RenTech mentions sunspots and markets, so along with Kepler's dung [see Dr. Cook's remarks above] this must explain the beauty of markets.

Recall that sunspots (which have been observed and recorded since well before Galileo) are magnetic storms on the sun, which appear dark in contrast to the photosphere because (though they are hot) they are relatively cooler.  And to the extent that there may be related effects on solar wind (solar ions flowing past the earth), radiation levels, and earth's ionosphere, and radio/satellite communications, here is a study.

Monthly average sunspot count (American, of course) 1944-2007 is available from the National Geophysical Data Center:

Regression of SP500 monthly index return vs. monthly avg sunspot count (1950-Oct 07) shows almost significant negative correlation (P=0.07):

Regression Analysis: SP CHG versus SPOT AV

The regression equation is
SP CHG = 0.0110 - 0.000052 SPOT AV

Predictor         Coef     SE Coef      T      P
Constant      0.010961    0.002534   4.33  0.000
SPOT AV      -0.0000518   0.000029  -1.79  0.074

S = 0.0405916   R-Sq = 0.5%   R-Sq(adj) = 0.3%

Analysis of Variance

Source           DF        SS        MS     F      P
Regression        1  0.005288  0.005288  3.21  0.074
Residual Error  691  1.138548  0.001648
Total           692  1.143836

Here is a plot of monthly avg sunspots vs date, which clearly shows the 11 year solar cycle. Note that we now near a minimum (good for stocks), and regardless of Fed actions relative to the housing market, explains the recent 5 year bull market (OK the last sunspot maximum was Sept 2001, so the prediction was off by about 1.5 yr).

Eric Falkenstein remarks:

One of the keys of finance is the implication that arbitrage implies that pricing is linear in 'risk', or whatever is priced. Otherwise, you could generate arbitrage by buying bulk and selling little bits, or vice versa. It is intriguing to think that there are nonlinear relations in markets, but these necessarily imply profits, so, to the degree they exist, they must not be too obvious (please email me the exceptions!).

Dec

6

In the Escher spirit of circular art with a touch of the Melvinian correction of a fine story I once again offer you a simple gift of what to give yourself for Christmas.

A Christmas Sonnet to Answer Wordsworth

Savor the world so much more with us; now and soon,

Yet, getting and spending can waste dim our powers,

Without Nature's Soul healing ours

By routing it towards the young to enjoy the boon

Warm the maiden, who bares her bosom to the last moon.

Run into icy stinging wind in the twilight hours,

Gathering up all of winters wild flowers

To the worlds ardent task will keep us in tune.

Given freely ourselves to the fruitful fervent chore:

May all enjoy simple pleasures of the finest things.

Still whims of fashion are not the only golden lore,

Of songs about Love's granted gifts a child sings.

So we are not lost in the grind, become a bore,

First find the finest pleasures in the simple things.

Dec

6

Reading this NBER paper made me think of possible applications in the psychology of stock selection.

Early voters hold most power in primaries, say Brown economists

Summary: Two Brown University economists have, for the first time, quantified the substantial effects of winning early in the race for the presidential nomination. In a National Bureau of Economic Research working paper, Brian Knight and graduate student Nathan Schiff demonstrate that voters in early primary states such as Iowa and New Hampshire have up to 20 times the influence of voters in later states in the selection of candidates.

Dec

6

Saudi Prince Bandar's "daughter house" in Aspen just traded for $36.5 million, to a Florida/Nevada real estate developer.

I leave the lessons on energy policy and fiat money as an exercise for the reader.

Dec

5

POTUSB!ll Cl!nton popped his head into a meeting with my wife last week. He was in town campaigning for H!llary and had some extra time, so he walked around downtown Iowa City. He popped into a coffee shop and there were a few library employees in there. They told B!ll to come to the library for a tour. Jennie, whose job is to set up job shadows for high school students, needed a room to host a big gathering. I'm a board member at the library, so I got her a room there. B!ll wondered why a bunch of high school students weren't in school, so he stuck his head in. Jennie swooned and ended up talking to him for about 15 minutes. She said the first five were uncomfortable because she was so nervous that she couldn't speak, so he just rambled about the architecture at his Presidential Library. She had her camera in her pocket, but was so rattled that she forgot to get a pic. She had always been a fan of his, and after meeting him in person she said that she understands exactly how he attracts the ladies. Apparently the guy just has "it"!

Barry Gitarts adds:

A few months ago I was sitting in the reception at a midtown law firm which had a photo album on the table of B!ll Cl!nton with the principals of the firm. A lady sitting across from me blurts out “I think he is the sexiest man alive!"

Dec

5

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

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

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

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

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

Dec

4

S&P

The symmetry of the S&P today, with the open and close at the bottom, two ascents from the mid-bottom to a round number of 1470 from 10am to 11am, and 2pm to 3:30pm, a rally from a midpoint to a high of 1472, and then closing in the last half hour, as happens so often, right at the bottom within a gnat's eyelash of the open, was quite remarkable, all within a very tame 10 point high to low range, same as yesterday, in contrast to the 30 point ranges of last week. Also remarkable was the previous run of four consecutive down Mondays followed by big up Tuesdays, in the best Frank Crossian tradition, with this Monday, the fifth big down in a row, followed by a miserable Tuesday.

Remarkable also was how the traditional pilot fish Israel and the new Israel-substitute pilot fish, Japan, had the move today in their sights.But how would you quantify all this, especially the symmetry. Is geology, architecture, chemistry, or biology the correct template? I'd be interested in readers' thoughts.

Anatoly Veltman remarks:

Symmetry: if you put up one month's hourly gold bar chart, you'll likely fall off your chair! I have been profitably trading every single wave for a month including today's, relying a lot on its symmetry. The thin (or gapping) areas tend to be repeated on the way back: those are low-volume price areas. The congestion areas also tend to repeat: those are price-volume areas. Alas, this exercise remains part of my discretionary trading — to try and quantify this, you'd probably need Jim Simons's resources!

Pitt Maner III adds:

From a geologist's perspective perhaps the best way to analyze the symmetry on display is to rotate the graph 90 degrees and pretend that it is a well (electric) log. The negative gray or dark space above the S&P line thus becomes transformed into layers of rocks. One might then interpret (if viewed as a caliper log) the market open as a "harder sandstone unit" which was followed by softer shales until another hard sandstone unit was drilled through at around 1130 AM. A bit of cyclicity on display.

In nature cyclical packages of deposited rock types that create these well log responses are sometimes related to world-wide sea level changes (e.g. coal cyclothems). It is the job of the stratigrapher to try and correlate different units on a local and global scale–somewhat analagous perhaps to trying to correlate responses in different world markets, although on entirely different timescales.

Of course knowing where you are in a geologic sequence, a depositional environment, etc. is critical to finding oil. Pattern recognition, mental visualization, imagination and interpretive experience would be useful attributes to have for finding "black gold-Texas tea".

It seems then that there would be very advanced signal processing techniques and data crunching software packages in use in the petroleum industry that might have applications useful to the financial community. The two most recognized companies in this field are Schlumberger and Halliburton. Images/examples from the Schlumberger website illustrate some of the advanced technologies in use.

Jim Sogi extends:

From the oceanographic point of view, in Hawaii this winter we hadn't had big waves for weeks, which is unusual for this time of year, but the last few days the waves have been over 15-20 feet. They start coming in waves of storm weather systems 3 or 4 days apart generated off ocean in Northern Japan. This is similar to market waves of volatility, and lulls between which seem to have a 3 or 4 day pattern to them. On a smaller scale, the waves themselves come in sets, with lulls in between. This pattern is a result of random groupings of waves overlapping from differing storms but that form a pattern of wave sets alternating big waves with lulls. December 4 was a lull in the market. November 28 was a big set wave. Last month was a big storm. The alternation in between seems to be quite sudden. Last night's Japan markets seemed to presage this morning's rise much as the storms there create our waves in Hawaii.

This post was started on December 4, and the open of December 5 shows a remarkable gap up in a rapid return to volatility after a lull.

The idea is that a regular but simple system, such as wave generation, cellular automata, and markets generate random patterns in systems, much in the same way as storms of Japan generate waves. The wave propagates at varying speeds and sizes due to normal variation then overlap and combine so as to form clusters of volatility and calmness as a regular result of the process in a pattern.  This happens in markets just as in the ocean. Big Al mentioned that increased volatility creates higher correlation even in purely random sequences. The clustering phenomenon might be similar. There are a number of mathematical wave models and algorithms used by oceanographers.

Newton's studied astronomical phenomenon in Principia such as the length of time for various orbits and time to return in addition to distance. The cycle of times in waves clusters in markets is critical, as is the measure of distance.

Kim Zussman presents his findings:

Continuous SP futures 1/31/07-12/04/07 were partitioned into 15 min return segments for each "day" session (630-1315 PST). The first return was for 630-645, next 645-700…..1315. This produced 27 15 min return segments; 13 before 1000 and 13 after. Then the returns were sorted to align the equivalent first half-day segments with their mirror-images for the second half day (the first 15min aligned with the last 15 min, etc). The time segment alignments were:

645 1315
700 1300
715 1245
730 1230
745 1215
800 1200
815 1145
830 1130
845 1115
900 1100
915 1045
930 1030
945 1015

Then the two mirror-return series were checked for correlation. The idea is that symmetrical days would have high correlation between the first half day and the mirror image of the second half (picture a graph of the day creased vertically at mid-day, and folded back on itself). For 2007, the mirror-correlation ranged from -0.71 to +0.60 (mean -0.007).

It is possible that categorizing days as to mirror-correlation symmetry, and further specifying o-c up/dn, and concave up/dn could have predictive value. Here are the 10 most mirror-correlated days:

date Mirr corr
02/22/07 0.60
03/29/07 0.60
04/25/07 0.60
07/05/07 0.55
10/04/07 0.55
11/19/07 0.54
11/08/07 0.53
02/20/07 0.53
07/23/07 0.48
08/13/07 0.47

Dec

4

Apparently the earnings yield for the S&P 500 12M forward compared to the 10Y bond interest rate is at a 25 year high at a little less than 350 basis points…

Rob Rice objects:

The Fed model is both overly simplistic and frequently wrong as a basis for accurate valuation of equities versus bonds, except during infrequent, cherry-picked points in time. It’s also inappropriately named. Those sound bites will get you every time.

Victor Niederhoffer replies:

The Fed model Laurel and I developed is completely operational, completely predictive, and accurate to an extraordinary sense. It's based on a I/B/E/S operational earnings forecasts contemporaneously made at the beginning of each year as of the time (the same results from Value Line) and has nothing to do with the accuracy of the earnings prediction. It has to do only with the differential, and when the differential is this high, the average returns is about 20% one year forward, and it's been right 10 of the last 10 years.

Barry Gitarts writes: 

CXO Advisory uses a variation
of the Fed Model. According to them the spread
between the S&P E/P and  total inflation is more significant then
using T-notes as the benchmark for S&P forward yield. A possible
interpretation is that most equity investors do not closely track
T-notes as competing investments, and that they instead focus on the
"real earnings yield" of stocks in deciding whether to buy, hold or
fold.
This may be the case, but it seems to me the bond market is more forward
looking than the CPI.

Dec

4

Doerner: (The Logic of Failure, page 61)

In scientific research, for which the immediate applicability of results is often not (nor should be) a criterion of success, “goal degeneration'' of this kind is no minor matter. Many social scientists who have set out to write computer programs they could use to evaluate an experiment have woken up years later to find themselves computer specialists. And they will hardly have realized that they have long since lost sight of ther real goal and become addicted to the fascination, challenges, and triumphs of working with a computer. An interim goal has dislodged the primary goal.

I'm a bit triggered by the above.

Some research programs have been carried out, (and it will continue), over several scientists generations. I'm thinking for instance about linguistics, but there are many other  fields one could cite. Before using computers, people working in the field were writing books. Hundreds of papers/books. Theories, nice theories, small pieces of correct theories, but also so many wrong theories, so many daydreams, some writings that were complete fiction.

- Why so many books ? Mainly of course simply because there were few other way to work.
- Why so many false assumptions ? Mainly because the risk of being contradicted was small. Hardly falsifiable/refutable. It's very easy to rave when nothing contradicts.
- Was this work useful ? afaik, i.e. in linguistics, very little.

Then we got computers. What is a computer ? A machine that can read/process/test/refute our programs/scripts. What is a program ? Executable/refutable writing. Thus, in many cases in science, writing programs is really far more efficient than just writing books.

Of course the 1st generation of researchers had to learn using computers. Yes, it took a lot of time. Yes, there was friction and time lost. Yes, the primary goal got lower priority. Yes, programming is dirty/buggy/painful/(add your own) (an engineer's job, not a scientist's). Yes, programming is often a task of its own. Yes, some people have become computer specialists. (But few have "woken up" imho)

BUT, if mastering a given tool is mandatory to succeed,
… is there really any other way than learning it until you master it ?

Some activities need tools, tools to build tools, tools to build tools to build tools, etc. Frustrating … but also so human.

Having encountered people from this 1st "computer enabled" generation, who believed in the potential of computers, even if they didn't understand them very well, I want to thank them, because it was not easy at all. It was in fact much easier to criticize them. But getting your hands dirty was the right track.

Dec

3

I'm looking for a preferred stock total return index, ideally reasonably broad. Does anyone have one that seems to be reasonably statistically robust, with ten plus years of data? I've searched the normal places…

Dec

3

Foam RocketsWe have started son Will, 9, doing science with Dad on Saturday mornings (and Josh, 6, tags along) while Mom takes John, 4, and Anna, 2, to music class.

Last week, we learned about averages and how to compute them. Small boys like weaponry, so Dad had th idea to take Grandad's gift of air pressure fired rockets (little foam rockets you attach to a bulb which you squeeze hard) down to the garage. We fired 5 rockets per boy out of the doorway into the driveway, measured the distance in inches, and computed the average. Wide variation was noted and will be the topic of "standard deviation" class later. First we had to get some good data. Josh was ecstatic to shoot farther than Will, but even he thought it interesting that sometimes Will outshot him and vice versa.
 
Today, Will fired up the Electronic Snap Circuit kit. Project #1 was a little boring but a good start — make a circuit and use a switch to turn on a light bulb.

Project #2 made up for that. This one has the kid make a circuit with a switch and a motor. The motor has a 3-bladed propellor attachment. If you run the motor long enough, the propellor comes off and zooms across the dining room like a flying saucer. Great howls of laughter with dancing for joy and then repeats.

All good scientists keep some sort of notebook. Will currently has to write down date, title, the data he collected (rocket inches, for examples), and a couple sentences describing what he did and what happened. This part is boring, so I'm going easy on it at first, but he is doing well.

Dec

3

PawnI was at a pawn shop today looking at a couple of safes. The place was super busy and the owner ran out of cash while I was there and had to run to the bank for more greenbacks. I overheard one conversation where a fellow pawned some guns for $1,000 and in 30 days he owes $1,200 to redeem his pawn ticket. Business must be good, as the owner drives a new Maserati convertible. At one time years back I had considered a pawn shop and still have forms from the ATF for handling firearms. I have a good working knowledge of coins, stamps, rifles, handguns and other things of value. A pawn shop is somewhat dangerous and you have to give the local police a list every day of what you take on pawn. Always a chance some items might be stolen and you will have to surrender them if proven to be another's property. I guess the guy is entitled to such usurious interest rates for the risk he takes. I will always remember the classic black and white film The Pawnbroker, starring the late Rod Steiger.

Henry Gifford remarks:   

In New York City the government looks out for the consumer by passing laws that limit the interest rate pawnbrokers can charge. Thus there are approximately zero pawnshops in New York City. Hooray for the guy in Ohio charging whatever people are willing to pay!

Dec

3

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

Charles Pennington replies:

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

Craig Bowles suggests:

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

Scott Brooks writes:

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

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

Ken Smith extends:

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

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

Rod Fitzsimmons Frey responds:

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

Dec

3

Absolute Perfection of CrimeThe Absolute Perfection of Crime by Tanguy Viel, New Press, 2002

I'll leave the final judgment to Tim Melvin, SpecList crime-novel expert (and my copy is on its way to him), but I had great fun with this Americanesque noir novella from a rising young French author.

Viel sets this story of a small-time crime family in an unnamed coastal city (one might guess Marseilles, though the author is from Nantes). "Uncle," the aging Don, on his last legs, agrees to a plan presented by Marin, the leader of the next generation of the family, to knock off the Casino. It's a "bigger" job than the clan has tried before, but Marin convinces Uncle it's foolproof, the "absolute perfection of crime." The book is narrated by Marin's reluctant sidekick for the heist.

Of course, something is bound to go wrong, and it does. In the ensuing chaos the characters' specific agendas come to the fore, each against all. The final chapters wrap up the loose ends, as events, many of them cleverly foreshadowed earlier, converge.

A snippet –

Soon, Uncle insisted, you'll wake up rich, proud and happy. And the word "casino" was churning through our guts, at Uncle's place, in the car, across the bridge, back at Marin's, that phantom idea behind my narrowed eyes and grimly set lips, because it wasn't for us, the casino, not for the likes of us. People like us, Marin, we operated a notch lower.

Well, maybe we were wiseguys, maybe there was something frightening in our faces, and maybe at one time people in the city were scared of us, of our criminal expertise, our black jackets, maybe we could have kept cruising the shady neighborhoods grabbing any dirty money left lying around, but one thing was certain: the casino — the only way to deal with that was to drive by with our heads down.

As for escaping it, though, we knew we might as well buy a ticket for Argentina, when we'd already said yes through our silence, according to the time-honored rule in the family whereby a shut trap was a signature on the dotted line…

Dec

3

Trefil/HazenI have been reading the excellent book The Sciences, an Integrated Approach by James Trefil and Robert Hazen, the content of which all college students should be required to master, as it integrates all sciences rather than giving a physics-for-poets kind of approach. It is shameful that 90% of all college students get out of school without being exposed to current knowledge and work in the major sciences.

The book's beginning chapters on the Night Sky, along with the posts of our own Dr. Zussman, whose erudition in astronomy is awesome, lead me to wonder whether the acorn falls very close to the tree in research. Certainly there are many insights from astronomy for speculators, and I don't mean the impact of the moon, which has been beaten into smithereens.

KeplerI would start with the way Tyco de Brahe, and then Kepler, worked together to figure out the orbits of the planets. It took very accurate measurements by de Brahe, and then some good scientific model-building by Kepler, to figure out the orbits were elliptical. I wonder if the orbits of bonds, stocks, and $/euro could be approached in a similar way. A good start would be a 3×3 table with the impacts of each.

I encourage all specs to look at their own fields and figure out what the major successful approaches to gaining knowledge therein were, and then to apply it to the markets. Such would lead to much better results that studying the work of the revered founders. A good start in my opinion would be for the astronomers among our readers to apply the methods used to determine the orbits of planets to the orbits of markets.

Bill Rafter remarks:

Looking at equity, debt and currency prices for liquid markets you would expect the respective market-clearing prices for those items to have digested the relevant information and to have valued themselves accordingly. However this is akin to the three-body problem from astronomy, which cannot be fully solved. That is, there is a certain amount of inefficiency. Specifically, we have found that in trading one of those categories, information from the other two provides better results than can be obtained without their inclusion. 

Dec

3

Growth, from Denis Vako

December 3, 2007 | 1 Comment

DamodaranAswath Damodaran says 90% of finance is about PV (essentially DCF), and 95% of DCF is about estimating discount rate. Can we conclude, thus, that 80+% of DCF finance is about estimation of discount rate? Nope, he actually thinks that estimation of growth rate is much more important than estimation of discount rate — and that is the same premise Vic and Laurel initially lead me to, as I read their books a long time ago.

Since it is ultimately about true growth, which is now expected to be rare, therefore especially valuable, one can argue that the current growth industries of the market are: aerospace/defense, diversified and healthcare/medical. What other parts of the market could be growthful?

Henrik Andersson adds:

I remember a couple of years ago when this finance professor did a valuation of Google and said it was worth no more than $100 or similar. The stock was then at maybe $200 and is now around $700.  Not easy. even for someone like Damodaran, to estimate fair value…

Alex Forshaw suggests:

Are you thinking of John Hussman?

June 13, 2005:

Which brings us to Google. Initially, I estimated Google to be worth about $24 a share. It has since enjoyed some very good operating surprises. I'd currently estimate its value somewhere in the $30's.

No zero is missing in that last sentence, though the quickest way for the company to substantially enhance its intrinsic value would be to buy everything it possibly can with its own overvalued currency.

Google has been doing exactly what Hussman prescribed, even as Hussman's forecast/analysis could not have been farther off.

Hussman continues:

To paraphrase Grantham, if Google is worth $300 a share, capitalism is broken.

Dec

1

Disney's "Enchanted":
Occasional bellylaughs
and lots of cringes.

Dec

1

Case closedToday at 2 PM was my day in Court for the eviction of the ketchup bottle renter. Last night I walked by his unit and noticed the door was unlocked and my penny was missing. (Missing penny? Yes, old trick I learned to see if someone was back or not. I put the penny in a carefully positioned way between the door and gasket and it falls when the door opens and cannot be replaced in the same way.) I had our local police come by and go into the unit with me to inspect the interior. This way the renter cannot say I took anything he had there of value (however, if of value I am sure it came from RTO [Rent to Own], Rent-A-Center, etc. and would not be his). The interior looked like the debris field of the Titanic and a good yard rake would be useful to begin the clean-up process! He took a few things, had a pile of things near the entry door, but I suspect he ran out of time last night and abandoned taking anything else. I took photos of everything and will have our attorney file a civil suit for damages against him. He may not have anything now, but might someday and the judgment will show up, unless he takes BR at some point, a risk one takes. I will have a contractor friend do the estimate (this avoids any conflict of interest in the eyes of the Court). So now I have my unit back… Oh, and he left the door key on a green tote for me to find so the only sad thing I have to report is that the upside down ketchup bottle was gone when I entered the unit.

Dec

1

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

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

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

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

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

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

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

Dan Costin writes:

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

Russell Thomas adds:

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

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