Experiencing the open today in stocks where it was called down 2 and then open up 2 and rose to up 6 in the first 15 seconds, reminds me…

1. that we can go from an x day high to a y day low in a heartbeat, the same way a piece of wood separates the hands on a ship from life and death, and

2. that the truism of Jeff Watson that all the evils of the pit are gone with the wind, but that they have been replaced with a myriad of electronic fakers, dodges, and contrivances that are just as redoubtable, and

3. that my broker in the S&P pit had the nickname "Pockets," and

4. that the Japanese Nikkei is some 16% below the S&P among other things, and

5. that the worst decline of the 19th century according to contemporaneous reports came in December 1899, just before the end of the decade, and

6. that the years ending in 0 are the most abysmal years, because of the tendency to reevaluate, and be frustrated by taking stock of all our woes the way honeys do around Valentines Day, and

7. that one reason the scholarly Israeli market apparently is so predictive of our own is that their central bank chair, Stanley Fischer, a guru all the central bankers find very sagacious, is helped one is sure by his insistence that all his writings be in Hebrew, and

8. that when the yield curve is downward-sloping there are a myriad of doomsters who tell us that it forecasts an inevitable recession and stock market decline but when now that it is as upward sloping as ever in history, they are not inclined to say it forecasts a boom, and

9. there is much short term money to be made by borrowing short and lending long now with Treasury bills close to 0% and bonds at 4% and that this is a prescription for going bust by "selling premium," as a former colleague liked to put it, and similar carry trades most probably will lead to disaster in other currency markets, and

10. that the central lesson of what caused the 1929 Depression to me after reading several books on the subject including Amity's is that the change of incentives was the cause and that holds throughout the ages even though the idea that the 2009 recession can be successfully treated with the opposite remedies from those that failed during the 1930s goes against all the principles of ever changing Baconian cycles, and

11. other thoughts that lead me to Turgenev. (Ivan Turgenev 1818-1883)

Bill Fallon queries:

I am reading “Practical Speculation”. On page 123 it says you report the trades you make to your readers. Do you still do this? If so, where?

Did you see the USC-UCLA football game last Saturday night? Something unusual happened at the end of the game. With one minute to play, and UCLA behind by two TDs, USC had the ball at midfield. The USC quarterback took a knee as is the sportsmanlike custom, to run out the clock and not run up the score. But UCLA called time out, to a chorus of boos. The UCLA coach apparently wanted to prolong the game, even though the chance of victory was nil. On the next play USC threw a 50 yd TD pass, apparently catching UCLA off guard.

Well, the USC sideline went crazy with excitement, taunting the UCLA players across the field. Both teams then came toward the center of the field yelling and gesturing. Fortunately, no fights occurred. The victor showed what… compassion?, the defeated rejected it, so the victor inflicted more pain, which further humiliated the defeated leading to more anger. I am ccurious if you can draw a parallel to the market as you often do.

Victor Niederhoffer replies:

Mr. Fallon asks a highly relevant question. The market captures every situation from sports and nature. "Never meet a margin call" — your broker called to tell you that you had to come up with more capital to meet your margin as you're overdrawn, but since you're a very good customer he'll give you a five day grace period before it hits his capital. You thank him profusely and triple your losses as the other side knows you have to liquidate. Many others. Beware of Greeks bearing gifts and never look a gift horse in mouth. But it seems the UCLA coach did the right thing. Reminds me of how I often had to hit a man in front of me in squash even when I was ahead 14-3.

As for the predictions, they have been Shanghaid by the hundreds of followers with fives of billions I already have who use our exact stuff.



 Why is it that all folk art is such that no matter how talented you are, it isn't good unless you are in prison, an insane asylum, an agrarian reformer, a degenerate, a midget, deformed, illiterate, an infant, bodacious, or some such. Listening to folk music from "Blind Lemon Jefferson" and looking at paintings from my collection from asylums engenders this thought. What is the market analogy? The astrologist? The man from Nebraska? Harry Browne has an excellent chapter on strange advisers. The Delphic Oracle was good at creating a fog around its predictions. During my day, I got mileage out of Lobagola. It gave Jim Lorie a belly laugh.

Adam Robinson comments:

Perhaps for many of the same reasons "Why Comedies Rarely Win An Oscar For Best Picture And May Never Again." In both cases, the high-brow police and social scientists militia don't necessarily see either idiom as the best way to promote their agendas.



 The book Made to Stick by Chip Heath and Dan Heath has many good ideas for market people and others. It says that proverbs are a good example of ideas that stick. They're concrete, surprising, simple, appeal to emotions, and often tell a story. Unlike the third hand best selling author, whose book they amazingly laud, these authors are the real things, with one being a professor of psychology, and the other an entrepreneur with a successful firm providing content to students.

Their idea that there is a curse of knowledge that must be overcome is very useful. It's sort of a corollary to Bacon's ever changing cycles, that what you believe often precluded you from learning new things. One wishes that those who are students of the depression and are lauded for applying that knowledge would realize that they suffer from that curse, as well as others who apply the wisdom of last year or the last cycle to lead others down the primrose in the current.



Modern Principles: Microeconomics by Tyler Cowen and Alex Tabarrok is very modern, very much based on incentives, and the wisdom of markets, and has numerous interesting economic examples and anecdotes. It is well worth reading. I understand it is part of a two part series, the second being macroeconomics. The book is well worthwhile, especially for a non-economist or one who is trying to brush up, or who wants something a bit more technical than Heyne but without any mathematics. The chapter on the stock market is a bit weak however, mainly relying on efficient markets, because for every buyer there is a seller, and it is wrong to think that either group is on average wrong.

A typical example from the book is the British captains who once they were paid for arrivals in Australia from Liverpool, landed 98% of the convicts safely whereas before they were paid by number of passengers embarking from Liverpool, and the survival rate was only 60%.



Allocation of capital on a macro, national scale is an important but under-studied subject, relevant to analysis of the cureent economic situation.

While the collapse of the Soviet economy seems multi-determined and very difficult to analyze, misallocation of capital (MAC) was a key, if not the key, ingredient. From the outset Soviet Communism was famous for its Five-Year Plans for investment and capital allocation. In the beginning the Plans emphasized catching up in major industrial areas where Western countries had obviously been successful — steel, machine tools, electric power — and the growth of the Soviet economy did well. There was even talk among US experts of the higher-growth-rate Soviet economy eventually surpassing that of the US.

But by the latter 20th century, US and other Western economies had become more subtle and technologically-oriented. Economic growth depended on research and fast-moving investment into high tech areas — inventions and products that initially seemed minor or almost invisible, discoverable only by haphazard groups of large corporate and tiny individual entrepreneurs, totally unpredictable to government bureaucrats.

In this environment Soviet Communism was hopelessly outclassed. Its top-down planning and traditional love of Five-Year Plans and machine tools could not keep up with Silicon Valley. Billions of dollars of Soviet capital were being allocated to projects with marginal or even negative returns, while growing billions of dollars of American capital were being allocated to the then unusually high returns of Silicon Valley and the like. Compounded over 30 or 40 years, this makes for an incredible difference in result, collapse for one and tremendous prosperity for the other.

What are the implications of this for present times?

First, we have a situation in the US where major portions of our very large economy are being shifted from allocation by entrepreneurs, who in the aggregate know where to allocate capital (not because they are so smart but because they are governed by highly diverse market forces), to allocation by Congress and government bureaucrats, who don't. (And "don't know" is charitable, since their political incentives of pork and saving failing constituencies make the government allocations even less economic.) That has to be far less favorable for long-term US economic growth.

Second, we have China. While the Chinese are probably smarter, or more uptodate, than the Soviets were in their allocations, and are dealing with an economy much more open to market forces (particularly in having to cater to US purchasing allocations), can the Chinese in their government-directed investment and capital allocations continue to escape the defects of the Soviet allocations?

And with the likelihood of the Chinese misallocations being covered up by phony statistics over many years (the same type of phony statistics that misled not only the Soviets themselves but sophisticated outside observers such as the CIA), isn't this a situation that will sometime lead to a pretty dramatic day of reckoning?

By the way, I have not read any academic or investment research on capital allocation/misallocation and the above is pretty much off the top of my head. Thus I would be grateful for good citations or sources to contradict or modify my views, or to better educate myself in this area.

Stefan Jovanovich comments:

I think Mr. Grossman exaggerates the extent to which American "capital" has been allocated by entrepreneurs in the years since 1925. Wealth has certainly been created by enterprising individuals; but the extent to which the national wealth has been allocated by the government should not be ignored. One statistic always comes to mind when I read praise for American "capitalism" — the amount of money spent on the Manhattan Project alone was more than the entire historical investment in the U.S. auto industry. Silicon Valley — which looks a good deal like Detroit in the mid-1930s these days — was very much the product of the military-industrial complex Eisenhower questioned. Mr. Hewlett and Mr. Packard got their start by selling oscilloscopes to the Army, and but for the need for control devices for ICBMs, they would still be growing fruit in the orchards around San Jose.

What defeated Soviet communism was the absence of private money, the inability of individuals to save their own wealth in a form that could be spent by them. Everything in the Soviet Union was rationed; it was the ultimate single payer system. The question for which none of us has an answer is will private money continue to exist in China when that country has its banking and credit crisis? (Of course, the cynics I know are asking the same question about the present banking system in the United States: "What do you think of the American system of private money, Mr. Gandhi?" "A most excellent idea.")

P.S. For the first 60 years the Soviets' allocation of capital was not greatly inferior to our own where military technology was concerned. Their ability to literally move their entire industrial base 500 to 1000 miles east while defending themselves against the Wehrmacht is a miracle of raw production that more than equals anything done by Kaiser's shipyards and Boeing's B-29 factories in Kansas. Imagine the German Army invading the United States through the Champlain valley and capturing Boston, Pittsburgh, Cleveland, Philadelphia and New York and the United States' moving its entire steel and auto industries by rail to Nebraska in the midst of winter.

P.P.S. The B-29 was built in Kansas because of the assumption that the United States might be subject to the same kind of sustained bomber offensive that the Allies had been conducting against Germany. The failure of the Germans to develop the significant heavy lift capacity for bombing and transport is probably the single top down command decision that doomed them; if they had invested the effort into development of a 4-engine bomber that they put into rocketry, they would have won. Instead, the Allies did, which allowed them to discover after the fact — thank you, Professor Galbraith — that bombing was a complete failure.

Kim Zussman replies:

One could make the case that the tech bubble was partially the result of the collapse of USSR:

  1. The political stability risk-premium in the US went down post-Soviet threat (markets move in reverse to risk premium change)
  2. Defense spending went from 6% to 4% of GDP from 1990-2000 (see attached chart from this site). Some of that went toward tech investment (Note that defense spending went up post 911, and stocks/ROC 00-10 was not as good as 90-00).
  3. Check out what happened to Japan and Germany stocks post-defeat, and St. Petersburg post-Bolshevik.



 Just thinking that there may be a correlation between the more countries one has traveled to, and the less arrests for unlawful activity one has, especially for violent crimes. i.e there is greater perspective on the part of the individual.

This of course must be tested (and could be a hard one to test). The market comparison could be that the greater the number of global countries trading a market, the less volatile it may be…. though distribution of this volume could be a key.



 I cannot understand why Tiger Woods–admittedly a cool golfer, a stellar performer since he was 3 years old in his field, and a talented public figure as a rule– has to be so transparent with his life. We are expected to make too many disclosures about our lives, and I applaud those who keep to themselves for a change. We admired Jackie Kennedy for not going on TV and jabbering about every detail of her life. In fact, of late, my admiration goes far more immediately and long-term to those who keep themselves…to themselves.

Must we know everything? Must we be inside someone's nostrils? In psychodynamic terms, having to know this much about strangers–these public figures are not our relatives, co-workers or intendeds, after all–is puerile and childlike. We do not set appropriate boundaries, and the 24-hour news cycle merely echoes the egregious blabbermouth calisthenics of the gossip rags. Yes, they are serving a demographic, selling a service, making income and jobs for many. But at what cost? Do we really need to know where Zach Efron buys his shoes or Viggo Mortensen goes to deposit his sperm? Do we need to invade the plastic surgery tics of actors or moguls? Why must our lives be "enriched" by how many pounds a "supermodel" (are there any just-regular models? There don't seem to be) packs on to the tsk-tsk of millions?

Such intrusiveness bespeaks an emptiness in our lives and concerns. Certainly the world is commodious enough to encompass concern for larger issues, especially when so many wish us ill, and there are so many devious and cunning ways to damage the world we know and accept so imperiously. But this untoward concentration on who goes where, with whom, doing what, for how long, is jumping the shark.

I submit that the gate-crasher couple, the Tareq and Michaele Salahi duo, would have been executed almost on the spot by a Saddam Hussein, Hamid Karzai or Bashir Assad if they had suddenl;y appeared at a private function where they posed even a whisper of threat to the head of state, not made the parlous darlings of the talk-show circuit.

No one is here suggesting that we do away with these career crashers. But neither ought we fete them and do precisely to them what they sought all along. And in so doing, encourage others to do the same foolhardy and frankly dangerous thing. As Rep. Peter King says, they should be made examples of, so this does not recur.

Tiger Woods should be permitted his household arguments or tiffs (so long as he does not harm others or fail to make restitution for the damage he and his car inflicted) without being hounded. We are not children, who pull at our parents' clothing and insist on getting the full Monty on everything that passes our eyes.



 There is something about the celebrity gate crashing strip tease of the Salahis that shows a deep wrongness in the American psyche and is the root cause of the revulsion overnight today.

Martin Lindkvist adds:

I would add that when the camera is out of the way the hand would do just like the market: when you think it will go up, instead it goes down. As Victor said, that's the way men do it, and the market too. It is good to know that markets and men are the same all around the world.

An Attorney adds:

To present the question more succinctly, more in keeping with my Harvard Law training:

Did Biden's feeling up Michaele constitute an ex post facto invitation to the dinner?



My late father retired after 38 years with Ma Bell. Over the years he served on many employee related accident committees. He told me 99 percent of the accidents were from backing. I remember on his own truck a sticker was affixed on the driver's door ; SU I SIDE. This was on it where the door glass recesses into the door panel in plain view. I make a habit when in my pick up to back slowly. On the job site in my dump I never back unless a worker is watching and directing me while I back.



Happy Thanksgiving 2009 to all our readers.

Our 2005 article "Give Thanks for Pilgrims… and McDonalds" can be found at MSN Money.

Or see the 2006 version.



 I had an old friend try to convince me to buy in on an investment in a $12 million mansion in the Outer Banks: "You know, they ain't making anymore of this beachfront property." I told him Mother Nature is regularly resettling the beaches with tough storms adding and removing 100's of meters of coastline on a regular basis. That's no investment, that's a hobby for rich people.  I told him for that money he could by a few thousand acres of good Iowa farmland,  they certainly aren't making any more of that either, and when push comes to shove I still eat but I haven't made my annual journey to the Outer Banks since this recession started. Or for $12 million you can buy a few hundred thousand acres in a place like Kazakhstan where I just traveled a couple weeks looking for a good farm to buy.  The land is not as good as that lush Iowa dirt, and you may only net $10 an acre instead of the net a dozen times or more than that in Iowa. 

On the other hand,  that Iowa productivity bounces up against the law of diminishing returns, it will take a lot longer to up the yields on Iowa acreage whereas,  tripling the yields on unprofessionally or unscientifically farmed Kazakh steppe can be done by just picking the low hanging fruit, so to speak, and pardon the pun.  Isn't that what investment is all about, profit per unit divided by investment per unit times utilization. Moreover, in the last decade, farmland no longer produces solely food energy.  The landscape of agriculture has changed forever only recently as farmland is now an industrial commodity capable of producing energy in the form of ethanol and biodiesel, a new flexibility and opportunity for diversification and profit.  A farmer may now convert his corn into fuel for his tractor, or into tasty cornbread, but no matter how hard he tries, a wildcatter can't make oil into a sandwich.

Being the 9th largest country in the world with a population of just 15 million, Kazakhstan ranks consistently number 2 in arable land per capita, and much of that land is not even cultivated in these tough economic times, and what is under plow is cultivated primitively.  (Australia, the Saudi Arabia of farm land bank significantly leads the pack-I hate leaving those obvious next questions unanswered).  Kazakhstan's next door neighbor China has 20 individual cities with more people than the whole of Kazakhstan, but 1/20th the arable land per capita.  Sure China has that unparalleled secular growth story, but it's fiercely competitive unprofitable growth.  And sure China has those enormous currency reserves,  but on a per capita basis not as much as cash as Kazakhstan,  nor as much oil, gold, zinc, copper, uranium, gas, nickel, titanium, niobium… ;no need to list the whole of Mendleev's table, but it all applies.  And farmland. Not bad for such a huge country nobody ever heard of, and most can scarcely find it on a map but while the hot money chases deals in China I keep wandering the endless steppe just a bit further west.

Anatoly Veltman adds:

I had the distinct honor of participating in the Kazakhstan Economic Forum just ended at the Harvard Club of New York. I was extremely impressed by the government officials and roster of entrepreneurs in working sessions, as well as networking. Nick Pribus was one I distinctly remembered, and we continued brainstorming over lunch — as our initial introduction during a Carnegie Hall intermission the night before was neither the time nor the place (Kazakh concert, by the way, was truly divine). Nick's decade of experience in the region makes him a leader in the field, at least among the Americans in the space. I hope he finds time for more Russian tutoring, and I hope his quest to raise $300 million of seed capital (pun intended) finds the resource. The natural stats are very compelling, and I really see in the Kazakh steppe a future picture of Omaha steaks!



 He flew in to join me for the holiday, remarking how strange it was that so few people were flying on this busiest travel day of the year: The day before Thanksgiving. Just as Black Friday is the busiest shopping day of the year, immediately following a table laden with pies and feathers, berries and jelly, casseroles and native produce. Why was there not airport pandemonium? It was clear what was happening. It wasn’t that fewer people were traveling.

Millions were still hopping up to relatives and loved ones anywhere-but-nearby. They were just dialing down their travel plans. The announcers on newscasts confirmed my suspicions — that people had traded planes for buses, cars and trains rather than the higher-ticket (if arguably faster) birds with wings of metal. And if they arrived here in the Big Apple in large numbers — while at a medical symposium, I noted over 1,000 cute, pony-tailed cheerleaders (of both genders) domiciling at the Hilton, here to dance and flounce at the time-honored Macy’s Thanksgiving Day Parade, an annual tribute to cartoon characters and beloved memorial mascots, gathered from many states — they usually made their way to the West side for the Night Before the parade 'inflation ritual.' The police cordon; the civilians swarm.

We walked uptown to the American Museum of Natural History, where flotillas of floats were laid out under tent-sized sturdy netting as these characters from Walt Disney, Hans Christian Andersen, Charles Schulz and Pixar Studios slowly gained girth and hefted height. Dwarfed armies of Macy’s crews inflated these beloved characters as the evening wore on.

The floats are inflated on West 77th Street, thronged with masses of parents and pint-sized midgety kids wondering why they were being dragged along in a steady mist below the sightlines of what was transpiring over their parents’ heads; and on West 81st Street, parenthesizing the magisterial towers of the stone museum where once Margaret Mead held peremptory sway.

 Befriending a genial and cool police officer, we were able to sweet-talk our way across the cordon onto the best viewing side, uptown West 81st Street, assuring all constables that we had ‘invitations’ to parties on the block.

Time was, this hallowed inflation went on all night, starting quite late, and proceeding until dawn. Some of us had had real parties then, before those friends had moved to cheaper digs, and had gaily run down from our hosts to get an egg-salad bagel or a lox-cheese croissant being handed out to anyone foolhardy and insomniac enough to still hang around in the darkest of the wee hours across from Central Park.

That’s all changed. The Macy’s people said they now began to blow up the thick PVC floats beginning before 2 pm on Wednesday, the better to have delighted children ooh and aah as they caught a glimpse of Snoopy, macho Popeye or brave Buzz Lightyear.

Halloween (at least in the canyons of New York) now officially belongs to gender-bending adults in contrived masquerade and finery. Thanksgiving’s parade still belongs, happily, to the kidlets. No snarky sophistication welcome, thank you very much.

Though the merchants along the length of the three-sided block all remained open late, not many were buying — except in the spiffy UGG boot shop next to the Reebok Sports Club emporium of beautiful people determined to remain beautiful. Cafes and eateries were pretty packed for some 10 blocks around, among them, us, consuming Hunan Cottage fare; but regular merchandise was not flying off shelves, as tired kids clung to adult hands, and prams with many sets of twins or two-sies trundled along into the back of people’s knees.

As extra inducement to wonder, backdrop to the proceedings of huffing and puffing machinery dutifully inflating two-storey tall balloons, the Hayden Planetarium is magically lit with an ethereal red light inside the huge plate glass wall facing Columbus Avenue, and a glowing, eerie azure on the side facing West 81st.

Clever entrepreneurs in tacky costumes hawked photos, posing with the kiddies for a few dollars a throw, annoying purists. But evading arrest by the indulgent police. Cotton candy in tight Saran Wrap swaddling still repelled grown-up eaters of real food. Junk food was squeezed in many smeared, pudgy fingers.

From the thousands of kids and parents from New Jersey, Connecticut, Massachusetts and upstate NY, you couldn’t tell there was a recession in the land.

Even so, we knew from even a few bantering exchanges with the night’s bright, brief visitors that this was surely the only inflation these hard-working parents were remotely fond of.

Christopher Tucker writes:

Air traffic in NYC was mild yesterday and this morning, apart from a few flurries. Tuesday evening was unusually busy, although it was nothing compared to the air traffic pre-2007 or pre 9/11.  In the "old days" traffic the night before Thanksgiving would leave controllers sweating and cursing, leaving fodder for a year's worth of storytelling. This year and last were tepid at best, giving us a happy rest. Sunday is still up in the air, if you will.



 Game theory has use in the markets certainly in the macro area, but it seems applicable to micro as well. Take for example the consumer confidence numbers recently. Game theory reverse reasoning says that many will jump in the direction of the announcement, as happened. Game theory says that the announcement is malarky and the move in that direction will fade, as it did. The key difference is that one adds a factor for what the others may do in a given situation such as an announcement and adjust probabilities, rather than use a straightforward looking random distribution model. This is a key point. It weighs the future possibilities and then assigns a relative probability to each, and then adjusts the current probabilities based on the relative future values. The random distribution model looks a prior history only to predict. It does not look at the future possibilities and the positions of the players.

Framing the issue to quantify in game theory is key. Use relative values across the variables. Too many variables will lessen the robustness of the model, just as with markets.



 Of ten principles I drew up earlier this year as guidelines for artists, the eighth states "Do not make ideological or political art." Here I imagine the artist to withdraw from personality and get on with doing the job without identifying with the fashions of the day.

Looking at trading as an art (which I believe it to be), this suggests to me that the political provenance of a trader may be irrelevant. A communist and a capitalist may be able to practice it equally well, as they might similarly play the piano or chess. To the trader's art, capitalism (if untrammeled by government bail-outs) functions as the rules of a game. Since I got involved in trading, I have found politics less relevant to me. Similarly, the more I write music, the less I listen to it.

Laurence Glazier is a British musician, artist, philosopher and speculator.

Jim Sogi replies:

I respectfully take issue with "Do not make ideological or political art." I submit that all art has ideological and political elements. The fact that you make it, is proof.

Secondly, my opinion is that it is important to listen to music to write. Other music provides the language people are speaking.



 "Deeper meaning resides in the fairy tales told to me in my childhood than in any truth that is taugh in life." — Friedrich Schiller.

What fairy tales have deeper meaning for markets than truths taught by others in texts, shows, and talking of books?

Phil McDonnell writes:

The Tortoise and the Hare is most profound story for traders of any in Aesop's Fables. The drift is there for all to ride. But if, like the Hare, we are knocked out of the game then we cannot enjoy the full benefit of the drift.

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

Mr. Albert adds:

Not exactly a fairy tale, but the mythological phoenix encompasses the necessary creative destruction, the natural end to what's working, and the ability to come fresh from the ashes.

Also, Pinocchio has volumes to say about deception and gullibility. It's worth re-reading. I was surprised at how often Pinocchio is conned before he finally learns his lesson.



 In my area was a revered real estate man named Walter J. McCarthy. His business still survives and run by his two sons. The title of this post was his quote as a Realtor.

You can build and tear down many times on a piece of land, and the land remains. A friend I know worked for the B&O Railroad all his life and he always said that the railroad owned from Heaven to Hell along their track lines.

You can build in many layers over the centuries on the same piece of ground. A few years ago I visited the Roman ruins under Bath, England. I have been deep below the street of Paris and visited the catacombs. King Solomon's Temple is supposed to be under structures built over the centuries in Jerusalem. The list is endless and I give a few examples of the same real estate being used over and over and the land is always there.

Notably today we see buildings dropped in Las Vegas and new structures rise on the same piece of real estate. Prices rise as well over the decades.



 Here's a good article from Fortune/CNN-Money about the resilience of the agricultural real estate market. One never thinks much about agricultural real estate, but the value of the land reflects the amount a farmer can borrow to run his business and ability to put in his crops. Agricultural land has suffered far less in the recent downturn than residential and commercial real estate markets. Since 1945 the average size of a farm has increased from 213 to 461 acres, but yields have increased three to four fold. Still, the increased yields are working against the income of the farmer with each 1% increase in yield resulting in a 4.5% decrease in prices at the farm gate.

Despite this increase in size and productivity, the market in acreage is cognizant of the fact that we're losing an area of agricultural production the size of Ohio and Pennsylvania every 30 years, and our population is trending up. The bottom line is that the number of farms in the US is at an all time low, and that number is trending downward. The size of the farms are getting bigger, yields are going up, yet the arable amount of agriculture land is approaching a historical low basis the total population. We're down to 0.6 acres of arable farm land per person and that number is shrinking drastically.

The market is aware of these trends and the invisible hand is keeping the prices in agricultural land more in line with reality than the other real estate markets. Most farm land is sold without a broker and reporting of exact prices is difficult, as only the county assessors are privy to this most sensitive of information. Still, the broad trend of prices is up, and many are placing huge bets on the rise. Farmers are mostly close-mouthed, and asking a farmer how many acres he owns or how many head of cattle he has is tantamount to asking him how much money he has in the bank. Simply not good manners.

Jeff Watson, surfer, speculator and art connoisseur, blogs as MasterOfTheUniverse.

Scott Brooks respectfully disagrees:

I have to respectfully disagree with much of what Jeff has written here, though. He is right that the the farming landscape (both figuratively and literally) has changed immensely and keeps changing over time.

But as to farmers not wanting people to know how much land or how much cattle or how much crops they're running, that may be true, but it's certainly not like how much money they have in the bank. You're money in the bank can be kept a secret, but the amount of land you have is pretty much wide open for the world to see. I can go to the FSA office and use their computer system to draw boundaries around a person's property and it will tell me how many acres they have….plus, anyone who lives in the area for any period of time knows how much land farmer Jones has. As to how many heads of cattle one runs, that's open for the world to see, too. And on top of that, if you ask a rancher how many head of cattle they are running, it's been my experience that they will usually tell you.

Most farmers that I know do not have to borrow against their land to run their operations. The FSA office, the local grain elevator, or the local farmers bank will almost always loan money to farmers to grow their crops. I know some pretty awful farmers and they still get the inputs fronted to them by these entities.

Farm land pricing is very regional in nature and depends on the type of land. Bottom land in the farming country is very valuable in terms of income. Hay ground, pasture and non-bottom crop ground is probably next in pecking order. Land in my area of MO, is priced low compared to land two counties over and much lower than land two counties north in Iowa. Scrub land, the land that was of little or no value a few years ago, is now very valuable as hunters (like myself) come in and want to buy up property for recreation.

The little farmer with 461 acres is not what you think he is. Take me and my 522 acres. Based on the standards of the study cited, I am above average in terms of farm size…..but…..I do NOT farm my land (I don't even live on my farm). So what this changes is perspective. I may not farm my land, but it does get farmed. What happens is a farmer (who owns around 750 acres within their family) rents my land for farming purposes (bottom land for crops, grasslands for hay, and other lands for spreading excess manure from his pig operation).

You see, a farmer usually can not make much of a living off 461 acres. So real farmers (non-corporate farmers) rent up a bunch of land to farm. My farmer rents my land and a bunch of other land so that he has agricultural control over ~ 3000 - 3500 acres of land (3,200 acres is the equivalent of 5 square miles of land……640 acres is equal to 1 square mile). The family can run crops, do contour farming, hill top farming, cut hay, run cattle, build hog barns, and many other activities in order to make money.

As to the pricing of crops, I don't believe that we'll actually know the value of the crop (grain or cattle) as long as the government keeps subsidizing their values.

The discussion of subsidies is a whole other post that I don't have time to go into, but suffice it to say, a book could be written on the subject (and several probably have). I'll just say this final thought about them. It is my opinion that the government is like a drug pusher, that once they get their hooks in you with the drug of subsidies, you can't get off them.

As to farm land prices being in line with reality goes……….. This is just false. My farm has quadrupled in value since I bought it 10 years ago, and I've had offers to purchase it for 7 times what I paid for as recently as 3 years ago.

Farm prices skyrocketed in the boom, but they also have not suffered as much as other real estate in the downturn. Most farms in my area, quadrupled in value over the last ten years. They actually quadrupled in 7 years and have remained fairly steady over the last 3. My farm was an exception to the rule due to the fact that I ran a Quality Deer Management Program on my farm and had 7 years of records and pictures of our progress. Due to the work I did, wealthy hunters from out of state were inquiring about purchasing my land for hunting purposes. Those offers have mostly dried up due to the economic downturn.

Obviously there is more to write on farming, but I have a 4 hour and 15 minute drive home from my farm (been up here hunting for the last two weeks) back to my home in St. Louis, so I'm gonna cut it off here.

But I will say this before I sign off. Everything that I have said is very much regionally based. Remember, farming is VERY regional. So what I've written here may not be germane to what is happening in northern Iowa.

So with that being said, what Jeff Watson has written may be true overall, but it's not in my area……so take what I've written with the appropriate grain of salt.

Bruno Ombreux adds:

Here in France a state agency called SAFER records land sales. Their database holds more than 6 million transactions starting in 1970. They have less exhaustive data from 1950.

Unfortunately their database is on a pay-per-use access. But browsing it one can conclude:

- as Scott said, prices are very location dependent. There are literally thousands of micro-markets. Poor grassland in remote locations can be acquired for less than 1000 euros/hectare. Some wine land in Burgundy can fetch several million euros/hectare. (1 hectare = 2.47 acres).

- when one looks at the average of all transactions, land is a very good inflation hedge.

In real terms, prices today are a bit higher than in 1950. Land preserved its value through the inflationary 60s and 70s!

Actually, it looks like land is a leveraged inflation bet, with asymmetric payoffs around a CPI threshold. Above the threshold, one gain more than inflation, below the threshold, one loses in real terms.

On this long-term chart, there are 3 periods:

- 1950-1979: land prices gained in real terms. They increased faster than inflation. - 1980-1995: land prices decreased in real terms, while there was low but still positive inflation. - 1996-present: prices are gaining again in real term, by more than official CPI.

Stefan Jovanovich adds:

 The settlers in Plymouth had experience in growing the cereals that were the major foodstuffs for Europeans in the 17th century: Barley, Oats, Rye, and Wheat. It strikes me as highly improbable that the one edible grass born in the Americas - corn (maize) - would have been so surprising to the Plymouth colonists that, but for the help of the Wampanoags, they would not have known what to do with it. The colonists called it "Indian corn" because it was so different from the types of corns (or grains) they were used to growing and eating; but the name itself suggests that they hardly needed instruction in planting (their colony was named The Plimouth Plantation).

Here is Bradford's version of how "Indian corn" was discovered:

"They also found two of the Indian's houses covered with mats, and some of their implements in them; but the people had run away and could not be seen. They also found more corn, and beans of various colours. These they brought away, intending to give them full satisfaction (repayment) when they should meet with any of them, - as about six months afterwards they did… And it is to be noted as a special providence of God, and a great mercy to this poor people, that they thus got seed to plant corn the next year, or they might have starved; for they had none, nor any likelihood of getting any, till too late for the planting season."



At our local Bob Evan's Restaurant I note on occasion a waiter dressed in all black with a high button collar — resembling the workers of old in the dining car on a train, who wore all white and were usually people of color.

At our Bob Evan's table-servers make a flat $2.13 per hour and have to hustle to make the rest on tips. What does tip mean? "To Insure Promptness"? It could come from old English "Tip of the hat". Jimmy Hatlo used that phrase in his comic strips some years ago.

In hard times people eat out less, which means less tipping. The table-servers thus suffer economically. I have one favorite waitress at Bob's. She knows what I drink when I sit down and knows I like real butter with my rolls. She is pleasant and takes very good care of me. I always leave her a nice tip. Many will say that Bob's and others should pay more so patrons will not have to tip.

Gregory Rehmke writes:

Tipping varies by country and culture. I was surprised when spending some weeks in Buenos Aires and regularly taking taxis, that tips were neither expected nor welcome. My only explanation was that taxi service was highly elastic, so if tips came to be expected that would push down quantity demanded enough to hurt the industry. It makes sense. If you are expected to tip, that figures into your decision to take a taxi. Plus tips don’t make for better taxi rides as they can with restaurant service.

I would have liked, however, to have been able to pay a “headlight fee” so taxi drivers would use their headlights at night. It seemed a strange custom to drive at night with headlights off, only flashing them at approaching cars. But maybe in an earlier time headlight lamps were expensive or alternators faulty. On a long nighttime drive through the countryside, in a small rental car, a bank of bright lights suddenly flashed on behind us. A large truck driving without headlights had caught up with us on a two-lane highway. Scary.

Dr. Rehmke is the author of The Complete Idiot's Guide to Global Economics, Alpha, 2008



 I heard that 25% of stocks were responsible for all of the market’s gains this year. Wasn't this Peter Lynch's mantra? It's the "10-baggers" that are responsible for all the gains in a portfolio. Play for them, while trying to avoid or weed out the real losers.

Alston Mabry writes:

This is the "ICBM" effect. It showed up a couple of years back when we looked at these guys' work on trend following. They were arguing for a back-tested system that bought mo-mo stocks and then sold them on certain rules. But the key issue was to buy enough smaller stocks so that you snagged some of the ICBMs and rode them up, which created essentially all the gain long-term. Now they're saying that was true for the whole market.

Competition and innovation!

Victor Niederhoffer comments:

One should test all these random gyrations with the cross section for a bunch of stocks that investors could reasonably have in their port like the S&P 500, and survivor based, and see that probably all these enormous pareto type concentrations with 10% accounting for 90% the way they do in everything else are most probably due to normal properties of the normal distrituion with reasonably wandering.

Kim Zussman writes:

 What Art write reminds me of this joke:

“… y’know, the, this… this guy goes to a psychiatrist and says, “Doc,
uh, my brother’s crazy; he thinks he’s a chicken!”

And, uh, the doctor says, “Well, why don’t you turn him in?”

The guy says, “I would, but I need the eggs…”

Woody Allen, "Annie Hall"



 Just got in from a basketball game at Ohio University vs. Lamar. Noticed the basketball coaches wear suit and tie. The baseball managers wear the team uniform. The majority of football coaches dress casually (except Tom Landry). I wondered why the difference in dress among these three sports?

Victor Niederhoffer adds:

And what is significance of the terrible millhonian fact that 99% of the people in any mid-level restaurant these days are wearing black? Is it the consequence of a lagging response to a recession — a harbinger of a deep pessimism, of a boat about to capsize, a conventicle of worship for the higher blackness in our midst, a signal that stocks are still not invested with much of a risk premium, or whatever cultural straws in the wind are you seeing of this subdued nature? And what does it mean?

Dan Grossman replies:

1. On the coaches, it's much colder outside on the football field and easier to dress warmly in casual clothes. A suit and overcoat would look ridiculous.

2. In the restaurants, dressing all in black signals the maitre'd and staff you are someone not to be trifled with. You are more likely to get a table without a reservation, or a faster/better table with one. Black says you are from town, perhaps even an artist, writer or in the fashion industry, not from the sticks or the burbs.

Dean Davis writes:

Supposedly black is a slimming color. Perhaps those that frequent comfort food restaurants like those found at the mid-price level have something to hide. I have heard that the quality of diets slide in poor economic times.

David Wren-Hardin writes:

Baseball has a longer, and more recent, history of player-managers. Pete Rose was, I think, the last one. Football seems to reflect the average dress of the time. Back in the fifties, all men wore suits. It may look formal to us now, but the suits were probably pretty standard, not the same as Pat Riley's Armani suits, for example.

As our culture has become more casual, so has the football coaches' dress, especially since they are outside. I think they may even be prohibitied from wearing suits. I recall a coach last year (Jack Del Rio?) who wanted to wear a suit to honor his father, and either had to get a waiver, or paid fines.

You can see similar dress cultures in trading. Traders associated with banks tend to dress more formally than traders in hedge funds. In my current firm, wearing jeans and t-shirts is an expression of pride. If I wear khakis, everyone wonders where I'm going after work. At my last firm, a European owned group, we never wore jeans, and if the bosses from Amsterdam were in town, we wore suits.

Essentially, it seems to have settled out where if you deal with customers, you wear a suit, and if you are a trader, you dress down. The more powerful/profitable you are (or think you are) the more you dress down.

To make it more personal, does how we dress affect how we trade? If I'm more formal, am I less prone to risk-taking? If I'm dressing down, am I more relaxed and making better decisions?

Steve Ellison shares:

That has been the case at MIT for years. From Fred Hapgood's 1993 book Up the Infinite Corridor: MIT and the Technical Imagination:

In his time Ernesto Blanco has designed robot arms, a lens for cataract operations, steerable catheters (that can navigate inside arterial branches), a microstapler for eye surgery, a stair-climbing wheelchair, a forklift truck, film-processing equipment, high-voltage transmission line connectors, a helium pump, and a raft of devices for the textile industry — from pile stitchers to faulty needle sensors. So he has earned the right, which he exercises, to dress his barrel chest and ramrod carriage in rich blue blazers and snowy shirt linens, silk ties, Italian leathers, and flawlessly crease flannels. In this he faces against the winds of fashion at MIT, where an Armani suit suggests not success or achievement but a serious problem with self-esteem, a lack of confidence that the product, the work, will be adequate to win the desired rewards. The psychology expresses itself as a fashion paradox: at MIT you dress up, you dress for success, by dressing down. So in this sense Blanco is like a banker who wears jeans to work; he is good enough to wear what he likes, and what he likes is Fifth Avenue.

Phil McDonnell comments:

The black-is-slimming meme has been around for several years. The older Seattle Grunge look may have spawned an idea that casual is good and, perhaps more importantly, colors that blend in are good. Some time ago I ate at one of the nice Google restaurants and did a quick Galtonesque count of the number wearing black. It was nearly 100%. I was the exception. Many of these young people are from India, China, Russia and elsewhere so it is not just California. In some circles they say that gray is the 'new black'.

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



 I read an interesting post at The Disciplined Investor on the Natural Gas ETF UNG.

If you bought the “natural gas” fund assuming that it would follow the commodity’s performance you would be wrong. Since last September, in fact, UNG underperformed significantly the spot price of the commodity. This is because it follows the percentage change in the price of the commodity’s front month contract. The problem is the market is in contango. In this situation longer-term contracts are priced higher than near-term contracts and the fund will underperform the underlying commodity. The result is quite impressive and disappointing (for some at least).

I have no idea why the divergence in behavior started in September and why there is such a wide contango in gas. The post proposes two scenarios. One where "UNG will come back in line with the natural gas pricing when (if) there is a the contango spread reduces to historic levels". The second where as the fund is "too big and because futures roll every month, there is no way that this can ever catch up".

Quite interesting example of product "inefficiency".

George Parkanyi writes:

I’ve been trading in Canada a similar ETF called Horizons BetaPro Natural Gas Bull+ ETF (TSX:HNU) – a double-long ETF. That’s also been in an abysmal bear market, having completely imploded after the commodities collapse in the second half of 2008. If you’re buying and holding a double long or short ETF (much worse for the short ones), a long one-way move against pretty-much wipes out the value and you will never recover if you bought at the higher end. However, for an active shorter-term trading strategy, you can still get very good moves out of these. HNU rallied from about $8 to $17 in September and October just recently. That’s a pretty good move if you can catch it. (Although its back down around $9 again now.)

You are right about the contango. As soon as they roll into the front month, it immediately goes down. Keep doing that every month… I have a large gas weighting in my portfolio and that’s my main concern as well.



 The biggest effect of the past year was the realization that I need to start wading into the real economy rather than spend 100% of my efforts speculating.  One industry that is well suited for traders is building a web application since it's similarly dynamic, wide open to new interpretations and the real economy is so inefficient compared to the futures markets.

Recently I came upon a book entitled Getting Real that is a collection of essays from the founders of 37signals, a Chicago company which creates project management software.  It was so refreshing to read a book that pushed the ideas that have worked so well for their company and which also fit my personality such as rushing into things but adjust as needed later.  The concept of Getting Real is about doing it, not about planning, theorizing or talking about things but actually creating something tangible.  Both the tech and speculative worlds are full of dreamers who don't take action which is why Getting Real should resonate well in both fields.

The book is even free to read on line if anyone doesn't want to purchase the pdf or printed book.

The company also has a blog entitled Signals vs. Noise where they post random mind droppings.



 My second-oldest daughter Katie's post on Igon Values is very relevant to our field. Who are the useful idiots in our field and how can their self-serving posings be used for profit? Let us start in the Midwest. Or the islands.

Alston Mabry adds:

I thought the "igon values" thing was a joke, but upon reading Pinker's review of Gladwell, I find it isn't. For one who writes about research, as Gladwell does, to not be able to sit down and work linear algebra problems is fine (me neither), but to not know that there is a word, "eigenvalue", which may arise in conversation with scientists — that's embarrassing.

The issue of "igon values" bears on the more general issue of knowledge production and dissemination. I like watching science shows, but even when I'm watching a high-quality show like NOVA, I'm wondering, "Where are the folks, with the same level of expertise, who think at least some of this is crap? What is their critique?" It often seems that a well-communicated disagreement can help the audience understand more of what's important. And actually, a good example is Pinker's review of Gladwell.

In most or all fields of research, one could assemble a group of experts who have similar training and knowledge, but who disagree on important points in the field, especially at the boundaries of discovery. Then you have popular writers trying to understand and condense some field into book form — but if the experts don't agree, how can the popularizers possibly be "right"?

Stefan Jovanovich writes:

Mr. Mabry is far too kind. Scientists talk their books all the time. A scientific reputation is made by presenting a theory that is striking, original and difficult to evaluate.  That theory becomes the scientist's brand. His/her future in academia is tied to the success of that brand.  Few, if any scientists, are crazy/honest/selfless enough to challenge the truth of their brand.  Hence, Heisenberg's comment that "the progress of science can be measured by professors' funerals."

In science, practitioners would rarely be lying about what they are doing. But in markets, who tells the "truth," unless that truth is consistent with the talker's book? Then there is the sheer volume of new "knowledge" produced on a daily basis. How does one cope?

Bruno Ombreux writes:

H G G JrHere is a suggestion. I believe it is linked to the Igon.

I am halfway through a book that is dealing with all these issues: Scientific Method in Practice by Hugh G. Gauch. It sheds light and fosters reflections on such things as scientific questions and methods, disproving or proving hypotheses…

It is a book about science. Since good trading is a science, this is a book about good trading too. Good trading is necessarily scientific, because good trading requires good predictions. Only science can yield good predictions. If trading is not scientific, it can't be good.

This is also a philosophical book. After a few chapters, I have enough philosophical ammunition to completely destroy the Black Swan school, on epistemological grounds. The Black Swan ideas that we cannot have models that work, that variance is either infinite or undetermined, are just as naive, and far less nuanced, version of David Hume's radical skepticism. In one sentence: we can't know anything. Scientific Method in Practice advises not to waste time arguing with radical skeptics. They are not targeting science, but common sense. Common sense is literally what humans can sense in common. In this case, we all can measure variances. Common sense is a key presupposition of science. Without common sense, there can be no science. Without science, there cannot be any debate between scientists and radical skeptics, since the later are saying in effect that the former don't exist.

Incidentally, the fat tails debate wonderfully illustrates one problem mentioned in the book, that is the underdetermination of theory by data. Observing fat tails, I can find offhand a bunch of explanations:

  1. power law
  2. slowly converging normal
  3. Student
  4. truncated Levy flight
  5. mixture
  6. Markov switching model
  7. Agent-based dynamics

The same evidence produces a handful of theories. We are confronted to the issue of theory choice. In this case, I would start by getting rid of those that don't make predictions. Power laws would be the first casualty.

EigenvaluesNow, on to another book recommendation: a first-year course in linear algebra and as such is related to the original topic. "Igon values for dummies," if you want. And it is free. This is a useful book for traders, because it is impossible to understand any recent article on economics or statistics without at least a passing knowledge of linear algebra.

I don't think mastery of Igon values is required to trade well, but other concepts can be very useful. For instance, the notion of projections, covered in chapter 3.VI, really helped me understand multicollinearity in regressions. Multicollinearity is the rule in financial time series. Often, its presence is not a problem, but you'd better know about it and when it can be a problem.

Combining this book's chapter 3.VI.2 about Gram-Schmidt Orthogonalization, with chapter 3.2.3 of this other free book, one gets a clear understanding of multicollinearity.

Jack Tierney writes:

 Being unfamiliar with eigenvalues (whether spelled correctly or not) led me to follow the threads in Katie's article. Those threads, in turn, led to still others. I finally landed on this.

The author laments the increasing propensity of Rhodes Scholars to go into the world of finance as opposed to some of the nobler scientific fields that once claimed so many of those blessed by old Cecil's beneficence.

"This break in an almost century-old pattern coincided with great increases in occupational earnings differentials, which have continued to grow, seemingly exponentially…the differentials in earnings…were often rationalized by Rhodes scholars as reasonable additional compensation to balance the lower standing of business jobs among their peers. "When differentials could become a hundredfold or far more — and as investment banking and similar firms started to recruit young Rhodes scholars who had degrees in math, physics or even history, English and theology — the yawning prospective wealth chasm understandably became impossible for many to ignore…"

So there we have it. Offer enough money and even the brightest will sell out. Let a dilettante like Gladwell emulate them, though, and the wrath of the informed will be merciless (just follow some of the threads and you'll discover that Kate's handling of Gladwell was relatively humane).

However, numerous responses seemed refer to the incalculable worth of the scientific method and were it adhered to, we would all be much better off and far less likely to be exposed to the ditherings of Gladwell et al.

Back in '93 a remarkable book written by a woman embittered by her brother's courtroom experiences hit the best seller list. It was "Whores of the Court" and detailed the lengths to which those supposedly trained in the scientific method quite easily (and lucratively) sold their conclusions. Each side could present "experts" with similarly impressive credentials; each side had access to the same evidentiary material; yet their conclusions could not
have been more different.

It might be legitimately argued that psychiatrists/psychologists aren't scientists in the pure sense of the word. Currently, however, we have scientists whose credentials most definitely measure up. Yet on issues ranging from the efficacy of ethanol to global warming to the amount of oil left within the earth's crust, their conclusions couldn't be more disparate. To put it bluntly, our scientists' opinions are for sale and this is occurring as government policy is
more and more determined by their conclusions.

Whose opinions are the most sought after and well rewarded (at least through speaking engagements, articles in the mainstream journals, and in research grants)? Generally, those whose views are the most dire or the least apocalyptic. This, in itself, is a sad development. But increasingly scientists whose expertise lay elsewhere are chiming in on one side or the other. As a result we are faced with promotions that announce that "X Number of PhDs Support Global Warming Theory", or "Y Number of PhDs Claim Peak Oil is a Sham."

I am increasingly exposed to individuals who claim (and firmly believe) that their opinion is as good as anyone else's, that it's unnecessary to study both sides of an issue, that it is quite OK to shout down a speaker whose views diverge from yours, and that it's quite alright to do whatever it takes to get whatever it is one wants.

In such a world, is Gladwell to be condemned or lauded? Are the newly minted Rhodes Scholars so misguided in pursuing wealth? Are scientists who missed the gravy train to be faulted for making a last mad dash for the gold ring on the caboose? Was Linus Pauling correct in observing that peers are nothing more than people who pee together?

Alston Mabry adds:

This post reminded me of the book "Psychology of Intelligence Analysis" which contains these guidelines:

"Start out by making certain you are asking–or being asked–the right questions."

"Relying only on information that is automatically delivered to you will probably not solve all your analytical problems."

"Do not be misled by the fact that so much evidence supports your preconceived idea of which is the most likely hypothesis. That same evidence may be consistent with several different hypotheses."

"Proceed by trying to reject hypotheses rather than confirm them. The most likely hypothesis is usually the one with the least evidence against it, not the one with the most evidence for it."

Chris Tucker replies:

Wow.  Some great reading in that book.  Thanks, Al. This is from Chap. 2 "Why Can't We See What Is There To Be Seen?":

People tend to think of perception as a passive process. We see, hear, smell, taste or feel stimuli that impinge upon our senses. We think that if we are at all objective, we record what is actually there. Yet perception is demonstrably an active rather than a passive process; it constructs rather than records "reality." Perception implies understanding as well as awareness. It is a process of inference in which people construct their own version of reality on the basis of information provided through the five senses.

This is so important in my line of air traffic control.  I am constantly telling trainees that listening is not something that happens to them, it is something one must actively engage in.  Upon hearing a pilot read back a clearance, whether it be an altitude, heading, speed or route, one must pay close attention to what is said and to check it against what is expected to be heard.  It is common for trainees to simply assume that they heard the correct readback and disconcerting to them when it is pointed out that this was not the case.  We spend a great deal of time teaching them how to listen attentively.

Another facet that I have mentioned before is teaching them to get the data from the scope — to look at groundspeeds and recognize overtakes, to look at altitudes and calculate rates of climb or descent, to look at aircraft types and make hypotheses about expected performance, to look at routes and destinations and see who has to get below whom, and to create plans based on all of these.  And then to observe and check hypotheses, again and again to make sure that what one expected to happen is really happening.  And if not, how to take steps to create the reality one intends.

The key to improvement in these areas is a combination of repeated exposure and active thinking about the available data. Exposure alone can make some tasks become automatic, but active thinking and attentiveness can accelerate learning and skill acquisition.

Phil McDonell comments:

Gladwell self styles as a translator from the arcane indecipherable world of science to the everyday world of business and laymen. A good translator must understand the vocabulary of the original source language and must have a command of the vocabulary of the target language. However a command of the two relevant vocabularies is not sufficient. If it were computers would be the best translators.

What Gladwell lacks is semantic comprehension. It is often not sufficient to merely translate the words without a deeper understanding of the content. His Igon Value mistake is a glaring example.

Clearly his substitution of Igon Value for eigenvalue comes from only hearing the word as opposed to actually reading it in a book. Perhaps someone explained it in a phone or lunch conversation and Gladwell seized on it as an interesting buzz word.

Eigenvalues are actually a very beautiful construct in linear algebra. A simple intuitive way to look at them is the amount by which a quantity is stretched in a certain dimension. Suppose a stock or mutual fund has a beta of 2 and an alpha of zero. The equation is:

stock return = 2 * market return + zero

The eigenvalue for the above system is simply 2 because it stretches the market return by a factor of two.

The idea generalizes to 2 or more dimensions. Each dimension of a linear system has its own eigenvalue. If you have ever looked at yourself in a fun house mirror then you can understand this idea. The mirror that makes you look tall and thin has a stretching eigenvalue in the vertical direction and a shrinking eigenvalue (<1) in the horizontal direction.

Like the fun house mirror a matrix can be thought of as a transformation or mapping of one image to another. If one takes the eigenvalues of a matrix and multiplies them together the product acts much like a volume just as length times width of a rectangle gives the area. In Linear Algebra this volume is called the determinant. If any of the eigenvalues is zero then one of the dimensions has collapsed. It also means the determinant will be zero, the system of equations cannot be solved and any regression will be meaningless.

I have never seen any financial model take into account a determinant. Yet there seems to be a grudging acceptance of the idea that when a financial panic hits all the correlations approach 1 as people seek liquidity by whatever means necessary. Rather than simply look at risk from a simple beta model or VAR approach perhaps the proper way to model disaster is the determinant where all the risk are multiplied together.

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



Here is a description of the studies I am doing on Value Line. FVL is an ETF which uses the Value Line timeliness system. Instead of using VL service to pick stocks individually, you can own FVL and obtain VL returns (of course other screens could be applied).

Using daily closes of FVL and SP500 ETF SPY, I did a linear regression:

For each day's change in SPY (X), what is the same day's change in FVL (Y). The actual equation for this line is:

FVL = - 0.000109 + 0.791 SPY  (Y = alpha + beta*X)

The regression does a least-squares fit of a line to the data (minimizing the sum of squares of errors in Y direction), and the slope and Y-intercept of this line describes how FVL's daily change is related to SPY's.

The slope ("beta") of 0.8 means that when SPY goes up 1%, on average FVL went up 0.8%, etc.  The intercept alpha) shows, on average, whether FVL gives higher or lower daily return than SPY, by checking where the line crosses when SPY is zero.

Both slope and intercept are tested for statistical significance (assuming error residuals are normally distributed), that is whether they were likely to have occurred by chance alone.  

(Better descriptions welcomed)

Here is the study:

FVL; Value Line timeliness ETF.

From inception in 2003, regressed daily return of FVL vs SPY:

Regression Analysis: FVL versus SPY

The regression equation is
FVL = - 0.000109 + 0.791 SPY

Predictor        Coef         SE Coef        T      P
Constant   -0.00011       0.00023    -0.48  0.630
SPY          0.79111        0.01640    48.24  0.000

S = 0.00906282   R-Sq = 59.3%   R-Sq(adj) = 59.2%

>> Conclusion: alpha (with respect to SPY) for FVL is negative, though N.S.  Beta is 0.8, and highly significant.

A scatter diagram is also available.

Charles Pennington writes:

For my curiosity, could you (if convenient) try reversing it and regressing SPY vs the VL fund, for comparison?

Kim Zussman replies:

No problem, Charles. Here's what happens when you reverse the independent and dependent:

Regression Analysis: SPY versus FVL

The regression equation is
SPY = 0.000173 + 0.749 FVL

Predictor       Coef    SE Coef               T      P

Constant   0.0001734  0.0002204   0.79  0.432
FVL          0.74920      0.01553       48.24  0.000

S = 0.00881953   R-Sq = 59.3%   R-Sq(adj) = 59.2%

Analysis of Variance

Source            DF       SS       MS        F      P
Regression         1  0.18099  0.18099  2326.84  0.000
Residual Error  1599  0.12438  0.00008
Total           1600  0.30537



 Poseurs by definition are more concerned with appearances than substance.

Therefore it should come as no surprise that they have many of the same traits as the maladaptive perfectionist. What distinguishes these perfectionists from those that strive for excellence is need to appear perfect, not achieve the most possible. The effort and strive is to prop up self esteem, not truly to create, produce, inspire or discover.

The poseurs generally want to be seen as champions for excellence. They try to align themselves with the athlete, the artist, the scientist and the investor: those striving for excellence.

The perfectionist would rather cheat to win than lose.  They would rather display technical prose than display a moving performance that also displays the limits of their technical abilities.  They would rather be politically accepted and publically recognized as brilliant, than ostracized because of leading scientific advancement before the world is ready for it. They would rather front run, by cosing up with the central planners, than struggle betting good money to get the most effective allocation of resources.

The poseur and the perfectionist want the glory that rightfully belongs to the risks taker, the visionaries, the hard working and the dedicated. Study the perfectionist: their errors in thinking, their traits, and their failures; to also recognize the poseur.  The poseur however, comes with at least one notable difference to the perfectionist.  The poseur often comes with a good excuse why they are not capable of the actual pursuit of excellence.

Recognize excuses and perfectionism in others to avoid them in your life.



 The best books on deception are the best books about the market. The best book about the market according to Martin Shubik is Ben Green's Horse Trading. I would add that there is a good section on deception in EdSpec. And I would point out that a systematic categorization of deception is essential and this is available in the ecology literature following J.R. Krebs's citations on deception in various species, especially monkeys.

Adam Robinson says:

Of course, as I've eulogized no end, The Farming Game by Bryan Jones also has much to say on deception in the buying and selling of livestock, and does so with wit and insight.

Alston Mabry recommends:

I like A Treasury of Deception: Liars, Misleaders, Hoodwinkers, and the Extraordinary True Stories of History's Greatest Hoaxes, Fakes and Frauds by Michael Farquhar.

Russ Herrold re: The Farming Game:

I purchased The Farming Game on your recommendation and enjoyed it.  It was a bit dated as to price examples (they look like a series from the mid 1960s to the mid 1970s), but the underlying principles remain sound. The book starts a bit slowly, setting up some stereotype character sketches, and then strings them together a bit, a bit later in the book.

Kim Zussman writes:

Here is my Deception reading list:

Stocks for the Long Run, Siegel
Irrational Exuberance, Shiller
A Random Walk Down Wall St., Malkiel (efficient markets)
Beating the Street, Lynch (inefficient markets)
Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits, Altucher
The Intelligent Investor, Benjamin Graham (value)
Common Stocks and Uncommon Profits and Other Writings, Fisher (growth)
Futures: Fundamental Analysis, Schwager
Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications, Murphy
Contrarian Investment Strategies - The Next Generation
, Dreyman
Trend Following: How Great Traders Make Millions in Up or Down Markets, Covel
Momentum Stock Selection: Using The Momentum Method For Maximum Profits, Bernstein

(eigenvector = deception)

Vince Fulco adds:

To Dr. Zussman's excellent list, I would add another one very much off the radar screen. In Hostile Territory by Gerald Westerby is purported to be written by a former Mossad agent and profiles his adventures in Africa, the ME and Europe.  I consider it of the best books written on the manipulation of human perceptions, mental flaws and frailties.  I try to read it once a year to condition myself to avoid the traps. It is right up there with Cialdini, but the dynamic and life threatening challenges faced by the author are much more entertaining while providing extraordinary lessons on the subtleties of behavior.

I found the walk through on structuring a diversified [here: agri-]business very approachable, and anticipate lending it out to give context for further discussions to some I work with and mentor.

Jeff Watson comments:

The best book I ever read on deception was called The Game by Neil Strauss. This book is the holy grail for pickup artists, but the lessons easily translate into all areas of life from sports to trading to games. It was very entertaining and well written, znd Strauss gives point by point instructions on how to manipulate, deceive, obfuscate, hypnotize, and control your opponent or object of desire. Strauss takes time to delve into the science of how to pick up women, and believes in rigorous testing and the book surprisingly isn't as misogynistic as one would expect.

Bruno Ombreux writes:

One absolute classic is Arthur Schopenhauer's The Art of Controversy. It also goes by a different title: "The Art of Being Right". Here is a Wikipedia article with the full list of stratagems. And it is available for free at Gutenberg.

Kim Zussman writes:

The most respected investment books of the 20th century all have eigenproblem of hidden utility. Even when authors are intellectually honest, it's hard to understand how they could escape distortion induced by rewards.

Some are selling their strategy (read my book but invest with me), talking their book (I'm deep into growth or value, so please buy these), pandering the academy (status as published professor), making a career of teaching how to trade, increasing status, creating a legacy, etc. This is similar to the more general, "how many friends do you have who don't profit from you?"

Bruno Ombreux responds:

I haven't read all the books in Dr. Zussman's list, but among those I've read, I think two are not deceptions:

A Random Walk Down Wall St., Malkiel (efficient markets)

Most investors would be better off reading this book and stopping there. Also:

The Intelligent Investor, Benjamin Graham (value)

I haven't finished this book because after the first two chapters I realized it was just a watered down version of the first edition of Security Analysis, from the same author + Dodd.

Security Analysis is an excellent book that makes excellent points for the era it was written in. Their technique of looking into detail at companies accounts is similar to detective work, which itself is an application of the scientific method. In my opinion, this kind of financial analysis is a valid way to proceed.

Nigel Davies comments:

The nature of deception may be much deeper than many authors make out. I would say that the origin of all deception is in fact self-deception and that the supposed 'deceiver' is doing nothing more than moving into the vacant space within our understanding.

George Parkanyi writes:

 There is a saying.  "Fool me once, shame on you.  Fool me twice, shame on me."  To me it's just a given that traders, particularly those trading in size, use techniques to mask their intentions.  And sure, those that have knowledge of them, run stops.  That's just one of many influences that make financial instruments wiggle on a day-to-day basis, and you would not only have to sort out what is "deceptive" behaviour vs stupid vs herd behaviour, but whether the deception was or was not in your favour.  Unless you have a large network of people you can call on the inside that can give you information that helps you take the temperature of a given market, I don't see the point of trying to personify this market move or that market move as "deception", especially in a big liquid market that is essentially a non-linear system subject to multiple influences. If there's a pattern that you detect and can exploit then so be it.  But does it matter if it is "deception" vs. sentiment or just a big whale moving through?

Don't get me wrong. Reading about deception is certainly interesting. As a Scout leader, Arthur Baden-Powell's role in the Battle of Mafeking during the Boer War is an excellent example.  In fact, BP's entire early career was based on deception.  But I personally don't see the value in getting overly concerned about deception in the markets, though I understand that others do.

I think if you have a general sense of the day-to-day character of a market that you have researched and trade regularly, and do some research to try to anticipate macro influences on that market that might cause it to trend, the rest can be handled with money management.

Stefan Jovanovich replies:

Baden Powell's energy as a commander was probably the decisive factor in having the deception succeed:

From British Battles:

Baden-Powell conducted the defence of the town with great energy and resource, leading the Boers to believe there was a larger garrison than was the case. In November 1899 Baden-Powell launched a series of raids on the Boers lines that caused him some casualties but made the Boers wary of the garrison.

Initially the Mafeking garrison had no artillery. Baden-Powell improvised various items to look like real guns and trains, while engineers manufactured a gun, known as the "Wolf", from a length of steel pipe. The Boers used the 2 two inch guns they had captured from Dr Jamieson to bombard the town. Dud shells fired from these guns were reworked and discharged at the Boer lines from the Wolf. An officer found an old muzzle loading naval gun serving as a gate post. This gun was christened "Lord Nelson" and drafted into service. Dynamite grenades were manufactured and thrown at the Boer lines and a small railway line was built across the town.

In sharp contrast to the indolent Ladysmith garrison, Baden-Powell kept his men constantly on the move, raiding the Boer lines and keeping the besiegers on their toes.

Scott Brooks adds:

Atlas Shrugged not only speaks of deception, but the deceivers are open about their deception. The deceivers/looters are like gangsters who are in complete control in kick sand in the faces of the producers, daring them to say A is A and damning them if they do, all the while fooling the masses with their A is B pablum. The parallels to our world today are stunning.



A once popular eigenshibboleth is the need for stocks to finance retirement. There are lots of graphs of historical compounding of the SP500 over various periods, but I was curious about account balances over periods of retirement consumption. This is a simple (* see note) study of hypothetical $1M retirement accounts invested in the SP500, for 5 different individuals each retiring at the beginning of a decade: 1950, 1960, 1970, 1980, and 1990.

For everyone (except Goldman Sachs employees), they say one needs about 80% of their pre-retirement income to retire comfortably. $8,000 per month is 80% of $120,000 annual income (average government employee). Each of the 5 retirees puts $1M into the SP500 at the beginning of his retirement (his because a woman's work is never done), and each month sells stock and draws out $8,000 - leaving the balance in stocks. The balance of each retirement portfolio varies due to monthly drawdown + stock exposure, and the running account-balances are graphed in the attachment to compare balance variability and time to depletion for the different periods.

1950 did very well, with his account varying about $1.5M from 1955-69, and he didn't run out of money until 1989. Men didn't live so long then, so his widow must have been smart. The money lasted 39 years.

1960 wasn't so lucky: his account dropped rapidly in value, and was gone by 1974. Hopefully his wife was a professor too, and for the rest of their days they read books from the library together. Money lasted 14 years.

1970 unfortunately had to go back to work after 10 years, when his $1M was gone. Fortunately he got a job as a photographer for Playboy.

1980 made Einstein look like a Troglodyte. His account is still nearly $1M in 2009, and at times approached $3M. 1980 is a widower, and is friends with 1970, who set him up and he is now happily wed to a centerfold. Has been spending for 29 years and no end in sight.

1990 got off to a great start, but the last decade put him into Cymbalta, Cialis, and Metamucil. His account, which was worth $1.6M in 2000, is worth only $280,000 now, and he is calling the Senate today to make sure his meds will be free. 19+years and looking precarious; money may be gone in 3 years.

Note: *(study is very simple: inflation not factored, ignore effects of taxes, SP without dividends, earlier periods hard to index, no one has 100% in stocks, etc).


Anton Johnson comments:

An excellent study that demonstrates the perils of excessive withdrawal rates and underfunded retirement savings.

If we account for dividends and inflation which are not trivial, add government retirement benefits, and the modeled retiree varies withdrawal rates to the widely recommended annual 4-5% of gross account value, certainly a rosier picture emerges.

Kim Zussman adds:

There are many ways the retardees [Ed.: spelling?] could or should have allocated/withdrawn, but here I was trying to elucidate the effect of luck: when you retire vs the market then.  The graphs are reverse of often shown compounding up to retirement — adding X per month to stock account (Famous example Mr. Hill, the engineer who used Value Line to compound millions).

One notes the effect here of changing cycles:  1977-00 worked for all stocks, not just growth.  And since then, well, it's been more difficult.  Even difficult for Value Line:

"November 10th, 2009

Last week the SEC charged Value Line Inc., an affiliated broker-dealer Value Line Securities (VLS), and two of Value Line’s senior officers with defrauding the firm’s family of mutual funds. Value Line’s CEO Jean Buttner and its former Chief Compliance Officer David Henigson have both settled the charged by consenting to the entry of a cease-and-desist order, though they have neither admitted to nor denied the SEC’s charges.

The Commission found that Value Line had been redirecting portions of the funds’ securities trades to VLS from 1986 until 2004 and that Buttner and Henigson overall received “over $24 million in bogus brokerage commissions from the funds pursuant to this scheme, as VLS did not perform any bona fide brokerage services for the funds on these trades.”

According to the SEC’s press release, Value Line, Buttner and Henigson further misrepresented VLS’s “phantom brokerage services” to Value Line’s shareholders, the Independent Directors/Trustees, and the SEC."

What if you invest in something other than the stock market? In the interest of ethnic diversity, attached is chart of $1M retirement accounts, each drawing $8000 per month, and compounding 1, 2,3,4,5% interest monthly on the remaining balances.  I left off the current 0% interest environment, as an exercise for the reader.

Alston Mabry replies:

That's funny, because one of the authors of one of the investment books you listed previously, recently penned a journalistic piece about how maybe it didn't make sense to go to college, because if you put the college money instead into a savings account earning "just 5%", then you would get a better lifetime return.

The whereabouts of this magical savings account was not given.

Jason Ruspini writes in:

The effects of demographics on the underlying returns can't be too auspicious for more recent vintages. The parallel the Sage drew between 1954 and today seems very shaky in that respect.



 Some time ago on this site there had been discussions about the important role of coffee and caffeine in Western culture. The article   "Bringing the Buzz Back to the Cafe" on p. W3 of today's WSJ, which discusses the important role of the coffeehouse in Western culture, is very enjoyable. It's common knowledge that Lloyd's of London began in a coffeehouse, but I was unaware, as the article states, that "the London Stock Exchange itself began with a newsletter John Castaing distributed in 1698 at Jonathan's [coffeehouse]."





 From Henry Gifford: "Libertarians often oppose welfare programs, yet do not deny that some people are poor, nor do they deny that differences in income levels can be measured. My research has not revealed the reason why libertarians will not discuss the science, but has simply measured that this tendancy is very strong, leaving me fascinated to find an explanation for it."

Poor libertarians. When, like Ayn Rand, they carry on the way almost everyone else has in Hollywood since the place was invented, they are accused of immorality. When they suggest that "the greenhouse effect" –the science Henry refers to — may be best considered an hypothesis that is more political than scientific, they are accused of being logically inconsistent. Thank God they don't believe in God; that would require that they all be put on the last remaining ice floes, along with us Constitutionalists. (The Baptists and Mormons and other scriptural literalists will, of course, have to be drowned outright.)The willingness of good-hearted people to accept iron rule in the name of the public good or the future of the planet is precisely what drove Rand and others to the edge of madness. No one who admires Hayek as much as I do can accept even Mises' a priori objectivism, and — to this victim of self-employment for the past 37 years — Ayn Rand's portrait of free enterprise and architectural practice, in particular, remains one of the great parodies of all time. But we should grant the Ms. Rand and the Libertarianistas their due: they have been consistently accurate in their instinctive mistrust of doctrines that surrender actual liberties for the sake of hypothetical paradises on earth.
One can admire Marx as a political economist and think that his prescriptions for saving humanity were pernicious fallacy that has been more murderous than all the known plagues of human history. No one who thinks Al Gore is a blinkered, greedy idiot questions that water vapor and CO2 have effects. What they question is the honesty of the measurement of those effects and the consistent dishonesty of the advocates of environmental totalitarianism when it comes to sharing their scientific data and the operations of their models.

This was not the best week for assertions about the certainty of the facts regarding "the greenhouse effect". Stephen McIntrye's amateur sleuthing made the Wall Street Journal.

Even worse for Henry's side of the argument, some clever and clearly politically-incorrect criminals discovered how diligent scientists can be in manufacturing the necessary data to support a beloved theory.

As Mark Steyn puts it , "'The science is settled' means: The politics is settled. So the science has to follow."



 Medical care is, of course, a right, and one that should be protected by the federal government.  Instead, federal and state governments actively restrict the right to offer medical care.  The expensive, complex, cumbersome, ridiculous health care bill in Congress would only make matters worse by increasing demand and doing nothing to free supply.

A Forbes column by Daniel Fisher (Medical Emergency) discusses the restrictive policies engineered by medical schools, mandatory residency programs, federal subsidies and hospitals. (Paul Starr's fascinating history "The Transformation of American Medicine" tells the bigger story of government intervention in medical care.)

Economic freedom for medical care would simply mean removing government force from the supply side of the equation.  Investors would be able to develop and staff new hospitals and medical schools, foreign doctors and nurses would be able to apply to enter the U.S. to gain certification to practice medicine.  Insurance companies would be free to reimburse medical care provided by new or expanded hospitals and clinics.

Wal-Mart, Walgreens, and other firms would be free to expand medical services offered in their stores, hire new doctors and nurses, and even develop their own online and in-service medical training programs.  Insurance companies could choose not to reimburse care from new providers if they believe such care to be substandard.

The Forbes article notes especially the coming shortage of primary care doctors, estimating that the shortage would reach 40,000 in ten years even without expanded "free" medical services if pending "health care" legislation passes.  With medical schools and residency slots locked down by special interests with state power, supply cannot rise to meet demand.

How many competent nurses, after five or ten years on the job gaining experience and expertise, might choose to take on training to become primary care physicians?  We won't know until such economic freedom became available to nurses.  Insurance company executives often insist on extensive physicals before writing million-dollar insurance policies.  And they often insist the physicals be done by nurses rather than doctors, who as a rule take more time.

How much should a primary care doctor earn?  Before government intervention in medical care, they earned about what other professionals earned.  If government officials and the American public were to somehow be roused from their ignorance of the history and economics of medical care, and insist that freedom of contract be again protected, tens of thousands of competent primary care physicians would soon emerge from new training programs and medical schools to offer quality medical care for Americans of all income levels.  People would likely pay modest fees for service in cash or with credit cards, using medical insurance only for catastrophic medical problems.  Mutual aid societies like the local Eagles, Masons, Moose, and Sons of Italy, might again hire "lodge doctors" to provide medical care to members.  More likely thousands of the nations health clubs might offer a range of "health care" services to members with part-time staff doctors and nurses.

Specialty hospitals operating on broken bones and joint replacements would not also treat people with infections.  Medical costs from accidental infections would drop dramatically. (See another Forbes article, Bad Medicine, for this regulatory disaster story.

Competent primary care doctors carry a vast amount of diagnostic information and experience in their heads.  Alternatively, medical care providers could have a more modest degree of information and experience in their head, but know how to quickly search vast computer databases and diagnostic software for cutting edge information. Imagine a world where all our diagnostic and repair services for cars, airplanes, and other machinery relied upon what mechanics could remember learning about or had fixed before.

Editors note: we find this PajamasMedia article highly relevant.

Jeff Watson points out:

ShrinersOne place that provides medical care for children is the network of 22 Shriners Hospitals in the United States. Run by the Shriners, an organization of Free and Accepted Masons, this network provides free medical services for children without any financial obligation or insurance requirements from the families. Entirely supported through donations, Masons raise around five million dollars a day to fund the network of Shriners Hospitals. The quality of these hospitals is first rate, and the facilities are state of the art. Many Shriners Hospitals offer training and residency programs for MDs. All Shriners Hospitals are committed to the uplifting and complete care of sick children in a family-friendly environment. The burn units are among the best in the country. Donations to the Shriners Hospitals are tax free, and much needed as current conditions and increased expenses might require the closing of six hospitals. The Shriners are desperate to keep the endangered facilities open and provide critical care for the communities they serve.



Pawnshops, from Don Chu

November 20, 2009 | 1 Comment

 Both Mr Millhone’s and Mr Sears’ remarks about pawnshops are revealing:

“Am sure these people could care less about the DOW today. Likely would sell their gold if they had any.”

“Others like me got some below melt value deals on silver and gold in jewelery and coins. ”

The secondary/buy-back market in gold, silver and jewelry had long been the domain of the neighborhood jeweler and standalone pawnshop. But in the past year, some larger establishments have been muscling into the local scene:

"The number of pawnshops here has grown 20 per cent since 2005 and in June numbered 122 stores, according to the Pawnbrokers’ Association. Some outlets compete for business in the same area — when Moneymax’s Toa Payoh store opens later this year, it will compete with both Maxi-Cash and SingPost in the neighborhood. Both Soo Kee Group and Aspial pointed out that their jewelery and pawnbroking businesses are operated independently, and customers should not fear that pawned items might be ‘recycled’ through their retail jewelery stores.”

Someone at the jewelers has apparently been keeping an eye on the diverging trends of the rising precious metal prices and dwindling cash assets of the working classes. This is one small business that seems mighty attractive right now: for want of a better term, socioeconomic arbitrage.



The basis is often the most overlooked part of commodity trading. The importance of a solid understanding of the basis cannot be repeated enough. An excellent article for the novice or anyone else can be found on TopProducer-Online.



M GGandhi was the appropriate foil for Churchill; they were both masters of apparent transparency as public figures. They were, in fact, political schemers who would have held their own against Caesar Augustus himself. Churchill managed to be booted out of office after winning victory in World War II — surely the greatest of all electoral defeats in British history — and then become Prime Minister again.

Gandhi's successful maneuverings, both in South Africa and in India, are too numerous to mention. They were both great men, whose ultimate political achievements were failures: Churchill did preside over the dissolution of the British Empire (something he pledged never to do), and Gandhi succeeded in dividing the Indian sub-continent so disastrously that we are still living with its consequences, even though his goal was a united multi-cultural land of simple weavers and spinners. Both men were shrewd and honest enough to see the irony of their own lives: that may explain why their homilies about human character seem so vacuous, and their wisecracks remain true pearls of wisdom.

"What do you think of Western civilization, Mr. Gandhi?"

"A most excellent idea."



marilyn vos SavantLOVELY, LISSOME LASSES?


ENSURE SWEETER, LONGER SUMMERS with your choice of a bride

A new Swedish study published at the tail-end of 2009 put out results of a years’ long research project on male longevity. Men wed to smart, educated (also lovely?) women are likely to live years longer. Or than bachelors.

Why would that be?

One of the [unstated] explanations is that they challenge their men intellectually, and make the days and weeks interesting with incident and insight. Another, more obvious, variable is that smarter, more educated women will take far better care of both themselves and their families, including husbands, than the stucco-minded simpleton does. For the same reason that women with PhDs will on average live longer, healthier than the high school drop-out. It is not the genes. It is the ability and savvy to make smarter, healthier choices, resulting in fewer health-hijacks and bugaboos, better living conditions, fewer naughty habits, more attentive sporting, fooding and… everything-ing.

Wiser heads will yield healthier and longer-lived spouses.

At base, this study seems the apotheosis of obvious.

But also germane to the study: Smart men will generally opt for smarter women. Not all, of course. Many men (e.g., Tolstoy, to drop a lustrous literary lion) opt for women they can lord it over, show off to, be ages cooler than. In a research finding published some 20 years ago, the New York Times featured a Sunday magazine article that said fully 90% of men look for dumber mates. About 8% or so didn’t mind a woman of equal intelligence. And the vast remainder, 2%, actually sought out women markedly smarter than they.

Of course, as we noted one year in Singapore, really smart women marry men and let the husbands think they are smarter than their wives. That’s real smarts.

So according to the Swedes, 10% of men in the US are smart enough to hunt out women who will keep them entertained, well and healthily long lived. While–boo hiss–90% don’t have the smarts to recognize the value of living and loving with a woman who can make you think, wink, blink and smile.

So we Mensans should have a leg up, theoretically.

(There, there. Not that way. We meant in the metaphorical sense.)

Pitt T. Maner III asks:

 But what do you make of the Swedish "sambo" phenomenom ? The Swedes (I am half Swedish) apparently have a pretty high divorce rate and many decide early on to never to get married at all. A continuous "shacking up" as some of my high school teachers (nuns/fathers) might have called it. Avoiding divorce and its traumatic and stressful effects could be another strategy for some.

"Swedes marry less, cohabit more, live in single-person households more, and marry at later ages than the people of any other rich country in the world. They divorce almost as much as Americans, the world's champions. Re-marriage rates are low. Since the late 1980s a small majority of all births and a large majority of first births have been to unwed mothers and fathers. This cluster of characteristics can be generalized and called the
Nordic pattern of marriage and the family. It has proceeded farthest in
Sweden, but Denmark and Iceland come close; Norway has moved in the
same direction; and so has Finland, but at a slower pace. Marriage and
fertility data, together with attitudinal surveys, show most of the
rich countries have moved in the direction of the Nordic pattern of
marriage and the family, but to a more modest degree. "




 Much has been said of the behavior of Elizabeth Lambert during a women's soccer conference tournament game against BYU. For my part I find it shocking that a college student can behave with such shameful form and somehow think that it is acceptable. What kind of coach allows this? How do parents raise a child to such an ignominious state? ESPN clip on YouTube.  NY Times article.

Nick White comments:

The BYU girls played a good strategy. I know nothing about these teams, but I'm imagining the delightful Elizabeth would have been identified prior to the game as one of New Mexico's key players and likely worth containing. BYU either knew or quickly discovered that Lambert had a temper, so they kept taunting and provoking her, knowing full well that she would likely respond more violently and graphically and get herself removed. In other words, BYU perhaps couldn't contain Lambert through their play, so they used her own proclivity for reaction to get her to take herself out. This is a useful tactic.

I would also bet that Ms. Lambert is one of the more forthright, driven and ambitious players on her team. People who take themselves more seriously are easier marks for this kind of tactic. The rigidity of their internal value system causes them to respond disproportionately to the perceived offense.

How often (perhaps intraday) does this very setup show itself in the market?



PawnJust drove by a local pawn shop and the parking lot was full. I suspect some had guns pawned and need them now for hunting season. Many likely need money so they can feed the family for Thanksgiving. Some need cash for utilities or gas for their vehicles. I am sure these people could care less about the DOW today. Likely would sell their gold if they had any. Some will read my comments and smugly say those people should have prepared better or should not smoke or buy beer. I try not to judge anyone and strive to keep my own house in order.

Russell Sears remarks:

I bought a few items at a pawn shop Oklahoma last weekends and the parking lot was full, as were the registers. Some were at the gun counter, but others, like me, got some below melt-value deals on silver and gold jewelry and coins. The art work was picked over — little to be had. There were plenty of power tools and saddles to be had and not a browser near them. But all appeared to me to be buyers browsing for a discount, not sellers.



Gandhi said a person cannot be different from himself in different areas of his life. He meant a person really cannot be someone at work and a entirely different person at home, with his friends, etc. The personality is a whole –- you can’t have a mask for different occasions. What you do in private life echoes in your business life, and vice-versa. What you do in the different areas of your life (private, professional, friendship, religion, spirituality, fun) echoes in every other part.

If you are a fighter in your work, one cannot expect you to be a daisy flower at home -– you will treat your family with the same authority and discipline. If you are kind, you will be kind whether at home or at office. One cannot really perform different roles separately. The person is an unity.

That means if you are lazy, undisciplined, late, in your behavior, it will reflect in your trading. Have you ever thought your trading problems may not be trading related? If you find yourself…

1. Unprepared
2. Getting late
3. Not aware of details
4. Leaving office or desk at crucial times
5. Answering phone calls at trading time
6. Talking aloud as if your office was a party
7. Not taking care of your trading journal…

Can you honestly say that the problem is with the market?

Marion Dreyfus comments:

Not sure about this. Some children are quiet at home, noisy at school. Many of us are introspective at work, but different at private functions. I know people behave differently all the time…

Newton Linchen responds:

I didn't mean surface behavior. An example of what I meant is that person who cannot endure "suffering" (such as boring parametrization) to achieve results. In this matter, Daniel Goleman mentioned a study of children who could not wait the experiment time to not eat a cookie in order to get two cookies — and it seems this behavior (of immediate gratification) had an impact in their professional lives.

Marion Dreyfus comments:

Ahh, yes. Literalist me.



Legs, by James Sogi

November 19, 2009 | Leave a Comment

Last three legs up: 60, 70, 80.



The subject of victimology (Psychology Today, January 2009) has fascinating market implications. What if market predators had a similar unspoken consensus about selecting victims, and what would be the signs?

Within a few seconds, the convicts identified which pedestrians they would have been likely to target. What startled the researchers was that there was a clear consensus among the criminals about whom they would have picked as victims–and their choices were not based on gender, race, or age. Some petite, physically slight women were not selected as potential victims, while some large men were.

Don Chu comments:

Very true. And a very good read in the reference provided, especially the following: “the criminals were assessing the ease with which they could overpower the targets based on several nonverbal signals–posture, body language, pace of walking, length of stride, and awareness of environment.”

A natural question following the one posed by GM Davies above may be: what if the would-be ‘victims’ are actually predators of a higher order, masking their true abilities and intentions, and displaying their ‘weaknesses’ both as a ruse to deflect attention as well as a bait to lure an attack, all the while poised to engage+respond with hidden ‘primed power’(势)…

After all, deception is a large part of any engagment, be it in the natural world, war, individual confrontation or the financial markets.

The Thirty-Six Stratagems (三十六计): #27-Feign Madness But Keep Your Balance



Brooke [Shields] is superficial, she talks only about things rather than ideas. — Attributed to Andre Agassi.

BrookeSupposedly Brooke graduated Magna from Yale, so she must be a well-reasoned thingophile. I called my college daughter this morning, hoping to give fatherly advice on "how not to be superficial." A simple formula: in speech, increase the ratio (ideas)/(things).

This advice rapidly became convoluted. An idea fundamentally is a thing. Structurally — an arrangement of specific neuronal connections. Money certainly is a thing, but also an idea; an idea which can transmit ideas (e.g. paying a consultant for ideas). A vehicle to facilitate trading of things, often glorified, and vilified, by people with conflicting ideas about the value of things.

Breast implants are things, with an idea behind them (a new tee-shirt logo?). Make-up is a thing — to present an illusory idea; allure, of youth and seduction, and escape from the idea of time, aging, and death.

Brooke may have had ideas about using her things to get things — a very common idea.

The advice was unnecessary as my daughter isn't superficial. But still it's interesting that smart, beautiful women, who never do things by accident, use the idea of things to get things.



One speculates after seeing the high correlation to change in bonds issued for the year and the index, if there is a more predictive correlation when an individual corporation issues more new bonds and their stocks return. Are there good studies on this?

I also looked at the ratio of junk issued to total for the year and thought there may be a positive correlation to performance of Russell 2000 vs S&P. However, there was a fairly strong negative correlation. The S&P generally outperforms Russell 2000 when there were a high percentage of junk issued, perhaps because the junk issuer is forced to. Which again could use a good individual stock study.

It would seem that one of the lessons to this crisis is that keeping an eye on and understanding the too liquid and subsequent illiquidity in the bond markets is key seeing the "fat tail" or "black swans" like John Paulson.

Year LN Change LN Change in S&P in US Corp Index Bond Issued
10/2009 13.7% 12.3%
2008 -48.6% -46.8%
2007 3.5% 6.3%
2006 12.8% 34.1%
2005 3.0% - 3.6%
2004 8.6% 0.6%
2003 23.4% 19.8%
2002 -26.6% -19.8%
2001 -14.0% 27.8%
2000 -10.7% - 6.9%
1999 17.8% 3.0%
1998 23.6% 27.0%
1997 27.0% 30.4%

For the bond issuance data:

 Jordan Neuman responds:

I don't know if full year returns sufficiently catch what you are looking for. It seems that Junk Bonds are issued when they are in demand, after a small-cap (or "risk") run. Then the S&P out performance makes sense as the cycle changes. The Russell 2000 is still about even with the S&P this year, but has gotten trounced on a relative basis only lately.

Russell Sears responds:

In my theoretical way of thinking, generally new debt is issued when there is either a change in perception of risks (increase leverage) or new opportunities for profits (expand empire). However, with junk it not as clear where the "equity" line is. It may be that junk needs more dissecting than simply "junk". It is not clear which stocks or bonds come first the chicken or the egg. Also, for the list only, I suspect that perhaps an early warning sign may be if the debt is under or over subscribed at issue. However, debt or mbs bonds especially in the sub-prime area signaled over issuance and too high a demand that a bubble had formed well before it broke.. AAA stuff was being sold as risk free arbitrage where you simply hedged out the duration or interest rate risks then leverage it up high enough to get whatever return you wanted. It had to end badly.



A AI was planning to review Agassi's autobiography but he shows himself as such a loathsome character on every page that I don't wish to waste the time before finishing A Terrible Splendor, an excellent book by someone who doesn't know anything about tennis, but does tell some great anecdotes along the way, and evinces the pathos of Tilden and Von Cramm in a heartfelt way. I always thought that Agassi was a terrible sport, and a spoiled good-for-nothing and people would try to dissuade me and say he's changed — but I see my views were correct. I wish I could see as clearly to the bottom line in markets as I can in racket sports.

Charles Pennington responds:

It was an enjoyable book, and I like to watch him play, but it's true that almost everyone who comes up in the book, except for his current inner circle, gets panned in some way or another:

  1. Pete Sampras gives miserable tips to cabbies, luggage handlers, etc, and makes you feel like one of them when he wins.
  2. Michael Chang is sanctimonious, takes God to be on his side in his tennis matches.
  3. Jim Courier, after beating Agassi, went out for a jog to demonstrate that Agassi didn't even tire him out.
  4. Boris Becker blew kisses to Brooke Shields during his match with Agassi in order to tick him off.
  5. Brooke is superficial, talks only about things rather than ideas.
  6. Nick Bolletieri can't be taken seriously as a coach.
  7. Andre's dad tormented him with tennis.
  8. Jimmy Connors is a mean SOB, walks around like Julius Caesar.
  9. Andre's grandmother has a hideous wart on her nose.



iPhoneThe failure of one of our aging Windows Mobile PDA phones has prompted a review of what to get instead, and is an opportune time to consider the iPhone, despite (and because of) the religious fervor surrounding it.

At first touch, the screen is wonderful, the method of zooming and compressing first class. But I started to wonder why the buttons were so big, and why list programs were never in small font, and realized that it cannot work with a stylus. (Googling has revealed some attempts at these). I presume those using programs like OmniFocus (and word processors — such as they are) must be zooming in and back out all the time as they edit.

And digital art must lose its spontaneity, if drawing requires expansion of the canvas so that a finger width translates back to a thin line. It is such a shame that this beautiful screen responds only to a blunt tool.

The array of icons on the home screen, and the limited number of lines displayed in many programs, together with the beautiful physical form, reminds me of the Palm V, which I loved in an earlier era.

I would guess that in the ensuing battle, Apple will play Palm to Google's Microsoft.

Admittedly there are many who have benefited from the design - I have received photos "sent from my iPhone" from sources not known to be geeks in the past. But for us, multiple application users, I think we will stay with Windows Mobile, staying with the creaky system that has done us well since the days of Palm, living with near daily "soft resets". Now the TouchFlo HD looks nice…

If I am about to miss my chance of Nirvana please put me right — I'm feeling almost guilty as I think of the joyous hordes around the Apple "Temple" on Regent Street.




While Belichick's decision is certainly controversial, especially in hindsight, I would not be surprised if objective statistical analysis showed that in general teams punt too often on 4th and short yardage.

Taking the usual kick and runback, perhaps the defensive team takes over an average of 30 yards down the field. If the offensive team can make the short yardage, say, 75% of the time, in general that seems a worthwhile tradeoff. Of course, Belichick was ahead, with two minutes to go, on his own 29 yard line, so not the most favorable case for it.

I recently heard of a small college team where the coach nearly always goes for it on 4th down, and nearly always on kickoffs kicks an offside kick to try to recover the ball. I bet he comes out ahead, although his tradeoffs are more favorable than in the NFL where kickers kick much farther, less chance of a kick's being blocked, etc.

I know nothing about football, but sounds a strategy worth trying more, especially if gives the defensive team a lot more uncertainty.

Bill Egan comments:

Belicheck's decision is a lovely example of bad risk control. He risked everything on one play.There are those who might argue that risk management should of course be a matter of necessary discipline. And even though it may behoove one's survival interests to never wager everything on one unknowable outcome, ratcheting up the risk parameters when one clearly has the upper hand, should never be ruled out. That said, even though one may steadfastly never risk anymore than x percent on any one outcome, it would hardly be unduly irresponsible to risk somewhat more than x to wager that Belicheck will not do that again anytime soon.

Why, because there's a considerable qualitative element at work here.

He wasn't the inevitable victim of the inevitable 100-year flood, some of which will inevitably if soggily cluster. No, he was the victim of not having any faith in his defensive employees.

And he knows full-well that the flesh-eaters in the media would reduce him to dry bones but quick if he did it that egregiously again, and it didn't work again.

Therefore, it would be relatively safe to dutifully wager that it won't happen under those same circumstances anytime soon, and it would hardly be imprudent to risk more than the ordinary x.

(Provided that's in the prospectus. Never mess with the lawyers, they're a lot cagier than football coaches. And the odds are always in their favor.)



WCBECOMING WINSTON CHURCHILL: The Untold Story of Young Winston and his American Mentor, by Michael McMenamin, Greenwood Publishers (2007)


Scholar Michael McMenamin has written a (nearly) tell-all about a little-known phase of the protean statesman, painter and savior of England who is so admired throughout the Western world.

Charismatic Bourke Cockran, who even in the late 19th century made over $100,000 per year, 'adopted' the young Winston when Winston's father, Lord Randolph, died in 1895. His beauteous heiress mother, Jennie Jerome, a New York beauty famed for a number of assets, became the lover of Cockran; his mother persuaded the dashing, gifted orator Cockran to mentor the thus-far undistinguished, undirected Winston. Winnie became a grateful and devoted protege of Cockran.

Winston espoused the former's views and (then-) radical notions of individualism, free trade–and Irish home rule, oddly enough. His influence was most strongly felt on the day in 1904 when Churchill, putting principle over party, left the Conservative berth he had long been a staunch part of, to join the Liberals. The issue: free trade.

Excellent scholarship and hard-to-come by dish, as we say now. Highly recommended. Especially if you are a die-hard fan of this brilliant, confident, global, remarkably prescient politician and statesman, young or old.

Stefan Jovanovich responds:

I have not read Mr. McMenamin's book so I this only as a caution about accepting uncritically the notion that in 1904 Churchill left the Tories over principle after having "long been a staunch part of" that party. Churchill was only elected to Parliament in 1900. Even with his mother's money and his famous father's reputation behind him, he was still very much a back bencher and not one who had gained much favor with his elders in the Conservative Party. He belonged to the faction that were known as the Hughligans - a name given to the supporters of Lord Hugh Cecil who were, as the name suggests, as noisily self-promoting as Churchill himself was. When he opposed Joseph Chamberlain's budget for naval expenditures and increased tariffs, Churchill's own constituents in Oldham deselected him. His leaving the Tories for the Liberals was a matter of absolute necessity; it was the only way he could remain in Parliament.

It is also wise not to read too much into Churchill's support for "free trade". Those words did not mean what we now think they do; the debate was not over the absence of tariffs but over how the colonies themselves would be allowed to engage in direct trade (the same issue that provoked the American revolution and one on which the majority of Britons remained steadfastly for preference, just as they did in 1775). In an absolute sense Churchill believed far less in "free trade" than the American Republicans of the period, who wanted tariffs but no preferences. Churchill never abandoned his belief in the economic necessity and rightness of Empire; his first official position in government was as Under-Secretary of State for the Colonies when the Liberals took office with Henry Campbell-Bannerman as Prime Minister.



VNI often find that without the privilege of talking to the Secretary of the Interior every day, I have to look for other fields to attempt to stay even with the fray. I always find it easier to learn about how not to lose than how to win, so I like to study how the Knicks and Jets, two of New York's worst teams, manage to lose so often. It's easy with the Knicks. They have no foundation to their game. Their men are overextended, their shots are random from 100 feet out, there's no percentage. Sort of like the man who has leverage of 10 to 1 near the close, and is waiting for the other side to stop him out. That's easy. Near the end of a season, a game, a fray, the other team, which has a foundation, can overrun them at will. But for the Jets, one has to delve deeper, as sometimes they win. It was with pleasure therefore that in looking at the results of their Nov 15 loss, I learned a few things about how to lose. The Jets were up 22-21 with a minute to go. The Jags on the Jets 14 yard line. The Jets coach Ryan tells the Jets to let them score. But Jones-Drew refused to score stopping at the 1 yard line to set up a field goal with 2 seconds left. they made the field goal and won 24-22. Okay, both coaches used second and third level deception. First the Jets trying to let the Jaguars score, and then the Jaguars refusing to score the touchdown. There has to be a market situation. Let's take all the times very near the end of the day when the market is down just a hair compared to the times the market is up just a hair. Which is better? As you guessed, the coaches had it right. With the market down a hair, I find a 0.05% rise in the last x minutes before the close with a z of 1. With the market up a hair, I find a very different situation with a z of -2… The situation calls for further study.

 Steve Ellison comments:

Turnovers are a good way to lose. The San Jose Sharks turned the puck over in the defensive zone last night in overtime, and within two seconds the Chicago Black Hawks put the puck in the goal to end the game. Roy Longstreet's 1967 book, Viewpoints of a Commodity Trader, which I have quoted here before, has a chapter on how many games the Bart Starr-era Green Bay Packers won simply by making fewer mistakes than their opponents. There are numerous unforced errors a trader may make that are analogous to turnovers. For example, deviating from my trading strategy and entering impulsive trades have cost me money nearly 100% of the time.

 Ryan Carlson responds:

I'm fortunate to have Blackhawks season tickets and spend many nights deriving speculative analogies from watching such games. Last night in particular was fruitful because the Sharks are the best team in hockey so the margin for error was particularly slim for the Hawks although they were able to win.

Some other insights from last nights game was the Sharks scored their second and third goals 45 seconds apart to pull ahead 3-1. Quite often, it's easy to get down after a bad trade and be unfocused like the Hawks were after each of the three unanswered goals and that lead to getting them further in the hole.

Another potential Sharks goal was later considered "inconclusive" by video review and that kept the Hawks from getting buried further with a three goal deficit. Using the break they were given, the Hawks came out flying for the rest of the game and finished hard for the win. Sometimes, the market lets a guy out and when that happens, it has to be used to it's full advantage.

The Blackhawks have a great team to watch and one of the best to observe different combinations of risk and reward in their entire group of Defenseman. Some of the defensive corps is paid to strictly move the puck up ice to the forwards with high risk/reward but they are paired w/more steady and defensive players who cover for the risk. No matter which defenseman hangs back, they always ensure that they never leave their goalie exposed no matter how enticing an offensive opportunity is.This year my best insights have come from watching 21 year old Patrick Kane who is only 5'10" and 178 lbs. Granted he has amazing hands to stick handle and shoot with but that along with his instincts were all honed to survive as a small player. Since he doesn't have the size to compete for the puck, Kane has developed an amazing sense of where to be or not to be. Similarly, I've found that a good trading niche for me is to focus on where not to be and work on staying flexible to handle quick opportunities as they arise.Recently I read a book about another smaller player, 5'6" 180lbs Theo Fleury where he noted that the reason why 6'5" 244 lbs Eric Lindros suffered so many concussions was that he could skate w/his head down and get away with it in junior hockey as others would just bounce off him. Once Lindros got to the NHL and played against guys his size or bigger, he was unable to break that habit and those concussions ended his career and his brother's as well who played a similar style. Fleury noted in Playing With Fire that if he himself played that way, he would've gotten killed.Last nights Sharks/Blackhawks game was fittingly Jeremy Roenick night so we were treating to lots of video showcasing the dedication, passion and perseverance that it takes to become a impact player like Roenick. Looking back on his sacrifice and dedication, it was clear in Jeremy's eyes that it was all worth it when he met the crowd.

Somewhat relatedly, an interesting article linked below came out on the Blackhawks and the superstitions of each player. I personally rub the cornucopia of a statue outside the office and won't touch anything on my way in each morning with that hand, not too bizarre I don't think.

Steve Ellison responds:

The Sharks' TV announcers commented that they had not seen any team persist in attacking Sharks' defenseman Douglas Murray the way the Black Hawks did. Douglas Murray is a very tough player who, when he sees an opponent about to check him, likes to brace himself and move his upper body explosively in the direction of the opposing player, sometimes leaving the would-be checker sprawled on the ice.

On Mon, Nov 16, 2009 at 1:41 PM, Ryan Carlson <> wrote: I'm fortunate to have Blackhawks season tickets and spend many nights deriving speculative analogies from watching such games. Last night in particular was fruitful because the Sharks are the best team in hockey so the margin for error was particularly slim for the Hawks although they were able to win.



Cachaça"Trading is fun", I hear once in a while. It's a "cachacinha" ("Cachaça" is a Brazilian alcohol beverage made from sugar cane). They mean, trading is addictive. From "fun" to "addiction" it takes only a small step.

I was once addicted to trading. My account suffered. It took a LOOOOOONNNNNGGGG time to free myself from the addictive power of the markets. Now I'm making money, for me and for my clients. Guess what? The fun is gone. The fun is completely gone, for I'm using a method to improve profitability and reduce overtrading (overtrading leads to poorer performance), and, as a side effect - and what effect! - the emotions of trading are gone.

Whoever you talk about trading, they will tell you amazing epic stories about great bravery, suffering and battle. They include all emotions: fear, greed, joy, pain, etc.

Few, very few people will tell you that trading is boring, just like factory work. Guess what? The emotional traders are not making money. The boredom traders are taking money from them!

What is boring about trading? To be honest, to quantify is boring. It takes time. It takes effort. It takes more time. And it takes more effort. So it is to parameterize. To test is boring. To avoid spurious correlations is boring. To avoid anedoctal evidence is boring. To do the same trades over and over and over is boring. To not deviate from the plan is boring - specially when your gut feeling makes an extraordinary call about the markets. All that is boring. Boring. Boring. Boring. Boring.


It makes you money. Trading is such an interesting field that one cannot get FUN and MONEY at the same time.


Nigel Davies comments:

The acid test may be if someone stops trading, will he miss it? Chess stopped being fun for me a very long time ago, but when I don't play something is missing. Some colleagues who've given up say this goes away after a while, others keep playing their whole lives. The progression seems analogous to being in love, being married and breaking up.

Nick White responds:

I don't know — I think trading can be enormously fun. I think what Newton is really driving at here is the difference between process and outcome and the balance of emphasis between the two in different groups of traders.

I would argue that process-driven traders spend much more time doing "dull" activities like researching, programming, quantifying, testing etc. Furthermore, I would say that traders involved in these process-driven activities do so because they genuinely enjoy being in the market, love the challenge / intellectual stimulus of trading and are committed to learning as much as they can.

Focusing on process grounds the trader - if the trader gets it wrong, she has a foundation to revisit her thesis, look at the data and learn from her mistakes. If a trader is doing well and trading at his high watermark, a process-driven focus helps him fight hubris. The NYT article about Shane Battier had it exactly right - process driven performers don't measure themselves explicitly by whether they won or lost on a particular trade - they measure themselves on whether they did the right thing at the right time given the information they had. So, net-net, process-driven traders are likely to enjoy the activity of trading irrespective of the final result: they like the research, they fight for their edge and they play it. If they win, so much the better. If they lose, it still sucks, but they can put that loss in perspective…the kicker being that enjoyment of process-driven activities gives a much higher likelihood of getting positive outcomes in the first place.

On the other hand, outcome-driven traders seem to want the high of good pl without the necessary work to ensure non-random results. They seem to trade to prove something either to themselves or others. I'm sure Dr. Steenbarger and Dr. Dorn would be able to contribute much on this point but, from my amateur armchair, I would say that traders driven by outcome aren't really into trading because they like it, but are into trading as a proxy for some other need they are trying to fulfill. In that sense, trading probably is addictive for much of the same reasons that any activity or substance can become addictive - it likely helps to reinforce desired feelings and self-image while shunning unwanted ones.

In short then: if you trade because you love it and like doing the research work for its own sake, then you are more than likely going to enjoy trading irrespective of the final result - but you also have a greatly increased chance of success. Trade to "be" something / somebody and you are likely to come unstuck quite quickly. (All this is said with the caveat that these two camps aren't neatly delineated, but seem to be something of a spectrum, with all of us lying somewhere on the line at different stages of our careers.)

Process can be dull; no doubt about that. But, as an old coach once told me, "what you can't do in training, you won't do in racing". If you haven't spent the time to quantify, test, understand and introspect about how you would approach your chosen market in a given situation, you won't know how to respond when it happens for real. It is one's emphasis on process / outcome that determines whether results are a statement about one's self, or are simply indications of progress on the path to improvement.

Philip J. McDonnell remarks:

One of the trading mottoes I live by is:

If trading ever gets exciting I am probably doing something very wrong.

The underlying logic is that losing is what makes trading exciting. Think about a savings account. It always wins and is very boring. It is boring because it wins. The losses appeal to us emotionally. They create the nor-adrenaline rush. It is too easy to get addicted to the rush. The adrenalin driven figt or flight mode satisfies us emotionally but numbs the mind. Slow and steady is better and frees the mind to think logically.

Newton P. Linchen replies:

Phil just nailed it!



Speaking of decades, if you had to pick one asset to buy for the decade and you had to just hold it, what would that be? For example, these would have been great decade-long holds without trading:

1999—buy gold
1989—buy tech stocks
1979—buy US stocks

My long pull ideas for 2010- 2019:

biotech — (buy a biotech mutual fund and forget it)
tech (robotics, space, warfare)
China (no brainer)
US real estate — (it should recover by 2019, eh?)
commodities — (feed China) 

Kim Zussman looks at it differently:

Counting years ending in 9 as end-of decade, if DOW closes near where it is now — this will be the first down decade since the one ending in 1939. Here are decade returns and alongside the subsequent decade:

Not related to day-trading, but long (10+yr) period movements of the stock market could affect contemporaneous investors' future outlooks. E.g., those in stocks 1990-2000 experienced something very different from the recent (down?) decade.



The attached chart compares log(DJIA monthly close) for the periods 1942-1982 and 1982-2009, transposed such that 1942 and 1982 start at the same point in time. "Relative date" axis is in months at the same scale for both periods. The "range-bound" period (and what a range it was) in the older series starts in 1965 and ends in 1982. Why did it end ? Presumably de-torporization via larger than life Paul Volcker, Ronald Reagan, Bill Gates, and Michael Milken.

Why 1942? It was a good starting point, as it was when Bogart made Casablanca. The era 1942-1982 could be called the era before financial engineering ("I am shocked to learn that there is gambling going on here, gambling on the value of mortgage backed securities").



Gold and S&P mirroring each other at 1110 and 1090 respectively, but Nikkei down four days in a row to 9800 versus usual consonance with S&P.

Ken Drees responds:

Here is four month chart of Gold/SPY. Victor's post got me thinking of the relationship.



I have two investments A and B. If I regress B's return on A the intercept (alpha) will show whether B is preferable to A. But whether I regress A against B, or B against A, I get a positive intercept. It's as if A has alpha over B, and also B has alpha over A, which makes no sense. — A Reader

In Markowitz's theory, given two different investments A and B it is not in general possible to say "it has to be the case that either A outperforms B or B outperforms A, tell me which it is." There is no way to compare two investments and rank them in this way in general (as mathematicians would say there is not a "total order"). So it is not entirely surprising that the method of regressing A on B and B on A does not give a consistent answer as to which of A or B is better. No method will give such an answer in general. We have to live with that.

What Markowitz does say is that if you have $1, you can allocate it across A and B in various proportions (which could include shorting one of the assets to buy more of the other) and thus generate a "portfolio frontier" of points with various risk/return. Whether, in the particular case the letter writer brings up, this exercise would yield worthwhile insights I do not know. For example, if the writer revealed to us the variance-covariance matrix of returns (i.e. three numbers c11, c12 and c22) we could compute the Global Minimum Variance Portfolio weights [which are w1= (c22-c12)/(c11-2*c12+c22) and w2=(c11-c12)/(c11-2*c12+c22)], and if we knew the returns as well we could trace out the frontier. We could plot it and look at it. Useful? I don't know.

The theoreticians who came after Markowitz (Sharpe, Jensen, et. al.) believed that there is a very special portfolio in the universe called the Market Portfolio and that everyone would want to hold that plus perhaps small amounts of "other stuff." Under some fairly restrictive assumptions the desirability of the "other stuff" could be gauged by regressing its return on the Market Portfolio, always assuming that you could identify what this Market Portfolio is. Only by convention, or approximation, is this portfolio identified with the Standard & Poor 500. In any case the situation is not symmetric and the Market Portfolio plays a very special role in the theory.

What I am trying to point out is that we are so used to regressing things against the S&P 500 or other indexes every day that we sometimes lose track of the fact that this procedure does not in general allow us to rank two arbitrary investments. To compute an alpha you have to do the regression against "the market factor(s)" — not just any investment.



T o t U SThe Tomb of the Unknown Soldier covered in red was quite a site to see, almost completely buried in the little red poppy pins that everyone wears leading up to Remembrance Day in Canada every year. Legionnaires and veterans organizations distribute them to fundraise for Veterans. In the bright sunshine of a crisp and beautiful November 11th morning, they truly looked like the real thing. Why November 11th? Armistice Day in 1918, the 11th hour of the 11th day of the 11th month, when World War I finally ended. It is at this moment every year that we all stand for one minute of silence to remember those that gave their lives. And the poppy is now the powerful and widely recognized symbol of Remembrance immortalized by John McCrea’s beautiful poem “In Flanders Fields”

In Flanders fields the poppies blow

Between the crosses, row on row,

That mark our place; and in the sky

The larks, still bravely singing, fly

Scarce heard amid the guns below.

We are the Dead. Short days ago

We lived, felt dawn, saw sunset glow,

Loved and were loved, and now we lie

In Flanders fields.

Take up our quarrel with the foe:

To you from failing hands we throw

The torch; be yours to hold it high.

If ye break faith with us who die

We shall not sleep, though poppies grow

In Flanders fields.

Our poppies were on that tomb. Shortly after the final wreath was laid, and before the general public was allowed back onto Confederation Square, each of us of the 63rd Ottawa Scout Troop stepped up, one at a time, laid our poppy on the tomb and saluted, as had the military personnel before us. The kids looked great doing it too, each having their own special moment at ground zero of the Remembrance Day ceremony. When we laid down our poppies, there was just a smattering of them, like the first fall leaves. After the public was done, the Unknown Soldier was warmly shrouded in both poppies and love.

Before that we started the morning by meeting at our agreed staging point, where, in short order, we invested 3 Scouts, Nicholas M, Dylan, and William, who had missed investiture night the week before. (H1N1 is going around the city and many were off sick.) I told them it was a “field promotion”, and had them recite the law, promise, and motto directly under the statue of a large bear on the Sparks Street mall. As official Scouts, they then eagerly jumped in with the others to distribute programs to the crowd. This is part of our role in the ceremonies every year.

After exhausting our supply of programs, we crossed the security cordon for the last time and took our place on Confederation Square, about 30 feet from where the Prime Minister, the Governor-General, and Prince Charles, currently visiting Ottawa, would take their place before the Tomb of the Unknown Soldier during the formal part of the ceremony. After the minute of silence, the 21-gun salute, anthems, a couple of commemoration speeches including a beautiful one by a local rabbi, came the laying of the wreaths.

When I had arrived at 9:30 AM two of my more enterprising Scouts, Alexander and James, were already across the street in the square, and had somehow arranged themselves to be involved in the wreath-laying, despite not actually being in the plan. So throughout the ceremonies they stayed in a separate area from the rest of us amongst all sorts of dignitaries, with the officially-selected Scouts. As it turns out, it worked out. Although two other Scouts laid the wreath for Scouts Canada, Alexander somehow ended up laying the wreath for the Jewish National Congress, and James a left-over wreath from an organization whose representative failed to show. Now these two are always scheming something, and to their credit, I don’t know how they did it, but they ended up hob-nobbing with the Mayor of Ottawa Larry O’Brian, the leader of the New Democratic Party Jack Layton, and a number of foreign ambassadors. Alexander even got a wink from the Prince of Wales. It so reminded me of the Woody Allen movie Zelig, where the main character keeps turning up fortuitously in the middle of major historic events. (This device was also later used in Forrest Gump.) At our luncheon afterwards at Eggspectations (all eggs, all the time) I turned to Alexander and James and dubbed them Zelig 1 and Zelig 2.

Others in our party who attended were Scouter Steve, his friend Brian, his ex-boss Scouter Cal with daughter Erin, Scouts Tyler, Brandon, and Nicholas P (my son) and Venturer Thomas P (also my son). It was a very memorable Remembrance Day on many levels.

John de Regt comments:

I was in Montreal today. There were very many poppies in lapels, and this in a country not at war for its existence for more than 200 years. We all need to wake up and recognize the good fight and the very real enemies around us.



In pure spirit of "contrarianism", I like this article about global cooling:

Statisticians Reject Global Cooling

In a blind test, the AP gave temperature data to four independent statisticians and asked them to look for trends, without telling them what the numbers represented.

….Global warming skeptics base their claims on an unusually hot year in 1998. Since then, they say, temperatures have dropped — thus, a cooling trend.

….if you analyze the trend during that 10 years, the trend is actually positive

….to find the cooling trend, the 30 years of satellite temperatures must be used.

….It's what happens within the past 10 years or so, not the overall average, that counts

….the 10-year average for the past 10 years is higher than the previous 10 years

….You're going to get a different line depending on which year you choose

….The trend disappears if the analysis starts in 1997. And it trends upward if you begin in 1999

….it's important to look at moving averages of about 10 years

….looking back 31 years, temperatures have gone up

Oceans, which take longer to heat up and longer to cool, greatly influence short-term weather…..the current El Nino is forecast to get stronger, probably pushing global temperatures even higher next year

The quote I liked when I studied statistics at the University (although it could be perceived as politically incorrect nowadays) looks appropriate to me in this case:

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital. Aaron Levenstein

These discussions recall those about the stock market. Is it better a 50-days moving average or 13-days? Is the secular up drift over because of the recent downturn or what we are living is just another historical buy opportunity?

It looks like a discussion at a sports bar in Italy about the winner of the next soccer season.

In the meantime, let's take a look at El Niño and its effects on commodities and stock markets. In fact, the pattern of winds and ocean temperatures during an El Niño changes the jet streams steering storms over North and South America. It affects also monsoons carrying away moist air that would produce monsoon rains.

Provided that the forecast is statistically significant.

Paolo Pezzutti writes:

From Bloomberg Beijing's Heaviest Snow in 54 Years Strands Thousands

….the heaviest snowfall in the Chinese capital in at least 54 years blanketed the city for the third day this month. ….The government induced snowfall in the capital on Nov. 10 by seeding clouds with silver iodide, the China Daily newspaper reported yesterday, citing an unidentified official at the Beijing Weather Modification Office. Zhang Qiang, head of the office, said the agency induced snow on Nov. 1 by seeding clouds with 186 doses of silver iodide, according to a separate Xinhua report. The seeding brought an additional 16 million tons of snow, according to the report. Beijing takes every opportunity to induce precipitation as the city is suffering from drought, Xinhua cited Zhang as saying.

Maybe a global cooling could be induced artificially.

Anton Johnson comments:

Though theoretically possible, is induced global cooling really what we want? Looking at the Chinese snow example, what is happening? When seeding clouds, atmospheric super-cooled water completes nucleation and freezes, and then precipitates as snow. At liquid-solid phase change, latent heat is released. The converse occurs at the solid-liquid phase change, thus environmental heat energy nets out. That is, assuming the snow melts.

However, the higher albedo of snow compared to most of the earth’s surfaces causes increased solar energy to be reflected into space. So what happens when this cycle is taken to the extreme, that is, if we get the temperature balance wrong? A net increase in global snow cover will cause a net decrease in total solar energy absorbed globally, causing more precipitation to fall as snow, etc, etc; thus plunging the earth into an ice-age. Good-bye New York, Chicago and London. That is until the oceans cool sufficiently, reducing evaporation and precipitation to an inflection point that reverses the cycle – maybe after 10K-20K years.



In journalism, the Five Ws (and one H) are: WHO? WHAT? WHEN? WHERE? WHY? HOW?

The very questions a trader must answer in order to be profitable! “WHO?” is about the asset class or trading vehicle. “WHAT” is about the move. “WHEN” is about timing. “WHERE?” is, quite obvious, about the exchange - but can be less obvious if you mean exchange access (desk order, home broker or DMA?). “WHY?” is the source of the move, the reason behind it. And, finally, “HOW?” is the way it play itself (volatile or not? sudden or not?, etc). It’s clear to me that the work of a trader is very related to the work of a journalist. One difference: the trader has to answer the above questions BEFORE the events take place.



I am in awe of how much a group can accomplish, if there is one dedicated member who works hard without protest nor attention need. People flock to help him out. I see it frequently in markets and our Scout troop. It also works in the opposite direction, unfortunately. I wonder how to quantify that individual… Atlas if you will… who drags others along by strength without yelling. It's also in the markets, but I can't get a handle around how to quantify the lack of need for attention. Singleton played this game masterfully at Teledyne. Yes there are generals, but how do you define the majors that actually embarrass them (and others below them) into bravery?

 George Parkanyi responds:

Why would you even want to quantify such an individual? Quantifying andcounting isn't everything. Some people are just a life force, and you knowit because you can't help but recognize it as soon as you meet them or seethem in action. These people are so effective because they point the way to possibility,fire the imagination, and scoff at obstacles as mere details. And othersthen follow because who wouldn't want to be part of something that isunique, infused with energy, and helps define them in some special way?Everyone wants meaning in their lives. Show people how to create it andthey (well at least some) will rise to it. Also, not everyone has a clearsense of where they want to go, or if they do, haven't figured out how toget there. Give them an interesting destination, and/or a plan, and they'lloften be more than happy to throw in time, effort, and resources and goalong for the ride or even better, adventure.



AgassiI got the new Agassi book and have now read the first chapter.

The first chapter tells of his match at age 10 with Jeff Tarango (who also later became a touring pro, controversial for his bad temper). With the score tied 4-4 in the third set tiebreaker, Agassi hits a backhand winner that's three feet inside the lines. Tarango "bows his head and seems to cry…" [Tennis Week story]. "Now he stops. All of a sudden, he looks back at where the ball hit. He smiles. 'Out,' he says," writes Agassi. "I stop. 'The ball was out!' Tarango yells. This is the rule in the juniors. Players act as their own linesman… Tarango has decided he'd rather do this than lose and he knows there's nothing anyone can do about it. He raises his hand in victory. Now I start to cry."

Overall, you definitely get your money's worth if you want dirt dished. Again, writing of his childhood, page 39: "My father's mother lives with us. She's a nasty old lady from Tehran with a wart the size of a walnut on the edge of her nose…" I also once read the Tatum O'Neal autobiography, which is tangentially connected to tennis because of her marriage to John McEnroe. Agassi is scoring high on the scandal-meter, but he won't be able to touch that one.



GondiiParasites influence behavior to a remarkable extent in humans and markets (they are called viruses on computers). For example: gondii causes humans to be very attractive to cats so the gondii can be transmitted. The markets develop these parasites also. They  show systems that work. They are eaten by investment advisers and publishers and promoters and CTAs. That way they can be transmitted by the water supply, — I mean, money supply. When transmitted, they cause losses as they cause the brain to malfunction to think that for example cycles will persist, until the next round of non-infectives can be found.

Scott Brooks responds:

Human behavior is just like the deer on my farm. It's cyclical and goes thru a "feast to famine to feast to famine" ongoing cycle. Deer, if left unchecked by hunters, will explode in numbers to the point where disease, often in the form of parasites such the midge flea that carries EHD (Epizootic Hemorrhagic Disease), spreads. Mother Nature is the older and much crueler sister of the Market Mistress, and when she steps in to to correct a situation, long painful deaths ensue. Starvation, death from disease (which often results in a weakened animal being caught and eaten alive by a predator) and other horrendous forms of death and miserable existence (for those that survive) ensue. Mother Nature steps in and cleanses out the excesses. The Market and Economy go thru the same boom and bust cycle. Everyone "Parties like it's 1999" without realizing that every good thing must come to an end. That's when the Mistress steps in cleanses out the excesses…..and the party stops. Market downturns, recessions are her way of cleansing the herd. But when the herd doesn't respond, deeper more painful methods must be used — just as we saw in the 1930s, and 1970s, and as some would say we're seeing right now.

Janice Dorn comments:

T. gondii damages the astroglia of the brain. These are sometimes called astrocytes and are kind of a brain glue or support, particularly as regards the blood-brain barrier. For years we have known of correlations between certain mental disorders and T. gondii. Schizophrenia has a strong correlation with T.gondii and is believed to be transmitted from mother to fetus. High rates of T.gondii are also associated with a variety of anxiety, depressive and so-called "neurotic" disorders in the affected population. These include bipolar (manic-depressive) illnesses known to be associated with hypersexuality and volatile behavior. There appears to be some difference in the behavioral manifestations of T.gondii in women vs. men, although the exact brain mechanisms or anatomical pathways for this are not, to my knowledge, well-delineated at this time.

Debra Humbert comments:

I have been thinking a lot about the systemic and interactive components of the cat tales. Do infected men and infected women fit more naturally as a couple? Do the rocks in his head fit the holes in hers? Does a non infected male respond in the same way to an infected female as would an infected male? How does an infected male affect a non infected female? Can the dynamic only be created by two infected parties? Or is one infected party of either gender enough to demonstrate the dynamic? Analogously, I'm curious as to which gender would be perceived as the cat and which the mouse? I'm not sure it is as obvious as one might assume. The studies may be influenced by researcher perception/bias. Here is why. Alley cats: risk taking and rule breaking men are hot and attractive to some women. The alley cat male is a challenge and an aphrodisiac/bad boy kinda thing in the same way that a promiscuous female has powerful desirability. It is a phenomenon that women often discuss. Are the symptoms as gender specific as they seem? So the mice will go closer to the cat? Got that. But I don't get which is the mouse or the cat in terms of gender. The infected male or the infected female? Also, in terms of evolutionary adaptation — what would be driving it? More births? Fewer births? Gender of offspring? Questions, questions. I have so many questions.



Dividing DOW weekly closes into non-overlapping 25 week segments, I checked for large advances similar to now using:

{max close (recent 25W)} / {min close (prior 25W)}

Currently this quantity - the move to the high weekly close of the 25 weeks ending last week, compared to the low weekly close of the prior 25 weeks - is 0.51 (+51%). I checked back to 1929; there has not been a gain over 50% since 1983, then 1974, and in the 1930's (see attached).

Looking only at periods with gains >40%, here are the returns over the subsequent 25 weeks:

Date       25 max/min   nxt 25W
02/19/34        0.960   -0.142
08/28/33        0.957   0.024
02/27/33        0.793   0.925
06/27/83        0.584   0.021
12/05/38        0.529   -0.072
10/27/75        0.512   0.197
01/20/36        0.498   0.116
05/05/75        0.454   -0.017
10/19/87        0.446   0.032
03/29/43        0.441   0.033
07/29/35        0.439   0.173
05/12/86        0.418   0.072
10/21/29        0.403    -0.024

.                    avg 0.103

 Anton Johnson comments:

A quick look at all non-overlapping 25-week periods for weekly Dow 1929-Current yields a mean return of 2.73%; using this as the baseline results in a 7.56% excess return for the R>40% periods (10.29-2.73 = 7.56). However the 92.5% return in 1933 significantly skews the small R>40% sample. Median returns are 3.57% and 3.20% respectively, not much different from each other.




Interesting chart of SPY (courtesy of

A threepeat so far — now everyone can see how "easy" the market is?! It just repeats.



In yesterday's S&P 500 futures pit session, every 30-minute bar had a higher high than the previous bar. I don't recall having seen this occurrence previously.



In "exclusive" Westchester County, the large Mount Kisco Medical Group quickly exhausted its supply of H1N1 vaccine. Likewise, in the wealthy Boston suburb of Lexington, parents faced long vaccine queues this past Saturday, and discovered that demand exceeded supply. In both places, patients were charged for the vaccine. Other anecdotes of similar shortages made headlines across the country.

In contrast, the NY Times is reporting this morning that NY City provided free vaccines to middle school and high school students, and essentially no one showed up. They were expecting to provide 31,500 vaccines, but only administered 1,701.

Since it seems implausible to consider H1N1 vaccines a Giffen Good, what economic/market model can describe this phenomenon? Is this a socioeconomic phenomenon? A distrust of local public health authorities? Or an apathy unique to NY City? Is there a larger lesson that may apply to the Washington health care debate currently underway?



ShaveA good thing to do at the beginning of the day or the beginning of a week is to shave and study what happened to clear the mind — indeed to write it down.

Five up days in a row start the retrospective but these five just move us a tiny bit above where it was before the five started on the Thursday at 1062. And we are half way between the x day high and x day low at 1090 and 1033. Note that the fixed incomes are at lows, even below a round number or two and that C is above V and BAC above 15 by a hair.

The Nas is within a percent of a two-year high. VIX has declined by some 25% in the last week. Crude is within a day or two's move of a one-year high as is the value of a euro and a yen. Gold is at an all time high and stands at 60 times the value of silver. The grains are in — dare I say it – a trading range of 15% from low to high over the last six months above 5% from the bottoms.

If only someone would provide a summary of the markets like we get for baseball, it would be so much easier to describe, and then to shave. Indeed, I might be tempted to provide such averages and standings and results oneself for those lonely readers…



 Drove to Louisville and a checker wedding this past week end. Coming back on my route I visited Serpent Mound (in southern Ohio) built around 1,000 AD. My photo is from a high elevation platform I ascended for the purpose. While up there I thought how this long ago massive earth works resembling a slithering snake also reminded me of the Market Mistress and her sly moves. I could see the many ' snakes in the grass' insiders waiting to strike the unsuspecting from their elevated vantage point. Also difficult to cleanly shave in this environment without getting a ' nic '. Thus hard to find that perfect Aqua Velva shave.



Today I went climbing.

It's been a couple of months since I got back to climbing after I broke my ankle hitting my foot on a rock.

It just happened after an ordinary fall, one of the several that can happen on a day out climbing.

I still have not got back to my usual form and thus feel a bit insecure when climbing on routes close to my previous limits.

The route I am working on has a section which reminds me of the accident I had.

Every time I approach that point of the route, the "what if" starts stepping in and I stop focusing on what I should do.

Then I apply far more strength then necessary and try different solutions, thinking that it will help.

Unfortunately, it does not, as I get even more tired and then even more hesitant, entering a self-reinforcing loop which increases my chances of falling.

Self-control and sticking to the right movements would be much more effective.

Same when trading.

When things begin to go wrong, instead of focusing, the "what if" starts stepping in.

Typical end of the story is that I 'fall', together with my shares, losing much more money than necessary.

Self-discipline would be much more effective.

To regain confidence, I just have to keep on trying.

As Cheri Huber said, "Every time we choose safety, we reinforce fear".



TroyVictor's Homeric reference invites reflection upon markets and social order.

Why, when combined, do Iliad and Odyssey present the evolution of human mores as found in our markets of today?

With a study of world masterpieces, we see how Homer’s Iliad and Odyssey represent an eclipse of the “old order” by that anew: having been governed by contract, so guised, therein leading to servitude, we oppose with preeminence of the individual – represented by the ode’s central character, Odysseus.

Agamemnon raises his fleet to Troy by contract… All would honor and enforce Helen’s choice. Intent was then extended beyond marital rights at time of her suitors’ resolution. Thus we see how the four corners of a contract may be rounded by the scissoring malfeasance of human pride (or the Greek notion of hubris).

So too here with a president and congress, commissioning a secretary of corporate errands (Rubin) en route to private offices (Citi).

As the Iliad depicts the unfurling of flagged notions of men bound in strife, so claimed to be that strength of contract as law; though as likely leading to social and economic decay. The Odyssey celebrates that struggle of man as an individual, there chronicling Odysseus’s escape from both the madness found in the armies of men and their leaders’ desires for power; all to be purged with loss of his crew during the ensuing return trip to the sanctity of home and kin.

So too since have we with the “Crisis” this year past.

Perhaps the markets of today are not of Troy as found in the glories of exchange but in the ruins of what has been lost during the past ten years. The ten year war since fought, as if by contract among monetary and global centrists, who in 1999 achieved their commercial and depository banking union at the behest of investment banking tribes, with what we see today from the repeal of Glass-Steagall?



North Carolina and Georgia use a vinegar based sauce that’s really simple but very good. It’s 1/3 vinegar, 2/3 catsup — or maybe the other way around. Lots of pepper.

NYC street food cleanliness is regulated but hit or miss. A fellow downtown, Mike, used to cook in the park across from World Trade before 9/11. His uncle ran Tony’s Egg cart by the exchange. Art Cashin and everyone went to Mike for breakfast, because it was incredible. The other venders asked what he did to make it so good. He told them he never cleaned his grill. So, the other venders stopped cleaning their grills. After three weeks, Mike told them he was just kidding. On 9/11, we tried to save the cart by dragging it over by the HSBC bank but it was totaled. last I heard Mike was putting in windows for a living.



Nock's adage that if a teaspoonful of arsenic won't cure you then a tablespoon is required relative to the unemployment rate and measures to stimulate economic health comes to mind in view of the 10.2% rate. Amazingly no leaks were visible on Thursday during the day or on Friday before the number in fixed income or equities. Indeed German fixed income was down before the number. There's only one explanation. "Boys, old Hanover is looking very sickly in the stalls. Be sure that we don't work him out in the next mornings before the election."

Nock enthusiast Jeff Watson explains:

Much ado has been made about Albert Jay Nock on Daily Speculations. An original thinker, with an uncanny sense of reason, Nock is a founding father in conservative circles. Such luminaries as William F. Buckley Jr. have used Nock's ideas as the genesis of their political views. I have assembled a series of full downloads of his works from various sources for your reading pleasure.

Our Enemy the State

On Doing the Right Thing

Memoirs of a Superflous Man [his autobiography and perhaps his best known book]


Isaiah's Job

The Criminality of the State

The Jewish Problem in America



 I've been noticing a couple of guys set up on a busy corner here in Venice, FL (US 41 and Venice Ave), selling BBQ, and always paid them no attention. Today, while sitting at a long stoplight, with my window open, I smelled the delicious aroma of smoking BBQ, and had to stop. I pulled into the parking lot and looked at their set up. They had a couple of 55 gal oil drums converted into smokers, a couple of coolers, and a Weber grill. The whole set up looked very clean, much cleaner than most street food places I've been to New York. I ordered a couple of sliced pork sandwiches and a side of roasted corn. The pork was first rate quality and had a nice smoke ring around it. Done to perfection, and served on an extra large hamburger bun, they were very generous with the meat, heaping at least 8 oz on the bun. They only served one type of BBQ sauce, which was molasses based, and hands down was the very best BBQ sauce I've ever had. I asked for the recipe and was told, "If we gave you the recipe, then we'd have to kill you." Although the meat was wonderful, the sauce deserved special note. The roasted corn was very good, especially with chili pepper and lime as an accompaniment. They had ribs smoking on another cooker, but I declined to try some as I was so full. Still, I saw a few people get the ribs and they looked very happy. I was so pleased to see a couple of guys starting a business on a shoestring, making a superior product, and doing what they loved. The constant stream of customers was a testament to their quality. The look and taste of the food indicated a lot of love going towards the product. I just hope the powers that be will allow this grassroots business to remain in place. If not, the world will be a lesser place. In all my life, I have never had such good BBQ. Those guys do no advertising, and just let the smell sell their product, the way it should be. The price was very reasonable, with a sandwich going for $4.50 which is on par with McDonalds.



Hypothesis One, by Victor Niederhoffer:

Whenever BRK big breaks through 100000 one way or the other it's wrong for the market.

Hypothesis Two, by Daniel Grossman:

Whenever Buffett pays stock rather than all cash (e.g., for General Re), he is bearish about the market. It's his only available way of selling BRK stock.



ObamaUsing the word "country" as a baseline and Google trends, the largest news story coverage of any President was for Lincoln with heavy news coverage utilizing his name surrounding the commencement of the Civil War in April 1861, the conclusion of the Civil War in 1865 and his assassination. The second largest news coverage was of JFK during 1963, the year of his assassination. JFK's inaugural year was a relative non-event. It's also worth pointing out that nearly all of the other presidents benefited from having common names (the news search is not robust enough to ensure unique reference to Franklin Roosevelt for example, resulting in an upward bias in his figures), so Obama's strong news results are all the more remarkable. What's really incredible to me is that the coverage Obama has generated so far is in less than two years (each of the bars above represent two years [chart not included]). His news stories continue to build at a furious pace and it is highly likely he will emerge the clear victor. To place it in context, Obama has generated more news items than Teddy Roosevelt did over eight years of office and three elections.



We are pleased to announce that Seth Lipsky, former editor of The New York Sun, and author of The Citizen's Constitution, will be speaking at the Thursday November 5, 2009 meeting of the Junto at 7:30pm. Meeting is in the General Society of Mechanics and Tradesmen library, 20 West 44th St., New York, NY, and is open to the interested public.



One year ago found the S&P index at 1005.75. When the big government party won, a large sell-off resulted. Now, one year later, the S&P sits at 1042.88 (giving a T-bond rate of return for the year), but the political sites expect the big government party to get thumped today.



If there ever was a day right out of the Iliad with Zeus deciding with his balance scale whether to let Achilles or Hector win the battle, i.e. the bulls or the bears win, it was today [2009/11/02], and not until 3:59 did the scales finally tip. What was it that caused it? Why did the junior operative from  the Fed state his worries about the banks? C only has 250 billion in cash, the most of any firm ever. What were the forces that led to this fourth reversal?

Craig Mee comments: 

Maybe the force was a market close to a previous low, in a overextended (?) selloff… The shorts' nerves became thin after a day of yours mine, and the bulls held out as stops could be more well defined.



I am a reasonably knowledgeable baseball fan (read a lot of Bill James) but have always wondered about the following very basic question:

Batter hits a line drive, but he is out because he hit right at a defensive player. Is that predominantly luck, a few feet left or right and it would have been a hit? Or has the defense correctly positioned its player and the pitcher correctly pitched to the batter to make it likely he would hit where the player is? I realize it's not 100% either way. But is it, say, 75% luck? Or 75% that the defense has correctly positioned itself and the pitcher correctly pitched to make it come out that way?

Phil McDonnell replies:

P McDThe game is played both ways. The batters try to aim for holes in the defense. The usual infield holes are between 1st and second, up the middle and between the 3rd baseman and shortstop. The outfield holes are the left center gap and right center gap. It is rather easy to hit a ball exactly where you want in a soft toss to yourself. The real problem is when the batter is facing a 90 mile an hour pitcher with maybe a little break on the ball. The key is to time the swing so that the bat hits at exactly the right angle. Sometimes batters just miss.

It is sometimes said that football is a game of feet and inches. If that is true then baseball is a game of millimeters. For example a ball hit squarely on the widest part of the bat will generally result in a line drive. But if the ball hits a little high then it may result in a fly ball or even a simple pop out. A little low and the batter will ground out.

Pitchers know that batters rely on timing the swing in order to hit the ball where they would like it. The key pitching counter strategy is to vary the speed of pitches. There is no pitcher in the major leagues who does not have a fast ball and at least one other off speed pitch. Changing speeds is the key to good pitching.

Pitch placement is also essential to good pitching. Generally most pitchers will throw fast inside and soft away. This forces the batter to read the speed earlier than otherwise if he is trying to place the ball by timing his bat angle.

Sometimes the fielders get into the act as well. The second baseman and shortstop will often read the catcher's signals and signal each other as to who will cover second base and who backs up if there is a runner on 1st. In this situation the batter will try to hit 'behind the runner' aiming for the hole between 1st and second. The double play 2nd to short to 1st is slightly more difficult than the short to 2nd to 1st. The reason is that shorts and 2nd basemen are always right handed. The guy at second has to turn his body in order to make the throw back to second with the shortstop covering.

The defense knows the batter will try to hit behind the runner and counters. The pitcher will tend to pitch fastballs inside to make it hard for the batter. The shortstop will probably play closer to 2nd to take the throw. This frees up the 2nd baseman to field a wider range.

There are statistical services that teams buy which analyze where a player is most likely to hit the ball. Usually it is shown as a scatter chart on a baseball diamond. Ted Williams was famous as a player who would predominantly hit to the right side of the field. Consequently several teams came up with the Williams shift, where they left only one outfielder and one infielder on the left side of the diamond. Initially the shift worked and Ted struggled a bit. But he finally demonstrated the fatal flaw in that defense by successfully bunting toward 3rd base which had a gaping hole.

In any one at-bat using these strategies only gives one a small edge, maybe 10%. The average player bats maybe 500 times in a season and there are nine players, so about 4500 chances in a season. On defense there are about the same number of chances for a total of maybe 9,000. But as in trading and gambling, over time a small edge adds up to a winning strategy.

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

Dean Davis adds:

On the two youth teams I coach we move our players into spaces where they have a greater chance to make a play depending on the pitch I call. For example I'll signal the right fielder to move in and to his left when I am pitching a right hander at the belt, but off the plate (away). That results in many outs from weakly hit fly balls to right field that would otherwise be singles that drop in. Sometimes we luck into a grounder hit through the hole that the tight right fielder can throw out at 1st. I build a defensive game plan around the tempting pitch that is hard to hit well.

Ken Drees writes:

In early youth leagues we were coached to check out the third baseman's position. If a right handed batter simply turned himself somewhat towards third base and opened his stance towards left, he could aim a hit down the line or in the hole depending on the 3rd baseman's position. This also gave the batter a better chance of making it to first since it was the 3rd baseman or left fielder against runner. The 3rd baseman had to field and make the long throw over to first and beat the runner. This was versus hitting the ball up the middle, where pitcher, second baseman or short stop seemed to be covering and the throws to first were more manageable.

This technique is erased as you go up the ladder, but it does help early players get some action if they seem to always be hitting straight into the defense. It also helps to eliminate hitting into easily turned double plays.

Rodger Bastien responds:

It's my view that it's mostly fortunate for the pitcher that the batter hit it directly to the fielder, with an assist to the defensive alignment, in some cases. In most instances, a batter is trying to simply make solid contact when facing a pitcher with outstanding stuff. When facing a pitcher who is struggling or faced with an at-bat that dictates situational hitting (i.e. man on 2nd no outs, need to hit to the right side to advance the runner) the batter is more likely to attempt to hit the ball somewhere specific. The defensive alignment plays a role due to the positioning of the fielders that is based on the advance scouting that each teams does which determines each hitter's tendencies throughout the season. Like so many things, this part of the game is more of an art than a science.

Laslo Minks remarks:

My belief is that it’s pure luck. You want to hit line drives, usually up the middle. And a good hitter goes with the pitch, you pull an inside pitch (if you are right handed) to left-field and an outside pitch to right. You want to hit it just over the infielders heads, but it is ridiculous to think that you are, for instance, trying to hit around the shortstop. The point of trying to hit line drives is that the horizontal velocity is the fastest and therefore most difficult to field. You hit line drives regularly and you will have a good batting average. You play the odds. If you hit it right to the shortstop or second or third baseman, that is just bad luck. Anyone who says differently is overthinking it.



DASThe Chair's tongue in cheek blaming his parents for predestinating him to have a blind spot for con men reminds me of what I call "The Doctrine of Acceptable Sins". If the list will indulge my breech of etiquette to briefly talk of religion to explain this "doctrine". As a Preacher Kid whose Father moved around a lot, I got to visit many churches of all denominations in many small towns. And like sausage making, and legislation writing the personal problems and inter working of a congregation are not stuff for young children to view. However, it would appear that most congregations develop an unwritten code that certain sins would be acceptable and nobody would mention them. For example the Baptist deacons might be all obese, the Church of Christ leaders would light up before reaching their cars and the Lutherans maybe the town gossips and the Catholics maybe the gamblers. Of course those of the other congregations and the heathen could easily spot the others flaws. Malcolm Gladwell, in his book Tipping Point suggest that we, as social creatures are thought to look away, and ignore certain tale-tale signs of humanity.He explains that con men and politicians are experts at understanding what these blind spots or acceptable sins are. See Steve Ellison post one of the anecdotes he uses about Bill Clinton: www.daily press/?p=3692 While there undoubtedly is some truth to the chair's implications, that upbringing and acceptable way of looking at the world leaves some spots more open than others to becoming blind spots. It would appear that perhaps, it is acceptance amongst the family, the congregation, the community or the era, that allows one to over look The unquestioning acceptance appear to be the reason the congregations, the con men and politicians love these blind spots. They are one of the most binding glues in society, agreed upon dysfunctions. From such serious offenses like slavery, prejudices, spousal or child abuse to light hearted, teen fashion of slovenliness, the agreed upon dysfunction can be difficult or impossible to break as they somehow become how "we" define ourselves. It maybe the world view that leads one to a particular blind spot, but all have them, no matter the world view. But it is those that can see through the fog, and control these weaknesses that are the great and successful. And as for the con man as parents, perhaps they have the most dreadful blind spot leading to certain failure. The blind spot that to get ahead you have to cheat others. The cynicism that all success and relationships are built on angling against others problem, not coordinating with their strengths.

Jeff Rollert reflects:

As having had similar "church" experiences, it makes you very, very cynical, towards humanity in general. The natural conclusion being that there is very very little nobility in leadership. The only answer to this I have personally found is to engage leadership to attempt to limit (but without hope of eliminating) the collateral damage.

Stefan Jovanovich comments:

Fred de Cordova, the producer of the Tonight Show when Johnny Carson was behind the desk, was raised by a pair of con artists. He tells the story of how, when he became successful, he paid his parents to stop grifting. His autobiography Johnny Came Lately is worth reading for that part alone.

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