The S&P 500 had an outside daily bar on Thursday with the close above the high of the previous day. Here are the last 12 days that followed an outside daily bar with the close above the high of the previous day. 6 were up, and 6 were down.

   Date  change
3/13/2009    0.8%
3/18/2009    2.1%
 4/2/2009    3.3%
 5/7/2009   -1.1%
5/19/2009   -0.1%
5/27/2009   -1.8%
6/30/2009   -0.6%
7/14/2009    0.6%
9/29/2009   -0.4%
11/6/2009    0.3%
 1/8/2010    0.4%
5/13/2010   -1.1%

Average       0.2%
Standard d    1.4%
t             0.49
N               12

Jonathan Bower writes:

I don't think one is precluded from defining what ever time-sliced relationship one is interested in evaluating. For example in forex you could define "daily bars" that encompass Asia, Europe, and/or US time horizons, they could even be overlapping if it suited your needs. So an "outside day" is in the eye of the beholder and depends entirely on how they define "a day".

Whether it contains relevant information is, of course, a whole other ball game. I believe the original thread demonstrated that the outside day that was measured provided very little in the way of useful/tradeable/actionable information. Of course depending on ones trading methodology, perhaps it did….



1930s Boy Scouts CampI'm going to keep this year's Memorial Day thoughts short.

What is Memorial Day about?

I went with my son's Boy Scout Troop to Jefferson Barracks Cemetery today as we always do on Memorial Day. Today was the 62nd year that the Scouts had gathered to honor the soldiers buried there by place flags on their graves.

It was a moving site. 5,000 Scouts showed up, plus adults. The heat was oppressive. And although the talks were no longer than usual, they seemed a bit longer today in the heat. Still when it came time to place the flags, the scouts dispersed in an orderly fashion and went about their task in a reverent manner.

Sure, there was frivolity (boys will be boys), but for the most part, it was a moving site.

Because there we so many Scouts, there wasn't enough flags for the all the adults. So I gave my flags to a "flag-less" scout and opted to stand in the shade….not out of laziness, mind you (although it was nice), but to make sure all the Scouts had an opportunity to place their flags on the soldiers graves…..something I've had the privilege of doing many times.

To stand there and watch the boys work was especially heartwarming this year….especially after listening to one of the talks at the flag raising ceremony…..for this speaker spoke of two former scouts from our group who had fought in the middle east. One had died and was recently buried, the other, had lost both of his legs. Both former scouts from our BSA Council. Both stood where these boys were standing now around this same flag pole, listening to the same bagpipe band, listening to speakers. Both placed flags on the graves in this cemetery, just as the boys 5,000 boys gathered around that flag pole were about to do that day..

Now, one of them was without his legs……and the other……..well the other was waiting for his flag.

Remember these men and the millions of others just like them. That is what Memorial Day is about.



 I just found a good book. "Pattern Recognition, 4th ed." by Theodoridis and Koutroumbas. Authors are at the University of Athens and the National Observatory of Athens.The text begins with Bayes classifiers, then covers linear classifiers, nonlinear classifiers, feature generation and selection, and ends with a large section on clustering. Clear writing and Matlab code at the ends of chapters. Introductory level but with a very wide coverage of algorithms.

A companion book has some more Matlab code and examples. The code examples will help you understand the algorithms. More code at the website, too.

My obligatory warning– please learn learn about linear regression methods at the level of chapters 1-12 of Neter et al. "Applied Linear Statistical Models, 4th ed." before you tackle any of these books. Neter will teach you the loop and matrix forms of the algorithms for regression, plus the basic theories, all of which will make any pattern recognition book much easier to understand, including this one.

P.S. the 2nd edition of Hastie et al.'s "The Elements of Statistical Learning" is now available for free as a pdf.

P.P.S. A third good book is Bishop's "Pattern Recognition and Machine Learning." Between these three books you should be able to find something useful for a pattern recognition problem.



Chatting with a friend of mine today who contends that the big boys keep the DOW at 10 to keep the fray from pulling money out of the Market?

Scott Brooks writes:

Who are these "big boys"?

Why do they care if the market is supported at 10k (maybe they've got some options they need to protect)?

If they know they need to support the market to keep it 10k, why not just * not* support the market, let it go down and profit from shorts/puts/selling calls, etc.?

If by "big boys" you mean politicians, governmental or quasi-governmental organizations, I might be more inclined to give credence to the theory, but on the surface, as stated, I can't.




 I wonder if the computers that do most of the trading have programmed Puetz windows, bull/bear ratios, etc. into their algos. Mostly they seem to trade off newsflow and momentum. They seem to find attractors in moving averages, pivots points, and big point numbers.

My own experience and training as an EE can only compare the current environment to a closed-loop feedback control system gone open-loop; as if elephants constrained in their pen in the zoo have burst out of their cages, running this way and that as they bang into walls.

Phil McDonnell writes:

The trouble with the Puetz window is that an eclipse sounds like a very rare occurrence. After all I have only seen maybe 1 or 2 eclipses in my lifetime. Would you be surprised to know that 4 of them occur every year and sometimes more than 4. There are 2 solar and 2 lunar ecipses every year minimum. The fact is that they only occur in certain relatively small swaths somewhere on the Earth. So the 4 that will occur this year will probably not be visible to most people. Add to that the fact that we are less likely to go outside at night or be asleep explains why we see them so rarely.

Next consider the Puetz window definition. Start with the 4 eclipses then construct a 12 week window from 6 weeks before to 6 afterwards. That covers a period of 12 x 7 x 4 = 336 days if eclipses were randomly spaced. Adjusted for the relationship between solar and lunar eclipses the the Puetz window covers 196 days out of the year. That is more than half of all the days in a year. Adding the full Moon cuts down the number of allowable days to 10 days, 6 before, 3 after and the day of the full Moon. The allowable number of days in the window every year now becomes an average of 68 or 18% of the year.

This has all the classic earmarks of a theory that was hand fitted to a small sample of 8 crashes.



1907 Panic on Wall streetOf course every man with a dollar's interest in the market was broke, tied up or disgusted. The large traders, who made money on the way down, got the big head, over-sold, and were caught on the rallies. The little ones, chronic bulls, had lost stocks, money and nerve somewhere in the avalanche, and The Street was full of wreckage, lost hopes and lame ducks.

Following these ebb-tide conditions, there was a see-saw market wherein stocks swung within a narrow range, "a period of rest and recuperation" which financial physicians assure us is so "beneficial to the market".

But the whip-saw market offered no rest and recuperation to the traders who wanted to get their money back where they dropped it, nor to the bankers who looked wearily up toward Trinity Church, expecting to see its green lawn extended through Wall and Broad streets.

I believed, even after what had happened, stocks were only half way down to where they belonged.  Things had gone on this way till June 1904 […]

Suddenly the bearishness in me got a jar that made it sit up and take notice. The City of New York offered an issue of bonds and they were heavily over subscribed!

Anxious to be away from the ticker in order to think clearly and accurately, the next day, Saturday found me at a little house down the creek. As soon as I could I jumped into a row boat, pulled up stream and finding a quiet nook and pushed her nose into the rush covered bank. […] For an hour I lay in the bottom of the boat staring at the blue sky and thinking hard. Then sitting up and taking pad and pencil I put down without prejudice the following principle factors bearing on the financial situation. […]

On calling the attention of a few of my friends to it they bought some high dividend players, and then gave the figures to the press. The stock[s] rose, the public bought. US Steel selling at 10 having in its long decline from 55 ruined or crippled more people than any other stock in history was now in the hands of people who could hold it. As most brokerage houses insisted upon payment for it in full, there was little held anywhere except by those who owned it outright.

from magazine of wall street, circa 1905. Nothing has changed.

Douglas R. Dimick adds:

Researching 1903, I came across a good read to recommend: “The Big Board, History of the New York Stock Market,” by Robert Sobel.

The velocity of price action and depth of directional mass does not necessarily support 1903 and 2008 comparisons. However, one may ponder two issues apparent then and now. First, upon post-downward movement of the market, a question remains as to whether markets remain overvalued via concentration of economic and political interests at regional and national levels of commerce. Second, the since evolving ruse played on the individual investor; then garnering (veto) power contra the now rumored relegation to proverbial outsiders relative to the economic reality (i.e., big gets bailed and small gets foreclosed) a la the 401k magic show of the derivatives shadow economy – defer tax on one bird in the hand (or retirement savings) so you can be taxed two birds (or currency fueled inflation and federal fiscal debt) beyond poor-and-middle-class-grasp when the economy throws you out into the bushes of unemployment.

At least this time it did not take a whole generation to figure out how “they” stole it…

“Although he appeared more like a court jester than a ruler, Bet-A-Million Gates was one of the leaders of the Street. He went on a European business trip and vacation in 1902, and returned just in time for the 1903 panic.

"I am surprised at the condition of the stock market," he told reporters who met his ship. "It is not natural. The causes are purely artificial, and they rest on a false basis. I do not believe there was ever a better time to invest in reasonable securities. I have come back stripped for the fray, and I am going down into Wall Street."

Gates immediately plunged into the market, forming a syndicate to buy up those shares he felt were underpriced. Nevertheless, the market collapsed in the spring and fell heavily through early summer.

This so-called Rich Man's Panic was over by late August, and J. P. Morgan’s return from his annual European art-collecting expedition helped restore confidence. By October, prices were on the way up.

The Rich Man's Panic was merely a brief interlude in the bull market, but it was of great significance. The upper class, the insiders, suffered in 1903, not the small investors.

Early in the year the latter went on a "buyers' strike," having decided that prices were too high. They sold in the early spring — along with the astute managers of the Standard Oil Empire — while Gates and most professionals bought. It was the first example of the new power of the small investor, a power which would not be fully recognized by the usually sensitive Wall Streeters for another generation.

After 1903 the investment bankers consolidated their positions, destroyed competition, and expanded into new fields. The titans were not power hungry; rather, their expansion was a necessary part of the investment picture of the period. The huge combines formed by Morgan, Schiff and others rested on the market's ability to absorb new securities.

The 1903 panic demonstrated that the small investor could not be relied upon completely, so the bankers turned to new sources of funds, and found them in banks, trust companies, and insurance companies, which were growing rapidly during the early twentieth century. In 1900 total bank assets were $10.79 billion and assets of life insurance companies stood at $1.74 billion. By 1907 these figures had risen to $18.15 billion and $2.93 billion, respectively.

If an investment banker could gain control of a large bank or insurance company, he could sell it his undigested securities and maintain a market for other offerings as well. Thus, the investment bankers took control of the financial and insurance firms during the early years of the century.”

With the repeal of Glass-Steagall and lax regulatory oversight via political dressage, have we not returned to similar times and places of an inverted market history?
For quoted text, see\Wo rld%20Trade%20Federation%20-%2095%20-%20The%20Big%20Board.html.



 I hope us young guys can offer old timers a different perspective. Just kidding, dailyspeculations is my favorite blog on the web and I share mine below.

Hypothesis I thought of the other day daydreaming:

A test of lows or highs is similar to how when you break up with a lover you always go back for a second try to probe to see if you made the right decision. Both parties are usually willing (bulls/bears and man/woman or etc/etc. If test falls short, low/high rejection a new trend is formed or new high/low is formed and trend is resumed. If two partners give it a second try either their relationship moves to new deeper levels of intimacy or they split up and look for new partners.

Of course break out failures and failed failures happen, but at least the scenarios can be confined to a limited set of outcomes.



Political scientists, commentators, and pundits consistently observe that government leaders usually opt for silver rather than lead when presented with crisis or conflict. If a ruler can pay coin instead of fire bullets, he or she is likely to do so. Commonly referred to as political instinct (or emblematic of human fragility to include corruption), such decisions often equate to deflection or redirection of what is tantamount to injustice, be it economic or political, that continues if not escalates.

From a rules-based (or Quantitative Relativity) analysis, we may conclude that the ten-year-old repeal of the Glass-Steagall Act is the Fort Sumter of a revolutionary period in the history of capital markets. Colliding and colluding energies then generated by investment banking and commercial banking interests created a black hole, from which the centricity of capital flows and the ergonomics of investor, trader, and speculator no longer appeared (or disappeared) on some 78 year-old, well charted maps of domains circumscribing public policy and regulatory stricture as well as academic and institutional dicta.

Accordingly, magnitudes of relative space and time correlations of the markets may now extend well beyond the comprehension of a single person. Thus, before considering the Chair's interrogatories, first consider whether the sage's musings are sagacious or merely in keeping with a (if not thee) central stakeholder that owes a fiduciary duty to those who may be keeping afloat with what otherwise would or should be sinking if not already sunk…

What did the guy actually say?

"Our first stimulus bill … was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in … as if everybody was putting in enough for their own constituents," he said. "It doesn't have really quite the wall that might have been anticipated there."

"I think that a second one may well be called for," Warren Buffett, the CEO of Berkshire Hathaway, told "Good Morning America" today. But, he added, "you hope it doesn't get watered down in many ways."

"I do not like the idea of any kind of a plan involving the government where Wall Street makes a lot of money. My plan provided that they would make no money whatsoever, and the American public would make the money. I just think that Wall Street owes the American people one at this point," he said.

"We are not in a freefall, but we are not in a recovery either," Buffett said. "We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior. That change hasn't changed." The U.S. unemployment rate, which currently stands at 9.5 percent, still "has a ways to go" before it peaks, he said. His own company, he said, had to lay off 500 people.


What are the natural reflections engendered by such an utterance as the sage's?

Hey, Big Spender, Spend a Little Time with Taxpayer Dimes: "The Keynesian stimulus is beneficial insofar as it gets to average consumers, but much of the money is headed elsewhere; perhaps overseas to buy commodities, gold, etc., for as few opportunities for profitable investment are within the US consumer economy, money will be attracted elsewhere. Moreover, but for alternative energy, even skillful application of Keynesian stimulus spending cannot return to the previous path of economic expansion for long without cheap oil.

Keynesian stimulus is a governmental policy that borrows economic demand from good times and uses the proceeds to boost demand during times of contraction, to keep recessions from deepening into deflationary depressions. Public spending by the US government on public projects is meant to restore demand missing due to contraction of the private sector of the economy. If there is enough public spending, a multiplier effect helps stimulate demand and revive consumer optimism.

In terms of the scale of the government money being introduced to stabilize the economy, it is mostly going to bailouts, low prime rate credit, and existing entitlements, with a relatively smaller amount of Keynesian stimulus. With the domestic consumer market so depressed, the easy credit offered to the banks now tends to leak out of the US and head abroad, without creating many domestic jobs in the process.

The near zero prime rate money available to the big profit-starved investment banks will probably be used to shore up their troubled bottom line with high-profit loans, lending for things like foreign subsidiaries of US corporations, commodities including gold, oil production, and growing markets in emerging nations. Some prime rate money is being borrowed and then used to buy higher interest paying US treasury bonds, giving guaranteed profits but no jobs."

Harbinger From 'Flash Crash' to Slow Motion Crash
: The scale of existing obligations on the part of US consumers, the many federal obligations and entitlements like health care and social security, and private bank debt taken together is an overwhelming tax burden for an aging unemployed population.

Given the peak oil situation, it is unlikely that this aggregate burden of US debt can ever be paid back with dollars that retain their current buying power. This reality leaves a choice of either US government default, or more likely in the short run, devaluation through inflation that keeps the finance books balanced with shrunken dollars.

The historic evidence strongly points to solving our debt problems with inflation, which is a concealed form of taxation. Here political policy takes over."

Electile Dysfunction: "Economists in a recent National Association for Business Economics survey say the economic recovery was not helped by the stimulus bill. Obama's $787 billion Recovery Act is a massive slush fund for "saved or created" jobs, a term still undefined. Additional $17.7 billion jobs bill is on track to do what the Recovery Act did - not much. National unemployment rate will remain hovering near double digits despite Obama's promise the Recovery Act would keep it below 8%.

Back in early January, when Barack Obama was still President-elect, two of his chief economic advisers - leading proponents of a stimulus bill - predicted that the passage of a large economic-aid package would boost the economy and keep the unemployment rate below 8%

Obama's Disco-era Jobs Bill is so named since the meat of it comes directly out of Carter's bill from 1977, a bill that economists still aren't sure actually worked. The initial $787 billion Recovery Act, with funds borrowed from China, was reassessed by the CBO back in January, increasing the actual cost of the stimulus package to $862 billion due to several factors including higher unemployment, the food stamp program, and the Build America Bond program, which pays state and local governments for 35 percent of their interest costs on taxable government bonds issued in 2009 and 2010 to finance capital spending.

The CBO outlined the increased national deficit burden of the stimulus package in this easy to follow and fun-for-the-whole-family-since-the-whole-family-will-be-saddled-with-massive-debt. White House's Council of Economic Advisers says on track to create or save 3.5 million jobs this year."

Job One: Given that he highlights one key indicator, Buffett's comment on unemployment provides a context for our "natural" correlations, priori, consiliences, etc.

"Regarding one's ground zero opening that "the low of the day was below the low on the Flash Crash day, note the extended declines Thursday came after initial jobless claims rose by 25000 to 471000 with a large part of the US domestic economy to be in a state of deflationary contraction as true US unemployment rate approaching that experienced during the great depression.

As an economic system constantly interacts with the politics that makes the rules that govern it, politics may prove to be anything but an efficient way to achieve rational change. Increasingly, global economic options may be narrowing to choice between continuing global economic stagnation versus a short start at recovery followed by a relapse into economic contraction and global stagnation. Therefore, use of stimulus spending or any other political and economic policies cannot reset prior economic growth within the short-term.

The return of another tight global oil market will be accompanied by the return of the crippling oil price increases we saw in mid-2008, but this time imposed on a weaker economy. The geology is the easy part, but it is the complexity of the social response that makes peak oil difficult to study. The economic crisis is resulting in gap between global growth predicted by banking and finance system versus disappointing performance of the global economy; the shortfall is reflected as political discontent.

US domestic economy comprised of two consumer spending sectors with different characteristics. Discretionary spending is shrinking fast as the jobless and the growing numbers of those fearful of income loss limit spending to the purchase of bare necessities; it with nondiscretionary are averaged together may present a misleading consumer price index, which excludes food and energy.

Whereas labor and services costs are determined by the supply and demand within the domestic economy, commodities typically have their prices determined by the global marketplace. When a tight global oil market returns, it means that the rising cost of oil needed to transport almost everything pushes up all other commodity prices — termed cost-push inflation.

If the non-discretionary sector of the consumer economy is deflating, due to slack demand and home prices decreasing, it does not mean that the same price trends apply to the non-discretionary sector. US domestic economy is stagnating while the global commodity sector is seeing price inflation.

Housing and labor prices have been falling, even as global commodities prices are rising, to give a misleading picture of inflation. These trends taken together signify stagflation, which tends to defy easy economic remedy.

As US consumer spending relatively shrinks, there also seems to be a global commodity price bubble attracting speculation and driving up many raw materials prices. Commodity prices in general have risen about 30% since March 2009; the price increases may now be spreading to food.

Retailers such as Wal-Mart Stores Inc. are cutting prices to bolster sales as customers face almost 10 percent unemployment and rising foreclosures. Yet bad news feeds on itself, and this circularity perpetuates a deflationary downturn during hard times."

Meanwhile, aside from the obvious, being repeal of the Glass-Steagall Act separating commercial and investment banking, there was the stealth HTM to MTM change. Conjunctive to MTM, the derivatives market operated as a shadow economy intended to disperse risk among bank held and capital markets held assets, supposedly stabilizing values related to medium and long term contracts. So much for that theory…

As a result, post-crisis bailout of banks continues as the most expensive component of the legislation, as one commentator notes, not so "much a cost as it is a theft… a sort of Robin Hood in reverse… Bernanke & Co. are stealing money from the common man and giving it to the banks…."

[Ed. A more complete version of this essay will be published shortly].



 Regarding the Will o' the Wisp post from the Chair some weeks back, I stumbled upon a nice passage in a book that I am reading–The Works of Guy De Maupassant. 1903 first edition.

He is a french short story writer from the early 20th century. Most of these stories so far are interesting in the way of a twist, with backdrops of war relations, sexual tension in terms of class distinction–i.e., lady of high standing or prostitute, stories regarding status– outlander or soldier– commoner and his standing in his small social circle, pregnant milkmaid, etc. These stories are interesting and entertaining in terms of language and settings/social settings and endings–a good short story diversion type read.

I just read a Prussian military story that was really well done. A small band of occupying soldiers couped up in a manor house under rainy weather with a French priest who will not ring bells due to the occupation and the soldiers getting restless. And then they send out for some French women to entertain them for an evening. Then the drama builds.

The particular story with a passage about a marsh was very moving, a descriptive and interesting scene. Two men are going out into a 3:00 am morning blind with very cold temperatures to hopefully hunt exotic wildfowl. It is a setting near an old growth forest where the best and most diverse fowl can be taken. It is a marsh that they are walking into.

Here is the writing from the story entitled "Love":

I am passionately fond of water and above all the marshes, where the whole unknown existence of aquatic animals palpitates. The marsh is an entire world in itself on the world of the earth-a different world, which has its own life, its settled inhabitants and its passing travelers, its voice, its noises, and above all its mystery. Nothing is more impressive, nothing more disquieting, more terrifyingly occasional, than a fen. Why should a vague terror hang over these low plains covered with water? Is it the low rustling of the rushes, the strange will o' the wisp lights, the silence which prevails on calm nights, the still mists which hang over the surface like a shroud; or is it the almost inaudible splashing so slight and so gentle, yet sometimes more terrifying then the cannons of men or the thunders of the skies, which make these marshes resemble countries one has dreamed of, terrible countries holding an unknown and dangerous secret?

No, something else belongs to it–another mystery, perhaps the mystery of creation itself! For was it not in stagnant and muddy water, amid the heavy humidity of moist land under the heat of the sun, that the first germ of life pulsated and expanded to the day?

The story continues into a hunt for fowl where the two men share an ice block blind in the marsh with a hole at the top so they can light a fire. They hold out as long as possible in the cold until a fire is warranted for basic survival. They light a fire in the ice block and then they hear cries of fowl overhead -maybe the fire spooked them or the upcoming dawn was coincident–either way they step out of the blind and see the fire inside the icy ball. The description of light and dark, fire and ice, dawn and dark, wet and cold is simply excellent. On top of this is the rush of energy for the hunt.

The time in the icy house waiting for dawn with no fire reminds me of waiting for an entry in a position-you get colder and colder, bored and ready to do something stupid, play your hand out of boredom-or simply going to sleep. I am right now in a strung out trade due to my making (waiting for an exit) and find solace in waiting. I can always light a fire and declare it over, or can I hold out some more and make it work. Either way it's a long walk back to the cabin and the cognac is gone.



 I sort of accidentally made a dynamite meatloaf last night:

1 lb ground beef
1 lb ground veal
1 lb ground lamb
salt, pepper, thyme, oregano, basil, garlic powder, onion powder

About a cup and a half or two cups of Panko bread crumbs

Then the liquids:

About a cup or a cup and half of homemade tomato sauce ( i get a container of cherry tomatoes from Costco; throw them in a pot with olive oil, salt, black pepper, a few red pepper flakes or tabasco, and a couple cloves of garlic, chopped; cook the tomatoes med-low until tender and skin coming off, then pour in red wine, chicken stock and a little balsamic; keep cooking for a while and then go at it with a hand blender to puree; cook down to desired consistency; makes great pizza sauce, too.)

then the real kicker is that instead of the standard recipe where you add milk to the Panko, i added Yolumba Muscat desert wine (because I didn't have any milk). probably one and half to two cups. (notice i did not add any egg, as is also common.)

Mix it all together with your hands until it's thoroughly blended. Form in a dish and pour more muscat over the top. Put in a 450F oven for 50-55 minutes.

Tender, tasty, fantastic– best meatloaf I've ever made. Leftovers make great sandwiches. A skilled griller could probably add extra dimensions.

p.s. got the Yolumba Muscat at Costco, too.



Freud's couch"Human nature is the one stock market factor that never changes. It is the one constant quantity. All other market factors are variables. Because these influences are variable, it is usually fatal to judge what the market will do now by considering what it did, under seemingly identical circumstances, at some other time. No two situations are ever quite the same.

"Since the one unchanging element is human nature, the successful speculator must be a practical psychologist. In other words, he must know human nature. To attempt to forecast market trends by any plan in which human psychology isn't fundamental, leads sooner or later to trouble. The speculator finds constantly before him a bewildering variety of attempts to super-educate him, by means of high-priced economic services, brokers' letters, financial pages and what not — all pointing out conditions under which he should buy or sell certain stocks. If he happens to be statistically minded, he can find plausible reasons for believing almost anything….His one safeguard is to keep asking himself: 'What are the big boys doing now to fool me?"

Source: How Shrewd Speculators Win, by Kelly and Burgess, Fraser Publishing Company (1932)



Plaquemines ParishI have a client that is in the "well off" category. He surprisingly decided to be inspired to be a little anti-gov't and decide to head to the Gulf himself in "my car" to help with the clean up of the oil spill. I've been googling and searching all night for volunteer organizations and such. If anyone in the greater FL, AL, MS, and LA areas knows of a place where someone could volunteer there time please contact me.

Pitt T. Maner III writes:

I would just point out that you need to be careful with crude. It can have a sickening odor—lots of volatiles, PAHs , carcinogens—and is generally unhealthy to be around, breathe, get on your skin, etc. Trouble is that as it gets hotter and more humid it is difficult to wear Tyvek suits, protective gloves and respirators with filters. You need to be properly fit tested to wear a respirator. This will be a very difficult job down in those bayous. Young guys can wear ice vests that help a little bit but heat stress after 30 mins becomes a factor. You have to rotate crews–lots of hydration, cool down periods, etc. Cleanup is much more complicated than one might think. It is critical that the source is eliminated.

The epicenter for the hardest hit area of course is Plaquemines Parish and Mr. Nungasser is the parish president–so that could be a good point of contact at this stage. 



 SEX and the CITY 2

Directed by Michael Patrick King (written by Candace Bushnell)

You always see a "Directed by" at the top of film reviews, but this evolving Manhattan ms. franchise really doesn't need it. The lissome lovelies flock to the second go at the fab four whether they have a director or a wombat or a carp on the line.

Looking behind our first-row seat, the audience was a throng of pretty, well-togged-out femmes in full summer regalia. (All the men were next door, at ROBIN HOOD. Where Maid Marion held sway with passion, brilliance, self-possession and a mean sword-swing under that knight's mask and chain-mail alongside her brute guttural he-man, Russell Crowe/Robin. RH is not bad at all, either. For those who favor Ridley Scott epics on horseback, arrows in flight and burning-thatch rooves.)

According to my impromptu survey in the ladies room, where all the real dish is served up with mascara and antiseptic gel, this one is "better than the first movie" since it has "a lot more humor, a lot more making fun of themselves."

And eye-boggling fashion and—yes! Shoes! Femmes have a guilty pleasure we rarely get to exercise, busy as we are with kids, work, paying bills, running out to buy ice cream…the rent-a-lives we mostly manage by juggling and breathing shallowly. But this film allows us the lo-o-ong luxe of staring at insanely expensive clothing and footwear for 2 ½ hours, dressed up in the haute couture lives of Upper Eastside dames in marriages Carrie, Charlotte and Miranda) or bed (Samantha), on the job, and in (Meerhabah) Abu Dhabi ("Dubai is so over!" One dark-complected Middle Eastern male exclaims to the girls in a nightclub, a bid to convince PR maven Samantha to promote his client to fame as she has done with her boy-toy from the first movie, and many TV episodes. She–no surprise—accepts. For the four of them. And off we go to the land of unct, fabulosity and camel races.)

Carrie, Samantha, Charlotte and Miranda have fashion savoir faire to beat the band. And they have the right to wear any wacko thing the stylists and studio honchos predict will make the rest of us, well, drool. So what if the get-ups these franchisees don along with their micro-minis, bra-tops-showing lingerie, hareem pantaloons and nose-bleed stilettos hardly make sense in the desert, or at home watching TV? We go to SATC to see what we could be living, doing and wearing if we had endless shekels and massive closets without end. And what would we do if we bumped into an old flame, Aiden (John Corbett), in the souk?

Who cares if they change clothing far more frequently than the luggage they bring along to the umpteen-star hotel could possibly fit? Is this a chick flick? Is the Pope fluent in five languages and live in the Vatican?

One of the chief pleasures aside from hair-do changes and lightning wardrobe plunder is, to hypothesize what a psychologist might opine, the friendships that glue these four women. Possibly it stands in for all the unconnected singles who depend on their girlfriends for so much strength and support when everything is city-life frustration, irks and murks.

The film makes room for a gay wedding (Liza Minnelli sings and dances! Swans loll serenely! The Vienna Boys Choir in white tuxes warble!), marital spatlets, troubles with children even in perfect fantasyland, and a few real issues that real people are bothered by. Nannies threaten. Married lady

Even though we just came from the desert–North Africa isn't that different from Abu Dhabi–and those dunes look painted, and the dromedaries are exceptionally young and clean, and the movie chintz'ed out to put two women on each camel instead of one per, and nobody wears those things in that heat, and the white-burnoosed locals in the souks were far too oblivious to these frankly out-there underdressed and over-exposed American babes on the cuff, still, this is exactly the kind of escape that lots of females will pay samoleans for. We are, psst, all shopaholics under the Masters and PhDs.

Do they get away with the outlandish and frankly loony-tunes? Frankly, Samantha (the putative oldest) rocks her minis and thigh-highs, even arrayed next to 17-year-old Miley Cyrus, on the same red carpet photo shoot, in the same dress.
The first go-round of SATC made, hear ye: $500 million. This one will pull in more. At the credits, the audience at this canned film spontaneously clapped.

Will any straight man go to this? If his woman drags him, maybe. Mostly, this is a venue to attend if you're single and you'd like to meet a caravel-load of unescorted hotties. And shukhran for the tip.



Upside down openVis a vis yesterday's down open of 3%, capping a nice 200 point continuous decline in a month.

It is interesting to reflect (in retrospect) that when Collab and I got our first job 11 years ago at the managing editor was not interested in anything about our employment or anything else except that we be pc and not mention Galton but kept up a steady stream of questions to me: "there's a rumor going around that you were caught short in gold and that you're being squeezed and that's why it's going up (then about 280), and wondering if you'd care to comment on a "need to know basis." One hadn't traded gold for years at the time having called it a day after they banned buying to bail the members out who were short against the Texans . But one was reminded of that by the rumor "the large man was selling" and putting pressure on the market on the down side with tetrapods (and doubtless flexions) piling in also yesterday at the open (though in the opposite direction). If the "large man" was in play, why it's like "Morse is back" and trolley and canal are ready to go through the roof.

Anatoly Veltman writes:

It is indeed interesting to recall the Sep 1999 Ashanti mine hedge default, their bankers covering from $255 all the way to a split second buying frenzy near $330 in the Comex pit, all in one week! They then took over a year to slowly deteriorate back to $255 double-bottom. We'll be readying for a mirror analogue, anticipating $1250 area futures double-top May 2010 

Rocky Humbert asks:

Anatoly, I would be most interested in understanding your reasoning why you believe that we have (in gold) the Nasdaq analog of March, 2000 — as opposed to the Nasdaq equivalent of Autumn of 1999 (or earlier); noting that in that Nasdaq blow-off, that asset was paper securities which could be, and were, issued endlessly, whereas in this market, the asset is a comparatively limited supply of metal that is valued at only 1% of the total global financial market…

And more specifically, can anyone identify any contemporary broad-based asset "bubble" which ended without central bank tightening– as a necessary (but not sufficient) condition? And if not, why should this time different? Stay safe and don't jeopardize your health.

Sushil Kedia suggests:

Why could there not be another interim situation in between what Anatoly is suggesting and what Rocky is thinking:

Gold goes to 1000 as well as 1400 within calendar 2010?

The safety trade can witness the largest volatility it has produced in this decade. As currencies are displaying signs of sloshing much wider than in the last decade while common conversations of most getting trashed abound, why should the expected to be super currency for ages, i.e. gold be spared of a widening range of outcomes?

Anatoly Veltman replies:

 Yes Sushil, current news-items certainly make the price of this most useless commodity on the planet volatile: Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold By Patrick A. Heller on May 25th, 2010

The fear running through the Greek populace is that the nation's government may default on some of its debts. Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz). Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks. In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds



pez dispenser dispensing viagraHere are some poignant things to reflect upon about yesterday, May 21, I think:

0. The low of the day was below the low on the Flash Crash day.

1. A Millstein occurred, was it bullish or bearish and as of when.

2. The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net.

3. The low was not quite equal to the low of the year on Feb 7.

4. The interactions with bonds and oil and copper and the dollar was predictive.

5. It followed a series of disastrous Thursdays, with double digit S&P declines.

6. The sponsor said he wouldn't buy stocks.

7. A promoter said he sees S&P below 950 in fib retracement. Another sage from a broker's house saw stocks rallying. Presumably their disseminated views caused spikes at the time of announcement. Was there anything predictive in comparing the reaction.

8. The S&P pit opening followed the biggest decline in a year.

9. The fixed income prices opened at an all time high, and closed at an all time high but managed to drop a percentage regardless.

10. The flash rise occurred with 20 minutes to go from a 1.5 percentage drop in afternoon after a vastly different experience in prior days.

11. The courage to not be dissuaded out of your position from the other broker, or the inner survival man, or your assistant who always wants to take profits as of Friday 3:40pm would have been redoubtable.

12. Mr. Vix and Mr. Vic opened at one year highs and followed a similar trajectory to the fixed income.

13. A 10 percent correction occurred; is it bullish or bearish or random. Same for breaks of the long moving averages.

14. To what extent did May options expiration have a predictive effect.

15. Were the movements in the Euro and Asian markets overnight a pilot fish?

16. Was revulsion from the increases in "sharings" and "service" scheduled for the beginning of 2011 a factor?

17.  What political factors relating to the approval of bailouts by houses in Europe and reforms in the US played a part?

18. How do predicted earnings increases factor into the Fed Model and should the Shillerian 10 year p/e calculation be obfuscated with the man.

19. It was the biggest decline in a week in the year.

20. There had been a run of multiple intervals of declines in a row.

21. How did all this affect and react to the moves in individual stocks?

Inquiring robots within and without the mind wish to know the answer to such questions on a scientific and or useful basis for future input. What approaches and other more poignant queries should be proffered or gainsaid?


22. The sage likes to compare the stimulus bill to taking 1/2 a tablet of Viagra and then diluting it with candy. We need more he said.

What are the natural reflections engendered by such an utterance?

I'll give a prize at the annual spec party for the best such reflection.

Pitt T. Maner comments:

Bob Dole petting a dog on the headThe potential stimulative effects of lower oil prices come to mind. There are more scholarly sources to be found, but here is a snippet of thought.

"Every $1 per barrel drop in oil's price increases U.S. GDP by $100 billion per year and every 1 cent decrease in gasoline's price increases U.S. consumer disposable income by about $600 million per year."

Lower oil prices like Viagra would seem to be useful for the longer term mechanism of action effects but its the lowering of obesity (and sugar consumption) and belt-tightening of runaway spending that may be more important in the long run.

An image of Bob Dole petting his dog on the head comes to mind. 

Martin Lindkvist writes:

The sage seems to know a lot about the right dose of……candy. Some questions remain to be answered though. When he said "we need more", was he referring to the stimulus bill or the stimulus pill? And who are we? Should the market mistress be jealous? 

Sushil Kedia adds:

The mythical character James Taggart in Atlas Shrugged would have said so had Viagra been available in that age. Might I extend the tautomerization such that the James Taggarts hidden all over "in the system" are as sagacious as the sage or perhaps the other way round that the sagacity of the sage is a Taggartian mumble.

He never believed that anyone should be paying taxes. At least that's what he positioned to imply by never giving out dividends. He could have little regard for those who indeed tax their finances and their bodies to experience the pleasures of achievement and the achievement of pleasure, respectively.

Give me more! This ain't enough!!

Jack Tierney comments:

"Our first stimulus bill, it seemed to me, was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in as everybody was putting it into their own constituencies. It doesn't have quite the wallop." - Warren Buffett

A spoonful of sugar helps the medicine go down
In this instance, Mr. Buffett is borrowing from the equally iconic Mr. Disney and his tune "A Spoonful of Sugar Helps the Medicine Go Down." However, since so many different and divergent candies were necessary to satisfy the various "constituencies," few were pleased with the aftertaste. Mr. Buffett has suggested a second dose and "taking it straight" since July of '09. Unfortunately, inherent in his initial support and subsequent carping is the unavoidable insistence that there exists a stimulus package, which properly configured, will work. This is unfortunate because it foretells that something, something equally stupid, will be done.

The suggestion (whether sugar coated or not) is flawed on two counts (at least). First, the same "smartest guys in the room" who created the disease and subsequent medicine are once again heading up the project. Secondly, the historical record contains numerous examples of "stimulus programs" which have two things in common: they have been designed and promoted by the very brightest and they have all failed.

Further, if we are to adhere to our commonly held characterization of the market as The Mistress, then Mr. Buffett's Viagra suggestion is obviously misdirected. Although the recommended medication might do wonders for the stimulators, the only important response is hers (and I'm sure that I'm not alone in observing that on occasions, rare occasions, our enthusiasm just isn't enough).

At some times (perhaps at all times) we must let the Mistress work it out on her own. If TV ads and infomercials are to be believed, modern self-applicable developments have added to the numerous nostrums, aids, and approaches already available. Checking the historical record once again, we find that her response times can be capricious. But she alone determines the timing; the addition or withholding of a spoonful of sugar won't speed things along.

Steve Ellison comments:

"The set up at the beginning of the day was highly similar the previous day. How best to define similarly without a neural net."

A simple calculation of open relative to the previous close would have shown the similarity of Thursday and Friday. For example: "a 10 percent correction occured, is it bullish or bearish.or random. same for breaks of the long moving averages."Dr. Zussman showed last July that several moving averages from 40 to 70 weeks had good predictive value, so I would interpret the break of the 40-week average as bearish.

"the sponsor said he wouldnt buy stocks."

So what? He's a bond guy.

"What approaches and other more poignant queries should be proffered or gainsaid?

At the beginning of May, I posted the performances of 13 asset classes in a horse racing format. I suspect that some important "forms" in the markets last about two months. That is why I showed two-month performances and chose to post them at the beginning of a new two-month period. The S&P 500 had the second best return of the 13 asset classes in March and April. Furthermore, the form in March and April was a slow and steady upward trend. The public would be looking for more of the same in May and June, so something very different was guaranteed to happen.



The persistent strength all day long yesterday in GS with the classic 'eod' repeat rumor swirling of the SEC settlement firming up bids takes the cake! How to join the inner sanctum?!



RabelaisSince Nock and Rabelais are two of my favorite role models of all time, it makes perfect sense that Nock would write a travelogue/social commentary titled A Journey into Rabelais's France. I just finished re-reading it for the nth time, and always find something new. I won't go into specifics, and will let you be the judge.

Here's the book online.



The Europeans ponied up $1 trillion of funny money to essentially guarantee the debts of Greece and the other members of the EU family nobody really likes to talk about at family gatherings. Ostensibly, the bailout war-chest was as much to protect major European money-centre banks as Greek and Portuguese civil service pensioners. Stock markets are acting like these countries have already defaulted. If that were actually happening, banks presumably would be doing the same thing they did in the great Credit Crisis of 2008 – not lending to each other for fear of stinky balance sheets on the other side. When this happened in 2008, LIBOR spreads spiked almost 150 basis points. Today LIBOR ranges from .25% to 1%, depending on maturities, (1 mo to 12 months) at all-time lows. It seems that banks continue to be quite happy lending to each other, and therefore there should still be plenty of liquidity in the system. Sure there is in itty-bitty up-tick in May-– not entirely unreasonable since the VIX just doubled - but no indication that it's anything other than business as usual behind the scenes.

Yes, governments are printing money and debt levels are ultimately unsustainable, but just like consumers can keep rolling over and transferring their credit card debts virtually indefinitely, so too can governments that matter, and major banks essentially underwritten by these governments, keep staving off default for a very long time. Look at how long way-over-leveraged Japan has been able to muddle along for over two decades after it blew up in 1989. I don't see banks panicking in this situation, and with all the liquidity and promise of liquidity, that's just more fuel for the fire. Someone is going to wake up soon and realize we may be going down, but we're not going down any time soon, and all those companies reporting big earnings increases are likely to snap back in a hurry. If we are to have a double-dip recession and a bear market, it would be for other reasons, which will be more slowly developing. Shorts beware.

Mick St. Amour writes:


I wish more folks agreed with you as I do. From a technical perspective one thing that I'm not hearing in the media is that Dow Transports don't seem to be confirming retest of Feb Lows by the Dow. If I'm correct on this as well Thursday's action seemed like a washout to me, I can't remember seeing 75:1 downside to upside volume days in some time. I'd love to find research that shows turning points in the market when one looks at the vix collapsing (like it did on Friday) with volume that is at least 10:1 positive to negative. I suspect that would show good turning points.

Craig Mee writes:

It appears that since the bull market run up of the tech wreck, it has been all boom and bust, and until we have renewed respect in the banking sector, and politicians pulling there belts in, and making some tough calls, and with that and a credible plan moving forward…then this charade looks set to continue. Not until we see some consolidation of prices at lower levels over an extended period of time, in essence saying that yes , we have learnt our lessons, and we are ready to come out of the naughty corner…will it seem that the market can move forward without any risk of the volatile behavior of late no matter what numbers companies are posting. 

Alex Forshaw comments:

I'm confused.

LIBOR is at 3-month highs across most maturities. The treasury/libor spread is at 10-month highs.

The series is extremely autocorrelated, which means that a reversal of trend should be taken extremely seriously, as the series doesn't change trend easily.

If anything LIBOR is flashing a big warning sign as $1T of QE has caused nary a blink in the spread's rise over the last month.



homebuilt aircraftDepartment of Happiness and Heroes:

Specs who know Bill Haynes will be glad to hear that last week he successfully flew the plane he built. [To see picture of actual plane, see our prior post from April 23]

The flight took place in the turbulent conditions over the mountains near Chino, California. Bill noticed shortly after takeoff that his throttle automatically went to idle, so he spent the next 45 minutes holding the throttle in his right hand and working the controls with his left hand. "If you're flying a plane for the first time, you don't want to land it right away," he told me.

Ha. I would have wanted to land it right away. You may remember that Bill is 86 years old.

In addition to being a tough ex-fighter pilot Bill is a rocket scientist. He's also a helpful and optimistic person, which puts him right in tune with DailySpeculations.Com .

His web site:



They say a picture paints a thousand words, and they don't get much clearer than this. [Warning: not for the faint of heart. Picture from a bullfight in which the bull won].

The number of market jokes/ lessons from this particular photo must surely deserve some prize, but just in case you wanted the actual story, you can read it here. I beseech the Chair to instigate a caption contest.



Gorgeous GussieNote the Bituminous indicator is positive if Federer beats Nadal in the Finals.

Upon seeing the risque pictures of Miss V William's first match Ted Tinling came to mind. Tinling and Gussie Moran started something back in 1949 ("bringing vulgarity and sin into tennis" by some accounts). Shorter skirts obviously launched the market for the next 17 years. Times were quite different back then when things were "proper" and members could be banned from the clubhouse for code violations:

Moran entered several amateur tennis tourneys in California, eventually rising to eligibility to play at Wimbledonin 1949. Preparing for that appearance, she asked the official Wimbledon host, Ted Tinlingto design her outfit. She asked for one sleeve to be one color, the other sleeve to be another color, and the skirt to be a third color. Due to the tournament rule that all outfits had to be white only, he declined, but later agreed to design an outfit that complied with the rule.[1] Her outfit, a short tennis dress with ruffled, lace-trimmed knickers, was short enough for her knickers to be visible during the match, a first for any tournament.[4]

Her outfit drew considerable attention; reporters covering the event began calling her "Gorgeous Gussie"[4], and photographers fought for positions where they could get low shots of Moran,[4] with the hope of glimpsing the lace.[1]. The event scandalized Wimbledon officials,[5] prompting a debate in Parliament.[1] Moran, who was accused of bringing 'vulgarity and sin into tennis' by the committee of the All England Lawn Tennis and Croquet Club[1], later reverted to wearing shorts.[2] Tinling, who had acted as official Wimbledon host for 23 years, was banned for the 33 years following the incident (he was invited back to Wimbledon in 1982).

Today the indicator is fashion color:

The antithesis of recession-appropriate sackcloth and ashes, prints exert a strong emotional pull. "They represent the mind-set of the consumer," said Kit Yarrow, a consumer psychologist at Golden Gate University in San Francisco. "They express a budding feeling that's more optimistic and refreshed."



-oil spill greater than first estimated

-Euro zone bailout underestimated

-USD rise underestimated

-oil's fall underestimated

-tarp underestimated

-unemployment understated

-recession length underestimated

-volcano impact underestimated

-gold's persistence understated

-housing slump underestimated

Reality seems to be generally understated and always underestimated.

Easan Katir comments:

 With the theory that to solve a problem one first needs to define it accurately, a small point for accurate terms:

In the Gulf, there is not an oil "spill". A spill is what happens when a VLCC or Panamex double hull ruptures and leaks, or when Ms. Napolitano jiggles her teacup after reading her poll numbers. A spill is measurable and contained.

In the Gulf is a giant oil gusher from a super-high pressure reservoir, which has been spewing heavy crude oil and methane 24/7 for over a month with no end in sight, with the potential to become the worst eco-disaster in the history of civilization.

David Aronsen comments:

 It's rational and in keeping with Bayes Theorem that estimates be updated slowly in response to new information. The related cognitive errors of anchoring and conservatism bias can account for the initial low estimates cited. Then as new information comes in they should be nudged in the direction of the deviation between the prior belief and the new evidence. 

Rocky Humbert writes:

Pravda reports that the Soviets used nuclear explosions five times (from 1966 to 1972) to stop underwater well blow-outs. Here's the Pravda story.

One of the reasons that it's critical to assess to true flow rate is it's a first step towards calculating the comparative environmental damage from a nuclear explosion viz a viz a continuing leak for another two months. It's interesting that this is not being discussed in the mainstream media.

Stefan Jovanovich writes:

In 2005 petroleum engineering researchers from Texas A&M University suggested that drilling in the "dangerous and unknown" ultra-deep environment required new blowout control measures: "While drilling as a whole may be advancing to keep up with these environments, some parts lag behind. An area that has seen this stagnation and resulting call for change has been blowout control."

A redundant system might have avoided this because the Cameron Blow-out-Preventer is partially working: The incoming pressure from below the BOP has been measured at between 8,000 and 9,000 psi, while the outflow pressure into the Gulf is 2650 psi. 2 BOPs in series might have done the trick.



Nadal and FedererThe truly knowledgeable tennis fan who was fortunate to watch the Nadal-Federer match last week in Madrid should walk away from that match knowing who will win Roland Garros this year. It will not be Nadal. Market enthusiasts should take comfort in the Nadal-Federer market correlation which was invented by this writer.

Federer did not play that match with the intent on winning. He was using it as a set-up for the high probability that he and Nadal would play 3 Sundays later for the title in Paris. Federer easily could have won that match after blowing the first set and dumping the tiebreaker. I was at first aghast at Federer’s careless play, but as I continued to watch the match I realized that he was using the match as an experiment first, outcome second.

Federer was able to establish patterns of play that I had never seen out of him in all previous matches with Nadal. He has planted seeds of confidence in his mind, and seeds of concern in Nadal.

Sure enough, the US futures sank upon the open that Sunday evening, and the market dumped all of last week. It is hard to know what might transpire over the next 10 mkt sessions leading up to the final in 13 days, but I assure you that in the event there is a Federer-Nadal confrontation, it won’t even be close. Federer in straight sets, perhaps four, and the market will have made the low for a considerable time.



the pitIt is regrettable that the pit is dry as a witches heart with only 15000 contracts trades a day versus the old 100000 and all its trades must now be made for logistic or officious or immediate arbitage profit of 10 points reasons rather than it being the hurly burly take no prisoners den of iniquity that it was (where all trades in a customers favor were taken down ) in the old days when it was not dwarfed 100 to 1 by the electronic market. It is interesting to note that the prices are so outdated in the non-robot market that the swings are often 70 points less on each side during the day.

Jeff Sasmor comments:

For sure it's not the hub it used to be. But it's a lot of fun to listen to (although there are long stretches in the middle of the day where nothing's going on at all). And while I certainly can't speak from any authority on the swings, the prices that I hear called out are usually within a few ticks of the electronic prices seen while listening. Actually I've wondered how they can be so close… Maybe I don't get what you mean by "70 points less on each side." 

Anatoly Veltman writes: 

Intra-day chart of electronic trade will regularly travel further to each extreme than pit transactions would. Because way fewer transactions will in fact be consummated in open outcry, many extreme prices will never land on pit-contract chart. On May 6th, it was quite possible for someone on the opposite side of the pit to offer at 1060-even (and possibly lower) for split-second; but final chart doesn't show any transaction done below 1060-even. Electronic trades did touch the session-limit level some six handles lower!



nadalPittsburgh Phil would have a field day with this 4-11 odds on Nadal now by betting the field I think. Nadal's game is very brittle and subject to many errors.

Lars von Dort writes:

Betfair has Nadal currently trading at 1.46/1.47 to win Roland Garros.

This is in decimal odds which translates to a 68% probability. The odds on Betfair are generally better than most bookmakers'. This UK-based company runs actual markets in sports results. Some may be familiar with Tradesports, a site that did the same, although worse, and is now closed. Or Intrade, which does the same for non-sports events such as elections (still going strong). Unfortunately, Betfair blocks access for some countries, including the US, due to legal considerations. I hope (online) gambling in the US will soon be allowed again without any restrictions. I believe everyone should have the right to spend his/her money as he/she pleases. Also, it would further improve liquidity…I've learned to respect these markets. There is no easy money and generally they are quite efficient. I don't see value in betting on or against Nadal here. The price seems fine. He has been dominating all clay tournaments he has entered this year. He did drop a few sets, amongst others to Gulbis, who may be an interesting player to follow this tournament (although he just lost the first set in his first round match).

Anyway, I'm not touching this market. I would certainly be very interested to see what Pittsburgh Phil would do.

My quest for value lies in betting on tennis matches while they are in progress. I believe this offers more opportunities than betting before the start of the match (or tournament). I'm about to graduate on an analysis of the in-play tennis betting markets. I'd like to write a bit more about my findings soon, if anyone is interested.




The Market took away heavily on Friday and at the last minute gave back a small portion ( like tithing ?) to string along the fray.

At least that is how a poor small town builder sees the Market.



learned your lesson yet? From a technical perspective one thing that I'm not hearing in the media is that Dow Transports don't seem to be confirming retest of Feb Lows by the Dow. If I'm correct on this as well Thursday's action seemed like a washout to me, I can't remember seeing 75:1 downside to upside volume days in some time. I'd love to find research that shows turning points in the market when one looks at the vix collapsing (like it did on Friday) with volume that is at least 10:1 positive to negative. I suspect that would show good turning points.

Craig Mee adds:

It appears that since the bull market run up of the tech wreck, it has been all boom and bust, and until we have renewed respect in the banking sector, and politicians pulling there belts in, and making some tough calls, and with that and a credible plan moving forward…then this charade looks set to continue. Not until we see some consolidation of prices at lower levels over an extended period of time, in essence saying that yes , we have learnt our lessons, and we are ready to come out of the naughty corner…will it seem that the market can move forward without any risk of the volatile behavior of late no matter what numbers companies are posting?



 John Rabe

Directed by Florian Gallenberger

There is a brief scene near the end of this masterfully touching film that shows the protagonist, John Rabe, quietly gathering his financial assets before being forced to leave his hearth and home. From his apartment safe in Nanjing, he removes a neat double stack of bills. The money represents this German man’s and his wife’s life’s savings. The money they have amassed in 27 years of living in China in the early decades of the 20th century. The bills are all in American currency, $5s and $10s. These are the funds he would use to start his life elsewhere.
An isolated theoretical: Will tomorrow’s films show a man’s savings in American green?

When we lived in China, no one in the country was ever very far from the memory of the Nanjing Massacre of 1937. Japanese tourists were received with frozen, fixed stares. But the atrocity still seems remote from the consciousness or fingertip-retrieval of most sensitive world-history aficionados, save for the longest-memoried Asian-Americans, or those Westerners specializing in the history of East Asian affairs.

At long last, this dreadful time in world history seems to be making its way to the big screen. Florian Gallenberger's John Rabe is the newest of a group of Occidental-made, Nanjing-themed lensers that include the stellar-documentary Nanking and narrative full-length feature film, The Children of Huang Shi. Last year's huge winner at the German Film Awards, this powerful historical epic lasers in on one of the more memorable heroes to have emerged in the surviving accounts of the massacre, the eponymous Nazi hero, John Rabe (Ulrich Tukur) with a vein of obdurate decency to him, despite his unquestioning—if distant—support of the faraway fuhrer.

Diligent as managing director in Nanjing of China's imposing Siemens branch, Rabe and his devoted, empathic wife are resistant to leave their adopted home of some 27 years when ordered back to Germany, especially when the Japanese invasion places his Chinese workers, friends and colleagues in lethal proximity to airborne Japanese death. Along with the head of a local girls' ‘college’ (beautifully played by the austere and soulful Anne Cosigny) and a conscience-minded American physician (a too-contemporary Steve Buscemi, who seems passionate, but somehow misplaced in time, somehow to be visiting this film), he sets up the prime safety zone in the Nanjing. A Chinese safety ghetto from the nightly air raids from above.

Designed to house some 100,000 Chinese, non-soldiers, in actuality it accreted more than twice that figure. The zone is an algorithm that confronts the committed Rabe with both impossible choices and endless wrangles with home country red tape, re-supply snafus and black-marketing, officious blinkered officials and bestial Japanese war overlords with whom he is shackled in order for his zone of succor to be consummated and sustained.

Though the film is as strong and bloody as any in the genre, evoking the wrenching Holocaust imagery of Schindler’s List, the film is carefully discrete about the unbelievable tonnage of rape and daily decapitation by heinous, nerveless foot-soldiers and their cruel generals by the hundreds of thousands by the automaton-frigid Japanese.

Though removed in time by more than 70 years, this German-Chinese-French co-production squeezes the heart, engrosses viewers in taut suspense and wrenching pain, using actual footage and clips from the era—most nearly destroyed in toto by the receding Japanese mindful of their horrendous legacy-to-be, if any documentation of their brutality survived. Though the cynical in Europe downplay this as well as the filmographies of German horror on European soil, there is moral urgency and witness in every frame of this wartime prestige cine. Stephen Spielberg’s Empire of the Sun was a war-whisper forerunner of this film, and it stands the test of time—but Rabe goes farther than the American-vantage-point earlier film.

Smartly filmed and well acted, John Rabe gives the era its due, a re-crystallization of chilling chaos. Nor does the story make each character a fixed point. Even the protagonist, Rabe himself, almost abandons his moral stance when rescue seems at hand. One cannot predict where the Buscemi character will attach, or whether Rabe’s beloved wife will stand by him or not, if the beautiful young photographer will be caught and raped as she scuttles through unsafe alleys to find her brother, or whether hidden contingents of soldiers will breach security.

As a post-film exposition crawl explains, the massacre is still vastly contentious, still ignored or denied by official Japanese. It still serves as cause for modern-day Chinese nationalism. The script never comes to grips, quite, with how such a savior of myriads of ordinary Chinese men, women and children could be so unreflective of the vile human back in Germany who began and reigned over such atrocities for so long.

In Beijing one night, we were invited to the best hotel in the city (in a city rife with fantastically imperial hostelries) for a sumptuous meal, no regal courtesy spared, with a present-day avatar VP of Siemens, China, which is today still one of China’s largest and most prosperous foreign businesses.

Guess the ordered demise of Siemens in China by der Reich was grossly exaggerated.



loukoumiMy best friend is Greek and has been in Greece for a month. He always brings me back some Loukoumi (a cheap dessert to offer your company). He was told that most likely he would not be able to bring any more onto the plane. Reason? Its texture resembles C4! Anyway he brought me a small bag packed in his luggage. I can taste the Rosewater as I savor a piece. He has bought at the same shop in Athens for many years. It comes loose in pieces surrounded by powered sugar and in a paper bag. I love the taste and texture.

Dylan Distasio writes:

On the other side of the aisle, they call these Turkish Delights. When I was in Istanbul many years back, the young children would peddle these to tourists. I am a fan also.

Alan, since you like Loukoumi, I would highly recommend checking out an American variation here. They are absolutely delicious. Our relatives out in the Pacific Northwest ship them out to us as a Christmas treat. 




Directed by Brian Koppelman and David Levien

Some may enjoy a sleaze getting his comeuppance, and this film is a PhD in a lowlife Gordon Gekko-type as he wends his way through ex-wives, girlfriends with too much savvy to buy into his act for the whole three acts, daughters and ex-colleagues. The film makes the title character so repulsive that sitting in an audience, watching the permutations of pick-up lines and faded ego, makes the viewer cringe. This biopic of a once-powerful car dealer with money to burn and a metabolism to match, fallen on very sour times from a scam gone even wronger with family and friends, stars the perfect cad for the role, Michael Douglas as used-car czar, Ben Kalmen, in all his in-glory. Disgraced car salesman Kalmen works the same venues and beds, or newer beds, with not-so-acceptable sheetmates, but the magic doesn’t quite cut it any more.

Kalmen’s compulsive womanizing and callous bastardy burns through his intimate relationships with ex-wife Susan Sarandon—superb as the most understanding and incisive ex-wife in a film this month–an empathic daughter, maybe uncomfortably close, played by Jenna Fischer (best known from her diffident role in “The Office”), his current top-tier inamorata, an icy Mary-Louise Parker, and assorted improbable and inappropriate others, including newcomer Imogen Poots, who has Casanova-bedhopper’s number, despite her collegiate youth.

The overwhelming emotion felt during the two hours is embarrassment, though some may not react that way, admiring his mojo even in a corner–when the last dollar is gone, the last deal foreclosed by the last-chance girlfriend. Luckily, Douglas appears next week in WALL STREET 2: Money Never Sleeps, so he may redeem himself from this squirminess in short order. Why did he accept this assignment, one has to wonder. All sense of moral compass is vacated in this shvitzer, but each of the other characters highlights his casual moral squalor. Anything to polish the knob, catch a deal, seal the connection.

Brian Koppelman's screenplay lets the thoughtful summarize the characterological kinks in each of the well-drawn cast. Everyone is assessing each other, forcing the viewer to size up the character and measure his take against the character’s reading of the other. It does not permit the sense of the story as a whole to gain power or accumulate, since we are so wary, and they are so hyper-alert. Somewhere along the way, scraping very near the bottom of his botched second and third chances, he calls on Danny DeVito, an old friend who runs the campus diner at his alma mater (filmed at Fordham Bronx, standing in for somewhere else). Danny takes him in when there’s nowhere else. But why does Kalmen accept the comedown? It is the only recent film where you expect a suicide. You sort of hope he finishes with a flourish.

Douglas' easygoing performance just this side of blackness has its moments, pyramided on our long association with his vicarious monied machers. Fascination as to how long and hard this plummet will last echoes a child’s watching a fly expire under the slow scorch of the magnifier in the sun. A modern man bent on his hedonic tropisms, he doesn’t see himself in the aspic of self-destruction. Always donning a great shirt and tie, swooped-back pepper-and-salt hair carrying the weight of his lothario eyes and vulnerable if hungry mouth. he assumes he can always score.

Maybe titled after Neil Diamond’s air, A Solitary Man leaves a greasy, unwholesome aftertaste, beyond all the great turns of the high-ticket cast. We no longer empathize with this sad scaffold of a once-successful man. He hasn’t paid his dues, or he doesn’t see the need to pay them.



oil spill diverThe physical constraints that allow vast pools of oil to remain below the water surface are very interesting. Some have compared it to the "salad dressing" effect—the emulsion of oil and vinegar in a bottle. If you can maintain a turbulent environment and a density difference it is possible to keep a lighter than water fluid from rising. Counterintuitive fluid dynamics …:

The speed at which the oil is gushing from the wellhead is part of the reason its creating underwater plumes, Camassa said. "(The oil) might not make it all the way to the top, basically, because it encounters some warm layer of water, which is (lighter),” he said. "If you were to release the oil at a much lower speed, it would just make bubbles of oil (that would float to the top)." McLaughlin said it's difficult to predict what will happen to the "trapped cloud" of oil below the surface.

Further video and explanation .

Hopefully this partial trapping process can be taken advantage of by remediation experts.



anti slave trade sloganHere is a letter to the editor I wrote recently.

For example, on p. 178 of his Lectures on Jurisprudence, Adam Smith writes of a typical nobleman in ancient Rome owning between 800 and 1,000 slaves… :

22 May 2010

Editor, The New York Times
620 Eighth Avenue
New York, NY 10018

To the Editor:

Criticizing libertarianism, you assert that "It was only government power that ended slavery" ("Limits of Libertarianism," May 22).

You're mistaken. Slavery was common throughout history until the age of industrial capitalism. Only then did this heinous institution disappear. It went away chiefly because capitalism puts a premium on creativity, initiative, and good judgment (which even the mightiest slave-master's whip cannot extract from its victims), and because the ethos that gives life to capitalism - free-market liberalism - is hostile to the ownership of man by man. That the first-to-industrialize English were the first abolitionists is no coincidence.

In North America, pressure brought by capitalism to end slavery was countered by the very agency that you praise as slaves' liberator: government. From 17th and 18th century slave codes to the Fugitive Slave Acts of 1793 and of 1850, government in America actively deployed force on behalf of slaveholders. Without this force, slavery would never have taken root as deeply as it did in the U.S. and would have died away sooner and with less bloodshed.


Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030



Tarpon in the keysI was fly-fishing in the Florida Keys last week for tarpon. I have spent much time on trout streams and rivers, wading, stalking, casting, but fishing for tarpon is a much different experience. For one these fish are massive in size. Standing at the bow of a flats boat I can see one approach from 100 feet away. They don’t even look like fish, rather like some huge underwater dragons, 4 feet in length and 100 pounds or more. The gear is all magnified to account for this, bigger rods, reels and flies, but even so I wonder if my trout experience will really help me here. But I am up for the challenge.

I practice long slow casts with the 11 weight rod I bring along. Like a golf swing it is counter intuitive and all timing, very little strength. With a back cast the line loads behind, reaching its full length and I can feel its weight, then a forward cast extending the line out in front in the same way. Slow and methodical and waiting for the line to fully load, then releasing. If done properly I can throw the line and fly 50 or 60 feet very accurately, even into a wind. In practice it goes so well.

But when the pressure is on and a fish approaches, it is different. To start your heart and breathing begin to race and this starts to affect everything else. All those practice casts are a memory. It is a dynamic between speeding up and slowing down. If rushed, a cast will not load and the line will fall short and slack far from the intended fish. But, the approach of a fish is so quick. Our guide has spotted one 70 feet away. I see it, a giant dark shadow approaching in the green blue water ahead. I have maybe 10 seconds to deliver the fly, before he is too close, will see the boat, and run. My instinct is to speed everything up, but this will ruin the cast. I take a deep breath and mentally try to slow down, fighting the instinct rush. This is not easy. Slow and Snap is my mantra. Slow in the casting, but with a deliberate snap ending that sends the fly to its target. It seems to work this time and I get the fly to him in time. The dragon takes note, but moves on undeceived. Over the course of the day I get maybe a dozen “shots”, each one different in some way and never what I had planned for.

So many things have to go right even to hook a tarpon. A fishing guide has at least five elements to contend with, tides, other anglers, wind, light, current. The angler adds some, casting skill, seeing the fish in time, delivering the fly not where the fish is, but where he thinks he will be seconds later. The fish adds variables, is he feeding, will he see the fly and follow, is he in a school or alone. Putting these together I realize it is a rather low probability event to hook such a fish on a fly. And on this trip, although we catch many smaller species like sea trout, snook and redfish, we don’t succeed in hooking a tarpon.

But so much of fishing is in the trying. And just finding and casting too a tarpon is a thrill. It is also a time for enjoying nature and spending time with friends sharing a bond. I can see why anglers for decades have been coming here and we will be back soon. And on the boat ride back to the marina it allows time for long fluid thoughts and a view to where the horizon meets the sea.



abraham waldFrom Wikipedia: Abraham Wald (October 31, 1902 - December 13, 1950) was a mathematician born in Cluj, in the then Austria–Hungary (present-day Romania) who contributed to decision theory, geometry, and econometrics, and founded the field of statistical sequential analysis.

And here is a very nice paper on Wald's work during WWII:

Abraham Wald's Work on Aircraft Survivability Marc Mangel, Francisco J. Samaniego Journal of the American Statistical Association, Vol 79, Issue 386 (June, 1984)

The paper is an excellent bit of homework for those in the Counting 101 class, who also enjoy their history. One is forced to take out pencil and paper, but it's worth the effort.

Wald analyzed data on bombers returning from missions over the Continent. One objective was to determine what parts of the aircraft might be strengthened in order to reduce losses. The paper lays out the following case: Divide the surface area of a bomber into four parts and determine what percentage of total surface area each of the four parts represents:

aircraft surface area:

engine 26.9%

fuselage 34.6%

fuel system 15.4%

everything else 23.1%

Then examine the 380 aircraft that returned from a mission on which 400 were sent. Count the number of hits in each of the four areas and calculate what percentage of total hits this represents:

hit distribution:

engine 18.6%

fuselage 38.2%

fuel system 17.7%

everything else 25.5%

Doing a simple comparison between surface area and hit distribution gives the following over/under:

hit_distribution_% minus surface_area_%: engine -8.3% fuselage +3.6% fuel system +2.3% everything else +2.4%

It appears the engines are getting hit less often than expected, and the fuselage more, so we should strengthen the fuselage. But of course, we are leaving something out, and it's very interesting to work through Wald's analysis (at an introductory level, certainly) and see the results.

Bill Egan adds:

Go read Wald's book Sequential Analysis . Wonderful work; published 3 years before his untimely death. I have been working in that area and after reading Wald's book, I delved into all the work done afterwards. Surprisingly little progress, and after reading 20+ papers, I have thrown my hands up in the air. Lots of screaming pygmies flinging pygmy pellets at each other and at the dead giant Wald.  



snake house at the london zooFrom The London Times:

A Well-Planned Retirement

Outside England 's Bristol Zoo there is a parking lot for 150 cars and 8 buses. For 25 years, its parking fees were managed by a very pleasant attendant. The fees were 1 for cars ($1.40), 5 for buses (about $7). Then, one day, after 25 solid years of never missing a day of work, he just didn't show up; so the Zoo Management called the City Council and asked it to send them another parking agent. The Council did some research and replied that the parking lot was the Zoo's own responsibility. The Zoo advised the Council that the attendant was a City employee.. The City Council responded that the lot attendant had never been on the City payroll. Meanwhile, sitting in his villa somewhere on the coast of Spain or France or Italy … is a man who'd apparently had a ticket machine installed completely on his own and then had simply begun to show up every day, commencing to collect and keep the parking fees, estimated at about $560 per day — for 25 years. Assuming 7 days a week, this amounts to just over $7 million dollars …… and no one even knows his name.



 In the last week I have rented two units.

I just left my last new renter. A young couple with a little girl.

They had to make deposits on gas and electric and water. A deposit to me and I pro rated this months remaining rent.

Very rough for the average person to come up with all of the above funds to rent a place.

Having lunch as I type. Vickie served me a treat today. Pickled beets at 7.00 per quart !

Note not a good day for the Dow. Good to see oil decline further.

I hope the US Dollar gets stronger.

Regards, Alan

Scott Brooks writes:

The decade that offered home ownership for no money down and then allowed you to use your house as an ATM ends with people struggling to come up with security deposits and 1st months rent.

As to Alan's comment about the dollar appreciating, maybe I'm channeling chicken little here, but the appreciation of the dollar seems less like blue skies and more like a precursor of the sky falling.

My rationale? Simple. I am of the opinion that the only reason the dollar is appreciating is because the rest of the world is: 1. printing money faster than the US and 2. while the US has a horrible case of "financial pneumonia", the rest of the world is the early stages of "financial respiratory arrest"

The world is playing musical chairs and no one is paying attention to the fact that the chairs are disappearing and being replaced with paper machete' chairs. Sure the paper being used is the American greenback, but when you get right down to it, it's all just paper.

Nothing to see here, move along.



The attached chart is plot of weekly closes of the Nasdaq vs corresponding (by date) log SP500; the time period is 1971 to Present.

Mostly a linear relationship (not mathematically one-to-one as there can be various log nas for a given log sp500), but note the upwardly-divergent squiggle at top right. This is the tech bubble; the overall market was doing "well" but Nasdaq was doing "great". Multiple paths in this area are various relationships with log Nasdaq during the frequent sojourns of log SP500 between 2.8-3.2, ca 1996-present.

The current point has approximate coordinates (3.0,3.3), in the upper right quadrant. Imagine an arrow "you are here".



 It is amazing that Zachar out of the clear blue sky with only disinterested sagacity predicted that the S&P would totally retrace the loss of 100 points on that memorable Thursday, May 6th. He called for a Millstein which is the technical name for a fluke error in price that shows on the screen that fortunately wasn't true, and then while you shake your head and tell the wife that it was just an error and she shouldn't worry, and you relax and take a break perhaps, even get a little shut eye, sure enough like a horrible incubus the price goes back exactly to that unthinkably terrible level. SPU's did it hitting 1060 bid at 1170 for one split second during the carnage as brokers liquidated the last poor victim of over leverage, and then snapped back to 1140 when Zachar made his amazing unqualified un el erian who has so much to gain with a prediction of that nature, prediction. Touche. Bravo. One of most amazing things i've seen in my career. At 1940 May 20, the S&P traded at 1061.50 which is as exact as it gets.

Alex Castaldo adds:

Here is the headline that came through on May 21, just like Mr. Zachar predicted:




After a long day of deleveraging your Euro trade, at supper time make sure you cook your suckling pigs well in hot grease so as not to risk contagion that could make you fall ill while later trying to spell Nouriel Roubini correctly - and make sure you rescue the package for re-cycling.



 The Secretary problem, i.e the optimal number of applicants to interview for a secretary job before quitting would seem to have much applicability to the time to come into the markets these days. How many extremes should one wait for in a day before coming in one way or the other, and what is the expectation for such strategies?

Jordan Low writes:

Is it just a coincidence that 1/e is close to 0.38 or the ratio used for Fibonacci time and price projections in technical analysis?

Rocky Humbert writes:

Steve Landsburg recently wrote about a variation on the Secretary Problem. He noted that "an anonymous math department chairman reports on his own strategy for cutting down on the [interview] workload. The math professor believes that one of the most important determinants of a successful career is luck. So each year, the math professor randomly rejects half the applicants without even reading the folders. That way, he eliminates the unlucky ones."

I suspect that there may be a market analogy in this admittedly sarcastic observation.

Phil McDonnell wonders:

Is it a coincidence that Fibonacci believers always seem to use the rhetorical form of: Is it a coincidence that (fill in a single observation) came close to (fill in selected Fibonacci value)?

Russ Herrold replies:

I do not think there is a co-incidence– the human mind tries to order data, and Fib sequences crop up everywhere. It is natural to do a 'trial fit' just as the eye tries to estimate a fit for a curve [and thus the reason for ready transforms as normalization, log, 1/exp and the like in running a regression– scaling often permits identifying the 'noise' and getting a 'good enough' solution]

Doing the math, of a run of repeated application of any two integers (seemingly separated by whatever distance, although I have not done a formal analysis or proof), the series seem to converge to a Fib set reasonably monotonically after say five rounds for low integers.

I ran into Fib numbers, learning the run time pass estimates for the IBM sort-merge algorithms in in the late '60s, and it appears that Knuth found them in sequential pass sorting as well. I seem to recall a childhood cartoon called 'Donald Duck in Mathmagic Land' where that quackish fellow pointed out that golden spiral, and the perfect rectangle 



sotheby'sA daughter webmasterist asked me how pools signal to each other to stand aside on auctions and not get into bidding wars so as to lower the average net price that you get with high quality goods from auctions with the majors to about 50% of the current market value. I didn't have a good answer except to say that it's the invisible hand. The big dealers partner on deals, and they decide in advance who's going to buy it. With that one big dealer the only presence the competitive elements is withdrawn. Also, if a non dealer customer comes in the dealers know what's good and what's bad. And how much to bid. And they often tell the customer that he'd do better buying from them without the hurly burly of having to wait a few hours while the blue bloods in their monotonous voice try to eke things above the reserve.

She then asked me how this is done in the markets. And again I didn't have a good answer. Some of them have dinners together, others go on the media to tout, and others ride in a car together or tergiversate who's weak and where the vulnerabilities are. Often it's a pilot fish in a peripheral market that's not so obvious like the fixed income vis a vis the equities.

But I didn't have a good answer like Dickson does in his baseball work, i.e. the hidden signals, and the changing nature during the game, as to the code, and who's giving it? What would you have said so as not to disappoint a daughter with one's naivete?

Henry Gifford writes:

I know of at least two ways cartels do this.

My mother used to be a licensed auctioneer, having done a few charity bits and wanting to be legit, which ended her up on the list for doing auctions for the city government. At the Dept of Sanitation auctions where she auctioned off contents of apartments that had been stored by the landlord for the required time period before auctioning, the boxes were sealed, but the Dept of Sanitation employees tipped off the cartel to which lots were good. The cartel bid a minimum and then held their own auction on the hood of a car outside. Each member put the cash on the hood as he won a bid, then at the end of their auction the money on the hood was split evenly between the cartel members, about 5 or 6 of them. One time one guy was in the hospital, sent a messenger with a low bid for one lot, which he didn't win, but he was eligible for his cut of the auction profits, delivered to him in his hospital bed. If an outsider showed up at an auction, everyone bid against him at a cost shared by the whole cartel if they won the bid, and encouraged him to win the bids on the crummy lots. If someone showed up saying it was their personal goods for sale, they did a "courtesy bid" and let them buy the stuff for $10. At the police auctions, the jewelry was not in transparent plastic bags, but in translucent bags which bidders were prohibited from opening to examine the goods. Insiders, of course, knew which were the diamonds and which were not.For public bidding on contracting work, it works a little differently. One scheme is a cartel takes turns assigning jobs to members, who are told how much to bid, and which jobs they will win. They are asked to bid high enough to lose on some, etc. This requires cooperation from the agency putting the work out to bid, to discourage participation by outsiders. This can take many forms, including "confusion" about the time and place of the bid opening, or simply waiting until two weeks after the bid opening and mailing the bid back with a note that it was late. As money paid to purchase plans and money spent to put together a bid is not trivial, a few experiences like this can discourage someone from bidding - my personal experience.

Another trick is to put out work worth about $100K and mention a $50K contingency fund for unforseen site conditions, unknown soil conditions found only after digging, etc., confusingly written, so if an outsider wins they are told their bid is to be reduced by $50K, while insiders get $50K added to their bid.

Or, heavy duty mechanical work is mixed with painting work, which contractors who lack housebroken workers are hesitant to bid on, thus only one or two friendly contractors bid, and maybe bid high to cover unforseen adventures with painting. Another variation is asking for a very expensive, special piece of equipment, which insiders know they can skip installing, while outsiders are held to the terms of the contract.

This puts the systems into two broad categories, as far as I can see:

1 Better information for insiders 2 Rules are different for insiders.

Number two was perhaps covered on the list when some firms on Wall Street were bailed out, leaving us mostly with what was described below as rides in cars together, etc.

When I can't avoid being near a radio which is playing, I am reminded of this when I hear "company such-and-such announced some problem, the stock fell x points today", of course telling me what is told on the news is not news any more, and there was someone getting the news ahead of time.

I used to own a newsstand, and get the Sunday NY Times Real Estate section on Thursday night, which led to some good real estate deals for me. But, otherwise, I don't know of any legitimate way to get any such advantages.

Alston Mabry writes:

At auto auctions, if the guy running the car has an in with the auctioneer, then you gotta watch out and make sure you're not "bidding against the wall", as they say. Crowded conditions make accurate observation difficult. 



Beware of the parade of technical analysts soon to make their rounds on
television.  When this happens a panic low is usually near.

Sushi Kedia asks:

Do you say this because either Fundamental analysts are always in panic/euphoria extreme psychologies or the quantitatively evolved price students (they too are technicians, which the Chairman has acknowledged several years ago and he has indeed suggested that this passe thought process of beating Technical Analysts be avoided) are never experiencing panic or euphoria?

George Parkanyi adds:

And beware the contrarians who call panic lows based on what goes on on television…



training for convoy operationsIn Iraq, convoy operations became much more effective by having intelligence troops track where IEDs (roadside bombs and mines) and ambushes were happening, applying some math to predict where future attacks would take place, and routing convoys away from the hot spots.

I understand that Operations Research developed in WWII as a way to decrease the losses to trans-Atlantic shipping from German submarines. Convoying was the basic tactic, with increasing refinement as experience was gained, dramatically reducing the losses to Allied shipping. The land convoy operations in Iraq are a modern adaptation of that basic idea.

Stefan Jovanovich writes:

What is remarkable– and truly horrible– is that the lessons of convoying had to be relearned in WWII even though they had been standard practice since the 18th century for both the French and British navies. In the spring of 1942 1.5 million tons of shipping (none of which were in convoys) were lost to U-boat attacks; the Germans lost 1 submarine. Samuel E. Morison called it the "merry massacre". Lighted channel markers helped U-boats enter U.S. ports, and lighted city skylines provided a perfect background to sight targets. Finally, in April the convoy system was once again "discovered". 

Pitt T. Maner III writes:

Remote sensing would seem to be the key. It is a field that has been highly developed for the petroleum industry, agricultural and military assessment. Searching for multi-spectral, magnetic and density anomalies, seeing non-natural linear features, surface soil moisture, reflectance, topography changes, motion sensor technologies, etc. etc. There are all sorts of ways to enhance contrast along a road way.

I really thought they were going to capture Bin Laden when he did a film many years ago with a rock outcrop in the background. There was a regional geology expert called in immediately on that one.

As discussed by Art, here is an article discussing submarine tactics:

"Teaching an old trick to a new dog may hold the key to effective irregular warfare intelligence.

Submarines, as targets, have much in common with current U.S. adversaries such as insurgents, who prefer to blend in with their environments and rely on speed and stealth to conduct attacks. In a September 2009 podcast, the U.S. chief of naval operations, Adm. Gary Roughead, USN, extended this analogy by comparing the World War II Tenth Fleet's antisubmarine warfare focus with the information operations focus of the recently reactivated U.S. Tenth Fleet. Operational intelligence methods developed over nearly the last 100 years by navies—in particular, the U.S. Navy—to track and to target submarines may be equally applicable to the current fight against insurgents and terrorists in both the physical and information domains. Antisubmarine warfare (ASW) intelligence has both a definable methodology and mindset that is applicable to other types of warfare. This ASW intelligence analytical mentality, applied to irregular warfare (IW), can enhance the effectiveness of U.S. military efforts against high-value persons such as terrorists. "



I found this fascinating: A Visual Guide to Cognitive Biases.



the broadmoor in Colorado SpringsOne would hasten to recommend the Broadmoor hotel in Colorado Springs where my daughter Artie just graduated Phi B. Kappa from Colorado College as one of the best hotels I've been to along with a few European hotels with similar geological grandeur. The view of Pike's Peak and the lakes and the botanical gardens and 3400 acres on property and the infinity swimming pool, and the fine dining along with its illustrious history with the Penroses and the Palmers with their combination of dashing entrepreneurialism (he sold out to Kennecott Copper at 25 at the high after a 25 bagger, and then used the money to make the hotel the best in world at time with many Maxfield Parrishes and great architectural elements. Where are the Penroses of today one may ask, and how have they lost their incentive to create.

Not too good on the he barbeque there but the Colorado lamb was very good and the three golf courses of Michael Nichols, Trent Jones, and Palmer were about as heavenly as a golfer could wish with a big fairway mountain course. 

Dean Davis comments:

The golf courses are nice too, but beware the thunderstorm (w/ lightening) coming over the top of Cheyenne Mountain (home of CMOC). The siren system can give one quite a start during a back swing. I remember that we were there the night when Princess Diana died.

Nearby, an interesting collection of Golden Trout (not listed because I think they are protected) for viewing at the old school tourist trap Seven Falls.

Pitt T. Maner writes:

It is a wonderful place to learn historical geology and about Florissant Fossil Beds [14 page PDF]

For me, a trip to Cripple Creek for ice cream after a week of UF geological field work was a highlight. Not too far away is Skyline Drive which is on a feature known as a "hogback"–many car ads have been filmed using it as backdrop. One of our class assignments was to measure this section with a Brunton compass (for strikes and dips) and measuring rods (to determine true formation thickness). Once over the top of the hogback you had a view of the penitentiary from the hard white caprock of Dakota sandstone.

Beautiful area …

Phil McDonnell adds:

The Broadmoor is a classic resort. Their Sunday brunch is one of the best to be found.

I would second Mr. Maner's suggestions having seen all but the hog back. Cripple Creek is especially interesting because it was where Penrose and Tutt had their mine. I highly recommend the mine shaft tour and the melodrama at the live theater in town.

The Air Force Academy is just north of there. Pike's Peak is one of the few mountains where one can actually drive to the summit. When I went to the summit, it was snowing in July. Nearby Cheyenne Mountain has NORAD or the Stargate in the basement.

Ralph Vince writes:

I'll second (or triple, or quadripple) the Broadmoor and what Phil says abut the Sunday brunch. It's like the Grand Canyon, or Yosemite. You haven't really experienced America till you've tasted it. 



 On the subject of deception, I think that "The President's Speech" is striking. It is a story by Oliver Sacks included in his book "The Man Who Mistook His Wife for a Hat". You can read it at the following link .

For those who are interested, stop here, enjoy it, and then proceed. I do not want to spoil your reading.

What do you we need to have, or not to have, not to be deceived by the market? Why do we normals wish to be fooled, and are indeed well and truly fooled by the market? Why don't we listen to its tone and what is trying to tell us? And if we are not able understand its tone, why don't we listen to its expressive speech? I think we need to deprive ourselves of our emotional part and retain only the rational self. Accept the loss and don't hope in vain or take the profit and don't be greedy. Being 'normal' does not help.



Jim LorieDirect marketing studies of numerous goods offered for sale by mail with prices such as 299, 399, or you the customer pay what you think it's worth show that revenues are maximized with the option. It reduces the consumer surplus by letting the customer say what its worth to him as compared to the marginal cost of the last customer to sell to. The studies I believe are referenced in Lorie and Roberts' book on marketing.

I thought much about Jim Lorie as i walked the mountain trails of Denver as he wanted most of all to be a cattle rancher, and loved his horse. He started so many of the fields of modern finance including index funds and efficient markets with the data base. Many owe their entire careers to him including me, and he was a man like Artie who was a second father to so many. Artie and he met and we had a steak at Gallaghers before my first national singles tournament I won. They were two peas in a pod.



PaneraFrom the Associated Press:

"CLAYTON, Mo. - Panera Bread Co. is asking customers at a new restaurant to pay what they want. The national bakery and restaurant chain launched a new nonprofit store here this week that has the same menu as its other 1,400 locations. But the prices are a little different — there aren't any. Customers are told to donate what they want for a meal, whether it's the full suggested price, a penny or $100. The new store in the upscale St. Louis suburb of Clayton is the first of what will Panera hopes will be many around the country. Ronald Shaich, Panera's CEO until last week, was on hand at the new bakery Monday to explain the system to customers."

PNRA is a public company. If this model actually works, what does that predict for the economy as a whole?

Kim Zussman comments:

Some museums are similar, asking patrons to make a donation at the door if they wish (Last time at NY Metropolitan Museum of Art, and Santa Barbara Museum of Art), at a recommended amount (or less/more). Presumably this is to allow poor people to enjoy the exhibits, without requiring those with means to pay.

I wondered whether they studied this, and found this kind of model to be more profitable, bringing in lower mean price but more customers. There could also be data generated on which items are most in demand, etc, useful for other stores.

Rocky Humbert replies:

Museums may not be the right model as the "recommended" admission price doesn't cover the true cost. According to Museum News, in 2004, the median entrance fee to an art museum was $7, however, the median cost to the museum for each visitor was $35.98 Museums are able to do this because of their endowments and benefactors. While you might someday visit the Rocky Humbert Memorial Wing at the MMoA, I promise that you'll never find the Rocky Humbert Bagel Wing at your local Panera's.



 Mountaineering has many lessons for the speculator. Both are life and death endeavors, involve changing and sometimes violent circumstances, both require extensive knowledge, lots of equipment, learning requires a guide, heuristics are critical, great strength and stamina and ability to withstand discomfort and pain required, both offer tremendous rewards, both occur in sometimes dangerous terrain. A good example of cross over lessons involve safety and belaying which are things the speculator should learn from the mountaineer.

Safety in the mountains balances the danger and the consequences of a slip. A dangerous perch above your rug in the the living room is different than a mild, but slippery slope above a 200 foot cliff. The precautions should be appropriate to the climbers willingness to accept risk and delays. The climber belays by setting a fixed protective point in rock or ice attached by ropes so in the event of a fall, the length of the fall is limited. As the climber moves, the belay rope slack is taken up. The parallel to trading is the trailing stop. The risk would be the left tail risk.

Though the skills needed cannot be learned in books, there are some excellent texts such as Connally, Craig, The Mountaineering Handbook Seiters, Andy, Glacier Travel and Crevasse Rescue.

I highly recommend Connally first. He adopts a tested modern scientific approach to traditional mountaineering wisdom.



 I was considering the day before yesterday's fight back of US equities futures before the main board open and was wondering when a market is sold an ATR, below the the previous close, during Europe and Asia, and futures are actually up on by cash open. What percentage of times does the market closes up on the day, (and there is also following thorough the following day)?



I wrote a paper with John Wolberg in 2009 on sentiment indicators. We looked at VIX and a transformed version of it, we call pure vix. We use a regression model to filter out the effect of recent SP500 price dynamics (velocity and volatility primarily) on vix. The filtered version of vix provided the best signals for the SP500. The signals were significant at the 5% level. Anyone interested email me directly (see non-clickable address below) and I will send you a PDF file.




1. Can anyone come up with ANY justification for retail parties' engagement in High Frequency Trading?

Russ Herrold writes:

Sure. First would you mind please:

1. Carefully defining: High Frequency Trading

2. Explain if you consider the taking of profit from a market to constitute an adequate 'justification'.

Bill Rafter writes:

Let me deal with them in reverse order:

If a market is inefficient such that a profit can be made by doing a trade to capitalize upon the inefficiency, the trade performs the simultaneous jobs of creating liquidity and reducing inefficiency (and making a profit).

Given that, it makes no difference whether the trading is high frequency or not high frequency.

By the way, I have no dog in this hunt, being a long-only equities trader who tends to hold for a minimum of 2 days.



a quizOne may inquire in answer to Rocky's quiz to what pockets do the big v shaped moves big down and big up in a half hour accrue. One would not think that it would accrue to those who are leveraged more than 2 to 1 or 3 to 1, as not only must they meet initial margin but must meet maintenance margin before they are liquidated at the lows would not the ability to borrow from a big lender at low rates help the top feeders and flexions in such a regime? Just a theoretical query.

George Parkanyi asks:

Why not? You could target multiple stocks, some of which are just decoys to mask the main attack, work it from multiple accounts, have your "one cent" bids at the ready, and then bring the hammer down with a concentrated attack at exactly the place where most traders would place stop-losses. Enough kindling to spark a sudden flash fire. You slam the market down to the low bids placed that have been placed according to some pre-calculated algorithms that make it look random (which you've probably modeled already on a Cray). You cover with a huge profit. Others step in, it's all over, and you slink away. You would need to have detailed knowledge of how off-exchange platforms work (e.g. no stock-specific circuit-breakers). Some smart traders and top-notch trading platform programmers, with the appropriate financial backing, could pull this off. Come to think of it, it could have been a heist.

The main flaw I see with this though is that someone this smart would also have anticipated the attention that the anomalous trades would attract. In the end, some were actually busted. Could the manoeuvre then have been a decoy/catalyst for something else? Perhaps a huge, leveraged currency position, or one in some other correlated market like oil? If I were an sleuthing man, I would look there. Because of globalization and the interconnectedness of global markets, a foreign power could even set up something like this. Who might want to unload a pile of US Treasury paper, oh for example?

This would make a good movie.

Vince Fulco writes:

Last Thursday was eye-opening on so many fronts…

1) Technology has superceded our humanity– The exchanges and regulators proved themselves completely unprepared and uncoordinated for a growing cascade of one sided activity. What is so infuriating is that there has been a public warning by infrastructure experts and traders about the growing potential for systematic dislocations for a few years and as usual specs have been told, "all is well". Moreover there is evidence of a wholesale and I would say engineered withdrawal of bid side activity. Planes don't just fall out of the sky en masse.

2) Assume at all times that your systems will fail with questionable potential to regain access. I believe IB did the best that it could but I never saw the software behave in this manner after years of observing mkt stress pts. My DOM halted for 1-2 minutes twice with re-newed (displays of) activity 10 pts down each time and then a complete shutdown when SPUs were in the mid 60s-80s. The software came back up after a quick re-login however. Would be interested in behavior of others systems.

3) What we knew on de jure basis; that the exchanges will always do what is best for them, became de facto. Formal decisions as to what to cancel and what level to cancel (60%) were arbitrary, not subject to any outside scrutiny and not challenge-able. I was particularly bemused by the CME's almost immediate claim that their systems worked properly & there would be no trade cancellations even though the activity in cash instruments underlying them still needed to be examined more carefully and in limited circumstances were ultimately canceled. The House wins always in the end.

4) Amazed at the resiliency of human nature– while I am not surprised to see to this week's pop subsequent to ECB/EU/IMF activities, until trading activity fragmentation can be addressed more comprehensively, why are folks so confident that it won't happen again? And soon?

5) Trading is war– Any complacency can have fatal effects. One must always cast a wide net as there were suggestions and pre-cursors in other mkts, as much as 30-60 minutes prior, that would have kept one's exposure down if not non-existent. Always more to keep tabs on, more to learn and more to think about. And that's when fighting the last war.

Rocky Humbert responds:

As students of mathematical logic know, it is impossible to DISPROVE a conspiracy theory — because the absence of evidence is not a proof of anything. Hence I submit that the primary usefulness of speculative post-mortems should be introspection and self-improvement … (i.e. And what does this plunge foretell about the future? And what can be learned from the experience?)

On the first question, I recall a post by the Chair (some years ago), where he noted that when there's a horrible adverse price move in an open position — and the price then recovers, he anecdotally observes that one should exit — as the recovery was a golf "mulligan." We'll shortly find out whether the rally of the past few days is a mulligan.
Also on the first question, I was surprised to observe that yesterday's retail investor sentiment showed only a modest increase in bearish sentiment. Prior to the plunge the bull/bear/neutral ratios were 39/28/32 and yesterday (after the plunge and recovery) the bull/bear ratio was 36/36/26. So retail was evidently not spooked too badly … (I use this statistic as a qualitative contrary indicator.)

For me, the experience of last Thursday reinforces the value of always having dry powder to exploit panic (even if the prices are revisited), as the risk/reward of fading a market that declines 10% in ten days is vastly differently from the risk/reward of fading a market that declines 10% in ten minutes.

I would be most interested in hearing from others what lessons they learned…

Sushil Kedia comments:

If it is hugely profitable to build such a conspiracy, then with all the technology and all the geeks why do such events happen only so rarely?

Has the frequency of such conspiracy explained moves been rising?

The learning that I obtain from such an event, drawing on the Chair's older post of such being the golf mulligan and a recent one wherein he said that such moves clear out the short term longs and the spike back clears out the short term shorts too. So, the markets when turning from day to day battle shift gears for month to month and quarter to quarter battle move sizes, actually then such moves are like a "benign devil". The same way angina pains do trouble but are nature's blessing calling for a more thorough heart check up and recuperative measures to be brought in, moves as these reduce the number of people who would have suffered much deeper damage over a longer course of time in the particular markets.

Can't agree more with anything than Rocky's thought on having some dry power, always.This specific situation of electronic markets (that appear to be so high-tech and hence an illusion of having progressed) disintegrating for moments brings to mind the signature line of Mr. Bollinger: When you progress far enough, you arrive at the beginning!Man must work, to even have a hope to be paid. Any modifications to any degrees in the tools of work will not lead any man (computers too!) to a point where without work and just by stealing anyone can hope to be paid, consistently. Change the system to whatever, men will work even though sometimes thieves will be able to steal. Men may still not get paid upon work and it may not mean that it was someone's steal, since spills happen and will happen.

Victor Niederhoffer comments:

Well said. As Zachar points out and this was originally brought to my attention by someone deeply in my debt, who actually beat me the last time we played tennis, it's a millstein. If the shoe fits, wear it.



Was considering yesterday's fight-back of us  equities futures before main board open …and was wondering when a market is sold an atr, below the the previous close, during europe and asia, ..and futures are actually up by cash open. What percentage of times the market closes up on the day, (and there is also following thorough the following day)….



Reading the histrionics in the media (and seeing some comments on here of late) on HFT, I have decided to vent my frustration and throw my hat in the ring on the situation.

HFT is no more evil than any form of arbitrage. If you're fine with arbitrage (and I assume 100% of us are), it is my contention that you should, rationally, also be fine with HFT.

As far as I see it, HFT equally helps enforce the Law of One Price just as arbitrage does. What's more, both HFT *AND* vanilla arbitrage share the exact same rational premise. Both are seeking to drive prices from inefficient fragmentation to a place where no profit can be made via price discrepancy alone.

Allow me to explain: With vanilla arbitrage, profit comes from knowing two prices exist for the same thing (or cash flows) and taking advantage of that knowledge by buying the cheap price and selling it simultaneously at the expensive price before others do. With HFT it comes from knowing pretty much the exact same thing…"over on exchange x this stock is bid / offered at 23.05 / 23.07. Over on dark pool y, by virtue of my better infrastructure, I can see thousands of shares offered at 23.05…I will rip every share I can find at 23.05 on the dark pool, then turn round and offer them at 23.06 on the exchange in the assurance that lazy institutional VWAP algos will be forced to take it off me". Is this any different from being able to buy or sell the same quality and quantity of gold on two different exchanges at two different prices before anyone realises? There is no philosophical difference.

Think of trading in its ultimate philosophical and mechanical terms. Using the HFT vs arbitrage example, it doesn't require an enormous leap to see that both styles of trading rely on a qualitative difference in available information. Supernormal information is profit potential. Couple it with speed, and you shouldn't be surprised that someone consistently makes dollars….until they lose either their information or their speed advantage (or either one remains static while their advantage in the other one diminishes). This confirms *everything* we know in corporate finance: the whole notion of alpha and beta, CAPM, EMH - you name it - relies on the distinctions that information provides. Can't make supernormal profits without supernormal information…and so much the better if you can act faster on the same bit of information than anyone else. This is, after all, how information advantage works across myriad fields; Pheidippides' legacy came to be called Marathons, billions of dollars is spent each year on intelligence etc etc. Heck, even in its weakest form, those of you who pick stocks fundamentally look to do the same thing - you believe your information is better, so you buy or sell to the next mug who will take your price - who, in turn, thinks you are a mug for buying or selling at that price. How is that process philosophically different from HFT? And don't say that time is immaterial either….anyone who has ever lamented a bad fill from a broker when the market is moving away from them are guilty as charged.

I have no doubt that people railed against arbitrage in the early days. They probably railed against the firms that made money from it. There were probably enquiries and investigations and probes. The public likely lamented those who figured it out and called them cheats. Arbs doubtless caused panics and sparked runs in different instruments. And, just as with arbitrage, HFT will be shown to be benign because it is just one more method of sucking profit potential out of price inefficiencies. Markets benefit, long run, from having HFT. On that point, let us not conflate "efficient markets" with "profitable markets". It's obvious to all that traditional avenues of profitability are drying up very, very fast.Traditional sources of alpha have now very much become beta for the vast majority of players. That's not to say that alpha is dead - it's just tougher to find. One of the "easier" places to have found it is in latency technology - but this too shall pass. Arbitrage has more-or-less disappeared because people learned to spot the opportunities and cash in on them in ever decreasing time periods. So too with HFT. The first cracks are there to see. My point is that everyone screams about how unfair these programs are, but HFT and arbitrage aren't so much about investment skill as they are exercises in information theory, infrastructure design and speed; all elements of efficiency.

At this juncture, I'd like to draw a couple of quick comparisons. First up, sports have recently provided an example of increasing symmetry of information. Coaches and teams spend millions on film, statisticians, data analysis, equipment and so on. But it wasn't always this way. Did those teams garner an "unfair" advantage? Not many would say so. Was it unfair when athletes first figured out that a good pre-race meal of carbohydrates was better than steak and eggs? Not many would say so. The aftermath of stories like "Moneyball" or "Fortune's Formula" show that these little edges disappear in time as everyone else picks them up - and so it is with our arena. But there are always new edges to discover. Discovery requires creativity and persistence.

Secondly, HFT and flash trading are just another stage of evolution in the market. Biology teaches us that mutations / adaptations are not, by themselves, either good or bad. Rather it is the *environment* that determines whether or not an adaption becomes an advantage. And so it is with the market. Right now, the market environment allows for profitability in discovering sub millisecond price advantages across market venues. Those who have "mutated" to exploit this are profitable. Those who haven't will struggle to compete in that niche…unless the environment changes, or they find a different niche to compete in.

I tell you the truth, friends: the day that HFT becomes unprofitable for institutions is the day they begin offering it to retail. Everyone on this list is smart enough to recognise this phenomena. Retail will get their crack at HFT - but it will only be once all the fat has gone. Regulators: let the market do its self-correcting thing to sort out this problem. The tax system of every G20 nation should ably demonstrate that the more stupid rules abound, the more creative people get at working around them. If you want to really change things, change the environment. Hong Kong is a great example of this.

The right response for every participant (especially myself) is to get better, not to whinge about how "unfair" a system is that is patently not unfair at its most general level. Be more competitive. Take a hint if you're consistently losing and figure out why. Do better homework. Throw out the tired old "do this" books, and replace them with books on scientific method and practice. Learn new fields. Develop new specialties. Don't be satisfied with the linear, but go hard after the non-linear. Focus your energy on your own game, rather than worrying about what GS or the Sage or the Palindrome or the woman on a winning streak down the desk from you are doing.

You want to beat the machines? Do what the machines can't do - think for yourself.

Sam Humbert gives his point of view:

It's hard to know whether Mr White is limited by his knowledge of the field, or has an axe to grind. In any case, the core issue is stepping ahead via subpennying — bidding 41.0301 to step ahead of a 41.03 bid — which is permitted for some market participants, but not others.

Before writing further on the topic, Mr White would do well to read deeply on the subject, and attend one of the excellent high-frequency conferences currently on offer. The one sponsored by Wall St & Tech magazine May 11 in NYC was very good, and there are others upcoming.



Talking about deception, I think that "The President's speech" is striking. It is a story by Oliver Sacks included in his book "The Man Who Mistook His Wife for a Hat". You can read it here .

For those who are interested, stop here, enjoy it and then proceed. I do not want to spoil your reading.

What do you and I need to have, or not to have, not to be deceived by the market? Why do 'we normals wish to be fooled, and are indeed well and truly fooled' by the market? Why don't we listen to its 'tone' and what it is trying to tell us? And if we are not able understand its 'tone', why don't we listen to its 'expressive' speech? I think we need to deprive ourselves of our emotional part and retain only the rational self.

Accept the loss and don't hope in vain, or take the profit and don't be greedy. Being 'normal' does not help.



Euro touches four-year low against dollar, recovers. The euro fell to $1.2237 in early trade on Monday, but then recovered to trade at $1.2307. News Report.

The news says Euro at a four year low. It means little to me, but I do want a super strong dollar. Not for envious reasons, or because I want to buy foreign goods, but because a strong currency goes hand in hand with a low inflation rate, as Gustav Cassel and Harry Johnson taught.



during the 1987 crash1987 rhymes with flash crash?

1. market extended multi months correction overdue

2. correction was swift and violent making one day records

3. something new and unique was blamed for the crash

4. new regulations followed 87, talk is similar to new rules today

5. bears thought that the crash was the first down leg of a bear market; now bulls believe correction over

6. prior crash uncertainty in forex in 87 -Baker -dollar; now euro uncertainty -bailouts

7. fear after crash in 87 lingered long, no fear now really.

8. Volume was very high after 87-volume much weaker today

There is a whiff of similarity to my mind.

How come when there is talk about a "healthy" retest of the lows that would be needed to solidify a bottom like there was in March of 09, that retest never came and now after a ripper of a drop there is no talk at all about a retest. It's like that possibility doesn't exist, just like last week when the possibility of the Cavs losing to Boston wasn't even considered. 

I'm not arguing either, and I listen to sound bites only here and there, but I listen for the theme or the buzz that the media is playing, which is usually aimed at the little guy and which is usually wrong. So like the healthy test that was bandied about never happened in 09 March, so now you hear that the correction is over and it's blue sky ahead, which tells me that I should suspect 1. a healthy retest or 2. a breech of the flash crash lows–to follow my buzz inverse indicator.

Craig Mee comments:

Considering the onset of floor closures and computerized algo trading and the changes that has created, it seems comparing one crash to another opens more questions than answers. I'm not sure if in the history of markets has there been such a period of change. 



 New York City has gone frenzied this week, led by the Hard Asset conference at Marriott Times Square, and sprawling into a dozen of gourmet restaurants' lunch and dinner pitches by exploration and mining companies. Here are some things that bounced off my ear:

1. Gold is not only a commodity with largely non-existent new supply. It is chiefly a currency, which is beginning to replace both the dollar and the euro!

Official sector selling has been gradually diminishing since 2005, and turned into net buying by last quarter of 2009.

3. Governments will ban private ownership of physical gold, as they have done many times throughout modern history.

4. Gold historically always got stronger as paper (stocks and bonds) got weaker.

5. We are on the way back to Dow:Gold parity of one ounce = Dow Index, as we were in 1980! In fact, this is probably on the conservative side: outlook has $2500 gold vs. 600 Dow, or roughly one/quarter ounce = Dow!

6. Another decades-long bug calls $5000 gold and even more dramatic Silver gain!

7. European mints ran out of Gold and are about to start running out of Silver.

Gold is sooo under-owned, it's not even funny. Practically no one has yet positioned themselves in Gold– except for the likes of Paulson, Soros and Tudor Jones. Asia is only waking up to Gold…

Lars Van Dort replies:

Gold vending machineHere are some more signs for the contrarian that gold may be peaking soon:

1. In Abu Dhabi, an ATM that dispenses 24-carat gold bars has been opened. Think about it…See this video. The clip says Abu Dhabi is the first site with such a machine, but this is not correct. There is already one at the airport in Frankfurt. The company plans, 'for a start', to install 200 more of such ATM's in Germany, Austria and Switzerland. Which will no doubt be followed by world-wide presence. The company explains the brilliance of their concept on their website as follows: "Potential buyers WILL BE ENCOURAGED BY CURRENT PRICES and instant delivery as well as the attractive appearance of the precious metals in the gold vending machine." Yes, of course they will, who doesn't like to buy high…

2. A Dutch newspaper interviewed several gold dealers today. Some reported double sales compared to last week. Some are out of stock. The gold is mainly bought by consumers who are worried about Greece and the euro. The situation appears the same in a lot of other European countries.

3. My father told me investing in gold seemed like a good idea to him. You don't know him, but he's a good contrarian indicator. If there are too many bulls, the market must go down.



largest adobe flash crash in the worldI will stand up and predict a retest of the Flash Crash low, making it the Ultimate Milstein.

Kim Zussman adds:

Last week's events remind us that:

1. The probability of zero for a stock is not zero

2. The probability of SP00 zero is not zero but much closer to zero than #1 above

3. The probability of SP500 660 is less when it is 1100 than when it is 670, at least for time periods you care most about



 In the parlance of checkers, the use of a preprepared line of play that corrects long established published play or is a new and innovative move that catches a player off guard is called a 'cook'. While playing you casually make your moves expecting the game to follow along well charted territory– then your opponent at a predetermined juncture springs their trap!

Does the Market Mistress lull traders into a false sense of security before pulling out the rug and she stands back and watches the dominoes tumble? In tournament checkers we use a 156 opening deck to begin our games. Three move play is like a vast ocean.

I see the market as vast and complex and constantly on the move as the tides.



 There are human billboards everywhere in South Florida willing to exchange cash for gold, and I have seen ads on TV in other states and heard multiple national ads by popular radio figures (for several years now) promoting gold. Gold is still not near its historical high in real terms but its starting to seem a bit overdone. Not to say that it isn't good to keep a bit on hand just in case though.

Possible scams to pray on the elderly and greedy continue with gusto in South Florida—gold bullion and coins in two of the cases below and possible Ponzi on the third one.

Note within the article that the name "Barclay" was used for nefarious purposes.

Its always good to start with a respectable sounding business name:

In the case of Global Bullion Exchange, the Sun Sentinel found: Tax returns for the company's first two years - 2007 and 2008 - show most of the money brought in by the company went to brokers' commissions. In 2007, 77 percent of the company's gross receipts went to the brokers. Of the 20 clients listed in company documents as losing more than $225,000, 10 are over 60 years old and three have died since 2007. Those three clients died at the ages of 83, 87 and 92. Campany was suspended for six months by the National Futures Association in 2000 after reaching a settlement agreement on allegations he was involved with deceptive and misleading sales solicitations related to futures and options trading.

Heck, if you can't make it in Long Island, just move to S FLA:

Accused of running a $40 million boiler room scam on Long Island, Joseph Romano posted bond, headed to Delray Beach and continued preying on elderly victims, federal authorities said Friday. Romano and a co-conspirator, Russell Barnes, used a slick Web site, cold calls and high-pressure sales tactics to sell rolls of coins to unsuspecting buyers, according to court documents filed by Assistant U.S. Attorney Lara Treinis Gatz. Now, Gatz is arguing the duo should be jailed until their cases are resolved.

And moving the up the scale, the Ponzi schemer raking in the odd billion or so is having his former cars auctioned off—Bugatti, Lamborghini, Ferrari, etc.:

"The cars, part of Rothstein's high-octane persona, were forfeited to the government under an agreement in which the flamboyant attorney pleaded guilty to running a $1.4 billion Ponzi scheme out of his Fort Lauderdale law office. He's to be sentenced June 9, and faces up to 100 years in prison."

There is a good movie script to be made….comedy, tragedy, greed, envy, schemers and dreamers, its all here…Welcome to South Florida. If you can Madoff here you can Madoff anywhere.

People have very short memories.



margie hart--burlesque starBeyond the Burly Q and others

Directed by Leslie Zemeckis

You sit down in a theatre where they're showing a documentary, say on the pollution of the Southeast from runoff sludge, or the reception a Danish trio of actors receive in the DPRK, and you get a desultory 20 or 30 attendees, dutifully propping toothpicks where their eyelids might fall…Zzz!

There are numerous reasons that documentaries are relatively flooding the filmic space now. Never before have the theaters and TV airwaves been as rich with these extraordinary offerings. Cutbacks in journalists on print papers, the continuing death of magazines and news organs, plus limited time to cover stories in depth on TV and other media, produce are bumper crop of filmmakers eager to fill the gap with informative, strongly researched documentaries that are, by and large, remarkably interesting, fact-filled, and important.

With reference to this Burly Q doc, somehow, get out the word that this is a movie about the scanty hoochy-coo scandalous but affectionate heyday of the burlesque in the United states from the first squall of the 20th century through to its heyday and desuetude in the 1960s (the women's movement hammered the last nails into that particular titillational teatime), and somehow, magically, people fill those seats. Lots of men fill those comfy lean-back, rock-a-bye seats in the A/C-controlled amphitheater. And yes, there is lots of pulchritude unsheathed for the guy with the Double-D fetish or the homegrown married guy who doesn't step out on his missus.

But through the years, and with clips galore of all the stellar strippers and novelty acts, the comedians and hard-working straight men earning a better-than-average living from the 10-cents a show vaudeville and burlesque, you have to empathize with what wrought all these essentially lovely and, well, pure, women to the stage to twirl those tassels or tease off those unneeded 'extra' business-layer clothes. And while there's hilarity and fascination, the stories behind these statuesque women are often heartbreaking.Burlesque was, according to these wonderful women and men recalling the 'best times of their lives'—according to not a few of them, women in their 80s and 90s, some, or children of the ecdysiasts of yore (including a thoughtful daughter of Lou Costello, Alan Alda, whose father worked in a burlesque, the handsome young JFK tried to date one of the lovelies (she turned him down—said he didn't appeal to her, 'all that red hair under the military cap'!) and a few historians of the vaudeville/burlesque era) a loving, camaraderie-filled vagabond life.There were novelty acts, comics—some very ancient, with pratfalls and gags far older than the buildings housing them—chorines, hoochy-coo numbers, the Main Act.

Occasional tsk tsks from the likes of Fiorello La Guardia, who did not cotton to any of the comics saying the words hell or damn, and closed down the NYS joints in 1937. Or some of the circuses in town determining what could stay on, or be removed. Because they catered to a family crowd (yes, believe it or not), they offered a chorus line, comedy, a surcease from the grinding Dustbowl poverty outside the show-houses, the streets of despair from the Great Depression, they largely weathered any short-term (public and hypocritical) outrage. For the main, these lovely and talented women made a handsome living, some $1500 a week, when grub was a dollar a plate, and a place to sleep was maybe $2 a week. At a dime a throw, the innovative Minsky brothers cleared a cool $1 million a week—in emporia that seated thousands of foot-sore Bible salesmen, vacuum cleaner hawkers, even Harvard guys ("You haven't been to Harvard unless you've seen Sally Rand!").

Ultimately, it wasn't beauty killed the Burly Q—it was that squiggly-line black-and-white box in the living room that did it in.

The Oath

Directed by Laura Poitras

An exceptional documentary that interweaves the atypical histories of Osama bin Laden's former bodyguard/driver, Abu Jandal –now a Yemeni cabbie fallen on rough times—and a Gitmo prisoner charged with war crimes, Salim Hamden. We are privileged to hear people who aren't a part of the comedy nighttime lineup, or even any usual news cycle. Peabody-winner Poitras uses intelligence documents, interviews, and unnerving multilayered interrogation sessions and methods to keep viewers off balance in this second of a planned documentary trilogy on documents and artifacts from Guantanamo. One cavil, however, is that we hear from the subjects, but not enough of their personal feelings and thoughts emerge from this clearly hard-to-come-by archival material.

We wanted more personal feedback from these people in impactful places, with newsmaker myth builders and causes célèbre. Even at the length it is, THE OATH is fascinating, if queasy, watching. Undeniably riveting for any number of reasons.

The Red Chapel
The Red Chapel

Directed and performed by Mads Brugger

The most subversive documentary of the season, the three-man 'comedy team' from Denmark seems for all purposes like a visiting broad-slapshtik-y troupe come to Pyongyang, North Korea, for superficial entertainment. It is outrageously nervy, however, because the actual motive of Brugger and his compadres, is somewhere in the nether zone between Sasha Baron Cohen's Borat thing and the tsk-tsk feigned-documentaries of agenda-driven Michael Moore. The team with Brugger consists of Simon, whose ostensible goal is to do an acoustic rendition of Oasis' "Wonderwall," using a backdrop of singing Korean schoolgirls; and Jacob, a self-described 'spastic' whose regular speech in Danish or English is close to incomprehensible except to his close buddies Mads and Simon. The DPRK hosts don't understand the underlying satirical and expose purpose of the 'comedy' trio, but the horrific fright of most North Koreans they are forced to deal with, and the bizarre mandatory changes these functionaries push on the comedy team tell the viewer far more than a mere documentary possibly could. On the surface, schoolkids look idyllic and adults are smiling. Under their façade, one sees utter terror and fear for their lives, and an inability to even entertain political challenge, lest their whole façade fall. It is intentionally mocking, intentionally funny, but its ulterior goal is achieved better than any similar company in a serious vein could have been. Any comments that are accurate and critical of the N. Koreans is in subtitled Danish or English, all of which is two levels beyond the Koreans' comprehension.

The three have ethical and artistic disagreements throughout, with Jacob coming out the heroic purist unwilling to compromise at all. Mads wants to complete his film, which demands unwieldy pragmatic acquiescence. Simons is a clown, reminding one of Beckett's sad clowns, Didi and Gogo, in Waiting for Godot. Jacob is a significant rarity in film: A physically challenged person whose ailment is not the target of action, but whose intelligence, innate character and incisive brainpower are the focus.

One marvels that the evidently brilliant trio were cool enough to create this dramatic structural trelliswork; what they are doing so eludes their hosts that the DPRK 'minders' have no idea how their crazy communist destruction of the troupe's [ostensibly] innocent funny business translates into film.

This is a twinkling masterpiece, though it dawns on the viewer only as he sees the incendiary evidence in bizarre scenes played out for all they are worth by this free-speech seeking humor team. Brugger has a long, honorable career as a TV and print satirist and subversive role-playing in experimental journalism.

The Red Chapel docu is a huge Gotcha! against "the dear leader" systematically starving his people and crimping their brains in the utter absence of any news leaking out to the free world.

Hilarious. But even more–terrifying.

Takeaway: As good as are the first two films, the third is the most abiding in the heart, somehow.



 Recent cycle changes have been instantaneous rather than phasing in over time. The big recent drop changed the stultifying lack of vol and upward crawl which persisted over the last 15 months. Weather wise here in Hawaii we've had drought for 5 months, but since spring arrived, its been raining ever since. Another interesting and instantaneous change in cycles.

A related but different idea is the effect of cataclysmic events which have occurred historically with profound effects on dinosaurs and weather. We are seeing some recently such as Iceland, recent year's and recent weeks market crashes. A cataclysm is an obvious departure from recent norms which seem to kick off changes in cycles or make it clearly recognizable. Perhaps analysis of cataclysm or cycles norms rather than overall norms and means might be a good way to look at data. The dividing line might be tail events.

Paolo Pezzutti writes:

We are all used to changing cycles. In our lives, things go on routinely for months and years, when suddenly an event modifies things dramatically. It can be so disruptive to put into discussion values and relationships that have been quietly developing for years. Unpredictability, ironically, is what counts the most in our life. Most of us live their life striving for stability. We want a family, we want an indefinite contract job, we work to build a pension, we pay expensive health care insurance policies and so forth. Suddenly, a thunderclap, such as a death, a divorce, a new acquaintance or a new job opportunity accelerate the speed of our life. We find surprisingly ourselves making decisions with new parameters that we would have never considered only a few weeks before.

Similarily in markets, cycles changes suddenly, with no possibility to predict when they change. (Or is there any clue that this can happen?) Similarily, investors move from a low volatility environment to wild swings in a matter of days. At first, they are disoriented and react emotionally. Then they get accustomed to it and play according to the new rules of the game.

Also, robots seem to have the same approach– because they are built by humans. They slowly trade crawling up prices, printing higher opens and strong last hours for weeks, and then suddenly go wild selling all they can until the orders book is empty. I am not sure all this can be predicted. If one knew the logic with which robots (and humans) operate, one could try to anticipate… Alternatively, fast adaptation to the new environment is key. What are the parameters and signals that indicate that a cycle has changed? Is it possible to automate this process of monitoring and learning? Is it only a matter of volatility or is there something "less visible"? Visually, it was clear after a couple of weeks how the market was developing the up leg after 8 Feb. Visually, in fact, we noticed how the market changed pace during the past week. In this case, we should try and find quickly the new way of trading this environment post Eurozone sovereign debt bailout announcement. 



Nantucket whalersDylan Distasio first posted this heads-up back on 5/10– a story about the Nantucket whalers, and what a story it is. The legacy of pain endured by our Nantucket whalers makes being down 20 on S&P futures feel like a sliver. These guys sailed Nantucket whaling boats from our east coast, eventually down the eastern seaboard, down the coast of South America, around the Horn, into the Pacific, into French Polynesia and beyond to Japan, some of them with oars, like the disaster of the Essex, an unbelievable story in case you think you had a hard day at work, an incredible display of stamina and human adversity…



 Hurricane season begins a couple of weeks from now and it's good to keep that in mind. The most active months usually come in the September-October time frame. Wilma was the first and only time I have been in the "eye" of one and she was curiously stronger on the backside than in the N quadrants. For what it is worth (often very little) the predictors are seeing a more active season this year.

Markets probably already factor in the season to some extent but Category 3 or 4 hurricanes can have a range of outcomes. I think studies have shown hurricanes to have an overall and extended negative economic impact, but that would seem to be an area for further inquiry. Offshore structures and activities come into play and prices fluctuate as storm paths meander.

Storm surges given recent events would not be a good thing this year.

Well, the Black Swanian is coming up on CNBC now….on cue.



granite countertopThere may be quite a lag from these lower lumber market prices to the lumber yard. I would suspect that building materials and lumber may soften somewhat in the mid to late summer as inventory builds from lack of construction. Plus or minus inflationary expectations this summer of course. Home trends now favor small additions and living upgrades since more and more people are now stuck where there are and are resolved to that fact and may now start adding smaller upgrades like saunas, attic renovations (for the move back in with mom and dad grad), hot tub decks and so forth. If you can't move then improve!

The over the top granite counter tops and stainless steel appliance kitchen home equity loan draw days are over. People are paying cash moreso than adding debt to fund home improvements.



the euroActually I think Europeans are happy to have a weaker Euro. Especially Germans. it will help their exports in times of low inflation.

I am not sure the fund Europe wants to establish will help. Typically, the European reaction to the Greek crisis has been slow and fragmented, with states once again moving based on individual interests rather than a collective European view. In Germany local elections weighed also in how the leadership approached the crisis. The long term issue is that in Europe the imbalances between north and south cannot be reduced without a common European policy. In Italy we know well how difficult it is to reduce gaps between different geographical areas (north and south specifically) even under the action of a centralized government and a more or less homogeneous culture within the country. You can imagine the kind of challenge when the areas involved have different history, culture, economy, social structure.

The problem of this crisis is that Europe should accept the default of Greece. Sorry for the creditors. By the way: who are the creditors? Mainly French and German banks of course, already weakened by the crisis. The PIGS are not the only problem for a risk of contagion. Eastern Europen countries do not have much space on the news these days, but you my recall that they were the first to suffer a lot in 2008 at the beginning of the crisis. Their issues are still there.

It is the social reaction to the fiscal policies around Europe that can produce the biggest changes in the next years, as peoples of Europe will blame capitalism for what happened. The risk is that a bigger role of governments in society and economy will emerge together with some sort of nationalism and protectionism. Not good for growth… Although the US in the long term may have serious issues with their deficits and debt, it is Europe which is going to be weak for several years ahead.

I was in Italy last week and listened to discussions about the state of the economy. People complain that there are no jobs and it is getting worse. Most say that "the government should do something about it"…..

Alston Mabry writes:

The EMU is adopting the drachma. They will print more €'s to pay off the debt and save the banks. The Germans will benefit from a weaker € and better ex-EU export power. And it will be clear that Portugal and Spain can be saved the same way. Gold up! 

Ken Drees writes:

I remember reading an article about the palindrome when I was just learning about speculation, it showed him sitting and playing chess outside. It was after he had broke england out of the currency band and creamed the pound. He said something to the effect that england was going to amass some large number to defend the pound–and he was prepared to sell twice that amount for starters. I think its similar to europe now as they bluster and puff about in hopes of throwing off the currency attackers. They are in a losing position as Paolo points out. Nothing gets the juices flowing like lines in the sand. They have to have a plan for the entire string of piggies–all the way up the ladder or the wolves will chase them all the way to the end. The euro is surrounded by wolves and swinging the torch around in a circle only works so long. Eventually the wolves get more and more agressive and the attacks become more brazen.

So far it looks like their best attempt to date will be their announcement today/tonight. Anything hollow or doubted will be attacked ferociously or anything a little workable may have the wolves waiting and keeping their distance, following along. And if Big Al is correct than gold wins either way–massive QE or massive breakdown–time will tell.

Alan Millhone writes:

I want to see the US Dollar become King and overshadow the Euro et all.

I am bone tired of political correctness.

I build and remodel and rent apartments. Not an easy trade but one I understand. Not for everyone to be sure. Lumber has dramatically increased of late. One learns to not quote jobs too far into the future.



How to turn lead into gold1. Can anyone on the list state the probability that the Dow Jones would lose (and gain) about 10% in ten minutes, without any external stimuli (news headlines, etc.)? Is this probability comparable to the probability that the Dow Jones will lose (and gain) 90% in ten minutes? And how does this probability compare with the chance that lead unintentionally turns into gold? (more info).

If these odds are similar, is it a defensible investment strategy to buy tons of lead (without leverage), and wait for it to turn to gold? Has anyone pitched this idea to the large state pension funds?

2. Brownian motion allows for the possibility that all of the molecules of oxygen in my office move to the other side of the room, and I suffocate at my desk. Is this a more plausible explanation for what happened at trading desks on Thursday?

3. What were the "computers" (and people) who were selling the large cap ETF's / index funds at $0.01 thinking? There may have been some intra-day margin calls, but why would anyone or any computer sell the Vanguard Large Cap Index Fund at a penny? I will once again go on record as a willing buyer of the ENTIRE US Stock market at a penny. Just give me a call, or in the words of the Sage, "You have my number. And I can respond quickly."

4. Would anyone like to defend a portfolio that runs on the full Kelly Criteria and Optimal F?

5. Buy and hold is suddenly looking (comparatively) good again. That is, compared with people who left intraday market stop-orders.5. Lastly, in three months time, who will look smarter, the guys who sold P&G at 50? Or the guys who bought P&G at 50? That's the toughest question of all.

Phil McDonnell comments:

I will volunteer for the Humbert quiz.

1. Can anyone on the list state the probability that the Dow Jones would lose (and gain) about 10% in ten minutes, without any external stimuli (news headlines, etc.)?

I do not think anyone can accurately calculate such probabilities without also taking into account the serial correlation in volatility in the short run. In other words the normal and log-normal models are only a stationery approximation to what is actually going on. In reality the volatility can change and it is positively autocorrelated. Thus the quick swings in the market can happen simply because the parameters of the underlying distribution are changing with positive feedback in the volatility parameter.

2. Rocky can stop worrying about suffocation. If all the molecules in his 3d Brownian office were to move to one side it would violate conservation of momentum.

3. I cannot defend full Kelly it is too risky IMHO. In my book I explain how to find it but only recommend its use as an upper limit for position sizes. It will lead to sub-optimal Sharpe Ratios among other things.

4 & 5. I have to pass on.



 It's worth bearing in mind that unlike most of us here, sell-side bank desk traders don't really get much opportunity to pick and choose their positions as they want and when they want. If customer wants to do big size in x, they might get saddled with the other side of that trade, bad gamma and all. The trader might not even want the position, but the head of sales "authorizes" the deal because the trade is for a new, big, shiny mutual fund customer they want to facil– just before the market does something the sales dudes thought was "unthinkable"…like spiking down 8% in the space of 10 mins.

It's a bit like flight tests when releasing a new aircraft. Yes, you might be able to handle a situation that you can almost completely control…normal flight situations and some 2 sigma variations…but what happens when there's a catastrophic failure that you're not ready for? That's why airbus et al do lots of tests to see what happens when fan blades come off at maximum engine rpm; testing whether the vibrations at the edge of the flight envelope will tear the plane apart. That kind of thing. Should be the same with trading– especially given the excess-kurtosis environment we deal with as a matter of course…at least aero-physics is reasonably predictable and stable.

There's much we can learn from this. Maybe we can set up simulators to give us a random position in xyz, then run some randomly-selected real-world crazy historical scenario against us. The emotional hit wouldn't be the same, but at least it might help develop a protocoli agree that if you are the captain of your own ship, you have no-one to blame but yourself. But many participants in the market can get nailed with positions that aren't their direct choice. No one's asking you to cry for the bank traders….but, as Taleb says, it's never a good idea to ask a man if he's from Sparta.



census takerHello everyone.

My daughter lives on one of our apt complexes and after lunch called me. She informed me a census taker was on our property with a handful of census forms and asking my daughter lots of questions. That was 2 PM. I got onto the property at 4 and the lady was still there and showed me her ID and we chatted for some time. I was there till 5 and this lady was still in her car doing paperwork. She told me she was 76 and lives in Nelsonville (a good hour from Belpre). She told me she has a duplex she owns and rents and admits she needs to do a better background check on her renters. It was nice to compare notes with her. I casually asked her if she ever plays the Market. She said why play something about which she knows nothing! She said owning rental property was tough enough for her.





 We were at an opening night revival of "Fiddler on The Roof" on Sat. It was performed by The Village Light Opera Group at their new venue in Pace U. in lower Manhattan, right near J & R. It's worth the trip. The glorious music and lyrics by Jerry Bock and Sheldon Harnick are set to an original story by Sholem Aleichem. What this group brought to the stage was the energy and sensitivity which did justice to the underlying ideas.

The story's set in a Jewish village in 1905 Russia at the first dawning of revolutionary change. The simple narrative approach chosen by director Tony Spinosa allows the audience to experience the positive changes, followed by the emotional turmoil felt by the main characters as traditional values begin to slip away. It moved Iris to tears.

Mr. Spinosa is also a choreographer. He reproduced the original Broadway choreography by Jerome Robbins. The singing brought enhanced meaning to Harnick's lyrics. The fact that there were no show stopping performances was actually a plus because our attention was never distracted from the story. There are three more chances to catch this musical before it goes away.

Best wishes, Paul and Iris



One check on whether declines are faster than advances is to compare the size of extremal moves over equal times. SPY c-c (93-p) daily returns were ranked top to bottom. The largest gain day was paired with the largest loss day, second largest to second largest, etc. Then took the difference between each ranked extremal gain and the absolute value of the correspondingly ranked loss, for the top 200 extremes. The effect is subtracting the decline tail from the gain tail:






The attached chart plots these differences, beginning with the top ranked gain - loss (14.5%-9.9%).

At least for the 24hr time-frame, "which is bigger" is a complicated question. At the tip of the tails, extremal gains are much larger than losses. The difference rapidly declines, and goes in favor of losses at point 3. The advantage switches to gains at point 9, then oscillates above and below zero until point 29 - when gains again outsize losses all the way to point 81. From 81 on, losses are smaller than gains all the way to point 200 (which is 400 pair-differences; about 10% of the total series of 4350 days).

The contest may be different for shorter (and longer) time-frames, as seen in a certain 5 minutes yesterday. Having reformed from intra-day data this study will be left for others.



I, RobotI normally don't comment on market moves as it's hubristic and self referential and exacerbating to those who lost and generally self defeating if too useful, but many people have asked me why it happened and here are my brief thoughts without the counting and fact checking that I would do if I didn't have seven kids and seven mortgages.

1. It was a exact repeat of what happened in October '08 where the market plunged from 1200 to 1000 on the news of the bailout approval and acceptance. It had Lobagola-ed back from 700 to 1200 without a pause and now was ready to go back and forth the way it did before 1200.

2. The inside trading of the French Bank was in play again as it broke through 1200 that day they exited ahead of everyone else and the book the perp wrote said the management knew about it.

3. The rational expectations had to make it happen. The service rate is going up by 100% in Jan 1 so why would anyone sell in 2011 when they can sell in 2010. Knowing that they will do it on Dec 31, they keep moving back to the current.

4. The fixed boys are always prey to the judgmentals. They have to do what the robots say and they do it without regard to price as they have found that the robots do better than the judgment on getting an execution.

5. All the robots said it was going to go down. The moving averages were broken. The round numbers were broken. The Dow 10000 was broken. The price at the beginning of the year was broken. Each break triggered "smart" robots to sell.

6. There was revulsion from the sagacious remark on Monday that the oracle himself had the other side of trades with "the bank". It was good for a 2% rise, but people are not such fools. And there was revulsion that they were playing a game where they are treated as such useful idiots. After being fooled like that by the wind from the granaries the whirlwind of a whip-last occurred.

7. There is an all-seeing eye that makes the prices of stock go opposite from the currencies. When the dollar rose by 5% against the euro, that was too much profit for the dollar investors so the stock market had to go down that much to equate.

8. There had been no decline of 1% for a month and this regardless of the astronomical Dr's study is highly bearish. Everyone was making money by going against the little jiggles until the robots found themselves with a loss that they were not accustomed to.

9. The broken window and all that. There is no way that all the transfers are not going to have a negative multiplier and this is reflected in incentives to invest which reaches a climactic point on the days before the flexionic releases on the first Friday of the month.

10. The number itself was going to show a non-random uptick when the denominator and numerator had the same random seasonal adjustment and this was released as usual during the lunch on a strictly need to know, only to a handful truly necessary operatives.

Many more but that's a start.



 Now here is a good read for keeping a bad trade in the proper perspective– Cormac McCarthy at his best.

With these images in the front of the mind, every living thing looks like the gift of new life, here and now, just look out the window.

Dylan Distasio writes:

If you enjoyed The Road, I would highly recommend you check out McCarthy's Blood Meridian, or the Evening Redness in the West. As much as I enjoyed The Road, I feel Blood Meridian is his best work. It is at the top of my list of favorite books.

This is from the author's website:

Critics have compared Cormac McCarthy's nightmarish yet beautifully written adventure masterpiece, Blood Meridian, or the Evening Redness in the West, with the best works of Dante, Poe, De Sade, Melville, Faulkner, Flannery O'Connor and William Styron. The critic Harold Bloom, among others, has declared it one of the greatest novels of the Twentieth Century, and perhaps the greatest by a living American writer. Critics cite its magnificent language, its uncompromising representation of a crucial period of American history, and its unapologetic, bleak vision of the inevitability of suffering and violence.The novel recounts the adventures of a young runaway, the kid, who stumbles into the company of the Glanton Gang, outlaws and scalp-hunters who cleared Indians from the Texas-Mexico borderlands during the late 1840's under contract to territorial governors. Reinvisioning the ideology of manifest destiny upon which the American dream was founded, Blood Meridian depicts the borderland between knowledge and power, between progress and dehumanization, between history and myth and, most importantly, between physical violence and the violence of language.

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