As a doctor and researcher, Hans Rosling identified a new paralytic disease induced by hunger in rural Africa. Now the global health professor is looking at the bigger picture, increasing our understanding of social and economic development with the remarkable trend-revealing software he created. Why you should listen to him: Even the most worldly and well-traveled among us will have their perspectives shifted by Hans Rosling. A professor of global health at Sweden’s Karolinska Institute, his current work focuses on dispelling common myths about the so-called developing world, which (he points out) is no longer worlds away from the west. In fact, most of the third world is on the same trajectory toward health and prosperity, and many countries are moving twice as fast as the west did.

What sets Rosling apart isn’t just his apt observations of broad social and economic trends, but the stunning way he presents them. Guaranteed: You’ve never seen data presented like this. By any logic, a presentation that tracks global health and poverty trends should be, in a word: boring. But in Rosling’s hands, data sings. Trends come to life. And the big picture — usually hazy at best — snaps into sharp focus. Rosling’s presentations are grounded in solid statistics (often drawn from United Nations data), illustrated by the visualization software he developed. The animations transform development statistics into moving bubbles and flowing curves that make global trends clear, intuitive and even playful. During his legendary presentations, Rosling takes this one step farther, narrating the animations with a sportscaster’s flair. Rosling developed the breakthrough software behind his visualizations through his nonprofit Gapminder, founded with his son and daughter-in-law. The free software — which can be loaded with any data — was purchased by Google in March 2007. (Rosling met the Google founders at TED [Technology Entertainment Design Conference].)

Rosling began his wide-ranging career as a physician, spending many years in rural Africa tracking a rare paralytic disease (which he named konzo) and discovering its cause: hunger and badly processed cassava. He co-founded Médecins sans Frontièrs (Doctors without Borders) Sweden, wrote a textbook on global health, and as a professor at the Karolinska Institut in Stockholm initiated key international research collaborations. He’s also personally argued with many heads of state, including Fidel Castro. As if all this weren’t enough, the irrepressible Rosling is also an accomplished sword-swallower — a skill he demonstrated at TED2007. "Rosling believes that making information more accessible has the potential to change the quality of the information itself." Business Week Online



 After visiting the folks in Ft. Worth once in the 80s, I boarded an eastbound boxcar & napped, woke up in a mystery town & saw a billboard that read Texarkana. I climbed the little hill out the yard and hitched a ride along the highway. A uhaul rental truck picked me up for one of the strangest
experiences of my life, and that's saying something. The lady driver, a fat bitch to this day that owes me for a day's work, opened the roll-down back
to the rental truck and said, "hop in."  It was dim in there with scratchy light filtering through the cross-hatch 1'x2' window into the cab, but my eyes adjusted to discern six people lolling about the floor and on crates.  They stared at me with better adjusted eyes, but I could see something the matter in the way their faces twisted and unkempt hair.  'Howaryamorn, mister?’ garbled one. A couple others jerked chins in agreement, and one girl giggled. I was in a locked dark van with a half-dozen retards.  It wasn't that bad, and I don't intend to use the term derogatorily, but they crowded the new stranger stinking of the rails to dig his story. I did some magic tricks like swallowing my thumb, and pulled a paper wad from the girl's ear– that gave me room to ask, "we're we goin?" "chicken ketchin'!' one said,  and the other's nodded eagerly. We took the smooth road an hour, then rutted dirt lanes for two more, until the truck bumped to a halt and the door slid up with a bang.

What followed was the longest, hardest work day of my life, and you know that’s saying something. The teens, girl and I herded about 1000 chickens from one end of a huge red barn to the other, the lady kept them at bay with a flapping sheet and the rest of us dipped knees and grabbed chicken legs, two in one hand and three in the other per the quota.  We carried them twenty yards outside to a semi-truck parked with wire chicken crates where one fellow perched as each grabber shouted ‘birds! Three and two!’ and hefted his five up to this cager to stuff into rows and stacks of little crates for the trip to KFC.  Imagine dipping, catching, clutching, lifting and yelling ‘birds!’ a hundred times for 10 hours w/ a 30 minute break for salami sandwiches and water. It got hot toward noon, freezing after sunset, I was dizzy, covered w/ feathers when the last chicken was scooped and stuffed, and the lady herded us into the back of the truck. "Where do u want off?" she demanded, and I wearily replied, "highhway".  There’s nothing like sitting with peers after a long day in reminisce,  they explained the whole way, that nobody but a dummy would shout ‘three and two’ and actually hand over that many birds!  the lady turned onto the highway shoulder, I gave her my address for the paycheck, pulled my thumb out my mouth for the crew, and hitched to the next adventure.



 Did you see the movie Australia with Hugh Jackman and the boy Nullah, played by the fantastic Brandon Walters of Aboriginal descent? In one scene, the villain of the movie sets fires to stampede some cattle into heading towards a cliff where they will jump off in a panic. Nullah stands directly in front of the stampeding herd right on the edge of the cliff. He sings his shaman's tune while staring the head steer in the eye. He redirects the entire stampede, and all are saved. Great scene.

This is exactly like many recent trades in the markets, this morning being a prime example. The market is in full stampede, panic, heading towards the edge of a cliff. The trader needed to stand at the edge of the cliff, directly in front of the stampede and sing the shaman song. I'll call this Nulluh's trade. Probably more rad than even taking out the canes. By the way, how did the villains know a full two hours before the announcement to stampede them? Someone knew. Very fishy.



 For those in serious training, over-training is often worse than inconsistency in training. Over-training leads to chronic inflammation due to lack of recovery.

There are several useful measures of recovery that endurance athletes use. Also, there are several variables that we consider in testing the stress and subsequent inflammation subjecting the body too. Finally there are several techniques that the athlete uses to combat inflammation and aid recovery from stress.

The three main measures that come to mind are the hours of and quality of sleep, the resting heart rate on waking up in the morning, and weight gain or loss. Often these measures are followed up by testing of the waters, on a hard workout. Say after the second interval or 5-10 minutes into the hard stuff if a noticeable difference from a norm workout occurs, it is wise to abandon the workout for the day.

A fitful night sleep after a workout reminds me of a choppy day where the bulls and bears tug at each other all day. While a day that only has one significant move remains low for the bears, or high for the bulls would be a good sleep could be a day of rest for one of the camps.

A high resting heart rate may be analogous to a volatile futures market before the open.

Sudden losses are almost always due to dehydration levels. Dehydration slows the recovery process and over-hydration can be due to swelling. Likewise heart-stopping moves in minutes could be a sign of liquidity exiting or entering a market. Gradual slow day after day weight loses (assuming you are fit) is usually muscle loss. You are not rebuilding your muscles.

Finally, an indicator of training stress that my coach was fond of was Sum of { Miles / (( Pace / race pace )^2) }for the week. Which may be interpreted to a market as sum of ( distance traveled / Volatility ).

I have written of RICE (Rest, Ice, Compression and Elevation) to combat inflammation before, but clearly it is applicable.

First some things only time can heal. Often Inflammation in the body is one of those things..This has been a big lesson as I age, the simply takes longer than I am use to and expect. You can facilitate, encourage, healing and preventing further injury and destruction due to inflammation But some things simply take time… often longer than you want.

So rather than imply the shorter the better, I'd state that big difference is rebuilding recovery versus continued destruction. Rebuilding takes times. There are countless stories of career ending decisions to do that race or even workout you wanted too soon, when the coach said to wait, be patient. A lesson politicians, the public and traders should note.

Clearly good nutrition can improve this. One of the things I noticed about the elite runners versus good athletes was the elite always had food available as part of their workout gear. Drank carbs during workouts, and ate immediately after. Sugars, keep the brain working and coordinating recovery.

The temptation is to artificially speed-up the process rather than rely on the highly refined healing process of the body. As Vic suggest, mild stimulus by taking anti-inflammatory drugs can help an aged body. But extreme care must be taken, to not trade problems of one system for another or sudden short term benefits for significant long term system failures.

One would think to rebuild the credit and mortgage markets in particular, confiscation of contractual property would destroy chances of be rebuilding by giving immediate relief.

Ice can be an effective in speeding the healing by decreasing the inflammation, Ice baths can be terribly painful for 2 minutes. After that the legs will be numbed (of course care must be taken to avoid hypothermia). But many people don't want intense pain for quicker release of dull pain, that prohibits rebuilding

Compression, can be a simple wrap or keeping the ankle in the shoe after a sprained ankle. I can't tell you how many beginner, coaches and athletes I've seen pop the shoe off an watch an ankle swell that could have been prevented, Beyond wraps, pressure point massage works wonders for knotted muscles, but is also often very painful, especially in the leg muscles.

Elevation can let blood flow away from the inflamed area. The circulatory system is a two way street, too the body cells and away from them. Inflammation is often blood rushing to, but not away from effectively trapping it. While information like blood flow is good, excessive focus can cause paranoia. Remember this when analyst or traders talk… If you must watch or read these people yelling fire, clearly taking a break from it often is in order.

But I will leave the reader to test these ideas in life, in business and in trading.



A functional relation can be refuted by a vertical line that touches two points on the graph. One wonders how such vertical lines and horizontal lines drawn through graphs of prices could be used to predict subsequent prices.



 One of memes working its way through the world of health is that a key to health is inflammation. Chronic inflammation is very bad and acute but short lived inflammation is good. The former overworks the immune system and causes damage and the latter shows a health battle response. I looked to see if a comparable effect exists in the market:  

inflammation                      expectation

five 1 week minimum           very positive

justs a single such               neutral

great health

single 1 week max               bearish

chronic health 5 such           neutral

Following this idea up, many plain people with a scientific bent believe that if everyone were to take a statin or Tagamet, both of which prevent inflammation from spreading, the average life span would increase by, say, five years. Information prevents inflamed ideas from spreading and the news from the Chair today about the stress tests served the same function as a dose of the aboves. Along those lines, the worshipful daily studying of the great books, and seats at the head of the house of worship, by those involved in the first 50 billion dollar fraud, the worshipful toasts delivered to him by his best friends at the wedding as described in the current New York Magazine article are right out of Sholem Aleichem and only he could tell a story like this from fiction that would be as terrible as this from real life. Along these lines, let us not forget the recent move of gold above 1000, the movements of the VIX and the Nikkei and scholarly markets' foretelling this recent selling climax, which had first to wipe out the weak longs before doing its inevitable thing. The inflammation idea has legs and is worth perusing I believe.



 With nations across the globe rushing in to support their ailing car industries I've been wondering where's it's all going to end. With the industry as a whole producing a huge oversupply, the cash bleed to support these industries doesn't seem like it's going to improve until some of the players start to 'fold'.

So who's going to win? In this case the cards may be secondary to just holding the most chips. Just keep raising until enough of the other guys cave in.

So what strategies should governments adopt? If you start with a small pile of chips it's probably best to fold quickly. And as soon as the oversupply has evaporated you end up with holding a profitable business.

Alternatives? What about mothballing your car plants until the rest of the world has exhausted its cash and then getting them up and running again? Enter the game late and fight with a fresh army!?

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005



Here are the price changes since November 20, at which time the market was at a similar level as now, of each of the Dow Jones Industrials:

          11/20/2008   2/23/2009  Change

MRK           23.22     27.88     20%
IBM           71.35     84.37     18%
VZ            26.12     27.85      7%
KO            40.72     42.09      3%
MCD           52.44     53.87      3%
HD            18.32     18.71      2%
XOM           68.17     69.30      2%
INTC          12.11     12.08      0%
MSFT          17.41     17.21     -1%
UTX           42.86     42.35     -1%
CVX           63.81     62.94     -1%
JNJ           54.89     53.65     -2%
WMT         50.44     48.88     -3%
T             24.15     22.68     -6%
BA            36.74     34.46     -6%
PFE           14.15     13.27     -6%
KFT           24.60     22.96     -7%
HPQ           31.76     29.28     -8%
DIS           18.45     16.97     -8%
DD            21.57     18.91    -12%
AA               6.71      5.81    -13%
JPM           23.10     19.51    -16%
PG            58.92     48.90    -17%
MMM          56.18     45.41    -19%
CAT           32.49     25.12    -23%
GE            12.24      8.85    -28%
AXP           17.08     12.15    -29%
GM             2.88      1.77    -39%
C                4.70      2.14    -54%



 Summary From Wikipedia: Haemophagic leeches attach to their hosts and remain there until they become full, at which point they fall off to digest. They all have an anterior (oral) sucker, which releases an anesthetic to prevent the host from feeling the leech. Some species of leech will nurture their young, while providing food, transport, and protection. Not all species can bite; 90% of them solely feed off decomposing bodies and open wounds. Leeches normally carry parasites. However, bacteria, viruses, and parasites from previous blood sources can survive within a leech for months, and may be retransmitted to humans. Bloodletting is the withdrawal of often considerable quantities of blood from a patient in the belief that this would cure or prevent a great many illnesses and disease. It was a popular medical practice from antiquity up to the late 19th century.

Leeches are part of the ecosystem. They have interesting characteristics:

There is only one huge difference:



 Enantiomers are molecules that are composed of the same atoms but are mirror images of one another. Since they are mirror images, they are not super-imposable upon one another (chiral…also found in spiral sea shells) and will react differently with other entantiomers. In other words, they are the same chemical in every which way save the mirror image, but are a totally different molecule. Biochemical studies have shown that enantiomers will affect living organisms in different ways. One way of detection is that enantiomers will rotate polarized light in opposite directions to the exact same angle. Perhaps there are some hidden enantiomers in the market where the same data will make the market move opposite of what you’d think, because of the complete difference that cannot be detected by normal means and testing.



 I was having a bad day in the markets. Depression, anxiety, frustration – all of the unproductive emotions were there. Aware of the signs, I stepped away from the screens and visited YouTube to listen to Queen’s Bohemian Rhapsody. (Why Queen? Not sure. Probably because it was a change from the usual Bach and Mozart.)

The laptop which I use for YouTube dropped its WiFi, and the streaming audio got stuck at the word, “scaramouch.” SCARAMOUCH, SCARAMOUCH, SCARAMOUCH. Over and over and over, just like an old stuck record player. At first it was amusing. But hitting the cancel key didn’t stop the ghastly word. SCARAMOUCH, SCARAMOUCH. Alt-Cntl-Delete didn’t work either. The WiFi connection had dropped, and Freddie Mercury’s usual dulcet voice had gone into an apparition-like infinite loop.

SCARAMOUCH, SCARAMOUCH. Holding the power-off button didn’t even make Freddie flinch! The insane economy and politicians, the dropping markets, the frozen computer, the noise, and SCARAMOUCH – were all too much to bear. It was the worst hour of the worst week of the worst month in recent memory.

In a climax of frustration and hostility, I picked up an empty can of Pringles Potato Chips and hurled it – as hard as I could – across the room towards the internet router. It hit the wall, bounced twice, and remarkably landed upright in front of the router’s antenna.

“Thunderbolt and lightening, very very frightening…Gallileo, Gallileo….” The song resumed. (Probably unrelated, but the S&P-500 caught a bid at the same moment.)

I thought of the song’s lyrics, “Is this the real life? Is this just fantasy?” because I realized that when I removed the Pringles can, the WiFi signal strength dropped. When I placed the can back in front of the router, the signal strength increased. After speaking with a computer expert, I discovered that the Pringles Principle is known phenomenon; the can behaves like a parabolic antenna amplifier and boosts the WiFi signal,

Good things can come from serendipity and self-reliance. Time to re-read some Ralph Waldo Emerson: "Trust thyself: every heart vibrates to that iron string…."



 All surfers know about Clark Foam, a company that produced 90% of the foam blanks used in surfboard construction. Gordon ('Grubby') Clark started his company in the late 1950s and completely revolutionized the surfboard business. He made a quality product, economically, and provided superior customer service. His deliveries were always on time, and he made sure his customers were taken care of. His company was innovative, always striving to make the best product, and make good money for himself. One could compare the self-made Clark to Hank Reardon in many ways. Both had vision, pulled themselves by their bootstraps, used science and research for commercial gain, and fought with the authorities. Both had to navigate a series of roadblocks, and jump through hoops to do business the right way. For years, the government was trying to close Clark down because he did not fit the norm. Using environmental laws as the excuse, they finally drove him out of business through expensive threats. Clark could have fought to keep his business open at great cost, but instead chose to close it on his own terms, and go on strike.

Here's Gordon Clark's goodbye letter to his customers, suppliers and friends.

Since Clark Foam closed its doors a few years ago, after initial supply disruptions, the free market created opportunities for people to fill the niche. There are now as many surfboards being produced worldwide as ever. However, the production of many boards has been outsourced to a factory in China, 1200 miles from the ocean. Surfboards being built by people who have never seen the ocean, never ridden a wave. The surfboard blanks that are used in the USA for custom boards are, to quote my shaper friends, not of the same quality and consistency of Clark blanks. They are not, as a rule, produced in the USA any more, being imported from Third World countries. The manufacturers of the new blanks cut corners, produce inconsistent product, and have rotten customer service, in addition to the quality issues.

Gordon Clark is a rugged individualist who never asked for, nor gave, any quarter. He is a success and was punished for it. Some people refer to him as a real SOB but many more respect his vision. His problem, like that of everyone, is that the government is in the business of removing freedom, not protecting it. Clark should have been applauded for his beautiful business model. Instead his plant is in ruins.

Since Clark left the scene, surfboards just aren't the same. The market has placed a premium on used boards with a Clark Foam label as they sell for a higher price, all things considered, than a generic brand.



 Here is an account of life aboard ship from the article "Slow Boat to China".

But merchant seamen are an odd group. They spend months at sea, away from their families, tending to what is essentially a giant diesel-powered truck … Mutterers and quiet drinkers, most of them — cordial, but with rich interior lives that I'm sure would have alarmed me if I'd known too much about them. At meals (I ate with the officers), the group had a focused energy and kept the talk to a minimum … there wasn't a lot of lingering at the table, spinning tales of the sea. Later, in the lounge, there was purposeful drinking. And then sleep, if you could without rolling out of bed with every pitch and yaw of the ship.

I had expected a certain glamour to the crew — a kind of a Foreign Legion vibe, men on the run from the law or themselves, Bogart types — but that really isn't what efficient international trade requires. What's needed to power and guide vessels like the Hanjin Miami are mechanics to keep the engine running, oilers to keep it oiled, and a master to download the appropriate GPS and weather information from the satellite."

"A ship the size of the Hanjin Miami can haul more than 7,000 containers … giant shoeboxes that can go pretty effortlessly from ship to railroad to truck trailer. Modern freight transport is the product of a flash of insight by an American trucking magnate named Malcom [sic] McLean, who devised a system for loading, unloading, and hauling standardized shipping containers in the 1950s. Until he came along, cargo had to be loaded and unloaded piece by piece. McLean streamlined the process, managed to cut almost 95 percent of the cost of overseas shipping, … and ushered in the biggest, widest economic boom in history."

"[W]hat started as a writer's retreat … became instead a front-row seat to the world's economic slump. America doesn't make; it buys. And when America stops buying, the whole system shuts down."



 Cowboys and westerns — is there this illusion as to the romance of the markets, a sense of individuality or lawlessness (e.g., Madoff et al)?

I wonder, as if in the "Wild, Wild, West" there were real consequences to our posts and comments on westerns, such as criticizing the government or a corporation. Case in point

Item: Famous Writer Stabbed in Beijing

When it flames, it pours. First, an architectural pride of the city is engulfed in a state of flames, then ProState in Flames, a famous Chinese blogger (real name: Xu Lai), is stabbed in a bathroom.

Xu’s anti-establishment blog, which has been shut down and moved several times in the past few months, often touched on very sensitive issues, including censorship, the melamine scandal and last week’s fire. At 4pm on Saturday afternoon, Xu was talking about his new book, Fanciful Creatures, at One Way Street Library in Wanda Plaza.

He was forced into the men’s bathroom by two attackers, one of whom was wielding a kitchen knife and preparing to cut off Xu’s hand while the other stabbed him once in the stomach.

After the attack, as the two men fled the scene, a blogger reports he heard one of the men say, “You brought this on yourself. You know why we’re doing this don’t you?” Bystanders chased the men, and while they escaped, photos of the pair were obtained on cell phones and presumably on the CCTV camera in the building, and it is expected they will be caught soon.

Xu is in stable condition, but the attack raises a red flag on the danger of dissent, not from authorities, but from strong minded fellow citizens.

For more, see reports from The New York Times, Danwei.org, and BlackandWhiteCat.org.



 All living things are made up of the repetition of simple parts — leaves on a plant, scales on a fish, and vertebrae on humans. Biologists have found that the simpler the organism, the greater this repetition. They've found it in everything from molecules to crocodiles. Theories of where repetition is most prevalent have been formulated with a good summary from Darwin being, "The repetition of similar segments in the spinal column and of similar elements in a vertebral segment is analogous to the repetition of similar crystals." After a visit to the University of Colorado Natural History Museum where much work on the repetition of parts in molecules is displayed, I thought I should see whether there is a repetition of parts in that very living thing we deal with every day, the stock market. To study it, I took a very simple move in the first half hour of day, of an absolute value of greater than or equal to 1 but less than or equal to 2, and looked to see whether there was any evidence of repetition of this simple pattern throughout the day. I examined exactly the last 2500 days.

Thus, another great hypothesis is refuted by the facts. The polarizing force if anything is greater than the similarity force for small moves defined in this way.



 In Rowing, steering in the straight 4 must be done only when the oars are in the water or the boat will flap from side to side. In the straight four, steering is a little more difficult because you use your foot which you torque to the right or left pivoting on the ball of your foot, in addition to looking around. In a straight four, my foot was almost always cranked in one direction during the stroke to keep the boat straight. A strong bowman needs to compensate, i.e. adjust power to keep the boat straight.

Rigging in general is fairly technical depending on the style. My coach wanted the oars closer to the water, and the length of the oars (from the oarlock to the blade) was adjusted based on whether you were in an eight (longer) or a four (a little shorter).

Your technique also will vary with head, tail or crosswinds. In a head wind you want to feather at the last minute and let the wind push your blade into the water. Early feathering increases drag and reduces catch speed. In a tail wind, earlier feathering helps move the oar with less effort and energy so feathering a little early is less of an issue and makes the catches snappier.

The old wooden oars had a certain way of flexing, a stiffness, where the newer carbon fiber oars from Concept 2 helped that flex work to your advantage by adding a little whip action at the finish of the stroke. The new “blade” oars are even more carefully designed for maximum water movement and placement.

My old coach said he chose guys who picked up the wrong end of the oar: ergo, they saw the world differently from the conventional. The sport of rowing looks simple and rather easy, but like the market, there are many technical aspects, techniques and measurements that make everything from the oar, to the rigging length, angle and pitch (which was often accomplished with tape and Popsicle sticks) to the order in which various guys are seated, to hand speed and oar handling that all fit together to win races. This comes from experience and experimentation.

In the market headwinds today, traders must adjust their timing, hand speed and wait to feather later in order to catch the trade at the right moment. Trying new things is difficult in stormy conditions, but careful oar work and a controlled slide offer balance and control. Experience, patience and strategy are key.

If you don’t finish the race, you have no chance of winning…



 Much of the creation of money over the last 15 years was induced by low Japanese interest rates on the order of 1% per annum. However since March of 2008 the Japanese money stock (M1) has fallen year over year in every single month.

In the US, part of the problem is the inherent contraction in money supply caused by people repaying their loans. When a loan is repaid money disappears from circulation.

There is another more insidious problem in the economy these days. It is really a form of fear. Everyone is afraid to make a decision, to invest, to spend or otherwise do something with their money. Thus the money that does exist has largely frozen up. This is best measured by the velocity of money also called the money multiplier. We recall that the multiplier is not an observable number but is simply given by the formula:

G = V * M or V = G / M

where G is the Gross Domestic Product, V the velocity and M is the Money Supply, in this case M1. The latest data shows that velocity has fallen from about 1.6 a year ago to .88 in the most recent numbers. A number below 1 means that the average dollar of M1 is turning over less than 1 time per year. A chart can be viewed at the St. Louis Fed site.

To compensate the Fed is aggressively easing M1, the monetary measure they can influence directly. In just a few months they increased M1 from 1.4 trillion to 1.6 trillion, an increase of $200 billion.

Part of the question of how we got here can be seen in the history of M1. On April 3, 2006 M1 peaked at $1402.5B. For the most part this peak was not exceeded and as late as Sept. 1, 2008 M1 was still at $1391.9B. That means there was essentially no growth in M1 for 17 months!

2006-04-03 1402.5
2008-09-01 1391.9 No growth for 17 months

Somebody at the Fed must have awakened from his snooze and noticed that TARP, TAF and alphabet soup was not quite working. So he started aggressively adding more than a trillion in garbage (the polite term) to the Fed balance sheet. This had the happy result of pushing more than a trillion in cash into the economy. So M1 money supply grew from 1391.9 in September to 1638.1 on Jan. 5th, 2009. The $1T bought us an increase of $200B or about 20 cents on the dollar. Don't ask where the other $800B went. After all they are still trying to figure out where the TARP money went.

2009-01-05 1638.1
2009-01-26 1548.2 -5.5% decline in January

More ominously during January M1 began to tank again. It was down 5.5% in January.

Looking at the broader measure of MZM, money supply with zero maturity we see that it has grown from about $8 T to about $9.3 T during the last year.

Thus M1 represents about 16% of the broader MZM metric. The current unpleasantness began with the decline in real estate and will not end until the real estate market stabilizes. There is more to be done.

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

Bud Conrad replies:

Bud CThe topic is one of great importance as to whether we return to inflation from the deflation we are experiencing, and when if it happens.

One of the problems in our fiat money system is that we have lost the definition of money. It used to be what we could turn into gold. M1 was distorted by the money market funds that replaced much of demand deposits at banks so under reported what was available for transactions. M2 included small savings. M3 had large savings. The Fed stopped reporting M3 which also included some strange measure of Eurodollar accounts and repos that they said they didn't want to spend the money to collect.

MZM seems the most sensible for the measure of money as it is accounts where money can be immediately used to buy things (Money of Zero Maturity).

When the M1 Money supply (Currency plus demand deposits including Reserves at the Fed) changes dramatically higher as it did from September because banks now have gargantuan ($700B) of excess reserves, which is higher than ever before even as a measure of GDP), it is logical to expect Velocity to decrease just from the increase in money supply. GDP is much less fast to respond, but was declining adding to the slowing of velocity. All we have done is let the banks hold a big bunch of money on deposit at the Fed, where they got the deposit invented out of thin air. The low velocity is not a reflection of consumer and business behavior, as much as it is a measure of money expansion. GDP movement was relatively, in % term small. The velocity concept is not wrong, it just shouldn't be a reflection of consumers, but a reaction of Central bank money creation that is stuck at the banks not yet flowing loans to the economy.

The measure to watch should be the Excess Reserves, which is declining some. As to whether this Fed buying assets is inflationary is crucial, and it is the lack of bank lending that eviscerates the Fed, as it is just pushing on a string. My own expectation is that foreigners may come back with their dollars accumulated form our trade deficits to buy real assets instead of financial assets to cause inflation. Such action would also increase Money supply measure sand be inflationary. But foreigners are reluctant to tell us that is what they are doing so we will only know after the fact. We would also see that action in the velocity measure.

Dr. Conrad is chief economist for Casey Research and teaches graduate courses at Golden Gate University.

Stefan Jovanovich comments:

These speculations assume that money is still somehow a "supply". Not now. It has become only a residual - the amount of stuff available to buy things and pay debts, including what can be instantly converted to legal tender. It is what is actually left over after businesses make or lose money, people borrow or save, governments borrow more than they spend. In an age of Bill Rafter and George Zachar and all the other smart people and smartly-programmed computers, central banks no longer enjoy the privileges of seignorage, nor can they conjure up "new" loans by using a magic wand to create reserves. Neither can the Congress and the Treasury "create" jobs using the magic wand of the multiplier. That is why Timmy looks so utterly helpless and Ben so tired. If you are looking for a physical metaphor for the monetary present, try water out here in the West. No one has yet to figured out how to make it rain; and when the ground supplies are depleted or the reservoirs not built and filled, you have a drought. Evaporation is not the source of your scarcity; it is simply the constant. Desalination, like "stimulation" (truly the appropriate metaphor for academic economics in the age of porn), offers the illusion of an answer but only if you ignore the fact that creating fresh from salt water is 2-3 times the cost of simply buying it from the people who have some to spare.

Bud Conrad responds:

Bud CI agree that there is no good definition of money, but the Fed can contribute to expanding the measures that are almost always included in the narrow measures of money, and then also therefore in the bigger measures. It seen best in conjunction with the real source of new credit (money), the deficit of the Federal government. The Treasury prints up new Treasuries. The Fed (usually through middle parties but leave them out for simplicity) creates a new demand deposit at the Federal Reserve Bank in the name of the Treasury out of thin air, in payment for the Treasuries. The Fed's books are balanced with more Treasuries as an asset, and a deposit as a liability that the Treasury can write checks on to buy bombers or pay Social Security. When the Social Security recipient deposits their check in their bank, the deposits of the whole banking system are increased. The usual narrow money measure is M1 that is basically currency plus demand deposits (checking accounts).

To be clear, If a foreigner with dollars from a trade surplus (our buying their products like computers) bought the Treasury, that would not add to the traditional money measures. That would then be considered that the Treasury borrowed the money for the deficit, rather than have it Monetized by the Fed. The distinction is probably over emphasized in money and banking texts, but the reason I bring it up is to be clear that the Fed can create what is generally called money.

You then need to know that the most of the money (demand deposits) is not created by the Fed. It is created by the banks making loans. The banks must set aside a little as a reserve against any new deposit but can loan out the rest. The borrower buys something like a house or car, the seller then deposits the proceeds, and that new deposit minus the reserve requirement can be loaned out again. In that fashion, banks make something like 6 times more money than the Fed does in total. The problem now of the Fed "printing" (= creating demand deposits out of thin air), doesn't work (have much effect), when banks don't lend. The Fed addition is not very big if the loans aren't made. That is called "pushing on a string", as we have now. And that is why we have deflation in the face of the most extreme Fed expansion and the Treasury $2 trillion deficit this year.

Dr. Conrad is chief economist for Casey Research and teaches graduate courses at Golden Gate University.

Legacy Daily comments:

It seems to me that a rosy outlook is in order. When the government and key "experts" say the worst is yet to come, I (and everyone else with me) fear to take on additional loans not knowing if 1) we can pay back 2) we'll make money from the loan. While the Fed/Treasury can create reserves (and pressure the bankers to state how much they're lending), unless there's increasing demand for loans, money will not be created to the degree it was created when every American thought they could buy a house and sell in a year with at least 20% profit.

Unfortunately, this type of shift in outlook will probably roughly coincide with the proverbial "capitulation" when I (and everyone else with me) can no longer imagine the situation getting worse. Until greed comes into the picture, money will not be multiplied to the degree it was multiplied in the past bubbles. The problem is that when greed becomes the key driver, we'll have incredible amounts of reserves - causing "sales" of money and the officials will be late to throttle back the system to prevent inflationary bubbles.

The "assets" are "toxic" because the outlook of getting the promised cash flows is negative. When that outlook changes (the poor guy who borrowed more than he should have sees the possibility of his house appreciating), the "toxic" will actually become like gold that never tarnishes.

What is the flaw in my logic?



Monte1. Today's close in S&P was the third lowest in the last 13 years, beaten out only by a 740 close on April 4, 1997 and a 748 close on November 20, 2008. By Nov 21, 2008 the market was 792 on its way to 1003 on December 4, 2008.

2. "The No Stats All-Star" article by Michael Lewis applies the same type of analysis to basketball that a good spec should apply to the market. Most striking are the statistics on points gained or lost when a player is in the game. His hero apparently is considered the least physical of all the players, but is so good that he's a +6 when he plays, and he can make the Lakers better when Kobe is not in the game as opposed to in the game being guarded by him. One should look at multilevel analysis for comparable regularities in the market. What is the expected move in the latter half of the day when the yen is in the game versus the bonds?

3. Today's post-holiday move was the second worst in history, beaten on the downside only by the inside trading day following MLK day on 1/20/2008, down 43 points and a similar 3.5%. These two moves were followed by up 12 and up 30 the next day.

4. The book The Code of the West has many rules that the cowboys follow that are good for a life. Generalizing the rules, I might say they all relate to taking your life as you find it, not getting in over your head, not crossing the line, not complaining, working for the brand. To me, it means don't trade over the counter, make sure you have adequate capital, and don't try to get the edge on someone who appears weak. Many have now said they recommend Monte Walsh on DVD but like most things of true greatness, the competence of Monte or Dagny or van B. makes the second hand producers and directors scared and they have to make such things a humorous thing about a bygone day. On the contrary, the book Monte Walsh is by far the best Western ever written and it will make you cry and laugh and stand five feet taller at the end.



 This question is akin to an inverse of the rabbit from the empty hat trick. The rabbit has to be there in the hat before it has been taken out. The inverse of this trick would be that the affairs of men relating to wealth and money during a downturn and crash are prone to imagining a rabbit vanishing into a hat that was never put into the hat.

Money in its broadest realm is a state of the mind. Cash and currency are but one tangible subset of money, a much smaller one. There are many other tangible subsets. Then there are the intangible ones. The wealth effect espoused by financial behaviorists is but nothing else. Today's context is nothing different really conceptually from the Tulip mania or any other that has happened in between since.

Value is what money is supposed to store. Cash is one form of money. Central Banks are creating money in modern times as their dutiful function. Financial markets are producing money and consuming away their own and others' money creations periodically as a by-product of their other core functions. Whatever can be a store of value and a medium of exchange is money. That's how there was a time not too long ago when the Tulip bulb was the most important store of and producer of more money. As confidence and thus belief in the existing amount of collective wealth and value goes up so does the amount of money perceived goes up. When the amount of money perceived around exceeds far beyond the utility or the utilizable value, mankind is presented with the bills enabling reality check.

Where would the money go that never existed? That rabbit was never put in to the hat. No point in searching it there at least. But then in such cases, there were several rabbits that never existed.

Now markets, crowds, societies and the entire mankind are known to have swung from one extreme to the other one. So, as this all gets prepared to be relegated back behind to leaves of history, yet again the real rabbits will be put into the hat and won't be visible before being pulled out. In markets, non-existent rabbits are being put into hats and existent rabbits don't get seen inside the hat. Men of the markets are indulging in relishing and enjoying the magic of both kinds they are themselves creating again and again.

George Parkanyi asks:

But where has the actual cash that's been created (not the intangibles) gone? Every balance sheet begins and ends with the current assets line-item Cash. I understand that the Treasury can create money out of thin air - but whatever dollars it has created to date exist somewhere as cash - net of those dollars that have been taken out of circulation. It cannot not exist. A big chunk of it may not be CIRCULATING, or at least not in our economy, but it's SOMEWHERE. My question is where? and what would cause the money not circulating to begin circulating again?

Now some balance sheets are of course over-stated because they value assets at a market value that is not realizable. And real cash was lent against those unsustainable values. This just means that a significant amount of cash was deployed unproductively buying a house for $1,000,000 that could be replaced for $400,000, or a $1,000,000 mortgage backed issue that may only receive back $300,000 of principal. But even where cash went to purchase intangibles, the seller of the intangible still received the cash, and either "saved" it or went and bought something else.

If we assume that the cash the Treasury has created over time still mostly exists, then I believe the question becomes to what extent have balance sheets been bloated with unrealizable intangible values? And to what level do these intangibles need to readjust down for businesses to again begin investing and for people to still show up for work and maintain and grow an economy?

There are some potential implications. For example, if you have $30 trillion of cash around the world (I have no idea what the real number should be), then adding another 2, 5, or 10 trillion may not necessarily be all that inflationary. Also, if intangible "assets" on books are 3 or 4 times the amount of cash available, and they suddenly go out of favor (e.g. real estate prices drop, no-one wants junk bonds, no-one wants to pay more than book value for stocks), then demand for cash and "safe" cash equivalents will soar (and cause one godawful depression- especially if the cash is just hoarded). There may even be bank runs despite federal deposit insurance. And what if the real cash is mostly overseas, and we're holding the bag with mostly intangibles? Ouch.

I would expect that the tipping point to inflation will come when we begin to see shortages (or perceived shortages) in real assets (e.g. from droughts causing food shortages or commodity shortages due to global supply disruptions) to meet current needs, but especially if there is a fear-driven demand to acquire and hoard real assets (loss of confidence in the currency), possibly leading to hyper-inflation. That doesn't seem to be the case right now, especially in North America and Europe.

My gut reaction on this is to lean toward the deflation scenario, because even though the Treasury may throw a few $trillion out there, much of it may be absorbed by born-again savers and foreigners, and still mostly stay out of circulation while asset prices fall. However, that deferred latent purchasing power, when unleashed, could be enormous when asset prices finally turn.

Easan Katir comments:

George, here is the train of thought I think you're asking about/ applying your line of questioning to what everyone says is the root problem: housing.

Trillions were in pensions and sovereign funds. Pension plans, sovereign funds, no doubt Orange County ( they get in on all the deals ) bought CDOs from investment banks. So their cash went to investment banks. To create the CDOs, the banks had to buy mortgages from lenders. So the cash went to mortgage lenders. To originate the loan, mortgage lenders gave cash to home sellers. At this point in the logic train we have two layers of paper, not cash: CDOs and mortgages, which have had to be reduced in value because the home buyers overpaid.

Buyers and lenders gave their cash to the homebuilders, who were of course, sellers. So the homebuilders should have mountains of money. Since they don't appear to, one assumes they must have taken their money and bought more land, built more houses, which they couldn't sell, and have had to write down. Some cash went to the land sellers, the subcontractors and the materials suppliers. Private homebuilders bought more investment real estate, and gave their cash to those sellers.

Those who now have the trillions don't seem to be standing up and waving "it's here. I've got it", do they….

So a "nutshell" answer to your question, "where is the cash?" might be, it's in the bank accounts of anyone who was a seller of houses, land or stocks a few years ago. Herb and Marion Sandler, for example, who sold in 2006.

Stefan Jovanovich comments:

Most of "the money" is gone. Some very little of it is sitting in safes and vaults in the form of greenbacks and bullion, but most of it is simply up in smoke. Very few of the people invited to the A-List party have the wisdom to want to leave early or the guts to be seen leaving early. The homebuilders here in California put most of the money they made into options for and outright purchases of new lots, heavy equipment and (in the case of the public companies) stock buy-backs. They also paid a lot of money in income taxes. The value of the lots they bought or optioned here in California is close to zero, and I assume it is the same in Florida and the other places that saw a boom. The heavy equipment is worth between 10 and 25 cents on each dollar they paid in 2005, 2006 and 2007. (It is not just the slow-down in orders from China that is killing Caterpillar right now; the competition from used equipment is murderous.) The idea that somehow only we poor Americans were the suckers is funny. If anything, we have gotten off comparatively easy. The property markets in Europe and the Middle East and Asia have, as the Beach Boys might have put it, all become California dirt; and their central bankers bought far more of our crap paper than Helicopter Ben bought of theirs. What is also funny is the notion that the money center banks need to start lending again to get the economy moving again. They ARE lending - to the Treasury. Why, in a world of ZIRP, should they do anything else?

Bud Conrad writes:

Bud ConradThere are so many good questions and answers it is hard to focus on simple explanations. But first a few clarifications on George Parkanyi's initial point of view: Money is not a real thing of substantial value, and it is not created by the Treasury, but by the Federal Reserve. The Dollars in your pocket are Federal Reserve Notes. This is a minor point because your question makes perfect sense if you wrap the word "government" around both the Treasury and the Federal Reserve, and replace your use of the world Treasury by the word government.

Then your question still stands: Where did the money go? First, the real assets of homes and land and factories still exist, and they are still owned by someone. What disappeared was the value expressed in dollars. This is a form of money implosion as experienced by holders of deeds of trust that don't cover the defaults. It means less money in total. That is why we have deflation.

But as you say the government (Fed) can print money pretty much at will to keep things going. The system of fractional reserve banking is set up so that most of the "money" comes from the banking system as it makes loans. For example, mortgages are used to buy homes, not the money from a down payment. These mortgages were based on the banks making money by creating loans. About 6 times as much "money" was made by the banking system as by the Fed. In boom times and according to theory, banks always want to make more loans as that is the way they make money. They are constrained by having enough reserves to meet the Fed's requirement of supposedly 10% of deposits put on deposit at the Fed. When the Fed adds new reserves by buying Treasuries from banks, the theory expects the banks to make new loans an "multiply" the money throughout the economy making new loans. In this situation today, the Fed has bought Toxic waste giving the banks new money that could be lent. But the banks aren't lending because they have bad debts, and need to have capital adequate to meet regulatory review and because they can't find lenders they can trust who want money. So the banks have piled up "Excess Reserves" at the Fed and the money multiplier is leaving the Fed "Pushing on a string" getting no expansion of the money, even after their bailouts that they thought would be stimulating.

P.S. I like the rabbit that isn't there being put in the hat as explanation as it makes as much sense as all the details here. It is only an illusion that money is worth anything, that is left over from convention before 1971 when foreign central banks could convert dollars at $32 per oz for gold. De Gaul reached for the gold and Nixon slammed the window on his fingers after we sold off half our store. Since then it is mere historical convention, image and illusion that keeps the dollar afloat.

Nigel Davies offers:

Here's another take on it. What if most energy in any system is lost simply through friction, this frictional tendency actually increasing during an asset bubble. When the bubble deflates again, most of what you have left is the huge waste caused by people chasing something that never really existed in the first place. They were pursuing an optical illusion caused by increased liquidity and dissipating real wealth via their frenetic activity.

Jim Sogi writes:

Money, cash, and credit, is merely a counting method for confidence, or now, the lack thereof. It is created as an ether, and disappears as the fog. It is a strong only as our full faith. With mass communication, global memes seem to spread faster, turn on a dime, so to speak. I wonder if there is a correlation between speed of decline and recovery time?

Vincent Andres responds to Nigel Davies' questions about China:

Once upon a time they did build a big wall, I would posit it's now imprinted in their DNA. The surface inside the wall + the number of people there seems already a nice piece to manage. And btw, In 2008, everybody also knows how too big empires end.

So, I'm really not worrying too much about China. China managing China is already a really great challenge. Kudos if they succeed.

Just my two cents feeling, I would like to hear the flaws/missing points above.

George Parkanyi adds:

The mitigation of risk and the collective formation of capital in the capitalist system incents exploration, invention, innovation, and experimentation. Look around you at the marvellous things it has built, and the amazing discoveries it has facilitated. Next time you take a flight think about all that went into you being able to do that. Or even just driving a car. There's nothing really wrong with the current monetary system other than we've allowed it to run amok. Credit is fine as long as there is a reasonable expectation of most of it being repaid. (But even if it isn't the stuff gets built anyway; someone eventually just takes a haircut.) With some better checks and balances, there is no reason we can't dust ourselves off from this face-plant and continue to progress - hopefully a little less rough-shod over the environment and each other. The key is to keep enough people incented to keep innovating and working productively to sustain the complex societies and systems we have built.



GM NigelAt this time when many people are trying to move to 'safe' jobs I wonder if a contrarian approach and enterprise is in order. It strikes me that whilst the timing may still be a little early there seem to be many strong arguments in its favour:

1) If a week is a long time in politics, how long will it take the man on the street to decide that those in cushy but unproductive government jobs are just a waste of valuable resources?

2) With many firms in the process of closing down, what demand there is will go to the survivors which offer the best service and value.

3) With resources becoming ever cheaper, research and development (especially on a technological front) can be achieved at lower cost whilst simultaneously reducing the tax bill.

4) Nations may soon be competing to house growing businesses in order to rebuild their economies.

Some questions come to mind, for example how one should identify areas of growth. My first instinct is that the areas with demand will be those which haven't been propped up by government, ie businesses with few employees. But then fewer of these may have gone to the wall.

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005



 I first read Robert Bacon's The Secret of Professional Turf Betting when I was a kid who liked to hit the track at every and any opportunity. Although my success at the track was very uneven, Bacon's book made a positive impression on me and taught me many other life and market lessons. When I first read the Chair's first book, I immediately noticed the references to Bacon. When I found this site, I saw the references to Bacon's book, and other nuggets that made me immediately feel at home. While my dog eared copy of Bacon's has become well worn, I still like to revisit it every so often for inspiration and reinforcement. Long out of print, I've noticed that the book traded in a range of $100-300 used, on Amazon, if available. I've told many people about the excellence of Bacon's book, and they have reported back to me that it's extremely hard to find and usually unavailable, except at extremely high prices. Over the past few months, I've been checking Amazon to see if I could get copies to give good friends for the holidays, with poor results. I've seen very few copies, maybe one or two at a time, at prices that exceeded what I was willing to spend. Since I think Bacon's invaluable information should be in the quiver of every speculator who wants knowledge, I decided to offer a download of the entire book to friends and fellow speculators. The number of people who took up my offer exceed my wildest expectations. In other words, the market was flooded with Bacon in a very short time, and an unintended consequence arose. Where there were very few, if any copies available just a few short weeks ago, the past couple of days has shown a marked increase in the number of copies being offered. Although the prices are still high, the increase of supply(positively influenced by the downloads reducing demand for the physical book) should push the market for Bacon's book to move lower to a point where it will trade. Markets will always find that equilibrium point that will allow for them to trade freely, guided by that invisible hand. The micro example of the Bacon Book market can be expanded to all markets and scaled up, indicating that Smith was on to something. It will be an interesting exercise to see how much supply of Bacon's book ends up on the market, and what price it will trade. I will be watching this market with great interest.



 Pent-up demand is an economic term not used that much in recent years but now see beginning to work its way into the vocabulary of business articles (as with WSJ story below).

My elementary-level sense of pent-up demand is that it is money that is currently being saved by the consumer in order to pay down existing credit card or loan debt or to counter the risk of job loss or to offset thoughts of an uncertain future (i.e. save it for a rainy day approach).

This money sitting on the sidelines will have to be spent at some point, however, to replace balding tires, leaking roofs, old TVs and appliances, moth-eaten clothes (those not considered fashionable, poor chic), and any other numerous material items subject to increasing entropy.

Perhaps there are a pent-up demand curves that have been forming that have different shapes depending on the consumer's ability to postpone taking care of the inevitable. At some point in time the curves overlap and herdish spending begins amongst the backdrop of low energy prices and government stimulus…possibly starting with the basic (for some a nice TV or new computer) necessities and then moving on to larger consumer purchases.

How long can you drive a clunker for instance? And if you do you are undoubtedly going to need to purchase parts? Sure you can drive a 10-yr old car but it is going to cost you to keep it running.

From the WSJ:

When the economy contracts by as much as it did in the fall, it means that consumers and businesses are forgoing spending that they might otherwise see as necessary purchases.

In a normal year, for example, about 5% of the cars, pickups and other light vehicles on the road are sold for scrap. With roughly 250 million light vehicles in the country, that means that just to keep up with the scrap rate, about a million new vehicles need to be sold each month. The last time more than a million light vehicles were sold in the U.S. was August, according to the Commerce Department. In January, just 655,200 vehicles were sold — the lowest number in the 33 years of the government data.

Mike Darrah, owner of Darrah's Automotive & Recycling in York, Pa., said the number of cars people have brought to him to scrap has fallen by 40% to 50% since September. "People are driving more clunkers," he said. "They don't have the money for a new car. They don't have the money to fix the clunkers. They're getting by on as little as they can."



 One evening an old Cherokee told his grandson about a battle that goes on inside all people.

He said, "My son, the battle is between two wolves inside us all.

One is Evil. It is anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego.

The other is Good. It is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, generosity, compassion and faith."

The grandson thought about it for a minute and then asked his grandfather, "Which wolf wins?"

The old Cherokee simply replied, "The one you feed."

Michele Pezzutti responds:

 This reminds me of The Strange Case of Dr Jekyll and Mr Hyde: I would like to share my experience on how this thinking can make me a better trader.

If I should apply this to my (very, very poor and limited) personal trading experience, I can find Evil everywhere:

 -arrogance, when I trade based on pure instinct and with little/no evidence of trends or data supporting a decision.

- false pride and superiority, for being able 'to beat the market', when I make some profit.

- anger, when I lose too much not being able to put a stop loss.

- lies, when I do not want to admit to yourself that I have acted irrationally.

- regret, when I think 'why did I do that?' And I could go on and on…

Much more difficult is to find examples of the Good wolf. That is, long way to go to become a 'Good' trader.

Paolo Pezzutti writes:

I want to propose a slightly different perspective of the two wolves, the "bad" and the "good" one.

Trading wolves move in packs. They are territorial and wait for their preys to graze standing ready to attack when they are distracted. Wolves can also establish some type of coordination during the hunt. They conceal themselves as they approach the prey, targeting the easiest options available, the weakest animals of the herd. Sick or young animals, even pregnant females. They look for preys they have seen already. They do not take much risk, do not even engage in long chases, and rather wait for their prey to die because of the wounds. Sometimes wolves have to yield to their prey and their killing success rate may be low. But they know that their prey will be there in the same place at the same time the next day. It is only a matter of time, sooner or later the wolves will get it. These traders are deadly, but the current downturn might have killed many of them. They have taken too much risk, too much confidence in their strength. These wolves have become preys themselves in this phase of the market. Those who will survive, however, may become even stronger and be able to adapt their techniques to the new environment.

Single trading wolves can also be found, but less frequently. Lone traders can be old specimens expelled from the pack or young animals in search of new territory. Solitary wolves target smaller animals and many deaths are due to other wolves' attacks. Being alone in the wild can be very dangerous. These traders have to find niches, small inefficiencies left over and disregarded by the wolves packs. They have to be adaptive. They have to learn how to survive. I feel one of the lone wolves. Hopefully I will survive and learn how to be a "good" wolf.

Who knows if any of the wolves will survive this market? After all, species can also disappear.



 Here is a funny rowing story with a market lesson. This is how the story was told to me; most assuredly some of it had been embellished. I take responsibility for the market-related comments:

In the sport of rowing there are eight different boats that are raced, five of which the rowers have one oar each. That’s called sweep rowing, as opposed to sculling, in which the rowers have two oars each. In the case of sweep rowing, the rowers are traditionally stacked alternatively on opposite sides: port, starboard, port, etc. In fact, prior to the early 1960s that was always the case. Here is a stylized diagram.

In Europe there are many rowing clubs, some of which are affiliated with companies. Just as an American company may sponsor a softball team, some European companies sponsor rowing teams. Such was the case with Moto Guzzi, a renowned maker of motorcycles and scooters located near Lake Como in northern Italy. In the early 60s the rowing club affiliated with Moto Guzzi had the Italian champion “straight four”, also known as a “four-without-coxswain” or “4-”. Each type of boat has a crew that could be typecast to fit it perfectly. A straight four is a beautiful boat that combines grace, speed and power, whereas some boats are best populated by refrigerators. (Aside: how do they steer without a coxswain? One of the rowers’ shoes is attached to a rudder.) These guys were good – very good. And they were soon to compete in the European Championships (the de-facto world championships) in Luzern.

After having traveled to a regional regatta, the crew was supposed to take the boat off the trailer and attach the riggers prior to the coach showing up and a practice. The riggers are the extensions outside the boat that hold the oarlocks – the boats themselves being very narrow for speed (lower resistance). Just horsing around the guys rigged the boat “wrong”. That is, instead of it being starboard, port, starboard, port, they rigged it port, starboard, starboard, port. Well, the coach was not amused, and said something like, “Okay you clowns; now you are going to have to row it that way. And we are doing a time trial, and if I don’t like your time, you’ll do it over until I do.” That’s what coaches typically say.

Well, they row the boat and had no difficulty with the different rig. During the time trial, they clock their best time ever. What happened? The coach knew he was out of his league, so he went down to see the mechanical engineers at Moto Guzzi and explained his problem. They immediately identified the effect as the “sum of the moments”, which I will illustrate below. But let’s first get back to the story.

The crew goes to Luzern, takes the boat off the trailer and starts rigging it “wrong”. Everyone who sees it howls. You can just hear the competitor comments now, “Hey, those crazy Italians don’t even know how to rig a boat. No sense worrying about them.” Well, you know what happens – the guys win the European Championships to everyone’s surprise. That style of rigging is subsequently referred to as “Italian Rigging” and has begotten all sorts of new rigs.

The thing to consider is that rowing has been around as a sport for a long time. For instance, the oldest intercollegiate athletic event in the U.S. is the Harvard-Yale boat race. But no one ever thought to try rigging a boat differently. An accidental event changes everything. Worse is that this watershed event occurred over 40 years ago, and still there are coaches in the sport who have no idea as to why someone would rig a boat differently. The worst are the typical coaches of college freshman, where most rowers get their introduction. You constantly hear expressions like, "Riggin, schmiggin, we just row."

Investment analysis is the same way. Too many people are stuck in ways that are unproductive. The analysts refuse to learn or to consider anything different. They don't read, experiment or learn. And the legal system is there to punish any experimental attempts that might underperform, albeit temporary. Anything learned becomes dogma no matter how bogus. Forgive me, but this reminds me of Markowitz, CAPM, etc.

Here’s why the rigging works: When you pull an oar (particularly a sweep), you not only move the boat ahead, but you pull the boat around to the opposite side (“pinch” the boat). The port rowers pull the boat to starboard, and vice-versa. So now think of a teeter-totter or see-saw, where the farther away one is from the fulcrum the more effect a given unit of power exerts. Where’s the fulcrum in a boat? The only thing under a boat’s hull is its fin to keep it from side slipping. That fin in most boats is about one person-length aft of the guy in the stern, and it is the fulcrum, albeit a weak one. So the guy in the stern is 1 unit away, the next guy 2 units, etc. If you add up the units you will find that the sides are equal in Italian rig, and are unequal otherwise. If everyone pulls with equal speed and force (highly unlikely), then the traditionally rigged boat will veer to one side, and the Italian rigged boat will not. The more course corrections that have to be made, the more drag exerted by the rudder. Hence the Italian rigged boat wins.

Rigging is one of those things that can make a big difference at the higher levels of the sport. However at lower levels of the sport the reason most crews lose is not rigging, so most coaches ignore it, and worse, do not bother to learn about it. I venture to say 95 percent of the boats never get their riggers adjusted after they are put on the boat initially. Yet not only can riggers be moved from seat to seat, but are fully adjustable in most other ways: height off the water, pitch, spread from the keel, etc. With choppy water, a little extra height off the water helps.

The style of rigging where two seats are on the same side is also called “in buckets.” Not sure why. But it is also possible to rig an 8-oared boat with 3 buckets, which is also balanced according to the sum of the moments, but has a distinct advantage for teaching novices. One problem with novices is that they “crab” or get the oar caught in the water, which plants their oar handle in the back of the person in front of them. Ouch. The pain could be lessened if eights were rigged in full buckets (P, S, S, P, P, S, S, P – for Port and Starboard) because of where the oar handle hits. Why novice coaches do not do this baffles me. I believe coaches think that rowing in buckets is more challenging that rowing a standard-rigged boat. Trust me, it takes about 30 seconds for a rower to adjust to it.

Oars used to be symmetric (tulip shaped). Now they have been improved (asymmetric and hatchet shaped) to really lock on to the water. The asymmetry also self-corrects for putting it in the water undersquared (crabbing). Note that the oars are not supposed to move thru the water – the boat moves thru the water. But with the old tulip (Macon) blades there was a certain amount of slippage. Now there is less. This has been the cause of an increase in lower back injuries. Something has to “give”, since there is less slippage when the oar is planted, that now becomes the lower back. The solution is to buy oars that have more spring to them, but you will find that only the oldtimers do that. The kids use stiff oars and have back injuries. Old rich guys cannot afford back injuries.

If you are coaching a crew and have the luxury of lots of boats, get them out of eights and into small boats. “People who know how to row, row small boats.” Also, the number one determinant of racing speed is stroke rate (strokes per minute). But your crew has to be in shape and skilled to row at high rates.

Dr. Rafter is President of Mathematical Investment Decisions, a quantitative research consultancy



 We went down around South Point to fish. It is wilderness beyond there, with no houses, no cars, no other boats, and no land until South America 4 thousand miles away. Its wide open ocean. We had to go between two gale warnings and small craft advisories, so the weather was sketchy, but like many predictions is subject to "standard error" and changing conditions on the ground. We decided to go see what the conditions were and decide whether to press on or turn back. We got a call from campers that the wind had died, and drove on through the night in relatively less rough conditions. It was still fairly rough going, but at least not as rough as last time when the waves were continually covering the boat. We scored big catching big tuna, small tuna, Red snappers, mahi mahi. Chair's huge insight that life has analogies to the market is my favorite pastime so here are a couple of things I learned from my master waterman fisherman friend that might be of help in markets.

1. Don't rely 100% on the weather report. They are based on models. You have to open your eyes and see what the sky looks like, what the water is doing, what friends tell you is happening right now. Be flexible and ready to change your plan. Don't have a fixed plan. Wait to read the current conditions. Same in markets. Don't rely on the prognostications, the predictive models blindly. See how it actually develops and act accordingly. Factor in your own mental and physical conditions to weather the weather in case it turns bad.

2. Be prepared. My friend is a fishing fanatic. He's always very prepared. He had big lures, little lures, jets, birds, poppers, outriggers, downriggers, big poles, little poles, live bait, chum, hand lines, bottom fishing gear, casting gear. We had alternatives. When one thing didn't work, we tried a different technique. We had a week worth of food and fuel. In markets, have different trades, different entries, different exits, different allocations, different leverages, different markets. You need them all to survive and succeed. One small example, when trolling, we ran a long left, a medium right, a short stern, and a medium stern line, all spread out. When entering a trade, one way is to spread out your bids, long, medium, short. One might hit, all might hit. Either way, its one good way to troll for big game.

3. There is a large random element in fishing, but technique is very important. Where do you drop? There are instruments, but looking at the land formations where water might filter down and promote nutrients to feed fish. I found a buoy on the GPS and headed there and immediately got double strikes with mahi mahi jumping in the air while fighting. Once the fish is hooked, there is little or no room for error. Any lapse and the fish might jump off the hook. The most critical time is the landing. The leader has to be handled just right, the gaff must be precise or the fish might escape. Gaffing the wrong place damages the meat. Handling the fish, icing it properly preserves the value of the fish for the market or plate. There is very little room for error. In seamanship, there is little room for error with a rocky coast and large waves crashing near shore. Same in markets, despite the random element, once hooked, there is little room for error. Errors are costly, and even deadly: errors of execution, in entering at trade, in the technique to exit, errors of judgment. Its all happening fast.

4. Lastly, when we caught the little tuna, we cut it up and ate some of it raw with soy sauce, and wasabi as sashimi on the boat. It was still alive. I really felt like one with the ocean then. Some times you can really get in tune with the market. Its a good feeling. You're not fighting it. Its feeding you.



ShillerRobert Shiller updated his long series on real house prices (1890-Q3 2008). For today's exercise, using this data, I made the attached graph which currently shows reversal of about half the gain from 1997-2006.

Believers in over-reactions to the downside and history repeating might worry based on what happened in the past. There was a smaller bubble which peaked in 1894 at 124, and declined irregularly until bottoming at 66 in 1921 (47% decline over 27 years).

Surviving optimists might take heart from the 60% increase that occurred 1942-1947, which pulled back again but remained stable for decades.

David Riffer writes:

The thing that jumps out at me from this long term Shiller graph is that real house prices were roughly the same in 1988 as they were 100 years earlier. This cuts very deeply against the grain of conventional wisdom, but it is consistent with the seminal study by Piet M. A. Eichholtz that examined prices between 1628 and 1973 on the Herengracht in Amsterdam.



 A good dessert should be the culmination of an extraordinary meal and heighten the enjoyment with something exciting and pleasurable. I like my desserts at the beginning of a meal on the grounds that if something is good, the time for it is now. But I thought I should test if it works. I looked at all days above 2% from close to 4 pm that added another 1/2% in final 15 minutes. 13 observations. Expectations to the morning were very good, but then a hangover for next day's very bad, down a few percent. Happens once a year, not significant. But what are the best desserts? Where do you get them? Scholars say they should be crunchy, textured, fruity, sauced, stand up well for first several bites, complimentary to meal, varied between hot and cold, sweet and sour. Where, what?



My grandfather (1885-1989) was the greatest teacher and influence in my life. His love of life and adventure was unparalleled. A true Renaissance man, he was comfortable with everyone from janitors to presidents. Since he always wrote everything down and was making lists, he once gave me a list on how to live my life. A truncated version:

1. Pay your bills on time
2. Pay your gambling debts first.
3. Never do business with a friend, but allow a friendship to develop out of a business.
4. Never, ever, cosign on a note.
5. Always buy bonds when they hit 60.
6. Always treat everybody at a business, from the bottom up, like he was the president of the company.
7. Always buy real-estate on the cheap.
8. Never touch the capital, and save part of the interest.
9. Live well below your means.
10. Never allow friends to know how much money you have and always "cry poor."
11. Spread your money and investments around.
12. Never lend more than pocket change to friends.
13. Family first in everything.
14. Congratulate your opponent when he wins, and be gracious when he loses.
15. Don't be a deal hog, and leave something for the next guy.
16. Speak little and listen a lot.
17. Never be afraid to say no.
18. Learn poetry, history, philosophy, and a second language.
19. Keep current in events, and keep an ear on the street for opportunities.
20. Learn good manners.
21. Treat every woman like she was going to be your future wife.
22. Don't trust the government, and never trust politicians.
23. Circumnavigate the globe at least once in your life.
24. Big game fishing is a manly pursuit.
25. Don't ever get drunk in public.
26. Don't ever embarrass yourself or family.
27. Never complain about your family to outsiders.
28. Teach someone your business and pass your skills along.
29. Never listen to race track touts or tipsters of any kind.
30. If they're selling it, why is it such a great deal or opportunity.
31. Never cheat at anything, nor be dishonest.
32. Never welsh on a deal or wager.
33. Always keep your promises.
34. Pay your people a fair wage.
35. Never pay retail for anything, but don't be a hog.
36. Allow your opponents to save face.
37. Never keep a mistress within 300 miles of your home.
38. Always give a guy on hard times some spare change.
39. Support a charity.
40. Be a stand up guy in all areas of your life.
41. Respect the flag.
42. Respect and listen to old people, as they know more than you do.
43. Work as hard as you can and play as hard as you can.
44. Keep your house and business tidy.
45. Allow your kids to be themselves and have fun.
46. Learn to play at least one musical instrument.
48. Respect other races and nationalities.
49. Never argue religion or politics.
50. If it sounds too good to be true, it probably is.

My grandfather was full of life lessons, and I listened.

Sushil Kedia adds:

Here are some more important lessons to consider:

1. Other Points of View (OPV): Accepting, rather than denial or immobilizing fear, is the beginning. The situation definitely gets refined when one looks at it from Other Points of View. One must look at the situation from the views of ones adversaries as well as from the perspective of an unengaged onlooker. Dispassionate observation is facilitated by comparing OPVs with one's own view and building up a strategic process that is always computing the odds.

2. Grow beyond wrong and right: Anger originates as sequence of feeling wronged and guilt originates as a sequence of having done wrong. In winning, it is crucial to be beyond computations of wrong and right. Focus instead on what defines winning for you and what is appropriate for achieving that win.

3. Economy of Movement: Decisive action including communicating the bare minimum necessary innuendos (action as well its absence are both communications) not only helps conserve energy it consumes the energy of the adversarial situation or people.

4. You are the problem: The same situation involving another man has another solution. Recognize your unique gifts and the precious effort that must go in to defending and growing this uniqueness. No handicap is thus in the middle of battle a drain on your resources. Viewing the complete picture with you at the center of the problem is necessary to identify the path of least effort applicable to you.

5. Be your own decision maker: Responsibility for all outcomes is the facilitator for achieving a focus beyond destiny and helplessness. Assume no help will come but will have to be obtained.

6. Don't celebrate your success, in the usual way: Deception is an ingredient of every contest. Feign strength when weak and display weakness when strong is something Sun Tzu taught centuries ago, in any case.

7. The Pain gain formula: Nothing comes free. Pain & gain are often the two sides of the same coin. Always check if an advantage achieved or to be achieved has not come or will not come at an unfair cost incurred unknowingly elsewhere. With such a focus the need to enjoy the journey is extraneous. What may begin with pain could be the ticket to gain and vice versa. The driver of joy being the final destination, the journey will become worth engaging in all situations.

8. Beautiful mind: Beauty of cause is a state of the mind. Being conscious that the mind has states and one can by conscious choice alter those states one may overcome the definition of mind as espoused by Edward de Bono that, "mind is a self organizing pattern seeking system." You and the situation together are the problem. Be conscious of your cognitive states.

9. Believe that you will succeed: You cannot argue with this point since as much as is true that seeing is believing so also is it true that believing is seeing. The solution and the current moment are separated in time. In traveling across the correct strand of time, one would need to traverse the correct strand of time. Believing is the lens to find the correct strand.

10. Be the witness: Changing the perspective from being the doer to one who is a witness to the struggle drives objective and rational sides of the self organizing pattern seeking system called the mind. Fear and hope that are the normal controls of minds in normal states need to be put aside whilst input and output control need to take over.

11. Do, only whatever is necessary: One can always be aware of not creating more problems while solving the ones at hand.

12. Give up when required, only temporarily: need for rest, rejuvenation, re-organizing apart. Many times silence, inaction, inactivity provide the ultimate deceptive veil for more lethal and smashing action.

Jim Sogi comments:

The Pain gain formula: Nothing comes free. Pain & gain are often the two sides of the same coin.

I love this, and Jeff's list too. But I wonder why pain and gain are so correlated? Is it the issue of going against the herd vs the genetic urge to comply? It applies in physical fitness. I sure would appreciate some ideas on this one.

Jim Rogers replies:

Pain is a necessary, but not sufficient, condition for gain.

Additionally, not all pain produces gain, but both concepts are relative. Because of the differences in both pain "tolerance" and measurements of gain (in terms of "value"), it's pretty difficult to turn this observation into any type of concrete maxim.

Finally, it seems that there are occasions where the value of a gain outweighs the pain endured, indicating some type of arbitrage situation. However, the pain of spending one's time looking for free lunches (combined with the "pain" of acquiring the skills to recognize arb opportunities) may minimize the net gain.

Alston Mabry writes:

What about that special pain the Mistress inflicts with volatility? One takes a position that then goes against, and one has to try to wait it out until it turns back in one's favor. So many times one gives in, escapes the position and the pain, only to watch the fulfillment come in exactly as predicted. Book the loss, learn the lesson, try again.

Marion Dreyfus responds:

You cannot win a great body without heavy working out. You don't fall into piles of earnings and wealth–you invest judiciously. Pain is obviously correlated to gain — otherwise we would leave the womb and float through life with strawberry sundaes glissando-ing off our lanais as we polish off language texts in the Copacabana with cognac fountains spurting gleefully in the front 40. We don't. We have to work to elicit goodies.



 I was an oarsman once and was fortunate to row for a former Olympic oarsman who became the coach of the Olympic champions prior to my meeting him. His story was one of a fat kid who ended up in a car accident and suffered severe injuries that resulted in speculation that he would never walk again. Of course these Doctors did not know this man.

He went on to attend the 1964 and '68 Olympic games, and his picture graces a certain boathouse on the Schuylkill when they were down for a competition many moons ago.

His quotes were legendary as was the training methodology that he utilized. The concept of pain was what he was willing to put himself through to psychologically destroy his competition. Starting a 10 mile run in a sprint, so he could hide in the bushes and puke as his teammates wondered where he had gone. Holding a drive at the 500 by the boat beside you, then crushing their spirit with a drive of your own. Vintage Neil. What he lacked in physical prowess versus his competitors, he made up for with psychological gamesmanship.

In Upstate New York for a training camp we trained the the formidable crews there and were told of their training regimen. Their coach created a program that could not realistically be accomplished in a session, and was designed so that they would get done the small amount he set out to do. Our program was a set number of strokes or kms per day, with a certain number of “hard strokes” . This was usually 400-600. Each length of the rowing course can be covered with roughly 200 strokes and between 1:15 to 1:30 per 500. The objective was 10 kms every day all included. In looking at the two methods he said that the other guys learned to hold back in order to complete a regimen they knew they could not finish, for us the expectation was clear: all out for every session, because it could be done.

I trained with this man for varying periods for four years, and rowed for him for two. This is some of what I learned:

Row your own race: It is not relevant what the other crew is doing to your right and left. Head in the boat, eyes forward.

Problems begin in your seat: If you are frustrated with one of your teammates, and you notice he is doing something incorrectly, check your own technique. Odds are you are doing something to affect the smooth and efficient operation of the boat.

Substance over style: It is more important to have men that can pull, than ones that are technically gifted at rowing. Neil said that you can always teach a puller how to row, not so with a rower who will not pull.

The race is won in the preseason: Those that train hard before the season on the water are the ones that win.

Less is more: Doing too much weight for a given exercise and as a result doing the exercise improperly is of less value than using less weight and doing it technically correctly. Or placing unrealistic training goals does not lead to better results.

A beginning, middle and an end: Each race has a start: three and 20, with a settle period into the first 500 pylon where your first hard 10 takes place. This happens at each 500 until the final 500 or 50 strokes where you coast, turn it up, or burn the barn depending on how the race is playing out, and what part of qualifying you are in. Most boats are with you at 500. Good ones at 1000, your real competition is with you at 1500.

Good finishing: When you are done, no theatrics. Sit up straight and look like you are ready to go back to the start right away and race again. This further demoralizes your competition whom you may meet again today, or in another competition.

There is always someone better: You hope they don’t show up to compete with you that day.

Winning is golden: If you aren’t racing to win don’t bother wasting your team's time. You win gold, accept silver and bronze.

Rowing has proven an excellent training ground for life and markets. For it was at the point of greatest “pain” and suffering that I found depths and strengths that I did not know were available. I spent time with a man who showed many snot nosed 16 to 19 year olds how to train, live and become men over 20 plus years. He is a legend amongst those who trained with and rowed for him. God rest his soul. He was one tough bastard.



 “A Scout is kind and cheerful, helpful and trustworthy, considerate and clean, and wise in the use of all resources.”

This is Scouts Canada’s Scout Law, and the last phrase “wise in the use of all resources” strikes to the heart of improvisation when used in the context of creative problem-solving. As a Scout leader who does a lot of camping in different locations and different situations, I’m surprised at how poor improvisers children are, and I think it may have to do with the type of thinking that goes along with structured curricula at school. Younger kids at play with toys can be great improvisers, but does the school system bash it out of them?

I’ve found over the years that improvisation provides some of the most satisfying moments for me — particularly in outdoors situations. Just recently at a winter camp, I trekked into the woods on snowshoes to be the “lost” party in a search and rescue exercise. They were expecting me to start out along a path we had snowshoed the night before — but I changed the rules a little. Instead I walked up the road in boots about half a kilometre and then entered the forest directly there on snowshoes in deep snow. A found a rock outcropping overseeing the immediate area, but fairly far from the original path the Scouts would surely follow, and cleared enough snow to make a fire. All I brought with me was a box of matches, a plastic garbage bag, some nylon rope, and a walkie talkie on which to communicate with the other Scout leader Steve. While they roared off in the wrong direction, I scavenged deadwood from the immediate area, and using some resin filled evergreen branches, was able to get a fire going. My plan was to make it easier for them by seeing the smoke (which they never did). With the materials I improvised a very comfortable chaise lounge. One snowshoe I placed flat on the snow at the edge of the fire-pit (the depth of the pit gave me adequate leg-room), and flush against two saplings about 1½ feet apart, and the second I lashed to the saplings as a back-rest. Then, with the plastic bag as a seat-cover to keep me dry, I sat and enjoyed the morning sunshine, warm and toasty by the fire.

They had no clue where I was, so I called on the walkie talkie and determined where they were. I knew they needed to back-track so I told them to do so, and then in about ten minutes to call me again. When they did, I told the five of them to holler as loud as they could. I heard them very faintly , but enough to get a bearing on them relative to the sun. I relayed the information that they needed to travel in the direction of the sun directly at their backs. They couldn’t do that exactly and followed the trail back. We used this audible technique a number more times, and finally I gave them a due East bearing from the trail. For a while they couldn’t hear me (one voice), but once they did they zeroed in quickly. As the snow was really deep, I was surprised however to see they didn’t bring their snowshoes. “We didn’t think we’d need them”. I laughed. My rescuers were bedraggled and tired, boots full of snow, while I was “suffering” from my “injuries” by the fire in creature comfort.

My proudest moment though this year was the fall camp where it poured non-stop. So badly that some troops left. A had stayed at the base station doing warrant work (teaching kids how to use knives — no, not throwing them), and realized that the hiking party would be getting back cold, wet, and miserable. So I suggested to the other leaders we should start a fire if for no other reason than morale. We had a tarp up for one of the stations, but needed to get it higher to put a fire under, so we tipped a picnic table against a large tree and used it as a ladder to gain height. After tying off the heightened tarp, we then took the picnic table and set it against the fire pit we had built as a drying station. Additionally I crossed a bunch of ropes about five feet over the fire, and presto-– we now also had a make-shift laundry. Sure enough the kids returned and gladly huddled around that fire. And we dried enough clothes so they could go to bed dry (important for keeping warm) and stay overnight.

I love improvising, and I hope some of it rubs off on the kids. In trading, the great improvisers use liquidity and correlation well. If a set of conditions would move say five or six markets in a particular way, then good traders will take positions in multiple to markets to mask their overall movement, create liquidity for themselves, diversify to some extent, lock in profits, and/or to trade themselves out of a bind. I’m sure many traders here have improvised their way to profits or out of a jam — and that there are some great stories.



 On February 10th, Treasury Secretary Timothy Geithner presented the details of the Administration's bank rescue plan. The new program includes government spending and private-sector involvement. It provides for buying toxic assets from banks and supporting consumer and small business lending. The aim is to get private investors to buy up the toxic mortgage related assets. Everything looks fine except that the markets plunged almost 5% after the speech in heavy selling. Bank shares lost more than 10%. We know that markets over-react, that the crowd sometimes is not able to make rational decisions, but what we saw today was a real fiasco after the world wide expectations of the first Administration's steps. Hopefully they will be more successful in the next weeks, but today's market reaction was nasty. The plan was deemed by analysts to have lack of transparency and lack of detail. How the plan is going to be implemented was not said and may be investors fear the nationalization of the banks that would wipe out shareholders (shouldn't have it happened already?).

As an agent of change, the new Administration has not offered a striking debut. This is for sure. I think it's important to understand why the strategy was so poor. Was there a lack of details on purpose? If yes, there had to be a good reason and this might be reassuring somehow. One could say they have a good plan and clear ideas, but they have decided not to describe them in detail now. Might this be related to the approval process of the stimulus package? In this case, it was a great buying opportunity. But if the lack of details was there because there are no details yet, well, I think the markets have a good reason to be scared. Everybody now is thinking of what the President said: "The time for talk is over, the time for action is now." And critics are already saying that he won the campaign and now it's time to lead. In this context, the speech given by Geithner today is a false note in the concert of statements received in the past weeks. I do have trust that the Administration will manage to restore trust and confidence, and revive the conomy. The world is looking at the US with great hope (too much?). Hopefully today it was only an episode of failed communication strategy and not the lack of the financial stability strategy.

Victor Niederhoffer comments:

One must always remember the beaten favorite routine with the next time out winning at much more favorable odds by indirection. "Boy, dont work him so hard at 4 to 5 unless he's a clear winner," and also, the bond and stock vigilantes who like to force the forces to do the right thing through going down when they might waver.



 Evolution is a random function, such that as conditions change, the random mutations of a species makes one particular mutation more successful in the particular niche or in response to the environmental change, thus allowing it to flourish. The other manifestations do not survive. As much as we might want to delude ourselves into some control, it's not probably very true. The trait may not be better or superior, but it just happens to work.

Kind of like many patterns in the market. Some random pattern will start working in a regime for a while. Then it won't. It's important not to get too locked into any one style, pattern, regime to avoid the extinction issue. This is adaptability and is more important than almost any other issue. That's the problem with the "xyz" trade or what ever. Even the one that work, won't work a third of the time. Is it worth dying over, or worse?

Marlowe Cassetti writes:

I agree that the Darwinian model is probably the better model of the dynamics of the market and an explanation for "everchanging cycles." In my view, it trumps the Efficient Market Hypothesis, Fib Ratios, reversion to the mean, MACD histograms, or Uri Geller's psychic visions. From what I surmise the Darwinian model is encompassed in the rubric of behavioral finance and evolutionary economics.

So let's raise a glass of wine this Thursday for the 200th birthday celebration of Charles Darwin, considered by science historians one of the greatest scientists of all time. Also, Abraham Lincoln and Charles Darwin share the same 200th birthday.

Riz Din reports:

I'm off to see the Darwin exhibition at the British Library, so no time to refer to the specific papers, but I recently looked at some research that investigated how the rate of random mutation of a type of baceria changes when environmental conditions become stressed. I find this fascinating as it points to a direct link between random changes in the environment and random mutations. It may be interesting to see by how much mutation rates change for a given change in external conditions, as mutation carries costs as well as benefits.

Also, what do you think–The Origin was the first truly convincing contradiction of the literal biblical view of creation and it caused a storm.

Stefan Jovanovich responds:

 I disagree. The literal Biblical view of creation had been openly challenged in Britain since the first Civil War. Belief in Christianity itself had been optional since the Lord Protector welcomed the Jews back to the United Kingdom (being a Catholic, on the other hand, was still a civil disability when the Origin of the Species was published). The notion that Darwin faced opposition is simply not true; he had no trouble with publications, and people were as mad for the theory of evolution as they were 60 years later for Einstein's theory of relativity. It made Darwin a star. Darwin did face considerable skepticism from Lyell and other Lamarckians (Lyell never fully accepted natural selection), but no one seriously accepted poor Bishop Ussher's chronology by 1860. (It is fascinating to note that both Newton and Kepler had agreed with Ussher's calculations - so much for scientific stare decisis). The Huxley-Wilberforce debate was a great show - like the Snopes trial - but it was hardly a "storm". This is yet another of those factoids of history that present scientists as having to bravely challenge the forces of Christian ignorance; and like so many of them (Galileo et. al.), it is a complete canard. Darwin did lose his own belief in the Resurrection, but that loss came not from his evolutionary theories but from the questions raised in his mind by the death of his young daughter.

Riz Din adds:

Here are some notes taken from my visit to the small but enlightening Darwin Exhibition at the British Library:

- When Darwin was living at his home in Kent he would walk down his 'thinking path' every day, come rain or shine. His daily routine was as follows:

Go for a short walk before sunrise

7:45 - 8:00 Light breakfast
8:00 - 9:30 Best time for research
9:30 - 10:30 Relax on sofa and read letters
10:30 - 12:00 Research
12:00 - 1:00 Visit greenhouse and walk along Sand Walk and think
1:00 - 2:00 Lunch and read newspaper
2:00 - 3:00 Write letters
3:00 - 4:00 Rest while Emma reads aloud
4:00 - 4:30 Afternoon stroll
4:30 - 5:30 Research
5:30 - Evening begins
10:30 To bed

- Darwin graduated in theology and was thinking of life as a clergyman when he was offered the invitation to be a naturalist on the HMS Beagle.Darwin writes that the Beagle voyage was the single most important event in his life.

- The naturalist suffered much ill health through his life, yet his output was prolific. Darwin had a strong desire to understand everything he observed. His eight year study on barnacles won him a gold medal award by the Royal Society, and after Origins of the Species was published Darwin went on to study orchids in great depth.

- Evolution was not a new idea at all and the works of others paved the way for Darwin. Erasmus Darwin, his grandfather, alluded to the idea in his poem 'The Temple of Nature', writing 'mankind arose from one family of monkeys on the banks of the Mediterranean.' Other key figures in the story of evolution include Malthus, Lamarck and Lyell.

- At the same time as Darwin, fellow naturalist Alfred Wallace had the similar ideas about evolution and survival of the fittest. Darwin's and Wallace's ideas were jointly presented to the Linnean Society in 1858, but Darwin's thesis had been twenty years in the making, and extensively researched, and he published The Origin of the Species shortly after. The Origin was written for popular consumption, in a conversational style, and quickly sold out. However, Darwin was careful not to include explicit discussion of man's place in evolution, even if it was obvious for all to see. The Origin was the first truly convincing contradiction of the literal biblical view of creation and it caused a storm.

- The exhibition has a couple of amusing notes on marriage. Writing to congratulate his friend on his recent marriage, Darwin says 'Long may you live in your now perfect state. We poor bachelors are only half men,—creeping like caterpillars through the world, without fulfilling our destination.' In 1838, Darwin produced an highly entertaining list of the pros and cons of marriage



 My Uncle Bob (Robert Steinkamp, PhD) sent this to me:

A while back, I made some comments about my Grandfather and what great man he was. I discussed his level of education and how that was never a detriment to him. Uncle Bob and my Grandfather (Roy Brooks, Sr) spent a lot time together over the years, much of it in a bass boat on father-in-law/son-in-law fishing trips throughout the midwest and deep south.

Bob had these comments in reference my Grandfather:

Scott, I loved your description of Roy Brooks, Sr. He was indeed educated in the school of life. One trait though that stood out to me was that he was always giving his knowledge in service to others. The only significant trait you missed was that he could also" think like a fish". I never mastered that skill. This thread forced me to spend too much time thinking about how to define educated. I mentally tried analogies with Quality — you know it when you see it, but I could never extract any good or even poor analogies from it. I also tried some mental gymnastics around broad and shallow vs. deep and narrow definitions of educated. Broad vs. narrow were very important concepts to blend in my working life with polymers, but again I failed to generate any important nuggets from that thread. Thanks for the mental stimulation and the opportunity to spend some quality time remembering grampa.



 Here is a very nice description of improvisation from an article called "The Improvising Brain":

Improvisation is not exclusive to music, says Berkowitz. Nor is it a pure flight of invention. “It’s spontaneity within a set of constraints,” Berkowitz explains. “Imagine: You slip on ice, and you do a sort of little dance to regain your balance — maybe in a way you’ve never ‘danced’ before; but though the sequence of movements might be novel, it’s made up of the individual movements that are possible given what the body can do and where it is in space.” Musical improvisers also work within constraints. “Those bebop players play what sounds like 70 notes within a few seconds. There’s no time to think of each individual note. They have some patterns in their toolbox,” says Berkowitz.



PoolThe psychological trick or tactic in "the Dark Side of Psychology," a simple verbal probe into the mind of an opponent, is underhanded. This reminds me of a successful tactic I employed numerous times in money games of pool — think college/yuppie bar scene.

On a high pressure shot to close out a money game, as my opponent would be carefully sizing up his shot, I would casually walk over to the cue rack and put my cue-stick into the rack, maybe grab my coat or grab the hand of my date showing the opponent in not so many words that his shot was in the bag.

Depending on the skill of the opponent, this tactic worked on many occasions. You could feel the pressure building and the more time the person would take for the shot, the worse the self inflicted pressure became. The other result would be a quick shot by the opponent — just as bad. The strong opponent with mental toughness would just drain the shot and pick up the money.

But the tactic itself is underhanded. It shows that I was relying on a trick to save my game. It also says volumes about why I was not the one taking the final shot — I was being beat. I wonder if such tactics in chess or other higher games of skill would somehow subconsciously undermine the person performing them. If that person is concentrating on tricking and tearing down the opponent through psychological flattery, then one is not concentrating on your own game and reducing your own strength.

Lets assume I plant these destructive seeds in my opponent prior to my match with him, I would have to believe that I would be thinking about this during the game. Thereby, I would be weakening myself. Maybe it would be best to try this dark psychological probe on the leader when he is about to play his final match against someone else — and you would be playing another, free to concentrate fully on the game and not the trick.

I thought long about who my opponent would be in the markets in regards to dark psychological flattery. No outside person tries to infect my mind with this underhanded trick.

It is obviously myself: my own mind, my own thoughts, my own vanities. How could I psychologically trick myself through flattery when I am doing well in trading? For me the self inflicted psychological probe starts after a nice win streak, usually on a monthly score card review (The chess player having a great tournament). I notice that after a "good" month I start to get a slight swagger to my thoughts, after a nice roll — two months or so of fine results with only small losses incurred, and taken quickly — like a "pro", I start to verbalize these thoughts.

This cumulates in a big wave of talking about the markets to my wife. I notice that after one or two of these "Honey, I really am doing well" dinners, always with plenty of wine, things start to turn down for me in the markets. I start to hit bumps in the trading road. Patterns change, loss frequency increases, etc. What had been working well is now not yielding the same results.

Ongoing I want to start tracking these "swagger" thoughts more closely and see if I can quantify them and get a count or a log going where I can more thoroughly understand where I am in terms of the probe. It happens to me over longer periods of time — months. If I have an up month and then a flat month — the build up doesn't happen. One day big wins never get me too excited since I always consider them as flukes. It seems that my own self inflicted flattery is insidious, building up slowly and then manifesting itself in an attack — an attack that actually feels natural and good.



 Is that true that chess software cannot deal with incoherent, random, crazy, moves?

My own chess is very low ranked so I am no match to most chess software. I was playing (in the absence of a available friend) with web-based software named Jester. Playing "fairly" I wasn't able to beat the software. Ever. Then, one day, while listening to Philip Glass's "Etude N.3" loud in my earphones, I started to play furiously, just reacting, not thinking, making whatever move I could make. Crazy chess.

Guess what: the game didn't last few moves (as it used to) and I was able to go to the end game, and I saw a weakness in Jester's game. I went for it (this last couple moves were "rational", the ones before them, not). I won the game, amazed that the Jester wasn't able to "see" the weakness in his own end game.

PS: In a "fair" game, I usually felt like the software "knew where my stops were" and just hit them.Is that true that chess software cannot deal with incoherent, random, crazy, moves?

Nigel Davies replies:

If you got better results over many trials it could be that you're 'switching off' some aspect of your reasoning that leads you to play weaker moves, i.e. that at some level there's a misconception. This of course has huge implications for traders — they may be using an approach with a negative expectancy in a highly disciplined way.

So just guessing moves represents a better chance of beating Kasparov than those thought up say by 1500 players because they'll lack systematic error. There's a chance (albeit a very small one) that every move will be perfect!

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005



 1. A visit to the bookstores these day is reminiscent of those in 2003. At that time, all the books were about the coming bear market, and the only offset were the tons of worthless tomes with the sanctimonious bearish always, no one can do what I do, channeling of the Sage. Now the books are all about the coming financial panic, how things are going to get much worse, and how the only solution to our problems is to turn everything over to the commanders. I posit that the books these days will turn out to be as wrong in the aggregate as those of 2003. January is usually an up month, having risen 32 of the last 50 years. I hypothesize that there is a tendency for the Januarys that are down to be succeeded by a rally that brings the month-end close to a higher level than the previous year end December, i.e. one month ago. Such a hypothesis would have to take into account a year like 1974 when the market declined 30% from its January close without ever breaking the previous year-end level, and 2008 itself where the market declined some 35% from its January level without a break. Indeed of the 18 years in question, seven of them never achieved a rise above the December level. A strategy of holding to the first break of the previous December level or to the end of the year would have lost on average 4% on the 18 occasions it was triggered.

2. Yet another example of the theory of least effort comes from my son's acquaintance with three pools in the swimming facility he frequents. One is normally at 100 degrees, the kiddie pool at 83 and the main pool at 80. At first he was exposed only to the main pool at 80 and loved it and used it regularly. However, after being exposed to the hot tub pool, at 100, he now finds the main pool much too cold, and refuses to go into it without much incentives and or (I will not finish that sentence). I wonder if the market takes the least effort into account by finding the weakest link in a chain and using that to make its major moves. This is a fuzzy statement. but it can be quantified in some interesting ways that I will leave as an exercise.

3. The NY Knicks are truly a team without a foundation. I can hear Tom Wiswell saying, "checkers is a game of architecture — you need a strong base of operations," whenever I see them lose yet another game as they stagger aimlessly around without a game plan near the end of the game. On Sunday, they managed to lose a game by a point in the final second after being up by 13 with five minutes left in the game. The market mistress, I always suspect, looks at all the ways the Knicks can lose, and then uses the template of such a woeful loss as a model for how to make the specs lose that way. One could do well by taking account of the way the Knicks lose, waiting for the market to recap such a loss, like a big rise up to 3pm and then a small loss for the day for fun and profit.

4. I should know something about gain and pain because of my 12,000 competitive matches in racket sports. The main thing I know is that one should never lose without giving oneself terrible pain, putting everything one has into the loss. I hate to see a person quit and give up the ghost through want of effort and avoidance of pain in business or a match. The other thing I know about pain is that it's the extra little effort you put in that always leads to success, and that pain in the input is necessary for all those who are not naturals in the activity. When I practiced squash, I would always end my sessions against myself with something like an excruciating regimen of up to the front wall and back to the back wall and that stuff was always the reason that I can still count on my hands and remember every one of my defeats in squash. There's a difference of course between playing a match where if you lose it, it's all over and a market foray, where another game will always be playable if you have the capital.



 After 28 years of serious distance training I've learned a few lessons about Gaining through Pain.

1. Don't get in the way of the recovery process. It takes time. Granted most don't take the first step to embrace the pain. But many "athletes" focus only on the "work". Those that simply think they can work harder than anyone, will over train. You can't simply, tear down, tear down and tear down. You must allow some time to rebuild, refresh and re-focus.

2. There is a rhythm to most training, overload then rest. The simple two step. But there is much more to it. Eating, sleeping, exercising. Warm-up, workout, cool down. Morning, afternoon, weekly cycles, tri-weekly cycles. Pyramids. Tapering month. Race week, Race day all have their rhythm and routine.

3. There is a mind/ body connection. Recovery is enhanced by soothing the mind.Good friends, nice music, happy jovial atmosphere as well as plenty of nutritious food and sleep help.

4. If you've trained regularly, age and experience will allow you to inflict more pain but the recovery process is longer, so you have less gain. The wisdom to know better, certainly is stronger than in your youth. But patients in the recovery becomes an act of humility, because it forces you to admit your age.

5. What you tear down and rebuild does get better, but the auxiliary support also learns how to respond and gains valuable battle experience. Likewise, by building up my running ability, I increased my other abilities. Now that my running ability is declining, the pains through training for races is much more about the gains throughout my life than it is about running.

6. The gain through pain is not always to the sufferer, but to the survivor. The best gains are lessons learned through others pain. Paths not to follow, signs not to ignore, habits and attitudes not to develop. Likewise, some of the best lessons you can pass on are not from your wins, but from you losses. Your wins just give you the authority for others to listen. But your losses help others evolve.



 It seems that to be a trader these days you must have a PhD in Math. Actually how much math does a trader need?

I've been struggling with math since childhood, and I'm taking statistics personal classes right now. Recently Victor told me that I would only have had to count Galton's way and that would be enough. It seems to be easy to immerse yourself in deep math and forget about what the markets really are.

I know this lecture is from last year, but Soros has a good point when saying that the statistic models available fail to consider the role of uncertainty. When you are too much leveraged and the event goes too many standard deviations, you know you’re in trouble. Take a look at:

George Soros at MIT and

Quantitative Trading, an excellent blog on quants by Ernest Chan. His latest post:

This Quebec pension fund lost some $25 billion due to non-bank asset-backed commercial paper (ABCP). Their Value-at-Risk (VaR) model did not take into account liquidity risk. As usual, the quants got the blame. But can someone tell me a better way to value risk than to run historical simulations? Can we really build risk models on disasters we have not seen before and cannot imagine will happen?

The replies to the post were most illuminating:

quarterback said…

"Nassim Taleb's ”Fooled by Randomness” is a must read. Simply we don't live in a Gaussian world.”

Paul Teetor said…

"The NY Times recently quoted Taleb as saying, “VaR is like an airbag that works all the time, except when you have an accident.” I think that’s a perfect characterization.Can we prepare for what we have not seen? The folks in the insurance business have faced this problem for centuries. Some actuaries use Extreme Value Theory, and I’ve often wondered if the finance world needs to look more closely at that. Are the quants to blame for VaR’s short-comings? Sort of. I ran the VaR reports for previous employer — who got wiped out. In retrospect, I should have been telling everyone, “These numbers do not mean what you think they mean.” That was my error.”

Bill Rafter replies:

Dr RafterYou do not need an advanced degree in mathematics to be a successful trader. What you need firstly is the ability to think for yourself and secondly the ability to do research in a scientific manner. Regarding statistics, what you need to know is that one event is not significant, and that your highest return will not be your average return. Those are common mistakes of novices.

Most “quants” are employed in “risk” work. That is, they are given tasks such as, “assuming you have a certain profit, how do you protect it?” Or, “given a certain alpha, how do you make it portable?” Perhaps the best-known quant made his money by finding an anomaly in the contract specs of a certain futures market and then exploiting that. Those points suggest that your efforts at profitable trading should not be concentrated in the risk area. Instead they should be directed towards generating that profit or alpha that the supervisors assume is inherently there.

Let me pose a scenario: Suppose you had perfect knowledge that the broad market was going to rise, what stocks would you buy? The standard philosophy is that you would buy the ones with the highest beta, because they should go up the most. For the most part you would be disappointed, because those with the highest beta (i.e. past beta) would be the most volatile, as past volatility is equated with subsequent bearish performance. Don’t take my word for it; there are lots of academic articles saying the same thing.

Also — and this is important — would you rather trade an efficient market or an inefficient one? Obviously the latter, so do not waste your time with the efficient ones. Oh, but the risk guys love the efficient markets. Yeah, but the risk guys do not make money.

Let me give you our experience. We screen for risk early in our selection process, and never look at it again. We never use stops, which we feel simply provide certainty in losses. Except in the odd times when we are in bills, we never buy one asset because we cannot predict one asset well. On the contrary, our success rate in predicting baskets of assets is better, so we stick to that. Of course they are baskets where the early screening was on a risk-adjusted basis, but with no other attention being paid to risk. I am not suggesting that ours is the only way or the best way; only that it is a profitable method that does not hold the risk mavens up as gods.

Dr. Rafter is President of Mathematical Investment Decisions, a quantitative research consultancy



The posts on pain & gain got me thinking about whether such things are culturally dependent, and whether this then extends to the ways different markets behave. For example the S&P has traditional had a cyclical nature which seems to mirror the concept of pain resulting in gain.

These patterns certainly aren't universal, for example the Nikkei behaves quite differently. This would seem to reflect a different attitude to suffering whereby forbearance is more highly valued.

So I wonder if it's possible to classify different cultures according to their attitudes to pain and see if greater forbearance manifests itself in longer moves in a particular direction. And would such behaviour change over time, for example if a particular nation goes through good or bad times.



 During my chess career I learned a lot about the dark side of psychology. One thing that I didn't put into 'Chess for Scoundrels' was how to talk a tournament leader into self destruction.

It goes like this. Let's say that a particular player is leading a tournament and is really 'in the zone'. The way to ruin him is to congratulate him on his magnificent play and then innocently ask what exactly is he doing right? This works in 2 ways, the first part (the flattery) being to cultivate vanity (more preening, less vigilance) and the second (requesting the explanation) fosters the kind of self-consciousness which takes them well and truly out of the zone.

Now I don't use this myself, but I've seen it done many times by, let's say, 'well meaning' fans. They flatter and beg advice, thus unknowingly sowing the seeds of self-destruction in their hero. And of course they promptly move onto a new hero when that one happens to fall.

This is why it's better to only flatter your enemies. And run like the wind when you're the lucky recipient.

Pitt T. Maner III adds:

Gamesmenship is practiced in many sports. And Stephen Potter was one of the masters in a good-hearted way:

All this failure is important, for it never would have occurred to a successful man to devise the four strange books that were the making of Potter's reputation as a comic artist. The idea for these books first arose while Potter was playing tennis with the philosopher C.E.M. Joad as his partner, against two younger and better players. After hitting a ball that was obviously well out of court, Joad called, "Kindly say clearly, please, whether the ball was in or out." By suggesting a slight lapse in etiquette on the part of the younger players, good sportsmen both, it threw them off stride, a stride they never regained, and Potter and Joad went on to win the match. "For me," writes Potter, "it was the birth of gamesmanship." "Gamesmanship" is devoted to "the art of winning games without actually cheating." Actually is the key word here. In tennis, golf, chess, poker, cricket, bridge, hunting and other games, Potter suggests delicate ways of breaking the flow of concentration in your opponent so that he stumbles and falls off his game. A gamesman does what he can to make sure that the best man does not win.


George Parkanyi comments:

This would suggest a corollary that insults and criticism would only just strengthen the already confident, i.e. the rise to the challenge gets the creative/competitive juices flowing.

It reminds of a recent football game — I think it was the Super Bowl. For some unknown reason, this huge Pittsburgh player went after this much smaller Cardinal player tossing him around like a rag after the whistle had blown. I remember commenting at the time — "What did he say to that guy?" It certainly was something.

Paolo Pezzutti writes in:

It happened to me after a long streak of winning games during a tennis match. For some reason I was in the game, focused and ready to exploit any weakness of my opponent. But when I would start to rationalize what was happening and why it was happening and building scenarios for the final victory I was finished, and eventually I would lose at least the set. Maybe it's because you take bigger risks: you think you can do even better and change something in your tactics. This makes you out of sync with your physical and mental condition which builds an advantage to your adversary. Similarly in the markets, after a long winning streak, when I try to analyze the what and whys, I end up changing the way I have been trading up to that moment and things get worse.

Nigel Davies adds:

Empty sycophants can be bad news for any teacher, especially teachers who are active participants in their activity and need to maintain great focus and self discipline. I've found in my own mentoring work that the best students can be very difficult, but they can actually help you raise your own game.



Information overloadDoes more information equal a diminished ability to process it and create? Seems to make sense from a hand-count point of view.

"Paying attention isn't a simple act of self-discipline, but a cognitive ability with deep neurobiological roots — and these roots, says Maggie Jackson, are in danger of dying.

"In Distracted: The Erosion of Attention and the Coming Dark Age, Jackson explores the effects of "our high-speed, overloaded, split-focus and even cybercentric society" on attention. It's not a pretty picture: a never-ending stream of phone calls, e-mails, instant messages, text messages and tweets is part of an institutionalized culture of interruption, and makes it hard to concentrate and think creatively.




 Here's something that I've been thinking about for a while. Big cats appear to have an innate odds calculating ability whilst hunting, so are we humans devoid of such intuitive talents? A lot has been written about deficiencies of such abilities in humans, thus implying a need for formal structure. But what if we have a natural odds calculating ability that can be developed?

Twenty-nine published and four unpublished studies of leopard diet that had relative prey abundance estimates associated with them were analyzed from 13 countries in 41 different spatial locations or temporal periods throughout the distribution of the leopard. A Jacobs' index value was calculated for each prey species in each study and the mean of these was then tested against a mean of 0 using t or sign tests for preference or avoidance. Leopards preferentially prey upon species within a weight range of 10–40 kg. Regression plots suggest that the most preferred mass of leopard prey is 25 kg, whereas the mean body mass of significantly preferred prey is 23 kg. Leopards prefer prey within this body mass range, which occur in small herds, in dense habitat and afford the hunter minimal risk of injury during capture.


Pitt T. Maner III comments:

I think that humans have retained quite a bit of this innate assessment ability if you expand your definition of "hunting". Body fat percentage, symmetry, beauty, likelihood of being fertile, health, etc., etc., etc. is done in the blink of an eye although not assigned a particular number…

Take this research for instance:

Such a drive might underlie the utility of attractiveness. And elucidating how the brain responds to large, obvious differences in attractiveness could help researchers understand how the brain responds to differences that are subconscious and difficult to articulate. Platek says he does have results, as yet unpublished, that look at the brain’s response to good-gene indicators.

It's just when you are looking for an attractive stock that you get into trouble since stocks have only been around a few hundred years. And one can be fooled by cosmetic surgery and such…

Having spotted an escaped pet boa constrictor (later picked up by its owner) from 100 feet away along the side of the road in Lake Worth, Florida while driving home at 30 mph one day, I can attest to the fact that humans are very adept at spotting moving, linear, snake-like structures too, in an urban landscape. Another innated carry-over from the Serengeti…



 An interesting article is "Deep Survival, who lives who dies and why" written by Laurence Gonzales. These 12 survival techniques are most definitely appropriate for these times of struggle for many:

The 12 Rules of Survival Laurence Gonzales, Based on his book Deep Survival (W.W. Norton & Co.)

As a journalist, I've been writing about accidents for more than thirty years. In the last 15 or so years, I've concentrated on accidents in outdoor recreation, in an effort to understand who lives, who dies, and why. To my surprise, I found an eerie uniformity in the way people survive seemingly impossible circumstances. Decades and sometimes centuries apart, separated by culture, geography, race, language, and tradition, the most successful survivors–those who practice what I call “deep survival”–go through the same patterns of thought and behavior, the same transformation and spiritual discovery, in the course of keeping themselves alive. Not only that but it doesn't seem to matter whether they are surviving being lost in the wilderness or battling cancer, whether they're struggling through divorce or facing a business catastrophe–the strategies remain the same.

Survival should be thought of as a journey, a vision quest of the sort that Native Americans have had as a rite of passage for thousands of years. Once you're past the precipitating event–you're cast away at sea or told you have cancer–you have been enrolled in one of the oldest schools in history. Here are a few things I've learned that can help you pass the final exam.

1. Perceive and Believe. Don't fall into the deadly trap of denial or of immobilizing fear. Admit it: You're really in trouble and you're going to have to get yourself out.[…]

2. Stay Calm – Use Your Anger In the initial crisis, survivors are not ruled by fear; instead, they make use of it. Their fear often feels like (and turns into) anger, which motivates them and makes them feel sharper. […]

3. Think, Analyze, and Plan. Survivors quickly organize, set up routines, and institute discipline. […]

4. Take Correct, Decisive Action. Survivors are willing to take risks to save themselves and others. But they are simultaneously bold and cautious in what they will do. […] They handle what is within their power to deal with from moment to moment, hour to hour, day to day.

5. Celebrate your success. Survivors take great joy from even their smallest successes. This helps keep motivation high and prevents a lethal plunge into hopelessness. […]Viktor Frankl put it this way: “Don't aim at success–the more you aim at it and make it a target,the more you are going to miss it.” […]

7. Enjoy the Survival Journey. It may seem counterintuitive, but even in the worst circumstances, survivors find something to enjoy, some way to play and laugh. Survival can be tedious, and waiting itself is an art.

8. See the Beauty. Survivors are attuned to the wonder of their world, especially in the face of mortal danger. The appreciation of beauty, the feeling of awe, opens the senses to the environment. (When you see something beautiful, your pupils actually dilate.) […] When Saint-Exupery's plane went down in the Lybian Desert, he was certain that he was doomed, but he carried on in this spirit: “Here we are, condemned to death, and still the certainty of dying cannot compare with the pleasure I am feeling. The joy I take from this half an orange which I am holding in my hand is one of the greatest joys I have ever known.” At no time did he stop to bemoan his fate, or if he did, it was only to laugh at himself.

9. Believe That You Will Succeed. It is at this point, following what I call “the vision,” that the survivor's will to live becomes firmly fixed.[…]

10. Surrender. Yes you might die. In fact, you wil die–we all do. But perhaps it doesn't have to be today. Don't let it worry you.[…]

11. Do Whatever Is Necessary […].

12. Never Give Up […] If you're still alive, there is always one more thing that you can do.

Survivors are not easily discouraged by setbacks. […]

© 2005 Laurence Gonzales Reprinted by permission of the author. All rights reserved.

Laurence Gonzales is the author of Deep Survival: Who Lives, Who Dies, and Why (W.W. Norton & Co., New York) and contributing editor for National Geographic Adventure magazine. The winner of numerous awards, he has written for Harper’s, Atlantic Monthly, Conde Nast Traveler, Rolling Stone, among others. He has published a dozen books, including two award-winning collections of essays, three novels, and the book-length essay, One Zero Charlie published by Simon & Schuster. For more, go to www.deepsurvival.com.

Kim Zussman writes:

Studies of characteristics of survivors suffer from survivor-bias; ie, you don't get to interview those who didn't survive, and thus cannot compare traits which favor survival. Even if there are traits which improve survival, they could be wholly or partly inherited: in which case you should feel purpose in your demise for enriching the surviving genome.

Dr. Frankl's observations come close (who fared better in concentration camp), but his own biases ("logotherapy") come out in the book. Here (wiki source) are tenets of logotherapy:

Life has meaning under all circumstances, even the most miserable ones. Our main motivation for living is our will to find meaning in life. We have freedom to find meaning in what we do, and what we experience, or at least in the stand we take when faced with a situation of unchangeable suffering

Not all philosophers will agree with these, and most biologists will say that the motivation for life is to project our DNA sequence into the future.

So when you're down 300%, you have to keep going to pay your daughter's tuition so she can become a desirable mate - and attract good DNA to mix with the bit of yours she has, to salt future clouds with your legacy worthiness.

Marion's study on risky mice and men shows the value of genetic risk-takers in both complex and immoral animals. Certain mice who venture out of their local habitat (meadow, log etc) risk death by starvation or predation - but may possibly find better sources of food, or more nubile mates. That a high % of such adventurers die trying isn't important in comparison with improving the species, and improving survival chances for future generations.



 If the people had been told the truth about the Civil War (on both sides), they would not have been so gung-ho about having 600,000 of their young men slaughtered over an issue that every other country in the world settled without violence.

And will Doris Kearns Goodwin, Obama, and most of all the original thinkers who read DailySpec, please some day have some slight recognition that Lincoln's was in fact a failed presidency (far bloodier and more bungling than George W. Bush), not to be emulated in any way. While Lincoln was a wonderful speaker, writer and politician, he failed to follow the advice of even his abolitionist cabinet members like Seward not to provoke the South into fullscale war. And most importantly, even after the crazy states like South Carolina had seceded, [his mistake was] not to negotiate to keep in the Union the far more important moderate states like Virginia, North Carolina and Tennessee, as most citizens there (including Robert E. Lee) fervently desired.

Stefan Jovanovich responds:

After people had seen the true costs of the war, they became less enthusiastic; but both sides were as excited and thrilled as a Super Bowl crowd when the thing started. As one State Senator from Georgia said, after it was all over, "After Fort Sumter I promised you that we could whip those Yankees with broomsticks. And we would have. But the nasty so-and-sos refused my choice of weapons." The few temperate-minded people — like Sam Houston and Ulysses Grant — who pointed out that wars were nasty, expensive and stupid and that there was no Constitutional right to secession were either ignored or actively reviled.

The "Lost Cause" school (diLorenzo et. al.) of historians who blame Lincoln for "starting the war" are like the America First diehards who [blame FDR] for conspiring to allow Pearl Harbor to be bombed so we Americans could aid the British. (What I have never understood is how they can be so mad at Roosevelt but have nothing but admiration for MacArthur, who allowed his B-19s and B-24s to be blown up on the runways a day after Pearl.) I can understand the appeal of these dandy conspiracy theories. Blaming the American President absolves the Southern secessionists and Japanese war party from their clear moral responsibility for starting the damn things for truly vile reasons. (Footnote: There is only one substantive difference between the American and Confederate Constitutions; the Confederate one makes slavery a "right"; the WW II Japanese record of violent racism towards everyone else is still so astounding that it does not need to be covered up. Even after you read the record, you have trouble believing the facts. They are that awful.)

Neither indictment will stick. Lincoln had to skulk into Washington on the train because the people in Baltimore were literally mad for secession. After Fort Sumter there were so many volunteers for the Union that potential recruits were turned away on the grounds that they would not be needed. Robert E. Lee did not "fervently desire Virginia to remain in the Union". He resigned his commission and immediately accepted another one from Jefferson Davis himself. As much as Grant respected Lee as a soldier (and threatened to resign his own commission when President Johnson tried to have Lee tried as a traitor), Grant remained convinced that, if Lee had honored his soldier's oath of office to preserve, protect and defend the Constitution and had said so before the Virginia House of Delegates, the war could have been avoided because the vote would have gone against seccession. As it was, it barely passed. Unfortunately, the same cannot be said for North Carolina. Tennessee did have a serious debate, but the vote was never in doubt; and once it was over, the citizens rushed to the recruiting offices. (That is why Peyton Manning's alma mater are called the "Vols ".) The anecdote about Seward is a complete canard. Seward thought he should have been President, and he assumed, as Easterners have done to this day, that a bumpkin from west of the Appalachians like Lincoln would defer to him in Cabinet meetings. When Lincoln had the gall to insist that, as Chief Executive, he would determine policy, Seward began a lifelong campaign to prove that the lawyer from Illinois had been nothing but a "Great Ape" and a bumbler. If Lincoln deserves any blame, it is for his timidity, not his provocative behavior. There is a good deal of reason to believe that if he had followed Jackson's example in the Nullification controversy and immediately sent troops and warships to Sumter (he only sent supplies in a commercial steamer, without even an armed escort), Beauregard and the other nuts in Charleston would have backed down.

But all this is speculation. What is certain is that, once the war started, both sides — being Americans — were not about to back down; and that is a reason to honor all of the people who fought, even those who chose the wrong side. It was their free choice. They were not dragooned or drafted. That is the main reason it lasted so long and was so terribly bloody.



 As a Fantasy Football lover and market addict I have to disagree with the post that Kurt Warner is an over-rated QB. This can be simply verified with stats on the table for everyone to see.

Warner was sacked 26 times during the season for a total of 182 yds. loss. This is about average for all the QBs with the high end at 47 sacks on Matt Cassel and 11 on Jay Cutler. So the Cardinals offensive line was not dominant as claimed by Mr. Hudson.

The key number to watch was Warner’s pass completion per attempt at 67.1%. The second highest on the league and only behind Chad Pennington. Mr. Warner also put impressive numbers as far as TDs scored ranking third in the league. Thus he is an accurate pass QB that can consistently score under pressure and when it counts the most.

Folks, so now you can see that there is ABSOLUTELY no coincidence that the Cardinals decided to throw a short pass to Boldin during the Super Bowl (which unfortunately was intercepted) instead of pounding the ball through the middle. They were just following their system! Do you see a similarity with mechanical systems? You take the signal as it comes and there is no reason or time to second guess it.

I could go on an on over this. But there is a meal for a lifetime here. Fantasy football aficionados and defensive/offensive coordinators are truly number crunchers. The large majority play with probabilities and not gut feelings. If you love the financial market then you can learn a thing or two from this crowd.



 Sooner or later, Free Markets uncover the true value of assets. I don't think this law can be argued to any legitimate extent, so long as Free Markets are kept free.

As a soon to be married man, my friends across the country have decided to make Las Vegas the bachelor party destination taking place over the middle weekend in March. I have been to Las Vegas four times over the last year and change - October 2007, March 2008, August 2008, and December 2008. The decline in overall business activity has been dramatic over this time period for the obvious reasons plaguing the overall global economy, mainly an evaporation of liquidity and wealth destruction. Perhaps only in financials has there been poorer performance and a market cap destruction greater on a percentage basis than in the leading casino names - LVS, MGM, BYD, WYNN, etc.

The action in the casino shares is a good reflection of the fundamental decay of the business. The market has been working here perfectly, but I am wondering if something else is going on. Las Vegas is an interesting place. There are hundreds of thousands of good people there for sure. They show up to work, they provide good personal service, they cook delicious meals, they offer amazing choices to the consumer, they go to church and temple, etc. But the main component to the economy there surrounds around Deception. Deception in the form of free rooms, free drinks, free private jet travel (it's tremendously tempting), free golf, free entertainment, free Armani shopping sprees, etc. But, all of these efforts are to deceive you into sitting down at a table game so that you part with your money. Just because something is legal does not necessarily mean that it is ethical. Yes, gamblers are cautioned to bet with their heads, not over them, etc. It is also common knowledge that odds suggest each game is designed to take the gambler's money. The gambler sits at their own risk, etc.

Las Vegas even deceived the market for a while. The astronomic rise in shares into October 2007 was symbolic of the market buying into the concept that Las Vegas had transitioned itself from a gambling destination to an entertainment/resort destination. Credit Ratings went higher for every star or diamond the megaplexes received in service ratings.

But alas, the market has finally woken up after it's liquor-filled weekend at the Wynn. Though there are similar elements, the Deception of Las Vegas is different from the Deception of the Market, unless of course your trading station has women in skimpy outfits parading around you, "Coffee, Juice, Soda….", or worse, "Cocktails, Beer, Champagne…..".

James Lackey comments:

Feb '91, Saudi Desert,  15 minutes after we arrived in our left hook stage… BBC reported some new peace deal in the works. I reported it to my commander.. He looked at me like I was the sucker at the tables. "Lack we didn't bring all these tanks out to the desert not to kill them all"

Same for Vegas. and if you wish to remain married……………………………………



 Dissent is good. There is no question about it. The free wheeling discussions are one of the finest aspects of this web site. But as we all know discussions can go down ratholes and become repetitive, heated or even personal. My observation is that this is more likely when the market is going down than when it is going up.

About a year after I had been participating in this web site I developed a personal rule to help me identify when a subject had been over-discussed. For me the rule was:

When I find myself repeating points made earlier it is time to disengage from the discussion.

By this standard the discussion on Commitment of Traders was still productive and worthwhile. For those who wish to learn more about Larry Williams's Commitment of Traders work a good start would be his latest book which is entirely devoted to the subject.

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



 Disney profit in the 4th quarter was "also held back by a charge related to fuel hedge contracts." Now if they hedged non-Texas, it had to be to short oil. From 9/30 to 12/30 oil was down from 100.44 on 9/30 to 44 March 30 with nary a day over 100. Yet they still managed to lose. Reminds me of Joe U., my customer who bought silver when it went to 500 one day and got stopped out at 4 for total loss and then told me, "but if I had shorted I would have made 500%" and then I told him that even if you had been short you would have lost everything. That's the market when you pay vig and over your headedness.



 The market seems to be suffering from an acute case of UAD (Uncertainty About Direction). Buyers and sellers find themselves unclear and puzzled waiting for the other side's next move. The sellers step in sooner and sooner trying to get ahead of their brethren. Impatient buyers do not let bargains last too long or for sale prices to drop further. Each is watching the other side, waiting, moving less, trying to feel the breathing pattern of the adversary, calculating its moves in case the opposition acts irrationally in unexpected ways. One side suddenly gets tired of waiting, gets tired of calculating, to test or not to test, to wait or not to wait, to leap ahead with all its might and take the enemy by surprise…

I find myself wedged in a far tight corner of the theater with ample patience, perfect vision for the wide horizon and find peace in watching the performance knowing that intermission is around the corner; the actors are tired. The theater is broke but the show must go on.



 I won't argue if the salary caps are warranted or not, as this is a political issue. But what I believe to be factual in economics is that caps on prices leads to supply/demand imbalances, econ 101. For example, capping gasoline at say $1.00 a gallon would cause consumers to demand more, oil companies to produce less and the result is shortages. For executive labor in the banking sector, this will be the case too, shortages of talent. It is possible there could be a massive supply curve shift where all these executives are will to take lower pay. More likely I think is that they decide to go somewhere else, and that place where ever it is, would be an interesting place to invest in.

Kevin Depew is skeptical:

Agreed, the economics of salary caps seems clear, but, to paraphrase Jon Stewart, these banks have lost hundreds of billions of dollars. Just what "executive talent" is being lost?



 The deception in the market is so subtle it amazes. Even nature I don't think has been so good at deceit. One example that comes to mind is the seasonals at the end of the month for various commodities. You can make money according to accurate numbers by coming in at this or that time. The only problem is that the market is so illiquid that you can't really operate on them at those times and are left to put it on during the liquid times when it doesn't work. Another one is the regularities around the earnings release. The market goes up after the release. But the problem is the releases are all regularly scheduled except for the times they preannounce when things are really bad. And you get caught long before the preannouncement and it totally dissipates the effect. The January bar is another deceit thing. it works for other months just as well. But it stays there like the angler fish just to make you think there's bait, and then you get short, and miss out on everything based on a random pattern. I wrote 100 pages on deceit in EdSpec and since that time numerous other forms of deceit in nature have been discovered some of them even more amazing than the market's deceits.



If one can predict the market then there are better techniques than Dollar Cost averaging. But DCA is a decent strategy if two conditions hold:

  1. One cannot predict the market.
  2. One has an external income source available to be invested regularly.

Leveraged ETFs can grind investors up in unexpected ways because of the daily rebalancing. I suspect he will see that these ETFs are the exact opposite of a DCA strategy. In DCA your investment buys more shares after a dip and acquires fewer shares after a market rise. Overall your average share price is below the average of the market prices.

Leveraged ETFs employ the exact opposite strategy. When the market rises they are forced to buy more shares. When it falls they are forced to sell shares to maintain their constant leverage ratio. The net result is they buy shares at an average price above the average of market prices over the period. Thus the levered ETFs use an anti-DCA and that is what causes the grind.

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

Larry Williams comments:

I would add a third condition: Markets make new highs.



The touchdown interception in the last second of the first half, changing the score from a likely 10-14 to 17-7, immediately brought to mind whether sports imitates the market. And of course the mistress had already thought of this going from -1/2% at 350 to +1/2 % at the 415 close on two occasions in the last 10 years, and the reverse on four occasions. In each case, the mistress gave the final outcome the next day, to the side that had the 3 50 advantage. perhaps to make it more realistic I should have reported 1150 to 1200 reversals.

Jim Sogi comments:

Don't forget the bad calls being reversed and changing the outcome. And the multiple fakes out of the hike. It just needs to fake one defender out to work. The full field reversals, like the 100 yard interception, feel like recent markets. Even at the last minutes of the game or quarter.

James Lackey adds:

As the regulators throw too many flags.

Gordon Haave responds:

I was thinking about the game in terms of stupid behavior that people engage in, over and over again. In football it is the "prevent defense. Teams play great D all game, then in the last five minutes shift to "prevent" defense, where they take out linebackers in favor of more backfield players. All it ever does in prevent the team from winning. This is why the endings of games are so high-scoring.

In the markets, people do all sorts of things to prevent them from losing lots of money, which only insure that they lose the game. Such examples include most of the technical rules, and the dollar-cost-averaging.

Scott Brooks replies:

What Prof. Haave is saying about dollar cost averaging is true if someone has a lump sum to invest. In that case, unless he thinks he can time the market, he should go all in. American Funds had a nice piece on this a few years ago showing two people who invested a lump sum each year. One did at the market high, the other did it the market low every year for a long time. Of course the person who invested at the market low each year got the best return, but the one invested at the market high still got an exceptional return.

However, DCA is not a marketing ploy for the masses, it is a salvation for them. It encourages them to invest on a monthly basis and be in the market each month no matter what the market is doing. It allows them to invest without worrying about the highs and lows of the market. It gives them peace of mind to invest when times are bad. It, quite literally, gets them excited about investing when the market is not so good.

DCAing is very important to Johnny and Sally Lunchbucket… even if they don't know it!

Also, Kurt Warner has been to three Superbowls. He's lost two and barely won one (see "The Tackle")

In both cases where he lost, it was the defense that let him down. I can't say for sure, but I believe it was the "Prevent Defense" that was at fault. In the case of "The Tackle", a porous defense came within 1 foot of losing the game as the clock ran out.

In each of his three Super Bowls, he played against one of the most highly rated defenses in NFL of that year. He and the offense did their job and scored enough points to win.

Kurt Warner should have three Super Bowl Rings in his collection instead of just one. Unfortunately, his defenses let him down.

Phil McDonnell adds:

The reason Dollar Cost averaging works is because it benefits from volatility. Individual stocks are more volatile than the averages so we would expect it to work better on the 30 individual Dow stocks than just on the Dow average itself. The fatal flaw in any strategy is that one needs to invest in stocks that do not go down. For DCA sideways is OK, it will actually make a little money. But if you put all your eggs in the Enron basket you are still broke, DCA will not save you.

About half of the returns of all the stock markets over the last 100 years are due to DCA. Reinvestment of dividends is a form of DCA. The average return in prices has been about 6%/annum. The dividend yield has been about 3% overall. So one would think that the returns if dividends are reinvested will be about 50% higher. In fact dividend reinvestment outperforms by 100% because of the subtle contribution of DCA.

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



 A little boy went into a drug store, reached for a soda carton and pulled it over to the telephone. He climbed onto the carton so that he could reach the buttons on the phone and proceeded to punch in seven digits.

The store-owner observed and listened to the conversation:

Boy: 'Lady, Can you give me the job of cutting your lawn?'

Woman: (at the other end of the phone line): 'I already have someone to cut my lawn.'

Boy: 'Lady, I will cut your lawn for half the price of the person who cuts your lawn now.'

Woman: 'I'm very satisfied with the person who is presently cutting my lawn.'

Boy: (with more perseverance): 'Lady, I'll even sweep your curb and your sidewalk, so on Sunday you will have the prettiest lawn in all of Palm Beach.'

Woman: 'No, thank you.'

With a smile on his face, the little boy replaced the receiver. The store-owner, who was listening to all this, walked over to the boy.

Store Owner: 'Son… I like your attitude; I like that positive spirit and would like to offer you a job.'

Boy: 'No thanks.'

Store Owner: 'But you were really pleading for one.'

Boy: 'No Sir, I was just checking my performance at the job I already have. I am the one who is working for that lady I was talking to!'

This is what a friend sent to me with the label self-appraisal.

I have been left wondering since reading this if the market is not that phenomenon where such a self appraisal is an ongoing activity.



A salutary warning to all quants who take the computerized databases from the big vendors as the immutable objective truth, in an academic paper by Ljungqvist, Malloy and Marston:

We document widespread changes to the historical I/B/E/S analyst stock recommendations database. Across seven I/B/E/S downloads, obtained between 2000 and 2007, we find that between 6,580 (1.6%) and 97,582 (21.7%) of matched observations are different from one download to the next. The changes include alterations of recommendations, additions and deletions of records, and removal of analyst names.

These changes are nonrandom, clustering by analyst reputation, broker size and status, and recommendation boldness, and affect trading signal classifications and back-tests of three stylized facts: profitability of trading signals, profitability of consensus recommendation changes, and persistence in individual analyst stock-picking ability.



Dogma, from Kim Zussman

February 3, 2009 | 3 Comments

 Now that the assumption that 1930s markets would never repeat was wrong, academics will have to start over:

Dollar cost averaging vs all in at 8X leverage.
Stocks for the long run.
Real estate never goes down.
10% down on house doubles your money quickly.
Buy dips because they sometimes reverse.
How many asteroid collisions in a normal distribution.
You can't time the market but it is better to skip crashes.
Buy and hold this.
The miracle of compound what.
Small stocks are good because they were large banks.
High dividend yield is a tumor marker.
The trend is your friend until you both end.
Safe mortgage investments.
Self-directed retirements.
Retire this.
Prosperous Iceland.
Free markets work best because Ayn never experienced one.
Yes we can.



 We have all heard of PTSS, but a well known response to trauma is substantial growth or PTGS. Those that espouse Post Traumatic Growth syndrome, believe great growth happens in the majority of the cases. But like the spectacular fall colors, which people drive by without noticing, it is too predictably common. It was only more recently that people started realizing that studying this growth may help more people achieve this growth and those that achieved some growth to grow more.

My layman’s thoughts on studying this may be more applicable to trading. This article and this excerpt from a book will explain the phenomenon better than I could. After reading the testimony of my younger brother, an MIT grad, on why and how he built a multimillion dollar charity, I realized that what we had gone through in childhood was pretty traumatic. I found myself asking a question that my Uncle asked me at my Grandmother’s funeral, “Why are Andrew and you overachievers?” And while there really is no one answer, I would have to say part of it would be our growth after trauma. If I gave you the details, you might think I'd blame someone, or that I'd blamed everyone. But I've learned that blame is a path to destruction and others owning you. But I also won't give you the details because they can't be really explained– unless you've lived them you don't understand them. You don't see how close a call the choice between, the blame and victim-hood; or forgiveness and empowerment; really was. This, I believe, could have some deep negative implications for the current crisis.

Clearly poverty had its hand in my families trauma. My Dad was smart and impressive enough to get jobs but he could not maintain them. We moved from small town to small town until we made a fateful move into Kansas City Missouri. Here eventually my Dad was to land a solid job at the US Post Office. Coming from humble small town background, my parents were incredibly naive about the “big city”. Like Scott will tell you about St. Louis, the other big city in Missouri, Kansas City was a rough town, getting rougher as it rusted in the late 70 and 80s. My parents moved us in a tough part of town. I learned to avoid people, but my younger brothers would find abuse and trouble by the beginning of elementary school. Several of the ones that were loyal to each other would end up spending time in prison. A few like him learned to grow after leaving home.

There is some controversy over PTGS. We know that stress can make you stronger. There are those that would say that this is just a scalable factor of strength through the recovery process. But I would disagree in 4 significant ways. First, there is something about facing a total loss that makes you appreciate the little things in life. The hug of a child, a cool drink of water, the sun on your back and the wink from your spouse all gain their place amongst the size of your balance sheet and your position of power. It may be you discover your childhood ideals again. It may be you see the failure of the dinosaurs to adapt. It may be that you discover that David can beat Goliath. It may be those giants are recognized as only one niche strategy. It may be that the flowers grow back first before the trees. Facing trauma can give you new assumptions, new goals and new insights into where you fit in the world. Seeing the trauma of Wall Street's great minds, great organizers and great leaders, I can't help but wonder how many IBMs, Googles, or Walmarts will soon be birthed. And how the small will be favored over the large bureaucracy. Second, trauma often is a lesson in the strength of avoiding panic. The “miracle on the Hudson” seems to confirm. It is also a lesson in what constitutes a crisis. Trauma survivors can have a difficult time believing what others are willing to fret and worry and run around in a panic over. Losses rarely mean there is no hope. Third, they realize there is great gain in the effort. Some of the most entrepreneurial friends I know are soldiers. They are not afraid of failure. They are deeply afraid of not trying or of giving-up. They have seen those that lost, lose it all. However if soldiers tried, if they kept the faith, they did not fail and will not lose the war. 

For the last 4 years I have run the Memorial Marathon in Oklahoma City. From this I’ve seen how giving your best effort is a form of bereavement, to honor those innocent lives taken. You live your best, as you are living for them also. The fourth reason is the impossible becomes possible. The deep philosophical questions are asked, in times of crisis and the answer is often “all things are possible.” Some will see it in a vision; some will feel it in a near death out of body experience, some have felt or heard God’s answer to a prayer. Others like the POW's or Holocaust survivors have been given the strength to carry on. What was once a limit, an impenetrable wall, is seen as the “sword in the stone”, waiting for the right person to try. I’ve learned from the Kenyans I’ve raced against, the impossible is only achieved by those that don’t know it is impossible. But this is not the naive, magical mysticism of "the J#sus wants you to be rich", televangelist nor the 70 virgins suicide murderers. This is the reality of herculean strength coming from heroic effort. It is a deep belief in themselves, and the responsibility that ensue as it is a faith of God. The path down madness will always seem clear, but the path to life and growth can come from billions of unseen spontaneous generated seeds.



 Stephen Moore, the senior economics writer for The Wall Street Journal editorial page, will be speaking at Victor Niederhoffer's Junto this Thursday night, February 5. There's no admission charge, and anyone can come and bring as many guests as they like. Moore's recent column in the WSJ, "Atlas Shrugged: From Fiction to Fact in 52 Years" has drawn widespread attention, and reignited interest in Rand's critique of big government run amok. Moore will continue on this theme Thursday in a talk titled "Is Obama the Nightmare Ayn Rand Warned Us About?" The evening is Junto's annual celebration of Rand's birth in 1905.

Moore will be on hand from about 6:30 pm to sign copies of his recent book The End of Prosperity: How Higher Taxes Will Doom the Economy–If We Let It Happen which he co-authored with Arthur Laffer and Arthur Tanous. The event begins at 7 pm, with Moore ending his talk at 9 pm so he can catch the last plane to Washington. After that, another hour for cookies, talk, perhaps some wisdom from Victor, and the playing of a rarely seen video interview with Rand. Location: General Society Library, 20 West 44th St., in Manhattan.



 I should know something about the relation between Merrill and BAC because I have much experience in sports and mergers, but I just am amazed about how much I don't know. Some isolated facts stand out. Apparently Lewis caught the previous BAC's eye because of his dashing characteristics on the softball field of Central Park where in a game, his hard slides helped them beat Citi even though Citi was much bigger. Okay, does playing an aggressive game really qualify one to move up the ladder these days? Apparently it does because the Lehman chief was known for saying to Thain, "He'd cut his heart out if he learned that rumors about L's being in trouble were being spread. And he also liked to beat out opposing fathers or coaches at Little League games if they tried to bully fathers on his side and he was well known for the look in his eyes that scared you in the executive suite and the squash court. It's right out of How to Succeed in Business and I wonder if it's still grounds for demotion if you act sassy with the boss's girlfriend, and whether you still have to sing the college song or take up knitting as a hobby if the boss is into it to get ahead.  

Now on the merger, this is known. The agreement on the deal was announced September 14th at 29 a share in stock for 42 billion. BAC at 34 on sep 22. Deal approved by Merrill shareholders on Dec 5 when stock at 15 and closed on Dec 31 when BAC closed at 14. By Jan 19, BAC was 5. So Merrill shareholders only received 15 billion or 7 billion at most. Merrill had a book value of 37 billion at year end 2007 and lost 27 billion "after" in 2008 bringing book down to 10. They started year with 41 billion in cash and 1 trillion in total assets. Merrrill lost 15 billion in Dec. Thain said he told BAC about the losses when he learned about them. He was acting as CEO and Chief of Trading for the combined entities through the period. He said that the Merrill bonuses were paid in the normal course with BAC approval. The Fed agreed to invest 20 billion in BAC and guarantee 118 billion in assets when the loss was announced. the questions all relate to the timing. How does it happen that a CEO does not know about the losses in his operation, during a period, especially when a merger is being voted on until a few days after the end of the period. Same with respect to bonuses being paid. From what I know about mergers, it's not surprising that both companies wished to merge. Companies like to sell when the lighting is about to strike and pickets are surrounding their factories. Buyers are much more reluctant to pay cash than stock when their business is going well.

Presumably this was a Brer Rabbit and Brer Bear case where both buyer and seller were so reluctant to be thrown into the briar patch that they both needed exhortation from a third party to go through with it. Presumably this had something to do with the additional 20 billion invested on 1/16 by the third party and the 100 billion guarantees. But my questions remain. How could a head man now know about the losses in a fourth quarter until Jan 16 and how could he not have disclosed these earlier to his acquiring company? How could they all have independently bought stocks at 6 a share on Jan 22, including T and l just a few days after the loss was announced, and one day before T was asked to leave? I read that the third party had to come up with the 20 billion and 100 billion because otherwise BAC would have backed out of the deal but how could they do so after the deal had been approved by their stockholders? Were their comparable bad things that each party did not disclose to the others when the stock to stock deal was agreed to? What's the back story here about when T was asked to leave and did it have anything to do with the 1.2 office renovation or more about the failure to disclose the extent of the loss before the stockholders vote, and the executive bonuses were paid out? How does the request by Thain for a bonus for himself of 5 million which was apparently rejected by the directors fit into the puzzle and where were the directors vis a vis disclosure of the losses to all parties in the time line of the agreement the vote and the closing?

I am a babe in arms about this and wish to be clarified so I won't be so naive again after having spent so much time in aggressive sports competition and putting together mergers.

Douglas Dimick writes:

For team sports, I pitched and played firstbase and leftfield in little league for two years, then baseball and basketball in junior high. For high school, though, I spent my winters competing individually at a private ski racing academy in NH.

I worked for four years in the world’s largest law firm (The JAGC) as a legal specialist in the US Army. Then after law school, though, I worked as a trustee for my parents.

While at Georgetown studying literature, I did a consulting job for a beltway firm that provided anti-terrorist training to the State Department. The owner told me: “Son, if you have to compete, you are in the wrong business.”

This man appeared to me to assume responsibility as SOP. He took ownership, initiative to lead on a deal, the business, an issue at hand. If something went wrong, he was the first to step up.

I worked with another man, who had been a key person during the go-go years at Reliance, who was recently barred from the markets as a settlement with the SEC. For him, it appeared to me that he operated from a centricity of ego, from which he would apportion responsibility and blame upon others. I found his style of leadership to be more about avoiding responsibility than accepting it.

Then there is evolution. I understand that V has a collection of seashells – symbolizing spiraling of life, markets, human endeavors, often so traded and reduced to currency?

During R&D of Quantitative Relativity, I studied spiraling (a la Fibonacci) concerning market indicators and function integration. Is the spiral a result of competition, the output of (non)correlated forces struggling for gain (and loss)? Are circling “patterns” (not as an output or state but as a geometric representation) exchange-like flows of the resulting order(s) from a given chaotic condition or event?

Relative to disclosure of losses and bonus issues as so posed in the article, perhaps these matters are merely a continuation of the same dynamics (or energy patterns) spiraling from years of exchanges (or transactions) that have lead markets to their levels of today?

I have found that, when humans compete, rules-based systems are so observed only to the degree that there is (natural or artificial) enforcement. When a runner is at first base and lurching out with thoughts of “stealing” second, the only regulation is governed from the pitcher’s corner eye.

Could we expect anything more (or less) of BAC, Merrill, and their angling minions?

I read the locker-room banter-sites among deal mavens. The mentality appears symptomatic of breast-feeding on how to blindside the umpire – that’s why they require “teams” of lawyers and accountants.

Who thinks that such professional sportsmen follow the rules, regardless of when they play it hard or play it soft? Fans don’t. Why should investors — at least after now?

Here in China, where there are no rules, just party will, striking similarities may be found with the recounted gameplay tactics like “hide the losses from shareholders one day before the vote.” We then need not wait to read the newspapers – government owned or otherwise – to know how these innings end… Badly for all concerned: teams, owners, fans, and the game.

What I learned long after my dairy cow showing during Maine’s fair season was that “winning” is not just about winning. Granted, theoretically, for every trade, there is a winner and a loser.

But we know that is not necessarily true. It is a matter of perspective, as we spiral about our individual and collective ways, which we then – testing variants of humility as ego-centric creatures – externalize, thereby attempting to quantify as a cause or an effect of market timing.

With the Chinese New Year half way through its two-week celebration, I hope that we all might stop and reflect how a 4-H’er may approach the article… Consider, then…

The four “H”s target Life Skills:

•Head Planning & Organizing Problem Solving & Decision Making

•Heart Communication & Cooperation Showing Concern for Others

•Hands Community Service & Volunteering with Others

•Healthy Lifestyles Stress Management & Disease Prevention Character Education



 Once again, Federer's mental weakness is showing up at the most critical points of the match. Failed to convert on his serve up 4-2 in the first set. Failing to make a decent percentage of first serves, thus putting immense pressure on himself to hold. This pressure then carries over into the other aspects of his game — shanked forehands, poor placements, blown volleys — all putting more and more pressure on himself. Just when he rights his own ship, Nadal then unleashes a brutal blow, again rocking Federer's mental boat. Fascinating, and the parallels to markets and trading are even more fascinating.



I'm sounding alarm. Amidst signs that:
1. Trading and Investment capital is continuing to contract.
2. Political and regulatory interferences are becoming more chaotic
3. Economic downturn's impact is widening
…it is harder than ever before to pin down intermediate-term opportunities. Those who've been trading in-and-out and even reversing every few days (albeit, with year-opener bias in mind), have done well. But in the course of February, year-opener directions should fade. Sector by sector:
1. SP: Commercials have been on the right side of every twist-and-turn. Raising Net Longs late Q4, shorting early Jan, buying again mid-Jan and selling again last week. Test of Nov lows is certain - and only then the panic will reach the pitch tone. However, it's important to not lose sight of the absolute diminishing values: what will look like the ultimate break-down - in fact, will have little room to forge ahead, relative to enormous Bear coups of 2008. When smaller players finally go overly Short on new lows, en mass - they'll find little reward.
2. Treasuries: 30y futures have retraced exactly half of their straight-line Q4 sprint 111->142, thus relieving unconscionable Xmas overbought. O.I. pattern is bullish at current juncture, dropping on down-days and rising on up-days.
3. Currencies: C.O.T. display intriguing divergence vis-a-vis equity-Bear posture. Yen commitments are Bearish, while SF Bullish. I'm getting ready for substantial reversals in both dropping European currencies and rising Yen. My scenario is that such reversals will be playing out against the background of equities' panic, and will catch Specs flat-footed.
4. GC commitments got predictably stone-walled in course of super-rally. Commercials offered scale-up across the precious metals complex. While long-term outlook for Gold is unavoidably Bullish (given few viable investment alternatives), I'd much rather be a buyer on any sharp profit-taking spells, than on any "strong trend". Copper O.I. pattern remains Bullish - but it will be up-hill battle against the back-drop of equity panic.
5. Energy contracts remain in disarray, with little of new indicators in the past week. Of note CL 6-week consolidation pattern that follows vertical 147->33 move, record HO O.I. levels, RB price out-performance (not supported by O.I. pattern) and NG price under-performance, nearing very important $4.05 low of 2006. My conclusion is that the complex will struggle with equities - and that important buying opportunity will form in the process.

George Parkanyi comments:

I admit that I apply COT like a simpleton, but time and time again I've noticed that aligning with the commercials in physical commodities (in the financial indices or currencies I don't even know who a commercial is, or if they're particularly bright enough to make a difference) generally gets you going in the right direction. THAT I learned to pay attention to from Larry's excellent books on the subject. (Unfortunately, Larry, I didn't follow your money management advice and eventually skewered my commodities account).

A guy called Barry Lees runs a site called cotfutures and basically all he does is reorganize COT data into a useful format -particularly a rolling 18 month 0-100 ranking representing the range between the maximum commercial net-short position (0) and the maximum net-long position (100). I've found the 0-10's to be pretty good markers for a downward reversal and the 90-100's for an upward reversal. Speculators would be at the opposite side of the spectrum. There are other factors of course, but these are pretty good ballpark indicators.

Right now, Copper and Rough Rice are at 100-0 extremes, corn 98-4, oats 93-1, cotton 93-20, lumber 92-14. The latter makes sense - it reflects the housing market and consumer staples (leprosy). Gold and oil are mid-range and inconclusive by this interpretation. The closest thing to a short are hogs at 24-63, which is not really considered to be an extreme. (Commercials seem to have not much of a market to sell into and must be cutting back production or holding back inventory because prices suck. Anyway, that's the way I might interpret it.) Would I rush out and by copper and rice right away? Not necessarily. But to buy copper stocks right now to invest for a couple of years might not turn out too badly.

Larry Williams adds:

Not that I know it all, but a little more than most I kid myself, so I will comment what Lees is doing is 10 years behind the times and fails to take into consideration price levels–a critical point.

COT is actually entering bullish area for hogs—2 weeks ago entered bullish are for lumber but not a great buy point due to price levels. Commercials buy all the way down as they take delivery and use the stuff—they are not spec buyers—and that must be factored in….same in copper sure there's been commercial buying, but low price levels induced it.

James Goldcamp writes:

Conceptually I've always had a hard time taking COT serious in markets where the futures markets are not a significant portion of the overall business such as SP(stocks). Isn't the SP overshadowed by the cash market for stocks (where many of the big players such as mutual funds don't use futures at all or minimally)? The same would seem to be true for the currencies. Perhaps you might argue (with respect to markets where the futures are not significant portion of the overall $ traded) the structure of who is positioned in what manner is indicative of sentiment ; however, I cant believe it's driving anything.

Larry Williams replies:

currencies have a very strong commercial influence; international corps protecting sales in various currencies.


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