RingI was hoping some one here may be able to help me out. After four years of dating my girlfriend, I have finally decided to ask her to marry me. I am in the early stages of looking for a ring and am obviously wanting to get her the best ring I can. Unfortunately what she deserves and what I can afford are two different things. Therefore my hope is that someone on this list knows someone that would be able to get me some type of deal on an engagement ring. I'm not looking for a hand out by any means, I just want the best value for my money. I'm also looking to get it pretty soon as I believe both of us would like to get married before I leave for Afghanistan next year.  Thank you in advance to anyone who is able to help me out!

Dylan Distasio replies:

Good luck with the proposal! Unfortunately I don't know someone who can give you a deal on a ring. However, I would highly recommend checking out Blue Nile. They have beautiful diamonds at all price levels, quality levels, cuts, etc. at very low prices compared to retail. I am incredibly happy with them from personal experience. I was able to get a very high quality diamond for an engagement ring that my wife is now wearing. They also offer settings if you want to one stop shop. They ship quickly, and the diamond appraised at approximately 50% higher than what I paid. Most importantly though, it is a beautiful stone. My co-worker also had great luck with them. I'm not a Blue Nile shill, just a satisfied customer.

Charles Pennington weighs in:

T BoxBorsheim's is pretty good. With them I don't think you have to worry you're getting ripped off. You can call them on the phone and just talk with them about how much you're thinking about spending, and they'll provide a host of options for you. If you want, they'll even ship one or two out to you so that you can have a look. If they do rip you off, you can go complain to Warren Buffett at the next Berkshire Hathaway shareholders' meeting!

Caution: She may want a ring from Tiffany, even though you both know the extra money is just for the blue box.

Dan Humbert takes an unconventional view:

Don't waste your money on something so ridiculously overpriced as a diamond (especially since you indicate you are short on funds and are off to Afghanistan, meaning you'll have a lot more important things for you and your fiance to spend your limited funds on). If you and your fiance want an engagement ring, cubic zirconiums are nearly as good, and I understand there are now even better man-made diamonds that a jeweler cannot distinguish from natural diamonds — it takes an expert with sophisticated equipment. Exact types and prices are well-covered in the recent book Spent by Geoffrey Miller. No one else will be able to tell, and you and your fiance have no obligation to confess that you were not so wasteful as to buy in to De Beers's monopoly and ridiculous advertising that you should spend 25% (or whatever obscene portion of your year's salary) on the diamond.

Taking it a step further — this being a libertarian-oriented site, why get married at all? You and your love should set the terms of your own wonderful relationship rather than letting the government, courts and lawyers dictate the terms. It's a lot more romantic to voluntarily win each other's love each day, than to be obligated by the government to stay together unless and until expensive and debilitating proceedings involving lawyers and judges allow you to change the terms.

The dissenting view gets support from Kevin Humbert:

Dan offers excellent diamond advice. After losing a number of "real" diamonds to both women and thieves, I decided to look into synthetic diamonds as an alternative some time ago. At the risk of sounding cynical you don't blow through as many ring-requiring ceremonies & occasions as I have without incurring significant financial loss… and that's before the rings are even factored into the equation. Man made diamonds vary wildly in price & quality. Even so, the discount to comparable high quality diamonds is high enough to make something man made a no-brainer for me. As for whether anyone notices if it is real or not, I can't recall having met anyone outside of the jewelry industry who is impressed with a diamond wedding ring one way or the other, either real or synthetic.

But Laurel Kenner interjects:

Gentlemen! A fake gem sends the wrong message. And relationships without marriage usually turn out to be fakes, too. Just ask a wife whether her marriage is real or not.

An anecdote from Chris Cooper:

I once had an employee who had already made a lot of money from stock options owned by her husband and herself as executives at a big tech company. When they got married he told her she could have a one-carat ring now, or for every year she waited he would increase the size by an additional carat. After several years she caved in, and could be seen flaunting a 5-carat flawless solitaire in important business meetings. A stone of that size does tend to attract the eye.

Legacy Daily sends a specific suggestion:

Congratulations! Engagement and marriage are indeed very special life events. I have jewelers in the family who would be happy to help. I just called them to let them know that they might hear from you. Feel free to contact Artinian Jewelry.

John Lamberg looks back:

A word of advice: When your wife to be picks out a wedding ring, no matter what price, run, do not walk, to the counter and purchase it. Do not repeat the mistake I made many years ago and say, “let’s think about it…”. Some mistakes are never forgotten.

Victor Niederhoffer also reminisces:

I bought mine for 25 cents at Woolworth on 86th and Third Avenue. And as the poker player said after he took his real diamond from her the day of the wedding to throw into pot, "she's still wearing it."



 Don Boudreaux will be talking at the New  York Junto at the Mechanics Institute (20 W 44, NY NY) on Thursday July 2 at 7:30 pm and all Daily Speculations readers are invited to attend.





It is a mind-reading wheelchair.

I've been interested in this type of technology as my uncle was employed in the 1960s on a top secret program to have military fighter pilots control their planes using the same thought controlling concept.

Other possible applications include a mind-reading robot, or a lie detector test.



Loose lipsReminds me of a sayin' I learned in the Navy: "loose lips sinks ships." The spread of information that people had promised to keep secret proved the undoing of huge numbers of people in the M@doff fraud.

Stefan Jovanovich raises a historical point:

As much as I adore the U.S. Navy and its traditions, the "loose lips sink ships" motto was one of the pure canards of both World Wars. It was politically popular because it supported Wilson's campaign of political repression against German-Americans who were guilty — among other things — of having Jewish-sounding surnames. Espionage played no part in the successes of the German U-Boats. In both WW I and WW II the U.S. and (to a lesser extent) the British Navies were slow to adopt the convoy systems and criminally guilty of not supplying air cover to convoys. British bombers were dropping leaflets on Germany at the same time Coastal Command was begging for air cover for their convoys. The greatest successes of 1942 for the U-boats came off the coast of America; tankers from the Caribbean were literally silhouetted against the lights onshore. The motto should have been "turn off the darn lights".



In decades past, lower interest rates were highly bullish for stocks. However, in running a regression of 4-month S&P 500 changes versus the change during the previous 4 months of the 3-month Treasury bill yield, I found that since 1996, the S&P 500 has been more likely to go up after interest rates rise. Following are the most recent data points.

.            4-month change in
.            —————–
.                      3-month
. 4 months   S&P 500    T-Bill
.   ending   futures   yield %
. 8/29/2003             -0.14
.12/31/2003     10%     -0.05
. 4/30/2004      0%      0.04
. 8/31/2004      0%      0.62
.12/31/2004     10%      0.61
. 4/29/2005     -5%      0.66
. 8/31/2005      5%      0.59
.12/30/2005      2%      0.55
. 4/28/2006      4%      0.67
. 8/31/2006     -2%      0.26
.12/29/2006      8%     -0.02
. 4/30/2007      3%     -0.17
. 8/31/2007     -2%     -0.73
.12/31/2007     -2%     -0.85
. 4/30/2008     -6%      -1.8
. 8/29/2008     -8%      0.35
.12/31/2008    -30%     -1.57
. 4/30/2009     -3%



AmazonCitizens of Amazon towns find support in what the jungle offers. It breaks down to fish, yucca, watermelon, oranges, and various vegetables. Ninety percent of the population specializes in one of these items to find or grow well and large. They feed their families and carry the bulk by wheelbarrow or boat to the ubiquitous central market, a one street bazaar of fly-covered rickety stands to offer these items. The other 10% of the population finds support in common professions including woodcutting, driving a 125cc motorcycle taxi or similar canoe taxi, a tiny grocery or hardware store, furniture maker, cafe or hotel owner, and so on. The young people work as delivery boys (photo), waitresses, clerks, street cleaners and the like for a daily $4 that goes a long way in a jungle town. Surrounding any jungle town (off by a few hours walk) are pueblitos, or little towns, of 20 families who fish and grow what they need and bring the rest to market.

The overview is these river towns and villages are a fish economy, and daily triple-decker boats drop off a dozen 100 kilo bags of salt in trade for 10ft. tall crates of a hundred species of fish for downriver consumption. Yesterday I hitched a canoe across the half-mile river and walked a muddy track one hour to the pueblito Comandillo perched on a stream. A barefoot tyke fell in stride on the return and became my paid guide identifying birds and animals. Later waiting on shore for a canoe to regress to town, the mother joined us with a basket of four 5-pound fish balanced on her head. I paid their fare across the river where she climbed mud stairs to the central market and in five minutes sold the batch for $3, a windfall. She grinned so I asked her for a massage as the tyke wandered the stands. There is no want of food, or for the working person, money, in a jungle town like Requena, Peru (photo) or a thousand others. There is more to eat than I had as a happy kid, and far more to do each minute.



V NOne concept that ties together many important drivers of market movement is incentives. What are the reasons for investors to own stocks as opposed to any other use of their money or time? Certainly the spectrum of prospective returns and the risks is important. The returns are influenced by such things as the amount that you will keep after paying the fees and "services" involved. Such services have been increased substantially with the increases in the new bills, thereby reducing incentives. This has a compounding effect in the future, making the ratio of wealth that one could hope to achieve say in 10 years from investments considerably lower than the increase in short term and long term rates. For example, 100 growing at 10% for 21 years will grow to 740 but 100 growing at 8% for 21 years will grow to 503. Thus, a 20% reduction in the after service return will lead to a 32% reduction in wealth.

Another aspect of incentives is the rules of the game. When certain groups of cronies are favored with amounts injected, with economic values substantially greater than their market values at the time of injection, it puts the non-cronies playing the game in the position that people who play sports are in when the referees are against them. That works for a game or two, but when extended, most athletes will stop playing the game, and prospective athletes will look for another area of endeavor. One would think that all the redistributions, all the tremendous rises in value of the new banks would have a similar effect on the current and future participants who are not in that favored position with respect to the referees.

Another group affected deeply by incentives is owners of businesses. What are the reasons to go into business, to start a business, as opposed to working in a secure job where firing hardly ever happens, and the amounts allocated to it are ever increasing as opposed to taking the risks of becoming an entrepreneur? According to Amity Shlaes, this lack of incentives caused the depression to last 15 years rather than two or three. My own experience with the owners of businesses started during that period confirms this in spades.

A small change in expectations in matters such as the propsective after returns, the rules of the game, and the security of alternate occupations versus entreprenurial activities has a great effect on the ultimate choices as to where and when prospective investors place their funds.



I heard it suggested this morning that yesterday's boom in equities was a result of "T+3 window-dressing" and not necessarily a bullish endorsement of the market. It seems that there should be a multitude of studies on end-of-quarter window-dressing and whether the above mentioned suggestion is legitimate or another canard.



SurfI was surfing small waves on Wednesday, when time constraints made me catch that one last ride and take it all the way into the shore. Jumping off my board near the beach in one foot of water, my foot landed in a small hole and I ended up spraining it badly. It was sprained badly enough that I required a trip to the ER. Until then, my surf session was textbook perfect, a very mellow session, full of stoke, and without any mistakes. I didn't even make a mistake the way I got off my board, as it was the same way I've done it a thousand times before without any mishap. Analyzing my session that night brought the realization that when conditions are easy and the waves are small, I make more mistakes than normal. I can quantify this as 70% of my surfing injuries occur in easy surf. Last August, I nearly broke my neck in similar conditions, and that injury required surgery and a four month hiatus from the water. It seems that when the waves are small and easy, my confidence level goes up, accompanied by a little carelessness and reckless behavior. I've exhibited the same behavior in easy markets, where things are humming along smoothly, then out of nowhere, my account gets badly injured. This has happened to me time and time again when I find an easy pattern that works for weeks, I get complacent, then the market has a few day limit move against me. Looking back at my own account losses, it's not the volatile markets that get me, but the calm markets that hide a tsunami that washes me ashore and beats me up badly. My lesson to learn is the necessity to be on guard 100% of the time and treat all conditions, market or surf, like a big day at Sunset Beach. The big waves might beat me up a little, but it's the small ones that usually kill me. My grandfather told me that one can drown in a teacup, whether in surfing or the markets.



P d TThe bonds and stocks and yen are doing a beautiful pas de trois. First the bond vigilantes act and then the stock vigilantes. And then the Asian vigilantes.

There is a sweet spot in stock returns over a certain magnitude each year retrospectively with most of the total returns coming from the big, big gainers. A direct test of it would be the subsequent performance of stocks after they return 100% or more during the year versus a matched random stock at that time.

The scholarly market of Israel was down 5% last week premonitioning the US decline but is now up 2% today. It is discouraging to see the bonds hovering just 2 points above their lows for a year, with stocks at these low levels.

Of 200 or so separate world markets covered by Bloomberg, the US is in the bottom 10 or so in performance this year. What is the cause of this, and will the gravitational attraction do its thing.

The big speculators often have the same positions in the summer. Is it chance or prescience, or meetings at play or drinks and does this cause the exacerbated moves one hypothesizes occur with inordinate frequency during the summer.

The match between the big markets often can be illuminated by the moves between teams in a good baseball, basketball, or football contest.



 Living at Micro Scale by fellow Reedie David Dusenbery details the history of physical sciences concerned with the study of small living things. The physics of microscopic life is markedly different than at our size due to the physics of fluids and molecules. Over 80% of life is small, and over 80% of the five billion year history of life on earth has been micro organisms. He discusses the development of optics to allow study of micro organisms, the development of physical science and math in fluids, Brownian movement, gases. Many of the advances in the physical sciences were by names important in statistics like Bernoulli, Laplace, Fourier in no small part due to the algorithms developed and used in statistical computations. Many ideas can easily be used in market studies and many of the quantitative information presented in graphical form are familiar.

An interesting example is the remarkable discovery by Hungarian mathematician George Polya in his study of random walks that the probabilities of returning to the start is 1 for one or two dimensions, but in three dimensions the probability is only .34. In testing this in market it is easy to see the high likelihood of daily change being 0 as a time series is limited to 1 or 2 dimensions. The average daily change over the last 15 years is in fact -.05, or close to 0, and a quick histogram will confirm the distribution. This is similar to the the appearance of trends as an artifact of randomness as a function of time series, correlation and volatility.

Another interesting idea is the use of dimensionless constants to facilitate computations and study and classification. The Reynolds number is the ratio of inertia to viscosity. This seems like a useful criterion in market movements.

The book is fascinating, well written and accessible to non specialized scientists. I highly recommend it despite a sometime soporific effect due to its technicality. It is a completely different approach to microbiology than any other and very refreshing as a result.

Jim Sogi elaborates:

Dusenberry's thesis is that physics of the environment and the established quantification in physics can be used to explain and predict many micro biological phenomenon. He uses ideas such as diffusion, Brownian motion, information theory, hydro dynamics, laws of motion, thermodynamics to analyze micro organisms. In the chapter on diffusion, organisms interact with their environment chemically, absorbing food and information , and to send out chemicals. For example fungi send out enzymes that dissolve surrounding tissues and provide nutrients to for them to absorb.

A similar analysis might work in markets. Take the diffusion of market moving factors such as FOMC which we saw two days ago move the markets some 4% quite dramatically. How does this diffuse? Today the effect on the market is pretty much gone and it seems stuck at 912. Distance in the market would be measured by time and by points, so 2 days and 40 points counted.

Ideas such as inertia and Brownian motion have been used before.



Carl Menger (1840-1921)At a time when people are concerned about a global outbreak of swine flu, it is interesting to compare it to the danger from ideological menaces. The ideological menace known as Marxism killed at least 100 million in the 20th century; the only comparable catastrophe from a biological menace was smallpox among the native Americans upon contact with Europeans. And that was a highly unusual situation: an entire population that had never been exposed to a virus in an age prior to modern medicine. The Great Influenza Pandemic of 1918 killed between 20 and 40 million, still before the rise of modern medicine. Today the World Health Organization and the Center for Disease Control carefully monitor the incidence of swine flu, ready to deploy the arsenal of modern medicine and public health techniques to limit the spread of any outbreak.

Meanwhile, the Marxist virus continues to remain active in small pockets around the world, albeit mostly isolated at universities. This month, however, Foreign Policy, an award-winning, high profile public policy journal, published an honest-to-goodness article on the revival of Marxism, by a real live Marxist professor, in its most recent issue. The Globe & Mail followed with a public forum on "Is there a Marxist revival?", giving more space to the same Marxist professor who had published the article in Foreign Policy. Should we treat these small public outbreaks, outside the universities, with the same level of concern that we treat localized outbreaks of swine flu?

Since Locke, Hume, Montesquieu, Smith, and Madison, it has been obvious that progress in the wealth and well-being of a society is based on secure and well-defined property rights, limited government, rule of law, and economic freedom. In the 19th century, through these principles Britain and the U.S. became the first nations in history in which a steadily rising standard of living for the masses became a reality. At no point was there an evidentiary foundation for denying the overall perspective of Adam Smith, and by the 1870s Carl Menger 's work (he was the father of the Austrian school of economics) had put Smithian economics on a far more rigorous intellectual foundation. And yet by the 20th century, most intellectuals, including most professors, were rejecting the classical liberal economic model in favor of Marxism, Fabian socialism, or some related variant.

Marxism is so ridiculous that it is difficult to believe that people ever took it seriously or that they could ever take it seriously again. Why bother to refute absurdities? And yet some of us regard the notion that the U.S. government could run General Motors effectively as equally ridiculous, and yet most of the mainstream media seems to accept this proposition as entirely plausible. Earlier this year, Newsweek ran a cover claiming "We Are All Socialists Now" and a rising chorus of sympathetic voices in the media claim that capitalism as we know it has failed.

Meanwhile, intelligent and sophisticated voices, such as economics Nobel laureate Vernon Smith and his co-author Steven Gjerstad are providing coherent, data-driven explanations showing how the government-sponsored housing bubble led to a broader depression. Steven Horwitz has a less rigorous explanation than that given by Smith and Gjerstad, but generally pointing in a similar direction in his, "Open Letter to My Friends on the Left" in which he shows exactly why it is important for the public to realize that once again, the 2008 Fannie Mae-Freddie Mac crisis is a failure of government, not of markets. The Mercatus Center Financial Markets Working Group has been publishing a long series of cutting-edge research on the crisis. Although there are diverse perspectives on both the causes of the crisis and the best regulatory solutions to the crisis at Mercatus, all of the perspectives are solidly grounded in a superb understanding of the strengths and weaknesses of both markets and governments. No one at Mercatus would claim that "We Are All Socialists Now" nor would they believe that the U.S. government can run GM effectively.

In 1905, A.V. Dicey published his "Lectures on the Relation between Law and Public Opinion during the 19th Century", in which he soberly charted the rise and fall of public sympathy for classical liberal thought. In the second edition, published in 1919, he summarizes his 1905 perspective:

The current of opinion had for between thirty and forty years been gradually running with more and more force in the direction of collectivism, with the natural consequence that by 1900 the doctrine of laissez faire, in spite of the large element of truth which it contains, had more or less lost its hold upon the English people.

And then summarizes the state of affairs in 1919:

The main current of legislative opinion from the beginning of the twentieth century has run vehemently towards collectivism.

The rest, as they say, is history. The Soviet Union became the darling of the intellectuals even as forced collectivizations killed millions. John Dewey, arguably America's leading public intellectual in the first part of the 20th century, compared the ethos of Stalin's Russia to "the moving spirit and force of primitive Christianity." Free markets were in retreat throughout most of the 20th century, until Reagan and Thatcher won their respective elections and then the Soviet Union collapsed. For the past twenty years, it looked as if we had reached "The End of History," and the worst nonsense was gone for good.

Whether or not popular opinion in the U.S. and Europe continues to support crippling deficits and crippling government controls over the economy, India and China are not likely to allow themselves to be crippled by socialism again. China, although nominally still communist, continues to generate stunning rates of economic growth through the Special Economic Zones that more closely approximate the economic freedom of Hong Kong than they do any European nation. Even if current rates of Chinese growth are exaggerated, the Chinese are likely to stick to the proven fundamentals of economic freedom rather than spend another century committed to economic nonsense.

The Daily Telegraph has an excellent realist article on China's perspective on climate change :

Here is what Li Gao, China's chief climate change negotiator has to say on the subject:

"Developed countries have neither enough active responses to proposals from developing countries about emission-cut target by 2020, nor interests in providing funds and technologies to help developing countries adapt to climate change."

This is diplomatic hardball speak for: "If you in the West wish us to play your silly carbon emissions cutting game, you must not only bribe us with large sums of money but you must also place your industries at an even greater competitive disadvantage by crippling them with CO2 legislation from which we, in developing countries like China, Brazil and India, shall remain happily exempt."

Whatever ideological viruses that might undermine the economic health of Europe and the developed world, the Chinese will not retreat opportunity to regain the sense of glory they've felt for thousands of centuries.

It is possible to have a strong, healthy, growing economy while still ensuring environmental sustainability. Hayek's insight that free economies that allow for the possibility of countless acts of value creation by countless unknown innovators and entrepreneurs, remains as valid as it was when the Soviet Union collapsed. In the 1980s, while I was a graduate student at the University of Chicago, a computer science professor there noted that any decent university in the U.S. had more computing power than did the entire Soviet Union. This is an apt symbol of the power differential between massively parallel creative possibilities available through freedom, on the one hand, and constrained attempts to innovate through centralized control, on the other.

Most businessmen and investors are busy and content to stay focused on their work day in, day out, leaving the world of ideas to professors, on the one hand, and what Hayek called " the second-hand dealers of ideas, " on the other - the journalists, textbook writers, editorialists, activists, etc. And yet not only is there evidence that most professors lean left, but some professors regard their views as the natural outcome of honest research by more intelligent people:

One possibility is that if a lot of smart, well-educated and conscientious people tend to form left-wing views, then perhaps those views are justified. When a majority of skilled and informed academics converge on a particular theory or set of ideas, we ordinarily tend to respect their authority.

There is a remarkable level of complacency and self-satisfaction among those academics who form left-wing views and who believe they are justified.

Just as academics believe that they are "smart, well-educated, and conscientious," so too might one argue that successful investors are smart, well-educated, and conscientious people who have trained themselves to see reality objectively, because if they do not see reality objectively, they are more likely to lose money. With a few peculiar exceptions (Armand Hammer, George Soros, Warren Buffet), most investors tend to favor capitalism. I would also argue that the challenge of predicting the future, a challenge faced by all investors every day, is a far more rigorous training for seeing reality objectively than is a lifetime spent in academic research and debate. By contrast, in academia a professor such as the Marxist Bertell Ollman can not only publish nonsense in leading academic journals, such as this absurd 1991 prediction made even as the Soviet Union was falling apart,

"Paradoxically enough, the objective conditions for socialism in the USSR are now largely present, but because of the unhappy experience with a regime that called itself 'socialist' the subjective conditions are absent . . . on the other hand . . . the Soviet Union might be saved by a socialist revolution in the West as our capitalist economy goes into a tailspin."

But later win lifetime achievement awards for a lifetime of spouting such nonsense (in 2001 the American Political Science Association gave Ollman a lifetime achievement award for a lifetime of writing about dialectical materialism).

In an ideal world, investors would not make philanthropic investments in universities that harbor anti-capitalist ideological viruses. More realisticaly, they give to their alma maters because of nostalgia, a love of college sports, and due to sophisticated fund-raising through alumni networks. Conversely, they should pro-actively invest in pro-capitalist antibodies that might prevent another outbreak of ideological anti-capitalism. And yet unlike a donation to a mainstream charity, philanthropic donations to pro-market organizations are rarely recognized for the benefit they provide to the public.

It is unthinkable that smart, well-intentioned people would deliberately pay to disseminate swine flu at our universities, and yet each year philanthropists donate tens of billions to universities, most of which is unrestricted. And at present there is a relatively small pool of philanthropists supporting the antibodies to the anti-capitalist virus. At present, it seems unrealistic to believe that Marxism could break out amongst us again, and those who worry about academic Marxism do come off as right-wing cranks.

But in 1999 who would have imagined that ten years later mainstream publications such as Foreign Policy and the Globe and Mail would give space to Marxism in 2009. And who would have imagined in 1909 the nightmare that was the 20th century.

Michael Strong is the co-founder of FLOW, Inc., an organization devoted to "Liberating the Entrepreneurial Spirit for Good," and is the author of Be the Solution : How Entrepreneurs and Conscious Capitalists Can Solve All the World's Problems.



SO YOU GOT THE PART ~ now what?

As a general rule, if you want something unremittingly, desperately, you probably won't get it, unless there's a perfect storm of availability, focus, economic feasibility and pacific heart.

If you aren't really sure, er, maybe, and you go for something half-heartedly, you may be disturbed to learn that, aghhh!, you actually got what you only so-so wanted.

Did you want that contract? Really? Did you want that fill? Weren't you sort of hoping nothing would happen, and you could dandle those thousands in the currency pool overseas just a few more days? Did you really want that abandoned unit in Boca, at that price, at this time?

It's fairly undeniable…there's always a distinct feeling of let-down when a deal actually chugs forward, becomes a done deal. That courtship dance is durn over.

It's the Universe's way of keeping you off your feed; a caution to reprimand you for putting out quasi-insincere energy.

So you try out for a play. The director gives you a bunch of roles to read. You're vain enough to want to play the sexy babe with the doctor in a suppressed, subterranean love affair That Cannot Say Its Cleavage. Heat. Temperatures rising. Yadda bing.

But you give more juice to the funny Frau Bleeglefleegle with an Austrian accent. Or the half-coo-coo elderly sweetheart who poisons Cary Grant's visitors with tainted elderberry vino. Whatever.

So now we have the part we auditioned for in "Harvey." Vetta Simmons, a nouveau everything, an arriviste with a vengeance who lusts for society, recognition and a bien-pensant beau for her dimmish, dowdy daughter.

It's not the role itself of course. It's the rehearsals, a vista of days or evenings stretching over the horizon. Weekends lost in 4-hour segments. Always being professional, meaning always being on time. Not so easy. Plus the make-up and costumery of someone not oneself. Being yuckier than oneself. Eww. Or jerkier.

Part of the allure is the otherness of enacting another character. Part is creating an ensemble with strangers until one constructs, day by day, an inevitable jewel of excellence, music, blocking, lines, poetry and laughs.

Poof goes the prospective vacation. Wham-o flies the plans to leave for 2 or 3 months to rework some of the countries recently worked. And what if the workaday schedule shifts? We never say no to regular income streams, and it's a certainty in this popcorn stand that the moment we commit to a (freebie) play, along comes a paying project or gig or excitement we can't turn down.

Is that in fact the sympathetic magic we seek to evoke to begin with? Aha! As the doctor says to Portnoy in the eponymous book by Philip Roth: Now, vee begin!



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

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

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

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

GM Nigel Davies replies:

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

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

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



Should golf pros who want to win a major, practice in cold wet windy annoyingly uncomfortable environments?

Should surf pros who want to win the world title do the same, train in crappy onshore beach break conditions?

…so when it's game on, they will be so happy to be warm, and comfortable and hungry for the win?

Should we traders be in cramped humid stuffy rooms, with no daylight, to reinforce the value of money and stay focused?

Scott Brooks disagrees:

Professional athletes as well as military personnel should practice/drill in the worst conditions so they can thrive in the best conditions. But no one performs at his peak in these conditions.

Drilling and practicing are very different from actual live game day executions.

Traders aren't forced to trade in bad conditions. We should trade in conditions that optimize our ability to think clearly and perform.

There is a big difference between drilling/practicing and actual execution of a task. Trading is real life execution. Game days are real life execution, Battle is real life execution. You don't want to be at anything less than your best when it comes time to execute.

If you're a professional athlete and it's raining on game day, both you and your opponents have to play in the rain. If it's the day of the battle and it's freezing cold blizzard, both you and your opponents have to execute in those conditions.

But when you're trading, you don't want to put yourself in a less than optimal situation. Your opponent has probably created the most comfortable environment that he can to optimize his mental acuity. Why would you want to give yourself the handicap of being uncomfortable?

Create the "peak performance environment" so that you have the highest potential to reap the greatest rewards for yourself and your clients.

Riz Din adds:

A documentary series recently aired in the UK that provided insight on the natural life on the small South Pacific islands. In these small islands, life has evolved in strange ways, producing several instances of flightless birds for example. Unfortunately, after many many years of comfortable living, the introduction of new predators onto the islands wreaked havoc.

I agree with Scott that the physical conditions should be optimal, but I would add that the mental aspect needs to be tended to well, as complacency can spell death when market conditions suddenly turn, strategies stop working, etc. Better to retain the ability to fly, just in case.



Dear Victor,

After reading your nice letter to your son, I have decided to give it a try and let my girls know what I feel. It is an interesting exercise that allows you for a moment to stop running your frenetic daily routines and think of longer term aims and values.

Dear Carla and Livia,

I write this letter when you have just turned seven. It is a great age for kids. You ask so many varied and challenging questions. You come up with surprising ideas and your creativity is beyond imagination. You are full of potential. You can achieve whatever you want in life provided that you have the talent, the right tools and that you will be willing to work hard. There are no free meals. As you grow up, options will progressively decrease and your life will follow a narrower and narrower path defined partly by pure chance and partially by your will and determination. It is true that it is the unexpected that counts the most, but I would like to focus on what is in your power to exploit and realize your potential and talent to the maximum extent. There is a lot you can do about it and I will try to help you in your endeavours as much as I can.

RANDOMNESS (try to make it work for you) My father was a great person. He was a hard worker with sound family values, incredible integrity and sense of responsibility. He transmitted these characteristics to me and my brother. He had also a clear understanding of risk. He walked his life slowly and solidly step by step rather than running and jumping. Eventually he did well, but not as much as he could have done. The way I have based my life is similar, however, I have identified an important lesson (although I have not fully implemented it): live your life so as to develop the preconditions for opportunities to arise.

You can achieve a lot as human beings. You have natural talents and gifts. In addition to them, while you grow up you are surrounded and supported by the environment friends, the place you live, school, hobbies, sports, travels and so forth). Opportunities occur randomly. If the environment is favorable there is a great chance that these opportunities will be favorable. If you do not find yourselves in such an environment: change, be flexible and adaptable. Be demanding. If you do well in this regard, randomness will work on your side.

MY PAST — YOUR FUTURE As a father, I wish I were able to give you the best of myself. I will tell about my childhood dreams and what has become of them now. Many dreams were like waves breaking on rocks, they have vanished into thin air. Even very recently. Some of them are still alive and I struggle with them. I will tell you about my mistakes and what you can learn from them. I will discuss with you what I see right for your future, but I will always let you be free to make your choices. I often go back to my past and run mentally different scenarios, "what if…what if". I am wrong when I try to find responsibilities for choices made and events occurred. Look ahead. Look at the future. Don't waste too much time and energy looking back. You do not know what remorse and regret mean. The later you learn these words the better.

DREAMS You have incredible dreams. The bedtime stories we invent make us laugh and dream of a world where anything is possible. Your favorite story is about the princess with the pink dress, her brave knight and their fights against the wicked queen and her magic spells. Continue to have dreams in your life. Last week C. told me: "Gatto, the princess is sad and I would like to give her a present. It is a magic ring. With that she can transform into anything she wants, get whatever she likes and go wherever she likes". L. added: "I will give her a magic wand to help children". The princess is not real unfortunately although sometimes you ask me where she lives. As Randy Pausch wrote in the Last Lecture, it is not about how to achieve your dreams it is about how to lead your life: searching and experimenting with the mind of a child. Adults often make things more difficult than they are.

OPPORTUNITIES TODAY — VISION TOMORROW Your mindset has to be ready to see and exploit opportunities, and always be willing to explore them. Don't be afraid to make mistakes: be ready to accept failure, as a natural component of your life. If you do this, you will live a happy life. Ayn Rand wrote: "Throughout the centuries there were men who took first steps down new roads armed with nothing but their own vision". When you look at the clouds, their shape looks like crocodiles and bears to you; when you look at the mountains you see monsters and lions; find connections between things and situations that others cannot see. Make sure you have a vision. Follow new roads. Build a map for your life: the vision is your destination and opportunities are the crossroads.

LOVE I am impressed by the love you are able to give me. When I do something wrong to you, you forgive me after a minute; your love is unconditional. When you open your eyes and see me in the morning, the first thing you do is smile. Then you say: "I love you, Dad" and then I am happy all day. I wish to try and answer your questions. C. wrote me a note before going to bed: "Gatto, I will love you forever. When I am dead, I will still love you". You understand more about life than we think. Last night you asked me: "Dad, can we go online and see who invented God?" As you grow up, I expect these questions to be more and more difficult. This requires preparation, commitment, love.

On the investments side, yesterday I challenged you: "If you had some money, what would you do with it?" L. answered:"I would save it and put it in a bank". C replied:"But that is boring, I'd rather spend it!". You are showing pretty different attitudes and I enjoy it.


James Sogi recommends a completely different approach:

I am a firm believer in behaviorist child raising. Much of this touchy-feely stuff is nice, but mumbo. Many well wishing, warm feeling parents have spoiled their kids and resulted in mixed up individuals. Though the parents feel right, their actions are completely and totally wrong. The correct way is to reward good behavior, and to describe to the child what is expected exactly in quantitative terms. Breach of that expectation should not result in withholding of love or the threat of that, but a mere withholding of some minor privilege. The child needs a clear message. Many parents pay attention to the child when he is bad, saying no no no, but inadvertently reinforce that bad behavior at other times. This creates tension and uncertainty in the child as he receives a mixed message. For counters and quantitative scientists, child rearing should be approached similarly. Of course love must be unconditional, but training the child is a separate matter. The result is a happier, more focused and fulfilled child.

Michele Pezzutti says:

I am also a father of two, a 10 and a 7 year old, and I think it is right to try to transmit our values to our kids, if we believe in such values. To integrity and sense of responsibility, I would also like to add respect for others.

In raising my children I am always unsure on how to do it. I think that the most natural way is to use the same model that we have been raised with and that we have absorbed through our family. But is that method the best one? The natural answer would be 'yes' as it is part of us (here I am assuming we all had a happy childhood and I apologise in advance if I am hurting someone's feelings here).

But there could be a better method instead, and we must look for it. We need to be very honest with ourselves, as finding a better method sounds a bit like blaming our own family. But we do not have to be scared, it is not a blame, if we know that our parents were moved by the best intentions, as we are with our kids.

This part of the letter is very nice, as it transmits a very positive message. "As a father, I wish I were able to give you the best of myself … I will tell you about my mistakes and what you can learn from them. I will discuss with you what I see right for your future, but I will always let you be free to make your choices. I often go back to my past and run mentally different scenarios, "what if?,what if?". I am wrong when I try to find responsibilities for choices made and events occurred. Look ahead. Look at the future. Don't waste too much time and energy looking back. You do not know what remorse and regret mean. The later you learn these words the better."

To make my kids look ahead and not fall in the 'regret and what-if' trap, this is how I would like to be with them. I would like to be able to accept their mistakes, especially when they are so young. I would like to be able to praise them for every little achievement. I would like to be able not to scold them for every little thing.

They will grow up confident in themselves. They will bring inside them positive feelings and leave negative thoughts behind. They will remeber words of praise and not of blame. They will not feel the need to look back. And they will look ahead, to exploit the opportunities they will have, random or not.

I hope I will be able to stick to these rules, not to fall in the 'regret and what-if' trap in ten years from now… At least not with my kids. I do it too much with stock investing already and I have enough of it!



The market abhors a round number not broken (7500 and 900) like the boy an ice cream cone not eaten (banana from cones).



In his studies of Life Histories, Eric Charnov likes to look at the sex ratio as it is feeds back with clutch size, weight, and resources.

He makes the point that often ratios are invariant and that there are many causes that contribute to the invariance, which must be teased out of the variability of what we would call demographic variables.

Inspired by Charnov, I looked at the sex ratio that follows periods without sunlight in the form of a daily rise or decline in the S&P, a factor almost as crucial as sex and its ratios to many market participants.

The period covered was the last 10 years of data, during which the unconditional chance of a daily decline was 0.52.

The sex ratio appears to be much more constant after days of sunhine for bulls.



Solar flaresA NASA scientist wrote in April, "The sunspot cycle is behaving a little like the stock market. Just when you think it has hit bottom, it goes even lower." See: Deep Solar Minimum

Over the past two years, sunspot activity has dropped to its lowest point for more than a century (see vanishing sunspots prelude to global cooling?). While there has previously been discussion on this site (see https://dailyspeculations.com/wordpress/index.php?s=sunspots) the correlations were mostly directed towards stock prices. Little or no mention was made of the influence of solar activity on grain and other commodity prices as a determinant of other market behaviors — nor on the accepted 11-year cycle of solar activity.

In 1801 the German-born British astronomer William Herschel observed a correlation between wheat prices and sunspots and that less solar activity correlated with higher grain prices. Although Herschel was ridiculed, a Google on this subject revealed an intriguing contemporary study by Pustilnik and Yom Din (2003). These authors find: "direct evidence of the causal connection between wheat price bursts and solar activity."

Grain traders routinely check weather.com for short and intermediate term moisture forecasts. As the grain markets are currently correcting after a multi-week rally, I suggest that traders might also consult spaceweather.com for the latest solar winds, flares and sunspots forecast.



Phil Jackson has complained about bogus calls during a playoff game, with the Lakers in danger of eliminating the Magic. I am reminded of Albert Jay Nock's comment vis a vis certain officials that, if you're running a brothel, you can't outlaw the main act although you can prevent the customers from being burglarized while in the act. The basketball officials work for an institution that profits much from continuing the series and maintaining the suspenses. Their calls, their future must depend without ever being stated overtly on maintaining and augmenting the system.

So many systems are like that. I can't help but look at the heavy southern financial official's testimony before Congress as to the good intentions and well meanings of the bike rider and the scholar in telling him that he would be fired unless he moved forward in the same context. This is not to say that what they did was or was not for the greater good of the system itself.

I admit I don't know anything about basketball or the logistics and liabilities of regulation and testimony before Congress and how it fits with emails that might be extant and I am subject to correction here especially about the previous games between Cincinnati and LA and how the calls were reflected. But I know something about the way disputes about being taken advantage of by members of exchanges are handled. They are usually settled by arbitration by members of the exchanges themselves. In the case of one exchange, however, they have added one level of indirection in having arbitrators appointed by the exchange vet the issues. I have found these arbitrators, without being ageist, all over the age of 90 and chosen and emollified based on how closely they rule in the members favor — or else, bye bye old prof.

The chances of getting a good call from the members against their colleagues is about the same as the chances that Phil Jackson complained about, although it cost him only $25,000 to say it.



 I am reading Life History Invariants by Eric Charnov and find it opens up many areas of thinking about markets that are illuminating. From the introduction: "Symmetry is a much more general concept meaning that some attributes of an object of interest remain unchanged under specified transformations. What attributes of life histories are unchanged under what transformation, why and and what can the invariants tell us about the life history?" He considers such things as sex ratios, birth and mortality rates, clutch size, population growth, age at maturity, number of mates, lifespans, resources used, growth rates, equilibriums. A very interesting read for those interested in sea urchins and markets.

Eric Charnov replies:

Evolutionary ecology, particularly the part called Behavioral Ecology, is really the application of economic methods [optimization and game theory] to how plants and animals live their lives. Darwinian fitness, especially when derived from an evolutionary dynamics [population genetics], is a very powerful method for getting Utility functions. I urge you to read such classics as the books by John Maynard Smith and George C. Williams: sex itself may well be a form of speculation [risk spreading]. Economists show little serious interest in 'this kind of economics', but it is big business in biology, with the classic publications cited a few thousand times each; sex ratio and habitat selection are the most successful uses of game theory to understand biological attributes. About 20 years ago I wrote an essay titled 'The Nature of Economics and the Economy of Nature' and failed to convince the Journal of Economic Literature to publish it. Glad you liked my book!



VestsNow before the more weary and jaded of you parents out there start high-fiving, it was only laser-tag at our local Laser-Quest. It was my son Tom's 15th birthday, and I took him and his friends out to one of their favourite past-times. Since I had bought a package for eight, and we didn't quite have eight, I forced myself to take one of the spots.

The way it works is that multiple groups go into the play area with vests and lasers. The lasers score a hit when they tag one of the flashing sensors on another player's vest. At this point you feel a vibration and you are down for five seconds — you can neither shoot or be shot. A computer tallies all the hits, right down to exactly who shot whom, how many times, and on which sensor. The hits are scored and at the end of the game, the rankings are displayed on a monitor, and each player is given his own score-sheet with their results. At the beginning of each game, each player is assigned a code name of his own selection, which is then loaded into the laser gun with an activation key. Since my first pick "Pooh Bear" was taken, I opted instead for "Hannibal" … What?

The kids, especially the younger ones, just like to run around a lot, often in packs. Knowing this, my approach is basically to lay low and snipe; just wait for them to come to me. A cluster of kids is a "target-rich" area, and you just shoot into it and can score a lot of points if you can keep firing without pause. You hear a lot of "Awwww"'s when they get hit. (Although the downside is that there are a lot of them, and you'll likely get hit as well as they overwhelm you). I like to set up high on the outside perimeter facing inward with a good view of at least two corridors, and also down into the middle of the play area (there are two levels, so its a three-dimensional game). I had a great spot in the first game, just beyond an intersection (good for surprising) and looking down a zig-zagged corridor with diagonal in-croppings that forced player to slowly zig-zag down it rather than quickly go straight. But there was enough of a gap between corners that by steadily firing down it, you hit most of the players trying to go through — either coming or going. I did have a corridor behind me and knew I'd be hit (and was) if someone came up from behind, but there was much more activity in front of me, so I scored hits many more times than I received. Out of about 35 players, I came in second. (Another adult came in first, so its not just me.)

In the second game I was more mobile. Although I scored a lot, it wasn't as many as the first game, and I got hit more often. Even so, I still managed to come in third. There was one group of three little girls, maybe 8-9 years old, that I bumped into enough times, that eventually when they saw me, they would yell "It's him! It's him" and go screaming off in the other direction. So I'd chase them little bit for effect and shoot their rear sensors. I think I scored a lot of points off those poor kids. (And I think one of them was Pooh Bear).

I think I earned a new respect from Tom and his friends. "Why does your dad call himself Hannibal?"

Relevance to the markets? When we were milling around afterward comparing scores, the kids asked me what my hit ratio was. It was 8% in the first, and 7% the second. They were wondering how I got such a high score with such a low hit ratio. I explained to them that it was sheer numbers. When you saw a target, your chances improved if you kept on firing rather than trying to carefully aim and just squeeze off singles. The market analogy would be figuring out how to limit your losses (accepting getting shot occasionally from low-traffic areas), determining your opportunity and edge (concentrating focus and fire on the high-traffic areas), and exploiting the advantage to its fullest regardless of win percentage (firing frequently regardless of the many misses). It worked for this type of game, and would also work for a market trading style designed to exploit a statistical advantage where turnover increases overall profitability.



TeaI've been in New York a few weeks now, and find that I miss a few things that I took for granted in the South. Sweet tea is high on my list of things that I need and good BBQ is another necessity of life that hasn't been fulfilled lately. In fact, I've been boring my friends with my complaints about the lack of fine Southern cuisine and sweet tea. Last night, a couple of us decided to satisfy my sweet tea and BBQ jones all in one fell swoop and ended up at Daisy May's on 623 11th Ave at the corner of 46th. Looking at their web site and getting many recommendations from locals and readers of my blog, we went over there, and I have to tell you that I had great anticipation. Their menu looks like a BBQ junkie's nirvana, and their advertised 32 oz mason jar of sweet tea looked very promising. We took a taxi over to Daisy May's, waited in a long line and ordered 2 racks of sticky ribs, sides of cole slaw, mashed potatoes with red eye gravy, baked peaches, collard greens, mac and cheese, creamed spinach, an order of pulled pork, and of course, the 32 oz of sweet tea. The line moved quite fast, service was good, and we had our food in a manner of minutes. When our food arrived, we were profoundly disappointed with the ribs. Although quite meaty, they were not tender, quite dry, and felt like they had been held in a warming oven for hours. They also only gave 6 small ribs for a portion which was a minor disappointment. The sauce didn't adhere to the ribs very well, had no carmelization, and a pecular granular quality, which suggested that they were applied in a last minute rush job. The taste of the sauce was billed as being sweet, but we could not detect any real sweetness, however, the sauce tasted like a mouthful of wet spice I will give them kudos for the side dishes which were quite good, although the red eye gravy wasn't real red eye gravy because real red eye gravy has either coffee or Dr. Pepper as an ingredient, and this had neither.. The sweet tea was OK, but nothing spectacular, missing a key ingredient…..ice. They also put some kind of mint leaf for flavoring in the tea, which is something no self respecting Southerner would do.

The fact that Daisy May's was standing room only, suggests that a place like Woody's, Slim's, or Sonny's BBQ would make millions of dollars in Manhattan.

The quest for the best BBQ in Manhattan needs to continue, and further scientific study is needed.

As a sidebar, in the South, one can smell a good BBQ joint for blocks, and I've noticed no such smells in New York. Is excessive government environmental regulation responsible for the dearth of BBQ places in and around Manhattan.

To me, an ideal BBQ place would have the best BBQ, good sides, a variety of sauces, and a juke box playing country music non-stop.

Marion Dreyfus says:

Apologies on behalf of NYC, Jeff.

We foodies know Daisy May's is not that good, as no locals with foodie smarts go there. (The people in the queue must have been from the suburbs or tourists altogether hunting the same elusive nirvana you seek.)

Up in Harlem you can find BBQ (not sure about the sweet tea)–but I have been to only a very few of the bars there in the company of people in the know.

A Southern (but peripatetic) professor of the art of barbeque says:

Blue SmokeThe gentleman asks for good barbecue in NYC. It’s absurd to recommend Damon’s and Famous Dave’s [as Dailyspec contributor Steve Leslie did]. Damon’s has no presence in NYC and only a minor presence in the south. It is a bland midwestern place where people go to watch football on widescreen tvs. Famous Dave’s is the Olive Garden/Red Lobster of barbecue. They have a location now near Times Square, but even NYers are barbecue-savvy enough to know to stay away.

It’s also deeply offensive to dis both Woody’s and Sonny’s. Yes, they’re chains, but they have fantastic barbecue at ridiculously cheap prices. It’s a shame that the economy has forced Sonny’s to retrench and cut back on their number of locations. The dis also has no relevance because, again, the gentleman was asking about barbecue in NYC, where Sonny’s and Woody’s have no presence.

The places to go for BBQ in NYC are:

Blue Smoke – pricey and often crowded, maybe a little too glam for ‘cue, but very good (116 E 27th St)

Hill Country (30 W 26th St)

Dinosaur – Out of the way, up in Harlem and near the West Side highway (646 W 131st St), but very good and very cheap

RUB (”Righteous Urban Barbecue”) – in Chelsea (208 W 23d)



A film by Havana Marking
Review by marion d.s. dreyfus

"A fantastic documentary about a talent competition in a country where you would never dream such a thing is possible." - Oprah Winfrey, May 2009

Winner of the Directing and the Audience Awards at Sundance Film Festival (2009 World Documentary Competition).

In Afghanistan, under the Taliban, you risk your life to fly a kite, let alone indulge in singing or dancing. Fun is pretty much outlawed. But after 30 years of war and five devastating years of Taliban domestic terror, pop culture is beginning to inch back-since 2005, millions of Afghanis are tuning in to Tolo TV 's wildly popular American Idol-style series "AFGHAN STAR."

Like its Western counterparts, people compete for cash prizes (and the sibling tow-along, record deals). Surprisingly, the contest is open to everyone across the torn and rugged country, no matter gender, ethnicity or age. The 'out tribes' and out of favor Islamic sects get a chance to compete, and 2,000 people audition, including three unimaginably brave women. When viewers vote for their faves via cell phone, it is for many their first encounter with the democratic process.

Winner of the Directing and Audience Awards at Sundance's 2009 World Documentary competition, Havana Marking's timely and poignant film follows the hairpin stories of four finalists-two men, two women-as they hazard everything to become the nation's favorite performer. For the women competing, especially, their independence and temerity has fierce consequences that ricochet far beyond the contest in the film. Observing the Afghani people's relationship to its emergent pop culture, "AFGHAN STAR" is an unexpected window into a country's tenuous, ongoing struggle for modernity. What Americans consider frivolous entertainment is nothing short of revolutionary-and deeply human-in this troubled shard of the world.

This is Director Havana Marking's first feature documentary; she earlier directed "The Crippendales" (2007)- a 30-minute film about the first troupe of disabled strippers, which won the UK Channel 4 scheme for New Talent. In 2005 she made "The Great Relativity Show," a series of animated shorts that explained the Theory of Relativity; these won the Pirelli Science award. Before 2005, as a TV producer, she worked on some of the most successful UK programs and films: The F Word, Michael Palin: Himalaya, River Cottage, No Going Back, War On Terra - What Would Jesus Drive? Havana is a respected journalist with articles printed in the Guardian and Observer. Redstart Media is her own production company. UK/Afghanistan . 87 minutes.

marion d s dreyfus 20©09



Most sports games are fought to win early and decisively, given a choice. This painfully obvious comment alludes to the fact that the middle game and end game can thereby be played with less risk for the winning side. However, this must be measured against the opening winners desire to play all out throughout, just with less overextension, not merely maintaining the advantage. Don't let up on your capacity or talent. Some games and teams will require a full force stance, depending on the point lead and in order to play well. What I suggest is not to rest on a gain. I only suggest to reconfigure the risk/reward ratio. Otherwise, playing a completely defensive strategy will destroy the advantage. Further, risk/reward can allow a highly aggressive stance and be defensive by inducing your opponent to expend more than usual amounts of energy and exasperation trying to defend offputting attacks. Inducing is aggressive. These attacks will accompany random, not constant defensive moves on the aggressor's part, allowing just enough of a hedge and freeing up energy from an overly or hardened defensive posture to a game of overall nimbleness, less probabilistic and freeing up energy to explode at will. Thus, the risk/reward ratio is not all about chasing points, but allows for a game whereby opposing points can be thwarted. This alleviates the need and obvious static (stasis?) energy of a defense only strategy, thereby giving the opponent one's game plan.

Entice your opponent to play your game: To play drunken martial arts, which requires enticing your opponent to engage on your terms, running out the clock, angering your opponent, retreating or advancing to entice your opponent to your strengths, or limiting your opponent's moves, , while maintaining full force and adaptability in maintaining a defensive posture also come to mind. (Ali trained to take many a pounding to train for an otherwise superior Foreman in '74 or whatever). One's tactics are freed from having to score. Let the opponent, out of sorts and off their game score for you, in which you make easier points, thus conserving one's energy. The corollary, making one's opponent pay big to even get a point or taking a hit is very offensive. But these are only for the very proficient. These tactics under an overall strategy require or expect the deemed defense having to move, not always true in stocks. (Though Buffet said one can swing when one wants; 4 balls will not get you to first in the stockmarket). An exceptional opponent will not take the bait, but circumstances can force their hand. These thoughts touch on defense as offense. We all know the opposite axiom. As one aside, I'd like to see the drunken martial opponent, and this takes on many variations, in boxing, fencing, racing and war, in which the opponent is enticed to overexthend themselves to the winner's advantage, not move in such a fashion into the opponent's traps. Others may have specific games in mind. I am having the problem of analogizing a specific game; a discrete event compared to the market moves over a term. However, the market moves comprise many a game.

Some of what I consider the more continuous sports are soccer, lacrosse, basketball, hockey, fencing, boxing and tennis, in which one can morph from an aggressive stance, to a defensive one on the fly. Of course, this applies to all sports on a limited degree, like baseball and football where a meeting is called prior to a play. I like the former because the action is more often in play than other games, and therefore the strategy and tactics can be applied with more facilty in real time, of course given prior strategizing. Maybe it's like a free form jazz requiring excellent individual talent that understands the other players, compared to an orchestra with a conductor playing 30 second songs cumulatively. Both comprise professionals. We know the market does both as well.

This writing has suggested employing defensive offense, for example keeping the accent on making high percentage shots that tire your opponent mentally and physically. Do not take undue risks in shooting (offense)and upgrade one's focus on preventing the rival from scoring (defense), rather than setting up your next shot. An advantage within or from a game is anticipating further moves or a later game. This allows for other strategies/tactics to surprise, accumulate to disorient, and induce the opponent to weaken lines in order to defend against all possible attacks. Continuing the earlier discrete game, the early winner can devote more resources to defending the perceived advantage with the above considerations in mind. In fact, the simplistic notion of games is not to take undue risks (this assumes a lifetime of understanding) once victory is achieved, while of course playing all out under revised risk/reward calculations. To confuse things, a good winner will continue to play all out, as that is their best game for cadence and alertness. As a warning, many have lost sitting on a win, confusing defense with merely running out the clock. Resting can beckon atrophy, thereby inviting ineptness.

Another is offensive defense. A penny saved is a penny earned. I would submit that a penny saved costs less than a penny earned oftentimes. Drive to the utmost, but how many feet or seconds does another pit stop cost? Can it be skipped with good preparation and execution being the same car, or is it better to plan for a stop in order to have your best car on the track? A lot of movement in life, like mechanics, etc., has exponential costs, like a rocket liftoff compared to cruising, and the same for other bursts requiring torque, like moving onto the beltway. Make your opponent use torque that require more energy and force pit stops that cost time.

Unlike the stock market, in discrete games, a 2 point win is equivalent to a 50 point win. Can we say that if the 2 point wins accumulate, they will become 50 points and be, just a little little bit easier, to come by?

Defensive offense and offensive defense: do they exits, does it matter, is it semantics? It was just a way to make a point and hint that things occur simultaneously.

In sum, winning big early, frees up an added dimension of facileness, controlling time and moves of your opponent, while increasing one's own efforts to thrive and grow toward an increasing advantage. Maybe all games should be played this way throughout, but an early advantage seems to change the risk/reward analysis. The predators are able to employ this. A good follow up would be to depict what the purported prey would do to become the eventual winner. —Maybe the same? but they seem to have less reward in creating a win from behind by just maintaining the stasis. Advisors often suggest that increased risk is not the answer, until Hail Mary time - at least in a discrete game.

Allan Millhone looks at it from the Checkers perspective:

I am packing and getting ready to head to Grove City, Pa. for a yearly tournament there. There will be plenty of stiff competition with our Three-Move Restriction World's Champion and other top Masters. In tournaments my eyes scan the board akin to surfing and try to find a safe line of play. Like a good wave to ride safely to the King row (water's edge at the beach) . The surface of the Checker board at times can be very smooth as you coast towards an easy draw . Other times the ride is bumpy and can be quite turbulent as your opponent( like the waves) can force you off into uncharted waters. The Market trader needs to be wary and look ahead at all times for ever changing Market conditions much like the waves for the Surfer endlessly shift back and forth. The Checker board starts out even for both sides with twelve pieces each, but soon after the calm subsides and the waters of the board begin to swell . The Surfer tries to Master the wave as the Market trader tries to tame the Market Mistress and gain the upper hand.

Tommy Wiswell said: "Look twice before you move."

Steve Ellison writes:

In many competitive endeavors, simply making fewer mistakes wins many games. Mistakes I have made in the markets include:

- Failing to be aware of changes in trading hours

- Using a limit order to try to save a few dollars when I really did want to enter the trade regardless

- Failing to be fully prepared (with orders placed in advance when feasible) for any events that might set up a favorable trading opportunity

- Entering a trade without knowing exactly what I would do if price moved up, down, or sideways

- Deviating from my trading plan

- Using too much leverage

Roy Longstreet wrote in 1967 in Viewpoints of a Commodity Trader:

Did you watch the Packers whip Kansas City in the Super Bowl? I did and was much impressed by the professional way in which they performed. They did not beat themselves by making mistakes.

A professional makes fewer mistakes than others. That is why he is a professional. He may not have more ability than another but he is superior because he has trained himself not to make mistakes.

I was particularly impressed in watching the Packers throughout the season as they seldom were penalized for infraction of the rules.

On Mr. Longstreet's last point, the Detroit Red Wings have similarly avoided penalties in the Stanley Cup finals. Conversely, the Pittsburgh Penguins, who have probably by now surpassed the aging Red Wings in talent, took a string of penalties in the fifth game after the Red Wings took an early lead. As a result, the Red Wings scored three power play goals and put the game out of reach.

Allen Gillespie adds:

Hawks v Supersonics game I went to years ago - 67-66 after three with only Peyton hustling - Steve Smith scores 33 in the 4th running around like a maniac.  Also, in soccer, most goals are scored very early or very late in a half.

Relationship between time and goal scoring in soccer games-Analysis of three World Cups
Soccer goals and non-guassian distributions

Nigel Davies comments:

Here's another view from a mistake specialist (both my own and other peoples'):

The mistakes we make tend to crystallise around different deeply rooted thinking patterns and attitudes but then change their form when people notice them and try to something about them.

An example might be that of a trader 'taking profits too early', vowing to do something about this and then taking them 'too late'. He could be 'correcting his mistake' but failing to address the real issue of making arbitrary decisions rather than operating according to a tested plan.

Normally you have to go very deep to ferret out the cause of error and then, assuming someone is willing to go there, it's unlikely they'll actually be able to do something about it. But success can come when the number of good moves outweigh the bad, so for those with an innate 49-51 split have hope…

George Parkanyi says:

Making mistakes is not one you can generalize like that. Mistakes are how we learn. If you are not making mistakes you are probably aren't stretching yourself enough. Mistakes also come in all shapes and sizes — some are disastrous, some are benign.

Recovering from, or leveraging mistakes — now there's something.



cafehayek.com today has a very complimentary comment on W.J.,  who I assume was Stefan's father.

The comment is from Russell Roberts; it is dated June 11 and is a quote from Mark Helprin.

The back story is that Dad gave Helprin the equivalent of a 3-picture deal in one of Dad's vain attempts to give his Trade Department some cachet. It failed. Dad would not have agreed with Helprin's comment about his publishing contemporaries - i.e. "(u)nlike many of his shallow counterparts." Dad never thought the people in publishing were "shallow". He thought they were, if anything, too subtle to be any good at simple commerce. I can understand the reason for Helprin's back-handed compliment; nobody has ever given him anything close to the money that Dad did.

The comments on death are equally overwrought: "(it) gives to our lives, no matter how glorious, a signature in a minor key". Dad had scarlet fever when he was 6 and spent the next 2 years in bed (where he read all of Dickens). He had his first heart attack when he was 33; he died of a final infarction (his 8th cardiac episode), brought on by kidney failure, when he was almost 80. He never thought mortality was a subject worth considering.

Vitaliy Katsenelson writes:

California's push for e-text books will do the same as WMT did for RFID industry, it will legitimize it and provide scale (Caligornia governor seeks online revolution in schools).

Jeff Sasmor objects:

Probably true, but Texas is the elephant in the K-12 textbook market IIRC.

Stefan Jovanovich explains:

Texas is the elephant because the books that that state adopts can also be sold in Nebraska and South Carolina and even a blue state like Rhode Island. We in the Golden State have had so many special requirements (because of our obvious superiority) that the publishers have had to make special editions. Since the central truth of manufacturing remains the same even in such a rarified business as publishing aka printing (every extra unit sold without retooling is pure profit), CA's push for e-text books could only be compared to WMT's adoption of RFID if WMT had required that every signal include a hologram of Sam and his brother, the bomber pilot. The problem with e-texts is that customer do not feel they have any obligation to pay for anything that is purely "intellectual property". Jeff Bezos is clever enough to have figured out that customers need Kindles so they can tell themselves it is worth the money to pay for the special formatted manuscript. Eventually, he will have to price the reader the way King Gillette priced his razors.



SurfThe best surfers know just where in the lineup the peak of the wave will arrive as the waves travel from over the edge of the horizon and sits in exactly the right spot. Just as the wave steepens up, the edge feathers, the master surfer turns, takes a few easy strokes and slides down and angles across the face of the pitching wave as the lip roars overhead. The entire wave tips over as the lip of the wave, a hissing mass of water traveling at 40 miles an hour carrying tons of weight and mass throws just over the surfer's head as he stands in the tube almost motionless. As the wave ends he casually kicks out and glides towards the lineup.

The waves have varying recurring patterns due to lunar and tidal effects of ocean and weather and seasonal patterns. The wave sizes vary from narrow ranges to larger ranges over the weeks. One rule of thumb is never take the first wave in a set. Waves come in sets of typically three to five waves, but occasionally more. After a long lull, the smart surfer moves out side and waits for a large set statistically more likely to come and avoids getting caught inside and worked, smashed, cut and bruised on the bottom with sharp razor coral and rocks. When entering the water over the reef, a good time to enter is just after a big set, as the likelihood of a lull is higher and allows one to paddle out without a working over.



Local communities began what they call an “indefinite strike” throughout the Peruvian Amazon region to protest the Peruvian Congress’ failure to review six government decrees that endanger the rights of indigenous peoples. These decrees [are related to the recent] Agreement signed with the United States. Press release from The World Rainforest Movement.

The story on the Peru strike finds me in the mix. Today is that strike day, and last night at sunset I illegally walked past the Bolivian immigration hut to the Peru border to find the Puno, Peru bus station effectively shut by the country blockade. Tourists refused to budge. Peruvians rolled like pears bumping into each other and asking each other what to do. I organized a scab taxi driver with four others for an eight hour night drive through the high Andes to Cuzco of Machu Pichu fame. All transportation in the country was supposed to stop at midnight, and at that juncture our road was blocked by boulders strewn before a bridge manned by irate Indians, and a quarter mile thread of vehicles waiting at 12k ft. in 35F for the strike to end in 24 hours. People wandered the remote highway like zombies until a shivering hombre offered an alternative mountain route he claimed he knew like the bottom of his feet for a free ride to Cuzco. So our overloaded taxi climbed a rutted track and under an ancient four ft thick arch, got lost in ruins, our guide tumbled out and read the stars, and two hours later we descended beyond the blockade. That puts me now in a little pueblo south of Cuzco where citizens earlier today marched shouting protests in the streets, the bus station at whose Internet I now sit at was shut, however reopened a couple hours ago at 8pm for business as usual. Can you hear the announcement for the impending departure to Lima on the Pacific. Tomorrow morn i catch a northeast bus off this cold majestic roof of the world to the steamy Amazon jungle.



V NSometimes masters can be recognized by how little motion they make in beating you or relieving you of your funds. On this score, note the S&P in a three point range on five consecutive days, and eight of last 10 closing prices have been between 839 and 843. I find that the old mistress has not done this once in the last 15 years with the closest virtuous performance being on October 11, 2006 with the ranges widened to three. Hats off. What does it all mean? What's the sports analogy?

Paolo Pezzutti answers:

I see two boxers studying each other during the first rounds of a fight to find out weaknesses and strengths of their opponent. They test and experiment, trying some punches and techniques, moving around the ring to gauge capacity and time of reaction. They get ready and prepare the assault. When the moment comes, the fight develops furiously and fast with opponents using all their ammunition to try to knock the other out. When this type of match occurs, it is hard to figure out during the first phases who is going to be the winner. Deception to cover one's own weaknesses and strengths makes it quite impossible to bet on the outcome, unless you know values at play. Today's afternoon move could be one of these deceptive moves to be faded.

Thomas Miller adds:

In a most martial arts matches, the superior fighter expends as little energy as possible while letting his opponent expend his energy, become frustrated, lose concentration, and eventually lose the match. A wise fighter who is outclassed and knows it avoids the fight to begin with, waiting for a another day and a better opportunity. A wise trader would do well to avoid tight range markets waiting for another day and better opportunity.

There is tension in this market like a spring winding tighter, waiting to be released.

Henry Gifford comments:

A tiring bicycle rider can be seen many ways, with the most obvious being movement of the shoulders as if there were a second set of pedals connected up there, which of course is not the case, meaning all that movement is wasted.



Taxi DriverAlston Mabry writes: "Cab drivers have more opportunities to make money on rainy days, and fewer opportunities on nice, sunny days. So, they should work more hours on rainy days and fewer hours on sunny days."

I have not driven a cab in 35 years, and the last time I drove one in NYC was 1971. Perhaps things have changed since then. If they have not, then the old guys who let me drive their cabs at night for a year would say that Alston was mostly wet. The customers think there are more opportunities to make money on rainy days because they care more about catching a cab. The drivers know that rain turns the traffic into mud, and passengers don't tip for waiting time. A $20 tab from a guy in a decent suit earned $5 if you were rolling; the same tab got you $2 if the guy spent it sitting on the edge of his seat looking at his watch. If you own the cab, then working in the rain is no problem; you get all the revenue, and there is less wear and tear on your kidneys crawling in the rain than racing the lights. If you are a sharecropper with a net net lease (you pay the gas and a mileage fee first, then split the meter takings but get to keep the tips), working in the rain is a loser.

The idea that the different categories of drivers (owner-operators and sharecroppers) might have different incentives seems to have escaped the authors' understanding of how that would affect the data. They also seem to have ignored the Larry Williams factor aka the 80/20 rule - 20% of the drivers make 80% of the net profits. Indeed, they seemed determined to assure that their data sample excludes the people who really know how to drive. On the data from a fleet company they "exclude trip sheets that listed a number of trips that deviates by more than two from the metered number" after noting that "(m)any of the trip sheets were incomplete, since the number of trips listed by the cab driver was much fewer than the number of trips recorded by the meter. Of course, what that means is that the ghost riders - the guys who make gypsy bargains for passengers to ride off the meter — are excluded. I never drove for a fleet company, but the big earners who did were the ones who had more rides than the ones logged by the meter. That possibility of economic behavior seems not to have occurred to the authors.

"[T]here may… well exist better 'scientific' evidence [i.e., empirically demonstrated regularities among 'key' magnitudes] for a false theory, which will be accepted because it is more 'scientific,' than for a valid explanation, which is rejected because there is no sufficient quantitative evidence for it." (Freddy the von, from his Nobel acceptance speech. Full Quote)



One is always fascinated by a beautiful femme fatale that always keeps you guessing and never does the same thing twice, sort of like Federer's new drop shot or the market mistress.

To test whether there was such a thing as dueness, I had to start somewhere. Do the four urns get filled with balls of different colors to an inordinate degree? Here's a start:

Table I

Number of occasions that a small change failed to occur, by days of failure and probability of continued failure next day

Small rises

#/Observations/Prob. a failure occurred the next day

0 507 0.77
1 388 0.77
2 296 0.82
3 243 0.77
4 187 0.80
5 150 0.83
6 124 0.81
7 100 0.81
8 81 0.91
9 74 0.88
10 65

Table II

Small Declines

0 396 0.83
1 330 0.83
2 275 0.85
3 234 0.83
4 194 0.83
5 161 0.82
6 132 0.82
7 108 0.85
8 92 0.84
9 77 0.80
10 62

there were 2600 days in sample. A small change was defined as less than 0.5% and there have been four such changes in a row.

For example there were 507 days that a small rise occurred; on the next day there were 388 days a small rise did not occur (i.e. 119 where a small rise did occur). Note that 388/507 = 77%.

In conclusion, one will have to reflect on other methods of teasing out this mysterious woman's ability to deceive, possibly with your ideas. 

Steve Ellison submits his study:

After a certain number of whipsaws, is a strong trend due? I tested S&P 500 data from 2005 and 2006. I defined the trend as the direction of the last move greater than or equal to the average true (daily) range. By this definition there is always a trend.

I started with a hypothetical always-in mechanical strategy that one would be long whenever the trend was up and be short whenever the trend was down (I realize real traders don't trade this way). I then categorized the results of each hypothetical trade into the 20% that were most profitable and the other 80%.

I then counted how many of the previous 10 trades would have been in the top 20% and tabulated results by this quantity.

Number of top 20%       Average

trades in previous 10    profit     N

.       0                  -0.1%    20

.       1                   0.0%    44

.       2                   0.0%    57

.       3                   0.0%    55

.       4                  -0.3%    19

.       5                  -0.6%     3




 My simple query about what baseball can teach us about markets has tapped into a beautiful reservoir of insights and consiliences. In that spirit, and I honor Larry Ritter, who challenged Collab and me to come up with 100 relations before he told us the truth about the "doctoral degree" he awarded to the former Chair, as his thesis adviser. I am going to sponsor a contest similar to the one we sponsored about whether prices tend to Lobagola. For the best little paragraphs, hopefully with some numbers that show what we can learn from baseball about markets, I will award a $500 prize. All entries will be published. The deadline will be June 15. The judges will be me, Doc, and the east coast surfer.

Nick White clarifies:

Two quick things:

1) Must we limit the baseball contest to baseball, or might we generalise to the wider lessons that elite sport in general might teach?

2) A repeat of the best, most fundamental lesson: while waiting for our GDP number to come out, I cut my position till the print. I loaded my order into the screen and hovered my mouse over the trigger for when the number hit the wires. However, I hadn't noticed that I'd accidentally right clicked while staring at the screen until 2 seconds too late…after 22 lost points an d much cursing I recalled that one is always handsomely rewarde d for checking their equipment prior to taking the field….No more trading for me today as I'll be far too tempted to chase.

Steve Ellison adds:

Rule changes, environmental changes, and new techniques can greatly affect the game, in baseball and in markets. Jeff Pearlman wrote an article for The Sporting News in April entitled "The Death of the Stolen Base". Mr. Pearlman presented some statistics about the decline in stolen bases in major league baseball over the past two decades and then looked for reasons for this decline. He singled out two major factors.

There are increasing numbers of baseball parks with retro designs, such as Camden Yards. These parks typically have smaller dimensions than the generic stadiums of the 1960s and 1970s, increasing the value of power and decreasing the value of speed both on offense and defense.

Pitchers responded to the baserunning havoc wrought by Rickey Henderson and Vince Coleman in the 1980s by developing the slide step, a technique that shortened the pitching motion and hence the jump a would-be base stealer could get.

Alston Mabry adds:

Regarding the article "the death of stolen base", does it mention that the Bill James and the sabermetrics folks have been arguing against stealing for years because of success rate doesn't justify the cost of an out. They may be having an effect on manager thinking.

Stefan Jovanovich interjects:

Saber metrics can be a bit like the joke about the 3 actuaries at the carnival shooting gallery (the 1st misses 1" to the left, the 2nd 1" to the right, the 3rd says "we won the prize"). What James' statistics don't adjust for is that the "success rate" for steals includes the runners thrown out on missed swings on hit and runs. A good base stealer (one who is safe 80% or more) is worth the risk because, with his speed at 2nd base, a run can be manufactured with one hit instead of two. Since competent pitchers average 1 hit per inning, stealing from first to second is worth the risk. So, for that matter, is stealing from second to third with less than two out. The decline in stealing is a function of the fact that base stealing takes practice, and few managers even at the high school level are willing for accept the error part of the "trial and error" process - even though it is the one skill that gives the ordinary hitting team a chance to defeat a superior pitcher. Also, at least here in the U.S., the kids with the smaller frames and quickness that you need to be a good base stealer are playing soccer and basketball. There is hope, however; Ichiro is now the model for the Japanese leagues. Somewhere in Osaka Prefecture a kid is probably studying Maury Wills video right now.



Japanese men's image of masculinity is changing, according to Maki Fukasawa .

Japanese women have changed notably from years ago. They are taller, better looking, better dressed. The large majority of travelers from Japan in Bali and Hawaii are groups, pairs, and singles of Japanese women. They don't seemed interested in getting married early and getting locked into a rut. They enjoy the freedom of working, living at home, and traveling and being independent.



BoardsGrajagan, Java, known as G-Land, is located on the edge of an untamed impenetrable jungle. It is arguably the best surf spot in the world. Access is by 12 hour grueling overland jungle/ferry trek or by speedboat across the straight from Bali. Komodo dragons, peccaries, monkeys, snakes, palms with 2 inch spikes and barbs eat along the edges of the jungle. There were cat tracks on the beach.

Top surfers come from Peru, Argentina, Japan, Brazil, Australia, US, Canada, Tahiti, to wage their luck against the most difficult, dangerous and best waves in the world. On one day one poor bloke broke three surfboards. Others suffered cuts, bruises in bounces off the reef when thrown through the air by the waves onto the sharp coral reef just feet below the surface.

Certain Keelyesque ex-pats spend up to 3-6 months in the area and have devoted their lives to surfing the elusive waves and exotic lifestyles. The waves scream down a two kilometer reef. The skill of the surfers is skewed to the highly skilled. There are no kooks out there, mostly the top surfers in the world. They call it entering the lion's den. There is little or no room for mistakes, but the rewards are enormous.

Waves are quantified by a number of variable which are assessed each day to determine which equipment to use and which area to surf. The numbers are posted on a board each morning.

Wave Height: 2.5 meters
Wave Period: 16 seconds (crest to crest)
Swell direction: 206 Tide depth: 1.7 meters Wind speed/direction: 5 knots NNE

These are the main variables. Similar quantification in a wave theory of stocks might also be helpful in assessing market conditions and could provide and improvement over other less accurate market wave models. Perhaps a similar posting each morning might be useful for markets of interest.



Taxi DriverSome NYC taxi drivers work a predetermined number of hours each day; some work until they have made a predetermined amount of money and then quit for the day. Camerer et al.

I knew many new traders at the exchange who would set goals on the order of making $200 a day or whatever, and if they made that, they were finished for the day. Since their losing days were more frequent than their winning days, most did not last very long. The ones who did last tended to keep market hours, worked on pressing their winnings (if losing, learning in the process), and minimizing their losses. Absolute goals on the upside might be a bad thing for a trader to use. Keep the losses to a minimum, play a good defense, and the winners will take care of the losses. Since trading is not an exact science, why would someone set exact goals on the upside to meet?



My son Hunter (10) is on a Little League team. Their team name is pretty clever….The Joker's Wild. Everyone just calls them "The Jokers". They've got some really good coaches who work diligently with the boys, give lots of positive reinforcement and treat the kids well. My wife and I are very pleased with the team!

The coaches finally have the boys so that they are consistantly hitting the ball and hitting it well.

Last night, The Jokers had a game that was only 3 innings long and got called on the time limit (there's a two hour time limit on all games). But every boy got at least one hit and most got two hits. The jokers scored 13 runs in three innings. Not bad for this level.

Unfortunately, The Jokers lost 18 - 13.

But the sad thing was not the losing. It was the cheering. At least 90% of the cheering came from the Jokers side of the field. The Jokers' parents and fans cheered the hit parade and the base stealing parade and some decent fielding.

The Hammers (their opponent last night) actually had very little to cheer about. They only had, at most, a handful of hits, yet they scored 18 runs. Why?

Pitching and catching. In spite of all the work that the coaches have put into developing the boys, they still don't have a kid who can consistantly throw strikes. They walked an unbelievable amount of hitters. The first inning alone took over an hour to complete. And to make matters worse, the catchers couldn't catch the ball. So batters would get walked to first, then steal second and third, and then steal home on past balls — .and all this before the kid currently batting could be walked to first base.

It's no fun losing a ballgame, but there are many meals for a lifetime in the experience of losing if one learns from it. And The Jokers Coaches are pretty good at imparting these meals. But it's really no fun losing a game like this, when the other team has no reason to cheer — because the Hammers didn't win the game, The Jokers lost the game.

I can't even count up the number of times that the Market Mistress has beaten me at the investing game. I can live with being beaten because I have, over the years, beat her more than she's beaten me. But what I can't stand are the times when the Mistress doesn't beat me, but I lose to the Mistress because I made some dumb mistake that, in hindsight, I should have easily seen that I was making, or that I'd made in the past and should have easily noticed that I was about to pull the same stupid trick out of my hat again.

The Mistress knows how to throw strikes and will let me get my share of hits. She even has tendencies that we can all sniff out to figure what the chances are that she's gonna throw a slider, curve, fastball or try to fool us with a change-up. But none of that matters if I can't execute. If I can't play good defense, or capitalize on my opportunities, or do something as simple as throw strikes…..I can't win.

The Mistress gives us all an advantage by having a long term positive drift, but she's so erratic in that drift that she can deny you "drift hits'' for years….sometimes decades….at a time.

So the key to beating her is experience. The key to experience is, initially, to just survive.

The key to surviving is to remember this simple axiom: Losses hurt you more than gains help you. Or to tie it back into the baseball analogy….it doesn't matter how good you are at hitting the ball (The Jokers out hit the Hammers probably 4 to 1), if you can't throw a strike and keep the runners off the base.

So while you are learning, only invest what you can afford to lose. Unlike No-Limit Hold'em, never go "all in"…even if you've got a 99% chance of victory….because if that 1% chance you can lose becomes you're reality, then you are out of the game.

Keep practicing and learning and eventually you will learn how to throw strikes. Eventually, your defensive players backing you up will get good enough to throw the runners out and eventually you'll even get good enough to strike some batters out now and again.

It's all about baby steps, and remembering the lessons you learn allow the way, and being a good sport when you lose…..and if you do lose, make sure you lose in a way that allows the other team to cheer for their victory and be happy because you lost.



J DeweyI don't know if the Chair's broaching of this topic was to elicit fresh solutions or to re-establish old (if controversial) truths. I prefer to go with the latter only because it is there that 'fresh' ideas may be found.

The freshest thinker on this topic is one of the Chair's oldest sources of enlightenment: Albert Jay Nock. Modern education is not "modern" at all. Nock sees its big push beginning with John Dewey's "Democracy and Education" (1916) which posited (when distilled) that education's purpose was to promote a "good society" by creating good citizens. A curriculum which included Greek, Latin, and extensive studies of history was hardly one which fostered this ideal.

Indeed, exposure to a rigorous education might well lead to the production of a handful of thinkers, some of whom might discover that, for all the hooting and hollering, what is happening in education has its genesis in the actions or inactions of the governing class. And further, that those policies rather than being ill-conceived have been deliberately designed. The design's purpose is to create an "educated" class comfortable with the idea that problems can be best addressed through governmental action (tax now-spend now-pay later) rather than economic actions (work-and-earn, save-and-wait). This type of realization leads to the unacceptable conclusion that we just might do much better with much less government.

But the present system is destined for failure because as Nock suggests it is run on the theory that "…if a few qualified persons get this [educational] benefit, anybody, qualified or unqualified, may get it." But the "margin of diminishing returns" mandates that "the larger the proportion of unqualified persons" who attempt to receive the benefit, the swifter the benefits to all will vanish…the more unqualified students, the lower the standards."

However, before giving up on education entirely, Nock makes an important distinction between those who are "trainable" and those who are "educable." ""Education, property applied to suitable material, produces something in a way of an Emerson; while training, properly applied to suitable material, produces something in the way of an Edison."

And what exactly defines Nock's educated person? Someone who has developed "the power invariably, in Plato's phrase, to see things as they are, to survey them and one's own relations to them with objective disinterestedness, and to apply one's consciousness to them simply and directly, letting it take its own way over them uncharted by prepossession, unchannelled by prejudice, and above all uncontrolled by routine and formula."

A pretty demanding standard but one that explains why Nock felt so few were educable. Robert Maynard Hutchins , Mortimer Adler and others have since attempted to re-establish some form of a "classical" curriculum but with little success. As long as the demand remains at high levels and our institutions of learning continue to broaden its menu of degree-able studies, costs will remain outrageously high while results will remain regrettably low. Which is fine. The worst thing that could happen would be for today's students to discover that an additional reason for pushing education is that they be better enabled to pay our debts.



Russell Sears says:

My knowledge of baseball is shallow. I played only two years in a little league as a kid. I was on a small town team in Glencoe, OK my 5th and 6th grade years. The only years I was still able to compete and start in three sports teams (Basketball Baseball and Track). I played second base, led the team with walks and on base percentage, steals and fewest errors for an infielder. So, much of my knowledge is rudimentary. However, as a dedicated athlete and coach in distance running, I recognize many of the lessons carry over from most sports to investing/trading and a investor/trader's life.

Here is my list with some explanation to at least one way it relates to an investor/trader if it was not obvious.

1. To get an edge, rely on statistics, not folklore or gut response (See Michael Lewis's Moneyball).

2. To make a solid hit you must shift your weight at the right time. Good traders move their weight in and out of the trade.

3. Plan on shifting your weight in the direction you want the ball to go before the pitch/market or you end-up chasing the pitch/market fouling to the left. Or on offense you take action. Plan where you are headed. Risks analysis can help determine where you want to play, is there more opportunity in being too early or more risks. Or will the opportunity still be there if you are a little late.

4. Don’t expect the opponent to give you the same hit twice. Don’t chase returns. Expect the markets to react to your success.

5. Changes of pitcher occur everyday and a team that was easily beaten one day is completely different the next. Don’t expect every day to be the same easy win or tough loss, despite yesterday’s scorecard.

6. Your placement in the outfield will determine your ability to cover the most area. Remember it is easier to run forward / be more aggressive than it is to back-up. On defense you react, position yourself accordingly. It often is easier to get into a trade than out of one, (think real estate). Allow yourself more time to get into a trade than selling out of one. It easy to find a willing seller as even in a hot market the net buyers are often flipping trades. But it can quickly turn into a dead market. And conversely a short trader can be hard to move quick enough, though right in the general direction.

7. Pay attention to the strike zone before your turn to bat. Different umps will shift it and the pitcher will know where the corners and edges are. They will also know where the ump is being conservative or liberal. Keep track of the rule changes around the edges. See current FASB rules for example.

8. Patience and opportunity cost move inversely as the count moves against you. The best learn to deal with this pressure. (See Ted Williams)

9. As the runner moves around the bases the positions placement and responsibilities shift with him. Know the economic cycle where the opportunities pop-up and disappear. Know where you are most vulnerable.

10. Backing up other teammates limits losses associated with many errors. Double check trades before execution.

11. Keep the ball in front of you. Have limits to losses. Don’t get too far behind on a trade.

12. Keep your eyes on the ball. Don’t ignore a trade.

13. A student of the game knows when and where an error is likely to occur. Learn from past mistakes, others' as well as your own.

14. Standing firm while a fast ball is coming at you is not instinctive. But a inside slider is even scarier. Instincts need to be channeled properly. Risk premium or the opportunity in risks is often not instinctive.

15. Identifying the pitch's path is hardest part to hitting. Identifying shifts in the market is often hardest part of trading.

16. Quick simple planned communication keeps teammates from running into each other when the balls in play. Same communication helps firms govern their traders.

17. Everybody loves the game when the sky is blue, but the season is won in all weather. Everybody wants to be an “investor” in the good times, but many of the best lessons, the ones that can make investor’s career, occur in the hard times.

18. The concession prices are a lesson in supply and demand. Demand often trumps relative value. Bubbles and panics often occur by demand ramp-ups and then collapse. Because there is no clear 7th inning stretch for a trader or posted game schedule. Be very careful how many hot dogs you place on the grill even though demands high and how much inventory you will carry despite the labor day fire sale of hot dogs.

19. Fan loyalty proves that being number 1 is not necessary for success. Hubris of striving to be the “best” can poison many a career, stock or management team.

20. Minor league games can be fun for the whole family. Small investments are great for teaching kids the principles of investing.

21. Next time at the ballpark count the generational divergent groups (eg Father/Son) ;sharing with the next generation of fans keeps the excitement in the game. Sharing with an older generation keeps the relationship fresh.

22. There are many crazy fans and media experts out there that think they know every move a team and player should make. Many simply wish they could play. Ignore the Monday morning quarterbacks advice. Most of the media and the advice people feel compelled to give those succeeding is worthless or down right dangerous. (See the “magazine cover” effect for a bear market.)

23. But accept the critic’s concern as a compliment. For many this is the only compliment they can give.   Contrarian thinking or buying when others are selling too much and selling when others are buying too much is the basis of trading, expect to swim against the tide sometimes. These critics think anecdotal evidence in hindsight proves they know more than you, but trust a good record keeping/scoring system more than the backdated critic.

24. Joining the club: That knowledge, experience or friends inside the clubhouse may get you a job. That intelligence may get you a well paying one. But that a unique talent is highly scouted and is priceless. This carries over in most careers, perhaps one reason why athletes often make good investment professionals.

25. If you are up to bat, it doesn’t matter what position you came from.

26. Those that get the most players on base often win. Home runs are nice but singles are the game changers.

27. A walk gets you on base same as a close single without the risks. This is stressed in the lower leagues. A good eye for business opportunities can beat the market. In main stream, the number of “rich” entrepreneurs out ranks the rich traders.

28. Run hard for first base no matter how easy an out it appears you hit into. Errors happen, only those still trying get to turn the error into opportunity.

29. Individuals pursuing their own individual success can work as a cooperative team. Form your team so that everybody wins.

30. Occasionally, the manager must step in to tell a batter to take one for the team: Bunt, to advance the runner on base. Team players know that long term success outweigh short term personal gains. Pick teammates that know how to bunt.

31. Don’t let the opponent know what your signals are. Hide your limits and stop losses until you pull the trigger.

32. The pitcher and catchers signals are sacred information. Don’t deal with firms that let others know your trades or allow front running of any form.

33. Scouting like due diligence should dig for the observed facts, not simply rely on their reputation. See Madoff or any of the other sellers of bogus reputations.

34. Know the difference between playing to win and looking to next season. The new talent brought up is out to prove themselves. Don’t underestimate their hunger. The big established and the small hungry players have their niche.

35. People tend to be afraid of cultures they don’t know, race has little to do with an individual’s success. (See Jackie Robinson). Global funds can diversify your portfolio.

36. However, cultures that support the game have the most individuals hitting the big times. While globalization can be good, not every country has the same culture to support capitalism. (See the freedom index and long term returns).

37. The pitcher has to have the most control of any of the players. They should be the most organized and controlled. Traders need the most governance and control.

38. The fastball pitcher needs the most rest, lest the fewest innings with shortest careers. Save your emotional energy for when it is needed.

39. Injuries and life happens. Being willing to take yourself out of the game a few days can prevent a season or career ending blow-up. Listen to the advice of a good sports doctor/risks manager on this one.

40. The clean-up pitcher may not get the glory of the win, but can save many a game, and often prolong his career with his knowledge. The support crews are critical.

41. Don’t make enemies with the umps. Don’t make enemies with the regulators no matter how unfair the rule.

42. Respect the home team’s advantage. Investing in local companies you know well can be profitable. Likewise commodity markets often have their natural experts .

43. Don’t call attention to yourself off the field. Too much conspicuous consumption makes you a target.

44. Listen to your mentors, the coaches, the voices of experience, follow the successful.

45. Give respect to those that played before you and the other players.

46. Win or loss, shake hands after the game. The opponent is only “the opponent” on the field. Off the field he is most likely a kindred spirit.

47. Sometimes the best competition is the friendly competition of a teamate. As irons sharpens iron, friendship sharpen individuals

48. Pride and self-respect can motive and drive you through difficult and seemingly impossible situations. (see Lou Gehrig)

49. Tragic situations can be turned into triumph. The unfair harsh blows in life can make you bitter or better.

50. Hubris and narcissism may fool others into respecting you, but will be your downfall.

51. Steroids, banned substances: there will be those that cheat and seemingly get away with it. But often lost in the broadcast are the majority of the players that did not cheat and still achieved greatness. There will always be cheaters, but the generalization against the whole is not to be believed. Don’t tolerate this attitude with your investment advisors.

52. Those cheating rob baseball for their own gain and develop a love/hate relationship to it. Those investors that have love/hate relationship with capitalism and the markets are not to be trusted.

53. Those prone to criticism think the road to success is lined with cheats. But often the temptation to cheat is greatest in the declining years after they tasted glory. Don’t let yourself succumb to the thinking that to stay in the game you too must cheat. Often the answer is to accept a less visible role at least for awhile. See excuses from fraudsters of why they started hiding losses .

54. Character is not necessary to have talent. But character often determines how far and how long the talent will last.

55. Until the last out is counted, there is always hope for a turn-around. But the manager should play the game to a realistic assessment of the situation.

56. Playing not to lose, can cause your collapse and give the opponent that hoped for turn-around. (See Met’s Red Sox World Series). The bigger risk is often playing too conservative, as if you already have won.

57. What you deliver to the team matters, not who your parents are which school you came from or who is rooting for you. True in trading and sports

58. Those from the humblest background are often the hungriest.

59. Hunger with expert guidance produces the stars time after time. Those with the true hunger will choose substance over style every time. Many small programs would do better to spend the money to improve their coaching than to improve their facilities. Facilities are to impress the visitors, not those with a true hunger.

60. Coaching programs that produce one great talent from scratch to the big leagues may be a random lighting strike. But coaching more than one great talent is validation the coach’s program towers above others in attracting that talent and ones coaching abilities. Look for mentors by those they have mentored. See Vic’s former traders successes.

61. Coaches can make a tremendous difference in a kid’s life, but the kid has to want the change. Those that really want it seek out the best coach/mentors.

62. Kids with pushy parents usually make terrible teammates. Don’t hire kids with pushy parents for your firm.

63. Pushy parents make the worst coaches. Avoid investing in nepotism, be it a private company, or an investment advisor. (see 3rd generation inherited company’s failure and major loss rates).

64. Maintaining a routine when you are in a slump can help.

65. But using that routine as an excuse to avoid necessary changes will bring you to ruin.

66. Besides strength training, a flexibility routine can help prevent slowly losing your edge to tightness and expand your range of motion. Repetition can limit some opposing muscles range of mortion. But to maximize that skill or other skills you often need to maximize the range. Recognize and prepare for a wide range of markets: a range bound market, versus bear or bull, versus momentum or decelerating markets

68. Batting practice is essential for most positions. As is throwing the ball and game of catch. Exercise specificity implies cross training takes more effort than training specific to your sport, position and motions. Markets trade differently learn to trade one market at a time.

69. Even though you may be the hero, and put in the hard work, you did not do it alone. The big leaguer honor their parents, and family.

70. Injuries and doubt will occur. Know when to ask for the help and support of others.

71. Be generous to those that supported you during your recover periods.

72. Losses happen. Take your share of the responsibility and learn from it.

73. There are core talents; you must inherently have to succeed. And there are skills that you can develop. Pick your field of play that matches your core talents. Dedicate your time to practicing to sharpen the skills and strengthening the core talents. There are many roles in investments pick one that suits your temperament and core strengths… not necessarily the most glamorous.

74. While there may always be another day and another game. Yet, the players themselves come and go…don’t squander the opportunity given you as a player. Opportunity cost is hidden to many investor, and financial employees .

75. Develop a love of the game. As these love turn into a love of life, you have succeeded no matter the outcome of the game.

76. Women have dramatically ruined many a man's career.

77. But many a woman have quietly supported motivated and made a man, by sacrificially believing in him before others.

78. However, the boisterous courage given by alcohol and other substances have also dramatically killed many a career.

79. Family and true friends have given many a kid the edge needed in the lean obscure years. Support your family’s efforts in capitalism.

80. True friend are those that will tell you what they think you need to hear, not just jump on the bandwagon of the rising star.

81. Practice and play hard. But allow yourself to rest and recover.

82. While beating the odds to make it to the majors does not necessarily make you an interesting, nice person. Yet, the unique qualities that lead to success often do.

83. Kid’s dreams are the foundation of the game. If you love the game nurture the dreams in every kid.

84. Learn from a kid’s dreams: how to give your best, despite the odds of being the best.

85. Learn from a kid’s dreams: Don’t be afraid to test your limits. But be realistic where the limits are.

86. Don’t let dreams of grandeur turn into delusion of grandeur.

87. Though almost all are as poor as mice for years and few ever realize their dream, almost all would not trade chasing their dreams for anything. Few regret chasing their dreams when they are young without obligations.

88. Many little leagues are coach and sponsored by those that chased their dreams. Most never came close to the big leagues. Give back to the community when you “make it”.

89. A good coach doesn’t let kids buy into the cheering fans propaganda. Out side the game they need the most practice of anytime. So inside the game they are the most prepared, and then will remind them of this during the game. Work hard, but have faith in yourself.

90. Most players have 5 minutes of playing time in 2 to 3 hours of down time. Even the pitcher has days off between games. Road trips and hours of repetition in practice. Learning Alertness in the midst of boredom, is lesson most traders can relate to.

91. At a certain point you look around and everybody is trying extremely hard, everybody is knowledgeable of the game. At first you learn trying harder won’t get you there. Next you learn working smarter won’t either. Finally you learn to exploit your particular niche. If you are going to make it in an extremely competitive field your niche strength will have to take you there.

92. But as a parent, coach or mentor, the kid has to come to this conclusion on their own. Because first they must learn to love the game, to give their all. Next they must learn to love themselves to learn to take care of their bodies and finally, they must learn to adapt to love life.

93. Most kids will not make it into the big leagues or even minor level. But most with a good coach and a decent attitude will grow from the experience. Many adults continue to play for the fun and exercise. Trading and making your own investment decisions have their own similar rewards of autonomy.

94. Learn where and when to accept criticism. Measure yourself against valid criteria, to learn what to improve.

95. While there are only 9 basic positions. The infinite stories that emerge from the many teams the various talents each have a rich life behind them.

96. Hustle in and out between innings. Starting with the right attitude makes work better.

97. Don’t hit into a double play. Don’t take the other side of a market after losing on one side for the day.

98. Intentional spiking, beaning the batter etc. may not be provable, but will get you kicked out of the game just the same. You cannot legislate morality. Still, everyone knows when you are being a jerk. Avoid those that think they deserve to be a jerk. 98. Pick a bat that is appropriate for your size. As a kid, you need to be honest with yourself on what the biggest size is that doesn’t slow you down. Don’t trade with too big a percentage or too much money, if it is causing you to slow your thinking and ability to execute.

99. If you are making the same mistake over and over ask a coach to help.

100[!]. The truly hungry players wanting most to improve, keep a diary of their
training and failures and accomplishments.

Finally, while not intentional on my part this repeat what Wooden already said. But it deserves repeating. Wooden’s “Pyramid of Success”

James Sogi writes:

The catcher and pitcher work with each other. The catcher has a different and better view of the batter and what he is doing and can feel the batters positions, mood and tactics. The catcher often signals to the pitcher a strategic call. The pitcher's aim is to the catcher's mitt which the batter cannot see. There is an interesting dynamic between the pitcher and catcher and batter. The ump stands in back and is a fourth level variable.

Baseball in general has an odd dynamic of one batter, and up to three, but typically fewer than three, runners against nine fielders. Seems the odds are stacked against at the get go but the advantage is systemically designed to switch back and forth from defense to offense. Again we see the switch coming after three outs, three bases, three strikes, three fielders, nine innings. Why threes? 

Steve Leslie sends his lessons:

As they begin the regular season, the goal of every baseball team is to reach the playoffs. How a team reaches the playoffs reveals a relationship between baseball and markets. Maybe more lessons than one!

Within the current structure of Major League baseball, there are two leagues: The American League and the National League. Inside each League, there are three divisions: The East, the Central, and the West. Four teams from each League reach the playoffs, including the winner of each division, plus the team with the best record from the remaining teams. A review of the 2008 season reveals some interesting facts that may be illuminating with regards to markets.

Looking first at the American League, the winners of each division were the Tampa Bay Rays in the East, the Chicago White Sox in the Central, and the Los Angeles Angels in the West. The Boston Red Sox qualified by virtue of the wild card.

The Angels had the best record in the American League, winning 100 games, achieving a .617 winning percentage. Of the playoff teams, the White Sox had the worst winning percentage, at .546, and qualified only by defeating the Minnesota Twins 1-0 in a one game playoff at the end of the season. Think about this: What dept the Twins from gaining a spot in the playoffs, after playing 162 games, was one single game, lost by one single run.

In the National League, the Philadelphia Phillies won the East division with 92 wins, thus overcoming division rivals the New York Mets, who wilted in the last two weeks of the season. The Central was captured by the Chicago Cubs with 97 wins. The West was represented by the Los Angeles Dodgers, who won but 84 games and finished just two games ahead of the Arizona Diamondbacks. The wild card team, with 90 wins, was the Milwaukee Brewers. The Dodgers, thus, finished barely above .500, yet made the playoffs, despite having just the 8th best record in the National League alone!

So, what lessons can be gleaned from these facts about the 2008 big league season? The first thing that stands out to me is that the difference between success and failure–as defined by the parameter of making the playoffs–can be razor thin. The difference can come down to one game, even a single run. A long regular season consists of 162 games, and every game–even every run, perhaps every individual play–carries a high level of significance. Baseball is a six month day-in and day-out grind, just to make it to the playoffs. Toss in Spring training plus playoffs and it is extended to eight months. If you're not playing a game, then you're travelling. If you're not travelling, then you're working out. It's a brutally tough road, requiring great commitment and substantial sacrifice.

The next point I see is that you can still make the playoffs despite being an average team. The Dodgers made it despite winning 13 less games than the Cubs. In other words, sometimes the path to success involves surviving a tough year, confident that good things can happen.

My third point is evidenced by the Mets. They were generally considered the front-runner in the NL East, but could not finish with any strength, so they missed the playoffs, letting down their avid fans. Front runners, as you see, sometimes get run over.

Fourth, the Cleveland Indians were expected by many to go to the World Series by virtue of their strong pitching, particularly C.C. Sabathia and Cliff Lee. After a dismal start to the season, Cleveland dealt Sabathia to the Milwaukee Brewers. In baseball and in markets, that which seems obvious to many may prove to be incorrect in the end.

Point five comes from the New York Yankees. The Yankee machine, with the largest payroll in baseball, a stable of minor league players, and one of the best run organizations in professional sports, still disappointed, and missed the playoffs. Likewise, there are great companies and great stocks, and they are not necessarily the same at the same time.

Finally, and probably most interesting, is that virtually nobody picked the Tampa Bay Rays to win the American League East or even make the playoffs, let alone progress to the World Series. The Rays had a long and storied history of being a terribly run franchise. Pre-season prognosticators place them behind perennial contenders the Yankees and Red Sox. Still, the Rays went all the way to the Series. Though they lost to the Phillies, this shows that there are always dark horses. A team can get hot and pull everything together for one magical season–or even for a particularly poignant part of that season–provided everyone gets on the same page and dedicates themselves to the same goal. Furthermore, it exemplifies the dictum that even experts sometimes miss the ugly duckling that will become the elegant swan, and that beaten down undiscovered stocks and markets can suddenly become big winners!



 Bernardo Bonamigo Linchen is the newest trader in the pit. He knows perfectly well how to get milk through the old "open outcry" system. His father is just the clerk and his mother is the milk clearing house…

He was born yesterday, 3:14 P.M., but only today I got the time to take a photo as the tradition of Daily Speculations commands. We are reading Victor Niederhoffer and Larry Williams…

I'll be busy for some time, now… Anyone interested in helping in the night shift?



P MBonds and stocks compete for their piece of the investment pie.  Yields on long term bonds have spiked from 3% to 4.5% in the last several months, an event that cries out for some counting.

I looked at the last 30 years or so of market history.  Using a definition of yield change as:

chg = r(t) / r(t-1) - 1

the study looked at monthly data for US 30 year Treasury yields and the subsequent monthly net change in the S&P.  For the 39 times when the monthly change in bonds exceeded 5% the market in the following month performed as follows:

P M Study

The first column of numbers shows the stock performance one month later, the second is for two months ahead. The one-month results might seem anomalous, in the sense that the market is usually up, some 64% of the time, but down on average. The 64% figure is actually not that high given that the market was up some 61% of the time for all months in the sample. Looking at the individual events there were three occasions when the market dropped more than 5% the next month.  This is also consistent with the relatively large standard deviation.

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



I was just browsing Laurel Kenner's blog and she has a great post on music there titled "Artaud":

I don't have Laurel's knowledge or depth of sensitivity to the arts, so I think she was making a point through Artaud about how art can get too involved in its form and sometimes lose sight of its inspiration and emotion. For whatever reason an artist is inspired and creates, the art can still impact the individuals that make up its audience in profoundly different ways, depending on the who they are and where they happen to be in their lives — their own specific context. For me, music is often much more than just the music. Its impact on me depends on what is going on at the time. Here are a few examples.

MICHELLE (Beatles)

At age 10, crossing the equator aboard the Italian passenger ship (I wouldn't call it a liner) "Aurelia" — it was playing on the loudspeakers by the pool. I was traveling with my mother from Adelaide, Australia to Genoa, Italy. Learned to swim, learned to play chess, and also played a lot of bingo on that trip. (Also visited the pyramids of Egypt.)

AND I LOVE HER (Beatles)

In my cousin Zsuzsi's apartment in Budapest Hungary, 1966. The first time I ever heard the song; she introduced me to it. I can still hear the blue articulated buses roaring by on Dohany Street five stories down below. (I now play this song with my "band")


Night-skiing as a young teen down the municipal ski hill in Sherbrooke under the stars with the city lights laid out below. They played it through the PA system. Wonderful way to ski. Another song I like to play.

RUBBER SOUL (Album — any song) Beatles

Riding across and beside the St Francis river in a school bus in pretty Lennoxville, Que. on my daily commute to and from Alexander Galt Regional High School.


My best friends and I (high school years) belting this out at the top of our lungs (particularly the falsetto part) riding in Glen's red VW bug to his house out in Buckingham, Quebec.


Riding in Rick Trites' Triumph TR-6 sports car on a Friday night in Algonquin Park at night under a blazing canopy of stars, on my way to the most memorable canoe-camping trip I have ever taken — the Petawawa River.

CLAIR - Gilbert O'Sullivan

As an infatuated 17-year-old, slow-dancing to the song with my cousin's beautiful brown-haired 20-year-old friend at the top of the round hotel (that's what they called it) in the Buda hills of Budapest, Hungary. A magical moment on a beautiful moonlit night.


I actually didn't like that song, but they played it to death on the radio as my friend Glen and I drove to Florida for the first time in 1976, all the way to Key West and back. We sang along with it anyway.


In a club in Vancouver, on a great trip out west (Calgary to Vancouver and back through the Rockies in a rented Camaro) with my good friend Don Parker. Nothing like your transmission falling out onto the logging road halfway up a mountain. Happened near Elkford, BC to Don's friend's jeep as we were coming back down.


The brokerage office at Bache in Ottawa. It was a fun group of guys and gals, and that song was one of the top hits at the time. (That and Strut -by Sheena Easton)


Riding through the Alps on an Intercity Express between Innsbruck and Vaduz, listening to reggae during my trip to Europe in 1986.

LA PALOMA (Mireille Matthieu) and LIBIAMO NE' LIETI CALICI (Guiseppe Verdi from La Traviata)

Sitting on an outcropping with a Walkman, completely alone, on the southern cliffs of Capri soaking up the Mediterranean sunshine and ocean breezes, and gazing out over the azure-blue ocean 300 feet below. What a magical afternoon that was.

HAVE YOU EVER BEEN LONELY (Jim Reeves and Patsy Cline overlay)

Driving to Greely just outside Ottawa on warm summer evenings to my horseback riding lessons. I was in my mid-20's when I took up English riding, and it was humbling to have pre-teen girls kick my butt at every aspect of it. But it was all worthwhile in the end; I eventually got in my fair share of clean jumps.


The top hit at the time when I travelled to Ft Worth Texas for a conference. Now that was a party. I wonder if Billy-Bob's is still there.

EVERY NIGHT (Paul McCartney)

Came on the radio as I was driving along Skyline drive up high in the hills between San Francisco and Santa Cruz, CA. A song I love to play and sing today. I've always loved cruising, and to do it in a place like that…

SHOUT (Tears for Fears)

My most amazing work/travel adventure in Perth Australia. The packed club I was in with my Aussie friends was absolutely rocking to this song.

And so on; this is just a sampling. Great music (and sometimes not-so-great music) anchors great memories. The reason I've selected these fairly old experiences is because they are still so vivid when I hear the music, despite that they happened so long ago.



One has spent a most enjoyable hour looking at a fax pax of 50 pictures from the collection of the Buffalo Bill Historical Society. The visit leads to several observations. Charles Russell and NC Wyeth have to be just among the greatest american artists of the West. When you see one of their paintings you can feel the muscles, step into the action, and hear the sounds and smell the sage. It's so different from a Michener book or a Remington painting where you feel it's so contrived and derivative. It's like the difference between a writing by someone who trades versus a reporter. The painting Fight by William Gollings is very vivid but it lacks that Louis L'amour verisimilitude. It looks like everyone's out in the open and the dog is stylized and a man is grabbing a horse tail. When I was a racket competitor I lived by the idea never to give up until the last breath was gone. Fortunately I didn't use that last breath that often. I think it's true in trading. So often, one is taught to surrender. To give up when the going gets tough. To succomb because the bigs and their cronies might notice you and give you a "personalized." You have to admire Cliff Asness and the AIG executive who quit in protest as modern day Rose Wilder Lanes or Albert Jay Nocks. The code of the west I have visited before. but in reading it again, I see how important it is to have the proper equipment and not to take anyone else's equipment, and never to put on a position without being ready for what it is likely to happen at the tails, say, once or day or once a year. I like the idea "when you're approaching someone from behind, give a loud greeting before you get within shooting range." I wish that the people who had the next earnings releases or the next crony enhancing thing would follow that rule, and that the punishment of the code of the west could be visited upon them because they don't.

Scott Brooks follows up:

Wild Bill and Calamity Jane stories linked in history. Calamity Jane claiming that Wild Bill was the father of her child (whom she put up for adoption).

I have a slight personal tie to Calamity Jane. She was born in Princeton, MO where my farm is located. A sign adorns the road marking the spot where she was born. That sign is right next to my farm.

Every year, on the 3rd weekend of September, Princeton celebrates Calamity Jane days. It is a very "campy" weekend celebration with a parade and wild west show reinactment. Even though there's not much to do, the kids love.

The town folk are pretty realistic about who and what Calamity Jane was. When someone talks about Calamity Jane Days in Princeton, MO, the town folks, say (with big dollop of sarcasm), "We're the only small town in the world that celebrates the birth of a drunken whore!"

Here's a link to Calamity Jane Days in Princeton, MO .

Rudolf Hauser adds:

A good historical artist, that is one painting scenes of past events, has to be a bit of a good historian and be familiar with the terrain, clothing, etc. of the historical event he or she is painting. My own favorite is a more contemporary artist, namely Frank C. McCarthy. His paintings are full of a sense of motion. Take his painting "An Old-Time Mountain Man" as an example. It depicts a head-on view of a mountain man riding at a fast gallop, holding his reins and a long flintlock rifle cradled in his left hand and the reins of a string of his two pack horses in his right hand. The forward position of his foot in the stirrup, the backward flow of his beard, the look of determination in his face, the horses legs in clear rapid movement and the billowing dust clearly indicate a strong sense of motion, which tends to be a defining characteristic of most of his work. In his broader scope paintings, the background landscape is beautifully portrayed and the action scenes are very realistic and dramatic. He has been called the "Dean of Western Action Painters."

For someone interested in a depiction of contemporary cowboy life I suggest the work of Tim Cox. For those interested in the Civil War, I would recommend John Paul Strain and Mort Kunstler. Of the two, I prefer the work of Strain. Kunstler has also depicted the old west, but his paintings are not as dynamic of those of McCarthy or Russell. They are more like a snapshot than live action. For those interested in the earlier time of the Eastern Frontier in the Ohio Valley, etc. I recommend another contemporary artist, namely Robert Griffin.



NYT BuildingYou have to admit the Grey Lady is getting better as they try to keep the belly from going up. They occasionally have a good article about a neighborhood, a Korean fish monger, a group of old fogies at Rockaway Beach or the West 4th Street handball courts. And as Tyler Cowen said at the Junto, "even the economic columnists, who have been immensely improved by the blogs, always take into account the free market point of view before trashing it or saying it's worthless." I found a great article "Questions are From Enemies" from the Week in Review section today. In it they have the fantastic quote from a Berlusconi admirer, "he's so rich he doesn't need to get into politics." What variant of that would be appropriate for our own country today? How about this: "he's so rich he didn't need to have, isn't, or will not have to work for… the…"?



 I have just read the first chapter of A Conceptual Introduction to Chemistry by Bauer, Birk, and Marks. The question immediately arises as to what would a chemist who lived on Mars and knew nothing of our financial situation study or do to make a profit in markets when he came down?

He would certainly place much emphasis on the changes in state that the various companies went through and their effect on stock prices. Big mergers and acquisitions would be studied as to their impact. The moves above 100 and below 10 or 5 would be considered. Stocks would be grouped by their digits and volatility. The amount of trading in each range would be considered as a measure of density. And the luster of each stock, relative to publicity and ballyhoo, and its electronegativity would be considered.

Does a stock dissolve in water, and at what temperature? Yes, and of course the ability of a stock to move on its own or the external force would be high on the list. What are the basic elements, the companies from which all others are built? One would think that a whole set of quantitative studies, probably much more useful than the ones usually found in the literature might be sparked by such a consideration.

Allan Millhone replies:

When the chemist came down from Mars in this down market he would see that items containing oil would be a good bet for future products.

He would note a suppressed housing market and might look at roofing and construction materials. Roofing, felt paper, ice guard brand products, tar. Or is it best for him to buy XOM and the like? I note the Golden Boys predict $85 oil. They must have a swami at a crystal ball like the wicked witch had watching Dorothy and her friends to see the future.

T. K. Marks adds:

The chemist would benignly synthesize a powerful new opiate aimed at pain relief and call it "Price Averaging, This Time It Will Definitely Work."

I would experiment with such, thinking that only others could get hooked.

George Parkanyi writes:

He might also look at what properties of a market attract energy (money), or repel it. Can markets be combined into compounds? If markets do form into complex "molecules", what would make them stable or unstable? How would the combinations behave? What would be the tipping points? What would be the solid, liquid, and gaseous states of a market? How much energy does it require to move from state to state? Does change of state happen smoothly, or in quantum increments? Do markets have polarity? Which ones repel; which ones attract each other? If markets don't necessarily interact with other markets, can they still act as catalysts to facilitate interactions between other markets? Does one market orbit around another? Does the state or presence of one market crowd out or starve another? Is the main trend of markets toward entropy (increasing disorder), and how much energy is required to keep markets organized and behaving in their current states? Can markets serving purposes today, be used for other purposes?

And… which markets cause high blood pressure and heart-problems…

Alex Forshaw comments:

The chemist would identify a massive, exploding black hole which the human species alternatively call "the Fed", "the US government", "FDIC", "FHLB", "Fed", Congress", "Obama", "Bush", and many other names, consuming everything else … and he would watch in amazement as market liquidity, entropy, gravity, etc were warped beyond recognition every other week.

He would probably blast off of Mars to a galaxy far far away ASAP before Mars were imminently gobbled up by the same black hole.

Easan Katir adds:

Thank you for this new chapter drawing analogies with your introduction of chemistry, in the service of profitable trading.

Though more hydraulics than chemistry, here is a video demo filmed at Cambridge of how a plumber / economist approached similar questions back in 1949, with his "Phillips Machine ", or "Moniac."

[Ed: if I understood correctly it is a hydraulic simulation of the Keynesian Liquidity Preference model].



MitGiven that one can listen at low cost/free on the Internet to the best professors in the country giving courses in many leading subjects (MIT has all its courses free online, Yale and Stanford some of theirs), how long will consumers be willing to pay $200,000 for four years of Ivy League and other leading private courses often taught by uninspiring assistants and graduate students — often, in the case of math and science courses, mumbling foreign graduate students whose English is incomprehensible? I well realize that a degree from a leading private university is a considerable signal to employers, potential spouses and others, of one's intelligence and diligence (and I also realize that the $200,000 cost is usually not borne by the consumer him- or herself). But still, how long in this age of technology, outsourcing and arbitrage can such a differential persist?

Steve Ellison reports:

In an NBER paper, Avery and Hoxby state:

If [a student with very high college aptitude] acts as a "rational" investor, not bound by credit constraints … then he need make only two calculations for each college in his choice set. Supposing that the student has figured out the cheapest way to attend each college, given the aid offered him, his first calculation is the present discounted cost of attending each college j …

His second calculation is the present discounted value of the consumption he enjoys at college j plus the present discounted value of the stream of income generated by the human capital invested in him at college j …

Jeff Sasmor reacts:

What college student thinks this way? As someone who has just gone through this process with an intelligent child entering college (Barnard) next fall, the decision involved more emotional choices than rational ones.

1. What school best fits what I think I want to do with my life?

2. What school has the type of people I want to hang out with for the next four years?

3. I want to get out of NJ. Even though I was accepted into Rutgers' Honors program I don't want to go there, yuk. I want to go to a brand-name school. I want NYC because I want to experience an urban lifestyle. You know, I'll need a bigger allowance!

4. Don't lecture me, I don't care what it costs.

Riz Din shares:

I was painting our fence the other day while listening to a variety of quality podcasts and lectures (painting a fence takes longer than I thought) and I had similar thoughts.

The differential has to fall over time because the act of standing in front of a group of people and lecturing them is outmoded in today's world and is fast becoming commoditised through technology. The idea of an institution herding students into a room at a fixed time and having a one-sided conversation with them while they rapidly jot down all the salient points just doesn't hold water when there are much better, more productive ways of teaching. I start to drift after the half hour mark in many lectures and being able to press 'pause' on the lecturer would have been a real boon.

Universities can be extremely slow to adapt (e.g. Latin was standard at Oxford and Cambridge several hundred years after other places of learning adopted English), so overhauling the entire way of teaching may be some years in the making. Nevertheless, I think the education establishments are going to have to figure out how to better differentiate themselves because we thankfully live in a world where one's prospects depend less on one's place of learning or social standing and more on one's capability. Just as increased competition in the forex world led to massive spread reductions over the years, forcing many banks to evolve and differentiate their forex offerings with value-added propositions such as better research, option strategies, trading systems, etc., so universities and other places of learning must adapt their models. As a hybrid model at least, I can foresee on-line lectures combined with seminars and other, more interactive modes of learning. In today's world, perhaps knowledge isn't power because it isn't scarce, and the emphasis is increasingly on the the application of knowledge.



I should mention the idiots savants that baseball attracts. The Collab and I saw a few at Cooperstown. They knew the averages of every player that ever played the game. Same thing for markets. So many people can describe what it was like before the cycles changed and they have charts to show their point of view.

Allen Gillespie comments:

Last night BC and Texas set the record for the longest NCAA baseball game at 25 innings. Appropriate that it came at the same time as one of the longest runs in stocks. The rub — it was a pitchers dual with the final a mere 3-2.



J RobinsonWhat can we learn from baseball that is applicable to markets?

In looking at how to hit for Aubrey, I focus on posing and gaining potential energy by moving the back foot back or lifting the right foot up before hitting the ball. Also holding the head directly at pitcher, and the trigger point. Also following through the ball with the bat following it on a line before snapping up. I don't know anything about baseball but all this seems applicable.

Please augment. We have quite a few experts on baseball who read this site and the All-American also.

James Lackey replies:

They don't teach you to lift your foot up anymore when you bat. You use a wide stance, and you pivot your back foot towards the pitcher and snap your hips. Some teach you to pivot your back foot on the ball of the foot, with you front foot on its heel while swinging, and you end the swing with your feet pointing to the pitcher. My son's 11-12 year old hitting coach had a hard time retraining my kid. He cut a 1" piece of PVC pipe the length of his shoulders made him stand over it and do a zillion swings to get his front foot down before he could snap his hips. We were all taught to keep your elbow up, use a narrow stance and step into the pitcher.

J.P Highland comments:

Being able to choose the pitchers we want to face gives us a great advantage over baseball hitters. The Nymex's pitching rotation is my favorite. They like to intimidate batters with lightning fastballs but their stuff suits my swing, as opposed to the tough off-speed pitches ES has mastered that have victimized me so often.

James Lackey adds:

My kid was born with a cannon. I knew it at age four when he threw me a hardball. By 10 he could throw from the fence to the catcher. He was a good pitcher at 12, but his coach would always yell at him over the top when he lost control.

Now what I do not quite get is that his football coach yells at him at practice to quit throwing a baseball. It's how quick you release to give the defenders a chance to attack. My son explained to me how it works, but I still do not get the mechanics.

The only good thing to report is I have never been his football or baseball coach only dirt bikes. So naturally he loves team sports.

Tim Melvin writes:

I'm not a much of a pitcher as I have a noodle for an arm and always have, but in the excellent baseball book featuring John Smoltz and Mike Mussina we learn that speed, location and deception are the keys to successful pitching over time. I am not just talking about power speed either. The Nolan Ryans are the one off Soros and Buffets of the baseball world. The ability to vary speed and move the ball around are the key to long term success.

I shall leave you all to draw you own market conclusions as there are many that leap to my mind.

Scott Brooks comments:

Good pitching isn't about overpowering batters and striking them out, it's about throwing the ball so that the batters make bad contact, and then letting your fielders do their job.

Stefan Jovanovich writes:

 Albert Pujols does both old and new school. He has his right foot turned 45 degrees towards the pitcher, the right knee bent slightly, the hands held back and high (at the top of the strike zone), the right shoulder held above the left, with the bat vertical. When he unloads, the left foot and hips do a quarter turn, the right shoulder drops slightly as he throws the bat at the ball, and the bat stays level to the ground for the full travel across the plate. In 4 days against the Giants he made one bad swing: when Matt Cain threw him a 1-2 slider down and away. He absolutely ate Barry Zito alive even though Zito now has game back and had no trouble at all with the rest of the Cardinal lineup. Theoretically, you could throw him changeups and curves down and away; but, when Lincecum tried it, by the 2nd at-bat, Pujols was hitting doubles down the line in right. It was like watching the Yankees try to pitch Williams inside (with his long arms and height, he should have been vulnerable) and watching him take the ball early and park it in Ruth's pavilion. Yo-Yo Ma with a pine bow.

Pitt T. Maner suggests:

This article which I quote from was interesting in light of an optical illusion I had seen a few days earlier on the internet. Many years ago I had read stories of knuckleballers who had pitches where even they themselves were not sure of the ball's pathway to the catcher's (often oversized) mitt.  This story has a bit of that mysterious, "unhittable" pitch reminiscent of Plimpton's April Fool's hoax:

"DiFelice grips the ball across the seams, like a four-seam fastball, and tilts it so his middle finger rests along the red stitching. He squeezes the ball with his middle finger, raises his index finger and throws it as he would a fastball. The result is confounding: The ball spins like a fastball and moves like a slider, and the optical illusion it plays on hitters allows him to get away with throwing an 82-mph pitch the batter knows is coming."

And here is the optical illusion (best illusion of the year in fact).

How would you learn to hit such things? Would you need to learn to selectively ignore information coming from your eyes?

Phil McDonnell writes:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

The real reason for the foot lift is that it enforces a good weight shift. When the foot is lifted all of your weight is on the back foot by necessity. This allows the weight to start on the back foot and shift to the front foot. The weight shift adds power to the swing by starting the twisting motion of the body and the hips. Fundamentally the power is generated by the centrifugal motion of the bat. The center of that motion is the twisting of the hips and body.

There is another subtle but important aspect to batting. That is the need to have a good follow through. The key is the hands. If you do an imaginary swing with your hands you will see that when you fully extend your left hand in a follow through that your right hand cannot stretch out nearly as far as the left (for righties).

This compels two types of follow through motions. The first kind is simply to break the hands. The follow through continues with only the left hand still holding the bat as the right hand is released. Reverse for lefties.

The other type of follow through involves a roll of the wrist. Basically the right wrist rolls over the left as the bat passes to the left of the body. The object of either finish is to keep the bat moving even after it is in contact with the ball.

The one follow through technique that is bad is to keep both hands on the bat without a roll. If you try it you will see that you get a hitch in your swing just about when the bat handle passes your body.

One little known, but good exercise is to simply swing a light bat 50-100 times with your left hand only. The left hand is an important hand for guiding the bat. The left tricep is the important muscle for this motion. This exercise is best started pre-season because it often leaves the tricep sore after the first few times.

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

Jeff Watson adds:

 With much ado regarding the merits of different pitching styles, and the physics of different type of curves, knuckelballs, fastballs, and sliders, I'm surprised that nobody has brought up the pitches of Gaylord Perry and Joe Niekro. Perry allegedly did wonders with a spitball, and when the heat came to tough for him to bear, he replaced spit with Vaseline. Perry was constantly hounded by umpires his whole career, and had to develop different methods for hiding his illegal substances after the 1968 ruling regarding wiping the mouth before a pitch. The spitball was one of those pitchers that made the ball seemingly disobey the laws of physics, and was hard to hit. Perry and pitchers of his ilk had deceptive moves down to a science, and whether they threw a spitball or not, the batter was never sure. The market has shown similar characteristics in the past and present, where following the rules is winked at. Certain reports are released early by officials to their friends, and nobody really says anything. Naked short selling was allowed until it was apparent that there would be a possibility of the whole financial sector going to zero. The market players just had too much of an advantage over the public and the rules had to change, much like they did in 1968, and much like little things like the height of the hill being modified from time to time. Even after the rules are changed, in baseball and the markets, people still try to cheat. Niekro was caught red-handed by the umpire after he was searched for an emery board, and it flew out of his hand onto the field. That was one of the classic moments of baseball.

Stefan Jovanovich responds:

 Niekro used a piece of emery board to scuff the ball so he could get a better break on his curve. That was what he was throwing away when he was caught. Perry used perspiration from the back of his neck to load the ball so his sinker would have more drop. (He would take off his cap and run his pitching hand over the back of his head and down to adjust the top of his jersey). Baseball, being like the SEC, had and still has elaborate rules that are utterly useless in terms of actual cheating on the mound. For example, the pitcher cannot go to his mouth while standing on the mound (automatic ball to the batter; balk if there are men on base); but he can still walk off the mound and lick his fingers all he wants. However, since saliva doesn't work nearly as well as sweat (which is much heavier because of the salts and dries more slowly), the anti-spit rule itself is pointless. The spit ball was outlawed was the one where the spit the pitchers used was loaded with chewing tobacco.

The idea that pitchers used vaseline is a media urban legend. There is no question that the stuff could be useful; but you would need a towel boy with soap and a basin of water that you could go to between pitches so you could clean off your hands. However, since the batters - who are always looking for an explanation for their inevitable failures - never figured this out (not being particularly concerned about hygiene), Perry and Early Winn and others always made a great pretense of using it. Perry still does; but you can hardly fail to notice the twinkle in his eye whenever he gives his seemingly evasive answer to the latest interviewer.

In my next life I want to hit against the pitchers on Dr. Phil's team. Everything he wrote is wrong. The knuckleball wobbles because it has no gyroscopic balance. It has no gyroscopic balance because it has no spin. The pitch is thrown with the ball held by the nails so that when it leaves the hand there is no friction with the skin. The trick is in holding the ball with the nail of the thumb; that is the part of the grip that defeats most people. (This is why nuckleball pitchers are fussier than manicurists about their nails; they want them trimmed so that they perfectly fit the curve of the ball.) The pitch is called a knuckle ball because when you have the proper grip the knuckles all stick out on the pitcher's hand. That also makes it instantly noticeable so there is no deception whatsoever about what the pitcher is throwing. If the ball has any rotation at all — even the magic reversible one from the "sail effect of the seams" that Dr. Phil has discovered, then the pitcher is in for a world of hurt because the pitch becomes a batting practice fastball (think Tim Wakefield pitching relief against the Yankees in the playoffs). All the other pitches Dr. Phil mentioned — the palm ball, fork ball, split finger — do have spin; they have to because the pitcher has to control their location. The knuckleball and the true 95+ mph fastball are the only two pitches where the pitcher can say "here, hit it" and not worry about where he or she throws it. (Some day some bright woman is going to learn how to throw a knuckler!) What the palm ball, fork ball, split finger all do is change the velocity. By holding the ball against the palm or jamming it down between your fingers, you lose some of the whip from your release. The circle change has the same effect; by holding the ball with all 4 fingers, you lose speed while keeping the same arm action. The cut fastball that Pitt posted about earlier is different; it is like the screwball. You are throwing the pitch with the same speed as a fastball but with a different rotation.

Phil McDonnell remarks:

 Curve balls really do curve. There are many proofs of this but the simplest is the center field TV camera where the resolution is too poor to show the spin, but the curvature is obvious. If the viewer cannot see the spin then it is difficult to explain how it can be an optical illusion.

Basically the curvature comes from the spin of the ball. The easy way to remember is that the direction that the front of the ball is spinning is the direction of curvature. A pitch that is thrown with a right to left spin will curve to the left. A pitch that is thrown with a down and to the left spin will break low and away.

The spin exerts a small orthogonal force on the ball as it speeds toward the plate. This force is governed by Newton's equation:

Force = Mass * Acceleration

Note that the last term is the acceleration not the speed of the sideways movement. The ball actually curves at a faster and faster rate. Thus the most deceptive part of the curve occurs right at the point where the batter swings.

The knuckle ball is a bit different. The idea of a knuckle ball is no spin. What happens is that the seams act as little sails that catch the passing air causing curvature in one direction or another. Naturally the seams also cause a very slight rotation of the ball until the another seam comes around. The effect is that the ball begins to curve one direction and then as the seam changes it actually begins to curve in a new direction. From the batter's perspective the ball can appear to wobble. Other times it can fly off in one direction or another in a strongly curving manner. Even the pitcher does know what it will do. The knuckle ball is not the only grip that results in no spin. Others can be the fork ball AKA split finger fast ball and the palm ball.

Another deceptive use of these no spin pitches is that they can be thrown just like the pitcher's fast ball. If the batter has previously timed the pitcher's fast ball then he will likely start his swing based on that timing only to be fooled by a ball arriving slower than expected. So even if he is not deceived by the wobbles of the ball he may be swinging too early or need to hold up his swing and lose critical power.

In many ways these change up style pitches are reminiscent of the deceptive action of the seemingly dead market last Friday which suddenly exploded to life in the last seven minutes of the trading session.

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

George Parkanyi comments:

In pick-up ball where it's pretty easy to hit, I choose the direction I want to go by adjusting my back foot. If I want to hit to the opposite field because I'm being played to pull the ball, then I'll drop my back foot further away from the plate, which turns my torso to slightly lag my swing and "point" the direction of my "power" through to the opposite field. If I want to hit to center I line up parallel to the plate, and if I want to pull the ball, I move my back foot closer in toward the plate. If you connect well with the ball, it will go in the direction of your set-up. Against a professional pitch, I think I'd be happy just to touch the ball — perhaps even just to see it.

Dean Davis writes:

The most critical thing you can teach Aubrey is to avoid moving your head forward (toward pitcher) in the process of moving from a loaded position to the striking the ball. This is often the result of a hip shift which moves weight to the pitcher side of center (this destroys a hitter's power). The timing of hitting a baseball is difficult enough without ceding an advantage to the pitcher by destroying his stereo-vision by moving your head forward.

If you can get him to solidly place his stride foot slightly closed (closer to the near edge of the plate than the back foot), before he starts his swing (done by merely rotating the back heel low to the ground until pointing away from the pitcher), you will avoid him having to relearn the swing when he gets to a select/traveling/high school team later in life.

The Texas Rangers pitchers are taught to throw the circle change where they are attempting to "throw the O" (the circled index finger & thumb) at the target (pushing the index finger down to close the O at release). This means that their middle three fingers are are pointing at one of the dugouts as the shoulders are square to the target. That exaggerates the screwball spin and drop. Index finger should lay across the seam.

I teach my pitchers (age 11 & up with longer fingers) to have the same grip (floating the the middle finger off the ball if possible, substituting the ring finger for stability), throw it like a fast ball (the hand is more behind the ball when coming over the top) and emphasize the index finger pressure through release. They get the same screw ball action and drop as the major leaguers (to a lesser degree). When thrown by a righty to a righty (or lefty to lefty), it is a devastating "out" pitch (thrown on a X-2 count). My pitchers love to see the hitter "corkscrew" into the ground trying to make any contact.

Here is an interesting interview with Mike Basich (gave up record breaking HR to B Bonds) about how pitchers cheat (he names names!)

Steve Leslie contributes:

A great lesson that one learns from baseball pertaining to the markets is in the area of hitting. There are many different types of hitters those who are contact hitters for example and those who are home run sluggers.

Many consider Ty Cobb the greatest hitter in the game. He had a lifetime batting average of .367 over 24 seasons. This is the highest career batting average in the major leagues. He also had 724 doubles 295 triples and 117 homer runs. Through that whole period of time he had but 357 strikeouts. He also stole 892 bases. With the exception of his first season in the majors he never batted below .300 and his peak performance was in 1911 with 248 hits and a .420 average. He also held the batting title 12 times with 9 in a row. Ty Cobb forcused on what he did best which was hit the ball, put it in play and as a result of this dedication maintained a productive career that lasted a quarter of a century.

After his retirement, Cobb was a very wealthy man having been advised by executives and others in the Detroit area how to properly invest his money. He went on to invest in stocks and was a major stock holder in the Coca Cola company.

The lessons for the investor is that success in the markets is a lifetime pursuit. It is showing up for work every day and dedicating onself to the task at hand and utilizing the particular skills and they have been blessed with. Ty Cobb had a very productive and successful career because he concentrated on what he did best and he did it very well. Year in and year out .

Phil McDonnell admits:

Yes, I did pitch for Cal in the PAC-10. We actually won the conference when I played although only slightly due to my minor contribution. Since that time I coached about 50 kids in Little League. Of those, five players were drafted into the Major Leagues for a total signing bonus of about $5 million. Somehow that does not seem random to me.

The wonderful thing about the markets and baseball is that everyone thinks they know all about it. There are many ways to skin the cat. Perhaps I can arrange some batting practice against one of my ex-players next time they visit the A's or the Giants.

With respect to the back foot weight shift, we can do a simple thought experiment. Lift your back foot into the air and try to swing. Did that swing feel powerful? The fact is the weight shift from back to front occurs whether you are conscious of it or not.

The fingernail ball is something I have never taught. However I have never had to pull my starter for a broken cuticle, nor have I ever needed to smuggle an emery board out to the mound for emergency fingernail repair. I have coached the circle change. It is an excellent and easy to learn off speed pitch. My technique is to circle the two fingers in an OK sign, the the three remaining fingers are used to throw a weak pitch. The spin is the spin characteristic of a screwball (curves to the right). But the pitch does not curve because the spin is too weak and the speed is too slow. It is simply an off speed pitch.

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

Stephan Jovanovich replies:

Heck, Dr. Phil, with my eyesight I couldn't tell you from one of your former prodigies, let alone see the ball. I stopped playing ball at 18, after I went to the Phillies organization pow-wow and met the three catchers they already had in the system and compared the sizes of their hands to mine. The only talented pitcher I ever caught blew out his arm in AA in Odessa; he was from Guatemala, and he had the same stuff Mike Cuellar had. He would have been a marvel. I know enough about the bonus baby mania baseball went through to be unimpressed by the "about $5 million"; it is one of those factoids that is like Clinton's 100,000 new cops - wonderfully round and purposely vague. Hell, even with my puny hands and Molina family footspeed, I was offered $10,000. If you want to post your stats and the stats of your magic kids, I will be more than happy to eat crow and buy you and your camp followers each a bottle of bourbon. Until then, let's call it a draw. You still don't know anything about hitting, but there are few people who do. As for pitching, I would still recommend to the List that they send their kids to Dean's camp, even if his players have never been offered a stick of chewing gum by a scout. He knows far more about this than you or I do, and he lacks your cocoa puffed ego and my bad temper. Neither is a good temperament for teaching people. But - last shot - the most important reason to trust DD (listen up, Lack!) is that he clearly has no interest in any of the kiss-ass rituals that have turned so much of "organized" baseball at the junior level into a game of "my daddy knows your daddy" (out here in the Bay Area it has become even worse than it is in soccer).

Phil McDonnell suggests:

Lifting the front foot high does not inherently add energy to the swing. If you think about it lifting a foot straight up adds potential energy only in an up and down direction. The point of a baseball swing is to drive the ball in the horizontal direction. Any energy from the foot lift is orthogonal to the intended swing and does not add any power.

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

Charles Pennington demurs:

Potential energy does not have a "direction". Why do batters start with the bat held up high? That's potential energy that ends up contributing to the kinetic energy of the swing, when the bat is low.

Let me add that the pitcher lifts his front foot in an effort to throw the ball fast in the horizontal direction.

Stefan Jovanovich notes:

Randy Johnson did it — at age 45. He became only the sixth left-hander in baseball history to win 300 games in a career. And, like Teddy baseball's final game and last home run (at his last at-bat), it happened while the world was looking elsewhere — before a tiny crowd on a rain-sodden field. Pure Brueghel.



 What would the impact of a strong economic employment report be? One dares to contemplate.

James Lackey answers:

The DC fear trade. I'd like to believe that another round of foreclosures or the always predicted disaster in commercial real estate is factored like GM vs LEH, but god forbid if the men get cut off from DC and have to go it alone. Just the fear of abandonment will cause the blizzard of double dip recession stories in the hopper to be front page news.

Rudolf Hauser replies:

I have no idea how the market would react to a favorable employment report this Friday both because I do not know what overall market expectations are or the question regarding recovery potential vs. inflation issues. However, with regard to your comment on inflation and the quantity theory of money, my view is a bit more complex. What is inflationary is the creation of money in excess of the demand therefor at a non-inflationary economy. The demand reflects not only the level of real output, the existence of near money substitutes and their degree of moneyness, inflation expectations and general fear levels, etc. Those fear levels probably are an important factor here. When fear diminishes the higher level of the quantity of money outstanding, which might have been consistent with no or negative inflation during the crisis, could become inflationary. An additional factor to consider is that the pressure to get rid of inventory and to bring in revenues to avoid making difficult decisions such as laying off long-term employees might drive prices below the point of long-term profitability. There would have to be a rebound in such price declines to levels of real profitability before real output potential could be realized. What is the more serious risk is that the government's policies might reduce the real growth potential of the economy with the result that the same growth in money that might have been non-inflationary in an economy with the prior incentive structure and level of impediments to economic growth and full employment would now become inflationary.



 Vic Niederhoffer writes: A query as to why doctors work 24 hour shifts sparked by a thread on the importance of human knowledge as compared to physical assets as a reason for economic resilience is answered here:

It's the same for the Cleveland Clinic where my Brother in law did his residency. When a family member had brain surgery the irony is he went there. I asked my father in law MD "why" we have this system and he called it "slave labor" and worse than his Army stint and VA duties 40 years ago because of the debts kids now have to take on.

After an hour of thinking about it, I said "yes, but the economic effect is to restrict the number of Dr's and surgeons, and it drives up wages. Then he went off on an Insurance and Medicare tirade, and he ended telling me he tried to talk his son out of the family business.

Then I had an MX injury that drove my thumb into my hand and shattered it. They said it was rare because it took a ton of force, literally, to cause that injury. I was laughing at the bill and doc said most anywhere in the world you would have never gained back full use of the hand. The doc went in with a scope and the focused scan to wire guide and pin the shatter back together. 6 months later I was riding. I was amazed. He said "yeah, in other western countries you would have lost full use and grip. In Russia you would have been a gimp for life." It's amazing the new technology.

In the Army you can go 100 hours with cat naps, and you can go weeks on 4 hours of sleep and not see ghosts. I imagine some of the training is from such disasters, so as to be prepared for triage with a few hundred or thousand wounded men, where it takes a few days of work to go from the near dead to the slightly wounded.

If I am ever in a 50 car pileup its good to know Docs int he ER can work 24-36 hours strait to get the job done.



 At the New York Junto this Thursday, June 4. at 7:30 pm at the Mechanics Institute (20 W 44, NY NY), Tyler Cowen will talk about incentives, culture, and economics, and please, if you are interested in marginal revolutions or incentives do come for a most dynamic lecture from a man in full. About one hour of Objectivist free market stuff will precede the lecture.



 When I think of Microsoft stock, images of Susan Boyle in "Britain’s Got Talent" come to mind. The Scottish woman appeared — middle aged, awkwardly dressed, unsure of herself, unattractive by conventional standards — and expectations of her singing were in line with her appearance. As long as she did not fall off the stage, the audience would have concluded that her performance was a success. If Susan Boyle was a stock, I’d call her a deep value stock with very low expectations, and thus a great margin of safety, selling at a discount to its fair value. Then she opened her mouth, and to everyone’s shock, this duckling had a beautiful swan of a voice. She became an overnight sensation. The video of her performance was YouTubed more than President Obama’s inauguration.

Then here comes Microsoft (MSFT). The company’s name doesn’t have the luster it once had. It's seen as middle-aged, overweight and slow, and it is believed by many that creativity retired with Bill Gates.

The sentiment is so horrible that there is almost universal expectation that it will not come up with another good product, ever. Kodak and Polaroid are now used to describe Microsoft’s “bright” future, and Apple and Google are the ones that will retire it there.

But the ugly duckling is about to sing, and it will be a Susan Boyle-like performance.

Vista's flop will lead to Windows success:

Microsoft is releasing Windows 7 sometime in late 2009 or early 2010. It's last operating system, Vista was a flop. Consumers did not care for the product and corporations did not upgrade.

Of course failure is a relative term when it comes to Microsoft. At its release, Vista sales were double that of XP, the previous version. Vista still commands almost 24% of market share, second only to XP’s 60% plus.

Windows 7 is not just another new release. It is really Windows Vista 2.0, or Vista-fixed, if you like. Microsoft took Vista’s kernel –- the core of the operating system — fixed it, made it faster, improved the interface and added new features, Voila, you’ve got a new multibillion dollar product.

Many corporations did not upgrade to Vista: they stayed with XP. This is now eight years old, a dinosaur in software years. Microsoft will eventually discontinue support and updates for XP. Unless all hackers “pinky swear” (my 8-year-old son’s favorite phrase) that they’ll not try to figure out a way to hack into the 400 million computers that run XP worldwide, a computer running could be left exposed to new security attacks.

Corporations will not likely take hacker’s “pinky swears”, they’ll have no choice but to upgrade to Windows 7. Also, this time they won’t have to do the usual thing and wait for Service Pack 2 — the inevitable set of bug fixes to the original product. Vista’s Service Pack 2 is already out, and in many ways Windows 7 is Service Pack 3. Expectations created by Vista for Windows 7 are incredibly low for Microsoft, but 7’s success is likely to be very high.

Other reasons to go Bin:

There's more: Aside from Windows 7, there is plenty of promise in other products that are not built into Microsoft's stock. Bing, a new, improved search engine, is just out and the presentation I’ve seen of it is very impressive. Office 2010 will bring a subscription-based office onto the Web which may fix a longstanding consumer piracy issue. (I personally don’t know a single person who actually bought a copy of Office for home use. Maybe I need new friends, but people just don’t want to pay $300-400 for something that we consider our birthright. )

With Office Live, Microsoft will charge an annual fee, and you’ll get a Web product that has the same look and feel of the Office you are used to using at work.

This ugly duckling is not hanging by a thread. Microsoft still has Windows, server products and Office, holds a leading position in gaming, generates billions of dollars of free cash flow, has $23 billion of cash and its debt will likely be trading at lower yields than Treasury’s very soon.

But the best part, there is nothing positive priced into this stock, which trades at about 10 times free cash flow. It is incredibly cheap. Buying it now is like a talent agent signing Susan Boyle as a client the day before she went on stage. P.S. Though I’ve written this article last week, before Susan Boyle lost on Britain’s Got Talent, her loss did not make the point of the article any less valid. In fact, I spent several hours this week watching Britain’s Got Talent on YouTube with my wife and kids. What an incredible show. Susan Boyle did not win, but did not lose either, she’ll will likely become a big star –- she has a wonderful voice. I’d buy her CD and go to her concert in a heartbeat.



 The great thing about American history is that within three generations at most people whose grandparents were openly scorned and officially or semi-officially segregated can have their children get PhDs at publicly-funded universities and can confidently announce that America has clearly failed because its civic culture lacks the necessary mechanisms that preserve "cultural and racial separations." James is channeling the same dubious sophistication that led the Progressives of the turn of the last century to be so appalled by the shame of the cities. Leaving aside the masses of immigrants with unpronounceable names, strange facial features and pushy, slobbish behavior in public, what truly offended Roosevelt (T.R., not his cousin), Margaret Sanger and the Adams boys was how the immigrants kept committing the same sins that George has observes each year in Hershey. The slobs not only bred, but they interbred. And still do to this day.

Singapore — like the Venetian Republic in its day — is a wonderful triumph of open commerce in a autocratic island; there is no question that every city in America fails by comparison just as 15th-16th-and even 17th century cities in France and Britain failed by comparison with the jewel of the Adriatic. But we decrepit students of history find ourselves wondering how and when events will find a parallel with the day the French Army arrived across the Lagoon.



 Uluwatu Bali is perhaps the top surf spot in the world set in a wonderful friendly culture. The reef sits at the base of a large cliff. A steep winding path leads down to the water to an underwater cave where the surfer paddles out through the cave over the sharp reef to the line up. The surf area is 1k long where long winding 2-3 meter high waves traveling from Antarctica across the Indian ocean speed down the reef. There are crowds with 100 surfers in the water from all around the world with 10 or more languages spoken. There are many very very beautiful women from Europe, Japan, China, Indo, Malaysia, US. The locals are very friendly and kind and are always looking to sell stuff to the surfers that stream there. There are certain spots in the line up where the waves allow an entry and are best formed. Time of day is extremely important as the 3 meter tides can leave the reef dry and dangerous.

Surfing has always given inspiration for trading. The least crowded spot today was at the edge of the line up. Large waves that had by passed the rest of the reef formed up nicely where the crowd was sparser. The crowd stayed in the middle of the line up where the waves weren't lined up as well as on the edges. A similar effect occurs trading where the lowest volume occurs at the edges and can provide the best venues for entry. Larger volumes appear in the centers and are not very good trading areas. Time of day is also important in markets. Similar to surfing market waves form spots where the market forms up and makes entry easier with less risk. Locals are always trying to sell you stuff as you wait for the line up to form just right. Many times its best to just say no thanks, maybe later and wait for your spot. One of the tips for surfing Uluwatu from the locals is just wait for the wave to come to you. When the forces form just right where you are, then its a go. Same with a trade, you want your order to be in just the right spot and wait for the market to come to you. Another thing is there are a lot of kooks out there, from Europe or wherever and are not used to the powerful waves, so sometimes you can use that to your advantage to get a nice wave. Same in markets. There are some kooks out there in the markets doing some silly things and its good to take advantage of that if possible.


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