There are many speculators who have an inclination to trade during night hours. Such behavior exposes one to the possibility of premature death, according to a study of Penev et al "chronic circadian desynchronization…". In order to survive until that time, one might try to learn from the adaptations of night animals such as the raccoon, leopard, and mice. It's darker and colder and quieter at night and fewer prey are about. Particularly interesting to me were all the adaptations of fish for night survival.The article "where fish go to sleep" by Balzarova is highly recommended. Large pupils, asymmetrical ears, sleeping bags, taking advantage of a source of illumination, as the lion fish does, are helpful. The markets take these considerations into account, and make it hard to make a profit the same way taking into account the normal human need for sleep.

In talking about reversals of fortune, one should always take into account violent moves from highs to lows in markets. The recent move from a six month high to two month low in the stock indexes in three days is particularly noteworthy. Such moves occur about once a year in many markets, and it is interesting to consider the regularities that follow after they happen.Moves in the minutes before and after bond auctions have become particularly pronounced lately now that the financial institutions are strapped for funds, as all the fuzzy assets on their often 100 to 1 levered balance sheets are coming under closer scrutiny. The data from auctions on the long bonds should be adjusted and perhaps extrapolated from such studies.

I would like to see an extension of studies of the exact integers that mark the highs and lows in such active markets as bunds and 10 year US bonds, to see if there is any congestion, as has been shown for individual stocks, and areas from which there are non-random expectations. I hypothesize that prices slightly above and below round numbers are non-random within and at the end of day.

Larry Williams responds:

I am writing about this in my next market letter; that trading hours have upset the circadian rythms of millions of people and we need to learn the side effects of sleep deprivation and how to deal with it.

More on the subject as my research is completed.

Alston Mabry adds:

Makes me think of hiking in the desert and how a change of the same magnitude, occurring in different situations, can have very different consequences. If you go for a hike thinking it will be 75° F, and instead it gets up to 85°, that's not a big deal - you can tell the difference, but there are no serious consequences. But if you go out on a day when it's supposed to hit 105°, and instead it hits 115°, then your life can be in the balance.



BikeDue to a series of planning errors I recently found myself on the cusp of a serious case of heat exhaustion. I was mountain biking a remote section of Texas Hill Country during a completely predictable heat wave. There is a reason why seasoned survivors and those with skills in the field of wilderness self-preservation advocate that travelers concentrate on their own immediate circumstances first and foremost. That reason is that worrying about peripheral issues is dangerous!

I had commandeered my wife's vehicle while mine lay wounded in the local mechanic's outfit. In summary, I'd planned a leisurely nine mile ride through one of the Hill Country's expansive biking ranches and then an uneventful drive back into town to secure my son as he was released from school that afternoon.

I got lost. To add insult to injury I realized two hours in that I was not only lost but that I was toting not one, but two, leaky bladders from my backpack mule. As if things weren't progressing badly enough I apparently did not secure the zippers on the mule after replacing the bladders. Twenty minutes of fruitless peddling later I came to the stark realization that the constant vibration had dislodged my cellular phone and only source of automated time-keeping. My mind began to race. Was I already too late to pick-up my son? Would my wife realize I wasn't coming too late, leaving my son stranded until late in the evening? What would my wife do in regards to looking for me? Would I even make it back with no method of communication and no way, other than the blazing sun, of knowing where I was or where I was going. My temples began to pound. My heart raced. I couldn't stop sweating, even in the shade. As my hydration packs ran lower my heart rate increased. My legs began to shake and my thinking became increasingly irrational. Maybe three miles later I felt my first muscle spam, followed by another, and another. Roughly four hours into the hellish ride I sensed the first wave of chills rattle my slowing body. Pebbles became as daunting as mountains. I was scared. I could barely lift my legs to breach the relentless cycle of canyon-rise-canyon.

If this scenario seems too awful to be true. It isn't. It happened to me on Wednesday. I was fortunate to locate a fire road and literally coast out of the outback chaparral on a downhill slope. Luckily after about 6 miles I was able to find my car. I drove to the Dairy Queen for food and drink. Still, I suffered through heart irregularities, headaches and nightmares for the rest of the evening. But it could have been worse.

In retrospect, it took me only a few quiet moments to dissect this abomination in judgment. Had I simply left my family out of the equation when I was out there I might very well have saved myself a great deal of physical trauma and more than a little heartache. I was alone in those hills and all the worrying, fretting, and emoting would do me no good. I now consider that God may have given us selfishness to treat like fire. A useful tool to keep on the side, to use from time to time, and yes, even to snuff out when it grows too large. But a tool nonetheless.

The issue is always in front of us, not fifty miles away, nor standing right behind us.



 In my own research, I have discovered the usefulness of a tool that was developed by mathematicians at least as far back as Sophus Lie, the use of invariants to characterize geometric objects. The idea is pretty simple, given some sort of geometric objects and some notion of equivalence of such objects (e.g., two surfaces are equivalent if you can translate and rotate them so that they coincide with each other), find a finite set of intrinsically defined quantities such that two objects are equivalent exactly when those quantities are equal. This idea has recently found its way into computer vision. If you have a particular person's face in mind, it will appear different depending on the angle from which it is recorded. How does a computer recognize the face? One approach is to compute some invariant quantities and compare those to the ones on file.

My question is, are there any invariants associated to various markets or to various "phases" of markets? I would readily accept that there aren't in any meaningful way, and that I am just infatuated with this idea, but I am interested to know what others might think.

Vinh Tu says:

I order to count, one often needs first to classify. In some cases the classification is trivial. But it can also be pretty complex. For instance, how do you define a trend, or a break-out, or a reversal? You have to discard some part of the data, which you call noise, and fit the "relevant" parts into categories based on invariants. Interesting that you mention computer vision. I've been thinking about computer vision algorithms as well, and how they could be used to classify the features of market movement. There are myriad ways of presenting facets of market data as surfaces of varying dimensions, and I suspect perhaps there may be useful computer vision algorithms to classify areas by flatness, roughness, stability and slope. And, as always, after one has classified and hypothesized, one needs to count. I remind myself that, before jumping to conclusions based on some measurements, one should always check to see how likely it is those measurements may be due to chance. And, as often demonstrated on this web site, monte carlo and bootstrapping techniques can be very useful, both for solving analytically hairy problems as well as double checking ones math. 



 Not more than a dozen years ago it took weeks to get to the deep upper Amazon jungle. There used to be terrorists here. Now in two days by plane, bus and motor canoe we reached the upper Tambopata research station in the headwaters of the Amazon rain forest. We saw six species of monkeys, macaws, poisonous spiders 6 inches across that can jump a meter, snakes, frogs. tapir tracks, vultures, hawks, otters and more. The guide wrestled a small Caiman and brought it into the canoe.

The jungle has the greatest biodiversity with thousands of species each occupying a specific niche. The only direct conflicts we saw were between two spiders, and two monkeys fighting over the same niche. The forest had three main levels, first at the ground to 15 meters, 15-35 m and the canopy above 35 m.

Some market ideas from the learning experience involve the separation of the levels and the specialization within each level of the forest. The occupants and action at the bottom of the forest are much different than those in the middle or top. As in markets different techniques are needed at tops, middles, and bottoms. It is hard for one species of trader to hope to avoid death at all the levels. It is very hard to start on the bottom of a market and survive to the top.

Extreme specialization is the rule in the jungle. There is no reason that same type of specialization would not be required in the market jungle.

However in many ways, current markets lack real diversity. The correlation among markets has been a result of this lack of diversity. Too many in the same niche or trade. The lack of diversity causes inability to absorb market shocks.

In the jungle, when a large 800 years old kapok tree falls, a huge gap is created. Many species rush in to fill the gap, but due to the rush, the vegetation is weak. Similar action may occur in market gaps when a shock hits. The initial occupiers of the gap are weak holders.

More reports later from Cuzco, Peru, in the Andes…

On May 30, Jim Sogi added:

Jim SogiNavigating the jungle:  The jungle canopy is 35 or more meters high and cuts out most of the light. The jungle floor is dense and dark filled with creepy crawlers. It would be easy to get lost and survival would be hard. We wondered what tactics could be used if lost in the jungle. The only way out is to find the river. Overland travel is impossible.

We learned that the macaws travel at dawn to the clay licks which are located on the riverbanks. The macaws are large, brightly colored and make noise. At dawn one could look to see the direction of their travel to determine the location of the lick. Kennerhoffer grads might recognize the trade navigation information in the dawn trade direction as a navigation tool for the days trade.

in the jungles there are small streams that caiman like to use. One might use the flow direction to determine the direction of the larger river and follow that. The obvious trade parallel is to follow the flow of the orders of the bid or ask

The tapir makes vague paths through the undergrowth through habitual use. There are meals for life in following well worn trading price paths as well as they tend to be habitually used. in the market jungle.

I would welcome other trades ideas arising out of such navigation ideas. We've discussed open ocean non instrument navigation some years ago. Its a jungle out there and every advantage is needed.

Nigel Davies reports:

Coincidentally, the Independent newspaper featured the following story today on a tribe that has only recently been discovered. I can't help but think that it is they who possess the real secrets of Amazonian survival.

BTW, a thought keeps coming to mind since my investigation of the game of Go. This tends to have pockets of recognisable patterns scattered across the board's landscape with chess, by comparison, being much more 'homogenous'. Perhaps the key to the jungle lies is analogous to Go, with intuition being required to recognise these more disparate patterns.

Pitt T Maner III reminisces:

Daniel LudwigThe difficulties encountered of one of the early billionaires (and richest man in the world), Daniel K. Ludwig, when he attempted an ambitious development project in the Amazon come to mind.  He failed to anticipate problems associated with the fragile, thin, Amazonian jungle topsoil– and how the jungle's existence involves a continual recycling of organic materials from the canopies mentioned. It  made for a strong cautionary business tale back in the late 70s and early 80s. Beware the "Amazon factor".

"A touch of hubris without humus" you might say…. Mr. Ludwig was, however, by many accounts a very charitable fellow— and his intentions may have been good. Perhaps the story relates (as suggested in the articles below) to taking on too big a project in advanced age… at some point you need to enjoy your wealth and partially retire. Eschew eccentricity, listen to others, give up a bit of control. Then again maybe some people make it to old age because they thrive on these type of struggles.

The "before" story:

Time Magazine

Ludwig is a restless recluse at 80 and, some employees suggest, is seeking to build a pyramid to himself, a monument to his ten-year quest to tame a stretch of jungle almost the size of Connecticut and make it productive. Says an associate, Luis Antonio Oliveira: "Mr. Ludwig is nearing the end of his life, and he is more interested in undertaking something of great socioeconomic significance than in earning quick profits." Still, Ludwig is betting that a worldwide paper shortage is coming by 1985 and will make his gamble pay off.

"After" stories:

Wikipedia[Jari project]

Problems also begun to increase due to so-called Amazon Factor - the combined effects of soil, insects, humidity and tropical disease. Workers contracted malaria. Insects devoured the harvest and supplies. Then Brazilian government officials began to criticize Ludwig's methods and the extent of his land ownership. They also questioned the project's exemption from taxes, not to mention his methods - he had fired twenty-nine directors during the thirteen years of the project and preferred to decide everything essential by himself.

Time Magazine

Ludwig threw money and manpower at problems thrown up by the jungle. But in many cases he made costly mistakes. In attempting to start his lumber and paper business, for example, he had to clear the land to plant new trees. Several Caterpillar "jungle crushers," giant bulldozers costing $250,000 each, were brought in to do the job, but the machines proved inappropriate because they damaged the unexpectedly delicate Amazon topsoil.

I believe Forbes Magazine wrote a good article, about 30 years ago, on Ludwig's venture that may still be available with a bit more digging.



Walkie TalkieThis past Decoration Day was a milestone for our family business. It was the first time that our year-to-date income from money and paper exceeded what we made from operations. Since business conditions in the equipment rental trade are terrible, the explanation could be that our income from dealing in wireless gear was negligible. It wasn't; we made as much this year as we did last year and the year before. What is different is that the capital that would have been spent on new equipment has been put into our investment accounts instead. So, for the first time since we started on this long, strange trip in California 35 years ago, we have money to lose that has nothing to do with our business.

I don't like it. Working to buy a house and set aside the money to send our daughter to college and beyond was much easier. In an operating business you have nothing but problems but you can fix them because you can, especially if you have a gifted partner, see what the problems are and what caused them. I don't find that to be the case in the world of money. There is endless speculation about this and that, but there is nothing that you can put your hands on. I continue to marvel at how the bond, stock and option traders who post on do their jobs. It seems to me even more wondrous than hitting a baseball 400 feet or throwing a split with a six inch break. Vic and Laurel could write a dozen books and we could study every one of them diligently, and none of us here in Nora-Jovanovich-Turner land would ever learn to be a speculator any more than we could give GM Nigel a game.

Not having the wit to speculate, we have tried instead to copy what we do in our business. We have treated our money as inventory and tried, however foolishly, to calculate the turns in the cycle. In our inventory-distribution businesses we buy more stuff for the shelves when times are bad but going to get better and sell some of our inventory when times are good but going to get worse. That is not, to our minds, the same thing as buy low, sell high. In an operating business Graham & Dodd's Never Land of buying new inventory for 10 cents on the dollar is just not found. As much as computer hardware prices may fall, the cost of necessary software to run the boxes competitively in our business will rise. You buy more equipment that has value when you think that you will have more customers, not when prices are "cheap."

The process of calling turns is entirely guess, but there are usually at least a couple of tells that reliably shorten the odds. What does not work is to study the psychology of your colleagues and competitors in the trade. Industry gossip is like Michigan's consumer sentiment expectation survey; it tells you where you are and have been, not where you are going. It is not a useful tell, even as a contrary indicator. There are three tells that seem to work in the wireless equipment rental business in Southern California. One of them just triggered: AFTRA settled its threatened strike with the producers, and it is more than likely SAG will follow. When the inmates decide they have taken over enough of the asylum, good things tend to follow. The second tell is advertising rates for spot commercials on TV. Usually, six to nine months after those rates have gone in the tank, volume in our trade increases. I don't know exactly why, but one credible explanation is that the networks and producers realize that they need to do something new and different to improve their ratings and more pilots go into production. The third tell is the one I am not divulging in case I have to go back to my day job.

For our investment inventory buying and selling, we have only found two tells that seemed to work: (1) the rate spread between the 5 and 30 year constant maturity Treasuries and (2) the rate spread between the Moody's seasoned AAA and BAA corporate bonds. These are reported each work day by the Fed, and their data go back decades. You can plot the widening and narrowing of the spreads over time over the past two business cycles and find a fairly consistent correlation to the future customer demand for U.S. common stocks.

John BogleThat still leaves the question of deciding what inventory to buy. We could avoid the problem of what to buy if we simply used an Index, but having exactly the same inventory as anyone else goes against the grain. John Bogle may be right, but we prefer to pick our own stocks. We also find that the actual expenses of our buying and selling are far less than the fees from even the least expensive S&P 500 Index Fund. Still, choosing what to own is a headache. In our three decades of owning distribution businesses, deciding what inventory to carry is one of the two issues that have caused more squabbles, arguments and partnership divorces than any other ten issues combined. You and your partners can agree that we need inventory on the shelves because business is going to get better and, at the same time, you want to strangle the idiots because they want to buy Motorola's new improved toy instead of what you want. Usually, you and the idiot partner are both wrong.

If you can't ever guess exactly what the customers will want, you can figure out what equipment will work. Since wireless devices are tools and not fashion statements, over time the better equipment wins. To pick that equipment, we developed our own test bench model that analyzes radios, batteries and accessories for reliability. It took several years to develop, but it was worth the effort because it works. Now, we receive fewer than a dozen emergency calls a year about our equipment. When we started the business, after hours and weekend customer problems were so common that we had regular shift assignments like a duty roster in the military. To pick our financial inventory we have tried to develop a similar analytical model that would weigh and compare known financial variables. We wanted to use data that, like the Fed's interest rate numbers, was so broadly available that it would at least be accurate. The other issue in an operating inventory business — besides deciding what to buy — that causes partnership divorces is the accuracy of the accounting. If the numbers are not real, you have problems.

I have no idea whether our financial test bench model does any better than chance. We have made money so far this year, but that could be nothing but luck. Common stocks are not wireless equipment; there is nothing you can put your hands on. There is no transmission test you can run to see if the thing actually works. What the model does give us is the comfort of knowing that decisions are being made with consistency. We know that its decisions tomorrow and next month will use the same logic that was applied this time last year. That is the best we can do. I can only hope that it is enough to help us keep at least some of the money.

"How do you make a small fortune in the stock market?" asked the straight man.

"That's easy," replied the top banana. "Start with a large one."

Go Big Brown.



Alan Millhone"Mister can you spare a dime" was a song during the Great Depression. I was chatting with my Mother this afternoon and we got to talking about the long ago torn down City Building in Parkersburg, W.Va. It was a stately structure and the restrooms were down a steep set of concrete steps in the basement. In the 50's we could catch the bus from Belpre to Parkersburg, but that trip cost a dime each and we would simply walk the bridge instead (map).

In the basement of the City Building were the toilet stalls, and on the doors were coin boxes and you had to pay a dime to use the toilet. Well in the 50's I was much younger and much smaller and I used to crawl under one of the doors and unlock the toilet for Mother and myself to use. It would be nice to have one of those coin operated doors in our museum now, but all are long gone to some landfill.

Next door to the city building was a S.S. Kresge and I remember their nice lunch counter and they also had two coin operated toilets in the back of the store. Kresges is long gone too, as are most of the downtown businesses. The Mall ended the downtown shopping.

At that time most dimes in ordinary use were Mercury Dimes and contained 90% Silver. Those days are long gone as well.



PhilIt is often enlightening to see what moves the market. At various times in the business cycle the market responds differently. To look at this question a simple correlation study was performed using ETFs as surrogates for various macro variables.

Correlations with SPY for the last 95 days:

Oil USO 12%
Gold GLD -10
Bonds TLT -53
TNotes SHY -72
Euros FXE -15
Yen FXY -65
Fincls XLF 88

All of the above relationships are coincident and therefore not predictive. However it is interesting to note that gold is negatively correlated with stocks. On the other hand oil is positively correlated, which is somewhat unusual. The relationship between bonds and TNotes is negative and very strong. It seems that the recent fair weather in the stock market has been punctuated by recurring flight to quality squalls.

The dollar seems to be a significant factor as well. However it is notable that stocks are much more strongly impacted by the yen than the euro. Finally the financials are strongly and positively correlated with the market as one might expect.

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



MotoAfter just arriving back from a two week visit to Vietnam (from Saigon to Hanoi), Bali, Singapore and Malaysia. there was a few thoughts which reverberated through my mind.

Bali is coming back from its tough times in finally good shape and after several terrorist bombings more and more big name brands have moved into the main tourist area of Kuta. People were present in all areas I went to, and the island, while still holding its charm, is certainly one of the best value, wonderfully scenic and frendly serviced tropical holiday destinations I've encountered. This was my sixth time there since 1997, and have seen a lot of changes in these 10 years.

Singapore is undergoing a building bonanza. Two casinos are going up, and Western expert participants from all over the world have arrived in mass, driving up rental prices (with apparently a lot of companies now not allowing the employee to take the saved rental money in cash, and so by allowing players just to hit the offer). Singapore real estate agents are notorious for showing expats ludicrous prices, often four times inflated (I was offered my condo at over 3200, four years ago, and we settled at 1300/month). Expats' friend are now complaining in the last year they have received letters from landlords saying, "your lease is up, your rent is doubled, if you cant pay get out." Condos are going up everywhere (and old good ones are being torn down to be rebuilt with more units). But the island nation was at is finest while I was there, great weather, great food, great service, and a lot cheaper in living cost then old London town.

In Malaysia we enjoyed some great golf at a luxury resort for next to nothing by UK or US standards, and the place on the hour journey up from Singapore looked wonderfully clean, though my traveling companions from Singapore assured me all is not quite right with many problems with the ruling United Malays National Organization party.

Vietnam is a country going places, at the footsteps of China roaring to its north, the country is moving fast, Saigon is a bustling new city, while Hanoi, still holding a more conservative approach, is breathing its own fire with rapid expansion and an influx of a lot of development money from Japan, China, and other local Asian powerhouses. I witnessed massive new manufacturing developments and condo developments pushing the perimetres of the city in all directions and people are enjoying the new direction and thriving on the speed.

In Siagon as I forced my way across an eight lane road with traffic going in all directions in a city of four million motorcycles, I soon realised there would not be a safe Western time to traverse, but I would have to take the Eastern approach of just entering the cauldron, and while keeping a steady pace the traffic would meander around me as I safely exited on the other side. I realise that risk management and trading and crossing nerve racking traffic in Asia, have a lot in common. Softly softly.



I was down to a couple of dollars at one point. But then my luck changed and I won the bulk of my money back. In the end I lost only $10. This was a successful deal. Trader recounting his casino adventure.

This is an interesting observation and, I'm afraid, all too reflective of the mentality that seems dominates the street and those who cover it. Several years back Vic and Laurel introduced the "silo concept" whereby some of our finer firms kept stashes of hidden revenues to be reported only when needed to meet or beat estimated (in many cases, self-estimated) earnings figures.

In a neat twist on this concept, many of these same firms are coming out with estimates of staggering losses. When, in fact, the losses are not quite so substantial (but still eye-popping), our markets, as well as those in Europe and Asia, respond with enthusiastic buying. ("Yes, we thought the firm would lose $X billion, but we consider the loss of only $X-1 billion a success.")

No kidding? That's great, please sell me some more of that new and increasingly dilutive equity!

A similar scenario might feature me arriving home from the track and telling the wife to get dressed for a big dinner at a very expensive place. In her simplicity she beams and shouts "You had a big day! How much did you win?"

"Win? Who said I won? Usually I drop about $300; today it was only $200. I thought I'd blow the other C-note on a nice dinner to celebrate."

Sure, I had to settle eating a tuna sandwich alone but my pre-emptive action forestalled an evening of repetitive kvetching and by tomorrow, when her sister calls to ask if I was a loser once again, she'll respond, "No, he had a relatively good day." And her sister will report to her brother, and her brother to their parents, and, before you know it, I'll be a legendary profit-making machine.

From such tiny acorns grow mighty LTCMs. Process remains important only as long as the market recognizes it as valid. As soon as doing right is viewed as irrational and doing wrong as profitable, doing wrong will become the order of the day. And those who have failed time and time again (i.e., the banks) will be given another opportunity. Those who got chopped and dismembered will be forgotten.

Nothing is too big to fail. And a loss is still a loss regardless of how it came about. Just ask Walter Wriston.



The argument can be made that a large portion of the current bull run in nearly all commodities can be explained by a combination of institutional asset allocation in commodities as an alternative asset class (some of it via swaps which allow for unlimited position size regardless of physical availability of commodities due to a loophole in commodity trading regulations) and trend followers, with the sick result of rising prices increasing price further in a positive feedback loop.

I'm generally libertarian and anti-regulation, but the use of swaps to get around position limits on a market that arguably isn't equipped to handle assets of this magnitude doesn't sit well with me. I'm all for speculators in commodities markets creating liquidity and assuming risk, but that's not what this institutional asset class is doing in these markets.

Here is a link to some recent testimony (PDF) before the Senate on the subject:

"In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the same five-year period, Index Speculators' demand for petroleum futures has increased by 848 million barrels.9 The increase in demand from Index Speculators is almost equal to the increase in demand from China!"

and some other articles on the subject,

Guardian (UK)
LA Times
Business Week

Stefan Jovanovich notes:

There have been only three periods of six months or longer since 1972 when Americans drove fewer vehicle miles than they did a year earlier: (1) the 3rd and 4th quarters of 1974, (2) the 4th quarter of 1979 and all four quarters of 1980, and (3) the 4th quarter of 2007 and the 1st quarter of this year. Six months into both of the prior periods was a close to ideal time to buy US equities, but that may be the result of coincidence rather than correlation. Most things are.



Rip currents have been in the news in my area for the past few days. The media has been announcing regular warnings, and the life guard towers all have signage indicating strong rips. Last week, two tourists on Longboat Key rented surfboards and ended up drowning after getting caught in a rip current. I'm not sure of all the details, but speculate that they didn't know what they were doing, or how to handle the situation. Rip currents can be very dangerous for a person who is unsure of how to handle them, but they can also be valuable tools to surfers who want to paddle out to where the waves are. Surfers identify where the rip currents are, then let the current do all the work taking them outside, saving the energy of a long paddle. Because of rip currents, one is able to extend a good sesh for a much longer time by conserving energy . When my break has good waves, I look for the location of the rip current, and use it to take me out. Once outside, I can catch a wave, and repeat the cycle for as long as possible. When one is dialed into their own home break, it is usually easy to find the rips. There are interesting market parallels regarding rip currents. The markets can have many underlying rip currents that are either very dangerous, or valuable tools to the speculator. Rip currents can appear as sudden declines, increased activity, huge increases in price and volume, and many other forms. Rip currents have cycles, direction, and patterns, much like the markets. If you know your particular market well, you will probably have no problem identifying and recognizing the presence of a current. Rip currents can appear and disappear in a heartbeat, just like volatility in the market. In the water, one saves them self from a rip current by swimming parallel to the beach until the grip is lost. If caught in a market rip current, instead of battling it, just go with the flow or exit the trade. Either way, the proper management of a rip current (in surfing or the markets) will conserve much valuable energy, allowing for a longer session.



Victor1) With a good heart I mention, regardless of whether one was long or short, but from the standpoint of the dispassionate observer, the Osbornian man from Mars, or the O'Brianesque or Ferberesque all-seeing eye, it was beautiful the way this holiday week ended. Completely the opposite of the Easter holiday as is natural, and with total fright of a repeat of the French Bank inside trades on Washington's birthday. The memory of the terrible beginning of the year, and predictions of the Palindrome and Sornette, and the weekly old timer, and what happened in the last June to July comes to mind. Who could have the courage over the weekend except those who trade all markets without commissions and make money 95% of all days by marketmaking to the public, and enjoying borrowing costs of less than 2.5%. It's a perfect recap of the year, and a warning that only the strong could possibly withstand giving the public a chance to lose so much more than they have any right to lose. And today's action was so similar to the meaningless Employment number of January 3. With a rise by a gnat's earlash preceded by a run of two grand terribles. Everything is designed to deceive, and prevent the weak among the public from capturing the full differential of 6% earnings return plus 6% growth, compared to 3% on Treasuries. There were so many beautiful touches. The four down opens this week following five up opens last week. the down 50 this week in S&P after up 40 the previous week. the fake decline of the ten year below 115 and then back up to 116, a situation repeated endlessly over the last months, but each time with gusto and real sincerity. And the weak closes on Thursday and Friday followed by down down to surprise, discombobulate and ruin the vacation of all those who like to fade it.

2) The sight of a commercial space on the southeast corner of Fifty-third and First, long ago the Mayfair restaurant, not rented out for five years on the grounds that rents will go up and they should wait, reminds me of the builder who doesn't work overtime to get the rents, and those who buy the two year but not the 10 year, on the idea that rates could go up. But how much do they have to go up over the subsequent eight years to equal the total return of the 10 year, and, similarly, how much do the 10 years have to go up 10 years hence to equal the 30 year? It's terrible to see.

Alan Millhone adds:

The second part got me to thinking about collecting rent after hours. Years back a renter offered me their rent in cash and I did not have a receipt book at hand. Later I told my Father of this and he told me to never go anywhere without a receipt book in the car. People will pay you at odd hours and always be ready to accept payment! Goes with the territory of having rentals. Nowadays I always have a rent receipt book in my home, car, truck, warehouse office, and never miss the opportunity if presented to take rent when presented.

Phil McDonnell extends:

PhilWould you buy a business to earn 6% a year?

The long term growth in stock prices seems to be a fairly consistent 6% per year over the long term. Of course it can be quite variable in the short run. However this is only part of the story. The earnings of a company with a PE of 16 represent about 6% return per year. Part of this is is kept as retained earnings and thus is already a primary constituent of the growth in share prices. But part is distributed as dividends. Historically this has averaged about 3% per year.

As Dimson, Marsh and Staunton and the earlier Fisher Lorie study demonstrated about half of the return to investors came from dividend reinvestment and half from simple price appreciation. On the face of it the math does not seem to work out. 6% from growth and 3% from dividends seems to be only a third from dividends not half. But the real story is that the growing dividend stream and the very significant benefits of dollar cost averaging work out to half of the return.

Dollar cost averaging is simply the idea that if we have a steady income stream from dividends, salary or bonds then we buy more shares at the market lows and fewer at the highs. Thus our overall share cost is below the average price of the market. The Dollar cost averaging effect really is a very effective timing tool that works. The only thing requires is a source of income.

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



Or red.

Earlier this year, traders were compensated for enduring declines with further losses. Then after a volatile March, buying or holding declines was rewarded with gains, and even the risk of holding gains was well compensated.

What is the intermediate trend? Now going down again, one question is when we will see a return to decline-momentum, and is there still compensation for betting against it.

A better question is whether the opportunity cost of fighting the beast is ever adequately compensated in the long term.



For decades we listened to the squeal when radio stations ran mandated tests of the Emergency Broadcast System. And when there is a real local or national crisis, most TV and radio stations break in quickly to give us the details.

When the Strategic Petroleum Reserve was established by legislation in 1975, and began receiving oil in 1977, oil had recently risen from $2 a barrel to $12. In today's prices, oil rose from $9.68 a barrel in 1973 to $43 in 1977. This big jump followed an inflation-induced fall in real price over many years. Oil rose to an inflation-adjusted price of $104 in April 1980, following the turmoil of the Iranian Revolution.

The federal government had imposed prices control from 1971 to 1974, so the private sector had little incentive to stockpile oil against future supply disruptions. Oil storage firms would need to charge higher prices during disruptions to recover storage costs. But companies like Exxon were busy buying computer, office equipment, and other companies in part to shield themselves from threatened nationalization.

In any case, the strategic value of a petroleum reserve can be appreciated as oil prices fell in the 1990s. Oil from the Middle Eastern could be produced at prices below $10 a barrel, and these low prices led U.S. oil firms to dramatically cut back exploration and development. The fear that oil prices could be pushed back below $10 led U.S. oil firms to hold back on expensive exploration and development projects. Even as oil prices rose to $20, $30 and $40 a barrel, firms knew that cheap production from the Middle East could quickly drive prices back down.

Now however, oil prices are well above the $50-$70 a barrel cost for profitable oil production in dozens of major and hundreds of smaller operations around the world. These high prices are spurring major oil development and production in diverse on-shore and deep-water locations around the world, and dramatically reduce the need for a large strategic oil reserve.

Congress has passed legislation to halt additional oil purchases when current SPR contracts expire in July. The President could test the SPR emergency "oil cast" system by pumping out 100,000 to 1 million barrels a day through June. Why wait for a full-scale emergency to see if someone forgot to properly design or build some key pieces of the emergency system. Three of the four major SPR facilities are designed to draw down over one million barrels a day. But can they? Who knows.

An added benefit would be income the federal government could use to reduce federal debt and perhaps strengthen the dollar. And, as I suggested in an earlier post, the federal government could use this opportunity to establish a long-term oil futures market by selling, say, 100 million barrels of oil over the next few months and offering to purchase this oil back at, say, an inflation-adjusted price of $50 a barrel in five to ten years.

Another interesting consideration is that the recent rapid rise in gasoline prices has likely drained the nation's most effective strategic petroleum reserve–the one 100 million U.S. households have in their two automobile gas tanks. At high prices people run low on gas more often, and have less reserve in times of local crises. If other people's behavior is similar to mine, most have gas tanks at least half as full now as they have when prices are stable or dropping (this could be tested with data from recent average gas station purchases–far fewer people now fill up at the gas station).

So if 50 million barrels of oil from the SPR are returned to the private sector over the next few months, with each barrel providing 20 gallons of gasoline (plus other petroleum products like jet fuel), that one billion gallons could be nicely distributed across 200 million gas tanks providing an average cushion of 5 gallons for each American car. With lower prices, people are more likely to keep their own "strategic" reserve.



On TV Rick Steves says there are two kind of travelers, "those who travel heavy and those who don't." He always says to lay out all you plan to take on your bed and cut that by half! Note American Airlines now charges $15 for your first piece of luggage. Oil hit $133 today. At what oil price will the airlines ground their planes? My best friend owns three mall restaurants and one of his workers today commented to us that mall foot traffic is noticeably down.

David Hillman recounts:

I just rented a vehicle for a one-way, one day drive of 300 miles in region. Yes, there are variations market-to-market and pick-up/drop-off locations do matter, but the #1 club "discounted" rate for the full size vehicle I rented was $99/day. For either a compact or economy, $157/day. It seems they've picked up on something. Hmmmmmm…. 



Economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example. The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas. D. Ranson in WSJ.

 "Medieval science" (sic) was not "poisoned by church doctrine". It existed because of church doctrine and because of church money. Galileo got in trouble not for his science but for deciding that he should tell the Pope what Catholic theology should be.

It is true that the "interactions among the myriad participants in a tax system are … impossible to unravel", but it has nothing to do with physics. Physicists have reached the point where they have sufficient understanding of "the molecules in a gas" that they can model the origins of the universe itself from the cosmic egg that awful Papist Georges LeMaitre hypothesized in the 1930s. It is, to me, one of the delicious ironies of the history of science and religion that Einstein found LeMaitre idea so deeply offensive to his theology of physics that he refused to even consider the idea of the Big Bang. It is a measure of LeMaitre's greatness that when Pius XII decided to do a Galileo and use LeMaitre's science as justification for the Pope's theology, LeMaitre wrote to him and told him ever so politely to cut it out, that physics could not and should not be used to address our questions for God.

Neither should physics (or biology, for that matter) be used to address the questions of economics. As a study of people and what they do with their money and things, economics can only hope to match history as a discipline; it can never "evolve" into a predictive science because human beings are, as Mises reminds us, far more fickle than any of the wave/particle uncertainty. Molecules are easy; the human comedy is hard.



Shearing the SheepThe market reminds me of some very creative people we all meet (people like Hobo) who always amaze you with new ideas and inventions at every clip. What it's been doing last few days has happened once in a saint's death. The gold, crude and euro:dollar all up 1% or more in conjunction with a 1% decline in stocks. Never before, perhaps once, but never with up afternoon. Similarly today. What always amazes most is how fixed income can go up and down on statement of commissioners of authority, as if when they said they were vigilant on inflation that was bad for fixed income.

While we're at it, a paper in Nature says that there is a gene for leading a herd in humans, a long gene. Galton would have appreciated this, and looked for the comparable gene for being herded, a tendency he found particularly prevalent in oxen and humans. On a day like today with the market reacting to minutes of several weeks ago, with much new data in markets, and announcements by leaders of the pack, one would have hoped that the presumably short gene for sheep-like behavior would not have manifested itself in so many breaks below round numbers and trillions of wealth temporarily lost, with the herded ready to transfer so much wool and mutton to the big leaders who can borrow freely at the discount rate from their future colleagues.



For those of you who don't read the New York Times, yesterday's edition had the following commentary by Matt Bai, thinly disguised as an article [signin required] about John McCain:

There is a feeling among some of McCain's fellow veterans that his break with them on Iraq can be traced, at least partly, to his markedly different experience in Vietnam. McCain's comrades in the Senate will not talk about this publicly… And yet in private discussions with friends and colleagues, some of them have pointed out that McCain, who was shot down and captured in 1967, spent the worst and most costly years of the war sealed away, both from the rice paddies of Indochina and from the outside world. During those years, McCain did not share the disillusioning and morally jarring experiences of soldiers like Kerry, Webb and Hagel, who found themselves unable to recognize their enemy in the confusion of the jungle; he never underwent the conversion that caused Kerry, for one, to toss away some of his war decorations during a protest at the Capitol. Whatever anger McCain felt remained focused on his captors, not on his own superiors back in Washington.

As Grandpa once reminded me, finding something to laugh about is not hard. You just need to wait long enough for the respectable people to start telling really big lies about wars and money.

An historical footnote: None of the Senators named fought any combat in rice paddies or jungles - unless you include the ricochet of a grain from the sack of rice that John Kerry drew down on. That paper cut earned the Senator the first of his many purple hearts.



C@rgill is a class outfit, with a willingness to make a market in any commodity, anywhere and any time, as long as they have an edge. I've always speculated that there was a Faustian bargain somewhere in that outfit's past. C@rgill (founded 1865) is still part of the old grain business that is very family oriented, with the Staley's, MacMillans, Peaveys, Bensons and Quinns grooming the next generation to trade the world's food supply. 

I've been on the other side of many a C@rgill trade, and usually lost money in the process.

Vin Humbert adds:

As a newly transplanted Minnesota resident, I can tell you it is equally difficult to get employed by them. Most of the postings I've been reviewing require fluency in a LatAm region language. Rarely do I see peers demanding the same (esp. Portuguese).



PhilIn our garden we grow about two dozen different varieties of vegetables as well as strawberries and blueberries. Naturally all of this bounty makes for a tasty treat for the local critters. In particular the local rabbit population has clearly been eying our garden as a source of gourmet delights.

Recently I was watching a young spring rabbit running back and forth along a fence. He ran to one end ducked under and then ducked back and ran to the other end and ducked under and ducked back. Each of the holes under the fence would have been unnoticeable to my eye were I not watching him use them. Occasionally the rabbit would make slight improvements to the holes by digging them out a tiny bit more. The fascinating thing to me was that the rabbit was not just going back and forth to these holes but he was actually sprinting at full speed. Finally I realized he was practicing his escape routes. And at the same time he was fine tining his holes if he could not get through fast enough.

Traders, like rabbits, must be quick and nimble. Perhaps the metaphor extends beyond just speed. The rabbit can teach us that the smart trader must also have multiple entry holes and multiple exits to escape the many predators and deceptions in the market. When we decide on a trade perhaps the better one is one that allows entry over several periods and can be exited over several periods in the future.

In the same manner the rabbit can teach us the importance of practicing our escapes at speed. For the novice trader this can take the form of paper trading real time prior to the first trade. This might be good advice for a new system regardless of one's trading experience. No one ever lost money by paper trading. Even for experienced traders the idea of practice translates, at a minimum, into back testing our trades before we take them. The rabbit can teach us much.

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

Scott Brooks adds:

This is the "prey" side of the equation. The predator side of the equation is also worth looking at. It involves learning the habits and escape routes of its prey. My good friend Phil mentions how he wouldn't have noticed the escape routes had he not chanced upon the rabbit using them. Noticing things like this is the mark of a predator.

Even though Phil may not have noticed the escape routes if it weren't for the visual observation, predators in the wild rely on more than their eyes to spot the routes of their prey. Probably their most important sense is that of smell. We as humans can't really understand an animals sense of smell and just how acute it really is. But having spent thousands of hours in the woods, I've witnessed first hand just how incredible a wild animals sense of smell really is.

These escape routes that this rabbit is so meticulously putting together will very likely be his undoing. Coyotes and dogs often hunt in packs or small groups (I know my two dogs, Rex and Layla, hunt as a team and have ambushed many a squirrel, rabbit and chipmunk). These canines can smell the path that the rabbits have been using and know where they're likely to travel. All they have to do is set an ambush. One coyote chases the rabbit through hole A while the other coyote waits at hole B.

I've witnessed, in the wild, coyotes hunting as a pack, almost corralling a deer into an ambush. Once, I was up in a tree stand and saw some coyotes chasing a deer. I then heard a noise behind me and noticed that some coyotes were coming thru the woodlot in the opposite direction. The deer was running from the coyotes across a harvested corn field toward the apparent safety of my woodlot, not realizing that an ambush was waiting.

The coyotes thought they had the ultimate trap set up and were about to go "long" a deer. I was also long deer that day too. But the deer coming towards me was too small for my tastes, so I decided to let that deer live another day. I changed to a short position on the deer (I sold his life back to him and will buy it back in a few years), and went "long" coyotes.

I drew my bow back, took careful aim and "placed my trade" on the nearest coyote. The ultimate arbitrage…..the predator became the prey! This quickly displayed just how weak the coyotes position really was, as I was able to break apart their entire portfolio for the day with that one shot (er….ummmm……I mean trade). I profited well on that coyote trade. I'm still short that deer, but hopefully in a few years, I'll have the chance to "cover my short" on him!

I wonder how many examples of this there are of predators in the market……and how many examples of predators becoming prey there are? As Professor McDonnell points out people learn that they need to set escape points, to protect themselves. But in many cases, they only end up bringing about their own demise. For instance, so many people set stops at the round, rather than a few pennies above and then wonder why they get a fill so far below their stop, not even realizing that the masses were trying to use that same escape route. The smart predators sniffed it out in advance and capitalized on it.



It's been over 6 years since I was last in Shanghai but I remember being overwhelmed by the amount of construction cranes then. Now there aren't more than a few from what I could see today in Pudong. To be completely fair, a couple financial buildings were going up that weren't in the photos but it looked like construction was slowed on them.





I also noted that the number of local Chinese tourists greatly outnumbered foreign ones and the local tourists appeared to come from rural provinces. As these aren't people with a likely income stream while they are away, I view this as bullish for the lower income consumers. 

Charles Pennington inquires:

The thing that stands out to me in your photos (and especially in this one) is that the air looks like it's filled with smog. Was that noticeable to you, and did it provoke any lung problems? 

Ryan Carlson replies:

No, I didn’t have any problems breathing and imagine it’s as clear as it gets. A few days shouldn’t be a problem but I wouldn’t want to live here.

The weather today in Shanghai was around 80 F and the prior day was rainy since an early evening arrival on. My paranoia pertains to the food I’m eating rather than the air. Last time through, I bit into a coil of wire hidden inside a Shanghai dumpling and won’t eat on the streets in China anymore.



Wild TreesThe Wild Trees by Richard Preston has many different levels of information and adventure. It's the story of searching for the largest redwood trees in the world, trees that contain half the living species in the world, and are the oldest and largest living things. Along the way, one is enlivened with a good discussion of the biology of redwoods, a summary of the techniques and equipment used for climbing, many survival tales including a 100 foot free fall descent that is almost invariably lethal, romance in the trees and below, lessons in parenting, a course in the interconnectedness of all things, and many hilarious, heartwarming and spine-tingling incidents.

Some of my favorite parts of the book might give the flavor. In discussing the world of the redwoods, Preston describes the last remaining environments that Sequoia redwoods, a form that has lived unchanged for 80 million years, thrive in. " The redwood has settled down in California to live near the sea, the way many retired people do ".

The main antihero of the book, Steve Sillett, who goes from near suicide, dementia, to heroic conqueror and famous professor, asks a student , a fellow tree climber to marry him, up 300 feet in the air, as she slits an avocado for him. " Marie, do you think you could keep doing this for a while," "Sure, I know I could keep doing it " "Will you marry me?"

The scholars team up with arborists to go for a night climb up the trees and arborist Hillery falls 100 feet to the ground backwards and upside down. He doesn't scream as he goes down as he needs all his energy and concentration to have a chance of survival, perhaps 1 in 10000, as his speed reaches 90 miles an hour. He puts up his left arm and reaches across his chest as he falls. "There was a deep wet boom, mixed with a whooshing sound. His body compressed the soil, and a sparkling radiance of light rose out of his body, and spread in all directions. He had literally cratered. His eyes were shut and he wasn't breathing . Then suddenly his lungs inflated with a hoarse sound. He twitched and made moaning sounds. He apologized. 'I'm really sorry you guys had to see that ". He had been saved by the duff around the trees, needles, twigs, roots, fungus, et al. "What had saved his life was that he had managed to spin his body around get his head up as he fell. Punching the ground with his open hand helped to protect his neck. If he had wasted his time screaming…. ".

By far the most appealing characters in the story are Marie Antoine and her father. The three sentences the father asks Steve Sillett, "Will you take care of her ?", What is your work about ?". "Do you make a good living?" as he prepares to die, and insists they don't come to see him as he wants them to remember him alive are beautiful, as is everything about the father, and the daughter, who has no compunction about getting married a few hundred fee up in the air, or having sex there with the aid of Galtonesque contrivances.

I'm probably the only person in the world who also found it very instructive that all the technical techniques of the scholars were completely fruitless until they consulted the business people, the arborists, who have to climb trees for a living, and showed them how to walk inside the tree rather than ascending it vertically in fixed positions.

I found many market lessons in the book. First, the search for the biggest trees provides insights into everything else, as to reach the top, the trees have to use every asset they possess, and conquer all liabilities. Also, the funding for their efforts depended on finding a worlds' record. No one was interested in the second biggest, or most beautiful tree. The description of the politics of the National Geographic Society, and the National Science Foundation is also most amusing and instructive. The trees themselves are amazing in that on the tops of trees, a whole forest grows, including Douglas firs, blackberry bushes, hundreds of thousands of insects, and amphibians. The main form that the trees follow at the top is reiteration. The tree, making smaller and smaller copies of itself at the top until it ascends to almost 400 feet in the air, with many bonsai trees and plants of all description in the top.

The discussion of the tree's mission in life to grow toward the sun is very apropros of most market rises. "It had been striving to become what is was, driven by an unconscious self directed code by their response to sunlight, wind, water, accidents, fire, insects, and disease." Just the same way a market like stocks in the last two months, or grains in the previous six months conquers, or oil at present, conquers all obstacles to go where it had to go because of the differential between borrowing costs, and the rate of return from stocks, the e/p + growth. The tree "crowded upward into the air, seeking to drive its from into space and move toward the light, to cast its shadow over lesser trees, and take their light from them, and to throw its seeds into the world. "What are the seeds that big market moves or individual stock moves plant, and what shadows do they cast over others ? It's a good question to ask, when you strive to fine tune the entry and exit points to take account of the minor variations, and get suckered out of your good positions.

It turns out that to understand a giant redwood, you need a microscope. The lichens that grow on the trees provide it with the nutrients that it needs to survive. Similarly to understand the big moves in the market, say the quarterly ones, you need to understand the microstructure described in such books as Harris.

I would guess that like many others, I decided after reading this book to go to a tree climbing school with my family for education in life and markets, and I would recommend reading this book to all who wish to appreciate the majesty and beauty of life and markets.

Jeff Watson adds:

Trees are beautiful objects in nature. The leaves, phloem, and cambium are the living part of the tree, with the rest being support. The strength of the central heartwood of a large tree must be incredible to enable the tree to grow to such heights. The market has similar strong supports, such as the upward drift, a free market, and confidence of a better tomorrow. Some trees produce fruit in cycles, much like the markets. In Florida, I love the sight and smell of my citrus trees, with the fruit bearing a nice dividend Even when an old tree decays from within, it's able to remain standing for decades, still producing seeds to create the trees of tomorrow. The cycle repeats endlessly.



 I had lunch in Mutare yesterday, a town in Zimbabwe on the Mozambique border.

To give you a benchmark — bread is currently over 110 million a loaf; on 22nd April it was 40 million per loaf. The lunch bill: soup — 50 million, oxtail — 600 million, coffee — 50 million, with no charge for the pink ice cream. During the meal, one of my mates was drinking beer — 750ml bottles of Castle Lager (fondly called bombers). He ordered a fifth one, was advised that the price, which when he ordered his first, second, third and fourth ones was 160 million per bottle, had gone up to 340 million per bottle. That's right — during lunch there was a price increase… He ordered no more beer! Aren't you glad you are not a beer drinker here in Zimbabwe!

Misan Thrope adds:

Hang in there, help is on the way:  Zimbabwe introduces half-a-billion dollar note.



I like to write about the merits of good BBQ. As much as I like to write about good BBQ, I love the search to all corners of the South in order to find the best BBQ around. I've found a little gem in my backyard that's just an hour away from my front door. Located in Arcadia, Florida, Slim's Barbeque is as good as it gets. Walking into the restaurant, one's nose immediately picks up the fact that Slim's is the real deal, and not one of those chains like Sonny's. The waitress automatically seats you and gives you a 24 0z glass of sweet tea that tastes as good as ambrosia. Without any pretense, she rattles off the listings, and adds…what's real good today. When I drove over to Arcadia yesterday, I ordered a combo plate, which was a combination of ribs, chicken, and sliced pork. I added some grilled garlic bread, some BBQ beans, and cole slaw to the mix, and was ready to do some serious chowing down . Listening to Randy Travis on the jukebox, and looking at all the real cowboys in the place made me realize that I'm in the original South Florida, not the Yankee coasts. My food showed up after awhile, and I noticed the nice smoke rings on the sliced pork. My taste buds told me that the ribs and chicken were succulent, tender, tasty, and perfectly done. Slim's BBQ menu is so well prepared, one would enjoy it even without the sauce. Adding sauce to the meat is like listening to Vivaldi while reading a book or doing a crossword puzzle….it just makes it better. The sauce is a sweet, tomato based sauce with a secret recipe, and is in my top 5 for BBQ sauces. Since they sell their sauce, I always get a couple of bottles whenever I'm there. Anyways, I ripped through the food like I was coming off a fast. The side orders were first rate, the grilled garlic bread done in the Southern BBQ place style, on the grill.  Slim's uses French bread instead of Texas Toast for it's garlic bread, and that makes a difference. The cole slaw was homemade, from local ingredients. They put a bit of celery seed in the slaw to give it that distinctive old Florida flavor. The beans had a lot of pork, with their smoky distinctive BBQ sauce taste. Eating good BBQ, drinking a gallon of sweet tea, and listening to country music on the juke box made it a real enjoyable experience. In fact, I'd rate this experience a 9.5/10, and I'm a tough critic. Slim's has been around for 50 years or so, and they must be doing something right. Slims offers other menu choices, but everyone goes for the combo plates, rib plates, or sandwich plates. On my way out of there, I bought a few extra sliced pork sandwiches to bring back home. I gave a couple to friends, and saved one for later. That's how we do it here in Florida…if one goes to Slim's, one must bring back some sandwiches for friends, or remain silent about the whole adventure. Given the choice of going to the best restaurant in Sarasota or Slim's BBQ in Arcadia…..Slim's will win out every time.



(Warning: plot spoilage below……. skip if you plan to see the movie).

We rented this year's big Oscar winner "No Country for Old Men", and there was some fairly intense discussion afterwards. Pretty gritty stuff if you can cut through the Texas twang.

One theory of good art is that it locates and awakens something personal in the viewer, even if repugnant. Some of the symbols included the post-modern theme of bad defeating good (on all accounts, thoroughly), bad deeds going unpunished, good deeds not going unpunished, the role of chance in success and doom (duh), the attractive logic and invincibility of an intelligent psychopath, the religious quality of effective evil, and the crippling effect of introspection during battle.

A most interesting theme was the role of age in perception. The aging sheriff hesitated in his pursuit of a daunting foe, and commiserated with his peers about how bad things were compared to the old days. But a decrepit old friend (or relative) countered to the sheriff how his grand-uncle-lawman had been ruthlessly killed by Indians back in nineteen and zero-nine. Even though the bad guy put the sheriff into retirement, brutality in the past was as bad or worse.

The reason many think the shiny old days were better may have more to do with our own changes than those of the world. Which makes sense, since at our youngest we evolved within the protected/deterministic systems of our parents, friends, and schools (at least the fortunate ones), which continued sweetly into young adulthood because in hindsight now we know all the endings. There is no risk in the past, only the future.

Many of our days now will one day be precious in hindsight. It is difficult to keep this in mind even part of the time, but ostensibly worth the effort even if the required level of introspection forfeits many battles.

To paraphrase spec posts from 04-06, if you are on the winning side it pays never to give up.

Movie snippet here.

Stefan Jovanovich dissents:

I apologize to Kim and everyone else who loves the Coen brothers. Since my tastes are sufficiently bizarre that I rate Joss Whedon's Serenity a far better space oater than any of Lucas' Star Wars snorers, I hardly expect to win this argument; but those of us here in Chaos Manor simply don't get it. I lasted about 20 minutes with No Country; Nora, who is 23 and has far more stamina, was able to hang on to the bitter end. She said the best comparison she could offer was that it was like part in Annie Hall where Woody Allen goes to visit the crazy country folk and has his special talk up to Dwayne's bedroom - with lots of ketchup and walking down hallways added. The Coen's skillful but truly absurd splatter films are like modern war movies; the tech is magnificent, but the stories can only seem credible if you share the Coen's religious belief that violence offers some special insight into life. Clearly they are relying on the assumption that no one in the audience has any experience at all with firearms. Blowing out the chambers in a revolver to allow it to fire was an interesting bit of make believe, but by the time it got to the bit with an assassin carrying around a compressed air canister attached to a modified nail gun, I had to hold my sides to stop shaking with laughter. What was the guy going to do for reloads? Go to the Home Depot?



Turmoil in Nigeria adds to oil uncertainty, but behind the scenes the big oil question keeping prices up seems to be Ghawar. This one massive Saudi oil field produces five million barrels a day, 60% of Saudi production and 7% of world oil production (more than all U.S. wells combined, says the WSJ). Matt Simmons and other peak oil advocates claim this 20 by 175 mile field is in significant decline. The secretive Saudis won't say, but a recent Sanford Bernstein study cites satellite data to claim Ghawar is okay. "Junk science!" says Matt Simmons of the satellite data. Saudi mismanagement of Ghawar in the past–perhaps when oil prices were very low–may be causing severe problems today (NYT 2004 article). Many new wells are now being drilled, but with steeply higher prices, that is to be expected.

With so many oil "experts" issuing reports on oil development and production around the world, it is hard to tell whether new oil finds and production will over-balance declining production in old wells, turmoil in countries like Nigeria, and industrial and transportation expansion in China, India, Mexico, Brazil, and Eastern Europe.

Delta Airlines faced similar problems some years ago researching airline data on seat availability. How could Delta determine when competitors were selling lots of seat on particular routes? What data could they trust regarding ticket sales for future flights? The answer came from economist F.A. Hayek. Prices reveal information about supply and demand and a Delta executive well-versed in Hayek realized he could judge competitor's seat availability by watching changing prices. As ticket prices rose for a particular route and flight, that meant the seats were filling up.

Similarly, though oil experts don't have perfect or even partial data on the Ghawar field, recent rising prices might reveal the reality of serious problems. Saudi Aramco may be secretive regarding Saudi oil production, but hundreds of oil field workers and consultants have detailed information. It is unlikely that the best information about Ghawar will come from satellite observations 22,000 miles out when hundreds of oil field workers and petroleum engineers are right on top of Ghawar wrestling daily with production issues. Is there a pathway for their inside knowledge and information to reach oil market and influence prices?

The key problem, as a recent Forbes article ("Give Oil a Future") notes, is the lack of long-term futures market in oil. If major oil companies could lock in even $50 a barrel for oil over 20 years, they would pour funds into developing many more fields than are now active.

Perhaps the Strategic Petroleum Reserve could provide this service. The Federal government should privatize the reserve, selling up to 500 million barrels (leaving far more in the reserve than has ever drawn down in crises, according to recent NYT op-ed). Income from oil sales could be set aside to guarantee purchase of 500 million barrels at $50. That would allow companies to lock in that minimum price now.

Of course the Federal Government has a poor track record speculating in commodities. For example, in the 1980s, the the Dept. of Agriculture had millions of pounds of cheese stuffed in Kansas City area caves (an expensive Strategic Cheese Reserve). ["In the limestone caves and above-ground storage space of the Kansas City area is the largest single share of the nation's dairy surplus. According to the Department of Agriculture, the area stores about 25 percent of the country's 473 million pounds of surplus butter and about 20 percent of its 876 million pounds of surplus cheese." NYT, July 1983.]

[Forbes offers a nifty chart of nominal and real oil prices from 1868 to the present here. Of course the prices are misleading as they are not adjusted for true cost (hours of average labor per barrel), or for much increased automotive miles per gallon of gas/barrel of oil.]

So, is the high price of oil a distillation of hundreds of experts thousands of investors, and millions of consumers, or are market prices distorted by fear and wishful thinking? A problem is that everybody except one group enjoys high oil prices. Environmentalists cheer as people buy fewer SUVs and drive less. Urban transit folks like it as more ride their mismanaged mass transit. National Defense people welcome high prices that improve "energy security" by leading to billions invested in traditional and alternative energy production in the U.S. And the energy industry and energy investors are happy with higher prices and profits.

The only group not gaining are everyday consumers who pay more and have to cut back other expenses and adjust their travel plans to cope with high prices.



Victor and Laurel have written of their fondness for old books, in part because of their good literary craftsmanship — grammar, usage, vocabulary. Today I read my younger son a comic, Spiderman vs Doctor Doom, from 5 October 1963. I read him old comics often — they're an excellent vocabulary-stretcher for a seven year old, and he stops me several times per page to ask for clarification.

Here are 80 words I pulled from just that single issue:80 words



Justine Henin, one of the top five or six most complete tennis players of all time — male or female — decided to retire today while still ranked as the number one female player in the world. Though she has won only seven grand slam titles in her career, I believe her game had no weaknesses whatsoever, thus putting her in elite company with Steffi Graf, Pete Sampras, Martina Navratilova, Chris Evert and Roger Federer. Her retirement comes at a time when she still could have competed at the highest level in grand slams. How many she could have won is an unknown, but at least three or four in my opinion.

She was tired. It was as simple as that. There is much more in life than tennis according to her press conference today.

With respect to the market, I suspect we all will ultimately face the day when we decide to stop competing, and most of us will do it at different times and for different reasons - burnouts, setbacks, age, success, or death. As for me, I have quit the trade a few times for a few of these reasons, and also was almost out of the game for the last of these. But, I continue to trade on.

Henin chose the high road, one marked with tremendous success. I hope my end, and all of yours, will be similar.

Vince Fulco adds:

Speaking of "When to Quit," picked up Professor Randy Pausch's book "The Last Lecture" while on vacation last week. He was a computer science professor at Carnegie Mellon who surprised his class by giving a lecture on realizing one's childhood dreams. All those in attendance realized it would be his last public presentation due to his advancing and inoperable pancreatic cancer at age 47. While written in a breezy "Tuesdays with Morrie" style, his heart-wrenching and impactful life stories with a moral attached to each are poignant reminders of our finite time on this planet and the need to strip away the superfluous and focus acutely on one's chosen task at hand. Of course, while not forgetting the importance of cultivating strong families, relationships with work colleagues and friends.

The lecture is available online.

A great summer read written by a genuine straight arrow.

Nigel Davies responds:

There may be a difference between quitting and moving on. Quitting, at least in my book, means a total discontinuation of a particular activity with a huge loss on the time/money invested. 'Moving on' is different, you keep the accumulated 'wealth' (skills, lessons, experience, money) and subtly redirect it within the context of your life.

Perhaps we should always try to move on rather than quit, just change the balance rather than go in with major surgery. I think this applies to all walks of life; professions, sports, games and relationships. And it may be better for trading too, readjusting positions within shades of grey rather than opting for black or white.

This line of reasoning also makes me wonder if we should always look for things in life that will have ongoing value rather than face the expense of multiple 'quits'. This may be a useful guide in everything we do, and I only wish I'd thought of it earlier.



Larry WDo not subscribe to what I consider a massive market myth…

that "super traders" will detect market inefficiencies, trade them and then the advantage disappears. Here's why: There are no super traders (with the exception of Steve Cohen).

All traders/managers have ups and downs, no one consistently makes money, no one has ever cornered the game. Everyone gets off track, off his game, even when trading a known advantage.

So advantages can persist longer than traders focus and concentration.

Proof: I have told several traders exactly what I do, some made money, some lost…but all of us had the same rules (supposed advantage).



Housing drop

Subprime flop

Credit crunch

Belly ups

Bail outs

Fed puts

No recession

Jobs in session


Low inflation

High oil

Faked them out

Stocks up



Nicaragua lacks first-world eases and is constantly bowing to the golden rule of travel that the less money spent the more adventures. This is the poorest Central America country, from the Caribbean swamp up the volcanic spine and down to the Pacific white sands, where I want to introduce you to the people I rubbed elbows with.

No one runs after a bus in Nicaragua. There will always be another one. A traveler with a map need have no fixed plan if he thinks quickly. The bus terminals in the towns I frequent are usually dirt lots turned steamy mud if it rains. Dozens of buses and mini-vans await like crouched animals, and the choice, while munching a sandwich, often boils down to selecting the driver and passengers. I board early, drop my pack onto a front seat for the reservation, and leave for a drink as the bus fills for departure. When it's stuffed out the windows, the dogs are shooed and the gladdest moment begins- a start into a strange land.

Often across this watery nation the buses link with park-and-ride horsemen and ferries. In boondocks Rama, after weeks of brown faces and Spanish, I step down from the bus onto a tug for a chug along the Rio Escondido to Bluefields on the Caribbean. Sun and wind in the face sitting on the bow, over my shoulder floats, "Oh no, not another Gringo!".

I swivel and behold a huge graying cowboy under the broadest brim extending the biggest hand on the planet. I rise but he withdraws the hand. In one swift motion he pulls first from the right boot and throws a shadowy knife, then from the left boot, one from each shoulder, both sides of the waist, and finally the breast for a total of seven invisible blades. I reply, "The peculiar thing is that each barely nicked my skin", which is accurate had they been real. He guffaws, pumps my hand, and states, "My friends call me Lucky; I have no enemies."

He blocks out the sun and spins his story between banks of waving grass. Raised on an Arizona cattle ranch, Lucky's father was a career soldier who disallowed his Navy Seal son to go to Viet Nam. So Lucky took his penchant for cutting things first to darts, winning the world championship, and then to wood carving a bedroom set that sold for $300 on a Phoenix street corner and blossomed into a million dollar a year business employing five steadfast Nicaraguans. Three decades passed until a year ago. He lay down in a bed he'd made and told his wife, "Honey, give me a divorce. I crave the old America without the strangling rules. I'm going to Nicaragua and start a cattle ranch!" He bought land near Esteli in the central mountains, cleared it to waist deep grass, bought good stock, and gained a reputation for throwing the best calves in the country. Trouble is, one calf is a month salary on a man's shoulder under a rustler's moon. He patrolled nightly forty fenced acres on horseback with a shotgun, two .45 pistols and seven knives, only to get stung by boot scorpions, lose a horse to a rattler, and gradually lose the rustlers' war to fatigue. He arrived yesterday in Rama for a Last Hurrah, the name of the proposed ranch, carved somewhere along the Caribbean at a remote place that thieves can't discover. "It's easy," he says. "First, find land with tall grass and water, and buy an acre per best cow you can purchase. Inseminate them with the best bull. Watch them eat grass, make love, and make money. Take cold showers for a year, and you're a rich man. Look at this river grass- my Last Hurrah is around the bend!".

Bluefields on the Caribbean swings into view around the river mouth, the tug cautiously pulls alongside her tilting pier posts, groans, ropes heaved, and the thirty Latino passengers bustle to the fore to disembark. However, we hang aft, our interest taken by a dozen staring men like statues plugged onto the wharf. "Whew!" I whistle softly .They resemble apes in rags, with drug glazed eyes as flat as bottomless seas under tremendous brows. Lucky grabs his homestead suitcase in one hand and reaches a big mitt in a pocket, withdraws it to his side- there's the click of a metal switchblade- and hides it up his sleeve. "Adios, Bo!" he grins, and the sly dog lets me walk the gangplank ahead.

The throng of dock trolls parts for the odd couple, and a few steps beyond on a busy main street Lucky, with a suitcase, and I, with a knapsack, depart with a warm handshake. The usual practice is to amble to the seedy part of town for a room, but today I stride to any clue au contraire- a painted shop, well dressed citizen, clock that runs- but find none and feel trapped in a pirate's novel. The wooden two-story buildings along main street look 18th century and the ambling citizens are black or brown, and relatively tall. The matron of my eventual hotel overhanging a reggae disco outweighs me but politely points out after accepting $10 that they room keys were stolen yesterday by the help. I gladly slap my own lock on door #8 and will push the inner bureau against it tonight.

Craving a sunset fish dinner, I pen the hotel name on my thigh and stroll five minutes across town to a cafeteria with a greasy window. Licking fingers and avoiding the leftover eye that's always bothered me, a skeletal Bassett breaks a patron's leash and I give it to him. The waitress spots the dog and shoos it out the door with a broom and the owner screeching after past a line of little beggars pressing noses against the window at the only gringo. To mistakenly tip the first would telegraph the rest, and I would be skin and bones. I rise, walk out and they chase me with outstretched hands and wails for a block until a sympathetic senora points to a darkened lane where I may lose them and, she says, "perhaps your life".

She lowers the finger and vanishes, and out of curious mule-headedness I take that lane where the kids don't follow. Suddenly an arm wraps my shoulders and flexes as I whirl. His free paw grasps my palm in a quasi handshake, yet I grab the wrist and spin from both arms, and we lock eyes. "I want to ask for a dime," he says pitifully, and I feel horrible. "I'm sorry, but I can't help…," I repeat with a stout heart again and again until he fades into the old woodwork of the alley. I find the hotel on swift legs, shower in clothes, lie on the thin bed and count drops off the bureau mirror with the backbeat of reggae looking at myself in wonder at where I am.

The next morning, I discover it's a chancy town even for a stray Gringo like Lucky when we meet on the old wharf for a 7am launch out of town. He will scour the interior away from this gritty port for a ranch, and I… well, we'll see. A hard-nosed girl with a grin and jiggling "Tourist Police" badge slaloms dog piles along the dock to ask for passports. "What did we do?" I cry, but she says it's routine to scrawl gringo names and destinations in a notebook because of the volume of drug flow along the coast.

Lucky boards a skiff to Laguna de Perlas, and I sit watching similar launches spaghetti in and out the port until the Tourist Police nudges me toward the correct one, a 20-passenger "speedboat" with benches and seatbelts. A lady sits next to me refusing to strap the belt until a port guard with a hip stiletto leans over me and affixes it. She screeches lost rights and broken spirits out the harbor, actually buoying, until the 100Hp Johnson motor drowns her out up the river mouth.

The next stop is Granada, an exception to the nationwide shortage of everything soft and nice, except for the night I arrive the electricity goes out. I check by flashlight into a hotel, take a candle with the key, cold shower, and rock on a porch chair convincing myself that when the sun goes down and the power goes out it's time to take to the streets to see who's timid behind shutters. I rise, and walk the starlit streets down to the west shore of Lake Nicaragua looking over a million moonlit wavelets. There you are at another dark tit of a road waiting for something to steer you when footsteps pad, and on a twirl a man materializes like a muse and mutters, "It was three short years ago on this spot that a bad man cut a tourist's throat for no good."

He is slight, fiery eyed with an impish nose. "Relax. I tell stories instead of beg. They are true, and I'm hungry. One tourist had his hands hacked off" I teeter fore and aft on toes in consideration that the most interesting trips you take in life are meeting people halfway. We mosey the cobblestone streets chatting amicably for an hour, with everyone else indoors. Finally, I award him three dollars, thrust my hands in my pockets, and walk alone back to the hotel.

Normally, I alight fresh each night in a pueblo and ask directions to the omnipresent Central Park where the town turns out. Latinos circle the opposite sex past the greens, fountains, church, and this is where I find the cheapest hotels. One rose sweetened evening, floating from a bench, "Pleased to meet you. Welcome to our country. I'm an official tourist guide." I tip my hat. A few steps later, "Pleased to meet you. Welcome to our country. I'm an official tourist guide." The senoritas punctuate it with quiet flushes, having an incapacity to carry on in English. At the third "Pleased to meet you. Welcome to our country. I'm an official tourist guide", a thirties senorita steps under a lamplight and points to a breast name badge, "Nicaragua Official Tourist Guide." She continues in fair English that a nearby tourist college graduates just a few smart girls, and opens a dog-eared Moon guidebook and pages to her photo wearing the shield. "It's true!" I excite, and buy meals at a local eatery. We part, she with leftovers in a bag for her mother, and I reflecting that she isn't poor because she thinks she is not.

One afternoon on a lot, I see a mini-bus window soaped "San Juan del Sur" and find it on a map going to the Pacific. That's a lovely thought after a week on the Caribbean and central mountains. As usual, the bus has no schedule, waits till full, and at last needs just one more body for a vacant seat before the driver will twist the key. It, an elderly gent, sits sipping coffee in the bus station café across the windows from thirty equally complacent passengers. I'm frantic with the possibilities. The driver will miss one fare by leaving early, or may face walk-offs, or the gent will miss the bus if someone enters first, or I may buy the seat. However, the station is slow and so he swallows. In ten minutes he boards and that's business as usual.

Driving a bus is an athletic event on this forgotten road so chuckholed to the Pacific that it should have been left dirt, and a spectator sport. The driver pauses every five minutes to take on or discharge patrons that turns the 50 miles jaunt into a two hour expedition, as his teenage son yells in people, collects fares, sells cokes, and tosses baggage atop the rack. He takes my fare up front promising to return from the rear with change. This is a bus courtesy in the boondocks to chop up an otherwise useless large denomination bill; I tip for the service. Nicaraguans commonly are above the Alzheimer's trick of forgetting the change, but today the youngster doesn't, and before stepping down at the beach I get dad after son for the money, and go for a walk.

San Juan del Sur is an engendering ex-pat trap with cheap hostels around a horseshoe bay, vegetarian cafes, and a dozen language schools. You can sleep in a hammock, learn Spanish, eat yourself healthy at an outdoor market, and drink cheap rum at night mulling the worse ways to go. There's nothing here for a rover, so by quirk three hours after arrival I board the same mini-bus to return. Same hackneyed story, we wait thirty minutes for two passengers to finish tacos across the road before I, owning the probabilities, rally the group to hire cabs. "It's twice as fast, costs 25% more, and leaves now!" I shout like an old-time picketer. Three strikers and I march off the bus into a cab, and that night I wager the son got a spanking.

The cheapest hotel of my life is in central Nicaragua at $.75, the cost of a box of tissue, for an 8"x10" cubicle, squeezed between more like it, with a bare mattress and dangling light bulb. Given thrift and adventure go hand in hand, walk down the hall to the toilet, a smelly fathomless hole, and peril.

Poverty is the father of invention in Nicaragua. I see power lines spanning broken branches jammed in the dirt for miles and sagging under epiphytes, wasps nests and tennis shoes. There are fences of living trees ranging from one-foot saplings planted three feet apart to hundred year old adults at the same gap. And, oh say, the billions of Nicaraguan national flags of baggies flapping on the lines and fences. The song of the nation is, we're too poor for glasses and the mil is exceedingly thin so the plastic blows miles before the sun.

One can ride a bus without getting off and grow old, wise and fat. The houses I see are clapped hybrid wood slats, adobe, cane, concrete, tin, thatched and blankets. At each home the extended family members tie one end of the threads of life and venture out into the village. The adults are driven to poverty until it's so instilled that even a windfall- unless there's a TV- won't alter their mentality. The cold-water savvy children own a delayed gratification that makes them ripe for a prudent education. The first step to this is literacy, the bridge from the hut to anywhere. The second step is convincing the government to teach critical thinking- greeting every moment's situation with a thought instead of passion- so that high school graduates will infiltrate the government. The weak link in this process from poverty to home to school to society to beyond is that en route Latinos forget their silent power of austerity.

A few days beyond this conclusion, on a second-class bus in north-central Nicaragua, I meet the first bona-fide traveler in two months since leaving the USA, a bespectacled Dutch programmer with a nippy sense of humor who's traveled a hundred countries. He's moving light across Central America for six weeks in search of a home away from Holland since he can work anywhere there's internet. The gringos I look for on the road are mavericks who everyone in the world loves, wishes to be, and hopes to accomplish something beyond rebellion. Dutch's outlook is so bright, life seems so good, he is ready for all, so that when he invites me, "Volcano surfing!"

"What on earth ?"  I pipe. He spells out the safety and merits of renting a board to slide down the cone, albeit it will be his first time. I can do nothing but accompany him for two days into the north volcanic country. We step down in historic Leon and immediately up onto the first pickup with surfboards and soaped "Vulcan Negro". One thinks he has surpassed childhood acrophobia until seeing the heights nature shoves in his face.

The truck grinds uphill dirt roads with racing children on horseback for an hour toward a 1,300" active cone. The kids fall behind in exhaust and dust, and farmhouses fade on a black carpet of grit that thickens from inches to feet without a speck of vegetation approaching the base. We park and hike a winding, steep trail through sharp lava carrying the 6’ surfboards that become sails in a stiff wind near the top. There are six of us: half girls, all Europeans, and me. The lighter girls get twirled like pinwheels scant yards from the cone venting sulfur steam where the ground is too hot to touch long. On one side of the cone without lava, the guide bids us to sit on the boards and insists that it's faster to sled than stand. He invented the rudderless boards with a tin skid pad for a speed record of 40mph, and explains how to sit back and steer by leaning, but doesn't demonstrate. We don orange suits for protection from the cinders of the 45-degree quarter-mile slope. This is ridiculous, but " I'm glad that I'm trapped in a clown suit, helmet, goggles, my pride and leaky knees. The guide prompts me, "Show them you aren't a pussy!" (See eruption photograph).  Down!  zoom! white knuckles over black cinders, too fast, tumble and crash, climb on for some fun!

Back in Leon, Dutch and I take $6 rooms at the Dentist Hostel where the owner ushers me first into the office chair for open wide and says she'll crown a cracked tooth for another $110. I demur, and exit for a city tour. I had seen a downtown sign, "Walking Tour $6" and was struck by the novelty. I draw with two others a long-legged guide, a political science major, who asserts in correct English while striding past thousands of bullet holes in buildings and walls that Leon has a long tradition of liberal politics. His father and uncle were tortured supporting the Sandinistas against the federal troops in the 80's and, patting a spreading oak at the town edge, this tree is the symbol of resistance. The war is decades over, but the rebel consciousness remains. Our guide points up at razor wire on the 12' brick wall hemming the school that even so he scaled twice to enter the mix. This town has some of the grandest architecture in the world because it hasn't been restored for the simple reason of a town code forbidding the knocking down or patching of ruins with other than the original material. The cathedral, missing bricks and bullet strewn like an old general, is the largest in Central America, where the guide insists, "The priests pocket some of the donations but the people think it's worth their blessings." Houses appearing from the 18-19th centuries line street after street, except in the affluent section where new homes are built inside old ones. That is, the 3' thick adobe walls of ruins become the shells three inches from the inner walls of luxurious houses. The only graffiti is "Bush the Diablo of Genocide!"that the young guide tries to explain away but chokes on the truth. At the three-hour tour's end, I buy from him "The best map of Nicaragua" and spread it before me like a magic carpet. It shows a network of lanes as thick as spider webs laid over the countryside where I hatch a plan to connect the villages by foot from the Pacific to Caribbean.

For others, Leon is a budding bohemia. In two days, I chatted with the following: A Spokane lady who got in a car wreck, swore off autos and is riding a bicycle alone to Tierra del Fuego until she got waylaid here; A Portlander motorcycle mechanic who refused to rest on an obsession and is motorcycling to Panama's Darien but likewise is stalled here for "the 24-hour action"; An effervescing 70's Berkley graybeard who's built a business over the decades teaching Spanish, Chinese, French and guitar to tourists; Today's newly arrived veteran with a chest full of two wars' medals tottering on a cane and a pretty senorita's arm to the embassy for permanent residence; And the Dutchman declares he shall buy a vacation apartment!

Just before moving into the apartment, a day later, my cohort hurls his Lonely Planet guide to the floor and bellows the Dutch equivalent of, "Horseshit!" This globetrotter of twenty years stomps around it quoting the "lovely primary colors" of our actually dank rooms, and declares that in a six-week informal study through Central America at the suggested hotels and attractions he has repeatedly been told by proprietors that the Lonely Planet teams walk through (if they go at all) and out the cheaper hotels to trade lavish recommendations for freebee rooms and tickets at the posh spots. This parallels my findings of the past eight weeks, and supports a theory, an untold story, that Lonely Planet pioneered as well as recently quashed world budget travel. I imagine the same pivotal decision faced by the guidebook is daily weighed by businesses and individuals finding themselves in this expanding world. Do you adjust your methods and codes to grow quickly with the times, or maintain integrity and advance slowly?

"The globe is an anthill of travelers under backpacks going from one world wonder to the next, sleeping and eating in the same places- as described in the Lonely Planet guidebooks" I opened travel lectures during the 1980's with these words to colleges and outfitting stores. Anyone with a passport and the guidebook could go nearly anyplace with confidence as carefully researched by handpicked pioneer authors. I met one on his knees with fatigue before the Great Wall of China, one lost in malaria in Africa, and one in South America; they got around. (Today, Lonely Planet has 500 staff members and 300 authors.) The books spun details from the wisdom of having been there. It’s safe to say that modern budget travel exists because of Lonely Planet that seeded my early travels and anchored soulful impressions to make their story around the world, in a way, my own. The first full guide, Southeast Asia on a Shoestring was my first trip, and on with the ensuing books to Europe, Australia, New Zealand. Africa, India, South America… for a total of 96 countries. (The publication now has about 700 titles.)

Before leaving Leon, I enter a Cyber Café and learn online that Lonely Planet a few months ago (Sept. 2007) was purchased by BBC. The theory is true: The publication that single-handedly created budget travel has as easily replaced it with tourists who read how to hail a cab to massages. The new breed of traveler works hard and deserves it, but beware that once an organization or individual loses its pioneering spirit, all progress stops. In a flash in the Cyber Café, the solution to the day-to-day use of Lonely Planet strikes: I shall use the guide frankly in reverse to eschew its picks and blaze new trails to its cautions. This will prove delightful.

Should you visit the largest, poorest, least developed country of Central America? A developing nation has two faces, and it's your choice of how to view the experience. The blessings are people in hand-me-down clothes and old-fashioned smiles against a backdrop of untouched natural splendor. The daily thrashings are rice and beans with cold showers. I nearly always felt safe, and the lack of personal possessions makes Nicaraguans among the most generous in the world. I encourage a pilgrimage into poverty somewhere anytime for it's fast lessons. Think that and you determine your destination.

Honduras Immigration is ahead, and the dread line of wolfish officials with their red ink.



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

Laurence Glazier notes:

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

Phil McDonnell responds:

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

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

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

Vince Fulco adds:

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



The legend is that before big hurricanes and natural devastation in the Carolinas, a gray man appears . What is the gray man that appears before big devastations in the markets? I propose that yields in bonds going up a plethora is one such gray man, a throwback to the bond vigilantes, and there are stock vigilantes and gold vigilantes. The whole subject calls for quantification as I return from the Carolinas.

James Lackey replies:

When my dad first moved to Fla in 1987, we thought the silliest thing in the world was riding out a Hurricane. Why not just load up the van and head to Atlanta? That is what we did at first. But after 12 years, 12 false alarms and a few close calls you think you can ride out the storm. Then in 2004 Hurricane Charlie taught us a lesson. We both laughed after the fact describing our attempt to ease our fear, "I don't think the heavy stuff will come down for quite a while". Caddy shack conversation. Boy did I feel like a moron, trading until the last minute when my internet and power failed, risking the lives of my babies. The storm was predicted to hit 300 miles N, it took an abrupt right hander over Sanibel and wiped out Punta Gorda.

To get the joke of the Gray man ask yourself, do we try to avoid panics and disasters as traders or to profit from them? My view is that after a few years in the markets we become far too brave.

Sam Humbert asides:

I wonder if the Palindrome's perfervid media tour in support of his new book is an attempt (old/young lion?) to push aside the Derivatives Expert's claim to the "I foresaw 2007" meme-space. Note how the Pal stresses that his analysis goes back to the Reagan years, i.e., pre-Expert.

Jim Sogi reports:

The current 20 day average S&P500 futures range is 17 points. Over the last 14 years, periods when the average range was above 15 fell in or before retrospective bear markets, and below 15 within bull markets, using overlapping periods, and have like intermediate outlooks. The higher volatility periods, above 15, lasted nearly 1000 days at a time, and the low vol regimes, under 15, a bit longer and compose nearly half the time series. If this data sample and regime and cycle repeats forward, the current higher volatility regime is perhaps not over and does not bode particularly bullish over the next month.

Russ Humbert contributes:

It may be the gray man that causes people  to flee in Carolina, but it is "the golden parachutist" in banking which sent my feet scampering.



A useful program for market operators includes long hikes alone in barren wilderness. On a recent 20 mile day hike in the beautiful Sespe North of Ojai, California, there were silent companions along the way.

The Sespe area has no cell-phone coverage, and one can hike for days among the black bears, deer, rattlesnakes, and coyotes without seeing other humans.

Here is the beginning of the trail early that morning, with the Piedra Blanca rock formations considered sacred by the Chumash people who used to live here.

The trail follows Sespe creek, which is a raging river during winter storms and has claimed many lives over the years, including a boy scout troop in the 1940's.

Part of the wilderness was burned in the huge Day fire a few years back, which has now regenerated and energized flora and fields of lupine, poppy, and other colors. Charred shrubs are twisted similar to to the fetal position taken by those burned alive (check your pathology book), and stand starkly against the sweet wildflower breeze:

After a very long trek, we reached the ruins of Willet campground, which was used as a way-station for equestrian pack trips.

Willet includes several shacks which are still used at night by hearty souls of many worlds.

As seen by their religious inscriptions made with flint knives late at night:

In one scorched canyon are the famous fossil remains of a trader, January Man.



 I am exploring the concept of circumnutation and tendril movements as a model of universal spiral movement in all parts of the plant world and markets, and found an article that is a good jumping-off point.  I would be interested in readers' ideas on the horizontal and vertical aspects to which markets cling and go around in clockwise and counterclockwise direction.

James Sogi replies:

After a tendril winds up high and breaks and falls on its own weight more than some percentage of its height, it might take a day or so of random waving around before it finds some support towards the end of the day and can try climbing back up.

One thing these tendrils that fall down to the ground in Hawaii do is if they touch the ground is they start to send out roots and morph into a new plant. A gardener can to take that new start and grow some new plants and reap some fruit. After January's big fall, the markets fallen tendril was able to grow some roots and some fruit into the spring.

Asparagus roots grow foliage, gather energy, and produce edible shoots, but after some production, run out of energy and need to recharge. Seems to be a common natural cycle.

Phil McDonnell adds:

PhilWe grow a vegetable garden with many diverse varieties. I am always amazed at the strategies different plants seem to use to survive. In particular the legumes seem to particularly favor circumnutation and tendrils. Most peas and beans are grown on some sort of support like a pole or trellis. For the really tall pole beans that grow to six feet I have learned to use their natural circumnutation to advantage.

One form of this is the tendency of the tendrils to wrap themselves around some convenient support. But there is another form of circumnutation this gardener has learned to use to advantage. It is well known that many plants turn themselves toward the sun: heliotropism. Clearly this is an adaptation to maximize their light gathering ability but it also allows them to compete with neighboring plants and potentially block them out. One aspect of this is that the stems bend toward the sun in the morning and tend to track it as the day proceeds finally bending to the west at night. Curiously at night the stem proceeds to bend back through what is nearly a full circle so as to face the rising sun in the morning. One can use this type of circumnutation to train the plant to wrap itself around a pole. Each day another wind on the pole will be added.

The smaller bush varieties of legumes tend to rely more on their tendrils. Effectively when they are planted densely the tendrils connect to the other plants and form a complex structure of multiple stems with cross connected supports from the tendrils. Together the complex is stronger than the individual parts.

When the market is in an uptrend it seems to spiral around its basic trend channel. Clearly this resembles the helix like structure of circumnutation. One is struck by the similarity to other similar patterns. For example in a fluid flow in a cylinder there is a natural tendency to spiral inside the fluid channel. This behavior is predicted by the differential equations which describe this process. In a similar analog the Earth Moon system causes the Moon to describe a helical structure as the system orbits the Sun. One wonders if there is a common model which underlies all of these processes.

Scott Brooks expands on this theme:

ScottThis applies to what we do on my farm as well. Every year, I plant food plots for the deer, turkey and other wild game. In our warm season plots, I want a variety of plants to grow that complement and "assist" each other. For instance, I like to mix together creeping soybeans, cow peas, lablab and other creeping growth plants that create tons (literally tons) of forage on their own per acre. But if I sow into the mix a moderate amount of corn, milo, sudan grass, or other such "stalky" plants, it greatly increases the amount creeping forage that grows!

These stalks greatly increase the ability of the creeping plants to circumnutate around the stalks. If you put enough of the stalk type plants in the mix and they are close enough, you can actually see where the vines jump from stalk to stalk creating bridges. Other plants then "hitch hike" across these bridges, growing the diameter and strength of the bridge. Vines then grow up from the ground into these bridges.

After a rain storm, especially one with wind, some of these tendrils will break away from the bridges or stalks and fall to the ground. Fear not, for other plants will use those fallen tendrils to climb to the sun. One tendrils misfortune is 10 other tendrils opportunity!

As weeds move in, the weak tendrils are killed off. But the strong ones push ever higher to fight for ever elusive sun light. This growth has an interesting effect on the ecosystem. The new growth is tender and succulent with a lignin content (lignin is the woody/stalky back bone inside plants that is not easily digestible). These tendrils are tasty morsels for the local wildlife.

Deer especially like to move in and eat these succulent tendrils. Conversely, deer also love to eat new growth on the weeds that the tendrils are competing with (actually weeds are one of the main food sources for deer). Deer also the thick cover that the tendrils, weeds and stalk plants provide. Being genetically programmed to conserve energy, deer will eat their fill and likely just bed down in the thick mess.

This bedding down and walking around thru the food plot causes the weeds to get smashed down and the tendrils to be broken and driven to the ground. This allows new tendrils to hitch hike up the old broken tendrils and allows the the tendrils that weren't broken to grow even more.

As the summer progress, the ligin content increases in the plants as they near the end of their lives. This is when they really start to bear seeds. Many of these seeds fall to the ground to lay dormant until the conditions are right for them to bloom. Some of these seeds are eaten by birds. Many times these seeds pass thru the digestive tracts of these birds still intact to be "deposited" elsewhere, laying dormant until the time is right for them to make an attempt to grow.

Then, just when the creeping plants are nearing the end of their useful life, the stalk plants begin to bear fruit. The "seeds" of these plants are full of life giving energy in the form of carbohydrates. The corn or milo seed or the seed at the top of sudan grass (which looks like a really tall version of milo… sudan grass is also referred to as grain sorghum) is available for the wildlife during the hardest part of the winter when other main food sources are no longer available. Throughout the spring, summer and fall, the deer have built up their fat reserves by eating a lot of food high in protein, but to survive through the winter, they need lots of energy, especially to build up their depleted reserves from the fall rutting/breeding season.

As you can clearly see, the tendrils and their tendency to circumnuate around the stalk plants play a very important role in the overall synergy of the ecosystem.

As I've watched my food plots grow, it's hard not to notice the connections between them and the markets and economy. I see staunch stalky plants and they remind me of the big blue chip companies. They provide the back bone upon which the economy is built. But they are now more important than the smaller companies which account for the majority of the economy employment. These smaller companies grow around and circumnuate around the stalks of the big companies.

Recessions and market corrections come in and damage or destroy some of those companies and push them downward. But their misfortune or stumble is the gain of 10 other companies as they come in snatch up the lost employees, assets, infrastructure or ideas.

The strong companies grow in the midst of this dangerous highly competitive environment. Some are beaten by weeds. Weeds especially become a problem once a plot has established itself and is successful. Bad businessmen, dishonest businessmen, and less competent businessmen spring up on this fertile ground and environment, trying to hitch hike on the backs of the stalks and gain prominence/market share on the bridges that were created by the honest smaller companies.

But ultimately, these smaller creeping companies and larger stalky companies really only serve one purpose: To feed the consumer. Like the deer, consumers move in do business with (eat) the products of the small and larger companies, including the weeds. When a consumer finds a comfortable food plot they usually bed down there (i.e. use their products regularly and become a frequent shopper of the company).

But ultimately, things change. As companies grow, they become more rigid and less flexible in their ability to adapt changing environmental conditions. Their lignin content (rigidity) becomes such that they are no longer growing.

However, in business and the markets there really is no season stagnation. Sure, sectors and whole asset classes may lay dormant for a decade or more, but something somewhere is always flourishing and growing.

Out there, at all times, there is no "winter" in the markets and economy. Sure, we can have periods of time like 1968 - 1982 or 1929 - 1950 which sure seemed like winter in the markets and economy. But the reality is that somewhere, at all times, there is a tendril forming and growing. It is circumnutating it's way up some stalk of some established company or idea. But it doesn't even have to have a blue chip company to grow around! That's the beauty of capitalism!



I just now honked at Officer Davis as he tries to direct the crush of traffic at our local Belpre Starfire that is still selling gas at 3.62 .

Down the street Speedway and Kroger gas lots are empty as they are now 3.89/3.99 and finally , 4.09 for premium . I say finally because the news media has pushed hard for 4.00 gas in their reporting for the Summer driving season.

Now I see talk of a second stimulus package !



The market is smarter than ever. [Comment from a Trader.]

The market isn't 'smart', it just is. A huge amazonian flow of human consciousness.

There's a danger in ascribing intelligence to this thing, tempting as it may be. For the thought that it's 'you against the market' stems from the ego, a false belief that we are in some 'mano a mano' battle and need to 'outwit' an opponent. All we are doing is outwitting ourselves.

The market does not care about our existance, it just continues. And the best we can hope for is to hitch a ride without being swallowed up in its ebbs and flows.



I enter Nicaragua, a country I know little about except for a reputation of being the poorest and most rewarding spot in Central America, in a motorized canoe at the remote port of San Carlos. A yellow canvas awning shades two dozen jabbering Latinas with their stores and me from the blazing sun and whatever may drop from tropical trees. I see baskets-size epiphytes bow the trees, 4’ chameleons on overhangs, wading birds, 1’ turtles sunning on the banks, two 6’ crocodiles, and a stout branch that conks my forehead sending the ladies into giggles.

On a further bend sits a ragged encampment of thatched huts where three Nicaraguan military youths duck a clothesline of their underwear with AK-47s in hand to wave the captain over for a list of the passengers’ names, a head count to verify, and we are passed.

An hour later, the river opens into Lake Nicaragua with a barely discernable far shore. My favorite thing is to enter a new place, and the feeling of pulling away from the edge of civilization into the mysterious. The canoe putts into a squall that pelts with rain and gust for five minutes, abates, and soon on nearing a port the captain shouts, ‘Put on lifejackets!’ (to satisfy the officials). The sun breaks through over San Carlos, a swampy shoreline of ramshackle structures teetering hardly above the water on wooden stilts. Children swim and laugh at our approach to a pier with missing slats like an old man’s mouth, our rosy portal into Nicaragua.

I step mightily up under my pack and trundle the swaying dock to a weathered wood door signed ‘Immigration’ and wait until it cracks after a knock as kids splash and scream underfoot for coins through the slats. An equally cheerful agent beckons me forward, speedily stamps the passport, and I take a deep breath to brace and exit the far side of the hut.

Before me left and right stretches a cobblestone main street flanked with flimsy, busy shops, and I doubt there has been a distressed port in any century. I duck into a café that’s the front room of the cook’s home and toss down a parade of $.25 fruit drinks while paging the guidebook to make a plan. This is the way the nomad moves through daily storms of possibilities, and on learning that I know the present location only by name and not the month, the cook kindly suggests a river visit to a 17th century castle ruins built on the bank to thwart pirates.

An hour later, the ferry, a thinner, shorter motorized launch, departs with a few Latinos and slices the jungle toward the Caribbean. It occasionally drops and takes on fares like a usual taxi except the car pools are horses tied to trees at wide spots where trails meet the rio.

At sunset, the canoe swings into a tributary held tight by trees and vines and motors a few minutes to a timber dock to tie on. Passengers fore and aft climb out, and I eagerly follow for a glimpse of the jungle castle in green filtered light, don’t spot it and muck the muddy town square and up a sole road into the hills until the forest and dusk close behind. I stop in my tracks, pull a penlight, but am struck with a queer thought and rush down the hill.

The boat is gone! There is no castle for I’ve prematurely disembarked. Lost and curious, I snap a flash photo of a 6’ statue of a fish with a sharp nose pointing upward when the seeming one town truck batters past to the dock, and I follow to a 70’ steel hull elderly freighter with peeling gray side-paint and weighted under burden. Five young stevedores, grinning teens in oily rags, jump the tailgate, crank the truck radio, and dance while off-loading five cubic yards of 120lb. sacks of rice.

They look shorthanded, what the heck, so I leave the fish to help unload lighter items including 8’ spherical black plastic solar water heaters. The boys, like me at that age growing in spud-rich Idaho, are wary of a vocation that requires new clothes more than once a year, and are pleased to earn $8 per 12-hour day, 365 days a year. They take turns trying on my ankle weights until the captain of the ship advances and I hit him up for a ride. Batting nary an eyelash, he will ferry me downstream to El Castillo for $1.50. We momentarily push off with our feet for a slow ride down a moonlit stream as I recline on life preservers with hands clasped behind my head thanking my lucky stars. The unknown is the best pillow where I gaze at the stars between passing overhangs and smile that dreams do come true because in Idaho I read Bomba the Jungle Boy and here I am.

I must have dozed, for next the cap’t yells, ‘Get off!’ I edge to the boat side that bobs three feet from a darkened pier, and toss first my pack, then ankle weight with thumps, and leap…

Gazing up at the castle in the shadows of moonstruck trees, I nod sleepily on hands and knees, and rise to trudge up to it. Just think, it began by carefully putting two bricks together three centuries ago and now it’s a touching hump of a hundred weathered bricks. No town should be larger than a walk from a castle to a hotel on a wharf over jungle rapids next to a pool hall of hangers on. I get a key and candle for $6, and fall asleep listening to the water rush beneath.

People in jungle outposts rise at godforsaken hours, so I catch the 5am launch back upstream to the port of San Carlos. There, next to the dock, the mud slick bus lot steams under the sun. I grab a cucumber from an adjacent market stall to munch and think and, sure enough, thirty minutes later wipe my Chucks on the first step of an ancient orange school bus. It so crams with Nicaraguans and their stores that I’m pressed to the back above the rusting floor atop a dozen rice sacks. The driver cries ‘Vamos!’, mud flies and the heavenly ride slides out of town.

I look down and around at the passengers and out the windows with some concern that there’s not a fat person in Nicaragua, nor a real thief. A grain or two at a time, with each bump along the road, a rice sack with a rent of my throne leaks to tinkle to the floor. A beatific ten-year delights in scraping one fallen grain at a time and sucks a la grime, and grins shyly. The bright eyes in mine express wonderment, softness, pride and a touch that I don’t join the table. Other riders squeeze the aisle to take pinches off the floor and thrust into hungry mouths. Savages we have called them around the world because their manners differ from ours.

I study them. Travel magnifies human emotions. Every seat is stuffed, and thirty more stand the aisle in their sadness and wisdom- and I might mention eternal yak- until the temperature soars to 100F at our heads that sometimes bump the roof. They stand stoically and chat affably for hours until I must be grateful as the sun heats the metal so hot the air thins beneath until they cannot find wind to continue.

The yellow antique averages 20mph for ten hours over the worst main route I’ve journeyed, stops hundreds of times- often at hundred feet intervals- for passengers at slim towns or paths erupting from the jungle, plus two flat tires. A huge volume of adventure is filled within the span of a bus glass by taking a keen interest in everything that passes. This, and more windows, will shine a theater of jungles, towns and peoples struggling for existence with all they can give. It’s showtime, forget the mosquitoes!

I spread a map for the first time against the hot glass to discover where the bus is going. A country’s psyche is the roadmap thrown into an upright position, and I’m delighted to see the paths and lanes are earth. I shall become enamored over the next month with the notion that the poorer the place the higher the adventure.



This web site's contributors and readership consists of astute individuals looking to make informed investment decisions (or perhaps, more appropriately, trading decisions). However, it's worth remembering that many participants in the market maintain positions based on less objective criteria.

While taking a break outside today, I encountered an older gentleman returning to his workplace (a large diagnostic laboratory where he delivers lab samples to and from doctor's offices). He asked me what I did, and I replied "Investing", without going into great detail. He then asked me jokingly if I could get his investments back out of Enron. He then proceeded to explain that he had lost the majority of his 401K as an employee of Enron (he had been a petroleum engineer at a company acquired by Enron for over 20 years, then spent several stints with Enron in Houston). He reminisced that many times he had ridden on the same elevator with Ken Lay and Jeff Skilling, and had been told repeatedly, "Make sure you're buying that stock, T*****!" Now, at 76, he's a delivery driver, happy that his diabetic wife gets free lab work, but unlikely to retire any time soon. One can only hope that his eyesight and reflexes enable him to retain his current position for the foreseeable future.

After he walked away, I thought about my own fortunes. My first job in finance was with a firm that will soon cease to exist, and my immediately previous position was with a firm that recently announced substantial job cuts worldwide. Both firms pushed their risk boundaries past what might be considered reasonable bounds. Neither appears to have engaged in the fraudulent activity associated with Enron (as far as we know), but they may have arguably breached their "duties" to their stockholders in their pursuit of profits with insufficient regard for downside risk. I'm fortunate to work for a small firm that engages in high risk investment (seed and early-stage venture capital). The risk is high, but transparent and straight-forward to those who participate.

How often do we as investors/speculators encourage risk-taking behavior that bundles up participants who are unaware or uninformed about the risks involved? We can argue that anyone who takes an equity stake in any enterprise has the duty to inform themselves about the nature of their investment. If that is really the case, though, does some type of duty exist within the corporation to insulate and diversify their rank and file employees who serve in functional positions with little strategic input? Would doing so cool the market for high growth stocks, and would that chilling effect ultimately prove less expensive that the potential social burden that results from the destruction of shareholder value if and when things blow up?

Many people here have made and lost fortunes (some more than once). The difference would seem to be that the DailySpec readers were probably easily classified as willing participants. Does a duty exist to make a firm's members aware of the risks of stock concentration at least, and risk-taking strategy implications at most? I think many will state that we are all willing participants. However, we should remember that when things go the wrong way, collateral damage occurs. The question I suppose that I'm posing would be how much of that damage is needless. I can only thank reason and fortune that I'm in a good position now, and hope my new friend finds a way to enjoy some part of his golden years, even if they're not turning out as he planned.

Stefan Jovanovich adds:

"Everybody cheats" (See Breaking Away). Allowing companies to adjust the forecast rates of return on their defined benefit plans' portfolios was the way everybody in management cheated under the "old" pension plans. Allowing companies to contribute their own paper to 401(k) plans instead of cash has been the way everybody in management has cheated under the new pension plans. But it would be disingenuous to claim that the knavery is only in the board rooms. The poor, lowly employees in Enron had their own part in their financial ruin. The cheating in Enron was not just done by the senior managers of the company; it was endemic throughout the company. So was the boosterism for the stock and its price. The peer pressure to "buy the stock" came as much from lower and mid-level employees as from Lay and Skilling. Once "ordinary" (sic) employees come to "believe" in their company's stock, they become the most emphatic preachers of the new financial faith. People know when they are being greedy or lying to themselves; the question is what they do about it. Some or none or all of this may apply to the poor soul Jim Rogers met. 

Russ Humbert expands the scope of the analysis:

Why risk management is taken for granted or ignored:

1. Everybody is a genius when things are going great… It couldn't be that you got lucky. A good risk manager reminds everybody they are not as smart as they think they are. A good risk manager tells them to walk away from the table, or at least take some chips off of it. Which is always interpreted as "you are preventing us from making money". It is very hard to argue with success, if it's the gambler that just threw 4 straight 7s to Buffet at his annual meeting.

2. When everything has gone to Hades a good risk manger can't win. First he has to convince them that there are no excuses, take your losses like a man. Certainly there will be someone to blame, from the con-man to the incompetent fool; the loss could have been avoided. Learn from it. In investing, everyone has a choice. In 401k a good variety of choices with proper accounting for $ should be the only obligation from the business. Second, he has to direct them to the opportunity in the panic, rather than look for the scapegoat. When things are bad, risk is always overestimated by someone needing an excuse to cope out of making scary calls and implying nobody is to be trusted. Hurricane and earthquake insurance premiums increase after the fact. Try convincing managment now is the time to be in earthquake business when everybody is wanting to buy it.

3. Many believe risk management should be free. (For an example, look no further than nationalized health care). Nobody wants to pay for the research and personalized understanding that takes time and money. Ask your superiors for resources, on something they consider a sunk cost that constrains them, and they are not interested.

4. Many believe investment risk management is simple common sense, which can easily be regulated. Working for an insurance company, and seeing the high regulations imposed on insurance companies investments, it's clear regulations and common sense don't mix.

5. Many believe risk is not a personal choice and a cookie cutter approach for everyone works fine. Think of the millions that have suffered and died due to FDA's approach. But with personal choice comes personal responsibility. Tell this to the risk addict. Or tell this to the insanely paranoid.

6. The Lake Wobegon effect where every child is above average, clearly applies to investing. In a investing/business you can always find a area where your business does a better job of managing risk than the rest of the industry. Or if not the industry average, you can find someone that does a more shoddy job than you. Hence, you are above average in every aspect. Further it never occurs to you that everybody may be lemurs headed for the cliff. Try being the risk manager to a disfunctional buisness, I think I would rather tell a Mom her son can't move on to the next grade.

7. A close kin to Lake Wobegon is many believe they are "blessed" and therefore can ignore purdence. While risk management applies to the masses, they got G*d on their side. If its simply because they were born to the right parents that their luck can't run out. Or it could be the opposite, they have had such a string of bad luck that the Big Guy owes them. Pity the poor risk manager arguing with this.

8. The Rating Agencies are thought to be better than internal controls. Nobody considers that the ratings are a game and are often exploited. This has many parts:

a. As I wrote in an earlier post, the subprime mess is largely due to socialist industry averaging of risk management.

b. When the game is to get the rating, not to manage the risk, there are a million loopholes. Simply learn what they review, and take your risk elsewhere (hopefully this increases your returns). Hedge funds/Sharpe ratio, go with liquidity. Investment banks balance sheet, move them off balance sheet with SIV's. P&C companies, do reinsurance with side contracts like AIG and GenRe. Life and Annuities insurance companies, use variable annuity guarantees and interest rate guarantees (which are now being monitored after large loses)

c. It seems Enron bought their rating. From the magazine ad claiming "Car of the Year" to Nobel Prize. You should assume raters have some price: dollars, political, or connections and you should not consider them totally objective.



 I have been reading the autobiography of Marion Davies lately and she has a quote from Hearst that "make sure that the youth like it, and the rest will take care of itself." I am wondering if youth oriented stocks, Google et. al., perform better than others or whether the ratio of price to age of average employees or executives might be a better indicator than P/E. I would be interested in other youth oriented stocks, other than the toy companies, or readers' thoughts on this trickle-up theory. In particular, Hearst didn't like "kissing" in movies, as kids 12 and under hated it, and he especially didn't like it when Marion was involved in such activities in any way, though from a reading of the book, with her giving up her career ultimately so she could take care of the great man, she seems to have been perfect in her role.

Russell Sears replies:

Today I ran a 20k run (12 miles) with an young hopeful marathoner, Jerry Faulkner. He was taking an easy day and I was running hard. He had recently switched coaches an his new coach has him running much higher distances per week, longer hard days, an only picking key dates to race. Much more like I used to do.

After hearing him talk about his training and his coach, it dawned on me why you are seeing a surge of young USA guys finally having a chance at medaling… it's the availability of coaches now. For guys like him, a recent college grad with potential, but an unproven record, living on a shoestring, 20 years ago few coaches were available… When I was starting, comp race entries and free or cheap shoes where available from local specialty running store for the local champs. Now the coaches are seeing the benefit of comping a young local kid with potential, since coaching is bigger business than just schools and colleges. Becoming a personal trainer has gone beyond just the weight lifting guys, obsessed with making a living with what they love. The new coach sees helping the young guys out as their way of staying connected to the action in the sport as well as generating a buzz about their business.

But much credit must be given to the youth of today also… 25 years ago, I would not have thought of inviting a deteriorating 45 year old on a 12 miler… Plus they are much more aggressively seeking those coaching/mentoring relationships than I ever did… Part of why thrived after undergrad school was because I enjoyed calling my own shots in training. But experimenting without supervision often caused me to learn my lessons the hard way… blowing up.

So it may be both: "if the youth like it" is necessary for success but "the rest" have to be part of the potential of the company also.

My hypothesis  is: take the standard deviation of the ages of officers of a company, or the board of a company. I would suggest the CEO if both the CEO/president or chairman of the board age counts twice. Regress this with the standard dev against 3 or 5 year returns and see if they are correlated.

Steve Ellison adds:

This credo appears to be a central operating principle of the advertising industry. Just this week, I received a phone call from a man conducting a survey about television. The first question he asked was my age. It was also the last question he asked. When I responded that I was 46, he said, "Thank you very much for your time." I was not surprised. I already knew that I was an "undesirable demographic".

Sam Humbert complements:

And it's a timeworn idea in ladies' retailing that women will buy clothing aimed at the demographic ten years younger.. Probably there's a Zeno's Paradox in there somewhere.

Steve Leslie extends:

Vic has brilliantly raised a magnificent subject to discuss and debate and I hope that the thread continues onward and upward. As with all stocks, timing is important. With respect to "concept stocks," buys and sells are critical to a speculator's financial success. These are not grind 'em out stocks that move 8-10% a year. You have to be ready to buy and ready to sell. I know it sounds like a cliche but it is imperative here to remember. Even the great Apple was overpriced at $220 but offered value at $120. A good exercise is to examine Apple vs Microsoft and look to the esprit de corp or their raison d'etre for insights. The great thing about Apple is that Jobs came in and had the vision to discern what the consumer wanted. He went outside the box with the iPod. It was the same with the computer, the Apple brand always had the slickest, fastest, coolest best stuff around. But they were not content to sit on the computer. They were looking for more innovative concepts and other worlds to conquer. He listened to what his legion was telling him. Part of the struggle with Microsoft's stock having gone nowhere in five years is that they are now sitting on their dominance with the operating system. Although very profitable, throwing off massive cash, their stock is not embraced like Apple's. They could have done the same or similar things as Apple but did not transcend the culture. An insight into their mindset is their recent attempts to purcase Yahoo. I am totally flummoxed why this deal has not been done. Who's to blame: Yang, Ballmer, Wall Street, the lawyers? The deal may ultimately be done but at what cost? And at what price? Final suggestion: One company that merits study is Garmin, the leader in GPS hardware and software. Much too early to purchase in my view, but that view could change.



Jim Lackey

REDMOND, Wash. - May 3, 2008 - Microsoft Corp. (NASDAQ: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo! Inc. (NASDAQ: YHOO).

Paying 5X sales makes sense for a media company? The only other one that baffles me is calling amazon a tech company. The entire techie list is cluttered with either media or commodities, like chips or software that is bundled but offered for free elsewhere.

I am not a techie. Yet I see what the kids are playing with, video. The free MSFT XP downgrade is the joke of the year. Yet I see so many bullish on MSFT, which is wild in the first place, but how in the world did it make sense to buy YHOO? Why did MSFT fail or did they fail in the media/e-mail markets. How can you fail giving things away for free?

I don't have a Linux machine. We still run XP here. I am not anti-MSFT. I notice how many have moved back to XP WM type file systems on many of the sites we use for music and video. Frustrated by the never ending paying/renting of songs, constant reloading of rights for the hand held music players I shut down the Napster. It was great, just sick of it.

I just dug out a box full of old CD's. funny the CD's date from my Army days in 91 until 2002 when file sharing/renting downloads began to work well. Anyways I remember back in 99/2000 ripping CDs to the PC and trying to rename or move files up down load them etc. Oh yea, like back in the 80's making mix tapes.

Hades, I've had my win update off for a while now. So I have media player 9 on this machine. What a breeze. I just went through 25 CDs in a couple of hours, made all sorts of play lists. Its not that its that much easier vs Win NT or 2000 years ago, it's just faster.

So in the past 9 years what has been created? Everything that was dreamed and promised in 1999 is here. Nothing new really, it just works now. Vid-edit file sharing Utube hand helds cell phones, 3g and GPS.

I know "they" say tech stocks have never been a better value. Well that's because there is nothing new. Yes all the toys are better and cheaper. Yet how will they command a premium in the future? Tech traded at 100X earnings a decade ago for today. Today is here. Why are some trading 2-3 times the present for today? Nostalgia pricing?

Yea I understand the branding and all that Jazz. That is why GOOG failed at video and bought U tube. Yet "tech" was futuristic. It was a computing story. A making people lives better story. No doubt there will be some more improvements but the big picture seems to have been played out.

Well one great internet idea left. High speed WiFi the entire country.



GregIncreasing wealth around the world drives demand for particular products, and early speculators in those key goods can get rich. Western European wealth and population grew in the 1500s. Total population was up 50% over 100 years at the same time as average wealth rose 15%. Not impressive at all by today's standards, but major progress compared to earlier centuries. Demand for spices to flavor food and hide the odor in meat (and kill microbes), grew dramatically. Plus nutmeg was believed to help cure the plague and other grave diseases.

The book "Nathaniel's Nutmeg: The True and Incredible Adventures of the Spice Trader Who Changed the Course of History," tells the story of European merchants establishing direct trade with the Spice Islands–trade that had for centuries gone through India and the Middle East. English merchants in 1602 present a letter from Queen Elizabeth to Ala-uddin Shah, the powerful Sultan of Achin in Sumatra. After two pages of praise for Ala-uddin and attacks on Portuguese and Spanish pretensions, the Queen requests opportunities for commerce, writing: "Trade not only breeds intercourse and exchange of merchandise .. but also engenders love and friendship betwixt all men." (p. 88)

Trade may engender love and friendship, but competition among state trading monopolies tends to spill much blood first, sending sailors, soldiers, and merchants alike to their graves. The Dutch, with their superior capital markets, raised more money and sent fleets faster and larger to roust out the Portuguese and set up trade networks.

Nutmeg and other spices were valued pound for pound far more than gold in Europe, and nutmeg was the prize of the early spice trade, growing at first only on tiny Run island. After long battles between the British and Dutch, the Dutch gain control of Run island by treaty, in exchange for British control of New Amsterdam.

I am rereading too "Nutmeg of Consolation" and reflecting on the Aubrey's ruse to draw a French ship close in for battle. Edmund Scott, the British East India company's factor on the spice island of Bantam, had somewhat the opposite problem: "Scott soon realized that one of the main reasons why they faced the constant threat of violence was that the native Javanese were unable to distinguish between the English and Dutch. The Hollanders, who lived in Bantam in considerable numbers, paid scant regard to the sensitivities of the local population and thought nothing of staggering home through the streets of this staunchly Muslim town after a lengthy drinking bout. … The situation was made worse by the fact that some of the Dutch would pretend they were English if they thought it would be to their advantage when buying spices."

The English came up with the idea of staging an elaborate celebration for the anniversary of Queen Elizabeth I's coronation, dressing themselves up in white silk and scarves of red and white, to "make 'a flagge with the redde crosse thorow the middle." The fourteen English traders marched up and down the town streets attracting hundreds of curious Javanese. The locals asked why the other "English" were not celebrating, and were told they were Hollanders and had no King. "The day ended in triumph. As a constant stream of shot was fired in celebration from the English factory a procession of children wound through the street shouting "Oran Enggrees bayck, orak Hollanda jahad," which is "the Englishmen are good, the Hollanders are naught."

We hear today of securities markets seized up because investors can't tell reliable securities from dodgy ones. Maybe it is time for a major advertising campaign by British firms who can claim they answer to a higher authority, and another Queen Elizabeth.



JasonI've been re-reading parts of two terrifically enlightening books on the Federal Reserve this week, "The Creature from Jekyll Island" and "Secrets of the Temple".

In the course of my review, I was reminded of a gentleman who once was the head of the Federal Reserve System who believed in sound money and hard banking, William McChesney Martin. Appointed by Truman in 1951, Martin would last through 5 Presidents, finally retiring in 1970 during the Nixon administration. A Yalie that had concentrated in English and Latin, McChesney Martin had deep family ties to the Federal Reserve. His father, William McChesney Martin Sr., had been both the Governor then President of the St. Louis branch of the Fed as well as helping to craft the original Federal Reserve Act of 1913. Junior himself was instrumental in the 1951 Accord, the agreement that is seen as re-establishing the Fed's independence.

Harry S. Truman thought that by appointing Martin Jr. to head the Fed, he could over-ride the agreement. Despite being a Democrat and growing up in the bosom of the private-public power duopoly of NYC and Washington D.C. elites, William Jr. did not play ball. Instead he ran monetary policy in a strong, counter-cyclical manner and was very mindful of inflation - refusing to return to the practice of debt monetizing as Fed Chairman Eccles had been apt to do.

He was a hard-nosed real money man who lectured Congress sternly on what he saw as excesses in spending and a growing lack of appreciation of the two-sided nature of capitalism. In August of 1957 he told the Senate "We are dealing with waste and extravagance, incompetence and inefficiency; the only way we have in a free society is to take losses from time to time. This is the loss economy as well as the profit economy."

50 years hence the man that occupies the seat at the head of the Fed's table is completely devoid of such character. Instead of warning Congress that inflation causes mal-invest, encourages excess speculation (NASDAQ, real estate), and particularly afflicts "hardworking and thrifty… little man on the fixed income who could protect neither his income nor the value of his savings. Often, he was also the unemployed victim of the collapse", B.S. Bernanke recommends easy money and opening the spigots of government largess.

The history of the Fed is intriguing and insightful, giving generous lessons to those that would heed such knowledge. The obvious message today is that the current Fed is much like that of Arthur Burns or George Miller, men who would quickly acquiesce to the whims of politicians. In stark contrast to William McChesney Martin, Benjamin Bernanke wants to be loved and accepted and is willing to commit grave errors in monetary policy to achieve that aim. Speculators and pensioners beware!

Edward Talisse adds:

The most recent offering of Grant's Interest Rate Observer includes a witty cartoon. A local motorist pulls up to his nearest filling station and exclaims to the station attendant that "the recent price increase in gasoline is outrageous." The Greenspan-Bernanke schooled attendant coyly replies "yeah, but is not a core increase!" Correctly assessing the medium to longer term inflation outlook has always been a key to investment success and preservation of wealth in real terms. The problem is that inflation forecasting is a tall order and even the pros cannot agree on an appropriate methodology. Today's CPI readings are met with much cynicism and skepticism. The bond trader's lament "that of course when you take out everything that went up, it goes down! Anyway, here is a PDF that explains the difference between the CPI and the PCE. CPI typically runs higher than PCE. Chose your poison carefully.



I like to revisit "My Life and Loves" every couple of years. Written in the 1920's, the book is an autobiography of Frank Harris who at different times of his life was a scholar, cowboy, hotel manager, professor, lawyer, adventurer, trader, cattle rustler, and finally the editor of London's "Saturday Review." Harris was a brilliant man with a strong memory for detail, and had a total recall for verse. He was born in 1851 in Ireland to a Naval officer and spent a few years at a public school in Wales. At the age of 13, he won a scholarship and used the money to book passage to America. Landing in America, he got a job constructing the Brooklyn Bridge. His entrepreneurial spirit led him to form several successful business ventures in New York. Saving his money, he landed in Chicago, where he ended up as a desk clerk at a hotel. His passion for detail and profitability, led him to ultimately run the place. His wander lust led him to the plains, where he became a cattle speculator and cowboy. He participated in several cattle drives, ultimately bringing 5000 cattle from Texas to Chicago, just after the Chicago Fire where he made great profits for his own account.

Harris then ended up at the University of Kansas, where studied the classics and law, and also successfully speculated in real estate. Harris passed the bar exam and practiced law for a short time. Eventually, his passion for learning took him to Germany, where he studied for a couple of years, and later Paris. Harris lived a pseudo Bohemian life in Paris, where he partied, wrote, and hung out with notable authors, poets, artists, politicians, speculators, and royalty. He did several tours of the continent, went to Africa, and eventually ended up in London. Harris took junior positions at several newspapers, restoring their bottom lines, culminating with being the editor of the "Saturday Review." His speculations in Consols led to huge losses. He took those losses in stride, and maintained a very heavy social calendar. Harris was a lifelong friend of Oscar Wilde, Emile Zola, Cecil Rhodes, Guy de Maupassant, Emerson, and others too numerous to mention. He described his encounters with all of his friends in great detail, and provided great insight into the culture of the early 1900's. Harris knew everybody, and was described as a boastful rogue with a very voracious sexual appetite. His many descriptions and exaggerations of his seductions led to "My Life and Loves" being banned in most places. Frank Harris was a stand up guy with his friends, passionately defending Oscar Wilde when his scandal became front page news. Harris collected art, being friends with most of the Impressionists, and getting pieces of their work at very low cost.

"My Life and Loves" is a great work, despite the exaggerations and boastful sense of self importance. Harris really understood the classics, and his thorough knowledge of Shakespeare led me at an early age to give further study to the Bard. Frank Harris was an amusing story teller, bon vivant, and had a great sense of wit. He accepted criticism without malice, and always was up for a good debate. Despite the fact that Harris was a total reprobate, he still managed to maintain a sense of dignity, even when he lost his entire fortune and was reduced to penury. Oscar Wilde once quipped, "Frank Harris has been invited to all of the great houses… once."

At the twilight of his life, Harris ended up in Spain, where he wrote the first few volumes "My Life and Loves." His autobiography was meant to restore his bank balance, and also to provide a record of his interesting life. Harris died broke in New York in 1931, surrounded by a collection of fine Impressionist art.

Frank Harris was a very controversial character. His friends staunchly defended him, while his numerous enemies plotted his ruin. He was a seducer of women from a very young age. He was boastful, often to the point of intolerance. However, he had the goods to back up his boasts.

"My Life and Loves" is an autobiography that should be required reading for any speculator. It contains far more lessons for speculation than Lefevre's "Reminiscences of a Stock Operator." In fact, this book should be required reading for anyone who has a love of history, art, and the humanities. "My Life and Loves" is a broad, sweeping book, that could easily be compared to a Cecil DeMille production.



 Lest we make the same mistake as everyone else, let us look at prices as signals rather than looking at past seasonally adjusted random numbers about announcements, anecdotes, et al. Note the 15% drop in last 2 weeks in gold and most commodities, and the comparable rise in the dollar, and consider whether the markets see less inflation or more inflation ahead, with all the finger pointing, imprecations, and critiques of the putative inflationary bias of recent activities.

Let us also look at the slope of the yield curve and calculate expectations going forward since 1960 or so when the curve was  upward like this, the same way that doomsdayists would look at downward sloping to predict recessions, (as if that was bearish for stocks).

Many forms of dynamic behavior can be modeled by difference equations that reach a fixed point. I hypothesized that after a market hits a fixed point, where the change in the last 10 days is less than 1/3 of the moves in the previous 10 or 20 days, that a new equation might develop with trend following working much better. After testing this with various parameters I concluded that there is not much to it, except that the market doesn't like small moves, i.e. the old idea that rates of return are highest when risk is highest gets one more instantiation.

We had an interesting talk last night by Ed Hudgins of Atlas Society about measuring economic freedom. They have this down to a pretty rarefied state now, and consider most things that people might consider, like property rights, service rates, regulation, corruption, and time and ease of starting business. They conclude that freedom is responsible for everything good from gdp to growth to peace to longevity. However, like The Stages of Growth, all the stages and attributes are retrospective, tied in with past gdp, or expectations for the future thereof, and non-predictive. Their work in trying to measure economic freedom by state might be of investor interest, and things similar to Laffer's efforts in this field might have investment merit. Hutchins himself wants now to measure an index of individuality cross country wise and this brings to mind Sam Otis's remark in Johnny Tremaine, well worth reading for any kid or adult, that the simple reason for giving up life and liberty was " the ability to stand tall ". I believe this the key to economic prosperity also.



From the NY Times:

"After the terrorist attacks of 2001 deflated the economy, Mr. Lauder noticed that his company was selling more lipstick than usual. He hypothesized that lipstick purchases are a way to gauge the economy. When it's shaky, he said, sales increase as women boost their mood with inexpensive lipstick purchases instead of $500 slingbacks."

Rather than shoring their mood with inexpensive cosmetics, I believe heavier lipstick purchases is a way to attract men, which is hard-wired in times of loss and stress: Women seek the protection and nurturant love of the male, and lipstick, a red sign of sex, replicates arousal — males respond to red signals on lips and elsewhere on the body. Even without realizing it, the male sees 'aroused female' by certain cues, and instinct starts to take over. Hormones are exchanged and generated.

Thus a surge in lipstick purchases underlines perceived shortage and scarcity, and marks the start-gun of a hard-wired survival strategy. Men for their part would seem to be looking at a revival of females-becoming-more-female in affect, clothing and outward lineaments.

That is much more to the point than a mere 'boost in mood.' It is also a direr indicator of societal dislocation.

Scott Brooks confesses:

I've always been attracted to a women with very little or, preferably, no make up. There's something about a woman who has the confidence to go natural.

Marion Dreyfus replies:

Sure, sure: 99% of men aver they like the natural look. But if you saw most women without make-up, you would be shocked. The subtlety of make-up is that it appears to be natural, yet improved. And it makes a woman feel good, actually, to be enhanced subtly, so her eyes are more defined, or her lips are moisty-colorful. And her partner usually has no idea how it is done.



The knowledge contained in textbooks is simply not at all unique. There's no practical or ethical reason to knuckle under to the publishing industry and pay $150-250 per text for knowledge which is readily available for free elsewhere. Many people just copy or download the textbook for free.

Russ Herrold replies:

Hogwash. If so, use those free sources alone. The act of taking steps to obtain and use the publisher's source data confirms that value exists.

It is a denial of reality to assert a right to be the 'free rider' (as the torrent users do by their actions) on the backs of those who do not violate copyright restrictions. To me, it does seem to be an ethical matter, that the torrent users are on the wrong side of. It is certainly wrong as a matter of law.

As a practical matter, starve the publishers of sales, and they will raise prices higher still for legitimate users who cannot in good conscience be using 'stolen property'.

Jeff Sasmor adds:

My wife has worked for two different publishing companies that published college textbooks, and she once told me that one reason that the books are so expensive is because they often don't sell a lot of them due to copying. In years past teachers would copy sections of the books and hand them off to students (or the students would copy the books themselves), and now digital copies make it even easier.

People don't attach much value to the publishing process, they don't want to pay for it, but there is value added. The whole system (like many others) is very messed up.

Adam Robinson predicts:

Perhaps it is time to rethink the viability of textbooks regardless of price. I speak of their pedagogical value here, but in any event they will go the way of encyclopedias, swept aside by collaborative contributions a la Wikipedia. I got through Wharton having purchased only a few textbooks first semester my first year, after that I realized it was cheaper, and more effective to master the material, simply to go to the library and digest the assigned chapters on my own.

Distinguished former intern Chris Hammond recounts:

I'm finishing my PhD in math, and I have recently needed to learn techniques from a different area. I tried to learn everything by reading papers. However, each paper would focus on one aspect of the theory, leaving many questions unanswered. I worked very hard to resolve some issues on my own, not learning until later that it was done in some other paper whose existence I was unaware of. Further complicating things, one of the most important references was in French. I finally stumbled across what seems to be one of the very few textbooks (perhaps the only one) on this subject. Had I found this earlier it would have saved me so much time it makes me sick to think of it. I would have gladly paid a hefty price for it, if it was not available through the library.

Stefan Jovanovich reminisces:

I stopped following the internal fortunes of the publishing business more than 35 years ago when my Dad and I had one of our more spectacular disagreements. My brother Peter is the expert. He worked with my Dad until they lost control of Harcourt Brace Jovanovich and then he worked for McGraw-Hill and Pearson. My few comments about profitability and publishing being a "hits business" come from what I know about the history of the business in America and Europe. The inescapable economic logic of print and press runs has not changed since Gutenberg: you lose your shirt on the first copies and make your fortune on the last ones. That is the reason "free" copying has always been such an attractive proposition for the copier. Before they turned to semiconductors the citizens of Taiwan were masters at book piracy; and, as I noted recently, Thomas Paine went from being a lover of America to something quite different out of bitterness over the lost royalties from all the pirated copies of Common Sense.

What my Dad and I argued about was about "tail fins". My thesis was that publishing was only profitable for the publisher when there was a technological breakthrough that lowered unit costs of production by orders of magnitude - the original letter press, the steam press in the 19th century, the combined revolution in inks and paper-making and machine binding after WW II. The publisher could surf that wave of lower and lower unit costs as long as the public perception of what the fair price for a book or newspaper or magazine was still tied to memories of what prices were before the technological breakthrough. But, when a publisher found himself raising prices instead of lowering them, it was time to admit that the party was over. My Dad thought I was out of my head for saying that, by the time of Nixon's reelection, even the caterers had gone home. He thought the new imagining techniques in printing - particularly the ability to reproduce photographs - were so exciting that they would create a new generation of textbooks. My smart-ass reply was that they were tail fins.

After that time, whenever Dad came out to California and needed to see an author or look at a business opportunity, I was happy to see him and help him out by acting as his on-call chauffeur; but we never talked about his company or its profits again. We did speak briefly about the business one last time, when Robert Maxwell made his takeover attempt. My mother and I thought the wiser and safer course was for him to take the money and run rather than sell PIKs and put the company permanently in hock. That was the last serious conversation we ever had; thereafter, discussions were limited to the state of his health and the chances for the Giants to win another World Series.



The goal of this segment along the Costa Rica Pacific after a hard month in the southern Central American jungles is rest and recovery. Granted, anticipation is greater than realization, but no one has ever spoken but glowingly of the five hundred mile stretch of whitecaps pounding the sun-baked beaches.

I board a luxury bus on the Pan American highway with reclining seats, steward, drinks and movies to the Paso Canoas crossing from Panama to Pacific Costa Rica. I’ve been a collector of Latin borders for decades where passions amplify actions. They used to be exciting; now they’re tedious and I carry reading material. Here is another no-mans land of unsigned huts, mean lines, cheating money changers, locals passing unchecked ad libitum, pawing scamps, greasy window officious beggars, and all the while eyeing with pity passers-by in the opposite direction. I insert myself into a Spanish romance.

It gets better. I catch a night bus over a pothole road to Puerto Jimenez that spills into the Pacific, yet the driver brakes before the ocean and discharges me, the sole passenger, onto the sand. I crack the guidebook under palms and moonlight where there’s a murmur, ‘Don’t say a word.’ I twirl and behold a white man in shaggy shorts and bare feet, who advises, ‘The cheapest hostel is fifty yards down the beach, the restaurants are closed, the girls are expensive, you can’t stay with me- I’m not gay, and there’s no way out except the way you came tomorrow.’ He bows and totters down the beach singing, ‘I bid you a good night.’

The thatched hostel on shaky stakes is a blessing for $10 although the matron accuses my moonlight guide of being the local ex-pat town drunkard who fell down on the shore two decades ago. After a good night’s rest, my foot alarm tickles one little piggy, two little piggies… I throw off eye blinders and behold golden sunshine. Life really is easy in beach paradise: Everyone gets up with the gulls, works like a dog until noon, and then goes to the beach to surf. A seashore sign with a bleaching arrow to Corcovado Parque Nacional advertises, ‘The last original great tract of tropical forest of the Pacific Central America’, however an ex-pat updates that a $10 entry fee is payable at the local bank that opens in an hour which is thirty minutes after the last transportation leaves for the park. Meanwhile, the waves curl nicely with cork surfers popping right and left before my eyes as a revelation hits like a thunderclap- Why do I want to sit on the beach?…I’m not out of money.

The ticket is a myopic squint down the shore at a ferry abutting a crumbling concrete pier. I amble the sand, board, and watch children dive off pilings for tossed coins with no blood to attract sharks until the 30’ Catamaran fills with Ticos (Costa Ricans) and ex-pats, a 75HP Johnson motor roars, and we glide 45 minutes across Golfo Dulce into backwater Colfito.

Two days later, I step from a rattletrap bus into Manuel Antonio Parque Nacional salivating from passenger testimonials, billboards, and the text that claim this tropical beach reserve offers prolific wildlife along carefully marked trails. The accurate report is that you wade knee deep a 10-meter estuary of sharp volcanic rocks to pay $7 at a hut, and get lost among throngs of bewildered international visitors on bare trails through secondary-growth forest. The sole animal spotted was a monkey perched atop an outdoor shower peering with bared teeth at a splashing overheated lady. Who knows how a monkey thinks, I ponder twenty minutes later wading out the park.

Bus after bus, always hugging the coast, days later the beach road strikes Nicoya Gulf in advance to a peninsula by the same name that juts like a bumpy thumb into the azul sea. Logistics become strenuous in a Port Puntarenas café by paying for a taco just for a lighted table out of the night wind to don two pairs of glasses and spread my map to discern a dotted line that starts near my feet, crosses the ten-mile gulf, and ends at Orange Beach on the peninsula.

‘You’ve got just enough time to catch the last ferry!’ yells the cabbie outside slamming the door, careening streets, and five minutes later I tip his enthusiasm, slam the door, and dash to a lifting gangplank. The 100’ old ironsides bobs but a minute more, ropes are heaved, and then she chugs ably across an inlet so wide and dark that an hour later standing alone on the second story bow I can’t make out the lights of either shore. An hour beyond, the engines slacken before the darkened Orange Beach. Ropes are thrown and lashed, we dock, and soon a dozen vehicles creep off until the last- meaning the first aboard- stops ashore next to me and a 30’s Tico sticks his head out the pickup window and shouts perfect English, ‘I’m an apiarist!’, as if it explains everything.

‘I study bees also,’ I hastily add, and demonstrate under starlight how they alight and sting and I record the sensations in relation to environments and species. ‘Yes! Fascinating creatures!’ he agrees, and lets me in the cab. As the truck bumps the coast north, he explains his rare English. He won an apiary scholarship to Israel for the two reasons of having a hundred word English vocabulary and being from a farm. He learned beekeeping and English in Isreal for a year, two more years on the Canadian clover plains, and returned to Nicoya peninsula. ‘If I say so, I’m a renown apiarist,’ he excites lecturing on how to distinguish Africanized bees by behavior and sting, thus confirming my theory that hot weather increases honeybee aggression so they may be mistaken for killers.

Before sunrise, we squeeze between windbreak trees onto a farm lane that rises up a knoll to a farmhouse where my benefactor knocks on the door. The surprised farmer opens, hugs him, and helps us unload a refrigerator from the pickup as a gift. In reciprocation, the farmer gives me a floor in the room of an empty house that he has hand-built alongside his own for his estranged wife. Do not be dismayed; this is backcountry duplex. She moved into the completed gift house, a year later his house became their home, and tonight her house becomes my bare floor. I lay almost in tears to be in a place where a man may show his devotion to a woman by materials and toil until she gives in. Outside, the beekeeper peels into the night to tend other peninsular hives, and my head hardly hits the cement when there’s a knock at the window accompanied by sunshine.

‘Venga!’ the farmer yells. He’s riding a motorcycle to town, and as there’s no other transport perhaps I want a lift. Twenty bone jamming minutes later, I alight, buy my patron coffee, and stand in his cloud of exhaust in another nameless town gathering the strings of variables to solve my future.

Today is lucky! Only one bus strikes out to the Pan American highway that I board and learn by watching ex-pats enter and descend for hours that myriad surfer beaches ring the peninsula, but to reach them takes days. Later, in a bottleneck bus terminal at Santa Cruz, I gaze longingly across the waiting room at an earth mamma with rainbow eyes and pigtails snaking over a flute. She stops under my stare, walks over, and by request explains the ex-patriot scene in Costa Rica. Thousands of Americans flock the Pacific beaches for the good waves and vibes. The first thing she does each morning is go online to check the surf. The beach is 50 yards away. Some ex-pats work as waiters or in other services that tip, while others live off pensions or trusts. The key is that every 90 days in continuum the surfers, divers and retirees board a bus to Nicaragua, get the requisite passport exit stamp, and return a day later to the beach. Each ex-pat, in essence, pays $100 four times a year to live legally in Costa Rica, and earth momma is on her third passport. I blow a kiss, she toots a high note, and our buses depart in opposite directions through the wisdom of sampling lifestyles, and my Shangri-La is not bohemia but on the roll.

The bus angles up the country volcanic spine passing perfect active cones, and I hitch a ride with a Montana contractor putting the final touches on an arboreal Green Village. He makes the dream of living in a tree house come true. Occupancies are available. Ecologically designed high up in a rain forest, you too can live like an ape, ride a zip-line to meet your friends for evening cocktails, and wake up with the birds.

I pass toward the Caribbean at Los Chiles and stand on the steaming asphalt at once thumbing rides, haggling with a cabbie, and waiting for a bus to the next country. An angular Tico steers my elbow down a dirt lane to a swampy river, and asks what I think of Costa Rica.

I opine that the nation’s varied terrain- beaches, volcanoes, jungles, highlands- is one of the most scenic on the globe, and its citizens are among the most unsavory in Latin America for two reasons: the ex-pat invasion and the rise of foolish education. Of all Central American nations this is the most settled by gringos and, with a literacy rate of 96%, is by far the most educated. I’m a poor student sitting at the citizens’ feet for weeks for scraps of wisdom, but finding none have revised an original tenet as a fired schoolteacher that education will save the world to it must be a prudent education. There are exceptions, I finalize, but most of your spoiled countrymen have heads full of recorded facts to shake as dust rags.

He smiles broadly and points down to a canoe, ‘Get in, this is going to Nicaragua.’


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