FrogThe talent of Dow-kietl, the shiny green frog that exudes Sapo or frog sweat to paralyze the biting jaws of predator snakes, was hidden from the western world until Peter Gorman introduced the ´death experience´ to the N.Y. American Museum of Natural History in 1986, and then to Amazon outward bounders. Last night I witnessed three people cringe under cigarette burns on their biceps, the yellow viscous Sapo dabbed on exposed mesoderms, and I sat back to watch them `die`.

Now I know what it looks like to watch a thrashing Amazon boa expire after a quick frog snack, with an added insight into the resiliency of human nature as the three rebounded quickly to ask when they could repeat.

'It’s the most painful and exhilarating thing I ever did!´ admitted a New York City programmer one minute after reentering this world.

´Life is tough, dying is tougher,´ claimed an Australian artist opening his eyes.

´Everything is easier after passing through fire,´ explained a Stanford anthropologist.

Their experiences were remarkably similar.

The programmer sat on a hard chair under a palm as Peter touched a burning cigarette to the side of his right bicep, peeled the singed epidermis, patted one drop of Sapo  and counted backward from fifteen…

Suddenly the eyes opened and fixed straight ahead on who knows what in the night.

´You are alone. But everyone around you is a friend,´ said Peter softly.

He crumpled to the jungle floor on all fours staring ahead like the freshly euthanized dogs I once put down as a Vet with Sodium P____barbital. He flushed, vomited twenty times and probably pooped his pants.

´You will be like this for nine minutes, I guarantee. And then you will return to the greatest joy you have ever known,´ intoned Gorman.

On the nose in nine minutes, he suddenly propped on an elbow, and then arose to full height with a smile.

A second client sat hard, and the burns and Sapo applied. (photo). In fifteen seconds his eyes looked without seeing, and he sweat without movement. Though built like Rocky the Sapo took a TKO in four minutes as his head slowly found the table edge. He vomited  one long string, and I wished to take a pulse but snapped a photo (viewer beware). Corner man Peter used my knife to halve a lime to sponge the artist’s forehead as I poured cold water on the crewcut, but Peter sliced his thumb and cauterized it with the burning cigarette just before the man blinked and moaned, ´Thank you.´ Minutes later he stood for round two…

Next the female anthropologist took the chair and in fifteen seconds entered the netherworld with puffed lips and face until she resembled a frog, In nine minutes the features humanized.

Their three brave descriptions of Sapo baptism carry one tune. ´I went inside my body and heated painfully until I wanted to die but couldn’t.´ ´Every cell was as if microwaved, but in an eternity it switched off as quickly as on.´ Finally, ´There’s no fear of death.´

Sapo is reputedly the most biochemicallly active substance known to man and a vital element in jungle pharmacopoeia. That evening I suggested, ´Two possible uses come to mind. The first is a therapeutic replacement for epinephrine that’s presently extracted from the adrenal glands of my friends the hogs and sheep; and the second is a transport vehicle like but more potent than DMSO used in race horses and by dermatologists to cause medications to penetrate the skin.´

I thought to perform a backyard experiment and dropped 1/20 of one dose of frog sweat that resembles mustard into two ounces of rubbing alcohol and stirred into solution. The dilution must have been about 1/5000 of what the three clients took directly onto cigarette burns. Instead, on my left forearm I drew one magic marker red circle and another next to it. In the first I put a couple drops of pure rubbing alcohol, and in the second circle the same amount of dilute Sapo. I walked away expecting nothing but in mid-stride at thirty seconds truthfully told Peter, ´The inside of my left arm is heating as Sapo spreads via the circulation. Now the burn is rising from chest to neck to head. I´m inclined to sit down,´ and did on a soft chair. In five minutes the slightly elevated blood pressure, pounding heart and internal heat gave way to a transient euphoria.

The apparent Sapo death and benefits to western medicine and frogs are unimaginable without more experimentation.



V KThe hardest part about being a parent is setting your own example. It is so easy to tell kids what is the right thing to do, but actually doing it is a very different.

Today I washed both cars with my kids (Jonah 8, Hannah 3). It would have been so much easier to pay $20 and take cars to carwash. Well, after two hours of hard labor, the kids feel that they accomplished something, I feel tired and proud of both them.

Nigel Davies adds:

Given my own son's dislike of being told what to do I figure the best may be to lead by example, spend as much time as possible with him and listen rather than talk. And come to think of it these are all good traits for market people.

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

Legacy Daily writes:

Children teach us by example as well. They have the ability to bring out the best in their parents — and sometimes the worst. They carefully and subconsciously set up tests to bring parents to extremes to examine the behaviors and to learn from those. Their rate of learning is far beyond our rate of feeding them information. Therefore, they are programmed to learn by observation, through play, through others. Through this process, they create many opportunities for us to learn as well.



Dear Thin Air:

Your post regarding the debt cycle  may be witty and droll, but your content is (pardon the pun) “hot air.” Or, as Professor Feynman would say, “You got the physics wrong.” Not to mention the economics.

First the physics:

Atmospheric pressure is 15 pounds/sq inch or roughly 10^5 Newtons/Sq. Meter. (10^4 Kg.) As the approximate surface area of the earth is 4 x 10^14 sq. meters, your mass is: 10^4 Kg/sq meter x 10^14 sq. meters = 4 x 10^18 kg.

Thin Air, you ridicule Rosie O’Donnell and Bill Clinton for their girth – and write that you are being “dissed in relation to the thins,” yet your girth (mass) is actually 4 billion-billion kilograms — more than the mass of the entire Alps! People in glass houses shouldn’t throw stones. In your case, Thin Air in glass houses expand when heated – so it’s little wonder that you’re a blowhard.

Next the economics:

You take umbrage at Dr. O’Donnell’s quote: “So in effect the loss of consumer debt is being replaced by increased government debt and conscious efforts to print money out of thin air."

The economics seem as clear as the air in Aspen. It does not take a pangloss, as you suggest, to understand the transmission of monetary policy (and fiscal deficit spending) through an economy with high levels of debt. Without regard to real growth, the Fed’s monetization of debt should reduce private debt burdens, increase inflation, and, absent a Japanese-style deflation, make debt a questionable investment. Contrary to your statement, “one can hardly blame the debt buyers,” the Sage is on record as being “concerned about inflation.” 

Your analogies with past financial panics (LTCM, Russia, etc) actually contradict your own conclusions. Rather than arguing that “this time is different,” you are actually arguing that this time is the same. Following your own logic, whether the growth comes from a garage in Silicon Valley or a garage in Guangxi Province, opportunities for pragmatic optimists remain.

In concluding you write, “please leave me alone.” Thin Air, that won’t be happening. And it’s your own fault. In a little more than a decade, your fraternal twin, Mr. Ether (of Ethernet fame) has revolutioned the world – once again demonstrating the powerful combination of human spirit, capital and FRESH air.

With the utmost respect and regards, Rocky Humbert.



4 Pres1. With all the talk about Harvard's cutting expenses and no longer serving hot breakfasts to its students, and making the buses run every 20 minutes rather than 10, leaving the cranes amast like Thailand in 1997 in the halted Allston expansion, one wonders if Professor Gates's driver who helped him enter his house is a perk that distinguished professors can still claim or if this driver was a new recruit, from a service, who was willing to go above and beyond the pale for a stranger.

2. Looking at the performance of the major indexes to date, one notes that the three biggest markets are up 1 to 10% and the average of the 150 medium markets is up about 40%. What is the explanation for this divergence other than the ruination of incentives, and the adjustment of price levels to equal after service returns in the future? Israel up 3% over nite and 44% on year to date gives good precis of what would have happened.

3. The Nikkei broke 10000 at the open today and hasn't looked back trading at 10135 as we speak and how long will it be before both the Nikkei and S & P trade at the same price again?

4. The Nasdaq leads the S&P the way a horse leads a carriage.

5. The Dow has gone thru 9000 with aplomb and it will be interesting to see how long it takes to get to 10000. It took four trading days to go from 10325 on 10 03 08 to 8579 on 10 09 08.

6. The GaveKal people have been right as rain this year, and always have an antidote to any bearish sentiment or ideas that anyone might make.

7. I am reading Bayesian Models for Categorical Data by Congdon and am pleased to find many references to the work of Leo Goodman from the 1960s still carry the day, but find the chapter on time series analysis somewhat dull and labored except for an intriguing reference to integer time series analysis.



"The Command of the Ocean" by N.A.M. Rodger makes the case that the efficiencies of an enterprise economy created the backdrop for the financial innovations that enabled England to maintain its navy, finance wars and growth. A virtuous cycle of productive agriculture  allowed men to spend years at sea with relatively little cost and provided prosperity to the farmers, and merchant men involved in shipping those products to distant ports, while providing the financing at low interest rates and borrowing capacity to finance war. Rodgers makes the point that "only flexible and integrated societies could surmount the very considerable difficulties of combining the wide range of human, industrial, technical, commercial and managerial resources required to build and fight a seagoing fleet" . He believes this is a causal explanation as no other society was able to maintain a strong navy for anything but an ephemera because of a breakdown in incentives and signals. The middle class and professionals in finance, industry, and science favored the navies. He doesn't seem to understand that it was the enterprise economy and private property and incentives to make a profit that was the key, but provides much support for it.

The book also contains a stirring precis of what led up to the Battle of Trafalgar with particular attention to the love of the officers for Nelson. Apparently Nelson was like Cochrane, an officer of great flexibility who always leapt at any mistake in battle that the enemy made, and was always ready to apply the latest innovations in fighting to his men.

Of course, one paid particular attention to his detailed description of the naval affairs in the Napoleonic wars when Jack Aubrey was captain. It is disappointing that Rodgers dismisses Lord Cochrane as a loose cannon whose word could never be trusted, and who he believes was really guilty of the stock market manipulation that forms the backdrop for the greatest scene in modern literature from the Far Side of the World when his men refuse to let him be stoned at the pillory. Rodgers has an annoying tendency to enjoy debunking popularly held canards like "the band of brothers" of Nelson and the idea that the British navy provided a form of elastic barrier like the Russian plains that provided a means of elastically holding back the attack. "The defense is a kind of elasticity which as it retreats gathers strength for the return blow". There is not one mention of Patrick O Brian in the 906 pages and one can only imagine that this is for the same reason that ballet dancers always say that "fred astaire was the greatest dancer" or "this street chess master" was the greatest when they themselves do not want to flout their immodesty.

The reviewers says this is the only book that after 900 pages one wants to read more and more, and that it is the only book that deserves to be called magisterial and the US Navy says its the definitive book on the rise of British Naval Power. I don't know enough about nautical things to comment on this except to say that every chapter is bristling with an infinitude of interesting ideas, principles, and facts that puts in perspective the liberties and prosperity that the British Navy provided for all of us. Highly, highly recommended.



Lydian coin, 610 BC, Bundesbank collectioThe money supply misleads lots of people. If the money supply was cut in half today, it would not cut the economy in half. Why would it? It would simply mean that every dollar is now worth half as much more.

Well, that's in theory.

The reality is that there is a whole class of people (bankers, homebuilders) who have benefited from the illusion that more paper money means more wealth. Those people get wiped out when money stops growing (LEH, C, UBS, et. al.).

Those people thus spend huge amounts of money lobbying the government to make sure that their non-productive economic activity never stops, and obviously they have been successful.

The most basic concept in economics is that markets are necessary because of the signals that prices send.

Well, we overbuilt housing, so now the market sends the signal, through prices, that no more housing needs to be built.

Yet, ~95% of the country thinks that propping up home prices and distorting the signal that the market is sending is somehow good for the economy. It's not.

Stefan Jovanovich comments:

Gordon's polling numbers are unusually pessimistic. Most of the surveys of likely voters indicate that a majority think propping up home prices will not work and is not a good idea. The argument between the people who have benefited from the expansion of credit and those who question its wisdom is not a new one. It is at the heart of the debates of the 19th century over the legal tender status of state bank notes, the monetization of silver and the establishment of a Federal Reserve system that accepted government debt as backing for demand notes. In the 19th century the hard money advocates of both parties (Jackson, Buchanan, Cleveland for the Democrats; Grant, Garfield, McKinley for the Republicans) won the argument. For the last hundred years soft money has called the tune. What is remarkable about the present moment is that, for the first time since the establishment of the Federal Reserve, the debate over what should control the growth of credit - the market or the government - is actually an open question.

P.S. In a world where half the income is paid to or for the benefit of people whose work is never tested by the market, the use of monetary aggregates as a measure of anything other than themselves becomes increasingly suspect. Jean-Marie Eveillard has a wonderful phrase for Dr. Phil's money=size of the economy syllogism — "mechanical monetarism". The wisdom of the gold standard was that it divorced money from credit and left credit free to grow based on the increase in wealth — property, skills, enterprise — and the fluctuations in people's appetites for risk. What even the Paulistas seem unable to understand about the gold standard that was written into the U.S. Constitution was that it defined money by its physical property — so many grains of gold — and not by its exchange value. The money was the gold; the prices were the exchange values. That essential wisdom is one that even Adam Smith had trouble with and that only Thornton and Cantillon, those monetary theorists who actually dealt in trade and banking, understood. It is almost universally ignored now. Any monetary system that defines money by itself is fatally unstable.



In the Peruvian Amazon:

1 The girls outnumber boys about 3 to 1 for unknown reasons, hence a man is a king, and a gringo is g_d.

2 I haunt jungle pueblos with no other gringos as a failsafe.

3 The husbands are off working in the jungle. They are away for weeks at a time. Evolution and culture favor extra marital relationships.

4 I maintain two rooms simultaneously: at a $2 hotel for chlorophyl-under-fingernail types of my preference, and a $4 hotel overlooking the river for romantic affluent ladies.

5 S_x is a picnic in the Peruvian Amazon with no ties.

6 These are not prostitutes like the one-armed girl I met working her way through college, but rather normal females of the town.

7 If seeded properly word spreads fast and capitalism pops in. Start with the tenders of the barber shop, telephone booth, and public toilet because daily they encounter everyone in town. Give each a quarter per referral and by the stroke of first midnight s_x becomes a matter of logistics.

8 The young ladies expect nothing beyond s_x, but i´m happy to pay them to go away.

9 Give each girl a tip for referrals.

10 Take the first step.



It sounds like all the qualities to you need to be a success in front of the screens "or in life in general " are mentioned here ..

From a Sidney Morning Herald article about cricket:

"It is very fitting that a man of Justin [Langer]'s calibre takes this honour because when you break a record of one of the greatest individuals, that being Sir Donald Bradman, it has to be by a man of quality," Hayden said last night.

"He epitomises class, perseverance and persistence and the quality and culture of the baggy green, and his work ethic is second to none. I'm very, very proud of Justin because these results are not a fluke. It's about all those qualities that include determination, perseverance, leadership, integrity and honesty. …."



Yes, i am buying a 1.5 meter wide house in Iquitos, Peru attached to a 6 meter wide one that as one form a duplex with the owner´s home. Here´s what happened. The owner and I shook hands today on the 6 meter wide house of bricks when Jorge the great paper man piped, ´according to the title your deceased wife is the only one who can sell half the house.´ We swatted flies on that for a while until I suggested a wall be built down the middle of his side of the existing duplex. i.e. years ago a single grand house had been divided but not down the middle. Due to this technicality the widowed owner at present cannot sell the casa I want, nor his own, nor even the entire property. His dead wife owns half of it. My suggestion to build a new wall down the middle of his home where he´ll continue to live in rich economy was whooped as the problem solver. He pockets another $500 for the addition but must build the wall that provides me with another 1.3 meters wide and 6 meters long house. The title is clean, my purchase is $2000 and jorge says it´s worth $15,000. Everyone is smiling and I have a guest house for a thin person.

Alex Castaldo jokes:

Sounds like a garbled situation right out of a Hernando de Soto book.  You have clean title, but the other guy doesn't. What would happen if you made a lowball offer for the other half of the house to the wife's estate and it was accepted? Ask your lawyer.

Bo Keely elaborates:

Home sweet home is located in the iquitos suburbs, or what passes as such for a jungle town. iquitos is a steamy jungle port set on two rivers. One paved road courses a few km out of town into the green, and my place sits at km9 on a dirt road. My neighbors are the ghost of the dead widow in the 1.5 meter casa, and the next door owner. There´s electricity at $4 per month and a new well 30' from the front door. It´s a brick house, costly and fashionable in this neck that´s on a relative par value with your Orange County bungalow. The floor is rare concrete and it has a tin roof that´s a step up from the traditional thatch. The former owner and my new neighbor works as a property guard all night and returns home to work construction, sleeps two hours, and goes to the night job. He´s 72 yrs. old, and likewise the other few neighbors are simple. The backyard has a latrine and wading pool for mosquitoes, plus i´ve arranged during a recent boat tour gathering solderers´ lead droppings for my ankle weights to buy scrap metal to solder into a 3-meter cube for backyard safekeeping as i travel. A 33cent bus runs every couple hours to central iquitos and the internet.

Gringos say it was dumb luck to buy a $15,000 home for $2,000 in one day, however here´s the house hunting technique I used. The previous day I hired a motorcycle-taxi who knew the areas i wanted to reconnoiter. The taxi stopped 100 meters from ´for sale´ signs where i stayed low as the driver knocked on doors to ask two key questions: title and price. Once a gringo is spotted the price triples. We viewed about 200 and walked through 20 houses for sale by individual owners, and typically the neighbors beleaguered me offering their own homes for sale matching the ´for sale´price. It was as delightful search for a jungle nook, home sweet home, that anyone may relive.



An interesting query is "given that x% of the companies reporting to date have beaten estimates in earnings report season, what is the expectation to open from various paths?"

To date according to Bloomberg, 136 of 500 sp500 companies have reported and the market cap weighted change is -7%, 104 of 136 were positive surprises, 8% were exactly on target, and 15% were below target. Out of the 136 reporting , the estimate was within 2 cents of report on 38 of 136 occasions. (That 28% are so close is very good as an aside and belies the canard that earnings estimates are wildly off mark).

James Lackey writes about his trading experiences:

The expected change to open is exactly the spread or vig from the bookies. Never since I began as a stock day trader have stocks been as clear cut and dry as now: too many on one side of the book. Years ago I made fun of my best friend as he had some "inside tip" that IBM's earnings were going to be worse than expected. The day before I said "hey buddy, I dunno what you think can happen but IBM already preannounced bad earnings". The stock gapped up, went strait up and killed him.

IBM went strait up again this quarter, and Google strait down. You want to blame it on guidance? Then look no further than YHOO: bad outlook, gap down and strait up.

If we really look close at the ecosystem and food chain, AAPL can't possibly outperform, even if they always sandbag… Boom …Wow!, "what a great company", they managed to sell thru and manage a higher cost of short supply flash.. everyone knows flash prices are up here, comes SNDK up big on the month after hours up to down on "outlook" which of course is good as the 3 trillion cell phones that Nokia and MOT can't give away for free as everyone wants a smart phone loaded with flash… but of course the semi industry has so much idle capacity ready to come on line at a moments notice… the SNDK or TXN don't have a chance after a rally into earnings.

Not that anyone is ready to spend 300 for a notebook, 800 to 2k for a new PC loaded with the new and improved 2nd try windows 7… but do not tell that to those who are short INTC… strait up as that is all about margins and inventories and once again AMD is there only to keep the FTC and EU off INTC's back, billions in fines aside.

Just when 7 up days "was enough" for the nazz, HGSI went from 4-14 on a world cure and the bio index went limit up. So many stocks that trade by appointment went up 10% on that day.

One wonders how anyone can ever use the markets in a snapshot for signaling..credit default swaps at the lows were quoted..and markets led by China are quoted today. "CAT and China " can't continue, our biz publication writer notes.. "oh, how well the managers managed, they saw all of this comming after the LEH shutdown of global commerce". They sure did cut costs by shutting down plants, firing 10-20% of work force and holding on to the well trained 80% by 30 hour 4 day work weeks.

I am waiting for the China boss to show up at the US chamber of commerce and argue "we need each other" like the US rep in England after the panic of 1907.

On another subject, twitter is the only available feed from the BMX World Championships in Australia. We have one man from our team racing pro. Another 13 year old from my old town in Fla won 3-3 motos and is now the World Champion.

Over on facebook my brother in Fla, my bmx buddy I race from Australia, and many others are commenting on the quick up loads of pictures and videos from the racers' families. An old pro chimed in with a video we all know, from the movie ET. That's him in the BMX chase scene. Later he founded Haro bicycles and put Murray, Schwinn and almost put Huffy out of Biz before he sold all. Turns out his post was for a lesson in humility. It was a Hot LA day he had to wear a hot outfit and a ski mask for filming. He said he was hot and almost blew it "due to his arrogance as a kid" and all these years later his comment was "thank goodness I didn't blow it".

Meanwhile all these kids that have ideas put pencil to paper, then hire a Chinese firm for production. The profits they generate they spend on what they love, racing over in Australia. Yet somehow, this is bad for the Chinese to sell so much and not consume enough.. and everything is bad for America..because the kids are fat, spoiled and not industrious. Except for the dozens we are all online with all night.

Lord knows how many Americans are online now, with passion pursuing business for pleasure and profit. Americans? Wait how many kids around the world are chatting, thinking, learning, working together on passions and projects that will result in a mutual beneficial exchange of trade. Next time you see that kid on his phone texting, he might be working a deal with China.."these kids today" are working on the future..Meanwhile the old school traders are comparing todays industrial production to 1932, the trillions in unfunded pensions and the end of medical tech advance due to lack of incentives and price controls on Obamacare.

Two quotes come to mind.. (1)Its easier to spot today's problems than tomorrow's innovations.. (2)Predictions are difficult especially when they involve the future. I have always been a blind optimist. However, the problems we face higher taxes and regulations and price controls make it much more difficult than after the crash of 2002 to get back to new highs..So maybe it takes 10 years vs 5 last time..but if we say "never" take a good look at all those kids texting and unable to hold a conversation without a smart phone in hand..They have contacts in China. Do we?



1/ One would guess that Nikkei has a destiny with 10,000 tonight and what will the gravitational attraction be like?

2/ Yet another 25 day low set today by the bond vigilantes at 116 to the cost of a sustained bull market.



CycleI may well be wrong, but my belief is that we are at the end of a big cycle. The end of the "easy debt" cycle?

1/ 2008-2009 shows clearly that nothing will be done by borrowers to stop their dependence. Nothing will be even tried. On the contrary. Because of our debt levels, this triggers the question of solvency. At least, this makes the question of solvency exceed a significant psychological level for the lenders. Confidence lenders/borrowers is definitely affected (gone). (Even if little is publicly said about that).

2/ This situation of confidence loss is new. The exhibition of our attitude at such a level is new. The awareness/knowledge/understanding of this situation is new. Presently, neither the lenders, nor the borrowers, have exact plans to deal with this novelty.

3/ … but, under the calm and apparent status quo, they are of course actively searching. At least the lenders. With the intent to do something. (Something will be done, even due to randomness. At least some small domino pieces will fall.)

4/ so my belief is we arrive at a delicate/complex crossroads/nexus/crux/bifurcation point (à la Prigogine). We're now inside a huge, real-life, game theory exercise. Many many things can happen. (But I believe many probable scenarios will share common steps). (I believe even dramatic events are now made possible.) But the status quo seems me rather improbable (even if it would be the case, this would just postpone things).

The above sequence lacks numbers (and may look abstract), incomplete, too coarse and biased with a sort of "pessimism", (but it's not how I feel about it). I'll thank you for any help to remove the flaws/omissions/clumsiness of this reasoning.

Phil McDonnell replies:

Debt is an important part of the big picture.  But I believe that a better perspective on current economics is that private consumer debt will no longer be easy.  In fact current figures show that consumers are 'saving' in greater amounts.  To be sure this savings does not show up in savings accounts or other tangible assets.  Rather it shows up as consumers pay down credit cards and mortgages.

The key thing to understand is that the powers that be do not want a reduction in total debt.  The size of the world economy is directly related to the size of the world money supply and all of its assets.  Given the destruction of wealth in mortgages, real estate, stocks and commodities the only source of money creation to reflate the world balloon is government borrowing.  So in effect the consumer debt is being replaced by increased government debt and conscious efforts to print money out of thin air.

J. Rollert predicts:

The present environment will make people treat debt like our grandparents did… and not trust financial types in particular. This is a social change beyond the cycle.

Paolo Pezzutti recalls:

People will not change behavior and attitude unless they are forced to do it.  When I arrived in the US from Europe two years ago I went to a dealer to buy a car.  There were signs on the cars on sale indicating $400, $350 and so forth that I could not understand at first.  When I started to talk with the guy it became clear to me that the signs were the monthly payments you had to make.  When I buy a car I want to know first how much it costs, not how much I have to pay each month.  But in the US people are apparently either encouraged to buy on debt, or they like to buy on debt, or they must buy on debt because that is the only way they can afford a car.  Only if the behavior of the lenders changes, we will see a different attitude of consumers.  And this is what could happen. Even with 0% interest rates.  Unless lenders find "new" ways to lend "easy" money.

Russ Humbert writes:

It is not just Govt. debt in the traditional sense, that the Govt. is increasing, it is putting more risk on the Govt. balance sheet on the asset side as well.

The Bernanke plan is to keep it coming, from what I can tell, to those that are willing to beg from the government.  Securitization is not dead, for the government quasi guaranteed it… This includes education and housing loans for most people, up to the point of being "rich".  It would seem that those that have no real prospects of paying off the principal, those that won't better themselves will be frozen out. At the other extreme those that better themselves to the point that it's clear Government is impeding personal progress, will not get this "risk free" money.  There won't be another AIG to scoop up all the risks, without any real capital backing it, for a long time.

This may seem momentarily like we are headed back to the sixties, before even credit cards, because of the sharpness of the down turn.  But this still leaves the US with much more debt capability than existed 10 years ago, before things got out of hand.  And money will flow down to consumption, it just won't be direct and if direct not as cheap.

Legacy Daily is skeptical about big changes:

I perceive debt to be the current fuel in the engine of growth. Unless an "alternative energy" is discovered, I believe debt is here to stay. The donut maker got it wrong, "America runs on debt." One reason for the efforts to improve the geopolitical landscapes in emerging economies is to also help raise their asset bases against which further debt can be created to satisfy the unending need for growth that our markets, our 401(k), and our lifestyles require. Since there's nothing new under the sun, just as soon as this cycle of diet and slightly better behavior has run its course, the patient will be right back to the liquor store for more of the same and a new cycle will be born. When and in what shape? That's the really difficult question.

We received a contribution from thin air (or is it Thin Air?):

Let me introduce myself: my name is Thin Air. Yes, THE Thin Air. I've been around for eons upon eons and have enjoyed a fairly tranquil existence. Who or what am I? A Princeton web site defines me thusly: "thin air (nowhere to be found in a giant void) "it vanished into thin air." That's OK with me, I can even live with the example which characterizes me as the passive element in an inexplicable event. Over the centuries millions of people, things, explanations, excuses, villains, heroes, and life savings have "vanished" or "disappeared" into me.

No problem. If you humans lack the will or imagination to discover just whatever it was that was lost, misplaced, filched, or embezzled, that's fine with me. But trust me on this, I don't have any of those people or things….never even was aware they were gone until I looked me up on Google - imagine, almost 3 million references. Rosie O'Donnell's number is just slightly higher, Bill Clinton's is 7 times greater, Barack Obama's 25 times greater, and Michael Jackson's 70 times greater- a telling measure of your society's priorities.

Those individuals weren't chosen capriciously; as a member of the "thin" contingent I chose two thin representatives and, by contrast, two fat ones - although it appears I'm being dissed in relation to other "thins", I love it and want to keep it that way. But Philip McDonnell served as the straw that broke the camel's back when he penned: "So in effect the loss of consumer debt is being replaced by increased government debt and conscious efforts to print money out of thin air."

I'm getting so, so tired of hearing that. You can't get through an hour of CNBC or Bloomberg without hearing that phrase or a riff on it. But those people are pretty lame and I expected Dailyspec contributors to provide a creative twist to a tired theme. Additionally, when phrased as shown above, it appears that I had an active part in the event; that I somehow swooped down and dumped billions and billions of dollars upon a group of bankers. First off, I'm broke; I neither have nor need money (gasp). Secondly, if I did have money, do you really suppose I'd drop it on that group of dummies? Not a chance.

Being a disembodied element and not a human, I can still make value judgments, tell the truth, discriminate, and speak out without fear of being condemned, jailed, boycotted, or shunned. Among those things that are unquestionably bad is excessive debt. It would seem this is self-evident, and Mr. Andres ought to be commended for bringing it to the fore. Similarly, Mr. Conrad (on another thread) reveals that the WEEKLY treasury begging bowl calls for low-interest-loving optimists to pony up almost one quarter of a trillion dollars. If this occurred every week, Treasury's annual issuance would approach the nation's annual GDP.

One can hardly blame debt buyers, though, as it's a given that the system will get better (or as the Sage, a student of Pangloss, stated this a.m. "better than ever") and that American Exceptionalism will prevail where, in similar circumstances, similar efforts failed. On the contrary, we witnessed major adjustments following the Tulip Bulb mania, the South Sea Bubble, Teapot Dome, the Great Depression, the Salad Oil scandal, the S&L fiasco, Russia's Default, LTCM, Y2K and Tech Mania, Enron, and the Real Estate Bubble.

History has demonstrated that none of these came out of Thin Air, nor did their eventual solutions. You can check it.

Thanks for your consideration and

Please leave me alone,

Thin Air



"I don't know if there is a God or not, but there is no downside to believing in him and there's nothing but downside in rejecting him" — restatement of Pascal's Wager

Although the logic of this statement sounds good, It seems to me that the last part of the statement is one that is based on dogma and fear of consequences. Is it true? Is there really nothing but downside in rejecting God? Why? How so? Hellfire and eternal damnation? In my mind these are human constructs and cannot be taken at face value. I certainly will not attempt to persuade someone to change his beliefs, but I take issue with an argument that attempts to persuade by instilling fear.

Scott Brooks replies:

Religious dogma aside — e.g. jihad and dying in the service of your God like the Crusaders or modern suicide bombers — there is no downside to believing in God.

If that is the case, then how does that statement evoke fear?

If God is kind and benevolent, then there is no downside to believing in him. If he is a malevolent God, then "he is what is what he is" and the statement is a point in fact. If the statement is a point in fact, why blame the statement for the fear it invokes?

Chris Tucker explains:

I will accept that that religion has done much good. I merely meant to say that it doesn't appeal to me personally and so any argument I make will be biased in that direction. But when I hear "There's nothing but downside in rejecting him" I simply disagree. I don't see why that is a true statement, just a statement that says rejecting God is bad and you will most certainly pay for it. It is the subtle threat implicit in the statement that gets my hackles up. It is this fear of eternal consequences I reject.

Corban Bates says:

I understand how the "there's nothing but downside in rejecting him" claim can be made when looking at it from an afterlife perspective. There are many different religions in the world, and only one (if any) will turn out to be right. Applying statistics, the people of each religion have a certain chance that their religion turns out to be the right one and they enjoy their wonderful afterlife. All of the others will turn out to be wrong and spend eternity in some other not-so-great place. So although each religion has only only a small chance of being right, at least they have some chance. If you do not believe in anything, the chances of you having a good afterlife are 0%. So from an afterlife perspective, I see how you could make the claim that there is nothing but downside in rejecting religion. If you do not currently believe in anything, why not just pick a religion and hope for the best? If the one you pick turns out to be wrong, you're going to the same place you were going before you picked. And if absolutely nothing happens to us after we die, this will not change whether you believed in anything or not.

Nigel Davies responds:

I see the problem with this theory being not in Pascal's logic but in his implicit assumptions about the nature of existence.

Laurence Glazier says:

The issue of whether God exists has long proved a welcome distraction, and flight, from the more important project of whether we exist, as unified individuals, as opposed to rivers of fleeting whims, or espousers of popular memes. It is hard to face the existential terror, but believers and non-believers at least have common consent to the inevitability of their physical deaths. For those to whom religion is insufficient, art, though not a comfort, may be a salve and a psychological tool. Where logical thinking ends, psychological thinking begins.



BowlChina has huge money reserves; they don't need to print nor borrow money. Isn't it imaginable that China will use this money to order Chinese products from Chinese firms for Chinese people — i.e., to run their factories for themselves rather than stopping them because of no foreign customers — in whatever form this may be done, e.g. "one computer/car/apartment for each Chinese citizen." I have some restaurant owner friends; when the meal is not eaten by customers… they eat it themselves.



Would it be appropriate to expand our emphasis on BBQ to burgers. I had a very good one at Mr. Bartley's in Cambridge and many say it's the best in world with seven ounces of sirloin freshly ground on a soggy bun. Apparently the owner is a tyrant who yells at his staff in front of patrons and doesn't care about antagonizing customers. The burger there has been compared to Fuddrucker's but I found it much less standardized. Of course, I have seen no prospective studies on life expectancy as a function of burger eating, but would imagine quite a negative correlation as they don't seem to figure prominently in the Okinawa or Mediterranean diets and indeed are verboten in the Shinya diet. But it has to be better than BBQ and perhaps we would do a public service by expanding out of BBQ to a place that has vegetables, albeit the fries at Mr. B's were terrible with no potato taste and all crisp on the outside with a heavy unhealthy saturated fry.



B A EIt is great to have a President who is so good with the quips. When discussing government bailouts with the supplicant financial institution heads he said "Allright… I'll talk to Jamie."

John Muir in writing about his favorite dog said the fundamental rule of any survival-challenged expedition (he was jumping over ice floes in the Arctic) is to have an escape route going back before moving forward in case the escape route going back doesn't allow survival.

Mark Twain in writing about his favorite philosopher has an essay saying "show me where a man gets his corn pone from and then I'll know for sure exactly what his politics and friends are like." He goes on to say that you must gear your thinking and activity to those who provide the "pone" or else you can't carry on. A brilliant essay which explains so much relating to the greats, whether spelled the same backwards or not, and the father of the corn irrigation magnate. These essays are in an excellent book "The Best American Essays of the Century" edited by Joyce Carol Oates and Robert Atwan.



C MI've been thinking about whether there's a correlation between trading success and intelligence. Do people with high IQs do better at the trading game than those with low IQs? I wonder if high intelligence is a prerequisite for trading success, or if it even fits into the equation.

Are traders in some markets smarter than those in other markets? Are the index or currency guys smarter than the grain crowd, for instance? Are the upstairs guys smarter than the floor guys? Does higher education really matter, or even have a correlation with trading success? Has any of this ever been measured before? An interesting thing to ponder is if there might be a correlation between juvenile behavior and trading success. Perhaps the most important traits for traders are balance, emotional intelligence, the ability and discipline to execute a plan successfully, and courage. Some of the smartest people I've ever known have been really bad traders, whereas I've known very successful ones who don't exhibit outward signs of extra intelligence.

Newton Linchen adds:

This is a great issue. How many times we sit and shout "why oh why didn't I trade the way I said (plan)?" This happens despite our intelligence — one thing is to be able to "understand" or predict markets — other is to be able to translate this view into action. Perhaps the best strategist is not the best fighter — and it's very unusual to see a strategist-fighter or fighter-strategist.

Generals plan their moves at night, in the tents, but they send the soldiers to do the job the next day.

GM Nigel Davies replies:

Even in a supposedly intellectual game like chess, character plays a much larger part than intelligence. A major part of it is in whether someone can bring himself to falsify his ideas or instead uses what intelligence he has to justify them.

Steve Ellison observes:

I suspect that practical intelligence (synonyms: business savvy, street smarts) is more important to trading success than the type of intelligence measured by IQ. Ben Green, in the preface to Horse Tradin', noted that horse dealers had to know about many factors such as demand, climate, crops, and soils, but then went on to say:

For a big dealer in a central market to be successful he also had to acquire a keen understanding of human nature… None of the knowledge needed by a high-class horse and mule dealer could be learned from books or schools, and it would be well understood that these men were usually middle age or over.

Last but not least, he had to be a man with a lot of nerve, who was willing to back his own judgment and that of his buyers and to face the risks involved in shipping, loading, and unloading (together with the possibility of various shipping diseases) that were a hazard of the business… It is easy to see that with money going out in both directions it took larger amounts of capital, accompanied by a good nerve and judgment, to be a successful central market dealer.



"Intelligence in War" by John Keegan is absolute solid gold. The main lesson is that history demonstrates that superior intel does not, by itself, translate to increased chances of victory — even when the intel confers a significant advantage. Rather, tactical considerations remain the decisive factor. As a parallel to the market, it's not enough to merely find an edge through analysis, it is how that edge is parlayed via execution, heeding market conditions, etc. The book is a series of case studies beginning with Nelson at the Nile, through to conflicts in WW2 and beyond. Most every paragraph yields many useful parallels and insights; Keegan also neatly summarises and applies his conclusions.



What is it about the Iquitos, Peru you like so much? — A Reader.

There is little bull in Iquitos. Cops leave you alone. Nearly everything is legal. Everyone bribes but no a–holes. Jurassic Park is five minutes across the river. Safest town in Latin America because the people are simple and historically removed from civilization, plus there are no earth roads of escape. Can buy a house for $1500, or my room rent is $50/mo. Food is healthy, varied and plentiful. In ten thousand people I've seen two fat ones (they did stints in USA). The small ex-pat population are the best USA has to offer. There are animals everywhere in the air and underfoot. Natives deep in the jungle an hour and dollar away by boat are among the hardiest people in the world. Everyone laughs. Girl to boy ratio of 2:1. It´s a steamy place but cool by desert standards. Few clothes , and s-x is the leading spare time activity. There´s plenty of free time. A three-egg omlet is $1, soup 'n sandwich lunch $.75, and fresh fish dinner $2. Who needs to worry about making money? Myriad capitalist opportunities like my sawdust brick lab and guide service. Opportunities for esoteric study include the world's largest green pharmacy and jungle drugs like frog sweat, nunu and ayauscha. The group psyche excludes time and distance, giving someone like me a chance.



It is rather interesting that the ubiquitous 200 day moving average (actually 40 week ma) still works at all, because everyone seems to know about it.

Larry Williams replies:

Technical indicators, I think, can be widely known about and still 'work' because of the frailty of humans; as a group we have problems with following/sticking to rules. We can all know we should not drink and drive, speed, do drugs, smoke, etc… but most violate basic rules.



Gas PumpOn my way to work I pass 12 gasoline stations, then in the evening I take a different route due to traffic flow and see 13 more. If I look down the street at intersections I can see five others. So each workday I see 25- 30 gasoline prices.

Gasoline is a standardized commodity that people will price shop. Yet the low end 7-11 and Walmart gas tends to be a loss leader, to get bodies in the door to buy soda fountain drinks, or smokes. The high end Shell stores seem to be priced for those wanting clean stores or to avoid the crowds and riff-raff.

It is well-known that as the prices go up, the stations all tend to cluster together. Over the last year and a half the range between high and low was 5- 10 cents while oil prices were rising. When oil prices were falling quickly, however, the range spread out to 30- 40 cents between high and low. Once they broke 30 cent the oil price took the recent dip. Now prices are in the 15- 20 cent spread range, and I take this as a sign of range bound prices for oil. However, this may just be one of those rare occasions that the trend is your friend as I have heard the Bostonian trend follower made some of his losses back in the oil markets.

Yet this has me wondering if bubbles to burst follow this pattern with variability in pricing. It has been said that many of the desert gated communities have yet to see their home prices fall, because the foreclosures are not happening in many of them.

It would seem that those in the know would sell inventory at a discounted price as demand shrinks and they expect it to shrink further.

Does end price variability signal a trend in the markets, or is this concurrent per chance?

Henry Gifford notes:

Counting the gasoline price spreads should take into account little-known regulations that vary from state to state.

For example, in New York State there has been a law for about 10 years which prohibits selling gasoline for a price less than one cent below "cost," on the excuse of protecting mom-and-pop gasoline stations from chains which use gasoline as a loss leader.

There are also laws prohibiting self-service pumps, with the excuse similar to the economic arguments in favor of breaking windows.



Cambridge, MAThere is a nice exhibit at Harvard Natural History Museum on the evolution of nests. It started with twigs being spread on floor to provide warmth and shelter but has evolved so that the eggs can be stored for hundreds of years without danger from the elements or predators. One wonders what the evolution of nesting in markets is like. Does a nest provide the same shelter for prices at an incipient stage? How about the market at 700 a few months ago. Do nests start with double and triple bottoms the way the old time point and figure charts were supposed to work and then turn into much more complicated places of absorption with multiple places for prices to rest before flying into the sky? What other applications of nests are there?

The scene at Harvard shows that a butterfly in Brazil can affect things elsewhere, as multiple empty stores and for rent signs litter Mass avenue, the most populated street through the wealthiest institution in the world. One could understand why 20% of Madison avenue stores are vacant, and the goodness knows how many more are hanging on by their nails, but one is surprised to seeing the decline in wealth affecting Harvard so directly. The main question I have had about the finances of that august institution for 5 years is not when they were going to suffer the cataclysm, but how they managed to hoodwink all the smart profs there and pay their endowment managers so may tennies while they were on the upswing. Even during a year of loss of 50% they were able to justify many multiple millie bonuses. Apparently the idea of randomness and symmetry in performance never entered an overseers mind, i.e. that by randomness someone's going to throw more heads than tails, but if you pay the ones that make the more heads,( bonds last year), but don't take away from the ones that throw the more tails ( everything else), you're left with the same distribution of sub normal performance guaranteed as the fof's.

A visit to USS Constitution is always in order and one learns much about piracy and the influence of economics on the war of 1812 on the growth of the Republic from such a visit, and finds oneself revisiting all the stories about Jack Aubrey as the events and customs really happened. How Constitution was able to win all those battles with untrained volunteers compared to the professional service remains one of those mysteries of chance like the occasional rogue wave, or spike in a commodity market.

On another subject, the stories about the companies and lobbyists lining up at the Federal Reserve and Capital create the sordid impression that the main ability for an executive these days is to know how to beg. Perhaps the best training for executives is really a class in English Literature where they read the stories of Dickens and Brecht and John Gay about beggars. Perhaps a reading of Following the Equator or a visit to the old India where I understand that begging was still common and had developed into an art.



Just back from a family reunion in Surfside Beach, TX. My sister's husband is an erstwhile chef at Rosie's Rib Joint in Tulsa and he did us proud on Tuesday with a huge beef brisket that he smoked up fine and brought down frozen. I was surprised that the freezing had little ill effect on the meat; still tender sweet and tangy. Outstanding.

I never frequented Rosie's or the Rib Crib when I lived in Tulsa, my crowd always preferred crossing the tracks and running up to Wilson's back when they had only the one location. Wax paper on a tray, no plates, just darned good food. Mr. Wilson and his crew always made us feel at home.



In short one is forced to agree with the German historians […] who see long-distance trade as an essential factor in the creation of merchant capitalism and in the creation of the merchant bourgeoisie. — Fernand Braudel [French historian].

I recently read A Splendid Exchange by William J. Bernstein and found it a quite interesting history of trade. Before the modern era, trade was difficult and dangerous. "Traders did not venture abroad without letters of introduction to expected business contacts, or without letters of safe conduct from the local rulers along their route. Otherwise, they were certain to be robbed, molested, and murdered." Even then, "merchant ships provided corrupt government officials with easy targets."

"Were the trader lucky enough to complete the journey with his cargo and person intact, ruin could still come at the hands of a fickle marketplace. … Why would anyone risk life, limb, and property on journeys that might carry him from hearth and home for years on end, yielding only meager profits? Simple: the grim trading life was preferable to the even grimmer existence of the more than 90 percent of the population who engaged in subsistence-level farming. An annual profit of one hundred dinars–enough to support an upper-middle-class existence–made a trader a rich man."

An interesting tidbit about currency is that a one-eighth ounce gold coin has typically been the standard medium of exchange through the ages. Silver coins of similar size roughly corresponded to a day's wages before the last few centuries.

In a chapter on ancient Greece, Mr. Bernstein notes that poor soil drove the strategic imperative of Greek city-states to develop empires to secure adequate food supplies. Athens imported much of its grain from the Crimean peninsula. Along this route were numerous narrow passages, particularly the Bosporous and Hellespont in modern Turkey. To assure its food supply, Athens had to establish military outposts or cultivate allies at these "choke points". The need to prevent closure of choke points became an important strategic consideration for later Western powers, and remains so to this day.

The founder of Islam was a trader, and Islam dominated medieval trade. The largest trading system in the medieval era was in the Indian Ocean, where trade moved to the annual rhythm of the monsoon winds. Sailing ships traveled east and north as far as China during the summer monsoon and west and south to return to Baghdad or Arabia during the winter monsoon. Europeans were forcibly kept out of this system until Vasco da Gama rounded the Horn of Africa in 1498.

By the 1600's, the Dutch East India Company had become the dominant force in world trade. The Netherlands had the best foundation for building wealth and prosperity–"advanced political, legal, and financial institutions."

"In England, reputable borrowers (that most certainly did not include the crown) paid 10 percent on their loans, versus 4 percent in Holland, with the Dutch government getting its credit at the lowest rates of all. By contrast, in England, where the crown could, and often did, repudiate its loans, lenders charged it higher rates than those for good comercial borrowers." This difference in interest rates gave the Dutch a huge advantage over the English.

Mr. Bernstein weighs the historical evidence and finds mercantilism wanting. Henry Martyn, an early British advocate of free trade, "saw clearly that mercantilists, by equating gold with wealth, repeated the mistake of King Midas. Precious metals are useful only because they can be exchanged for things we want or need. A nation's true wealth, Martyn realized, was defined by how much it consumed".

For as long as there has been trade, there have been local producers harmed by competition from better or cheaper imports, leading to calls for protectionism. In Britain, the Corn Laws heavily regulated agriculture, generally for the benefit of the landed aristocracy, for centuries before they were repealed in 1846. At one point during the debate to repeal the Corn Laws, a parliamentarian suggested it would cost the nation less to buy off the aristocrats than to continue to block imports of cheaper grain from the Continent.

Research by Jeffrey Sachs and Andrew Warner found a strong positive correlation in developing nations between free-trade policies and increase in GDP between 1960 and 2006. Mr. Bernstein also notes a positive correlation among rich countries between international trade as a percentage of GDP and government spending as a percentage of GDP, suggesting that, as international trade expands, so does the need for assistance to people put out of work by foreign competition.

My brief review cannot do justice to the many topics covered in this book, including slavery and the spread of diseases. On the latter, suffice it to say that the risk of a deadly epidemic is far less today than during 1300-1800, when previously localized diseases spread worldwide, and the populations in the newly affected areas had no immunity.



Price of farmlandHere is an update to the data I posted last October. The source is the USDA and it shows the inflation-adjusted price of farmland per acre from 1900 to 2008.  (The chart I posted previously was only 1970-2002).







Merit BadgeBoy Scouts started in 1908 in Britain and soon thereafter came to the US. One hundred years!

I fondly remember my Cub Scout and Boy Scout days and summers spent at Camp Kootaga, WV. I still have my Scout manuals and uniform and other Scouting items. I value highly those days and what I learned from my den mothers and scoutmasters.



I've been reading "The Villainy of Stock Jobbers Detected" (1701) by Daniel Defoe with much amusement. Also "Chronicles and Characters of the Stock Exchange" (1850) by John Francis.

Francis says that "Now they stand ready, as occasion offers, and profit presents, to stock-job the nation, cozen the Parliament, ruffle the Bank, run up and down stocks, and put the dice upon the whole town. " The Marxist attacks were never so charming.

Jeff Watson adds:

I assembled a whole collection of around 30 of those old market related books and put them on my blog on a separate page on the sidebar. They are complete downloads and will provide much insight to the markets. For those who were too busy during college by spending their time at the track I also have another page of classical literature books that are of benefit to all, plus several books by Nock. Jeff



OedipusI am ignorant of whether the young mother’s oracular pronouncements truly moved the thundering herds to ride roughshod over the bears, or mayhap it had just been time for some bear-ish self-flagellation (it was already the eighth day of the recent downtrend).

But the post above does bring together in the mind several images: of august — but usually doomed for an early death — kingly father figures, universal all-powerful and eternally youthful mothers, and the painful castigation of an assortment of beatific animals.

Athanasius Kircher, in his Oedipus Aegyptiacus, sees himself as the enlightened Oedipus who fends off the man-eating sphinx-creature and sends it on a death fall over a cliff. Central to Kircher’s herculean efforts to translate the Egyptian hieroglyphs was the Bembine Tablet; in the centre of which sits the Universal Mother, Isis — regarded as “she is both wise, and a lover of wisdom […] knowing and knowledge belong to her.”

Unfortunately, far from being the Rosetta Stone of its time, the Bembine Tablet and its glyphs turned out to be more a roman “neo-Egypt” tribute; thus rendering Kircher’s translations spurious. Kircher’s all-knowing goddess/mother Isis, rather than bestowing enlightenment, led him to a tragic mistake.

I wonder if the young mother from yesterday’s news, may likewise be leading eager bulls (or bears), to a headlong dash to the edge.



LeverThe levered ETFs tend to underperform. Take SSO, which is double the S&P 500 compared to SPY. SSO was listed in 2006. On 7/7/2008 the SPY was back to even while SSO was down 12% since inception. YTD the SPY is down 0.15% (as of yesterday's close) while the SSO is down 4.83%. Levered ETFs are re-weighted each day to match the double daily performance of the S&P. A simple example: if the market stands at 100 and increases to 110 and falls back to 100, the double ETF will be worth 98. So levered ETFs will tend to underperform in sideways markets and naturally (for long ETFs) in declining markets. Also there must be some transaction costs and vig to be paid with the daily re-balancing, especially in volatile markets.

Yishen Kuik replies:

I've thought that owning a double up ETF and a double down ETF at the same time is really like owning a straddle. While the index drifts sideways, you keep losing value, somewhat analogous to theta, but when it takes off in one direction, you start to really get in the money.

Alex Forshaw adds:

The ultra ETFs just hedge themselves with options; a 2x long ETF buys you a basket of calls with some management overhead. A 2x short ETF buys you a basket of puts. So if you are short the ultra long and the ultra short, you are short a bunch of calls and a bunch of puts. So you're short the VIX. And you get hit if vol and vol-squared both go up at the same time.



BrunoI had DNA tests performed by the Genographic Project, a five year project using cutting-edge genetic and computational technologies to analyze historical patterns in DNA from participants around the world to better understand our human genetic roots.

There are two possible tests: one based on the Y-chromosome that goes back from father to father; and one based on mitochondrial DNA that goes from mother to mother.

This is not a genealogical study going back a couple of generations. The purpose is to trace the migrations of our ancestors starting about 200 000 years ago and ending about 10 000 years ago.

I don't have the Y-chromosome results yet, but I have the mtDNA ones. From Mom to Mom 2000 generations back. The results are really interesting and pleasantly unexpected.

I belong to the M* haplogroup. This is an East Eurasian haplogroup (genetic clan), and the first to leave Africa 60,000 years ago. My great-grandmother was a Chinese living in Beijing. It is interesting to discover she was not "typical" Chinese, but special in as much as her maternal ancestors were the first to move to Central Asia, remained there for a long time, then probably moved East towards the Pacific coast within the last few thousand years.



If you want a family entertainment, of the two, HARRY POTTER and BRUNO, which do you think is unsafe at any speed?

Harry"HARRY and the Half-Blood Prince" features magical wonders and extensive character development and story machinations. Characters introduced in Chamber of Secrets, Sorcerer's Stone, Prisoner of Azkaban, Goblet of Fire and Order of the Phoenix are revisited, and they are more delicious for having a beloved history of being arch, sneering, weird, freaky, evil or quirky. There's nary a wayward word in the 21/2 hours, the scenery is gobsmackingly shuddery and flabbergasting (Norway, Scotland, British Isles, elsewhere), things come to life and things expire picturesquely, and there's hormones in the air of Hogwarts, whether you are Muggle or wizard. Quidditch again takes to the air, flaxen-haired bad guys smolder and wreak spells, potions are mixed and loosed, lissome lovelies fall in love with geek-sidekicks and baby sisters grown to elegant teens. Beards are thick and intertwined with lockets and laces. Clothing is dark but subtly threatening and pointed when you might least expect it. We saw it in 2D, but a 3D mastered version tantalizingly beckons for those of us who were bewitched by set and scenery, sidelongs and sidelocks — and need a second viewing to get the entirety of the saga. Stuff is always happening at the margins you don't want to miss. We'll see the 3D version before the week is out. And then there's one more to go.

BrunoWhereas BRUNO. Second go-round from Sacha Baron Cohen features beyond-the-usual vulgarity, excess, guttering of the public dialogue-far beyond what is necessary to make us laugh. Although we can't help laughing at his send-ups of celebrity adoptions of black children from exotic locales, and his SEX IN THE CITY/male version extravaganzas of attire, his eliciting a rude (but a propos) expletive from a surprised Harrison Ford, and disbelief from Paula Abdul (forced to sit on live Mexican-laborer 'furniture' in the absence of real household effects), he mocks not only gay fetishistic habits, but ordinary Americans who are — as in BORAT — taken unawares to a cruel and ludicrous degree. As an Austrian non-hetero fashionista (speaking Yiddish; in Borat the Kazakh was really Hebrew, if you listened at all carefully) he is an equal opportunity offender. There are, to be fair, many honking yuks to be had, but they are interspersed between so much upsetting and overdone queer stuff that one grows exhausted lifting one's jaw from one's chest, where it finally comes to rest-the movie overworks the penile sight-gags (pun intended), the nude effects, the gay-fey jaded ephemera, and sets the bar ever lower for the poor American (and global) movie-going public. Coarsening on this scale frightens the horses, and makes one wonder why Sacha Baron Cohen — a clear genius by most lights — aim so very low for his effects, when he could get us with half the work and a fifth the grossology.

marion d s dreyfus 20(c)09



22In thinking of long distance shooting I thought of the technique that I was taught by my PaPa. He taught the popular BRASS acronym: Breathe, Relax, Aim, Slack, and Squeeze. I from young age till now if I picked up a rifle would go through this as if it was second nature. The two Ss are the hardest for me, the slack to those not in the know is the give in the trigger up to the point of release, the squeeze is preferred to a Pull so as not to move shot to the right (righthanded shooters). I learned this with a .22 hunting squirrels from 50 to 100 yards, no sight.

Similarly I was taught a golf swing by my Uncle Wayne with similar ritual though no acronym. Five step dance. First grip the club, second address the ball, third place right foot, fourth place left foot, fifth swing the club. Though it isn't as robotic and choppy as when I learned I still have this same approach to a golf ball today. It is much more fluid and effortless but the same five stages are there.

The training of those two things in my life came with practice and a quasi-scientific approach. What idiosyncrasies do you have for trading?

Mine are:

  1. hypothesis
  2. test
  3. confirm
  4. place trade
  5. monitor trade
  6. exit trade

Steve Ellison adds:

PDSAA technique taught in Six Sigma quality methodology is Plan, Do, Study, Act (PDSA).

Plan: Decide a course of action, and predict the results. The first three steps in Mr. Holley's list could be input to a trading plan.

Do: Place, monitor, and exit the trades.

Study: After a reasonable number of trades, analyze results. How profitable were the trades? If they were not profitable, why not?

Act: Based on what you learned, make an improvement to your trading process.

A typical improvement effort might have many cycles of PDSA. A good starting point for more information about PDSA is here .



The same way the participants in the market have what the Palindrome calls "a father complex" where whatever the father (now the scholarly real Dr.) says, has the weight of a thousand elephants, so does the market have a young mother complex. Did a mother say anything bullish about bank stocks, and did this flagellate the bears?



 The Drunkard's Walk: How Randomness Rules Our Lives by Caltech professor Leonard Mlodinow was an enjoyable read, in the vein of many popular randomness books. Thanks to Dr. Zussman for the tip. Mlodinow discusses the history of statistics, LaPlace, Galton, Einstein, Bernoulli, Tversky and their ideas. There were no technical formulas and it is aimed at a popular audience, but did a good job of describing the heuristics and biases everyone is subject to. The idea that markets can be predicted runs straight counter to his ideas. The issue with the numbers is the cycles, and the existence of the larger cycles than what ever one is measuring.

His closing and a good message is that we can control one parameter, how many times we get up to bat. JK Rowling was rejected numerous times before getting published. Even the Beatles were turned down eight times. Thomas Watson Sr. from IBM says to increase the chances of success, increase the number of failures. While most would rather skew their returns to the right, its important to keep at the fray everyday. Like Croeseus, success is not a day, a week or a month, but only a lifetime.



Indian Stocks Fall, Ending Worst Week Since October on Monsoon Deficiency — Bloomberg News

This kind of article was rampant in 1900-1910 when US had farm workers at 30-40% of working force. Not enough rain in monsoons causes market to break a psychological level.

Sushil Kedia replies:

Thirteen monsoons in a row classified as good, with just in-between as not as good, rather say fourteen monsoons that have not been bad in a row have made this generation of traders in India rather unaware of the havoc less-than-kind raingods can bring for an economy with 70% of the population still scrounging for a living on the farmlands. This market had in any case been too much of a paradise to be the world's number one performer moving from October '08 lows of 2200 to the recent 4700. Money, it seems, was to grow on trees here and suddenly each is faced with a situation that the trees might not grow the usual also enough.



if so, the SPU set a high of 952.75 on June 19 and 858 is 10% away from there and we're at 872 and have been as low as 865. One queries a la Sidney Alexander and Paul Cootner of 50 years ago, whether a move of 8% or 9% from a high is inordinately likely to go to 10%. Or "am I just a fool" for posing such a query considering the changing web, the cronies, and the everchanging cycles?



BusI have found myself subconsciously applying my trading rules and experience to life events. Cutting losses early and getting rid of bad position without waiting or hesitation is one example. One small anecdotal example: My wife booked an ordinary bus ticket to see her sister. She is reluctant and wanted to go in a different, air-conditioned bus. But the reservation clerk refused to refund any money as the bus is about to start. I immediately decided to offer a 50% discount to the ticket collector of the bus who can sell it at full cost to any other passenger on the way. Thus I have traded my bad position and cut my loss while at the same time keeping my spouse happy. I think this is one of few times she appreciated my trading skill.



Instead of sports, consider the physics of those consiliences that Vic has noted…

The Quantitative Relativity of markets dictates that gravitational pull (or downward drift absent causation of price action) equates to that alacrity of stadium economics. That age ole notion of “time is money” is literally realized within this calculus, whereby nonactivity costs money due to time degeneration (or depreciation when expensed).

Likewise, the phenomenon of economic announcements serves as the cause (for insider/outsider necessitated effects) by virtue of its media-worthy consonance found within political-economic cycling. Be it upon fundamentals or technicals, markets act as they are so constituted, dictated by the rules from which they are constructed and from so operate.

I wonder if one has the numbers of long versus short positions (pre/post) relative to those cross classifications of big/small rises and declines?

Such as factoring retail (retirement/pension) ratios and holdings as a condition precedent to any individual stock analysis, should one not first consider that insider/outsider ratio among market (or indexed) tiers of price support and resistance levels?

I see it here in the Chinese markets. Mom and pop are not allowed to short; as a result, the sucker money is long, whereby insider advantage focuses on short-cycling declines, big and small relative to randomness and scalability of any cited consiliences. Cannot the same be said of US-based (if not worldwide) worker-based pension fund schematics within investment banking circles — as when so ruled by Greenspan and Rubin?

If so, market incentives, as one so previously highlights, become merely the elements of formation for similar rules-based retail schematics. For instance, the post Glass-Steagall construct was an insider/outsider ruse, whereby the outsiders (or homebuyers and taxpayers a la the ensuing default and foreclosure “crisis”) financed insider (or investment banks and political parties) service charges and fees to effect wealth consolidation via derivative issuances and resales.

During my last three years of travels along a comtemporary Samarcand Road, whereby, from Wuhan among Hubei to Shenzhen to Hong Kong to Macau to Beijing among Henan to Shandon and Shanghai to Yangzhou to here, Hangzhou, one may arrive, an hour away from the market facades of Shanghaiese Communists, to ponder the pooling reflections of China’s famous West Lake. As with the terrain darkness of China’s stock markets ranking last among some 176 countries by year-end 2008, silk-stained strands of like-kind (top-down) political economics seemly appear crocheted into and expanding globalized fabric, one born of and so worn by tribes of self-appointed monetary kings, who themselves appear to have no clothes, but are only so fashioned, neither of doctrine or principle, merely hooked along an intra-governmental pattern connecting treasuries as pillars with the daily speculations of a market’s posts.



WD 40I have to admit I've never read Rolling Stone Magazine before. I read it for the first time today. I found the absence of political correctness very amusing and refreshing. I don't remember seeing the word "a-hole" used in a financial publication, especially in the name-calling type of way. Rolling Stone called John Thain of Merrill Lynch fame (who spent million dollars to decorate his office) and Cramer by that word. Latest issue has a lengthy article bashing Goldman Sachs ("The great american bubble machine") for its role in last six bubbles. I am far removed from Wall Street but it seems to me that all investment banks (and Wall Street in general) supplied the WD-40 on the wheels of bubble creation. Goldman was not a alone. It is not much worse than others with one notable exception — a lot of alums joined top positions in government — Rubin, Paulson, et. al…

From a practical perspective one factoid really made me think: oil went from $60 to $147 while supply increased and demand declined. Oil's rise was completely driven by speculators. This is important; here is why: nobody knows what the oil price should be. Thus oil producers/consumers/investors are comparing $60-$70 prices to $100-$150 prices and in comparison they appear cheap. But once you realize that $100-$150 prices were a fluke, a speculative aberration driven by pension funds "diversifying" into commodities, a one time phenomenon, suddenly $60-70 may not be cheap. In fact in the world where demand for oil is expected to drop, these oil prices may actually be expensive. Also, think what impact high oil prices had on other commodities.



Today 2009/07/08 was a "Just in Time" day, recalling the song performed by Laurel Kenner and Ming Vandenberg at Delmonico's a few years ago:

Just in Time
(Music by Jules Styne; original lyrics by Betty Comden and Adolph Green)
(These lyrics by V. Niederhoffer and L. Kenner)
A. Just in time,
Stocks rallied just in time
Before they rose my funds
Were running low.
I was lost
The losing dice were tossed
My brokers all were cross
Nowhere to go

B. Bulls in debt
The stocks looked like they could be heading
Down still lower yet
But something changed
Stocks rallied just in time
They rallied just in time
And put me in the black that happy day.

C. Just in time,
Stocks rallied just in time
To save me from
That margin call
Five down days
My mojo went away
It looked like fund flambe'
I tried to stall

D. Clearing [firm] said,
You'd better lighten up or
Else we'll all be in the red.
Then something changed
Stocks rallied just in time
They rallied just in time
I had a nice bounce back that happy day.

B. Bulls in debt
The stocks looked like they could be heading
Down still lower yet
But something changed
Stocks rallied just in time
They rallied just in time
And put me in the black that happy day.



What is a good telephone conference service for workgroups of 3-4 individuals to conference. Call-in required OK. — A Reader.

I've always had clear lines and easy service from www.freeconferencecall.com. I have my own number and can host a call at any time for free.  Very easy setup and they send you a summary after the call of who was on and for how long.

Don't understand their business model, because as the name implies, it's free.  You don't need to go to the website, so there's no ads to view and as far as I can tell, they haven't sold my info to spammers.  Nevertheless, it's a great service.

Mr. Albert adds:

I'd second this site. Used it through four years of B-School. Never had a problem, and never heard of one through classmates.

Kevin Redart explains:

Their business model is to generate long distance fees for interexchange carriers who pay a portion of their fees to local networks to compensate for use of their networks. They receive a small fee from local networks for generating traffic. Also, they offer toll-free conference for six cents per minute per caller. They are undoubtedly getting a piece of that upsell.



T R t S1. One of those curious consiliences, completely non-random, arises today with the Nikkei closing at 9430 and the dollar:yen at 9430.

2. The minimum in the S&P yesterday was preceded by tremendous falls in all markets especially India.

3. The baseball managers like to take their pitchers out of games when they throw 100 pitches. What's the comparable quantification that works in markets. How about 10 days without something bad?

4. The difference between the effectiveness of a pitcher who throws 95 miles an hour like Kershaw and Pelfrey who throws 90 is like the difference between a profit and loss.

5. Will someone please tell me why this or that monthly seasonally adjusted retrospective economic announcement is key to where the stock market should be and why this randomness or staging is worth 1% or 2% a day?

6. The market abhors days of no change the way a baseball fan abhors a pitching duel.

7. The fixed income markets have very quietly ensconced a positive sequence of length three or more in many cases.

8. Patrick O'Brian's "The Road to Samarcand" is as good as any archeological novel and has economic wisdom and adventure in it that goes beyond any other modern American novelist.

9. The move down in commodities preceded the move in stocks but they often proceed in lockstep during the day.

10. There is something grotesque in seeing a beautiful stadium with 100 million naming rights or so like the one the Mets play in that is sponsored with alacrity and heavy promotion (with free samples and door openers outside) that comes from a company which has received a market value in aid from the service payers that is greater than their market value.



B. N. Duncan, Telegraph Avenue fixture dies at age 65

By Kristin Bender

Oakland Tribune

"Friends said Duncan was one of a kind."



SpiderHere's an interesting BBC article about research on spider survival strategies.

Researchers hypothesized that a species of spider that decorates it's web with prey carcasses would benefit from a camouflage effect, but it turned out that these spiders actually received many more attacks from predators than those with undecorated webs. For these arachnids, unless the web decoration serves another purpose I imagine the trick worked for a good while before the predator-prey arms race escalated to the next level. Now that the other side seems to have the upper hand, I wonder for how long the spiders will continue to direct their energies pursuing a futile strategy. Other spiders are stepping up their game, for when the researchers tested the idea on another species of spider that decorates it's web with actual size replicas of itself, they found that that the decoy effect outweighed the increased risk of detection.



The cross classification of moves in interest rates and stocks are always fascinating, always a web, but always changing. In the last several weeks, the bonds are way up, and the stocks are way down. As a foundation for considering these changing webs of who eats whom, and who must even out one's positions, and how they do it, I looked at a 4 by 4 classification of bonds and stocks during the same period ( no forecasting and no lags) with following results over last 2 1/2 years, the times when cronyism has been influencing the food web the most.

Given a big rise in stocks , the concurrent bond moves are evenly distrtributed. For a big decline in stocks, the concurrent bond move was 2.5 times as likely to be a rise as a big decline.

I also note there were an equal number of big rises in stocks as big declines, in a period when stocks roughly declined by 40%. This shows that given that there was a big move in stocks, the big declines were much more severe than the big rises.



A few weeks ago my wife found a brochure for the World Science Festival Street Fair in Washington Square Park and suggested we take the kids into New York for the day to check it out. We were tremendously surprised and delighted with what we found:

A selection of high school competitors from the FIRST Robotics Competition demonstrating their fascinating machines and letting young kids interact with them. My children delighted in tossing balls at the robots and watching them scoop them up or spit them out in various ingenious ways. We particularly enjoyed this as our neighbor's son had been a member of one of the teams that won the New York/New Jersey regional competition.

An exhibit from the NY Botanical Gardens that let the kids plant their own flower and take it home. They also had mortars and pestle and let kids make their own flour from wheat seeds.

A group of students and teachers from Rutgers University's Dynamic Physics Demos. There were magnets supercooled with liquid nitrogen ( a big hit in its own right ), demonstrations of the science behind a bed of nails (one demonstrator lies on a bed of nails, places another face down on his chest and another demonstrator jumps on top!), huge smoke rings that flew out of garbage cans propelled by sound waves.

Tons of interactive exhibits and demonstrations for the kids.

Music, magic shows, juggling.

Incredible large prints of glorious images from the From Earth to the Universe collection. "These astronomical photographs showcase the most dramatic views of our Universe including planets, comets, stars, nebulae, and galaxies." The Math Midway, a small interactive fair in its own right with lots of cool hands on activities which all demonstrated some basic principle of mathematics.

The kids rode the square wheeled tricycle and got a big kick out of large three dimensional tessellation puzzles and the Mysterious Harmonograph. The website has a great gallery and you can check out some of the exhibits by clicking on "Activities". Dominick Tao of the NY Times did a nice write up of Math Midway here.

My entire family had a great time and I can highly recommend this event for anyone interested in getting their kids turned on by science and math. There are plenty of exhibits geared toward young children, so you don't have to leave the little ones at home. The street fair is a small part of a larger event, The New York Science Festival which was founded by the husband and wife team, Columbia physicist Brian Greene and television producer Tracy Day. Last years debut of the festival was such a rousing success that most of the events for this year sold out in short order. I encourage you to sign up on the website for advance notice of next years dates.



Good article in today's Weekend WSJ on randomness, by Caltech professor of randomness Leonard Mlodinow. Starts out relating the story of when Joe Dimaggio and his small eponymous son sneaked into Yankee stadium. When the crowd saw their sluggish hero, they began chants of "Joe! Joe! Dimaggio!", to which the little statistical blip (only four years old) remarked "see, they all know me!"

He then discusses the random aspects of hot-hands in sports, as well as Bill Miller's 15 year SP500-beating streak (which was 75% probable if random). The hard wired ego massage associated with financial success (see Herbivore Men of Japan) makes it hard to keep the genius in the bottle. I recall the thrill as an 18 year old arriving at a party, when unexpectedly greeted by a smiling beauty. Too good to be true, but for a brief moment; she was in fact waving at someone behind me.

The human big bang of money success creates its own space from nothing.



[F]rom a trading perspective it's very simple. There's stimulus, response, reward [or] punishment. John Porter, as quoted in Drobny:  Inside the House of Money, Page 161

I heard John Porter speak a couple of times when I was at Barcap and he came across as colourful and genuine. If I remember correctly his background is in psychology, which may help explain his framework of thought.

It seems that whatever our backgrounds may be, we try to mine our personal histories and characters for new ways of thinking about the markets. Perhaps there are just as many lessons to be learned in applying our trading knowledge to our daily life outside of the sphere of financial speculation. For example, I recently missed a return flight from Paris to London and had to catch the Eurostar [train] the next day. While I could have dwelt on this for a long time I decided to process it as no more than one of life's bad trades. By calling upon the thought process I used to employ to handle bad trades, I was able to write off the missed flight pretty quickly and enjoy the extra day of unplanned holiday. I guess these types of insights can work pretty well both ways.



NavyHappy 4th of July to all. My son Charles entered the US Naval Academy at Annapolis a few days ago. Induction Day is a somber and dignified occasion for new recruits and their families. Its nerve raking as well, particularly for the young men and women that commit to honoring and protecting the US Constitution for the next nine years of their young lives.

This weekend, I am going to have a few beers and sweat out the Yankee games hoping that they can keep pace with the enemy to the north. Its pretty comfortable for me and my family but please take a moment to reflect that we are a nation at war and there are many young people and their families that have more serious thoughts on their minds.

Photographs of Induction Day are available on the Naval Academy web site . We were lucky enough to have our son pictured going high and tight.

Steve Leslie replies:

I am proud to be in a country that allows you to say God Bless You and God Bless America.

Congratulations on your sons induction into the Naval Academy. I am sure you are extremely proud. This is truly a remarkable accomplishment as admission standards are so high and applications approach over 12,000 men and women with only 1400 slots available.

My family has maintained a residence in Annapolis for 20 years and I have had the pleasure of visiting the academy on many occasions. There are some extremely interesting and fascinating things to see and do around the Annapolis area and I would strongly encourage everyone who can to visit Annapolis at least once to get a sense of the history of the place. It is situated in downtown Annapolis directly on the harbor and Chesapeake Bay. A truly amazing location. Some terrific activities to attend are the Herndon climb where 1000 plebes attempt to climb the 21 foot tall monument greased with lard. Also one should see the Bancroft Hall the worlds largest dormitory and King hall where all midshipmen are fed simultaneously 3 times a day.

Washington D.C. is a 30 mile train ride away and a side trip to downtown would be in order. I recommend the Museum of American History to view the star spangled banner. My personal favorite is the display of American coins and currency. It is inconceivable to visualize the enormity of the Smithsonian museums and the various artifacts on exhibit. No trip or education would be complete without a visit to the Lincoln Memorial. There one can stand on the steps where Martin Luther King Jr. gave his I have a dream speech, and gaze across the reflecting pool toward the Washington Monument. Farther off in the distance one may see the Capital building. The Vietnam Veterans Memorial is on the left of the pool . The Korean War Memorial is on the south side of the reflecting pool.  The National Zoo is just north of DC. One can see the Chinese Pandas on exhibit. A short drive and one may visit Arlington Cemetery in nearby Arlington Va.

Every child in America should have the opportunity to visit Washington D.C. at least once in their life.



Lately I have been reading several books about sea travel in the 1600-1800's, one about the whaling community in Nantucket, one about the Dutch early traders and one concerning the Mayflower voyage. An interesting aspect of sea travel at the time was the use of leverage in the context of sail and mast relative to the boat hull size. The trade off was simple, a large mast with much sail was faster, however during storms the large sails could cause a "knockdown". This occurred when strong winds pushed the ship over horizontal to the sea. The wind and sail acted as a lever and lifted the much heavier hull of the boat. It was a trade-off the captains had too make, deciding on a balance between the amount of sail to raise and the chance of a storm. It would often take hours to adjust the square rigged sails, so when a squall came it was already to late. But managing this type of leverage was part of being a ship captain.

Jeff Rollert adds:

When one looks at boats of that time, they had high bows and sterns, but lower mid sections. This was fine unless water/waves came in to the middle area, where they could quickly find a way thru doors/hatches into the boat.

Square rigged boats can't turn into the wind/waves quickly, as the sails were mostly centered on the boat. If you saw a huge wave coming, you had to take it at a relatively broad angle, otherwise you would loose steerage and go backwards/broach. The sails had to be removed as quickly as possible as soon as the wind picked up - hence the old sailors lines "You reef before you need to / If you think you may need to reef, do it immediately."

Lastly, for those who have not gone up a mast, it can get scary quickly. On the boat I race, a one inch change in the deck is a movement at the top of five feet…in wind those old whalers/freighters could have guys in the rigging when their location was moving forty feet, side to side, while they bundled sails up and tied them down.

Also, they were ballast boats, which meant they had stones (literally) in the bottom to offset the weight and leverage of the mast. The bottoms were flat/ to slightly rounded, so in big waves a 90 degree movement from side to side was common. At 120 degrees, the boats rolled over and sank quickly. This is a reason few sailors then learned to swim. It was moot, the boats sank so quickly.

As a sailor complement, those guys had balls, but with a 60% fatality rate.



Big MJust back from a short trip to Paris where I made a few observations about prices. I recognise there is a good element of bias in my notes because I only spent four days in Paris whereas I have lived in and around London for several years. However, the observations may still hold some useful information:

- Price Diversity: The UK highstreet is flooded with identikit chain stores, fast food chains and coffee outlets. Paris offers a welcome counter balance, with the majority of operators seemingly being run independently. However, despite this diversity of ownership, it seemed as if there was an implicit collusion on prices. Not only were prices in the center of Paris higher than London but the price range also seemed significantly narrower, with crepes costing as much around major tourist spots as they did on the side streets. Contrast this with Central London, where you seem to get a wider diversity of prices for each product, even around tourist hot spots (coffee's and teas can be had for less than £1 around Leicester Square or you can spend a whole lot more if you want a premium product in a top notch establishment).

- A high price level: I knew the pound was weak before I left but I found prices to be painfully high in many establishments in Paris. I jotted down the price of a few food items in the McDonalds at Charles de Gaulle airport and compared them to the equivalents in Central London :

While airports often charge a bit more to their captive audience I remember the premium on the Paris high street being about the same, with burgers costing about a third more. The same held true for prices in a Paris coffee chain versus Starbucks in London. Note, whereas the UK operators charge slightly different prices for their take away or eat/drink-in options, Parisian cafes discriminate in an altogether different way. They charge you a reasonable price to sit or stand at the bar, consume your purchase and be on your way, but if you want to sit at the front and watch life go by, then you can easily pay three times as much for the privilege. Based on my short visit, I'd say GBP/EUR is a pretty strong from a long view perspective. It would be interesting to see $ prices of the McDonald's items for a view on cable.

- Price Responsiveness: In Paris, the price reductions were rather discreet. Contrast this with the view of Oxford Street in London on my return , where heavy promotions plastered the sides of buses and the shop fronts. Make no mistake, the UK is responding dynamically to the recession. I wonder whether France just isn't feeling the recession pinch as hard, or whether this is symptomatic of a lack of broader price flexibility.

More comments and photos from the trip are on my blog .

Vincent Andres writes from France:

I find price inelasticity rather incredible in France. For instance, in the building business, here in my département [county], enterprises have roughly 2 months of work in their order books (instead of more than 1 year "usually"). You would have expected prices of wood, concrete, etc. going slowly down. Quite the contrary.

Just one representative example : I know a concrete factory in my area, they lose a lot of clients and business … but they will absolutely not move their price down by one cent, not even the day before they close … which is not very far off.

There are certainly many causes and explanations to such inelasticity, but the level of taxes in our products is at such a level (you have to pay for all this paradisiac socialism) that there is no latitude left to producers. Reducing your prices (while your taxes stay the same) may (?) preserve some clients, but is synonymous of selling at a loss, … so you sadly had better stop (… and so I did).

We are calmly waiting for the end of this madness.


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