Nothing that worked recently worked today. And that could be the theme for the year. As always, standing on the head, upside down — the way all visitors below 60 must perambulate in my house if they don't care to take their shoes off – was the best procedure. The market went up 20 points on the first day of the year after about the worst year in history. And then it went down 15 points the last day of the year after about the best year in history.

The market finally went down a reasonable percentage after failing to do so for a couple weeks. Reminiscent of what my wife Susan said to me about the 1987 Crash — at least we won't have to worry about truncating the prices (to fit as two-byte integers) in the Radio Shack TRS-80. The last two weeks were good because you didn't have to change the settings of the Old Faithful program developed here 30 years ago (and now, ruefully, the beaten path). You didn't have to change the settings for the extremes as every day this month was yet another 20 period high.

But it was good for those standing on the head to see stocks go down while oil and copper set a new high. And also to see the yield on the 10 year head inevitably to the magic number of 4%, closing at 3.84% and the 30 year bond heading to the magic number of 5%, closing at 4.75%. But squash isn't played that way, as Rainer liked to say. Bonds and stocks are supposed to move inversely.

What a magic moment it will be when yields hit those magic numbers. Perhaps it will finally prove correct, all those who say you can't create jobs by breaking a window and repairing it, or digging holes in the desert, or in this case taking from Peter to provide energy efficient buildings in essential building provided for our infrastructure. On a more down to earth level, one wonders how, if the most solid borrower of all is paying 5% for debt, a mortgage purveyor might require 6% or more. Would that not put a damper on the sector of the economy that involves building?

In keeping with topsy turvy, it is fitting that the two best performing industries in 2009 out of 150 in the S&P grouping were healthcare, up 369%, and automobiles, up 229%, with real estate up 214%, fourth out of 150. The vision of Brer Rabbit comes back: "please, whatever you do, don't pass that health care bill. It will put us out of business." Indeed, Uncle Remus was the best forecaster of all this year besides Bacon, as you had to be adept at begging and shnerring to reap the full monte from your past or futures.

Let us hope, as an astute and good friend said to me, that all your trades next year be winners, and that the opposite side will be taken by… (we will not finish that sentence).



 To my friends:

Our industry is in the throes of massive change – and many say it came from dishonesty or avarice. While that may be true for some parties, it is also part of an evolutionary process for the organism we refer to as the financial services industry.

The research areas of most industries create tools, only to later discover their best uses. In some ways, 2010 will be a year where we get new tools – just as a mechanic gets new tools and manuals for each year’s new car models. For us, these changes create many opportunities.

So that is my New Year’s resolution to you: to recognize how many opportunities we are given.

Our family wishes yours all the best – health, happiness, and good fortune.




 It's that time of year again, that horrible time when most Americans set themselves up for failure about what they are going accomplish/change in the new year.

But it doesn't have to be that way. You can make a change, if you do it right.

First of all, recognize what a New Year's Resolution really is. An admission on your part that something about your life needs to change. That is a great first start and should be viewed as a positive step in the right direction. No real change can occur unless you first recognize the need.

But this is where most people get derailed.

The key to successful resolution is to set yourself up for success instead of failure. Failure is set up when you say something like, "I'm going to lose 30 pounds this year." And then you decide that you need to cut your caloric intake down to 1,200 a day, and you need to go to the gym and work out like a maniac five days a week. When you set unrealistic goals, you set yourself up for failure, especially when you make yourself miserable by trying to implement too many changes and make those changes too radical.

If you decide you want to lose 30 pounds, set up a realistic set of goals that set you up for success and are easy to accomplish. For instance, one thing you could do to lose weight is to not eat after 7 pm — or at least 3 hours before bedtime. But let's say you're the kind of person who likes to eat potato chips or a bowl of ice cream while watching TV at night. Well, you've just set yourself up for failure because that is a major habit to change.

Try this instead. Instead of saying that I'm never going to eat after 7 pm again, make it simple. Decide that in the month of January I am going to pick one day when I don't eat after 7 pm. Think about that for a moment. In an entire month, all you have to do is pick just one day that you don't eat after 7 pm. I'd be willing to bet that anyone is capable of fulfilling that goal. Once you are successful accomplishing that goal, then you attack February.

What's your February goal? Simple. If you could pick just one night the entire month of January in which you didn't eat after 7 pm, surely you can pick two nights in February, right? So, it's really that simple. All you have to do in February is pick two nights in which you don't eat after 7 pm.

On to March…

If you could pick two nights for the entire month of February that you wouldn't eat after 7 pm, surely you can pick four nights in March, right? But let's put a little twist on it here. Four nights sounds like a big number, and we want to build up slowly so that we can ensure success. So instead of going with four nights that you don't eat after 7 pm, let's just with one night that you don't eat after 7 pm — one night a week, that is. It's basically the same as picking four nights, but seems easier by making the number smaller. So for the month of March, you pick one night each week in which you don't eat after 7 pm. Any night you want each week. It can even be different nights each week.

You see what's happening here? We're setting ourselves up for success instead of failure. We are performing a small task that over time will add up to weight loss, instead of focusing on "losing 30 pounds," a big goal that most of us will give up on because it takes so long to get there. We focus on easy to accomplish goals that make us feel good about our accomplishment and are leading us slowly, steadily and surely to our ultimate goal.

On to April…

In April, we simply stick with the pattern. We did one night a week that we didn't eat after 7 pm. Now we just need to do the next logical step, pick two nights a week that we don't eat after 7 pm.

On to May…

In May we pick three nights a week to not eat after 7 pm.

On to June…

In June we pick four nights week to not eat after 7 pm… but with one caveat. We make one of those nights either Friday, Saturday or Sunday.

So here we are, sxi months into the year and we've made a major change in behavior and done it in a manner that set you up for success instead of failure. We attacked a problem the same way you eat an elephant. One bite at a time!

So what do we do in July? The same thing that we did in June. The goal now is to take the new habit that you've developed — not eating after 7 pm four days a week — and continue that habit for the rest of the year.

The next thing to do is realize that changing major habits is not something that you have to do for the rest of your life. Let's tackle another big New Years Resolution: quitting smoking.

Most people make the mistake of thinking that they have to quit smoking for the rest of their lives. You don't. And thinking you have to quit smoking for the rest of your life is setting yourself up for failure.

You don't have to quit smoking for the rest of your life. All you have to do is quit smoking for the next hour, or the next 30 minutes, or the next five minutes, or as small a time frame as you need to come up with to set yourself up for success.

If you can quit smoking for the next five minutes you have accomplished a goal and you should feel good about yourself. But you'll still want to smoke, right? OK, that's no problem, you can fix that. If you made it five minutes once, you can surely do it again, right!

After you do five minutes for a while, you can surely bump it up to seven, eight, nine or 10 minutes, right?

That's what you do. You keep bumping up it and setting yourself up for success.

But what if you have a setback? No problem. We're all human and make mistakes. But in this case, the mistake is easy to fix. Why? Because remember the goal was not to quit smoking for the rest of your life, the goal was to quit smoking for five or seven or 10 minutes. All you have to do is go back to what you know you know you can do (i.e. you know you made it 7 minutes without a cigarette), a time frame that you know you had success with and then build on it from there. Remember, not smoking for the rest of your life — well that's a huge commitment. But not smoking for the next seven minutes — well, you can do that; heck, you already have!

No matter what you're New Year's Resolution is, set yourself up for success by breaking it down into small, doable bite sized pieces.

Whether you are going to be more patient this year, or kinder to those around me, or more tolerant, or lose weight, or stop smoking, or whatever, you need to think of the bad habit you're going to break as a camel.

Why a camel? Well we've all heard of the straw that broke the camels back, right? But we all know that it wasn't that one straw that his back, it was the cumulative effort of all the straws tossed on his back one by one that broke him.

When it comes to changing bad habits, we have to remember, we didn't just develop them over night. We developed them cumulatively over the years. And the best way to break them is slowly and steadily over time.

Most of us make the mistake of thinking that we have to toss giant hay bales onto the camel's back to break the bad habits all at once or cold turkey. The reality is that if we set up daily (preferably even shorter) goals of simple things we can do today (and I can't emphasize enough how important it is that goal be simple to accomplish), what ends up happening is that over time, day by day, hour by hour, we toss single strands of hay onto the camel's back, and over a period of months or even years, we become the person that we want to be and eventually, the camel's back breaks, and we realize that we are no longer a slave to that old habit, as we've developed new, better, more positive habits.

No, it's not the overnight change we all want to make to become the superman we believe/dream we can be. But I'll bet most of us would be satisfied if with getting a little better hour by hour and day by day, and two years from now look in the mirror and see we've become the superman we always wanted to be. And when that time comes, step by step incremental success will have become such a habit we'll be able to see another superman we can strive for two years down — and our lives, our goals and our dreams will expand.



Here is his most recent article:

An above average 2010, from Sam Eisenstadt

Perhaps now that he has left Value Line we'll learn a bit about what really went on with that ranking system?

Kim Zussman replies:

Similar results [to what Sam Eisenstadt reported regarding "rally from recession lows"] when isolating on major declines in DJIA (1929-09, weekly closes), defined as:

This weeks close = low for prior and future 20 weeks (major low) + This weeks close = low for prior 255 weeks (5 year low)

Using this definition, here is the size of the decline (from max prior 5 years to the major low), return next 40 weeks, and return for 20 weeks following the first 40:

Date         decline    nxt 40W    nnxt 20W
03/02/09    -0.53      0.59      ?
09/30/02    -0.36      0.22      0.12
12/02/74    -0.45      0.41      0.21
05/18/70    -0.33      0.38     -0.07
04/20/42    -0.50      0.35      0.14
07/05/32    -0.89      0.99      0.15
11/11/29    -0.40      0.05     -0.30

Four out of 6 subsequent 20W returns were positive, with the notable exception of 1929 (whose repetition has been ruled out through close study by the current Fed Chair).

Phil McDonnell writes:

What went wrong with the rankings? Gaming may be part of the answer. Sam Eisenstadt clearly did not know the answer when I asked him a few years ago. In my opinion, the SEC has the best theory but they let the 'monsters' off easily with only a fine and no admission of wrongdoing. According to the SEC they were funneling money off to an in-house brokerage, in effect skimming the investors.

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

Sam Eisenstadt replies:

I hope Phil is not implying that I was somehow involved in the SEC case against Value Line. Nowhere in the SEC charges am I mentioned, nor was I aware of the goings-on in the brokerage area. As far as Jim is concerned, I recognize that he has never been a fan of the Value Line Ranking System, even when it was performing well from the late 1960s into the late 1990s. I would recommend he read Fischer Black's "Yes Virginia, There is Hope — Tests of the Value Line Ranking System. " In recent years, the system had problems as "earnings growth," (the major component in the system) was deemphasized in favor of "value" factors. The Niederhoffer Theory of Changing Cycles. Perhaps we're approaching another change, in which event we may not hear from Jim for a while.

Victor Niederhoffer explains:

What everyone associated with, or knowing of, Sam Eisenstadt, certainly all contributors here and those associated with me, has thought about this issue is that Sam is just the finest gentleman anyone has ever had the pleasure of meeting. A beacon of light in our industry. The Osborne of fundamentals. The Balder of our field. What a joy to have him swinging and gliding again unfettered from the River Styx.



I recommend the Jerry Seinfeld documentary “The Comedian” for explaining the hard work of comedy. It is great because consumers of comedy (and movies) don’t realize the complex distillation, the months of reworking and practice, that goes into each minute of stand-up comedy.

And every other industry is about the same. Consumers benefit from this distillation combined with division of labor, and each product and service around us embodies hundreds or thousands of hours of design and development work (work that has value only if consumers approve).

Each good and service tends to require a much smaller slice of manufacturing labor. So once Seinfeld finishes thousands of hours and months of development on his stand-up routine, millions can enjoy the routine on cable or TV, and similarly once the thousands of hours of design and development work are finished and tested for a MacBook or iPod, millions of identical copies can be manufactured with very little human labor expended per unit.

Technology brings great progress for computers as well as comedy.



 Finished 21,: The Final Unfinished Voyage of Jack Aubrey just prior to Christmas. Now I am at a complete loss. Jack and Stephen have been with me these many months now and I can still here Jack bellowing uncontrollably at "Why is it called the Dog Watch?"  "Because it is cur-tailed, my dear" I find myself using words like prodigious and capital. But mostly I think of a lasting and profound friendship, the complications, the difficulties and the comfort of such a close bond and the force of the trust between the two. One strives toward the ideals of fellowship and heroism that O'Brian evokes; hopes that one could jump, dauntlessly, without a moments hesitation into the breach like Jack to save his friend. Or Stephen, who never did any of his business without thinking of how Jack would be affected. Jack's profound expertise at sea and in battle, and his foolishness on land. Stephen's deftness with scalpel or intel and lubberly ways at sea. Or Stephen's seemingly never ending quest to gain the affections of the unattainable Diana. Or to catch sight of the southern albatross, or a particular beetle. Or his ruthless cunning and awesome sense of vengeance when betrayed or slighted. His bitter hatred of Napoleon and all he stands for. I can hear Tull's performance of Stephen clearly, the drama profound: "Draw man, draw! Or I shall slit you where you stand!" The roar of the canon as the gun crews work there lethal machines. The view from the foretop crosstrees, the wind humming in the rigging, the rush as Surprise slices through the water, her crew like clockwork, expert seamen, orders followed even before they are uttered. The perfection of a well founded vessel and closely nit and thoroughly trained crew. Mr. Pullings, Babbington, Barret Bonden, Mr. Reid, and Mr. Hanson all flawlessly loyal to their captain. Preserved Killick with his nose pinched, tut tutting over wine or blood spilled on the number one uniform or whining like an old maid "which its comin', ain't it?" when chastised for the not bringing the blasted coffee on the double but appearing miraculously at his captains shoulder under the light of the binacle in the wee hours in icy spray with a piping hot mug and a sandwich. Or Corelli or Mozart drifting up from the cabin as Jack and Stephen find their way through a new piece. Or the terrible hardships that men like these lived through on a regular basis. The state of medicine in their time. The unspeakable violence and bloodshed and slaughter that the crew dove into to a man behind their captain, the roar of Awkward Davies, boarding axe in each hand. What a remarkable, wonderful, fulfilling epic journey. What a beautiful, beautiful friendship. Delightful to the last drop. Now I shall have to start again. Hornblower can wait.



 In discussions of humor, Tim Slagle in Liberty Magazine has what I believe is an important insight. He says that everyone knows that it's important for the comedian to be liked by the audience. Since he says all comedians must have one of seven deadly sins, this requires work. However, even more important is for it to be clear that "the comedian likes the audience." "When I found that out, that changed everything," he says. He goes on to say "it is important to remember in marketing that even though you might be a niche product, you still want that niche to be as large as possible." A similar idea is made in the Ursut le May introduction to Rabelais. Something like: "you must roll around with your audience, make them feel that you are one of them, that you share their likes and weaknesses, and can together look at the human predicament as wonderful in its folly and greatness." I believe that this might be a partial key to successful companies and stocks. What do you think?

Steve Ellison replies:

All businesses try hard to be liked, even those that seemingly do not need to be liked, such as the regulated monopoly utility company I once worked for that advertises incessantly on television.

Alvin and Heidi Toffler in Revolutionary Wealth compared the pace of change in business to a car speeding at 100 miles per hour. They found change occurring almost as fast in "civil society… a burgeoning hothouse sector made up of thousands of churning and changing nongovernmental grassroots organizations". By contrast, the Tofflers found government so slow to change (they rated it three miles per hour) that they predict a Constitutional crisis at some point in the U.S. as events outrun government's ability to respond.

Nongovernmental organizations exert much influence over businesses because the nongovernmental organizations can persuade some consumers that particular companies are good or bad. For example, there were boycotts of Nike products in the 1990s when it was found that some of Nike's subcontractors in China had sweatshop-type conditions at their factories. To prevent a similar public relations catastrophe, the technology industry formed a set of certification standards for suppliers, complete with audits to ensure compliance.

Similarly, many companies are trying to improve their impact on the environment because environmentalism is an important value for many consumers, who would rather spend their money at a company that shares their values. To be effective, businesses' environmental initiatives must be real because sophisticated nongovernmental organizations request audits of, for example, reduced energy usage or carbon emissions.

Jim Sogi adds:

Another example of a company reacting to public pressure is described in The Botany of Desire where McDonald's stopped using GMO potatoes for their fries after large public outcry over their nondisclosure of the use of GMO products. Government regulation did not require disclosure of the percentage they used.

Alston Mabry writes:

I enjoy the humor that Patrick O'Brian injects into his narrative. The sly humor of Maturin, the buffoonish and navy humor of Aubrey.

Just listening again this afternoon to the sequence in HMS Surprise where they approach Bombay and then Maturin immerses himself in the city. If I were to pick a passage to demonstrate what a good writer O'Brian is at his best - his use of description, pacing, character, historical interest — I would likely pick the Bombay passage. (And Tull reads it so well.)

Thomas Miller writes:

The Postal Service is an exception. They don't care what the public thinks, hence the long lines in many offices. If the government is driving three mph, the PO is doing at least 50 mph — in reverse. The death spiral for the PO is moving forward and picking up speed. Survival of the fittest will prevail as always.

George Parkanyi adds:

Laughter is a surprise response, and we all like to be (non-threateningly) surprised — case in point being the hundreds of billions of dollars poured into the Christmas holidays just now. In humour, the surprise comes from the connection of two or more unrelated ideas and/or the linking of two or more unrelated contexts. Timing is used to enhance the surprise element. For the humour to work however, it is very important for the audience to recognize and understand the ideas and the contexts, which is why good comedy with broad appeal comes from day-to-day experiences such as being in the check-out-line at the grocery store. I've seen comedians do very funny routines just around that alone.

Since we like to be surprised, and to laugh, a comedian that can do that early on will be instantly liked. He is giving us an enjoyable experience. Comedians that are too abrasive (e.g. relying too heavily on swearing or making fun of an audience member for example) can quickly lose an audience by making them uncomfortable. I've seen examples of all of this in our past two evenings at Comix on 14th Ave in New York the past two nights. (What can I say, I like comedy - and so do the kids.)

The biggest take-aways from comedy that I can think of for trading are definitely the connection of unrelated ideas (and markets), but also the agility and quick-thinking required to deal with adversity. A comedian that has been interrupted and/or loses his train of thought must factor that in as part of the game, and deal with as quickly when it comes up. Timing is useful too.

Another take-away perhaps is not to take the ups and downs of trading too seriously. If you did nothing but throw darts at a quote screen, your odds would be 50-50 less transactions costs (and the cost of replacement monitors), so the markets are not necessarily an evil conspiracy or epic fight to the death. You think more clearly when not overly stressed.



Here is the strongest evidence yet that Lp(a) causes heart disease:

December 23, 2009 by Lisa Nainggolan

Oxford, UK - New genetic research has identified two relatively rare single nucleotide polymorphisms (SNPs) that explain just over a third of the variance in lipoprotein(a) (Lp[a]) levels in individuals of European descent. The work confirms unequivocally that Lp(a) is a causal factor for coronary disease, say Dr Robert Clarke (University of Oxford, UK) and colleagues in their paper in the December 24, 2009 issue of the New England Journal of Medicine.

Read the rest of the article here.



 An article with highly defective statistical reasoning appears in the WSJ purporting to show there is a tremendous turnover in the top 25 companies from 10 years ago to today. It is best to consider this by noting how many of the top 25 baseball players by batting average in 1999 are still there today. That's the best way to get a handle on the regression bias implicit in such studies. The following correspondence between Vic and Steve Stigler puts it in perspective:

Dear Steve,

Hope you and family well. Merry Christmas. Here's an unusal aspect of the regresson bias. Wonder to what extent this consistent with properties of random numbers and to what extent it represents a change in the level of skill or in this case price change. It would be an interesting study. I was pleased that my daughter Kira got into Columbia Engineering School on early admission and another daughter had a grandson Wilder Niederhoffer named after a Libertarian. Best, Vic

Dear Vic,

This is the same as Horace Secrist "Triumph of Mediocrity in Business" 1933, in Chapter 8 of my book Statistics on the Table.

Congrats to all your successful avoidance of and tendency towards mediocrity in your descendents!

I attach my remarks from a memorial for Rose Friedman Dec 12.

Have a happy new year! Steve

Ken Drees adds:

Market cap 10 year free market survivors: old fashioned energy (big oil), food (Walmart), and technology (human invention) lead the list and boring consumer Gillette (razor blades for everyman). Things the human race needs for survival and to thrive will always be investments that will endure.

Big government wants to bleed big oil, keep food out of banking (probably best that Walmart was denied a key to the club after all), litigate tech for the halibut. And what can be done to Gillette? Maybe the healthcare bill can attach itself to some personal care products and bleed a little off. Also, energy, food, and the stuff everyone buys is what the government tries to melt out of the inflation indexes. So what we need is what they attack and thus make more expensive to us and then they tell us that its not more expensive and to just substitute chicken for meat.

GE? what do they do other than derivatives and green initiatives which are starting to turn a little brown.

Kim Zussman replies:

From the "getting little things right but big ones wrong" department:

What were dinosaurs long at KT boundary?

Prior decade's math/science PhDs lemming into finance.

New decade definition: "lemming": The process of best/brightest young people flowing en mass to the latest promising nascent bubble.



 Tiger Woods isn't the only one suffering financial as a result of his multiple affairs — shareholders of his sponsors are too. A study Monday revealed that shareholders of sponsors like Nike, AT&T and Gatorade may have lost billions of dollars in the wake of the scandal.

Study author Victor Stango, a professor at the University of California Davis, said:

"Total shareholder losses may exceed several decades' worth of Tiger Woods' personal endorsement income."

In the study, Stango compared the stock prices of nine of Woods' sponsors with competitors and the overal market after the scandal was revealed last month. Investors in three sports-related companies — Electronic Arts, Gatorade and Nike — actually fared the worst, experiencing a 4.3% drop in stock value.



 1. Stocks were up six days in a row, in conjunction with bonds down six days in row. One ventures to say it's never happened before. The last time it was close in the last 10 years with two straight flushes in opposite directions bonds went up big and stocks went down big.

2. One contends that markets have an inordinate tendency to end at the exact high or low for the year. It's an interesting empirical, statistical, and simulatory question. The last time one tested this for the week one found that the empirical results were completely consistent with randomness.

3. The Chicago Bullets recently lost a game when they were up 35 points, 79-44, with 8:50 to play in third quarter, to Sacramento, being outscored 58-19 the rest of the game. What can we learn about markets and life and sports from such a loss?

4. I was recently asked for the best book on computer programming for an interested person with a systematic nature who hasn't programmed in 25 years. What would you recommend?

5. To what extent are most of the profits of the "banks" — aside from all the things we know about, and above and beyond the vig and the house edge — that has the public so much in arms as they have more common sense than they are given credit for, as Hayek would point out, due to frontrunning their bullish or bearish guidances disseminated to public?

6. My friend and mentor who during the 30 years he has mentored me has never missed a major move in gold left 40 bucks on the table this time, and got out only at $1170 this run up. He's looking to buy again at $1020 with a stop. "What's that?" I asked him and he reiterated that the markets will always be there.

7. The dollar yen has advanced a nice 5% or so in the last week, the way the Japanese wanted it to, and one is reminded that it is never good policy to go against what the central banks want to happen, especially if you don't have unlimited credit.

8. The performance of A Little Night Music at the Roundabout, closing in a few weeks, is the best performance of a Sondheim musical I have even seen. It was written before he became overly hateful and except for Laurel's and my brother Roy's, his lyrics are the best in the world. Catherine Zeta Jones has a beautiful voice, and every word of Angela Lansbury is true and profound. It's the only musical of Sondheim's, and I've seen them all, that I think will stand up in 50 years as a must see for the current young. My favorite is Merrily We Roll Along, which is an autobiography of Sondheim, as well as your average great playwright's receiving a commencement award as a prelude to a fund raiser. I like to hear Sondheim singing his own numbers as it's as if you're in his living room hoping that nothing goes wrong.



 A week or so ago, Victor started a thread about things that make life worth living. I would like to offer these songs to the group as they definitely fall into that category. Whether you're a rocker or classical music afficionado, you'll find something to like here.

The first is a song by Dan Fogelberg called "Netherlands", one of his early and lessor known hits, but to those of us that are Fogelberg fans, this is one of the all time favorites. My wife and I played this song at our wedding after the miniser pronounced us man and wife and went to give our mothers a flower. I've always thought of this song as the sound track to my life.

The second is another song by Fogelberg. As I listen to this song I can't help but think of what an incredible artist this man was. He laid out a canvas with his music and painted pictures with his words. Close your eyes and listen to "The Reach".

Next is Supertramp. I had trouble deciding whether to pick the song, "Lord, is it mine" or "Even in the Quietest Moments", but in end, I choose the former.

Next is another Supertramp song, that can't but lift up your soul "Fools Overture".

And what the heck. I'll even throw in Supertramp "Even in the Quietest Moments".



Out of control, screaming children in a small confined area would make anyone lose his enjoyment of life.

Babies cry. Kids get fussy. We've all been either on a plane or in a restaurant when a family has a kid/baby that is fussing/crying. Even though none of us like it, I think we all understand it. Kids get fussy and babies cry.

But children running and screaming down the aisle of a plane is a sign of horrible parenting. The parents should have stopped it. The airline personnel should have stopped it or at least made the parents stop it.

The greatest work you will ever do is within the walls of your own home. That includes giving your children boundaries and discipline. There are very few things one can do that are worse than being a bad parent and robbing your children of the lifeskills necessary to function in a civilized society.

In my household, my kids are like 99% of all kids in this world. They argue. They fight and fuss. They occassionally don't tell the truth. They leave towels on the floor and make messes. But they do these things as the exception and not the rule. And when they do misbehave, all I have to do is either:

1. Give them "The Look"
2. Use my "Daddy Voice"

The reason for this is simple. I don't have to spank them… because they know I will. I don't have to ground them, because they know I will. I rarely have to punish them, because they know I will.

Sure they make all the mistakes (and more) that I've listed above, but in the end, all it takes is a reminder from Dad (via "The Look" or the "Daddy Voice") and they know that I mean business… and it's time to stop.

Being a good parent is not that hard. I'd say it's pretty easy. Just takes a little work in the beginning then it's pretty much cruise control from there (well, pretty much).

I have no respect for bad parents.



 I was insistently begged into playing Monopoly with my nine-year-old son a few days ago. I was running on the treadmill watching him set up the board. No other siblings wanted to play with him, but he was still determined to get the table ready. He counted out the money for two players and set it in neat piles. My eagle eye audited him as he counted the correct amount of 20s, 10s and so on. He had the hotels and houses segregated and in reserve and ready to go. The banker's money cubbies were filled and in proper order and the Chance and Community Chest cards were face down in their respective piles. He got coasters for drinks, got the chairs just so and got the property cards out of the rubber bands and stacked them in the banker's box.

He looked at me as I was still jogging along on the mill and declared more then asked, "Dad when you are done running are you going to play me in Monopoly or what?" For a split-second I considered saying no, but this undaunted boy still wants to play against me, the unbeaten king of dice and the dream. And everything looked so nice and neat and the multicolored tiny indoor Christmas lights were casting a gaming glow so I said, "Of course I will play you." I hit stop on the mill, turned the machine off, and turned quickly to go up for a fast shower, saying to my son as I passed, "I will be back in a flash, prepare yourself to lose."

Game On

My son knows the ropes, can handle himself to a degree but we all know who is going to win. I sat down and started to accumulate. He did the same. The luck was equal for awhile then I finally got Ventor Ave. and had that yellow monopoly that isn't anybody's first choice. The railroads were split equally, I had Boardwalk but he had both Utilities. And so what I sniffed, I was the only one with a monopoly but I didn't put up a house yet. Loose ends needed to be tied. I needed Park Place which was still available and the green zone properties had Pacific open and my son needed that one for his monopoly.

Hard Lesson

Box cars! I danced my token, tiny Scotty dog, just around the go-to-jail finger pointing policeman and said "twelve" as I landed on Pacific Ave. "You aren't going to buy that are you Dad?" His eyes were looking deep into mine as I declared, "Of course I am buying Pacific". I paid quickly and took the deed, staring down at the transaction chore as I heard him mutter that his game was doomed since there were no other chances for him to get a monopoly. I said aloud and while still looking down counting my cash, "That's how the game goes, it's all about luck and not letting your opponent get those coveted monopolies". I had doubles so I rolled again. Park Place! Its all over now I thought to myself as I stripped off bills for the last remaining blue property.

Feeling a little Guilty

But that feeling passed quickly and the game got a bit dull. I put a house on each of the yellow properties, refusing at the moment to build on the high end lots since houses were pricey and my money was only slowly growing. My son had a good stack of money due to collecting regular puny rents and getting very favorable Community Chest and Chance cards and somehow staying quite upbeat. While I was getting horrible cards, "pay doctor's fee, pay each player, pay for improvements". My son seemed lucky. He was always missing "yellow-hell" as I called it, hitting at worst the Luxury Tax between the blues and declaring cheerfully, "Its better at Luxury and paying the bank $75, then hitting your big blues and paying you double rent. "Plus I will pass 'Go' next roll and get my money back". I looked down at my play money stack, looked at my watch and noticed that ninety minutes had rolled by like ten.

The High Priced Swindle

I knew that eventually I was going to simply grind this win out. I had mortgaged all my useless monopoly busting properties, the one's my son needed, back to the bank, took the proceeds and put up 3 more houses in yellow-hell. The game continued on with him being lucky and me just grinding along. I saw his cash pile keep rising and I actually needed to ask him to change in his 100's for 500's since the bank was getting low on "C" notes. I was getting tired of this and wanted to hasten the eventual ending. I then made him an offer he couldn't refuse. "Son, I will sell you Pacific Ave for $1100; you will then have a monopoly and can start building. I want to cover the mortgage I owe the bank, the 10% interest due and get triple my money on the sale since you desperately need it."

The Counter Offer

I said for him to think about the offer because it was only for a limited time and that I would be back shortly with soda refills. He came up to the kitchen as ice and soda were merging and said, "Dad, $1100 is way too high, it's only worth $320 and houses cost a lot to build there". I said, "Well you need it don't you? He then countered, "Dad how about selling me St. Charles Place instead? I can pay you for it and the houses cost less to build". I said "Hmm, St. Charles is going to cost you $800 and whatever I owe the bank to get it out of hock". In my mind's eye I wanted $800 clear to put up two houses each on the blues, building with Other People's Money. It would then be a race I would surely win; plus my son would feel better getting his own monopoly and seeing some action before his eventual loss. Ok, "Deal" we both declared as we shook hands. Then back downstairs to the game we went with our freshened drinks and minds.

Tables Turned

Seemingly in no time three red hotels stood garishly along the maroon properties, just past the jail. And since he owned the Electric Company too, the entire area was definitely a zone to be avoided. I had two houses each on Marvin Gardens and friends. My big blues had each two "free OPM" houses, but the "lucky hat" token always seemed to catch wind and blow right over my areas of doom, passing "Go" and merrily finding joy everywhere it landed. Then his dice went plop-thud. I finally got him, luck reversing back to my mean. "Ventor Ave. with two houses is going to cost you $900 my boy, I said with a head nod. You could see a lump in his throat as he counted out the money. "This is highway robbery he said loudly". "Too bad I retorted, pay up", knowing that this game would be over sooner than later.

Pay Back

I landed on a railroad I owned and had doubles, rolled again and landed on Boardwalk. "Just visiting one of my holdings" I puffed. He rolled and landed somewhere benign. I rolled an eleven, grabbed $200 for passing go and found myself stopped on St. Charles Place. My son was looking for the deed and whooping it up. "St. Charles with a hotel he blustered is $750." I paid it and looked at the board, my pulse was up. I just lost back most of what I just took from him, but that's fine. I will easily vault over his maroon area, just need to take it easy. He rolled and I didn't pay attention to his roll, must have landed on one of his own properties, whatever, I was staring at my side of the board. I needed to roll anything but a three. No problem, the dice plunked to the board from an unnaturally weak right hand and I rolled a dead looking three. "You are now on Virginia Ave. with a hotel it's $900, more than St. Charles", my son shouted!

Sometimes you Just Know

Now I was cash broke. Why the heck did I sell St. Charles place? Probably bad luck to deal a Saint in such a way. Why did I take that highway robbery money and put up houses on those blue properties? He never lands on them! I hate those yellow properties. How much for those houses if I need to sell them back? He was still on a roll, collecting money from "Go" again. A few turns later and my Scotty dog was on the low end rent side of the board staring ahead towards hotel row. The dice flew out with confidence this time but an eight signaled another huge payday and my undoing. "That's going to be another $900"! I heard this demand in slow motion blurry speech, my senses were melding into an emotional jelly. Mortgaging the blues and selling the houses wouldn't be enough, I would have to take a wrecking hammer into yellow-hell and go begging. My will to fight was broken. "Its over, I forfeit and good game," I said with hand outstretched. Family members appeared out of the woodwork checking out the board, the red hotels, overturned deeds. "I won! Everybody, I beat Dad at monopoly! This is the best Christmas ever!" "Next time, I get the lucky hat", was all I could say.



Using DJIA monthly returns, at the end of each December and end of decade (i.e., 12/ XXX9), checked correlation of this month's return with prior month's. Here are the correlations along with the mean return for months within each decade:

Date                  correl 120  av 120
 12/1/1999       -0.120  0.013
 12/1/1959       -0.022  0.011
 12/3/1979        0.012  0.001
 12/1/1949        0.019  0.003
 12/1/1969        0.020  0.002
 12/1/1989        0.054  0.011
 11/2/2009        0.111  0.000
 12/1/1939        0.119  0.001
 12/1/1999       -0.120  0.013
 12/1/1959       -0.022  0.011
 12/3/1979        0.012  0.001
 12/1/1949        0.019  0.003
 12/1/1969        0.020  0.002
 12/1/1989        0.054  0.011
 11/2/2009        0.111  0.000
 12/1/1939        0.119  0.001

Looks like returns were higher for decades with monthly correlation more negative, which is verified by regression:

Regression Analysis: av 120 versus correl 120

The regression equation is av 120 = 0.00647 - 0.0481 correl 120

Predictor Coef SE Coef T P
Constant 0.0065 0.00153 4.23 0.006
correl 120 -0.048 0.02036 -2.36 0.056

S = 0.00409714 R-Sq = 48.2% R-Sq(adj) = 39.6%


Note the recent decade most resembled the one ending in 1940. In honor thereof, here is some good stuff by a former neighbor.

Jordan Low comments:

Could this be due to positive downside autocorrelation during a crisis? I am speculating…



"Being a college football coach, especially at the level of Florida, is like being on Wall Street,” T.C.U. Coach Gary Patterson said. “It’s a pressure that multiplies when you consider all the different things that go along with it. You’re talking about millions of dollars, the pressure to win, the fan base. It’s a seven-day evaluation." — from

Urban Meyer's departure from UF is quite shocking to alums but after seeing his reaction to a loss at LSU several years ago during a post-game press conference it was not quite that surprising that a coach with such visible physical and emotional distaste for losing might burn out and suffer medical effects or need to take a year off. The coaching profession can be very hard on the cardiovascular system and even though Meyer kept an outward appearance of calm (unlike former coach Steve Spurrier who still can throw his ball cap harder after a bad play than Odd Job at Bond in Goldfinger) Urban must have been extremely stressed — particularly this year when expectations were extremely high.

Perhaps the Zen-like approach of ex-Knick and current LA Laker coach Phil Jackson works better. Urban hinted earlier this year that he would like someday to coach Notre Dame — so despite having won two National Championships at Florida one had the impression that he wanted or needed something else to feel fulfilled with his career. Hopefully by spending more time with his family and enjoying life Coach Meyer's health will improve dramatically. All Gator fans wish him the best.



KnicksOne of the striking things about the NY Knicks is that their offensive rebounding percentage, 23%, is the lowest in the NBA, going along with their third-worst record. What is the comparable statistic for markets that's not too much biased by part/whole fallacy in that it assumes knowledge of scores implicitly?

Alston Mabry writes:

Any thorough discussion of rebounding must include Dennis Rodman. He maintained that he gave up on "boxing out" because he was simply too small compared to other NBA post players. Instead, he would use the "locking up" technique, which meant using his elbows and legs to hinder other players' movement, then break away quickly to get the rebound, leaving the other player flat-footed. Also, he claimed that other players would start to focus more on how annoying Rodman was than on how the actual game was going.

That was what he said publicly, but it's also been confirmed that privately he would watch hours and hours of videotape, studying individual shooters, where they shot from, and where the ball tended to go when they missed. He would position himself on the court to maximize the probability he would be near the ball when it bounced off the rim. But he never liked to talk about this so as not to give away his best stuff and also because his studious statistical/analytical side just didn't jibe with his popular "crazy rebel" persona.

The comparisons to trading are clear.

Scott Brooks writes:

I once sat down with Bill Bartman, who told me the story of when he was trying to buy the Chicago Bulls. He got to meet the players and spend some time with them.

One was Dennis Rodman. Dennis was notorious for sitting in the locker room and on the sidelines before a game listening to his Walkman. Dennis always said that he was listening to music — he was a Peal Jam fan. During one pregame warmup, Bartman walked over to Rodman and sat next to him. Bartman struck up a conversation and asked what he was listening to and how the music psyched him up before the game.

Rodman just smiled, grabbed his head phones and placed them on Bartman's head. Bill Bartman said he could only smile at what he heard. Instead of hearing Pearl Jam, what he heard was Dennis Rodman's voice.

You see, after every game, Rodman dictated notes to himself about the other players as well as notes to himself from watching the films.

For all his bad boy persona, Rodman was a student of the game.

As to Big Al's comments about Rodman's not blocking out because other guys were so much bigger and stronger, when I read the description of "locking up", it sounds just like a variation of blocking out, with a strong emphasis on the "intimidation" part of the equation.

For all its high flying acrobatics, and ballet/gymnastic moves, and fancy passing and dribbling and all the emphasis on not being able to touch the opponent (fouling), basketball, played right, is an incredibly physical game — but the physicality is nuanced. It's like boxing, except you don't want to let the judges see you hit the other guy.

I wish my knees weren't in such bad shape. I really miss banging under the boards.

Craig Bowles remarks:

If you think of rebounding as an underlying fundamental health measure, it’s not so different from the market trying to go up when it begins being outpaced by both oil prices and interest rates. You see that now when you compare short-term growth rates. Even in intraday trading, stocks pull back when this happens. Another is basic materials and energy sectors. The market has trouble when these become the strongest sectors. It’s like a football team with no running game.



 The great ascent of Lady Gaga from an also-ran performer in the Lower East Side techno-rock clubs a few years ago to number one selling recording artist in five countries, four million albums sold, and 20 million singles, rivals nothing so much as the ascent of Killmanjaro in 5½ hours or Apple's 4000% rise from 5 to 210 and the fourth largest market cap company in four years. Here are some of the things we can learn from her about how to be successful in the markets.

1. The Lady has a core of admirers she can always count on: the gay community. "I've got so many gay fans and they're loyal to me. They'll always stand by me and I"ll always stand by them." Apple's loyal fans are those that started out with them making music on their first computers and the minority group that liked the Apple operating system over and above the mainstream Microsoft one.

2. The prouct must be packaged and designed with great care and verve. Gaga has a special team, the Haus of Gaga, that designs all her clothes and stage performances. "When I'm writing music I'm thinking about what I'm going to wear on stage." Apple's packaging, its vivid colors, its compactness, directness, ease of use is crucial to its success.

3. You have to be technical to be a success. Gaga was playing by ear at the age of four, planning to go to Juilliard at 13. She writes her own music and her voice was good enough to attract Akon to sign her. The companies that have had the highest returns are people by engineers and computer scientistis with technical degrees.

4. You need a vision to be successful. Gaga didn't try to be the world's #1 singer or its most profitable. But she had a vision to combine glam rock with simple melodies. The best performing companies, Apple or Cisco or Whole Foods, have a product that makes life better for their customers, and they aim to be the best at it, and stick to their knitting.

5. She gets great reviews from the critics and this filters to the masses. All the best-performing companies reach out to the idea that has the world in its grip. They are all huge supporters of the current administration and reach out to unisex and redisbrituive policies so that the critics who share their persuasion will be sure to nominate them for awards. The most popular song of Gaga makes fun of rich kids that want material goods. When will she be invited to the Oval?

6. She has a simple product and a simple name. It's four letters and two syllables. And she combines simple movements, simple melodies, and simple rock rhythms in her songs. The price to weight ratio of Apple products is comparable to her own.

7. She stands on the shoulders of giants. She has borrowed from all the most popular idols that preceded her including Michael Jackson, Madonna, Blondie, and Andy Warhol. To be successful you need the base of fans that your predeceessors have accummulated.

8. She is shocking and exuberant in the things she does. The bubbles that she wore in Rolling Stone remind me of the glass houses Apple sells their products in, and her performances on stage are reminiscent of the conventions where Apple unleashes its products.

9. She has a completely integrated operation, writing her own songs, dancing them, designing her own clothes, and distributing them through a company she owns. The control of product from start to finish a la Apple's designed marketing and then retailing their own products is crucial nowadays to the most successful companies.

10. She is always ready to seek the limelight. She strives to have the best product, is proud of it, and will stop at nothing to popularize her brand. If it requires appearing nude, why that's just more publicity that her critics and core fans will love.

Kim Zussman comments:

This wonderful analysis also convincingly articulates the ugly, banal, cynical, pandering con of capitalism in general and investing in particular. Presumably the patina of beauty derives from the knowledge that it is facade.

Add to AAPL's list recruitment of the left, which targets Wintel for viruses but leaves MacAlone - encouraging climate coolers to take the path of least resistance.

Relatedly, Madam Gaga also evidences survivor-bias: How many thousands of performers try different angles but don't make it, then with the benefit of hindsight we ascribe causality to the at least partly accidental qualities of the successful?

Vince Fulco adds:

GagaI would venture Lady Gag Gag's actions, as I like to call her, is bleeding into other artists' styles. Forced to watch Shakira's latest DVD by my significant other yesterday, it was obvious she's leaning much more risque in movements, outfits and dance routines. She certainly doesn't need to given her voice, lyrics and natural beauty. Beyonce seems to be doing the same. Although I catch these performers infrequently, who passes up an undulating set of hips that the wife gives free pass on viewing?



Bastiat"I, the father of a family, and the teacher whom I hire for the education of my son, may both believe that genuine education consists in teaching what things are and what effects they produce, in the physical order as well as in the moral order. We may think that he is the best educated who has the most exact idea of phenomena and best understands the connection between causes and effects. We should like to base education on this assumption. But the state has another idea… Now, what does the state do? It says to us: "Teach what you want to your student; but when he is twenty years old, I shall question him concerning the opinions of Thales and Pythagoras; I shall have him scan the verses of Plautus; and if he is not good enough in these matters to prove to me that he has devoted the whole of his youth to them, he will be able to become neither a physician nor a barrister nor a magistrate nor a consul nor a diplomat nor a teacher." From that moment I am forced to submit, for I will not take upon myself the responsibility of closing to my son so many fine careers. You may tell me that I am free; but I say that I am not, since you reduce me to making a pedant of my son, at least from my point of view-perhaps a frightful little rhetorician-and unquestionably an unruly rebel. If only the knowledge required for the bachelor's degree still bore some relation to the needs and the interests of our age! If at least it were merely useless! But it is deplorably harmful. To pervert the human mind-that is the problem which seems to have been posed and which has been solved by those to whom the monopoly of education has been handed over."



 A short story by Jack Schaefer (first published in December 1963) [approx 4750 words]

Note from Victor Niederhoffer and Laurel Kenner: This is one of our favorite stories. We hope you enjoy it, and we wish you Merry Christmas.

High on mountainside by little line cabin in the crisp, clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in dimness, bundled thick against cold. Double socks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body, and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears, and in side-pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over world of snow and ice and tree and rock. He spreads arms wide, and they embrace whole ranges of hills. He stretches tall, and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas Eve dance at the schoolhouse in the valley.

Stubby Pringle swings up, and his horse stands like rock. This is the pride of his string - flop-eared, ewe-necked, cat-hipped strawberry roan that looks like it should have died weeks ago but has iron rods for bones and nitroglycerin for blood. It can go from here to doomsday with nothing more than mouthfuls of snow for water and tufts of winter-cured bunch-grass snatched between drifts for food. It stands like rock. It knows the folly of trying to unseat Stubby. It wastes no energy in futile explosions. It knows that twenty-seven miles of hard winter going are foreordained for this evening and twenty-seven more of harder uphill return by morning. It has done this before. It is saving the dynamite under its hide for the destiny of a true cowpony, which is to take its rider where he wants to go - and bring him back again.

Stubby Pringle sits in his saddle and he grins into cold and distance and future full of festivity. Join me and look at him as this chance offers, at what can be seen of him despite the bundling and frosty breath vapor that soon will hang icicles on his nose. Those are careless, haphazard, scrambled features under the low hat brim, about as handsome as a blue boar's snout. Not much fuzz yet on chin. Why, shucks, is he just a boy? Don't make that mistake, though his twentieth birthday is still six weeks away.

Don't make the mistake Hutch Handley made last summer when he thought this was young unseasoned stuff and took to ragging Stubby and wound up with ears pinned back and upper lip split and nose mashed flat and the whole of him dumped in a rain barrel. Stubby has been taking care of himself since he was orphaned at thirteen. Stubby has been doing man's work since he was fifteen. Do you think Hardrock Harper of the Triple X would have anything but an all-around hard-proved hand up here at his farthest winter line camp siding Old Jake Hanlon, toughest hard-bitten old cowman ever to ride range?

Stubby Pringle slips gloved hand under rump to wipe frost off saddle. No sense letting it melt into patches of corduroy pants. He slaps right-side saddlebag. It contains burlap bag wrapped around two-pound box of candy, of fancy chocolates with variegated interiors he acquired two months ago and has kept hidden from Old Jake. He slaps left-side saddlebag. It holds burlap bag wrapped around paper parcel that contains a close-folded piece of fine dress goods and a roll of pink ribbon. Interesting items, yes? They are ammunition for the campaign he has in mind to soften the affections of whichever female of right vintage among those at the schoolhouse appeals to him most and seems most susceptible.

Stubby Pringle settles himself firmly into the saddle. He is just another of far-scattered poorly-paid, patched-clothes cowhands that inhabit these parts, and likely marks and smells of his calling have not all been scrubbed away. He knows that. But this is his night to howl. He is Stubby Pringle, true-begotten son of the wildest jackass, and he has been riding line through hell and highwater and winter storms for two months without a break, and he has done his share of the work and more than his share because Old Jake is getting along and slowing some, and this is his night to stomp floorboards till schoolhouse shakes and kick heels up to lanterns above and whirl a willing female till she is dizzy enough to see past patched clothes to the man inside them. He wriggles toes deep into stirrups and settles himself firmly in the saddle.

"I could of et them choc'lates," says Old Jake from cabin doorway. "They wasn't hid good," he says. "No good at all."

"An' be beat like a drum," says Stubby. "An' wrung out like a dirty dishrag."

"By who?" says Old Jake. "By a young un like you? Why, I'd of tied you in knots afore you knew what's what iffen you tried it. You're a dang-blatted young fool," he says. "A ding-busted dang-blatted fool. Riding out on a night like this iffen it is Chris'mas eve. A dong-bonging ding-busted dang-blatted fool," he says. "But iffen I was your age agin, I reckon I'd be doing it too." He cackles like an old rooster. "Squeeze one of 'em for me," he says and he steps back inside and he closes the door.

Stubby Pringle is alone out there in darkening dusk, alone with flop-eared, ewe-necked, cat-hipped roan that can go to last trumpet call under him and with cold of wicked winter wind around him and with twenty-seven miles of snow-dumped distance ahead of him. "Wahoo!" he yells. "Skip to my Lou!" he shouts. "Do-si-do and round about!"

He lifts reins and roan sighs and lifts feet. At easy warming-up amble they drop over the edge of benchland where cabin snugs into tall pines and on down great bleak expanse of mountainside. Stubby Pringle, spurs a-jingle, jogs upslope through crusted snow. The roan, warmed through, moves strong and steady under him. Line cabin and line work are far forgotten things back and back and up and up the mighty mass of mountain. He is Stubby Pringle, rooting, tooting hard-working hard-playing cowhand of the Triple X, heading for the Christmas dance at the schoolhouse in the valley.

He tops out on one of the lower ridges. He pulls reins to give roan a breather. He brushes icicles off his nose. He leans forward and reaches to brush several more off sidebars of old bit in briddle. He straightens tall. Far ahead, over top of last and lowest ridge, on into the valley, he can see tiny specks of glowing allure that are schoolhouse windows. Light and gaiety and good liquor and fluttering skirts are there. "Wahoo!" he yells. "Gals an' women an' grandmothers!" he shouts. "Raise your skirts and start a-skipping! I'm a-coming!"

He slaps spurs to roan. It leaps like mountain lion, out and down, full into hard gallop downslope, rushing, reckless of crusted drifts and ice-coated bush-branches slapping at them. He is Stubby Pringle, born with spurs on, nursed on tarantula juice, weaned on rawhide, at home in saddle of hurricane in shape of horse that can race to outer edge of eternity and back, heading now for high jinks two months overdue. He is ten feet tall, and the horse is gigantic, with wings, iron-boned and dynamite-fueled, soaring in forty-foot leaps down the flank of the whitened wonder of a winter world.

They slow at the bottom. They stop. They look up rise of last low ridge ahead. Roan paws frozen ground and snorts twin plumes of frosty vapor. Stubby reaches around to pull down fleece-lined jacket that has worked a bit up back. He pats right-side saddlebag. He pats left-side saddlebag. He lifts reins to soar up and over last low ridge.

Hold it, Stubby. What is that? Off to the right.

He listens. He has ears that can catch snitch of mouse chewing on chunk of bacon rind beyond log wall by his bunk. He hears. Sound of ax striking wood.

What kind of dong-bonging, ding-busted, dang-blatted fool would be chopping wood on night like this and on Christmas Eve and with a dance underway at the schoolhouse in the valley? What kind of chopping is this anyway? Uneven in rhythm, feeble in stroke. Trust Stubby Pringle, who has chopped wood enough for cookstove and fireplace to fill long freight train, to know how an ax should be handled.

There. That does it. That whopping sound can only mean that the blade has hit at an angle and bounced away without biting. Some dong-bonging, ding-busted, dang-blatted fool is going to be cutting off some of his own toes.

He pulls roan around to the right. He is Stubby Pringle, born to tune of bawling bulls and blatting calves, branded at birth, cowman raised and cowman to the marrow, and no true cowman rides on without stopping to check anything strange on range. Roan chomps on bit, annoyed at interruption. It remembers who is in saddle. It sighs and obeys. They move quietly in dark of night past boles of trees jet black against dim grayness of crusted snow on ground. Light shows faintly ahead. Lantern light through small oiled-paper window.

Yes. Of course. Just where it has been for eight months now. The Henderson place. Man and woman and small girl and waist-high boy. Homesteaders. Not even fools, homesteaders. Worse than that. Out of their minds altogether. All of them. Out here anyway. Betting the government they can stave off starving for five years in exchange for one hundred sixty acres of land. Land that just might be able to support seven jack-rabbits and two coyotes and nine rattlesnakes and maybe all of four thin steers to a whole section. In a good year. Homesteaders. Always almost out of almost everything: money and food and tools and smiles and joy of living. Everything. Except maybe hope and stubborn endurance.

Stubby Pringle nudges reluctant roan along. In patch-light from window by tangled pile of dead tree branches he sees a woman. Her face is grey and pinched and tired. An old stocking-cap is pulled down on her head. Ragged man's jacket bumps over long Woolsey dress and clogs arms as she tries to swing an ax into a good-sized branch on the ground.

Whopping sound and ax bounces and barely misses an ankle.

"Quit that!" says Stubby, sharp. He swings roan in close. He looks down at her. She drops ax and backs away, frightened. She is ready to bolt into two-room bark-slab shack. She looks up. She sees that haphazard scrambled features under low hatbrim are crinkled in what could be a grin. She relaxes some, hand on door latch.

"Ma'am," says Stubby. "You trying to cripple yourself?" She just stares at him. "Man's work," he says. "Where's your man?"

"Inside," she says, then, quick, "He's sick."

"Bad?" says Stubby.

"Was," she says. "Doctor that was here this morning thinks he'll be all right now. Only he's almighty weak. All wobbly. Sleeps most of the time."

"Sleeps," says Stubby, indignant. "When there's wood to be chopped."

"He's been almighty tired," she says, quick, defensive. "Even 'fore he was took sick. Wore out." She is rubbing cold hands together, trying to warm them. "He tried," she says, proud. "Only a while ago. Couldn't even get his pants on. Just fell flat on the floor."

Stubby looks down at her. "An' you ain't tired?" he says.

"I ain't got time to be tired," she says. "Not with all I got to do."

Stubby Pringle looks off past dark boles of trees at last row ridge top that hides valley and schoolhouse. "I reckon I could spare a bit of time," he says. "Likely they ain't much more'n started yet," he says. He looks again at the woman. He sees grey pinched face. He sees cold-shivering under bumpy jacket. "Ma'am," he says. "Get on in there an' warm your gizzard some. I'll just chop you a bit of wood."

Roan stands with drooping reins, ground-tied, disgusted. It shakes head to send icicles tinkling from bit and bridle. Stopped in midst of epic run, wind-eating, mile-gobbling, iron-boned and dynamite-fueled, and for what? For silly chore of chopping.

Fifteen feet away Stubby Pringle chops wood. Moon is rising over last low ridgetop and its light, filtered through trees, shines on leaping blade. He is Stubby Pringle, moonstruck maverick of the Triple X, born with ax in hands, with strength of strokes in muscles, weaned on whetstone, fed on cordwood, raised to fell whole forests. He is ten feet tall, and ax is enormous in moonlight, and chips fly like stormflakes of snow, and blade slices through branches thick as his arm, through logs thick as his thigh.

He leans ax against a stump and he spreads arms wide, and he scoops up whole cords at a time and strides to door and kicks it open . . .

Both corners of front room by fireplace are piled full now, floor to ceiling, good wood, stout wood, seasoned wood, wood enough for a whole wicked winter week. Chore done and done right, Stubby looks around him. Fire is burning bright and well-fed, working on warmth. Man lies on big old bed along opposite wall, blanket over, eyes closed, face grey-pale, snoring long and slow. Woman fusses with something at old woodstove. Stubby steps to doorway of back room. He pulls aside hanging cloth. Faint in dimness inside he sees two low bunks and in one, under an old quilt, a curly-headed small girl and in other, under another old quilt, a boy who would be waist-high awake and standing. He sees them still and quiet, sleeping sound. "Cute little devils," he says.

He turns back and woman is coming toward him, cup of coffee in hand, strong and hot and steaming. Coffee the kind to warm the throat and gizzard of chore-doing, hard-chopping cowhand on a cold cold night. He takes cup and raises it to his lips. Drains it in two gulps. "Thank you, ma'am," he says. "That was right kind of you." He sets cup on table. "I got to be getting along," he says. He starts toward outer door.

He stops, hand on door latch. Something is missing in two-room shack. Trust Stubby Pringle to know what. "Where's your tree?" he says. "Kids got to have a Christmas tree."

He sees woman sink down on chair. He hears a sigh come from her. "I ain't had time to cut one," she says.

"I reckon not," says Stubby. "Man's job anyway," he says. "I'll get it for you. Won't take a minute. Then I got to be going."

He strides out. He scoops up ax and strides off, upslope some, where small pines climb. He stretches tall and his legs lengthen and he towers huge among trees, swinging with ten-foot steps. He is Stubby Pringle, born an expert on Christmas trees, nursed on pine needles, weaned on pine cones, raised with an eye for size and shape and symmetry. There. A beauty. Perfect. Grown for this and for nothing else. Ax blade slices keen and swift. Tree topples. He strides back with tree on shoulder. He rips leather whangs from his saddle and lashes two pieces of wood to tree bottom, crosswise, so tree can stand upright again.

Stubby Pringle strides into shack, carrying tree. He sets it up, center of front-room floor, and it stands straight, trim and straight, perky and proud and pointed. "There you are, ma'am," he says. "Get your things an' start decorating. I got to be going". He moves toward outer door.

He stops in open doorway. He hears a sigh behind him. "We got no things," she says. "I was figuring to buy some, but sickness took the money."

Stubby Pringle looks off at last low ridgetop hiding valley and schoolhouse. "Reckon I still got a bit of time," he says. "They'll be whooping it mighty late." He turns back, closing door. He sheds hat and gloves and bandannas and jacket. He moves about checking everything in sparse front room. He asks for things, and woman jumps to get those few of them she has. He tells her what to do, and she does. He does plenty himself. With this and with that, magic wonders arrive. He is Stubby Pringle, born to poverty and hard work, weaned on nothing, fed on less, raised to make do with least possible and make the most of that. Pinto beans strung on thread brighten tree in firelight and lantern light like strings of store-bought beads. Strips of one bandanna, cut with shears from sewing-box, bob in bows on branch-ends like gay red flowers. Snippets of fleece from jacket-lining sprinkled over tree glisten like fresh falls of snow. Miracles flow from strong blunt fingers through bits of old paper-bags and dabs of flour paste into link chains and twisted small streamers and two jaunty little hats and two smart little boats with sails.

"Got to finish it right," says Stubby Pringle. From strong blunt fingers comes five-pointed star, triple-thickness to make it stiff, twisted bit of old wire to hold it upright. He fastens this to topmost tip of topmost bough. He wraps lone bandanna left around throat and jams battered hat on head and shrugs into now-skimpy-lined jacket. "A right nice little tree," he says. "All you got to do now is get out what you got for the kids and put it under. I really got to be going." He starts toward outer door.

He stops in open doorway. He hears the sigh behind him. He knows without looking around the woman has slumped into old rocking chair. "We ain't got anything for them," she says. "Only now this tree. Which I don't mean it isn't a fine, grand tree. It's more'n we'd of had 'xcept for you."

Stubby Pringle stands in open doorway looking out into cold clean moonlit night. Somehow he knows without turning head two tears are sliding down thin pinched cheeks. "You go on along," she says. "They're good young uns. They know how it is. They ain't expecting a thing."

Stubby Pringle stands in open doorway looking out at last ridgetop that hides valley and schoolhouse. "All the more reason," he says soft to himself. "All the more reason something should be there when they wake." He sighs too. "I'm a dong-bonging, ding-busted, dang-blatted fool," he says. "But I reckon I still got a mite more time. Likely they'll be sashaying around till it's most morning."

Stubby Pringle strides on out, leaving door open. He strides back, closing door with heel behind him. In one hand he has burlap bag wrapped around paper parcel. In other hand he has squarish chunk of good pinewood. He tosses bag-parcel into lap-folds of woman's apron.

"Unwrap it," he says. "There's the makings for a right cute dress for the girl. Needle-and-threader like you can whip it up in no time. I'll just whittle me out a little something for the boy."

Moon is high in cold, cold sky. Frosty clouds drift up there with it. Tiny flakes of snow float through upper air. Down below by a two-room shack droops a disgusted cowpony roan, ground-tied, drooping like statue snow-crusted. It is accepting the inescapable destiny of its kind, which is to wait for its rider, to conserve deep-bottomed dynamite energy, to be ready to race to the last margin of motion when waiting is done.

Inside shack, fire in fireplace cheerily gobbles wood, good wood, stout wood, seasoned wood, warming two rooms well. Man lies in bed, turned on side, curled up some, snoring slow and steady. Woman sits in rocking chair, sewing. Her head nods slow and drowsy, and her eyelids sag weary, but her fingers fly, stitch-stitch-stitch. A dress has shaped under her hands, small and flounced with little puff-sleeves, fine dress, fancy dress, dress for smiles and joy of living. She is sewing pink ribbon around collar and down front and into fluffy bow on back.

On a stool nearby sits Stubby Pringle, piece of good pinewood in one hand, knife in other hand, fine knife, splendid knife, all-around-accomplished knife, knife he always has with him, seven-bladed knife with four for cutting from little to big and corkscrew and can opener and screwdriver. Big cutting blade has done its work. Little cutting blade is in use now. He is Stubby Pringle, born with feel for knives in hand, weaned on emery wheel, fed on shavings, raised to whittle his way through the world. Tiny chips fly and shavings flutter. There in his hands, out of good pinewood, something is shaping. A horse. Yes. Flop-eared, ewe-necked, cat-hipped horse. Flop-eared head is high on ewe-neck, stretched out, sniffing wind, snorting into distance. Cat-hips are hunched forward, caught in crouch for forward leap. It is a horse fit to carry waist-high boy to uttermost edge of eternity and back.

Stubby Pringle carves swift and sure. Little cutting blade makes final little cutting snitches. Yes. Tiny mottlings and markings make no mistaking. It is a strawberry roan. He closes knife and puts it in pocket. He looks up. Dress is finished in woman's lap. She sits slumped deep in rocking chair and she too snores slow and steady.

Stubby Pringle stands up. He takes dress and puts it under tree, fine dress, fancy dress, dress waiting now for small girl to wake and wear it with smiles and joy of living. He sets wooden horse beside it, fine horse, proud horse, snorting-into-distance horse, cat-hips crouched, waiting now for waist-high boy to wake and ride it around the world.

Quietly he piles wood on fire and banks ashes around to hold it for morning. Quietly he pulls on hat and wraps bandanna around and shrugs into skimpy-lined jacket. He looks at old rocking chair and tired woman slumped in it. He strides to outer door and out, leaving door open. He strides back, closing door with heel behind. He carries other burlap bag wrapped around box of candy, of fine chocolates, fancy chocolates with variegated interiors. Gently he lays this in lap of woman. Gently he takes big old shawl from wall nail and lays this over her. He stands by big old bed and looks down at snoring man. "Poor devil," he says. "Ain't fair to forget him." He takes knife from pocket, fine knife, seven-bladed knife, and lays this on blanket on bed. He picks up gloves and blows out lantern, and swift as sliding moon shadow he is gone.

High-up frosty clouds scuttle across face of moon. Wind whips through topmost tips of tall pines. What is it that hurtles like hurricane far down there on upslope of last low ridge, scattering drifts, smashing through brush, snorting defiance at distance? It is flop-eared ewe-necked cat-hipped roan, iron-boned and dynamite-fueled, ramming full gallop through dark of night. Firm in saddle is Stubby Pringle, spurs a-jingle, toes a-tingle, out on prowl, ready to howl, heading for dance at schoolhouse in the valley. He is ten feet fall, great as a grizzly, and roan is gigantic, with wings, soaring upward in thirty-foot leaps. They top out and roan rears high, pawing stars out of sky, and drops down, cat-hips hunched for fresh leap out and down.

Hold it, Stubby. Hold hard on reins. Do you see what is happening out there in the valley?

Tiny lights that are schoolhouse windows are winking out. Tiny dark shapes moving about are horsemen riding off, are wagons pulling away.

Moon is dropping down the sky, haloed in frosty mist. Dark grey clouds dip and swoop around sweep of horizon. Cold winds weave rustling through ice-coated brushes and trees. What is that moving slow and lonesome up snow-covered mountainside? It is flop-eared, ewe-necked, cat-hipped roan, just that, nothing more, small cowpony, worn and weary, taking its rider back to clammy bunk in cold line cabin. Slumped in saddle is Stubby Pringle, head down, shoulders sagged. He is just another of far-scattered, poorly-paid, patched-clothes cowhands who inhabit these parts. Just that. And something more. He is the biggest thing there is in the whole wide roster of the human race. He is a man who has given of himself, of what little he has and is, to bring smiles and joy of living to others along his way.

He jogs along, slump-sagged in saddle, thinking of none of this. He is thinking of dances undanced, of floorboard unstomped, of willing women left unwhirled.

He jogs along, half-asleep in saddle, and he is thinking now of bygone Christmas seasons and of a boy born to poverty and hard work and make-do, poring in flicker of firelight over ragged old Christmas picturebook. And suddenly he hears something. The tinkle of sleigh bells.

Sleigh bells?

Yes. I am telling this straight. He and roan are weaving through thick-clumped brush. Winds are sighing high overhead and on up the mountainside and lower down here they are whipping mists and snow flurries all around him. He can see nothing in mystic moving dimness. But he can hear. The tinkle of sleigh bells, faint but clear, ghostly but unmistakable. And suddenly he sees something. Movement off to the left. Swift as wind, glimmers only through brush and mist and whirling snow, but unmistakable again. Antlered heads high, frosty breath streaming, bodies rushing swift and silent, floating in flash of movement past, seeming to leap in air alone, needing no touch of ground beneath. Reindeer? Yes. Reindeer strong and silent and fleet out of some far frozen northland marked on no map. Reindeer swooping down and leaping past and rising again and away, strong and effortless and fleeting. And with them, hand on their heels, almost lost in swirling snow mist of their passing, vague and formless but there, something big and bulky with runners like sleigh and flash of white beard whipping in wind and crack of long whip snapping.

Startled roan has seen something too. It stands rigid, head up, staring left and forward. Stubby Pringle, body a-tingle, stares too. Out of dark of night ahead, mingled with moan of wind, comes long-drawn chuckle, deep deep chuckle, jolly and cheery and full of smiles and joy of living. And with it long-drawn words.

We-e-e-l-l-l do-o-o-n-e . . . pa-a-a-artner!

Stubby Pringle shakes his head. He brushes an icicle from his nose. "An' I didn't have a single drink," he says. "Only coffee an' can't count that. Reckon I'm getting soft in the head." But he is cowman through and through, cowman to the marrow. He can't ride on without stopping to check anything strange on his range. He swings down and leads off to the left. He fumbles in jacket pocket and finds a match. Strikes it. Holds it cupped and bends down. There they are. Unmistakable. Reindeer tracks.

Stubby Pringle stretches up tall. Stubby Pringle swings into saddle. Roan needs no slap of spurs to unleash strength in upward surge, up, up, up steep mountainside. It knows. There in saddle once more is Stubby Pringle, moonstruck maverick of the Triple X, all-around hard-proved hard-honed cowhand, ten feet tall, needing horse gigantic, with wings, iron-boned and dynamite-fueled, to take him home to little line cabin and some few winks of sleep before another day's hard work . . .
Stubby Pringle slips into cold clammy bunk. He wriggles vigorously to warm blanket under and blanket over.

"Was it worth all that riding?" comes voice of Old Jake Hanlon from other bunk on other wall.

"Why, sure," says Stubby. "I had me a right good time."

All right, now. Say anything you want. I know, you know, any dong-bonged, ding-busted, dang-blatted fool ought to know, that icicles breaking off branches can sound to drowsy ears something like sleigh bells. That blurry eyes half-asleep can see strange things. That deer and elk make tracks like those of reindeer. That wind sighing and soughing and moaning and maundering down mountains and through piney treetops can sound like someone shaping words. But we could talk and talk and it would mean nothing to Stubby Pringle.

Stubby is wiser than we are. He knows, he will always know, who it was, plump and jolly and belly-bouncing, that spoke to him that night out on wind-whipped, winter-worn mountainside.

We-e-e-l-l-l do-o-o-n-e . . . pa-a-a-artner!



 Did it ever occur to you that the world's largest advertising agency, Google (GOOG) has about the same market cap — $191,847,475,750 – as General Electric (GE) – $197,617,213,440? There are great societal implications in this, and many market analogies on shifts of priorities.

In the futures markets, 50 years ago all of the action was in the agricultural products, forest products, livestock, and foods. Today, the ES contract is as big, or bigger than the entire grain futures market put together in total volume. I wonder what the biggest item traded in 50 years will be?

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

Marlowe Cassetti comments:


Scott Brooks writes:

Based on the current attacks on technology and advancement by the Climate Change Crew and their statist counterparts, I'd bet the main traded items in the future are going to rhyme with those of the past. Agricultural, livestock and foods.

Ignoring technology and the "Mind of Man" as the solution to our problems and pushing us backwards in our lifestyle will result in the past being our future.



The attached chart shows weekly historical 10Y-2Y Treasury yields* (which is a measure of the yield curve slope) alongside log SP500 weekly closes, 6/76-present.

After the whip-inflation Volcker period (late 70's-early 80's), the yield curve looks like a tool to reverse recessions and bear markets in stocks. The recent peak 10Y-2Y of 2.69 is the highest since another 2.69 in 8/2003, and the prior maximum was 2.62 in 7/1992. Too little N for inference, but stocks rose for a long time after these peaks, and if nothing else it shows what the FED is trying to whip up.

*(Market yield on U.S. Treasury securities at 2-year, 10-year, constant maturity, quoted on investment basis, Fed data).

Steve Ellison comments:

I ran regressions of the yield curve, which I defined as the difference between the interest rates on the 10-year bond and the 3-month T-Bill, and the subsequent 4-month change in the S&P 500.

From 1962 to 1982, there was a strong positive correlation between the yield curve and the subsequent change in the S&P 500.

                  df     SS         MS     F   Significance F
Regression   1  0.043  0.043  6.76     0.012
Residual     61  0.387  0.006

Total          62  0.430

However, from 1983 to 2009, not only was the correlation non-significant, but the sign changed.

                  df    SS           MS    F    Significance F
Regression   1  0.004  0.004  0.54       0.463
Residual     76  0.618  0.008
Total          77  0.623



 A shocking increase in fixed income yields tests the facade of rectitude that the scholarly chair has placed over his historic study of the causes of the depression of 1930 without regard to incentives. One believes that his colleagues in the aisles and the circular teetotum will rectify such increases as a 6 month high in long bond yields to 4.7% with a veneer of austerity and chastening.



Imagine the drift in US stocks had world wars been on US soil.

undestruction look-back bias



 Dim Sum – it sounds so stern, and fiduciary. (Canada’s Auditor-General to the Royal Canadian Mint, who this year lost track of $10M worth of gold: “I take a very dim sum of this.”)

Yet, one finds oneself desiring an exceptional dim sum experience on one’s upcoming Christmas vacation to New York City, and was wondering if anyone here has had such exceptional experience recently, and would be forthcoming with some useful intelligence on the matter. (Translation: does anyone know where to get good dim sum in New York?).

Yishen Kuik comments:

There isn't any good dim sum in New York City. The nearest place to get good dim sum would be in Vancouver or London.*

However, Chinatown Brasserie by Great Jones Way & Lafayette is a decent choice. While it is apparently Westernized on the outside, the chef inside, Joe Ng, is quite competent.

* Why is this, you might ask. Dim sum is found all over China but reaches its apogee with the Cantonese in Hong Kong. Like all other art, the best examples flourish with proximity to wealthy patronage. Prior to 1997, many wealthy Cantonese secured second passports and homes in Canada and Great Britain as insurance. Thus they brought the discerning patronage necessary to sustain top flight dim sum to Vancouver and Toronto.



 I read an article about High Frequency Trading on Technology Review:

"High-frequency traders are making money by delivering a service: liquidity. In today's highly decentralized market, defenders say, their systems are simply the most efficient way to match buyers and sellers".

What happens if "they" shut the machines off and pull the bids — or throw the big knife switch to "bias = sell"?Makes me think about that scene in "Trading Places" where the Dukes scream "turn those machines back on!"

Dan Costin writes:

They're users of liquidity, not creators of it. Know of any less than liquid stocks that a high frequency trader would get involved with? The stocks they play with are already plenty liquid.

Jeff Sasmor replies:

200+ MM shares / day in C where on many days the price bounces up and down by 1 cent for minutes or hours (aside from the open) is creating liquidity? If the HFT guys aren't churning C then who is?



 They laughed when I bought science toys for my girls. They laughed when I arranged science lessons for them with a race car mechanic who knew how to take a hair dryer and car apart et. al. But when my daughter Kira today got into Columbia Engineering early admissions they gathered around and wanted to know about those lessons and toys.

Alan Millhone comments:

One has to be in the world yet apart from it when it comes to things that count in one's life. Anything that gives anyone an edge is most important. Your story hits home as my youngest grandson is eleven today and as I type he and his thirteen year old brother are playing Jenga with grandma at the kitchen table. My daughter at present has no Internet and a TV converter box and limits TV and video games. Studies, and going to our local library, rule the day in her home. The boys play checkers and chess and many other board games and do activities as a family unit. She lets the oldest son cook with her watching and are taught to respect others and to know right from wrong.

Michael Bonderer writes:

Cool. So how did it work with your other daughters? I get the Variety headline summary every morning and caught today’s piece on the acceptance into Sundance of a film your daughter Galt is a part of. Did some gravitate to timing-chains and fuel injection valves and others go a different direction?

Rocky Humbert adds:

Congratulations to the both of you. I hope she enjoys her journey… and is an exception to Summers’s rule.

Mark Bates recounts:

At my niece's wedding over the weekend, I couldn't help but stop and admire my own kids. The oldest girl is home from Moscow where she has entered the working world teaching and developing her diplomatic and communication skills. The next, the cheerleader, is one interview away from admission to medical school. The next with her gifts in dramatic arts and friendship will probably make it rich before the first two. The most curious one that night, though, was my handsome but shy 12 year old son who figured out how to lure numerous beautiful coeds to the dance floor… They are the only thing I've ever done right.

Victor Niederhoffer replies:

And if that's the only thing, it is very good according to selfish gene as you created much current and future fitness with just a small sacrifice.

Anet Ahern writes:

For my daughter's seventh birthday party I shunned Disney, pamper and dance themed parties and had a science experiment party instead. Twenty girls watched goo explode, plastic bottle rockets take off, and fumes turn colourful. Later in the year for career day she said she wanted to become an archeologist during the week and a rock singer (for charity mind you) on the weekends. So I'm with you on sabotaging early socialisation.



 I was very impressed the week before last at how Barrick Gold picked the top of the recent gold rally. With great fanfare on Dec 1 they announced they had completely eliminated their hedge book ahead of schedule and were now fully exposed to the upside potential of gold — and, took a $6B charge to do so. That's some stop-loss! Three days later gold tanked spectacularly and has been going down ever since. Awkward.

It reminds me of the time back in 1996 when oil was $10 and the Economist did a huge spread on how the oil market was now permanently confined to structurally low prices for all sorts of wonderful fundamental reasons. That was the very week oil started its huge bull market that ended 12 years later in a price 15 times higher. When I heard the Barrick story on the news, this immediately leapt to mind, and I remember thinking "You know, I bet this is where gold coughs up a lung."

But maybe Barrick was its own worst enemy. After all, they were admitting that they had eliminated all commitments for future delivery, and were now in a position to dump their full production on the open market at any time. Well thought out. My question is, how'd they ever get so big?

Steve Ellison writes:

The Commitment of Traders report has recently been showing commercial short positions at multi-year highs. Apparently while Barrick was trumpeting the end of its hedging program, other producers were quietly increasing their hedges. Maybe it was Barrick's short covering that drove gold above 1200.



 Sitting in front of the fireplace yesterday with the family and two of my three children had their buds in. Did they even hear what I said about the busy weekend ending on a relaxing note? One said "yes, I heard you" the other said "what?".

This is not like the Walkman generations of the 80s — it wasn't as widespread and the indoor playing of Walkmans was considered rude. But what about the 50s and the crystal radios with their earpieces — can someone comment on the parallel? Are market players as plugged in to their own separate realities, as my kids seem to be?



Using monthly prices from 12/31/05, when Nikkei was 16111 and S&P 1248                        

changes in overs and unders of Nikkei versus S&P index                      

date    Nikkei price            S&P price                                        

01/08   13592             <     1378                                          

02/08   13603             >     1330                                          

03/08   12562             <     1323                                           

05/08   14338             >     1400                                            

09/08   11259             <     1166                                            

02/09    7568             >      735                                           

10/09   10034             <     1036

Seven reversals with many chances for profits (in retrospect). This should be generalized.



 Excelling in sports carries over to the checker board since in both you have to work hard to advance in your skill level. I see a football team working as a team on the field under the supervision and guidance of the team's coaches.

In Checkers I have a library of Checker books that I study and recently visited the Cleveland Library and got a set of games played by Andrew Anderson and James Wyllie from 1847. One can learn much from those early Champions of past years. I added those games to my manuscript.

Checker players learn from each other. As President of the American Checker Federation we put out six bulletins a year full of games played at our National Tournaments. Even some of my average games can be found. Games are annotated and serve as an excellent study tool to learn and improve.

Seems to me the Market Trader is kind of a rogue player, in that he acts alone and seldom consults others as to what to buy or sell. Is this a correct conclusion?



 INVICTUS - Clint Eastwood knows what he doing as an actor, as dozens of worthy efforts have shown over the years. More impressive, right now: He sure knows his way around a two-shot and a script as director. INVICTUS demonstrates that he is not rosk-averse, either. Under the guise of a sports metaphor using the non-American sport of rugby, Eastwood fashions a suggestive reason for the Mandela mandate success in South Africa. It's the involving, even intense, recounting of South Africa's sea change under Nelson Mandela (Morgan Freeman) through the prism of the Springboks’ clamber up against superior teams. Before Mandela’s leadership puppeteering, the ‘Boks were the Chicago Cubs and Boston White Sox of their venue in Pretoria. This is an uncommonly winning case study in leadership, perhaps a bit lyrical and almost too pristine, still deeply affecting. After his release from 28 years in prison, and entirely absent his murderous evil-wife Winnie, Mandela takes office in 1994. The enmity between the blacks and whites is so entrenched that even the national team, the Springboks, are a det4ested stand-in for apartheid and hate. Mandela romances the leader of the rugby nationals, the Springboks, in the person of Matt Damon, now newly blond, fully hirsute, and buff from his recent film, THE INFORMANT, and seeks to turn a symbol of separation into a sturdy flag of hope. There is no better embodiment of Mandela than the wonderful Freeman - who long sought to play this climactic role. He is by this film’s lights more a saint than Gandhi or Moses could be; he is thoughtful to the meek and the least of his people, kind enough to notice the new haircut of his starchy aide de camp. He is humble to all, ever mindful of his recent incarceration. INVICTUS captures the nuances of his political deftness, but captures also the ready inspiration, as well as the ruggedness and tumble of hardball rugby. Eastwood's extraordinary; every camera angle, every lighting cue, every response of the little child straining to hear the crucial game inside the stadium is spot-perfect. Brief strong language, some ardent South African accent, but, in 132 minutes, a rousing sports clarion to unification and full-out masculine teamwork. Winning. Uplifting. A great film in the evening of Eastwood.

The Lovely Bones - Though it is debuting in the holiday period, and though Alice Sebold’s book sold well for many a month, THE LOVELY BONES, directed by Peter Jackson, is a mishmash that ill suits the festive period. Even with Stanley Tucci as the signature creep perv, Mark Wahlberg as the murdered girl’s caring father, and Rachel Weisz as the (too-young) mother of 14-year-old Saoirse Ronan, what is the entertainment in a murdered teenager looking back on her life from beyond? Really. Visionary as was the astounding LORD OF THE RINGS triptych, this is erotomania is a toughie for goo-goo fantasyland. The dreamscapes and Gee-whiz heaven scenes are intriguing clinically, but so what? You get a toothache from the taffy of the afterlife the heroine traverses. It runs counter to the ugliness of the real story, one that is considerably darker and uglier than the Robin Williams-heavenly Crayola afterlife we are tossed into repeatedly to soften the story. An able cast chronicling the slain character's journey from sweetheart schoolgirl to shattered dead soul stuck in a zone between here and there is relieved only by the hard-drinkin’, heavy-druggin’. profane-funny sloth of Susan Sarandon’s hilarious grandma. Maybe too mature for kids, and not enough fun for adults, the film, notwithstanding Jackson’s pyrotechnics and imagination-stealing stunts, is stuck in its own disturbing netherworld between literature and violence, worthy viewing or DVD afterthought. Even popcorn cannot redeem the unavoidable sleaze of the subject matter, no matter who stars as parents and kinfolk.

 Crazy Heart - One of the best pictures this year, bar none (even the over-hyped, grim and deeply upsetting PRECIOUS, nominated for all those Golden Globes, oh my) is CRAZY HEART, starring the almost triumphal Jeff Bridges (looking by the minute more like Kristofferson than does Kris himself!) and a beautifully cast Maggie Gyllenhaal. Coddling his own ego loss as a once mythic singer and country superstud, er, star, Bridges plays a down and out country singer who plays the bars and bowling alleys that will have him. He picks up the women who remember when he was the best, and he does one-night stands too rubbery to remember names. He’s sloshed on and offstage, drugged up for whatever he can get hold of. Gyllenhaal and her decency almost light the spark that gets Bridges into shape. Colin Farrell does a sexy turn as a younger, soberer version of the talented guitarman, absent the golden touch of lyricism his mentor still retains. Bridges is not to be outdone for a brilliant performance, immersing himself unself-consciously in a role that is catnip to a real actor’s actor. Magic music, Bridges singing a fair piece through the film. A story arc that vectors in real, with a finale that registers as truer than the usual Hollyweird treacle. You can see this one twice.

BAD LIEUTENANT: PORTS OF CALL NEW ORLEANS - Talk about climate change. For his shimmy down the greased ladder of self-indulgence and loss, Bridges reminds one what Nicholas Cage tries to evoke in BAD LIEUTENANT: PORTS OF CALL NEW ORLEANS, a mess of a remake (No! Is NOT a remake, says director Werner Herzog. But he is nicht gerecht. Wrong. The first one, BAD LIEUTENANT [1992], was only 17 years ago, starring the unforgettable [often buck-nekkid] Harvey Keitel as the corrupt cop beyond redemption. Too soon to do that over again). It’s good to see the honky tonk Big Easy after Katrina, maybe, and Eva Mendes as Cage’s floozy with heart and pretensions to the better life is quite the eyeful. But whoa. Cage as a damaged, pharmaceutical-addicted drunken lout in a shaky Southern drawl; iguanas and lizards littering the screen; boozy broads and bad brothers-in-law. Headache time, Herzog. A sometime Olympian director, Werner can be immortalized here for whacked-out death dances and brawling phantasmagorias. He lets slip the reins of realistic films about real people doing real things. If you are a fan, by all means. But don’t say you were not warned.



F D RReformers, in their efforts, prefer to focus on the supply side of the equation — ignoring almost completely the demand side. In the financial arena there is much finger-pointing at the sell side of such products as CDOs, and the riches that were made. Not a whole lot of attention paid to the largest buyers — long acronyms — that enabled the transactions. On trade much attention is paid to foreign suppliers who take jobs, not to the benefits derived from on the demand side for the array of products at lower prices. Perhaps supply is just easier to regulate. The same holds true in health care. It is hard to change supersized demand mentality and fitness avoidance — the suppliers are just easier targets.



 Let's run this by the various new ethics courses Harvard now requires in its Law and Business schools.

Making a two billion dollar payment to JP Morgan Chase (or whomever) to terminate a swap agreement is not, it seems to me, buying a security in a public market that might be affected by premature disclosure. Rather, it is a calculation by the parties of the amount the swap agreement is under water, and thus the amount Harvard must reimburse JP Morgan Chase for Harvard to be let out of the swap agreement.

If this is accurate, then the reason for suppression from the public hearing and the bond documents Harvard's intended use of the bond proceeds is not to protect Harvard's swap termination transaction from fluctuation due to market rumors. Rather, it's to protect Harvard management from the embarrassment of disclosing its unfavorable swap transaction and its horrendous use of billions of dollars of endowment funds contributed by loyal alumni.

Thus the question for the ethics courses: Is Harvard's suppression of the customary or legally required disclosure of its intended use of the funds ethical?



 Is the blood, sweat, and tears and more importantly, repetion worth it? At what stage do you say, once mastered–there's nothing more to be gained, it's like a chore now, your energy is getting weaker and your soul being drained? At what stage do you determine, like a trade, positive flow against negative flow, are there too many pips and not enough 5 baggers? At what stage does the occasional good going out be worth the crap of reduced positive flows coming in? There must be a law of diminishing returns here, once the student learns the lessons that need to be learned, and learns what the matrix is and why it exists. Why hold on for that last 1% of no doubt ego gratification.

I looking at people staying around too long in there chosen careers, sports, whatever …

It seems it's important to move on, lessons learnt, and the path to the next destination will hopefully be somewhat clearer. Luckier for me on the trading front that that decision of moving on doesn't have to be made!

Riz Din comments:

I quite like the idea of maximising my utility and exiting when the marginal returns are greater elsewhere, of getting 80% of the easy results and moving onto the next activity where I'll pick up another 80% in the same time that it would have taken me to get the remaining 20% in the first activity. This dim-sum approach reminds me of the episode in Seinfeld where George Costanza learns about the showman's approach of leaving on a high and employs it to great effect:

Jerry: Showmanship, George. When you hit that high note, you say goodnight and walk off.

George: I can't just leave.

Jerry: That's the way they do it in Vegas.

George: You never played Vegas.

Jerry: I hear things.

Of course, much depends on the activity and one's objective, for there are many ventures where the structure is more akin to a tournament and the spoils go to the victor. Here, going 80% of the distance is fruitless. It is as Al Pacino says in the film Any Given Sunday, that life is a game on inches and you do everything you can to gain that extra inch, for it is in the tightest of margins that you find the difference between living and dying, between winning and losing.

Almost every decision we make is a like a trade, with an entry and an exit, but too many times we enter into life's positions without thinking about our exit. It's different strokes for different folks, but that doesn't mean we shouldn't stop to question our motives, asking how much is enough, if it is ever enough, or how little is too little, if it is ever too little (so long as you keep on giving it your all and do not fade gently into the night?). Likewise for mastery of an art - while I admire the patient, Eastern philosophy of practising a simple task over and over, I also know that this approach is not for me. Here's a quote from an article I read about a Japanese knife maker:

'I will stop making knives when I stop learning something new and I haven't stopped learning in the 90 years I've been making knives'.

Maybe the greatest sin to simply carry on doing what you do as an avoidance strategy. By keeping busy you are avoiding confronting yourself and straight up asking yourself whether your actions have the value they once they did, if at all. In this situation, time eventually decides on your behalf, and one way or another, you get carried off. You've stop being the master of your destiny and have fooled yourself into thinking that you are still making the right choices - an impossibility if you have stopped asking yourself the right questions.



 At least there was a 16 point range for the first day above 10 in the last 8 with 2 million volume, thereby letting the public switch out of good and stop out when the margin and uncle point overly trepidatious.

As collab notes, gold and the S&P crossed and the Nikkei and the S&P always crossing. A study of crosses would be good. What other ones would be good?

Quarterly expiration within a hair's breadth of Dec 1000 looking to cause consternation.

Corn seems to hit 400 with disproportionately large frequency.

Grains very close to where they were 100 years ago, showing that inflation and commodity bulls are charlatans.

The antitrust actions against the technology leader have to seem a pall to all businesses and investors similar to those that have led so many times to crashes in the last 150 years, but this must be quantified.

Also to be quantified are the changing relations of leaks of important information in the well worn corridors. An Ellsworth Vines can no longer play tennis on the clay courts of Pennsylvania Avenue to get a dispensation for the leader of his pro tour.



 The documentary Space Within Us about Paul McCartney's US tour is a really good movie for you Beatle fans. His band is great, and he does the old Beatles songs note for note. There is backstage coverage which I like.

The movie Botany of Desire is a very good documentary also.

Motherland Afghanistan is an interesting glimpse into an country I knew nothing about. An Afghan born doctor, who lives and was trained in the US returns to try help maternal surgical care. There is nothing about the war at all in the movie.



 A Terrible Splendor by Marshall Jon Fisher.

Picture the all-seeing eye looking down on the crucial third match of the 1937 Davis Cup with the two best players of the world, Don Budge and Baron Gottfried Von Cramm playing, with the greatest of all time, Bill Tilden, in the stands rooting for his beloved German student, along with Barbara Hutton the Woolworth heiress, deeply in love with Gottfried and showing it at every shot as her second husband gets more and more furious, as Europe prepares for war, Germany recovering from hyperinflation, homosexuals and Jews gradually being stripped of their property and lives, and fighting for their lives on and off the court. It's two all in sets, extra games, and Von Cramm has volleyed a sharp angle 10 feet wide to Budge's weak forehand on the Wimbledon grass with the Queen's interlocutor in the royal box trying to restrain his enthusiasm for the German royal's victory, and stock market volume is way down because they're all following the match on the radio with Al Laney from The Tribune broadcasting.

"Take a rest," Tilden had told his very good friend. "I can't," Von Cramm answered. "I'm fighting for my life." As the players walked to the court, Von Cramm had been called back to take a call from the Führer. "We're counting on you to win… or else." Men of homosexuality, like Von Cramm, in those days were being sent to concentration camps and Cramm had been outed by the SS already. In addition his mother was half Jewish and Jews had been forbidden to practice any profession, including finance, as well as having their businesses and money confiscated. (However, they apparently were able to take out 7% of their money upon proper application). Thus Von Cramm really meant it that he was playing for his life.

That's the backdrop for this entertaining and well researched book by a man who loves tennis but doesn't play the game, and weaves the story of the match into the backdrop of the culture of tennis, arts, and economics during the 1930s. Along the way, we learn the true story of Von Cramm's gentlemanly behavior with the linesmen (he liked to thank them for their vigilance in calling his foot faults, and never corrected a linesman, and always called the ball down on himself). The sexual preferences and vices of all the Davis Cup players of the era. "Budge apparently was often three sheets to the wind, but Tilden never drank. "I'll have a Tilden" was the way the French ordered water in those days. The tragic story of all their deaths, the nitty gritty of the home economics of all the players (Tilden was always broke even though he was the highest paid athlete of his day — he insisted, like me, on picking up all checks), and many anecdotes about the tennis players of that era. Very entertaining and revealing. (Part 1).

Charles Pennington adds:

Here is a video of the Don Budge backhand.

This particular backhand looks "flat" to me — not too much topspin.

I think that the reason that the topspin backhand was considered so difficult a few decades ago is that most everyone used a grip that was too "open". It was too much of a wrist-balancing act to keep avoid netting or skying the ball.

Last night I was watching a 1980 US Open Borg-McEnroe match on the Tennis Channel. McEnroe's backhand was very unsteady. Usually he hit weak slices. It is amazing that he could hit topspin at all, since he used the same grip for both backhand and forehand.

Pedja Zdravkovic comments:

Tennis has evolved since that time and the modern day rackets allow you to play with a lot more topspin. However for a recreational player nowadays, it is maybe wise to flatten out the stroke since there is less effort in the shot and strain on the body. But in order to do that you need to have a feel for the ball. It is much more complicated to play with an open grip. Spin is what gives less of a margin for error and also creates bigger problems for the opponent. McEnroe had the best hands in tennis. When I watched him play last year out at the Long Island Tennis club it was amazing. He is able to control each ball and put it within six inches of the line 90% of the time.



 Alan wrote yesterday "on this day (December 16th) in 1773 the Boston Tea Party took place as American colonists boarded a British ship and dumped more than three hundred chests of tea overboard to protest tea taxes. Today we have many politicans we need to put overboard and start fresh with honest people."

It is a nice fairy tale, and it will be told as long as people keep quoting Jefferson about the tree of liberty being watered by the blood of patriots. (Jefferson, of course, came nowhere near any of the blood and was a notoriously unsuccessfuly hortoculturalist.)

The Boston Tea Party was an organized riot by the tea smugglers of Boston who were genuinely peeved that the British Crown had had the wit to ignore its own Navigation Acts for once and land tea that, even with the tax, was less expensive that the Dutch tea the smugglers were bringing in. The British tea was thrown in the harbor because it threatened the smugglers' profits. The best modern analogy is a riot by Union workers beating up "scabs" — i.e. people willing to work for less.

The Tea Party was not a success politically. The people in Boston knew what it was about and were angry that they had to keep paying more for their daily drug. But the Tea Party was, inadvertently, the start of the Revolution. That is why we have the myth. The Home Office in Britain reacted with more than the usual executive idiocy and decided that the answer to an unpopular minor riot was the military occupation of the entire city of Boston, the shutting down of all trade and commerce, including local fishing and the confiscation of privately-owned fire arms. That gets us to Concord and Lexington and, after that, there was no turning back — even if the Continental Congress itself thought that its first action should be not a Declaration of Independence, but a petition to the Crown for a cease fire.

Jeff Watson adds:

Not only were they smugglers, but many were Free and Accepted Masons, and most of the planning went on for the Tea Party, and other acts against the Crown, in Masonic Lodges. The whole Revolutionary War was stamped with the imprint of Masonry, and the importance of Masons in the Revolution should never be underestimated.



The Census Bureau, those irreproachables, have provided us with their latest Statistical Abstract. It notes that for 2008 the United States as a whole had 10.5% more business deaths than births. California, our ever golden state, had 45.1% more business "deaths" than "births"; overall, we lost 47,000 employers in last year. The other states with comparable numbers for employer closures compared to startups in 2008 were:

* Michigan, 55.1%
* Missouri, 41.4%
* West Virginia, 38.1%
* Rhode Island, 34.7%
* Arizona, 33.9%

Only 10 states had more employers open than close in 2008. The largest gainers were Texas (34.6%) and Utah (27.9%). Louisiana came third (a 19.6% increase) but that number needs to be viewed in light of the destruction of employers in the previous year as a result of Hurricane Katrina.

Yet, somehow, magically, according to the BLS, employment in the United States in 2008 increased by 825,000 as a result of net new business formation.



the st. louis fedThe latest release of the bi-weekly velocity of money multiplier series at the St. Louis Fed shows that the velocity has fallen to an all time historic low. The current reading is .811 and means that a dollar of money supply only produces 81 cents worth of GDP in a year. Another way to look at it is that the Fed needs to print $1.23 of new money to produce $1 of GDP in the next 12 months.

Part of economic impetus driving this situation is extremely low interest rates. At short term rates under 1% there is little urgency to invest. Putting your money under the mattress results in little in the way of lost interest. But it does save one from the savings account counter party risk and hypothetical failure of the FDIC program. The mattress strategy might even yield a net real return if deflation is the future.

The following link is to the St. Louis Fed site with a chart of the velocity of money and the most recent numbers.

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

Stefan Jovanovich replies:

Dr. Phil's statistical expertise dwarfs my poor abilities to add and subtract, but we Hayekian arithmeticians remain stubbornly skeptical about the relationship between official monies and wealth. If all the Fed really needs to do is print $xx.xx of new money to produce $yy.yy of GDP aka the sum of private and public incomes, then those in charge are clearly derelict in not immediately printing 2, 3 or 4 times $xx.xx.

Could it be that the evil capitalists are huddling at zero maturities, no matter what the price being paid for their lending the government back its official money, because the risks of (a) 2,3, and 4 times $xx.xx being printed or (b) the collapse of the carry trade in world commodities priced in U.S. dollars are BOTH best hedged by having the shortest possible terms on their official IOUs?

Those of us who dream of a return to the stupidities of Austrian and 19th century American gold standard economics fantasize that there will be that magic day when some impeccably credentialed Dr. of Economics stands up at the Emperor's testimonial dinner and asks why the accounting tautology of MV=GDP is any more meaningful than the one that says Equity=Assets-Liabilities.

MULT: The M1 multiplier is the ratio of M1 to the St. Louis Adjusted Monetary Base.

M1: The sum of currency held outside the vaults of depository institutions, Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand and other checkable deposits issued by financial institutions (except demand deposits due to the Treasury and depository institutions), minus cash items in process of collection and Federal Reserve float.

Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories.

Rudolf Hauser writes:

 We do not live in a barter economy but rely on money instead. Anything that is convenient to use, that is very widely accepted in transactions and that retains it worth can be used as money. As with all goods and services, humanity is served by efficiency. Gold has the advantage that it is a limited commodity in nature, which keeps it relatively scarce and hence helps it to retain value, but one major disadvantage in that it is very costly to produce, making it an inefficient use of human resources. Paper money is cheap to produce but retaining value depends on the will of the producing authorities to provide an amount sufficient to meet demand for liquidity without exceeding it such as to neither increase or decrease its value (and the lesser problem of avoiding counterfeiting).

A decline in velocity indicates an increase in the demand for money relative to available supply. To measure velocity against economic activity (GDP) one most consider the lags typically involved. I prefer to use a two quarter lag. On that basis velocity was still declining for M1, M2 and MZM in the third quarter. But given the performance of financial markets I believe that the present monetary growth, while not that rapid of M2 and MZM, but more rapid for what I call liquid M2 (M2 less CD's, without institutional money market funds included in MZM), is adequate because of the increasing confidence which should be reducing the demand for money. Hence, the decline in income velocity is a reflection of the lags. Monetary growth was clearly inadequate earlier in 2008 given the rising demand for liquidity until the Fed finally panicked in the autumn.

Money creation does not increase real economic activity from a stable state level, although an erratic or inflationary monetary policy will probably decrease real growth potential. If money is inadequate to supply the effort to restore liquidity will drive down other financial asset prices and reduce economic activity. In such cases the supply of more money will meet that liquidity demand and result in an increase in financial asset prices and real economic activity. This is just a restoration from a prior inadequate supply of money. An increase in money from a starting state in which the demand for liquidity in a non-inflationary environment might increase real economic activity temporarily if there is money illusion, that is nominal demand increases are mistaken for real demand increases. Otherwise it will just cause inflation, with the lag depending on the state of the general view on monetary policy. In an inflationary environment the lag to an inflationary impact would be minimal to non-existent, but in a world with much confidence in the monetary authorities it is likely to be longer.

Stefan Jovanovich adds:

The arguments against the gold standard always come down to the "inefficiency" of having to carry around a heavy bag full of sovereigns or Double Eagles. This has, of course, absolutely nothing to do with the history of coinage or official money; but, given how few good arguments there are in favor of fiat money, it should not be surprising that it is the standard explanation for why our paper currency is no longer exchangeable for specie. One should never underestimate the determined historicisms of the monopoly academic mind. What is ironic is that the "inefficiency" explanation is made by people who depend on the credit records of the 19th century to establish their certainties about the relations between "money" (sic) and GDP (sic).

The gold standard, as adopted by the United States of America at its founding, and by the United Kingdom, France, Germany, Belgium, Netherlands, Italy, Spain - the list is too long to continue - in the last third of the 19th century did not require people to carry bags of coins. What is remarkable is that it did not even require people to a particular money. All the gold standard said is that the sovereign government would mint coin in gold of a standard purity and that, on demand, the government would redeem its debts in such coin. You can find that pledge in the American constitution and, for that matter, in the constitution of the Confederacy. The gold standard did not require people to demand bags of coin as payment for the Treasury bonds, and even at times of financial distress, very few people did actually demand specie from the government. But the gold standard gave them that choice. "Ordinary" (sic) people could demand that the government meet its promises according to a standard that the government itself could not manipulate. Now, as Rudolph points out, the measure and weight of money is dependent on "the will of the producing authorities".

As Hayek kept reminding us, with elegance and without intemperateness, the notion that the government "supplies" money is the fallacy. Governments have minted coins from the beginning of recorded history, but they have not supplied that wealth; they have only collected it. Governments insisted on an official money because they could not live with private money. The idea that, before governments, people lived only by barter is truly fantastic; there is evidence of private money in every literate culture in history. As soon as people figured out how to write, they started issuing IOUs to each other. But, the promise of Fred the grain merchant of Tigris to pay Harry the wheat farmer two goats and a dowry for Gharry's daughter was not going to be very useful in paying the hill tribesmen pay/bribes/rewards for serving in the king's own regiment. The hill tribesmen did not know Fred or speak his dialect; they wanted something of tangible value. Official money developed out of the need/desire/vanity for armies and the necessity of paying them. That is still official money's ultimate rationale; the state needs to be able to pay its minions with a money that they will accept.

But why, as Hayek asked, does official money have to be a monopoly? Why are our most "progressive" thinkers in favor of a world currency, for example? The inefficiency argument hardly applies in this case; having 3, 5 or even 50 different sovereign currencies is no more difficult to manage in the age of computers than a single currency. The answer is obvious: with competing monies there is still a means for people to accumulate and hold their own wealth. That liberty may only be available to the very rich but it is still a freedom that exists and that could possibly be expanded to include "ordinary" (sic) people; and that movable private wealth represents a very real threat to official power.

The one valid argument that defenders of the Confederacy have is that Lincoln did want to impose a Federal monopoly on money and that, once the Civil War started, he did just that. What the defenders of States rights do not acknowledge is that state governments had been as eager monopolists as Lincoln. They had also, like Lincoln, been willing to default on specie redemption for their borrowings.

The reason that you have a period of rare political unanimity on the question of the gold standard for the 4 decades between the Resumption Act and the closing of the New York Stock Exchange at the beginning of World War I is that Northerners and Southerners, Democrats and Republicans, of any sense all understood the monetary lesson of the Civil War: if government is allowed to exempt itself from a Constitutional standard for money, then ruin follows. When governments can literally manipulate the weights and standards of money itself, the currency becomes a mechanism for theft by those who sit closest to the King.

But, there is no point in quarreling with the true believers in the money supply. It is part of the same theology that has as an article of faith the certainty that, without compulsory government schooling, none of us would ever learn how to read. One can only laugh at the irony that it is the true believers who have the most at risk. The contingent payments to the civil servants themselves - those glorious pensions - are the promises most likely to fail. The coins cannot be clipped, and competing monies do represent a restraint on hyper-devaluation. All that is left is default. Given a choice between defaulting on Social Security/Medicare and public employee and school teacher pensions, there seems little doubt what the electorate will vote for ten or twenty years from now - assuming, of course, that the issue is even put to a vote.

Alex Forshaw replies:

But, there is no point in quarreling with the true believers in the money supply. It is part of the same theology that has as an article of faith the certainty that, without compulsory government schooling, none of us would ever learn how to read.

I'd go even further than this.

In my (thus far brief) speculative experience, for every one brilliantly complex idea which spectacularly vindicates the prophet lost in the wilderness, there are 99 "brilliantly complex" ideas whose complexity proves nothing more than a refuge for the proponent's ego, for him to delay admitting he's been wrong all along. Such is the case with the academic mumbo-jumbo that belabors arguments on monetary policy, among others.

Arguments about money supply, liquidity provision, bubbles and the gold standard revolve around some very basic presuppositions.

Can bureaucrats be trusted to Do The Right Thing when specialized constituencies' interests, and bureaucratic institutional self-interest, unite on the other side of the argument?

Or do they–under the cover of complex esoterica completely foreign beyond their own constituencies–generally convince themselves that The Right Thing happens to align perfectly with their own institutional self interest?

I do not understand how anybody can look at the history of money, and the history of human nature in general, different from "hell no."

In my opinion, if you take the other side of that question, as Rudolf has, you will find yourself justifying the most brazen monetary manipulations any of us has ever seen. The rest is just pedantry. How does anyone have the arrogance to set the cost of capital for an entire planet? How does anyone else sucker themselves into believing any one individual ever has that kind of "edge," on any kind of ongoing, predictable basis?

Theses that can't be explained simply, should not be trusted. There is a lot more egotism than truth in complexity. No amount of academic mumbo jumbo will help contemporary, "how D A R E you suggest our tripling M1 in 1 year was anything other than saving the economy from Armageddon?" Keynesianism pass the bullshit test; and that's where the line in the sand should be drawn.

If you accept the terminology and the givens of the monetary clergy, you tacitly concede intellectual honesty on their part. For someone not invested in the status quo (or invested beyond that), all debate beyond that point is a waste of time. You aren't going to change anything, so why not just find something better to do?.

Rudolf Hauser counters:

I am not going to persuade Stefan to abandon his love of gold, so I would not even waste my time trying. He like our sometime contributor Larry Parks are staunch advocates. But other members of the list might be open to alternative viewpoints. First of all, I do not advocate a government mandated monopoly on money. I believe individuals should be able to hold whatever assets they wish, gold included, and contract to deal in whatever medium of exchange they prefer. I like Stefan object to efforts to restrict such as was done when the gold standard was abolished under the FDR administration. The inefficiency I am thinking off is not people carrying bags of gold around but the human costs of mining the stuff. How many work under absolutely miserable conditions digging through mounds of dirt for a few grams to buy them a meager subsistence in Central Africa? How many work under extremely hot, unpleasant and I suspect not without danger depths of South African mines? How many wasted their lives digging for gold without most finding much in the gold field booms of California, Alaska, etc.? Digging for the stuff costs lives and ruins lives. People would still do so for the non-monetary uses of gold, but the price would be lower and the resulting activity less. The use of IOUs etc. in early human activity not expressed in a common medium of exchange is still a form of barter. Only when you have a substance widely accepted by a large group of people in which the value of all other goods and services are expressed do you have something that can be called money. A near money, like the non-M1 components of M2 are not transactional money, but may be considered as money for analysis if they can readily be converted to a transactional money without any or most minimal cost. Transactions in international trade involving two or more currencies represent additional risks and costs. Not only is your competitive position determined by what happens to the demand and supply of your products but also by the overall balance between the countries in question which will impact the exchange value of the currencies. Hedging will reduce the risk somewhat but not without cost. I am not advocating a single currency as that also creates even greater problems with regions growing at different rates, etc.-just pointing out there is both advantages as well as disadvantages to having to deal only in a single currency. A gold standard will not prevent a government from defaulting. It only changes the form that the default might take. A fiat standard makes it easier to do so without being so overt about it, but in extreme situations it will not prevent that from happening. For an economy to function most efficiently, it needs to have an adequate but not excessive medium of exchange. Gold is limited by the amount in the ground. Any currency, etc. backed by gold at a constant amount would still be limited by the available quantity of gold. Major gold discoveries have lead to inflation, albeit very modest compared to what happens with inflated fiat money. A shortage of gold leads to deflation. As the experience of the latter half of the 18th century in the U.S. showed you can still have good real growth with modest deflation. But there is a problem here. Most people rely in others to make investments in real ventures (that is, capital spending, etc. as opposed to financial investments). But since the nominal return on money practically go below zero (storage costs, etc. might reduce it slightly below zero), the amount of deflation will set the risk free interest rate floor. As that rate rises higher and higher, fewer and fewer investments will offer enough of a return to attract saver's dollars. As such, investment and real economic growth, with resulting improvement in living standards, would lag behind potential. Efforts to accommodate this by reducing gold backing, changing conversion rates get you right back to the issue of government discretion that Stefan was talking about in the first place. You could end up with a monetary shortage as people hoarded available money. Alternative private forms of money might develop, but as they would represent more inflation prone forms of exchange than would private money such as gold under current conditions, they do not strike me a first glance as an attractive alternative to a sound fiat standard.

Alex, M1 did treble-relative to Feb. 1985. It has increased 22.9% in the past two years. M2 was up 13.2% over those two years. On a continuing basis that would surely be inflationary. But given the financial uncertainty, it resulted in that time, it has probably been desirable. I am very concerned that it might not be reversed when the demand for money decreases again and then we might have an inflationary result.

Efficient societies depend on trust. Remove trust and the ability to make progress is greatly limited. But the biggest problem in modern society is indeed the need to restrict and control the power of government. We have different view on how that should be done and what government should be allowed to do.

Also, Alex, M1 did treble-relative to Feb. 1985. It has increased 22.9% in the past two years. M2 was up 13.2% over those two years. On a continuing basis that would surely be inflationary. But given the financial uncertainty, it resulted in that time, it has probably been desirable. I am very concerned that it might not be reversed when the demand for money decreases again and then we might have an inflationary result.

Efficient societies depend on trust. Remove trust and the ability to make progress is greatly limited. But the biggest problem in modern society is indeed the need to restrict and control the power of government. We have different view on how that should be done and what government should be allowed to do.

Jack Tierney comments:

 The arguments against mining (not just of gold but most other "raw materials") has become extremely popular. Much of the case made against the practice include elements similar to those put forth by Rudy (the larger and more revealing reason is that the government in general and the leeches in particular, want a bigger piece of the action, i.e., higher royalties).

Unfortunately, most are convinced that the maintenance and continued health of our "way of life" is dependent on computerized technology. It is not - not now and not ever. Our way of life began when individuals, so sympathetically described by Rudy, began digging holes. Our development as a country and our continued successes are wholly dependent on the mining, refining, fabricating, and moulding of raw materials. Autos exist because poor people dug holes in the ground in Michigan. The iron ore produced was useless without a refining process that called for other poor souls to harvest the coal beneath the soil of Appalachia. And what use is the auto without a group of speculators and rough necks drilling the world for oil?

The specialty steels used by defense contractors is insufficient without the necessary rare earths which greatly enhance its strength. Solar panels and longer enduring batteries are inconceivable without silicon & lithium (among others) which also must be mined and refined.

And all the miners, fabricators, designers, innovators, developers, and speculators still depend on someone digging a hole in the ground, dropping in a seed, adding a little (mined & refined) fertilizer, watering it (pumped from an underground aquifer), and, eventually, producing a crop which after further milling, purifying, packaging, and shipping is available as food.

Make any case you wish for or against gold, but we cannot do without hole diggers and those processes which follow the raw material in the production process. Yet we have abandoned all those incremental steps and continue to believe we can somehow maintain our standard of living. We are left to purchase many required finished products which, at one time, we produced in such abundance that we exported the raw materials (e.g., copper & iron ore) necessary for their manufacture (and, whether measured in dollars or ounces of gold, paying an increasingly higher price). We face a situation in which these manufacturing countries are still creating the end products but now, due to their internal growth, are consuming much of what they produce. Understandably, our need does not trump theirs.

I can accept that a great deal of the industrial transformations we have experienced can be related to global labor arbitrage. However, it behooves any country which pictures itself as an "international power" to continually monitor the world production of those raw materials (from origination to end product) which are essential to its continued health. We already have strategic petroleum reserves - but that reserve is exactly that: petroleum. It is not gasoline, diesel, or kerosene -products which can be used immediately. It must be refined; yet, in spite of no new refineries in 40 years, Valero just closed down another operation within the past week.

We not only need to consider strategic reserves of a wide variety of raw materials, but also the means to produce those essential end items. But we must keep digging holes.

Rudolf Hauser responds:

I agree with almost everything you write with regard to mining. My point was that I rather have people engaged in other productive activities, mining of those other minerals included, instead of doing unpleasant work digging for something that serves a function that could be served with much less human effort or cost. Much of mining has always been somewhat dangerous and hazardous to health, just as building railroads and canals was in the 19th century. People took those jobs because the need for the income and the available income was judged better than the alternatives. Keeping their families alive here and now was worth more to them than longevity. As overall living standards improved, so did mine safety. It is still difficult work but vastly improved over what it once was. Because living standards are lower, safety standards still lag ours in places like China. And yes, we are still dependent on the rare materials produced and the processing of such. The cost of externalities such as resulting water pollution still have to be allocated to the producers in some cases .

But while my main point was that it is more efficient to use paper money than gold or silver when possible to do so responsibly, I also made note of the human misery associated with gold. Just as people will gamble when they think that the odds of winning big are great but at the same time be reluctant to undertake a risky investment that is likely to yield a superior return with much less risk of loss than those activities and investments designed to make giant killings for the very few (like lotteries), so to it was with gold discoveries. Some made millions, but many more made little. Those with the best prospects were the merchants and others who serviced the miners. Digging for coal, oil or copper will not do the same. That takes larger operations. Even wildcatting is expensive. It's not like taking a few simple tools and looking for gold. Gold you measure in ounces, the other minerals in tons. Today there are dictators and war lords in central Africa who exploit people desperate to make a living by having them dig in unsatisfactory conditions for diamonds and gold. And the South African gold mines are some of the deepest mines in existence, and it gets hotter the further down you go. There have got to be better ways to earn a living.

Stefan Jovanovich replies:

I can't argue with Rudolph about the nastiness of mining. Grandfather Jovanovich was a miner; he dug for coal in Pennsylvania and Southern Illinois and Colorado and for copper in New Mexico, and his stories of those days were never, ever about the ease or safety of the work even though he loved it. But, using the particular barbarousness of finding and smelting the monetary metal seems to me a very weak argument to make against the lessons of several millennia. Lead mining and smelting are far more nasty, brutish and toxic; and that "near-gold" element is - so far - the unavoidable technological foundation for our brave, new Green world full of batteries. It is equally improbable that the gold miners in South Africa would be willing to trade places with the coal miners in China. The sociological argument against gold is, at base, pretty weak.

Gold's virtues are simple: it has been accepted throughout history as genuinely precious and scarce, it is not easily counterfeited (unlike, for example, diamonds and silver), and its costs of production seem to have a remarkably consistent relationship to the real costs of doing things when measured over centuries and even millennia.

The only argument that has even half-succeeded against the gold standard is the one that Rudolph makes. It is the one that was made in favor of the adoption of the Federal Reserve Act - namely, that a massive new discovery of gold - like the one then happening in South Africa - would unbalance the price structure of that newly discovered thing called "the economy" by increasing the quantity of money. But that argument only wins if one accepts the strict monetarist premise that prices change only because of the fluctuations in bank reserves. One had to believe that innovation, enterprise and science AND the varying animal spirits of the people getting and giving credit had no significant effects on prices.

What has worked to defeat the gold standard is the theological argument that Money and Credit are really one and the same. Given how bitterly we Christians have argued over the mysteries of the Trinity, it should hardly be shocking that the young science of economics has fallen into the snares that captured Church Councils, but one wishes that somehow, as a science, economics could avoid the mystical notion measure of Credit and Credit itself are both separate and one. To the rationalist Deists who voted for our Federal Constitution the endless analyses about M's 1 through pick a number would have seemed like the very doctrinal arguments they wanted their new country to set aside. The delegates who suffered through the true global warming of the summer of 1787 in Philadelphia formally adopted Article I. Section 8. for the same reason they insisted that there be no establishment of religion even in this nation formed under God. The delegates adopted a gold standard for the United States of America to prevent the Congress from extending its monopoly power over Money (which was granted by the Constitution) to a monopoly power over credit.

The original Constitutionalists would not have found Ron Paul's arguments any more persuasive than Rudolph's. In their demand for a gold-backed currency the Paulistas are not arguing for a restoration of the Constitutional gold standard; they are insisting that gold to be the sword that will slay the dragon of fractional reserve banking itself. To the delegates in Philadelphia in 1787, that would have seemed as lunatic as our present fiat Money system. Abolishing the ability of banks to deal in their own credit would have been as crazy as requiring all businesses to deal only in cash.

Having lived through a war, and its destructions, the original Constitutionalists were not in a mood to accept either Rudolph's monetary extremism or Ron Paul's. The country had lost its primary banker - the United Kingdom - and had destroyed its own currency - "not worth a Continental". What the Constitutionalists understood - and what we moderns still do not understand - is that thinking about money as a "medium of exchange" puts the cart before the horse. People will exchange things whether or not they have an official "medium"; what they cannot do, without money, is have savings whose future value is under their and not the government's control. That is, of course, the root of the problem we face now. If money itself is nothing but an IOU, then the government can resort to the form of cheating that had been a universal constant throughout history: the government can demand payment of its taxes in something real - grain, for example - and pay its obligations in something mostly false - adulterated coinage or paper like John Law's.

For better or worse, the original Constitutionalists gave the Federal government an extraordinary monopoly power; Congress alone, of all the governments in the United States, had the power to create Money in all its forms. See Article I. Section 10. "No State shall …coin Money, emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts". Only Congress had the power "coin Money". To assure that the Federal government would not abuse its monopoly power over Money, the Constitution required that Congress "regulate the Value thereof". (Article I. Section 8.) Morris' words need a careful reading. If one uses our current understanding of the word "regulate", one fails completely to understand the sense of what was written. In 1787 the word "regulate" was a technical term of science; it meant "to make regular" - i.e. to make uniform and consistent, in this case, in the assay. No other interpretation makes sense of why the founders then gave Congress the authority and obligation to "regulate the Value" of U.S. Money and also foreign Coin. Both were part of Congress' more general authority and obligation to "fix the Standard of Weights and Measures". Congress would have sole authority over Money, but that authority could only be exercised by fixing Money's Weight and Measure - i.e. purity.

The Constitutionalists took it for granted that the price of Money - what it would buy now and what it would be worth in future credit - would fluctuate. That was in the nature of credit itself. What should not fluctuate was the Value - i.e. the assay - of Money. If Congress wanted to add a further Measure - to define a particular weight and purity as a "dollar", that was certainly within their authority. What was not within their authority and certainly not within the President's Executive authority was to abolish their Constitutional obligation to regulate the Value of Money.

I don't really expect to convince Rudolph or anyone else who has been schooled in the modern Temples of Erewhon that Morris, Washington and Franklin had a greater understanding of money and credit than Paul Samuelson. But, the evidence seems overwhelming. The difficulties of arbitrage that Rudolph makes such a fuss over are precisely the difficulties that the original Constitutionalists expected the citizens to endure. No government on earth could make Money "safe" in the sense of guaranteeing its future purchasing power and assuring that its price in Credit would not suffer. Holding Money by itself was not enterprise; the citizens would have to take the daily risk inherent in either spending or keeping their Money. What they could be promised is that the Money itself would be true and "regular".

Alston Mabry writes:

Just by the way, I was thinking the Treasury and Fed kept separate gold accounts, but it appears they each list the same 261M oz, with the Treasury using market price and the Fed using $42/oz. The "gold stock" line on this Fed report dated today, shows the Federal Reserve Banks having ~$11B in gold, which, @ $42, equals 261M oz.




 I'm looking for some clarity about the issues of immunity, allergies, etc. Possibly this question will reach a reader with expertise.

In my college biology class, about 26 years ago, the professor explained that we've all got antibodies to "everything", but the antibodies only multiply themselves to large numbers when the body is attacked by an invader. At the time I asked the professor, "what's everything?", and the professor answered only "everything". I wanted to follow up and ask if "everything" included anti-neutrinos? Buicks? But there were >100 other students in the lecture, and anyway I don't think the professor really knew the answer. (Maybe the answer is "proteins"?)

What about foods? There has been much recent publicity about allergies to gluten, protein(s) found in wheat. Presumably gluten in included in "everything", and so everyone should have antibodies to it. Why then do some people react to gluten, multiplying the gluten antibodies up to big numbers, while others don't?

More broadly, since "everyone" has antibodies to "everything", why is that in only some people an allergen is treated as an invader?

Mr. Justa Guy replies:

JanewayYour professor was indeed correct, we all do have antibodies against virtually everything, or at least everything proteinacious. That is because of (i) continual recombination, and (ii) ongoing mutation.

Antibodies are made up of two heavy chains, and two light chains. Each heavy chain and each light chain have a unique specificity for a particular target (aka antigen). There are three genes which contribute to the specificity of each heavy chain, or light chain, called the variable (v), diversity(d) and joining (j) regions. There are multiple (ie dozens) of different V regions, dozens of different D regions and a few different j regions. This number is constantly increasing because of somatic hypermutation. One heavy chain made up of a specific combination of V, D and J chains, and one light chain made up of a different combination of V and D chains are made by one particular B cell. Mathmatically this diversity allows for tens of thousands of different antibody specificities. The presence of somatic hypermutation where one amino acid (there are 26 amino acids) is mutated with each round of cell division allows for a virtually infinite total number of antibody combinations, which in principal will include antibodies specific for every possible antigen (except perhaps Buicks).

Lets take the case scenario of a B cell that makes an antibody against influenza. In the case of the flu, a naive B cell which is specific for flu, is activated when it encounters flu antigen (either vaccine or flu virus). This causes the B cell to proliferate and make different kinds of antibodies, starting with IgM and IgD, and then maturing into either IgA, IgG, or IgE which help with either defense at mucosal surfaces, in the blood, or in causing allergy. Ultimately the activated B cell makes daughter cells of memory B cells, or plasma cells whose job it is to produce large amounts of antibody.

That is a short version of how it works.

There are many excellent intro level immunology texts, one of my favorite is by Janeway. They can provide a much more detailed explanation.

Jeff Sasmor writes:

Recently there has been much publicity about allergies to gluten, protein(s) found in wheat. Presumably gluten in included in "everything", and so everyone should have antibodies to it. Why then do some people react to gluten, multiplying the gluten antibodies up to big numbers, while others don't?

But Gluten Intolerance, also known as Celiac Disease isn't an allergy — it's an autoimmune disease; gluten sensitive enteropathy.

My older daughter has it… so I learned more about it than I ever wanted to know.

Justa Guy adds:

That is where it get more complex.

In order for B cells to maximally proliferate, they require "help" from another cell, the CD4 T cell. The CD4 T cell that helps a given B cell is specific to that same antigen. When CD4 T cells recognise antigens, it is done in concert with recognising another class of molecules called MHC class II, which is what defines self. So If a CD4 cell recognises an antigen but does not see MHCII, it is non self, and the CD4 cell helps coordinate the immune sytem to attack the non self antigen. If the CD4 cell recognises antigen, but also sees MHC II, then it is self and the CD4 cell is prevented from proliferating, and so it does not supply the necissary "help" to the B cell so that the B cell cannot proliferate to produce antibody.

Celiac Sprue is felt to be a food intolerance, where antibodies are produced that also react with self antigens expressed in the small bowel. In essence the antibodies are reacting against self, and so Sprue ( and many other diseases - eg lupus, rheumatoid arthritis etc) are circumstances where the process of tolerance ( breifly outlined above) to self antigens fails.

Riz Din responds:

As Justa Guy says, it's all about finding one's optimum dose. Unfortunately this is very difficult to do with vitamin D, as official lines are quite wishy-washy.

In order to get to where you want you first have to know where you are, and having a vitamin D blood serum test has to be the best first step in this direction. After spending a long summer outdoors I had my blood taken and my level came in a rather pitiful 63 nmol/L. It isn't woefully inadequate, though it does fall in the 'insufficient' zone. I shudder to think what my winter reading would have been. My doctor simply recommended a multi-vitamin tablet of all things as a solution, which is not wise as many of the other vitamins can be toxic at much lower multiples of the RDA. I'll eventually get retested to make sure I'm not at an risk of toxicity from vitamin D supplementation (currently taking 1000IU a day), but I think this is close to impossible on the existing dose.

From (a rather wobbly) memory, I understand the benefits for many conditions (bone fracture risk, etc) really kick it at the slightly higher doses of 800IU upwards, and also that the negative effects are very rare and tend to occur at extremely high doses, except for people who display a particular sensitivity. For my mother, who is also taking supplements, vitamin d has bought significant improvements. For me however, I haven't experienced anything beyond stronger nail growth, but I guess that's the point.

My 'vitamin d' bookmarks folder is on another machine, so I've put together a few interesting links for people who want to dig a little deeper (see below).

Here are the links:

- Dr Holick is a significant figure in the field of vitamin D research and he is also the most recent winner of the Linus Pauling Award. His UV Advantage website contains links to articles, videos, interviews, etc . I know the site looks a bit cheesy, but this guy is pretty well respected.

- On the issue of life extension, a recent study of lymphoma patients found that 'Patients with deficient vitamin D levels had a 1.5-fold greater risk of disease progression and a twofold greater risk of dying, compared to patients with optimal vitamin D levels after accounting for other patient factors associated with worse outcomes.' Pretty impressive stuff.

- The Institute of Medicine is reviewing the daily reference intake recommendation for vitamin D. Their work is ongoing but if you follow the link and click on 'presentations' in the 'other resources' section on the right, you can download presentations from people who attended the workshops (Holick is among the names).

- An AJCN Editorial from 2007 states: 'The balance of the evidence leads to the conclusion that the public health is best served by a recommendation of higher daily intakes of vitamin D (3). Relatively simple and low-cost changes, such as increased food fortification or increasing the amount of vitamin D in vitamin supplement products, may very well bring about rapid and important reductions in the morbidity associated with low vitamin D status.'

- An older AJCN review article looked at toxicity levels and reported 'Throughout my preparation of this review, I was amazed at the lack of evidence supporting statements about the toxicity of moderate doses of vitamin D. Consistently, literature citations to support them have been either inappropriate or without substance.'

The author presents this insightful graph and comments that 'The serum 25(OH)D concentration is maintained within a narrow range (Figure 2Go), {approx}75–220 nmol/L across vitamin D supplies from 20 µg (800 IU) to the physiologic limit of 250–500 µg (10000–20000 IU)/d. The most reasonable explanation for this kind of relation is that there are homeostatic control systems to regulate serum 25(OH)D and to buffer against variability in vitamin D supply. … Beyond the vitamin D supply limit, which is comparable with that attainable with sunshine, there is a classic rise in the dose-response curve. The sharp rise reflects the introduction of vitamin D and 25(OH)D at rates that exceed the capabilities of the various mechanisms to regulate 25(OH)D.'



Another way of saying leverage and the yield curve have driven ROA…

The Shift Index highlights a core performance challenge that has been playing out for decades: return on assets for U.S. companies that has steadily fallen to almost one quarter of 1965 levels, while labor productivity has continued to improve.




 December 16th is the 65th anniversary of the Battle of the Bulge. Many historians consider this the turning point of the war.

I would love to hear people who are more knowledgeable about military history write on this subject. A simple exercise in counting tells us that there aren't many of these warriors left.

They, and all veterans of American wars, deserve our utmost respect and, if you're lucky enough to know one, maybe a handshake, a warm smile, and a thank you.

I am very grateful to those that have served and would like to extent my personal warm wishes and a thank you to those who were there in the Ardennes 65 year ago.

Chris Tucker replies:

My grandfather's brother Uncle Rube (Reuben Henry Tucker III) was the commander of the 82nd Airborne Divisions 504th Parachute Infantry Regiment or as the Germans in Sicily called them "Those Devils in Baggy Pants". Their exploits in The Bulge are chronicled at this Wikipedia entry.

 I only met Rube a couple of times as he passed when I was very young, but he was loved and respected by everyone that knew him. In the film "A Bridge Too Far" a character played by Robert Redford is a montage of two commanders, my uncle and Major Julian Cook. Rube distinguished himself throughout the war. To quote the wiki entry on him:

Lt Gen James M. Gavin, who originally commanded the 505th Parachute Infantry Regiment, and later the Commanding General of the 82nd Airborne Division, stated in his book, "On to Berlin", "The 504th was commanded by a tough, superb combat leader, Colonel Reuben H. Tucker was probably the best regimental commander of the war.

Interestingly, Gavin would admit that Tucker "was famous for screwing up everything that had to do with administration. One story going around was that when Tucker left Italy, he had an orange crate full of official charges against his soldiers and he just threw the whole crate into the ocean. Ridgway and I talked about it and we decided we just couldn't promote Tucker." (from 9/28/82 interview of Gavin by Clay Blair)

Colonel Tucker was one of the most decorated officers in the United States Army. He was awarded two Distinguished Service Crosses, the United States' second highest medal for bravery, one of which was personally awarded by President Franklin D. Roosevelt during a visit to Castelvetrano, Sicily, in December 1943, for extraordinary heroism under hostile fire in Italy in September.

Stefan Jovanovich comments:

KurskThe only historians who consider the Battle of the Bulge "the turning point of the war" are those who believe in the Band of Brothers version. Hitler launched the offensive in the Ardennes because he thought it would scare the British and Americans into suing for a separate peace and that would allow the Germans to have one more chance to halt the advance of the Red Army. What is remarkable about the Battle of the Bulge is how close the Germans came. All they needed was another week of bad weather to keep away the Allied air cover. After Bradley woke up to the fact that something was happening (it took him over a day from the time he heard the news until he returned to his headquarters), his assessment was that the Allied had to pull back towards Paris. (One of Eisenhower's many great accomplishments is that he ignored Bradley's hysteria and ordered Patton north to support the 101st.)

The turning point, if any, in the European part of WW II was Kursk. The war diaries of the Germans soldiers are consistent; those in the West still thought they had a chance to win until the Allies finally crossed the Rhine. The Germans in Italy actually thought they were winning; and, given Clark's performance, they probably were. But, in the East, no German with any sense thought the war could be won after the summer of 1943. The best evidence is how people acted. The largest single civilian migration in modern history remains the flight westward by Germans and others in 1944 and 1945 in hopes of escaping the Red Army.

Alston Mabry writes:

"Turning point" arguments are always fun. The Bulge would rank lower down the list (a tense operational showdown, but not a strategic turning point), and Kursk would definitely be at the top, along with the air campaign in the West.

The Allied air effort, though causing significant industrial damage, actually reached a low point in fall 1943 because of the loss rate, but then had an extended "bull run" (including the introduction of the P-51 in early 1944) which devastated the Luftwaffe and established Allied air supremacy in the West. The Red Army was the hammer, while the USAAF and the RAF were the anvil.



Sometimes I wonder whether our kids are just a little overprotected. These are things I did unsupervised up until the age of 10 in the Adelaide Hills of Australia:

–Played cowboys and Indians in the forests and gulleys amongst the poisonous snakes and spiders.
–Blew up ant-hills with gigantic firecrackers (got matches and firecrackers somewhere)
–Basically played with firecrackers at will with dry grass all around.
–Climbed tall trees
–Played in the railway tunnels of the main Adelaide-Melbourne railway line.
–Put stones on the tracks to watch trains crush them. (very stupid)
–Had stone-throwing fights. (also very stupid)
–Flung ourselves off the end of the log-swing in the schoolyard at full swing to see how far we could fly.
–Played with real bows and arrows.
–Picked and ate mushrooms.
–Walked around by myself for hours our hung around the railway station in Blackwood several train-stops away from home playing hooky from Sunday school.
–Played beside a neighbor's deep pond trying to catch crayfish (didn't know how to swim).
–Picked and ate honeysuckle and prickly pears and other local vegetation.
–Walked several miles to and from school by myself every day from age 5 — involved crossing railway tracks every day at the Eden Hills station.
–Basically ranged far and wide in an around the neighborhood, which was relatively undeveloped hilly terrain.

And then later in Canada my parents wouldn't get me a bicycle because they thought it was "too dangerous". Had they only known…

I'm surprised I'm here at all when I think back on it. I was a real Darwin candidate back then. I can guarantee my kids have never done any of these things.



 I'm sure you all will be able to come up with some brilliant daylight-robbery stories around Christmas tree scalping. I have one to share that provides some nice little trading lessons.

Over the weekend I visited a large market in one of the more rural suburbs of Sydney to find a tree. Now, being a big kid, it just doesn't feel like Christmas to me if my tree is smaller than I am…which would be fine but for the fact that I'm 6'7". This means I am used to getting gouged on large size trees, but I'd never come across dudes who were more shameless than some characters I met on the weekend.

Walking onto the premises, my wife and I scoured the lot for suitable trees. We picked out one that we liked and one for my mother, too. We found a sales assistant and asked him to quote us a price including delivery. He quoted us AUD120 each - insane - so I began to talk him down using my various tactics. However, his supervisor and the lot owner were nearby. They sensed a big sale and wandered on over…all smiles. I tightened my grasp on my wallet and prepared for the worst.

"So, friends, how much have you been quoted for these trees?" asked the boss. "You guys are dreaming at the prices I've been given" I replied. "Well," says the supervisor, "it's been a tough year with the droughts and all - and, as you can see - (all smiles) it's a very busy day out here…but as you want to get a couple, let's see what we can do". Boss's antennae are up now: "How much did the assistant ask for?". "One twenty each" I said.

Supervisor goes into hyperdrive…"One twenty? No…they're one-eig…" Boss nudges him and interjects, "They're all two-fifty".


Not even in the options market have I seen a markup of that magnitude appear so fast when the chance of getting lifted approaches one.

"Are you guys serious?", I said. "You're crazy…you honestly expect me to pay that now? You're seriously going to move the price that much? I'll pay you 90 each for all of them, and that's being very full of the Christmas spirit". He actually scoffed at me.

"You guys must hate money", I said as we turned on our heels and made for the exit. Usual comments from them about being cheap etc etc.

We left the lot less than thrilled with what we'd encountered. However, driving about 2km down the road we saw a sign for fresh trees on a small, family owned farm. We went in to see what was on offer.

The family were really lovely. They had much nicer trees and quoted us 70 for one, and 50 for the other…including delivery. I lifted him straight away and paid the guy an extra 30 on the spot and wished him and his family a very happy Christmas.

it's rehashing an old lesson but, with repetition being the mother of skill, it bears repeating again: there is always a better price if you are willing to hunt for it, and the best deals are always where you least expect them. Stay away from crowds…the vig reacts to crowds on a mission like water molecules reacting to heat.

Finally, it occurs to me I might still have been fleeced…perhaps there was collusion between the big lot and the small farmer??? Institutions may quote overs on a price so you go deal with their smaller subsidiary or soft-dollar market maker…who is still killing you, but you're so glad to have just avoided paying the big ticket that you'll still happily pay overs while your defenses are down.

Also, makes one wonder if there is a world Christmas tree index much like the big mac index? With AUDUSD at .914 I will be interested to hear from you all if there are any arbitrage opportunities in this very lucrative market! …surely couldn't cost much more than AUD5 bucks to raise a tree on a farm anyway?



The Blind Side

The Blind Side is one of those movies that makes life worth living forever. What other such movies, plays, music, literature would you put in that category?

Vince Fulco replies:


The Road to Perdition– everyone who participated in it was at the top of their game from writers, actors (primary & secondary), producer, director, cinematographer, musical director. It made for a polished period piece with tons of emotionally charged moments and an unexpected ending.

Boondock Saints– obscure, independent type movie; very novel story telling seen both by the vantage point of the perpetrators (Irish Mob in South Boston) as well as the talented detective trying to unravel a recent flair-up in gang on gang activities (Willem Dafoe). A great example of the grey areas in life; i.e. if you are using extreme violence against a rival gang to protect one's innocent neighborhood residents, are you a saint or sinner?

Gandhi– A masterpiece in so many ways, no more needs to be said.

Laurence of Arabia– ditto.

I am a sucker for underdog movies where the lead character rises from his own self involvement and selfishness to sacrifice everything for the greater good. Not 'Laurence'–obviously his striving for personal greatness led to its own extraordinary achievements but as I get older, the accomplishment of creating these complex, grand movie projects is inspiring in its own right.


 Shogun by James Clavell

Anna Karenina

Two monumental undertakings by the authors which fully develop their characters and keep the reader engrossed from cover to cover. As for the latter, although it has been years, as I recall, the ability to interweave multiple complete stories and have them entertaining and believable was sheer genius.


Anything by Yo-Yo Ma and separately Tan Dun.

Nick White responds:

 Martha Argerich's rendition of the first movement of Rachmaninov's 3rd Piano Concerto with the Radio Symphonie Orchester Berlin and Riccardo Chailly conducting.

Her magisterial expression of the full range of human emotion in this performance is, in my opinion, unparalleled in any other work.

Thomas Miller adds:

Miracle on 34th Street and It's a Wonderful Life. Both made shortly after end of WWll. Still immensely popular 60 + years later.

Jeff Watson writes:

"Surfing for Life", is one of those special movies that makes one want to live forever. That's the movie that deals with all the old people who still surf well into their 80's.

James Lackey writes:

Cinderella Man (2005) …. Crowe as Jim Braddock is a good one. Invincible 2006 Wahlberg plays Based on the story of Vince Papale, a 30-year-old bartender from South Philadelphia who overcame long odds to play for the NFL's Philadelphia Eagles in 1976..

Ironic, I watched It's A Wonderful Life with my kids last night. What cracked me up is my quest to please my wife.I  remember 10 years ago when my boy was 4, I said "you're a bad boy" she said No no no what he did was bad, he is not bad. Ever since I have been working on my syntax to get the exact same point across with out damaging my own kids for life. ha.

Yet in It's A wonderful life the mom calls her sons idiots. It cracked me up as she was kidding sit down and eat you two idiots. The druggist smacked little George Baily around for being lazy. Baily tells the biggest backer and connected man in the county off countless times..turns down a 10x salary increase because he knew it wasn't best to sell his beliefs for money, but all the while hating his town his nickel and dime business where he cant profit much by helping others. He complained all along..which was hilarious "trapped"

Man on Porch: Why don't you kiss her instead of talking her to death? George Bailey: You want me to kiss her, huh? Man on Porch: Ah, youth is wasted on the wrong people.

George Bailey: Merry Christmas, Mr. Potter! Mr. Potter: And Happy New Year, In Jail! They're At Your House Right Now!

George Bailey: [yelling at Uncle Billy] Where's that money, you silly stupid old fool? Where's that money? Do you realize what this means? It means bankruptcy and scandal and prison. That's what it means. One of us is going to jail - well, it's not gonna be me.

Mary: I feel like a bootlegger's wife!

Stefan Jovanovich writes:

 It's A Wonderful Life is certainly popular now, but it was a bust at the box office when it was released in 1946. Its flop effectively ended Capra's career. The actors - Jimmy Stewart, Donna Read - went on to further success; but the plot reminded people of the bank runs of the pre-War era (hardly a happy memory) and they stayed away in droves. The Best Years of Our Lives was the hit that year; it was (among other things) about a banker who returned to work from the war and decided to lend a farmer money, not about depositors clamoring for their money back from an over-extended S&L.

Nick Procyk adds:

I would second Cinderella Man and Invincible.

March of the Penguins is a true-life movie about a group of emperor penguins that survive the harsh polar winter, breed, search for food — all captured in amazing photography.

Eight Below is another heartwarming movie based on a true story about a guide and his eight sled dogs. The guide is driven to reunite with his canine friends after they were stranded in Antartica during the brutal winter. It's a wonderful story about friendship, courage, and faith.

Riz Din writes:

 The Rocky films, all of 'em. I guess they just caught me at the right time. The first is the best, and Balboa doesn't even win the final bout. His victory is of another sort. The rest of the series works on several levels. You have both the quality of the Rocky films and Stallone's actual career ebbing and flowing with the ups and downs of Rocky's character. The score is everyone's 'go to' music when they want to get pumped up and motivated, the dialogue is wonderful, the characters memorable, and there are many lessons that can be drawn from the storyline, both good and bad.

From the first film:

Rocky: I been comin' here for six years, and for six years ya been stickin' it to me, an' I wanna know how come!
Mickey: Ya don't wanna know!
Rocky: I wanna know how come!
Mickey: Ya wanna know?
Mickey: OK, I'm gonna tell ya! You had the talent to become a good
fighter, but instead of that, you become a legbreaker to some cheap, second rate loanshark!
Rocky: It's a living.

John Lamberg writes:

Life worth living forever? Well, none of the following make that cut, but my favorites are:

Hans Christian Andersen's works. (The Little Match Girl is perhaps the saddest story I ever read, and it stuck with me since childhood. We'll see if Gregory Maguire's "Matchless", a re-imagination of the story compares.)

Holst, The Planets

Bodysnatchers (original)

Forbidden Planet (not for the acting or script, but for Dr. Morbius' secret)

Vincent Andres adds:

The Last Kings of Thule - Jean Malaurie, about ordinary heroes

Many of Giono's books, eg Regain - J. Giono (in french onl)

Many of Pierre Magnan books 

Dava Sobel's Longitude

Order Out of Chaos by I. Prigogine

L'imprévu by I. Ekeland (in french only)

Des rythmes au chaos by P. Bergé, Y. Pomeau, M. Dubois-Gance, 1994.

For pointing an interesting trail, Deep Simplicity: Bringing Order to Chaos and Complexity by John Gribbin.

The Foundations of Ethology by K. Lorenz 

Studies in Animal and Human Behavior  by- K. Lorenz

The First Three Minutes: A Modern View Of The Origin Of The Universe by Steven Weinberg 

Mon oncle d'Amérique by A. Resnais (in French only)



One definition of volatility is stdev of daily returns over a period. Using DJIA daily closes since 1929, partitioned the series into non-overlapping 10 trading-day periods. At the end of each 10D, calculated stdev of that period.

The attached graph plots 10D stdev over the whole series, with the familiar spikes corresponding to other volatility measures such as VIX and VXO. Note historically there are relatively few spikes with SD10 0.03, but when in the past they occurred (late 1920s/early 30s, late 30s, and early 2000s), there were other large spikes which followed. The notable exception is 1987, and of course the present because:

1. The future hasn't happened yet
2. The late Dr. Samuelson won the debate with the late Dr. Friedman, at least within our current Keynesian government

In attempt to quantify waits to next volatility spike after large spikes, defined a large spike as: (a maximum at the center of 17 - 10D periods) AND (>0.03). (a major spike which was the highest for 80 days in the past and 80 days in the future). The recent large volatility spike which peaked Oct 2008 was 0.057, 29 10D periods ago.

Once spikes >0.03 were identified, checked wait time until another spike >0.02 occurred. Here are the instances and the waits:

Date >0.03 nxt spike
10/17/08 0.057 ??
09/24/01 0.031 21
09/14/98 0.034 38
10/28/97 0.031 22
10/27/87 0.089 50
09/08/39 0.030 18
10/22/37 0.034 11
07/28/33 0.045 25
03/21/33 0.060 9
08/16/32 0.051 14
02/25/32 0.047 12
10/14/31 0.071 9
06/23/30 0.036 13
11/14/29 0.075 15

mean 19.8

Note the current wait of 29 10D periods is third longest, after 38 (1998) and 50 (1987).

So here we are, waiting for Godot.



My wife is reading The Botany of Desire by Michael Pollan on her Kindle. There is a movie about the book as well. She describes the thesis that plants trained the humans to change the human's behaviour to form an agricutural society to further the propagate plant species.

I haven't read it yet, but the immediate question is whether the market controls the humans, or do the humans control the markets for their gains? Chair's thesis is that the powers of the market control the humans to milk their upkeep. Another view is that of bubbles. Humans change their behaviour to reap the easy fruit, such as the easy availability of mortgage money. The recent ranges train certain trading behavior. Markets train governmental internuncios and nabobs to engage in certain protective artificial behavior.



 Aristotle once said, "All paid jobs absorb and degrade the mind" Is there any way of quantifying this, and are there any implications in the markets, life, and trade?

Aristotle also said, "We are what we repeatedly do. Excellence then, is not an act, but a habit." Does this extol the virtue of practicing until we get it right? How does one know if they are getting it right, and if they have the proper tutor.

Aristotle wrote in his Nicomachean Ethics "It is not always the same thing to be a good man and a good citizen." I've been wringing my head trying to figure out all of the different philosophers who have borrowed this idea, and have come up with a list of at least 20. Any help in compiling a complete list would be appreciated.

He also wrote in Nichomachean Ethics, "It is possible to fail in many ways…while to succeed is possible only in one way." I would like to disprove this as there are more than one path to success.

Kim Zussman replies:

Do a twin study:

Find pairs of identical twins (same genes) with different employment histories. Best would be congressman vs. doctor. Failing that, find pairs with large differences in total hours worked to date.

Perform intelligence testing on the pairs, and use paired t-test to check for difference as a function of high vs low prior work/brain wear.

A related study could be done on the productivity effects of wearing robes and fondness for little boys.

Jim Sogi writes:

At the risk of disagreeing with Aristotle, excellence is a constant struggle. At least for me it is. Habit implies some sort of easy continuation. Constant vigilance is very very difficult. Excellence also connotes superiority over others. Thus there is a the constant pushing and straining to excel over others who try even harder.

J.T. Holley replies:

I don't think Mankind or Aristotle (all thought is a mere footnote to him in Philosophy circles) should be given a break at their points in time now that we've evolved Capitalism to the point it is today. Seems to me that the most important principle here is that what was shared by Susan Niederhoffer the other day "everyday seek out knowledge". In the agrarian society that was around in Ari's time we can certainly understand that doing some "meaningless paid job" took away from the devotion, persistence, focus and the ability that Ari had at driving forward to thought and knowledge. He is reluctant to realize though that the underlying power of Capitalism and his own mind freed him up to pursue his own thoughts and not degrade his mind.

"We are what we repeatedly do."

I happen to agree with this but not in totality. His teacher Plato spoke of to paraphrase "to know the good is to be the good". Much more objective than Aristotle's "do do the good is to know the good" of which leans towards being subjective. I think both are acceptable in "being". Case in point is Plato's "Allegory of the Cave". Being tied to the post the man competed and "repeatedly" learned to beat his peers at guessing at the shadows, but once freed and outside the cave he saw the light! The objective in this allegory trumped the subjective that was thought to be the truth. The objective with the subjective seems to be balanced though if we apply Aristotle's "golden mean" that he also mentions in Nich. Ethics. A wonderful balance of both instead of just one or the other.

"Nicomachean Ethics," he said, "It is not always the same thing to be a good man and a good citizen."

Kierkegaard found and wrote of this as well. He found great power, strength, and lessons in the paradox and hypocrisies of life. His three stages of life's way is a good example of this with the movement from aesthete to ethical to final religious. In the final stage of religious for Kierkegaard he used the Paradox of Abraham to find his strength. Being told by Gawd to go to the mountain and sacrifice his son what thoughts must have been in his mind and that of his town or family? He was either a lunatic by most or the most devout believer in Gawd's word. Kierkegaard spoke of the "fear and trembling" that must've been going on as the knife was thrust to the air to the point to where it was almost at apex to come down into his young son's chest. "good man" or "good citizen"? "religious" or "crazy"? Of course as the passage goes he didn't have to ultimately sacrifice his son but the lamb. The paradox was there though when thought and decision was made to be true to himself.

He also wrote in"Nichomachean Ethics," "It is possible to fail in many ways…while to succeed is possible only in one way"

to quote the Chair "The best way to achieve victory is to master all the rules for disaster, and then concentrate on avoiding them." Trial and error is important in life and speculation. The pain from failing can often lead us to being better individuals and profit takers.

Nigel Davies writes:

GMI think there are a number of problems in discussing 'ancient wisdom', for example culture, language and context. One might ask what defined paid and unpaid work in Aristotle's time? I'd argue that to really understand what he was saying one would have to be a several thousand year old Greek.

As for the internalization of excellence (i.e. habits), the valuation of such may depend on whether one prefers 'reason' to 'intuition born of vast experience (ie habits)'. Taking a different angle on this, does an inexperienced but opinionated newcomer deserve to win against an old hand? Humans value their reason, but maybe this is just vanity talking.

Peter Grieve adds:

I bow to no man in my admiration for the literature of classical Attica, but Nigel has put his finger on a weakness. The surviving philosophical writers did tend to value reason over experience. This may be why they made tremendous progress in mathematics, but were dreadful scientists and mediocre engineers (Archimedes came later, and was a Syracusean). Their mathematics was largely intended to support astrology, for heavens sake. This is in line with their feeling that people who actually produced anything were of a lower order. Apparently people were amazed when Socrates spoke to artisans in an attempt to find answers. Aristotle's attitudes about paid work may reflect this bias.



 Isn't the quitting of golf by Tiger symptomatic of the redistribution scheme to the cronies that puts individual achievement and property rights on the lowest rung of the totem pole, and doesn't this have predictive value for the market the next year?

The average standard deviation of the market the last several years is 20 and the average mean absolute deviation is 14, and the average range is 19. The relation between the mean absolute deviation and standard deviation is consistent with the expected proportion of √(2/π) or about 4/5 for a normal distribution. The average range of high and low would appear to approach the standard deviation. Dixon's Q-test, which takes the furthest point out in a sample and compares it to its nearest neighbor as a test of whether the point belongs in the sample, relative to its range, (outlier - nearest neighbor)/range, which, for example, is rejected at the 90% confidence level for 10 observations, should be used much more frequently by quantitative speculators in many different areas.

Alan Millhone adds:

Tiger / BuickTiger is worth a billion (for now). He is/was paid $100m a year for three endorsements. If those three pull their sponsorship they will save the $100m yet their bottom lines may suffer without Tiger touting their products.

The American public will soon forget, just like Gary Hart and Bimini when he once ran for a high office. I do know that Tiger started and supports a learning center and it would be a shame to see any of those things lost.

My game is checkers, and champions since the great "Herd Laddie" James Wyllie of Scotland who dominated the game in the mid 1850s come and go with the wind. Time marches on and stops for no one. Do some good while you are here.

Russ Sears writes:

As much as I admire athletes and think that their leadership roles can foreshadows things to come in society and the market, they also can simply be human.

It appears to me that Tiger is reacting to society rather than leading it in this case. He made the classic mistake many great athletes make once they come into great wealth: they over leverage themselves with women. One lady and a love of sport already makes one of them a mistress. In taking a pause, it would also appear that he is following the markets in trying to deleverage himself into a manageable position.



I saw GB on TV talking about the 3G. Fear mongering, yes; self interested, yes. But some of it made me think. A Reader.

Modern currencies are no longer based on physical assets — rather, they are a proxy for productivity and an extremely convenient and efficient medium of exchange. Expanding money supply when population and productivity is also expanding is not such a big deal — and in fact is necessary, as long as the money supply doesn't excessively exceed the productivity (wealth creation and improved standard of living). Case in point is that in the last couple of decades we've seen huge credit expansion without significant inflation. In having adopted capitalism, BRIC countries are currently new global growth engines doing a large part of their trade in US dollars, the world's reserve currency. Their productivity, and the rise in standard of living of increasing portions of their populations, counts hugely in the overall productivity equation, because we have a global economy. And certainly don't count out the US. It still has the largest GDP in the world by far, and it may not be growing much right now because of the credit readjustments currently under way, but it can certainly hold its own at wealth creation when things settle.

Also, inefficient government spending isn't necessarily waste. That money goes somewhere — payrolls, goods and services procured from the private sector, investment by the private sector, etc. It participates very actively in the broader economy, if for no other reason than providing a market for more efficient private sector big businesses and small enterprises. If people did nothing but hoard it, then that would be more problematic, but typically it's either spent or invested.

Medicare/Medicaid — Health problems work counter to productivity, either directly by taking people out of the work force, or indirectly by pulling them away to care for sick loved ones. If the medical system can keep more people on their feet and in better health, that takes some strain off productivity as well. Medical coverage would alleviate an enormous amount of stress about health and financial concerns for millions, which hurts productivity and even exacerbates it by causing health problems. People are resources too in the productivity equation, and maintaining these resources in good operation condition helps overall productivity. There is a cost — understood – but there is a payback too.

At issue here may be how some of these major shifts redistribute wealth. Doing it by force by targeting specific groups for taxation (e.g. the "rich") and political vilification is counter-productive because it sends the wrong message about how wealth is created it disincents risk-taking and wealth-creation. And too much stimulus may cause inflation and cause the debasement of paper asset-based savings. (Too little and you have deflation, choking off the ability to finance wealth-creating resources and activity, and the markets for the goods and services created.) Too much debt could ultimately lead to a default or devaluation, but I doubt that even that will cause the end of the financial system as we know it. Many countries have seen their currencies go worthless, and then have bounced back with a new one (you personally just don't want to be holding a lot of paper when they go down). Even that is not the end of the world.

I don't know if the current medical coverage plans are "affordable" or not, or whether the stimulus debts are too big; I just want to make the point that it's not all one-sided and all-bad. You have to look at both sides of the ledger and try to see how it nets out.

George Parkanyi, Canadian telecom entrepreneur and ETF trader, blogs at StockAdventures.

Gary Rogan replies:

What’s wrong with deflation? Some of the best years in American financial history happened while prices were decreasing. Is anyone concerned with deflation in computer prices? Is it good that the dollar lost 95% of its value since 1912? Why can’t you just keep some money in a savings account and have it maintain its long-term value? Wouldn’t that give a sense of security to millions of people? There is absolutely no reason for expanding the money supply by any “unnatural”, meaning non-free market ways. Even in the problematic fractional reserve banking system, supply and demand are perfectly capable of setting interest rates and the money supply.

And government waste is just waste. It means that people who could be doing something productive don’t do anything productive. That’s a loss of potential output, which is pretty much the definition of waste.



An interesting thing to speculate about over recent days in the S&P is the abysmally small ranges:

date   high    low        range                                                          

12/11 1109  1101       8                                                             

12/10 1106  1099        7                                                             

12/09 1097  1086        11                                                             

12/08 1097  1088        09                                                             

12/09 1110 1100        10    

To put it in perspective, note that a range of less than 8 has occurred about 1/14 of all days, a mere 60 times or so in last three years. But it has occurred back to back 15 times. Thus, given that a range of 8 or less occurred yesterday, it's one in four to occur the next day. But on any day, the chances of a range of 8 or less is a mere one in 14. Low ranges tend to beget low ranges. Indeed the stand deviation of the move from close to close the next day is a shockingly low 3.5 on the day following a range of 8 or less. This compares to a standard deviation of 20 for all days during the sample.

Also note that five days have gone by without a range exceeding 11. This has occurred only 28 times in last several years. There appears to be no simple formula for the relation between the range of a normal distribution and its standard deviation. The range is important for the feeding relations between the higher species in the chain and the lower species. Without a big range, there is little incentive for the public to do the wrong thing and be stopped out of their positions. A small range therefore is generally antithetical to the market because it doesn't allow the proper amount of losses by the public to cover the big overhead. Indeed, the expectations following runs of small days during the last 10 years or so have been considerably lower than the normal tendency to declines of 1 a day that has afflicted us during these years.

The ideas should be generalized to individual stocks. What is the relation between ranges and subsequent return for a individual stock? The matter should be considered relative to the individual stock's history, taking into account the market's range during that period. The relation between range and the usual size of a move, nay swing, must also be considered. Holbrook Working used to show that commodities were non-random by considering the daily range relative to the transaction size. Such numbers should be updated with simulation for actual changes in price in current days with reference to all of the above.

Michael Cohn writes:

Is it worth looking at the samples with and without SPX and equity-related options expiration, which is 12 weeks per year, or perhaps the smaller set of the SPX calendar expirations which is four weeks out of 52? I have often felt most misled by option expiration and perhaps it is worth quantifying how misled I can become.

Victor Niederhoffer adds:

There appears to be no simple formula for the relation between the range of a normal distribution and its standard deviation.

Alex Castaldo replies:

For a Brownian Motion starting at zero, with no drift and with variance sigma^2 per unit time,

the expected value of the range (high minus low) during time [0,T] is given by

E[R] = 2 SQRT( 2 sigma^2 T / pi ]

this is equation (48) of the paper below, which credits Feller, 1951, and gives a more general formula for non-zero drift.

For example for 1 day (T=1) the formula reduces to E[R] = 1.6 sigma, if we further assume a daily standard deviation of 1% we get an expected daily range of 1.6%.


Magdon Ismail et al.: The Sharpe Ratio, Range and Maximal Drawdown of a Brownian Motion (2002)

How well does this approximation fit the data?

For the last 100 days the standard deviation of the open-to-close move is 0.825%

The average range (low to high) is 1.36%

These are in the ratio 1.65 to 1, close to the theoretical 1.6.

[the OHLC used was the pit-traded S&P adjusted contract]

Alex Castaldo adds:

For the last 100 days, the daily returns on S&P futures have a standard deviation of 1.05 %

the daily ranges have been on average 1.36% of the previous day's close, substantially below the 1.68% that would have been predicted by the formula.

[the OHLC used was the pit-traded S&P adjusted contract]

Alston Mabry writes:

Here's is a comparison using SPY, of the most recent 100 tday period with a previous period:

23-Jul-09 thru 11-Dec-09
sd of daily C-C log%:  1.253%
expected range C-C (sd*1.6):  2.01%
actual O-C range:  1.39%

9-Oct-07 thru 17-Mar-08
sd of daily C-C log%:  1.302%
expected range C-C (sd*1.6):  2.08%
actual O-C range:  1.84%

Bill Rafter comments:

Sorry for the width of this picture, but it shows the relationship over relevant history. The picture of course does not *prove* anything, but is food for future thought.

William Weaver Jr replies:

What's interesting about that is the regime shift. Note how the blue line has greater amplitude than the red prior to MAR09. It would be interesting to take the absolute value of each and then smooth the result.


252 ex pave abv data

One could decrease n in the original standardization process (21?) as well as change n in the above.

My hypothesis is when realized volatility is gt implied volatility markets are falling. The problem then becomes lag.

Craig Mee comments:

I think what is interesting here on a vanilla bases, is there is "no fight in the market" the cowboys have gone home for the winter. Market has had good extension, we see reasonable employment results (at least on the surface), for the first time in x, why would people want to duke it out?. With the market seasonally bid at this time of year , a general upward bias holds, however without any real pullback in Sept/Oct, and the market already having squeezed say a quarter off the lows, then found new buyers , in the next quarter…is sitting precisely where its showing its content ie 50% off the lows. Like a happy boxer back from the brink, where all fight has been taken out after a few heavy rounds and the latest rounds have mostly been done on the ropes and hes now taking a breather in his corner. (Its looks like Vic's uncanny tight ranges are directly a result of the unprecedented flogging which has proceeded it).What next? well without any volatility at these highs, the expectations for a major reversal, even though an expansion is on the cards, one would expect would be somewhat limited.

Jeff Sasmor replies:

Or maybe anyone who has tried to short has been so badly burned over and over again this year by the incessant bid on any big dip, that, like the dead parrot of the eponymous Python sketch, they're all shagged out after a long squawk.

Lately most days after the morning session the action turns into barbed wire. The talking heads can't even figure it out as one rep after another from one oracular brokerage firm or another appears on CNBC or BBG TV.

In many different areas (CRE deterioration, manipulation of accounting standards & timing, govt supplied macro figures, bailouts, one time subsidies, warping of contract law as it relates to creditors, whistling past the graveyard w.r.t. FASB 166/167 and the failure of highly touted mortgage modification efforts), the year could be labeled "The emperor has no clothes but who cares?" Particularly when there are bigger supra-national fish to fry.

I was always under the erroneous impression, that in prior recessionary periods when the likes of Citigroup were considered distressed, they were but not terminally on a mark-to-market basis. With new evidence of their extremely dire conditions during those less challenging times, it becomes obvious how badly underwater so many fin. institutions are currently and therefore structures in place during normalized conditions will be suspended. Witness FASB's recent attempts to shake themselves of the demand that they align their valuation rules to governmental regulatory actions & guidance. Some are just increasingly unwilling to toe the line anymore.

Vince Fulco writes:

In many different areas (CRE deterioration, manipulation of accounting standards & timing, govt supplied macro figures, bailouts, one time subsidies, warping of contract law as it relates to creditors, whistling past the graveyard w.r.t. FASB 166/167 and the failure of highly touted mortgage modification efforts), the year could be labeled "The emperor has no clothes but who cares?" Particularly when there are bigger supra-national fish to fry.

I was always under the erroneous impression, that in prior recessionary periods when the likes of Citigroup were considered distressed, they were but not terminally on a mark-to-market basis. With new evidence of their extremely dire conditions during those less challenging times, it becomes obvious how badly underwater so many fin. institutions are currently and therefore structures in place during normalized conditions will be suspended. Witness FASB's recent attempts to shake themselves of the demand that they align their valuation rules to governmental regulatory actions & guidance. Some are just increasingly unwilling to toe the line anymore.

Jim Sogi comments:

Talk about low range. How 'bout today's 6.25. Lowest in last couple years. Reminds me of water trying to boil. Takes quite a bit of added energy to to change states at the boundary.



Here is a quick look at 2008 per-capita GDP and income taxes.

Country data on "all-in" income tax rate (income tax plus employee social security contributions):

Calculated average % tax for single (no child, two children), married single earner (no child, two children), and compared to per-capita GDP from Wikipedia/IMF, by country for major countries:

Country                  Tax          GDP pc

Australia            21.7%   36918
Austria              32.8%   39887
Belgium            36.6%   36416
Canada            19.2%   39098
Czech Republ    15.1%   25118
Denmark          38.2%   37304
Finland             30.0%   36320
France              24.0%   34205
Germany          33.0%   35539
Greece             26.4%   30681
Hungary           38.3%   19553
Iceland             19.5%   40471
Ireland              10.0%   42110
Italy                  25.6%   30631
Japan               18.3%   34116
Korea               11.2%   27692
Luxembourg      21.5%   82441
Mexico               5.1%   14534
Netherlands        32.6%   40558
New Zealand       21.2%   27083
Norway              27.9%   53738
Poland               24.6%   17537
Portugal              18.7%   22232
Slovak Republic   16.8%   22097
Spain                  14.5%   30589
Sweden               26.7%   37334
Switzerland          18.3%   43196
Turkey                 26.8%   13139
United  Kingdom   24.8%   36358
United States       17.7%   40440

Ignoring that the Laffer Curve is supposed to be an inverted parabola, here is regression showing no relationship:

Regression Analysis: GDP versus all in tax

The regression equation is
GDP = 30035 + 18111 all in tax

Predictor    Coef  SE Coef     T      P
Constant    30035     7250  4.14  0.000
all in tax     18111    29442  0.62  0.543

S = 13134.8   R-Sq = 1.3%   R-Sq(adj) = 0.0%

An exercise left to the reader would be effect of within-country change in all-in personal tax vs per-capita GDP.



George Phillips, an elderly man, from Meridian, Mississippi, was going up to bed, when his wife told him that he'd left the light on in the garden shed, which she could see from the bedroom window. George opened the back door to go turn off the light, but saw that there were people in the shed stealing things.

He immediately called 911. The Dispatcher asked "Is someone inside your house?" He said "No, but some people are breaking into my garden shed and stealing from me".

Then the police dispatcher said "All patrols are busy. You should lock your doors and an officer will be along when one is available." George said, "Okay."

He hung up the phone and counted to 30. Then he phoned the police again.

"Hello, I just called you a few seconds ago because there were people stealing things from my shed. Well, you don't have to worry about them anymore now because I just shot them." and he hung up.

Within minutes, two police cars and a firetruck with a paramedic arrived in the Phillips' driveway. The poor burglars were caught. As they were being taken away, an ambulance from the local hospital also arrived.

One of the policemen said to George, "I thought you said that you'd shot them!"

George said, "I thought you said there was nobody available!"

The moral of the story, according to Uncle Jim, was simple: what monopolies like the civil service value most are their exclusive privileges. Gun ownership in Mississippi is legal, said Uncle Jim; but always remember, Stefan, only the police have a license to hunt people.



 One of the great things about trading is that it brings you face to face with many of your personal faults and shortcomings. With maturity should come recognition of personal faults. Unfortunately, some or most of these personal faults are not easily fixed and are real limitations. Of these limitations, some are psychic but others are physical, such as hearing loss. Psychic faults are anger problems, narcissism, etc. These faults can be damaging to your life, your loved ones, to your bank account, and to your health.

It is important to recognize and deal with these faults. Faults are easy to see in others, but almost impossible to see in yourself. Very very few can recognize their own faults and limitations. The most common response is denial and shifting the blame to others or outside forces. Many elderly people have hearing loss, but for odd reasons, deny it. They blame others for mumbling. Alcohol addiction is a prime candidate for denial. The list goes on.

It's difficult to deal with the realization that you have faults and limitations. People can be unbelievably obstinate in denying faults that seem so obvious to others. It makes it hard to perform and live on. Who wants to live with the realization that you may not be as smart or as tough as you think? That is why the easiest solution is denial. In many cases even if the fault is recognized, it is hard or impossible to cure. It may be hardwired in, or it might be caused by a physical limitation. The answer is creating some sort of workaround that minimizes the damage caused by the personal fault or physical limitation. A simple fix for hearing loss is a hearing aid. Other faults present greater hurdles to find a solution or to even to recognize.

Nigel Davies writes:

There's still room for self-deception in markets regardless of the bank balance; you can lose when playing well or win when playing badly. And this may be especially pronounced with methodologies which have a high percentage of winners plus a few big losers.

Chess tends to have less of this because your results contribute directly towards a published rating and each win or loss has a fixed value. But if someone really wants to kid themselves they can do it there too.

Sushil Kedia adds:

Markets produce the same series of prices, volume, open interest etc. for each participant, yet the individual performances off the market are so different. I thus conclude that none makes any money off the market and each makes money off themselves utilizing the market as the proverbial touchstone where the self is rubbed.

It is the different speculations originating from the unique anticipations that differentiate each performance. The attitudes, beliefs and convictions that form the a,b,c of any personage reflect in the choice of systems, choice of methods, actions taken, actions avoided etc etc.

This could well be true of any profession, yet the instantaneity with which a mind interacts with the financial markets makes for the most expeditious feedback system. Marked to market is an idea that is most easily implementable in a trading / investing career. Like a mirror the market reflects you only. For all the cosmetics that is around it is still said that the mirror never tells any lies. So for all the cookery and creativity that can be and is, the P&L eventually never lies.

At a recent past when the credit marts were being forced into dispensing away from the MTM requirement because all the mirror was displaying was a sad requiem of the dead bodies, the dyeing bodies, the destructed youth and vigor it was an ostrich burying the head in the sand act. Hope, free markets will never again give up the reality check and fault facing device ever again but have the courage to give up the dyeing or dead that are so horrified to look at themselves in the MTM mirror.

Russ Sears writes:

What this analysis is missing is that many marked to market advocates miss are many markets are not liquid. Further, many markets even liquid markets quickly can become illiquid. The policyholder does not choose what bank to use based on market forces, nor the bank what to invest in based solely on market forces.

Because your neighbor trashed his house, and then let the bank take over may suggest that you personally lost some value to your house.

When several of your neighbors do the same… you have lost even more on paper. Have you lost any real wealth? Should you be forced to sell it, if your marked to market nearest neighbor model put you underwater?

Likewise, when there was too many buyers,not liquid enough seller and your price doubled. Did your wealth really increase, if you stayed put?

Taking out the collateral, and accepting the inflated prices as Marked to Market prices on home equity loans got alot homeowners an banks in trouble. Should the banks be forced to lend if they believe the house price is inflated long term?

If you want to have Marked to market to determine "death" then you must have true market forces determining if a bank is dead… not some regulator who will be forced to jump the gun to give the organs to those on life support. The markets would if allowed, no doubt determine how close a bank really is to death by a very broad flexible array of models, not some fixed regulators model. And these models will limit who and how many of these potentially illiquid loans a bank would be willing to hold, not some regulator.

Currently death is determined by marked to model… so there is enough left in the company that FDIC can survive. If policyholders where forced to make this decision themselves, Without regulators setting up an arbitrary marked to regulatory model cushion of protection, the policy holders and the banks would be forced to be more conservative and transparent to gain the policy holders trust. And the process of a death would be much more gradual, with a risk premium limiting how much of these potentially illiquid assets it would hold.

Marked to market is only good if you can tell me the liquidity premium. In a market set up for marked to model then forced to switch to marked to market, this premium is bound to jump.

In a market full of few buyers and a forced domino effect of sellers, this premium must to be very high. If you do not trust the models, it is not estimable.

In short, you can not have a clear picture using regulatory forced markets and models at the front and then switch to marked to market forces on the the Death bed. Policyholders with the moral hazard blurred vision using regulators simple marked to model glasses at the beginning of the process (which bank to invest in), regulators telling banks what they can successfully invest in using simple capital model and then using a comprehensive marked to market process on the death bed. They would all fall together.



…According to Onuchic, bacteria usually do not cheat their friends and inform them by sending chemical messages about their true intensions. "We have developed for the first time a system level model of a large gene network to decipher the underlying principles of the bacteria game theory and how an internal network of genes and proteins is used to calculate risks in this complicated situation," he said.

… "Another interesting fact is that the same cells in the same environment, in this case, bacteria in the colony, can actually in a statistical matter choose two different outcomes: sporulation or competence. This leads us to speculate whether similar ideas can be extrapolated to explain the decisions of cells to develop cancer: Can a similar cell in a tissue make the decision to duplicate normally or to modify into a cancer cell? How does this stochastic process affect life, biology, evolution and disease is an interesting challenge that will be at the center of questions answered at the interface of the physical and life sciences."




The genre of "spy fiction, "sometimes called "spy thriller" or sometimes shortened simply to spy-fi, arose before World War I at about the same time that the first modern intelligence agencies were formed. The genre is closely related to political thrillers and military fiction. The point is fiction is a mirror of the society; often leading indicator. Jules Verne's very far fetched Around the world in Eighty Days is by now timid.

What fashions (no, I didn't use the word trend) in fiction currently may be a good pointer to what is likely happening to the world that is otherwise not getting reported in the newspapers? Well, if most of the newspapers are fictional one might resort to the isolation of pointers from fiction itself. Books are a topic hot on this site. I am hopeful we will indulge in this tangential thought if not a fictional one.



 I used to do a lot of business in Japan and I think very highly of Japanese businessmen (unfortunately they rarely include women at high levels). They have an industrious, highly intelligent population, are very interested in business, and a good base as the second largest economy in the world.

It is a great mystery to me why they (and their stock market) have not done better in recent years and I have never seen any good explanation of it. Okay, they had a bubble that burst, government policies that were not great, and they have an aging population. But so what? They had plenty of opportunity to recover on their own in spite of whatever the government has been doing. (BTW their government policies could not be any worse than our current ones, so if government policies are the test, we're in big trouble.)

Has anyone seen or can anyone give a decent explanation of why Japan has lagged?

Ken Drees writes:

1. LDP party out of power after 55 years.

2. Exports and profits slumping via USA trade like others Asian exporters.

3. Big(gest) holder of USD denominated debt.

4. Aging populaton (nothing new), but 81 billion spending package just announced, more internal stimulus to follow?

5. Need to diversify their surplus holdings like others (China, Brazil, Russia, et. al.)?

6. New party administration playing a little differently with USA — recent Obama trip no real results, prior to that some grumblings about USA debt, etc.

7. Japan equities — bottoms in 1998, 2003, 2009 — skewed symetric reverse head & shoulders – or just bumping along the bottom?

8. Will need to strengthen export markets everywhere and keep USA markets open and profitable. Japan's growth lies with its neighbors if USA doesn't fix itself.

9. Yen carry trade over, yen rising — conflicts with strategic direction that exports and export profits need to be robust.

10. Zugszwang-lite Japan — any small move doesn't change game for the better. Are there any good moves available?

How will the new party lead? If they cannot rope in the yen to improve exports can they stimulate spending via QE and weaken yen at same time? Or is this approach too slow and meandering? There seems no real strong moves available unless global imbalances happen first and allow Japan countermove possibilties. Japan seems still to be unable to escape via its own power.

Is Japan getting tired of being tired?

Charles Pennington adds:

A broad-brush explanation is that the Nikkei got way out of line with other world markets and has spent the past 20 years returning to normalcy.

The Japanese price to earnings ratio was "well over 100" in the late 80s, and now it's 33 (reported by today's Financial Times), still higher than the US at 22. Earnings for the S&P are up about 2-3 times over their level in 1989, and perhaps the Nikkei's are as well, but if the P/E fell from, say, 200 down to more normal value of 33, a value much more in-line with other world markets, well, that explains a lot.

The Chair will rightly point out that this is retrospective, descriptive, and not predictive, that Japan's interest rates are (or at least were) lower, that the accounting may be different. Also, Mr. Grossman doubtless already knows all these figures, so he is looking for a better explanation, which I don't have.

Kim Zussman adds:

Country-stock could be like "best company" studies, showing admired firms under-performing the rest. Presumably established/successful companies/economies have less upside than currently dire situations. And more downside? 

Vince Fulco replies:

To the list I would add traditional factors such as:

1. Shareholders — very far down the societal list of all stakeholders in the corporate world. The stock market is generally considered more for gambling (no jokes Dr. Z!)

2. Much heavier reliance on debt financing (too much) due to roots in maibatsu/keiretsu structure whereby a conglomerate's banking branch handles all the financing needs

3. No Carl Icahn or Guy Wyser Pratte influence to shake up entrenched mgmts and unlock under-utilized assets. The quote is 'the nail which sticks up gets pounded down'. A few have tried over the years but are usually labeled degenerates or cowboys and run out of town one way or another.

4. Years of very low ROI, white elephant projects by the government, to keep happy important constituents of the LDP (the old group in power) such as construction and the mob — i.e. the bridge to an island with 50 people on it, which we almost got in Alaska a few years back.

5. Legacy obligations which haven't been addressed but simply kicked down the road as we've emulated so well in the last 12 months.

Ken Drees responds:

Mt FujiVince, Kevin, Kim and Charles have all provided excellent observations as to Japan's inbred entrenched-ness, inabilities to move, and relative over valuations. Also, the idea that is was the once high flyer status albatross, so all these past behaviors are in the rear view mirror, yet they continue to taint the view of Japan as an old has-been power country. But change agents may now be inside this yesterday/today paradigm. So far Palindrome's reflexive reinforcement of trend is still in force. The malaise continues. Will some new change agent surface? Will the reflexive reinforcement finally be breached.

The early elements for a change exist. To bet on a new bullish Japan is a long shot. But how much money can be made betting the field? Tax policy can be repealed, monopoly/hands in hands can be abolished, small investors can be made more ownership level. All the levers to lift the old dead stump and turn it over are at the ready. Or is this a dead end due to lack of will? Is Japan a stunted growth, never ever to leave off-broadway? If a global imbalance rises up, will Japan change tack and ride out on a new wind? I am watching Japan, if only since they since they are shackled to the USD. Maybe the impetus for change is at hand. This new administration in Japan — what do they owe the US? 

Stefan Jovanovich replies:

The Japanese are certainly not hidebound where their Navy is concerned. They are the dominant sea power in their part of the world. From the folks at

"Japan is currently the second largest naval power in the Pacific (after the United States), with a total of 32 destroyers, nine guided-missile destroyers, and nine frigates. The older Tachikaze-class guided-missile destroyers are being replaced by the new Atago-class destroyers. Japan also has 16 modern diesel-electric submarines. The Chinese navy is larger in terms of ships. They have 25 destroyers and 45 frigates. However, of these 25 destroyers, 16 are the much older (than Japanese equivalent) Luda class. Most of the frigates are the obsolete Jianghu class ships. China has 60 diesel-electric submarines, but most of them are elderly Romeo and Ming class boats. China's Han class SSNs (nuclear attack subs) are old and noisy. In terms of modern vessels, China is not only outnumbered, but the Japanese ships spend more time at sea and the crews are better trained. The Chinese are also at a disadvantage when it comes to naval air power. Most of China's naval fighters are old. They have a growing number of modern J-11s (a copy of the Russian Su-27) and the Su-30MKK. Japan is almost at parity in terms of numbers (187 F-15J/DJs and 140 F-2s to 400 Chinese J-11/Su-30MKKs). Japan has better trained pilots, although China is trying to close that gap as well."

Yishen Kuik adds:

 The attention to detail and sense of duty of their workforce is amazing, and the public infrastructure in Tokyo is of a very high quality — certainly better than Boston, DC, New York or the Bay Area. Tokyo is much bigger than all these four areas. It makes New York seem small.

It's not entirely clear to me why their equity markets haven't done better, but the "obvious" explanations of long term multiple contraction and shrinking internal aggregate demand seem to be correct.

I believe GDP per capita in Japan has been rising all along at the same pace as in the US since 1989, so it isn't as if quality of living in Japan has been frozen at 1989 levels. From what I can tell walking around the streets, they still enjoy a comparable standard of living to anywhere in the OECD, and have an unemployment rate (whatever that means in Japan) of 5.0%

Henrik Andersson replies:

Some investors are expressing great fear about the debt given the large amount maturing in the coming 12 months that is held by citizens, as Yishen writes, and given it has "no foreign demand, no domestic savings, structurally declining tax receipts and savings due to demographics, etc." Any views on this?

The top line numbers for the country are stagnant, but the per capita numbers don't look so bad. Japan might have a ton of public debt, but most of it is yen denominated and some 3/4 of it is held domestically by its own citizens.

Dan Grossman writes:

 Two thoughts perhaps follow from the helpful comments of Prof. Pennington and Mr. Kuik:

1. Based on the two-decade decline in average Japanese stock PEs from 200 to 33, why shouldn't average US stock PEs decline further from the current 22 if government policies following bursting of the bubble are equally ineffective in the US as they have been in Japan?

2. If since 1990 the U.S had avoided illegal and legal immigration anywhere near the extent to which Japan has, the US unemployment rate would probably also be 5%.

Vitaliy Katsenelson adds:

Please look at slide 14. Japanese valuations at the of 1989 were incredibly high, add to that a lengthy deleveraging process on the corporate side and leveraging (debt to GDP has tripled) on the government side and you also have anemic economic growth.

Vince Fulco writes:

Here is fascinating article in the WSJ re: a foreigner helping a small japanese village manage the downside of the demographic slowdown. One wonders how much more pervasive this sclerotic 'no change' attitude really is…

Charles Pennington adds:

There's a nice column by Lisa W. Hess in the Dec. 28 Forbes about investing in Japan.

She claims that small cap companies are even more undervalued than large cap, and recommends buying the Topix rather than the Nikkei.



Handed out as prizes for drama or athletic competitions in Ancient Greece1. Gold has little value outside building monuments to human vanity — 80% of use is jewelry, 10% speculation, and 10% industrial.

2. Gold is the ultimate recyclable. While one may throw away the occasional aluminum can or copper pipe, gold will generally always be recycled.

3. The marginal production cost in today’s world is about $400 per ounce. There are plenty of producers well below that number, the low cost producers sitting on high grade deposits, the high cost producers on lower grade deposits.

4. There is plenty of gold in the world, in lower grade undeveloped deposits. They sit undeveloped because it seems nobody wants to buy a long term gold future, just a short term spec.

5. I know of at least 10 different undeveloped gold deposits in the former Soviet Union where the all in cost of production is $500 an ounce or less. It will take $50-100 million of investment and three to four years until first pour, but it really will be $500 an ounce gold.

6. People will buy gold today for $1,130 an ounce, but will not buy future delivery in four years at $500. That must be because they perceive operational risk substantially higher than they perceive commodity price fluctuation risk. Which is wrong, the operational risks are under your control governed by physical properties you can manage.

7. Those $1,130 gold buyers at the margin are retail specs who could no longer make money at, and instead heeded the eight-times-hourly talk radio spots hawking gold investment — “Get your free gold investor kit today [a $40 value!] by calling 1-800”.

8. Producers and investors will dig more gold as they become more comfortable that the long term price will continue to exceed the marginal production cost. Just as they stopped digging new mines for a decade while gold price was less than the marginal cost, more and more new digs come on-stream every month the price is above $1,000.

9. Gold at current prices is simply overvalued.

Rocky Humbert replies:

A H i t G w a L a t TIn the 1973 movie “Dirty Harry,” Clint Eastwood famously says, “A man’s got to know his limitations.” I know my limitations, and that means that I don’t know whether gold is “simply overvalued” as Mr. Pribus alleges.

Nonetheless, I do understand the history of “money,” and gold has been a store of wealth (one definition of money) for thousands of years. Since I’m a long-term trendfollower, I’ll extrapolate this trend, and gladly sell a $1,130-strike European-style Put on gold which expires in the year 3009.

More seriously, it is important to discern between “A Hole In the Ground with a Liar on Top,” (to quote Mark Twain’s description of gold mine promoters) and “money in one’s pocket.”

As any investor in Bre-X knows, there are important differences between the gold bars in your vault as a “store of wealth,” and paper shares of a “proven” mine as an investment/speculation. At its peak in 1997, Bre-X had a $6 Billion market cap, but was subsequently discovered to be a complete fraud.

Let’s assume that Mr. Pribus’s analysis of Russian gold deposits is correct. Nonetheless the recent history of Russian politics and gold mining in general quite sensibly demand a massive “arbitrage” discount. I wish him godspeed in trying to monetize those reserves — assuming he’s risking his own capital. Again, “a man’s got to know his limitations,” and my ignorance of geology and geopgraphy means I’ll sadly miss Mr. Pribus’s riskless arbitrage.

Interested readers might want to consult the book “A Hole in the Ground with a Liar at the Top: Fraud and Deceit in the Golden Age of American Mining”.

Russell Sears remarks:

ProspectorIn Alaska I met an old gold miner turned tour bus operator who pointed out all the closed down gold mines in the town on the Inner Passage. He also pointed to the large steep hill/mountain in front of the cruiseship port and said that hill alone has seven million ounces of known gold, but the government would never allow it to be mined as they use to. He also claimed the Inner Passage is littered with hills just like that one, that could now be mined very cheaply if permits could be granted. I have no idea if he was exaggerating or not, but clearly by the shut-up mines at one time there were people making money. If the mineral rights are privately owned, it is clear that the government will regulate you out of business. An if it's owned by the government, if they trully wanted the gold they can get it. But why? If this happens in USA, imagine what the rules of the game are in Russia.



 Might have been my imagination yesterday, but the more BHO spoke the more the market declined.

BHO spoke of infusing money into: highways, transit, rail, energy, water, and aviation. This will all require Davis Bacon/ prevailing wage or union wages to be paid on all these areas. The small businessman will never see a penny of the stimulus money. If a little person goes to get a SBA loan the paperwork is so staggering you will walk out the door of the bank.

The way the economy is rolling along it would not surprise me to see the market drop into the nine's come New Year!

Note talk about gold. Gold and silver have always had value and will never drop to zero. Judas would not have taken grain, copper, etc. He preferred the 30 pieces of silver Denaris. One can talk against gold and silver all one wants. There will always be a large group out there who like guns, safes, precious metals and canned goods on hand. I am just a simple average person who likes to diversify.



 An interesting passage from the great Frenchman Frederic Bastiat (1801-1850):

Peter is the possessor of the only plow which is to be had in France; John and James wish to borrow it. John, by his honesty, his property, and good reputation, offers security. He inspires confidence; he has credit. James inspires little or no confidence. It naturally happens that Peter lends his plow to John.

But now, according to the Socialist plan, the state interferes, and says to Peter, "Lend your plow to James, I will be security for its return, and this security will be better than that of John, for he has no one to be responsible for him but himself; and I, although it is true that I have nothing, dispose of the fortune of the taxpayers, and it is with their money that, in case of need, I shall pay you the principal and interest." Consequently, Peter lends his plow to James: this is what is seen.

And the socialists rub their hands, and say, "See how well our plan has answered. Thanks to the intervention of the state, poor James has a plow. He will no longer be obliged to dig the ground; he is on the road to make a fortune. It is a good thing for him, and an advantage to the nation as a whole."

Indeed, it is no such thing; it is no advantage to the nation, for there is something behind which is not seen.

It is not seen, that the plow is in the hands of James, only because it is not in those of John.

It is not seen, that if James farms instead of digging, John will be reduced to the necessity of digging instead of farming.

That, consequently, what was considered an increase of loan, is nothing but a displacement of loan. Besides, it is not seen that this displacement implies two acts of deep injustice.

It is an injustice to John, who, after having deserved and obtained credit by his honesty and activity, sees himself robbed of it.

It is an injustice to the taxpayers, who are made to pay a debt which is no concern of theirs.

Chris Tucker adds:

What is not seen is that John, by the nature of his character as shown by his other virtues, would probably do a better job of farming than James and so, in my opinion, there is a probable loss of production by letting James use the plow and therefore a loss of utility to the state. And there is significant moral hazard in that lending to James demonstrates to all that one not need do the things (work) that inspire confidence thus creating a culture of entitlement. The list goes on and on.




You wake up this morning and have an extra $10 million dollars in your bank account. You call your banker and find out that your broker overcharged you for commissions and that the money is yours without taxes. Throughout the day you proceed to spend as much as you can; a new car… two new cars, an addition to the house that includes an indoor pool and of course gifts for your family.

You check your statement and find you still have $5 million left so you decide to invest in another hedge fund (you've managed to spend much more than $10 million in broker commissions so you've got a lot of investments). You are presented with the following list. Assuming you know nothing of the investment style or past performance of the funds, which fund would you invest in?

Intercept Capital Management

Alexander Hamilton Capital Management

Federalist Capital Management

Trafalgar Capital Management

Barkentine Capital Management

Bearing Capital Management

Royal Sovereign Capital Management

White Knight Capital Management

Rittenhouse Capital Management

VectorPoint Capital Management

Thank you so much! Any input you have is greatly appreciated.

Kim Zussman adds:

Tiger's Wood Decapitation Management

Tom Marks asks:

Is Prof. Sharpe involved with that outfit?



 Many will recall Ross Miller's study of Fidelity Magellan fund under Robert Stansky, in which he shows the fund to have been essentially indexing — without adding manager value (however you define that).

This paper appeared circa Feb 2007; shortly after which Mr. Stansky was dismissed.

Here is a check on whether Fidelity Magellan's new manager is real or just a shadow. FMAGX daily returns (cls-cls) were regressed against big-cap SP500 index ETF, SPY. First for an equal 704 day period prior to Ross' study:

Regression Analysis: FMAGX- versus SPY-

The regression equation is
FMAGX- = - 0.000106 + 1.06 SPY-

Predictor        Coef       SE Coef            T      P
Constant   -0.00011  0.00011  -1.01  0.313
SPY-           1.064     0.01640  64.88  0.000

S = 0.00278542   R-Sq = 85.7%   R-Sq(adj) = 85.7%

FMAGX slightly underperformed SPY (NS), with high correlation.

Here is the same regression for the 704 days since the study:

Regression Analysis: FMAGX+ versus SPY+

The regression equation is
FMAGX+ = 0.000011 + 1.07 SPY+

Predictor       Coef         SE Coef      T      P
Constant   0.0000111  0.00023   0.05  0.961
SPY+        1.075         0.01152  93.22  0.000

S = 0.00594187   R-Sq = 92.5%   R-Sq(adj) = 92.5%

Basically identical to SPY, with same beta as before, now with even more correlation.

Eclipsing the shadow.

Alston Mabry continues:

However if one invests in 200+ large cap stocks stocks among 60 subgroups, they are going to likely going to correlate closely with the S&P 500. For example, over the past two years, an equal investment in each the nine stocks he listed would have had a 95% daily correlation with SPY.

Following a similar path, one calculates correlations for the daily log% changes of a few stocks vs SPY, over a 120-day period:
MCD by SPY: +0.36
MSFT by SPY: +0.52
PG by SPY: +0.54

Then, simply add the daily log% changes of one or more stocks together, day by day, and run the correlation against the SPY:

MCD+MSFT by SPY: +0.58
MCD+PG by SPY: +0.55
MCD+MSFT+PG by SPY: +0.67

It doesn't seem surprising that for any combination of components of SPY, one gets a higher R than any of the individual components in the combination.This is just a "back of the envelope" test, and I don't know how it would look for all possible combinations, or taking cap-weighting into account.

Phil McDonnell adds:

If one were to re-do Big Al's study it would be better to use simple percentage changes not logs. Logs are for compounding and are needed for one time period following another if reinvestment is allowed. But since step two in this process is to average the stocks into small 2 & 3 stock portfolios a simple average would be better.

In general building portfolios of positively correlated stocks will tend to move the portfolio toward the average return. However if one searches for negatively correlated investments with positive expectation returns can be achieved with less risk.

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

Kim Zussman writes:

MSFT is 2.4% of SP500/SPY; MCD is 0.7%



Gold as a safe investment makes about as much sense to me as The Temptations singing "the only safe place to live is on an Indian reservation."



 I've been trying to make some sense of the world, and have been revisiting the writings of Nock. I've dug up a few of his quotes off the Internet and from my notes that provide a 28 course meal for the rational individualist…

1. It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services.

2. Diligent as one must be in learning, one must be as diligent in forgetting; otherwise the process is one of pedantry, not culture.

3. Learning has always been made much of, but forgetting has always been deprecated; therefore pedantry has pretty well established itself throughout the modern world at the expense of culture.

4. Considered now as a possession, one may define culture as the residuum of a large body of useless knowledge that has been well and truly forgotten.

5. It is unfortunately none too well understood that, just as the State has no money of its own, so it has no power of its own.

6. Life has obliged him to remember so much useful knowledge that he has lost not only his history, but his whole original cargo of useless knowledge; history, languages, literatures, the higher mathematics, or what you will — are all gone.

7. Like Prince von Bismarck in diplomacy, I have no secrets.

8. The mind is like the stomach. It is not how much you put into it that counts, but how much it digests.

9. Useless knowledge can be made directly contributory to a force of sound and disinterested public opinion.

10. The university's business is the conservation of useless knowledge; and what the university itself apparently fails to see is that this enterprise is not only noble but indispensable as well, that society can not . exist unless it goes on.

11. Someone asked me years ago if it were true that I disliked Jews, and I replied that it was certainly true, not at all because they are Jews but because they are folks, and I don't like folks.

12. The positive testimony of history is that the State invariably had its origin in conquest and confiscation. No primitive State known to history originated in any other manner.

13. Assuming that man has a distinct spiritual nature, a soul, why should it be thought unnatural that under appropriate conditions of maladjustment, his soul might die before his body does; or that his soul might die without his knowing it.

As far as I know, I have no pride of opinion.

15. As sheer casual reading matter, I still find the English dictionary the most interesting book in our language.

16. The practical reason for freedom is that freedom seems to be the only condition under which any kind of substantial moral fiber can be developed — we have tried law, compulsion and authoritarianism of various kinds, and the result is nothing to be proud of.

17. The conservative is a person who considers very closely every chance, even the longest, of "throwing out the baby with the bath-water," as the German proverb puts it, and who determines his conduct accordingly.

18. The State's criminality is nothing new and nothing to be wondered at. It began when the first predatory group of men clustered together and formed the State, and it will continue as long as the State exists in the world, because the State is fundamentally an anti-social institution, fundamentally criminal.

19. The mentality of an army on the march is merely so much delayed adolescence; it remains persistently, incorrigibly and notoriously infantile.

20. An assignment that you can really put your back into, and do your best without thinking about results, is a real job; whereas serving the masses is at best only half a job, considering the inexorable conditions that the masses impose upon their servants. They ask you to give them what they want, they insist upon it, and will take nothing else; and following their whims, their irrational changes of fancy, their hot and cold fits, is a tedious business…

21. There are two methods, or means, and only two, whereby man's needs and desires can be satisfied. One is the production and exchange of wealth; this is the economic means. The other is the uncompensated appropriation of wealth produced by others; this is the political means.

The surest way to make our youth suspect that there may be something in Communism would be for the government to outlaw it.

23. The glossary of politics is so full of euphemistic words and phrases — as in the nature of things it must be — that one would suppose politicians must sometimes strain their wits to coin them.

24. Bad as euphemism is, however, indirection is worse.

When we speak freely, let us speak plainly, for plain speech is wholesome; especially, plain speech about public affairs and public men.

Our preceptors were gentlemen as well as scholars. There was not a grain of sentimentalism in the institution; on the other hand, the place was permeated by a profound sense of justice…

27. Considering mankind's indifference to freedom, their easy gullibility and their facile response to conditioning, one might very plausibly argue that collectivism is the political mode best suited to their disposition and their capacities. Under its regime, the citizen, like the soldier, is relieved of the burden of initiative and is divested of all responsibility, save for doing as he is told.

28. Above all things the mass-mind is most bitterly resentful of superiority. It will not tolerate the thought of an elite; and under a political system of universal suffrage, the mass-mind is enabled to make its antipathies prevail.

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



 The snare and delusion about executive pay at the banks is right out of Uncle Remus. Don't throw me in the briar patch. Are the banks really afraid that their stars will be lured away by others who are unfettered? Every thinking person knows the reason all these big bonuses are paid is because of the contribution to profits. But the contributions to profits are directly tied, nay 100% correlated, with the amount of capital that can be contributed to positions, and the amount of risk absorbed. The amount of capital that can be deployed is so much increased by all the programs that one can't begin to count them including the guarantee of debt, the injections, and the buying of troubled assets, and the direct buying. The recipients of the funds are very much afraid, like Br'er Rabbit, that they might have to keep those profits in the company itself rather than pay them out to those who might be "poached" in the briar patch. Who is the naive party in the Uncle Remus story and the market story that believes all these stories, and pays 100 cents on the dollar to forestall these terrible outcomes?



 What is the significance for markets of the fact that only 5% of major league baseball games are completed by the starting pitcher these days versus 50%, 50 years back? And that relievers like Rivera average 1 inning a game these days?

George Parkanyi writes:


Lack of accountability

Symptom of the money spent on distracting the general population with sports, entertainment etc.

Counting — playing the percentages (right vs left-hand, hitter's success against specific pitchers etc); running baseball more like a business

Sensitivity to starting pitchers' self-esteem

Phil McDonnell adds:

In the 1970s a Professor of Statistics studied the game of baseball and noted several things:

1. Starting pitchers tended to be less effective somewhere between the 5th and 9th inning. For most pitchers a pitch count of over 100 is where the trouble might begin. Maximum pitch count is somewhat specific to each pitcher and can vary from day to day. The prevalence of radar guns has made it easier to measure any decline in pitch speed as the innings go on. Clubs also use a variation on a Shewhart chart to track the ratio of strikes to balls to quickly identify any loss of control.

2. He also noted that a pitcher who had thrown more than 2 innings was not as effective the next day. Thus the strategy of short relief and closer was born. Pitchers who only pitched 1 inning maintained a high level of effectiveness the next day. Even with only one inning of work on two consecutive days they still need a day off on the third day.

3. It was also discovered that by using relief pitchers for 2 or 3 innings starting around the 5th or 6th inning that the odds of winning improved. These short relief pitchers could also play again in that role after a day or two of rest. In contrast starters who pitched more than 100 pitches (usually about 5 innings or more) required about 4 days of rest.

Baseball, like trading, has evolved because of Counting and is getting more competitive every year as people learn to play the game more intelligently.

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

Stefan Jovanovich replies:

No wonder Dr. Phil and I keep doing Rodney King and the LA cops over baseball. On this subject I don't think we will ever "just get along". Baseball in 1970 was going through the transition from being the childhood national sport to being 3rd choice behind football and basketball. The result was that most of the culture of the game was being lost. In the 1950s and even the early 1960s pitchers were still expected to know how to through at least 5 pitches for strikes. Even Bob Feller knew how to throw a knuckle ball. As a result pitching was something that had no specialization, and pure journeymen like Don Larsen could throw complete and perfect games even in the World Series. (Check the news reports of the time — 1956 — and you will find that no one thought the complete game remarkable at all; it was only its perfection that was significant.) By 1970 the culture of the game that Larsen and hundreds of thousands of other professional players had grown up with was gone. Pitchers no longer had the experience of learning the game from uncles, cousins, fathers who had played in the military or in the minor leagues. They were the products of Little League. They were lucky if they had 3 pitches they could throw for strikes, and they had no experience with varying speeds and/or arm angles for the same pitch. Most were straight 2-pitch pitchers. It was hardly surprising that the "modern" pitchers had no surprises left by the end of the 6th inning. Some had none left by the end of the 1st. Since the essence of the game is keeping the hitters off-balance, the only possible solution was to bring in another 2-pitch pitcher the batters had not seen before. Hence, "relief pitching".

What is fascinating now is that the money has gotten so good that pitchers are realizing they can extend their careers by adding pitches to the repertoire. Lincecum - the back to back Cy Young winner for the National League — is the most remarkable example. He learned/was taught the change-up after he was in the major leagues. (If he learns a 4th pitch, he will be Christy Mathewson reincarnated.) As Hayek would have reminded us, the thing being counted — the "game of baseball" — is not a thing that can be quantified in the same way that the mining and smelting of copper can be. An pound of copper in 1970 is the same as thing as one produced this morning. Human activity not only varies; it also changes. Statistics applied to what people do without a knowledge of history easily becomes an exercise in counting what is no longer there.



D RFrom David Rosenberg's Morning Missive: "Especially since a key reason why the jobless rate dipped was because the ranks of discouraged workers who exited the labour force due to grim job prospects jumped 60,000 to 357,000 last month."

And yet one more whack from Mr. Rosenberg's commentary (stretching quotations to the bounds of fair use):

"As for the -11k print on Friday's headline payroll report, unadjusted, the number was +80k, which therefore goes down as the third softest November reading in the past 18 years. November is normally a month where between 300k and 500k workers find a job before the seasonal adjustment kicks in. Something to keep in mind. It's remarkable nobody talks about this; the big surprise in the payroll data was the service sector component; it rose 58k, but we know from the ADP report that service sector employment fell 81k, which was fractionally worse than the 79k decline in October. Such a discrepancy has occurred less than 3% of the time in the past, and each time, the following month after the big gap, there was a convergence … with headline nonfarm payrolls swinging 100k lower on average, which would imply a 111k decline when December's figure comes out. Also take note that the +58k print in the service sector payroll was completely at odds with the 41.6 reading in the ISM non-manufacturing employment index in November - a figure that in the past was consistent with a -192k tally in service sector payrolls and never before aligned with a positive number. Go back to the 2001 recession, and the worst ISM non-manufacturing jobs subindex was 43.9 (right after 9/11) and here we published a figure that was more than two points shy of that! So as we wonder how the headline number could only be -11k on Friday, there were some very lumpy increases in some very non-cyclical segments of the economy: Administration/waste management +87k Health/education +40k Government +7k The rest of the economy shed 145 jobs and the declines were spread across nearly 60% of the industrial base from retail, to transports, to manufacturing, to construction. For some reason, we didn't see this dichotomy mentioned anywhere in the weekend press. The Canadian employment, but beneath the surface, it also had its own peculiarities The Canadian employment data, while robust on the surface, also had its own peculiarities - like half the gain being in education (more teachers in November?); wages declining (even with a lower unemployment rate?); and the workweek contracting (more bodies, fewer hours - reverse of what we saw stateside)."



 Gregory (Scotland Yard detective): "Is there any other point to which you would wish to draw my attention?"

Holmes: "To the curious incident of the dog in the night-time."

Gregory: "The dog did nothing in the night-time."

Holmes: "That was the curious incident."



 I was wondering if one could be taken off the street, with no experience, and taught to be a profitable trader. My father says no, with a few added conditions. He believes there's a genetic component combined with many early childhood predictors that indicate a propensity for success in trading. He cites games, sports, competition, and the willingness to accept risk as major predictors of success. He also believes that if one doesn't exhibit these characteristics by adolescence, it would be very improbable that one would become a successful trader later on in life. He also says that mentors are not enough if you don't have a "fire in your belly." My uncle, on the other hand, says he could take a monkey off the street and teach him how to trade successfully within a year. What do you think?

George Parkanyi responds:

I think the question becomes can you teach creative thinking, self-motivation, self-discipline, courage, patience, and self-confidence? If you believe that these can be taught (which I do, but it's not simple or easy), then I believe you could teach someone to successfully speculate. Good ideas and opportunities abound in speculation and are recognizable to many people, and the mechanics of trading are fairly straightforward. But actually implementing them and managing the risks are altogether something else.

Also I think that to be good at anything you just have to do it — warts and all, and make the necessary adjustments as you gain experience. You would never be able to teach the things I mentioned above without a heavy dose of hands-on application.

Paolo Pezzutti writes:

I agree that being good at sports and in particular at sports competitions is an indicator of predisposition to trading. Determination, ability to remain focused, to implement a game plan, to understand weaknesses and strengths, the self-confidence that allows to take reasonable risks with a winning attitude and so forth. However, that there is not only the "fire in your belly" component. I do not think that one can trade only by instinct or intuition. There are also analytical qualities that are more intellectual and less related to the guts. Can technology help somehow? However, if one is a great mind and finds certain market inefficiencies that a computer can exploit, does one need to have the great athlete's qualities? Those who develop successful algorithms need to to have the "fire in their belly"? I am not a trader so I cannot say for sure, but I tend to believe that mechanical trading can be successful. Besides that, if your father believes that he could teach a monkey how to trade in a year, I think I am better than a monkey and if he wants he can try with me!

Craig Mee replies:

No doubt a few of you have heard of Dennis and Eckhardt… these days different rules, different times, maybe if there had been tasty markets for it, before the rules of ever changing cycles kicked in. I believe Richard Dennis has struggled to replicate his results.

Dave Goodboy replies on behalf of Michael Covel: 

M Covel"Whether you agree or disagree with my book The Complete TurtleTrader it is one of the most unique "training" experiments ever conducted on Wall Street. It is the true story of literally taking novice traders off the street, injecting them with trading rules, and then watching millions be made. 25 years later it is also interesting to note which of the originally group thrived and which imploded. As far as the genetic component debate goes there are some great books out now about "talent" (see: "The Talent Code" and "Talent Is Overrated") making a very convincing case that success is far less genetics and much more about deliberate practice –which backs much of my research."

- Michael Covel



Just got back from my almost annual Asia run, this time including Malaysia-Langkawi, Singapore, Thailand's Phi Phi Islands, and the not to be missed, Bali. After spending three days in meetings in Singapore main business district and comparing it to my year working there in 04-05, I can certainly say the place is booming. For a start many of the Aussie financial houses are sending staff north. They certainly don't have to be pushed out the door, with Singapore's low tax rates. The English aren't far behind with many distressed at the way the government has recklessly pursued social equality in expense of the countries financial situation. They too are arriving in size.

The place is full of energy and with the warmth of the tropical heat. The few expats I spoke to gave little thought to returning to the homelands soon. I don't think I have seen busier beaches anywhere in the world than after arriving at Thailand famed Phi Phi islands. Speedboats parked offshore allowed the free sand to allow others to load and unload willing punters. The place is magnificent although the touring hordes were slightly distracting. Malaysia Langkawi holiday island was certainly thriving with Asia's low cost carrier AirAsia, jetting people from all parts of the orient to its shores providing a low cost getaway for many from the major hubs.

Bali as always was warm and endearing. The place is changing rapidly, with developer friends on the island telling me the Russians are in, and the Arabs on the close island of Lombok pushing money in many directions. Certainly on flying out of Asia's shores you get the feeling your heading the wrong way.

Chris Cooper adds:

Regarding Bali, I am living about half-time there now. While it is true that foreigners may not hold title, methods have evolved which allow foreigners to purchase and control the property, which amounts to the same thing. Certainly there are many expats who have done so. It is the same in many other countries. Once you have liberated yourself from the idea that you need to hold title in your name, many more things are possible. 

Nick White comments:

I have never come across a person who has invested or had major business dealings in Vietnam, Thailand, Laos, Cambodia, Indonesia, Bangladesh, etc, who would consider doing it again–whether it be hard assets or financial ones. They are a bit like the southern baltics — you just don't know who you're really dealing with on the other side. Singapore, Malaysia, Hong Kong, Japan, South Korean, and Taiwan are all fine. 



 I have a dumb question that everyone on television seems to understand but I don't:

If we lost 13,000 jobs in November, how come the unemployment rate declined from 10.2% to 10%?

Stefan Jovanovich replies: 

Base14 counting. The unemployment rate is not based on the number of people who are physically capable of working but do not have jobs; it is based on the official count of the people who qualify to be considered "unemployed". If your unemployment benefits have run out, you are no longer "unemployed" by the BLS's count. Senator Moynihan once said that before you can solve a social problem, you have to be able to quantify it. As the new science of climate change has shown, once you have a political agenda, your data have to match. And, if the facts are stubbornly resistant, you have to change the plain meaning of words until the facts comply. So, early winter snow storms and severe cold become further proof of global warming; and a stock market rally becomes proof of an economic recovery even though the increased corporate earnings are almost entirely the result of cost-cutting by laying off employees and capital subsidies to the people who deal in credit (the Federal bailouts are the carry trade).

Rudolf Hauser notes:

Stefan is incorrect when he writes "If your unemployment benefits have run out, you are no longer "unemployed" by the BLS count." The BLS definition of unemployed has nothing to do with whether or not you are collecting unemployment insurance. You are counted as employed if you worked at all during the past week, were self-employed, or are employed but did not work because of such things as vacation, sick leave, a strike, bad weather, etc. You are counted as unemployed if you have actively looked for work in the past four weeks. Actively looking includes job interviews, contacting an employer, contacting a public or private employment agency, contacting friends or relatives for job leads, using an employment center such as that of a university, sending out resumes or filing out job applications, placing or answering ads, checking union or professional job registers or any other active means of job search. Getting or not getting unemployment insurance is never a consideration. You are also counted as unemployed if you do not look for a job but are on a layoff and expect to be recalled within the next six months. To see questions asked and more details go to the BLS web site.

Dan,  your question is one that is often asked when the two series produce somewhat different results. Stefan's explanation is way off base. The decline in employment you refer to is the number from the payroll series which is based on report to the BLS from firm's reporting that information to the IRS. It is known as the establishment survey. It is benchmarked by the quarterly reports all employers, no matter who small (I filed reports for the people who cared for my mother) for purposes of unemployment insurance premiums. The reported numbers are revised annually based on that benchmark.

The unemployment number is obtained from a different survey. It is based on a survey of households by the BLS. Employment on that series actually increased by 275 thousand by that measure. It is based on the number of people who worked at all during the survey week. It is divided by those people who have been employed or actively looking for work. Naturally, the unemployment rate could decline with a decline in the number of employed (numerator) if the civilian labor force (denominator) declined even more, but of course that is not what happened in November.

Stefan Jovanovich responds:

But, that assumption (that the methodology is sound) is the very problem. The statistical methods can be completely sound and the outputs can be garbage because what is being counted are categorical abstractions that do not match up well to actual human activity. What the BLS has never done –as far as I have discovered– is test its own sampling techniques against data that cannot easily be fudged where enterprise is concerned. I have not found anything from the BLS that makes a comparison between the 1.5 million jobs that were supposedly created by new businesses started in the past year and a half and the actual data for incorporations, fictitious business name filings, and resale number applications– the usual indices for new business formations. Rudolph knows infinitely more about the details of how the BLS works; my point is simply that the tools of statistics can be used to build sand castles if "norms" are accepted at face value. It is like the Romers' presumption that government spending has an implicit multiplier that is greater than 1. That is certainly true– if you are a government employee. What the BLS is increasingly counting is "work" that is itself government employment; and its surveying is missing not only the "black" economy but also the "grey" one of legally-permissible activity that no longer fits the "standard" categories. My personal, non-statistical observation is that the shrinkage of activity in the black and grey markets here in California continues unabated.



 From Against the Gods, Peter Bernstein, 1996 printing, chapter 15, paragraph 1:

"..quantification of risk is alive, well, and regularly practiced by professionals in today's world of globalized investing. Charles Tschampion, a managing director of the $50 billion General Motors pension fund, recently remarked, "Investment management is not art, not science, it's engineering… We are in the business of managing and engineering financial investment risk." The challenge for GM, according to Tschampion, "is to first not take more risk than we need to generate the return offered." A high degree of philosophical and mathematical sophistication lies behind Tschampion's words."



 The United States Preventive Service Task Force announced Monday that it recommends against annual mammograms for women age 40 to 49 because, they say, the benefits of testing do not outweigh the "harms" and risks. USPSTF still recommends doctors start screening all women over age 50, but with a mammogram once every two years instead of annually. News Item.

Certain thoughts on health care in no particular order:

1. Thus far no insurers are denying payment for those who choose to stick to the old guidelines, therefore the decision of how often to be screened by mammography is up to individual patients and their physicians.

2. Get used to it; this is the first in what is certain to be an ever expanding list of recommendations aimed at reducing global Health care cost with minimal (albeit it some small) cost on individual health.

3. Public policy on health care is at odds with individual goals for health care: the former is premised upon the good of the masses superseding the good of the individual, whereas the latter is based upon enhancing health with little or no concern for cost.

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