"'There's nothing to take us higher so we're continuing to go lower,' said Dan Greenhaus , chief economic strategist at Miller, Tabak and Co."


Nick White writes:

That's bad, but the all time award had to go to the guy some years ago who made the prescient and wise call: "Well, Maria, the market went down today because there were more sellers than buyers…."

Full marks, sir.



looking down from a space stationWhen I try to run with the lead pack I usually get beat up by elbows and get my heels clipped and dinged. I just can't complete. So I dial down the trade to a longer time frame–let the zigger and the zaggers roach and take my cut when the line moves ahead.

I envision the chair and other great hunters in their space stations looking down. I gotta stay low to the ground and get my piece. Everyone feeds at the market reef.

Song for today regarding the market/economy:

talking heads: road to nowhere



 The only thing I learned in my study of weather for markets was my race car computers for engine tuning.

Barometric, water vapor and temp were the same "ratio" as I think Mr. Ellison pointed out I calculated wrong from zero degrees from absolute zero. It was the same ratio of change, and I just learned my complaints on hijacks were luck on the dual halt of INTC last Friday that was a new one for me 2 halts in 20 minutes and the frustration hit limit up. And now that I look at it I guess I must wait for every semi to preannounce as BRCM took out Friday's lowski today.

Better lucky than good and looks like the hijack saved me. I will be more careful about my complaints of rigged markets. ha.



a nobel prizeThis whole news release game is silly. The market is gun shy ahead of announcements and the book drops to nothing guaranteeing a crazy move. The reaction seems always to be behind the form. The info is stale and old. The news producers of course want attention to sell copy.

The consensus game is silly, asking a bunch of economists who can't really seem to get much of anything right or agree on much to give a guestimate of data that is adjusted, manipulated, dated, gathered in questionable means… When the actual number is above or below the guess, oh my! Then what does that really mean?

Each participant in these games has a utility, each has a relative ability to achieve or execute, and each has relative urgency and importance. These are some of the criteria used to evaluate the relative utilities. The real trick is to define the issues in such a manner that the weighting of utilities is predictive. This adds to statistical analysis of past data in that it incorporate the forward looking functions of the markets and its participants. One set of Asian traders from one part of the world trading night shifts where a small order can move the market 1/2 a percent. You have the Europeans taking over early morning with different motivations. You have Bernanke, the flexions, the white shoes, the machines, the slipper crew each with varying abilities to move the market, varying urgencies and connection to our markets, and varying self interests. Weighing these has info in a scientific manner. It was scientific enough for a Nobel prize.

Jim Lackey writes:

It has always been this way for as long as I can remember… Now when it's a stock, no one seems to mind if options say + or (10%) and after the newzi comes out earnings or otherwise the stock rallied 9%…and no one seems to miss the 1/2% moves pre/post 10am numbers as vs fed moved they were nothing and vs 2008 2-3% moves it's easy to game.

All you must do is want to own it. Sell puts in a stock cool you own it 10% lower. I buy 955am cool I buy my 2nd lot 1/2% lower 1002 am. If I didn't want to won it in the first place madd lack buys his 2nd lot trying to trade out of a loss. Let me tell you how stupid this is. but also feels so dumb with a cut and run after a 1/2% 5 minute loser.

My wife shouldnt have married a gambler…but mr Vic gave us the get the joke of all of this. A mouse with one hole is quickly taken. Figured the 1st we'd have an out even if we had to buy 1000 at the close. 



 I currently am in the midst of writing a paper that suggests the regulators are the magicians of the markets. They direct your attention to the left, implies that your really should focus on the right. Time after time the central planners will steer the market to focus on this risk only to let the herd be blind-sided by the risk they are ignoring. There will of course be a rabbit pulled out of the hat at Jackson Hole and nobody would want to miss that. However, everybody is watching what is happening with the Feds and postulating how or even what they will do to make that rabbit pop out of that hat. Of course the assistants are in the know already. The lovely assistances will of course be able to buy all that jewelry and build castle in Vegas that such assistance need, from the crowd's tickets. But do not fool yourself that you can profit from these assistance they will only slowly get fat and growing old.

When the local college big football game is on, it is of course the time for the studious students to go to the library or simply go for a run around the other side of campus; But also it is the worst time to leave your car unlocked by the library or the other side of town. When the focus is on the imaginary, the divertive competitions of a game and fiscal policies of the Feds appear omnipotent. This is of course time to pay attention to what is real, the long term and risk all are currently ignoring.

I could specify hunting grounds and give data to validate this but will not because of the following reasons.

These extra-ordinary trades, without my bad ones, would seem like I was bragging.
2. I do not want to alert the competition to their mistakes
3. People do not remember what you told them yesterday, if it proves correct; it was their idea all along. History even becomes much more fuzzy, if you were right, and much clearer if you are proved wrong.

Yes, Virginia there are inefficiencies in the market, suffice to say look at the well spring of the Government's heart to find them.



Inside Mory's eating clubMory's, a legendary Yale establishment, and site for flexion decision-making, just re-opened after two years of financial distress.

Can there be a better indicator to ensure that the "bottom's in?" (Or more accurately, "bottom's up"– for Mory's Cup fans.

T.K Marks adds:

From the Wiki article:

"…Although the club had an endowment of $2 million until recent years, it apparently suffered devastating losses in the markets crash of 2008…"

A college bar with a weighty position?….Something suggests to me that this is an establishment with some stories to tell. Anybody can get in over their head, but it's rare to see somebody do it whilst hosting an a capella group.

A good one too.

There's a roguish charm to a joint like that, I like it so far.



 Bonds and bunds at exactly 134 14 at 9:59 am est. What are the chances?

Alston Mabry comments:

One is reminded of the "buddhist monk" problem.

Charles Sorkin comments:

Great trailhead! The link led me to discover the Hairy Ball Theorem. Looking for applications now, as well as a cocktail party in which to casually discuss it…

Jim Sogi comments:

In The Predictioneer's Game, the author describes some software he made incorporating game theory ideas. It based on attaching a relative utility value to various outcomes to the participants. The market could be analyzed in this manner. The participants are the various groups the Chair often describes and others, such as bulls and bears,banks, and brokers, public and commercials. It would change constantly, but give an idea where the balance points might be. 

William Weaver adds:

Perhaps defining groups by cost of capital, investment horizon, etc.

To add behavioral biases to von Neumann et Morgenstern attach positive and negative outcomes (p/l) with different utilities per Prospect Theory. Incorporating Endowment Effect as a friction to turnover as well as Disposition Effect when the market moves in predictable or non-predictable ways defined by implied volatility.



Using Prof. Shiller's monthly data of SP500 returns (including dividends and adjusted for inflation), below is a table of mean monthly return ("MMR") by decade, counting back 120 months from the end of Jan 2010 to Jan 1880 (non-overlapping monthly return by decade). Also shown is monthly stdev and T (comparing mean to zero).

10/14 decades had positive MMR, though only 3 were significantly greater than zero (T>2.0), and one significantly less. Note that all down-decades were followed by up-decades, and the decade with highest MMR (ending Jan 2000) was followed by the recent down decade.

Date        av 120  stdev 120   T 120

2010.01    -0.003    0.042       -0.81
2000.01     0.010    0.031    3.62
1990.01     0.006    0.038    1.72
1980.01    -0.004    0.039       -1.01
1970.01     0.002    0.030    0.73
1960.01     0.009    0.029    3.37
1950.01    -0.001    0.040       -0.26
1940.01     0.001    0.087    0.07
1930.01     0.010    0.044    2.37
1920.01    -0.006    0.033       -2.06
1910.01     0.003    0.038    0.88
1900.01     0.001    0.033    0.42
1890.01     0.003    0.029    1.17
1880.01     0.004    0.031    1.37



what a swell party it wasSiskind thinks that resi real estate has bottomed, commercial real estate is very overbuilt because of people working at home, and retail real estate is going to get killed because refinancing wont be available and securitization makes it impossible for any other outcome beside bankruptcy.

E believes that the oil spill will create a boom in wheat. Mr. Pitt and E believe that Iceland is the biggest disruptive geo factor on the horizon.

Mr. Hauser gave me a lesson in how all the big transfers from the rich to the deserving poor is bound to create a reduction in long term growth, as well as the difference between money and credit.

The Ted Rosenthal troupe that performed Sunday is one of best jazz trios in world.

Ken Drees adds:

Remember the howl regarding commercial real estate being the next shoe to drop a year ago? Seems like it's taking longer than first feared.

Apartment REITS doing real well now.

Pitt T. Maner III writes:

My First Spec Party was a super experience. The music at both parties was wonderful and it was privilege to meet and talk to many highly intelligent spec-listers.

It was my first time in NYC too and it was interesting to see how popular dogs are in Manhatten and how people are learning to do new things out in the open. For instance in front of the mirrored side of the Metropolitan Art Museum there was an older lady teaching a young man how to cast and fish with a fly rod on the lawn. Near the south entrance of Central Park a young lady outfitted with boxing gloves was taking a lesson along a footpath from a very strong, athletic male boxing instructor. Along the Hudson there was a location where people were practicing on the trapeze. So the city is a very stimulative environment and a place for lifelong learning.

And somehow you can walk all day and still gain weight eating shish kabobs, pastrami sandwiches, egg cream sodas, gyro sandwiches, Swedish cardamon rolls and coffee, Thai food—how is that possible?

The Museum of Natural History is just a spectacular place to learn about geology, paleontology, early man, minerals and many other things–4 hours over 2 days was just enough to get a taste. What a wonderful place it is for children too to learn about nature.

Again many thanks to our gracious hosts for a fun weekend. 



 If I had to guess, I would say that the next military revolution will be something like Skynet– coordinated aerial surveillance/missile launch suppression/air superiority by unmanned and unmanually controlled UAVs working as a network. It will be an abandonment of human command and control of the terrestrial skies, an extension with orders of magnitude greater sophistication of the technology that allowed NASA and JPL to send our brains but not our bodies to Mars. The aircraft carrier ended the age of the admirals taking overall fleet command; we are going to see the end of the age of the pilot generals, NORAD and air tasking orders.



fox at the henhouse
The upside down manager getting a high brow beat down…:

Earth to Bill Gross: We Chickens Know You Are The Fox Minding the Hen house

via naked capitalism by Yves Smith on 8/25/10

Boy, when you think you've seen the worst in utterly shameless, self serving tripe, someone manages to outdo it. Admittedly, it's awfully hard to beat Steve Schwarzmann's recent one-two punch of utter canard wrapped in tasteless hyperbole, that of Obama proposals that private equity kingpins pay taxes on what is really the fruits of their labor like other working stiffs was a " a "war… like when Hitler invaded Poland in 1939."

But no, Pimco's Bill Gross bests Schwarzmann in making it clear to the great unwashed his unabashed belief that what is good for him is good, period. Schwarzmann is a tad less horrid by at least limiting his grandiose claims to his own industry. Gross is marginally less offensive to good taste (although a discussion of his body odor in an investment piece is certainly a novel wrinkle), but makes it up by insulting his audience's intelligence, namely, by presenting himself as a staunch ally of the little guy.

In case any of missed it, one of the major screwups of the crisis just past was the failure to make shareholders and bondholders of dud financial firms (or ought to be dud, the power that be have gone to great lengths to present the fiction that many insolvent players were merely having a wee liquidity crisis) take losses. These investors signed up to be risk capital, and even if bailouts might have been inevitable, they would have been much smaller and more palatable if the people who had failed to do their job in monitoring their holdings suffered too. And who was the chief lobbyist for the "you better not make bondholders take any pain" camp? None other than Bill Gross.

Here is the rest of the excellent post.



horse whispererThe cathartic moves of Wednesday came just in time to create a sense of life at Jackson Hole in conjunction with the horse whispering and hiking so necessary to the research activities that occur there.

Desperate attempts to right imbalances come later in the week during the Summer than the other months because of vacation schedules at the Riviera and time with the others in the Hamptons.

To counterbalance the natural tendency to lethargy during the Summer, the market has moves approx 2% high to low in 19 of the last 20 days so that the public will not refrain any further from contributing to the overhead so necessary to keep the whole thing going in the absence of further subsidies from the centers at Brussels and the Beltway.

The top feeders must of necessity get on the same wavelength during the Summer so that they can get on the same page and possibly counterbalance the natural tendency of markets to homeostasis and this is why the trends in the summer are more pronounced than in other months.

East of Eden by Steinbeck has more insights into behavioral finance than all the studies of the so called men of promiscuous hypotheses, i.e. the behavioral finance gurus at the Universities combined.

The new Lloyd Webber show, Love Never Dies has more good work, more hummable tunes in it, a better plot than Beauty and the Beast of its predecessor than any other of his hits.

All the above assertions must be tested as to their validity to serve as a meal for a life time.

Victor Niederhoffer adds:

One wonders what the best use of horse whispering sessions there might be. Would it be to give instructions to the horses and engines that move the economy? Or would it be to receive unspoken in the native language signals as to the coming releases from the body language of the flexiopurveyors et al? What do you think? I'll award a prize for the best suggestion for the use of these whispers to any parties. Also one notes an amazingly large number of round numbers broken with SP 1050, Dow 10000, yen 85, crude 82, dax 5900 ish, nas 1800 as ever, beans 1000, and many others emerging vividly. What am I missing here? 

Easan Katir comments:

Another fascinating idea from the Chair. One recalls past analysis of Mr. Greenspan's briefcase as he walked to the Fed meetings. One thinks the main stumbling block to current and future analysis is lack of data: The viewer only gets brief video clips of the flexiopurveyors. A whisperer needs to observe the body language on his own terms to catch those small unconscious messages. Horse whisperers can't just watch rodeo clips. Maybe there is a way, but this is first reaction. 

Rocky Humbert replies:

The chancellors briefcaseIt's a cinch to note that the the horse whisperer's goal is to install a "western saddle" with its extra padding for the "fleecing," and its phallic horn. The English have no need for such contrivances for either foxhunts or dressage.

Similarly, the Greenspan briefcase indicator was developed by a group of American Anglophillys who lusted after the most famous briefcase in the world: The Chancellor's "Box"– which dates to the original leather briefcase made for William Gladstone around 1860– and which is carried by the Chancellor of the Exchequer to Parliament for the annual Budget Speech. Unfortunately, the "bulging briefcase indicator's" meaning was lost in translation from English to American– as the proper briefcase is rectangular and sold– and cannot be influenced by the battle of the bulge.

Details on the Chancellor's Briefcase.

Ken Drees comments:

The briefcase indicator was a made up cnbc gag/come-on; also Wayne Angell turned out to be not a talking font of knowledge but in court defended hinself as simply an "entertainer". Now we watch and listen to Bullard this morning–is he an entertainer, a wise font, a broken bell or a front? As Jimmy Rodger's said–get a tip from the company president and lose half your money–get that tip from the chairman of the board and lose it all. 

Jim Sogi writes:

Nik 9k

Kim Zussman shares:

Pierre-Olivier Gourinchas*, Hélène Rey**, and Nicolas Govillot***


We update and improve the Gourinchas and Rey (2007a) dataset of the historical evolution of US external assets and liabilities at market value since 1952 to include the recent crisis period. We find strong evidence of a sizeable excess return of gross assets over gross liabilities. The center country of the International Monetary System enjoys an "exorbitant privilege" that significantly weakens its external constraint. In exchange for this "exorbitant privilege" we document that the US provides insurance to the rest of the world, especially in times of global stress. This "exorbitant duty" is the other side of the coin. During the 2007-2009 global financial crisis, payments from the US to the rest of the world amounted to 19 percent of US GDP. We present a stylized model that accounts for these facts.

Andrew Moe comments:

As the cloistered flexions whisper, a steady stream of rumors and leaks drive speculation wildly through the thinned ranks, causing the type of ranges that the former colleagues utilize to generate 100% profitable days for the greater good. 

Russ Sears contributes:

How to Listen to Jackson Hole

I currently am in the midst of writing a paper that suggests the regulators are the magicians of the markets. They direct your attention to the left, implies that your really should focus on the right. Time after time the central planners will steer the market to focus on this risk only to let the herd be blind-sided by the risk they are ignoring. There will of course be a rabbit pulled out of the hat at Jackson Hole and nobody would want to miss that. However, everybody is watching what is happening with the Feds and postulating how or even what they will do to make that rabbit pop out of that hat. Of course the assistants are in the know already. The lovely assistances will of course be able to buy all that jewelry and build castle in Vegas that such assistance need, from the crowd's tickets. But do not fool yourself that you can profit from these assistance they will only slowly get fat and growing old.

When the local college big football game is on, it is of course the time for the studious students to go to the library or simply go for a run around the other side of campus; But also it is the worst time to leave your car unlocked by the library or the other side of town. When the focus is on the imaginary, the divertive competitions of a game and fiscal policies of the Feds appear omnipotent. This is of course time to pay attention to what is real, the long term and risk all are currently ignoring.

I could specify hunting grounds and give data to validate this but will not because of the following reasons.

1. These extra-ordinary trades, without my bad ones, would seem like I was bragging.
2. I do not want to alert the competition to their mistakes
3. People do not remember what you told them yesterday, if it proves correct; it was their idea all along. History even becomes much more fuzzy, if you were right, and much clearer if you are proved wrong.

Yes, Virginia there are inefficiencies in the market, suffice to say look at the well spring of the Government's heart to find them.

Ken Drees adds:

I was thinking in a similar vein. All this attention directed to monetary policy as a myopic focus on fixing the economy (and of course the markets) when policy and the structural problems that are slow to change remain intact. The market focus is thus back on the magician and not on the real risk which i would characterize as "outside shock of any kind". When the momentum is slowing and minus a policy change –for example if Obama said that he would keep the tax cuts permanent until 5 quarters of positive sequental gdp would emerge then that would be a market booster since it would allay fears and unknowns, call it the Obama targeted tax extension business relief act". But minus a real policy change, we are back in the soup on Monday morning. We are now at the mercy of outside shocks which could very well tip us into the damned double dip—but shock could be used by pols for blame-so maybe they like that route.

If it wasn't for "x" we would have climbed out of the recession already. The economy is weak and getting worse by all measures–what rabbit will they pull–a good pro business bunny or just another QE painted hare? At election time, it's the economy stupid, will be the song on the voter–time is running out for. Maybe its just too late this time for another trick?



 Nice timing on the INTC news and reports from Jackson Hole… Nice halt "gee thanks". Not sure if it was straight flexion con or I just got hijacked from mobs or… both.

Let me be more explicit:

A few semis were making highs before Bernake text. BOOM INTC gets halted then Bernake text. I had zero leverage and was down 2% in one tick. SNP rallied 5 off the lows and the stocks fell more…yikes.

Come on after all these downs then INTC opens after the halt not down much after all of intc down days. Then it's a mad dash for those to cover. SNP goes back up on the day. Too many tech stocks that were up on the day were still down.

By the time SNP is up 5 nazz comp only up 5 or 1-1. Then finally 11am boyz come in and buy indexes and nazz goes 2-1 up vs spx and all is back to pre hijack highs.

Good thing I know exactly what to do.if I had to think about any of it for 4 tenth of a second I'd be called out on strikes looking.



4 tenths of a second to hit a fast ball.

Look at BRCM broadcom vs. SPX.Open prices to 10AM newsi period. BRCM goes up SPX down.

Then look at that move… good times… As my daytrader buddy just told me "at least you're not short" and certainly my wife will say "at least you didn't lose AGAIN!"

Goodness gracious. I sold down to sleep level. I am shaking my head rubbing my eyes…thinking goodness..It's all the big leagues 90+ mph pitches with good movement, now a days… I'd hate to be a new kid coming up to A ball stock trading in this market today.

Have a nice weekend. Weather broke here in Nashvegas. It's beautiful riding weather. Almost time to hit the dirt track.



a modern dy robin hood: stealing from the rich and giving to the poora modern dy robin hood: stealing from the rich and giving to the poor


Out of the dark that puzzles me,
Dumb as a post from year to year,
I thank whatever guides that be,
For my yet unspoken jeer.

 From the chapped lips of prophecy,
I have heard repeated tales told,
Rife with cant and sophistry,
Of the certain demise of gold.

Beyond London Pool and Buttonwood,
Looms the shadow of twenty-nine,
With the return of Robin Hood,
And western civs assured decline.

It matters not how skewed their view,
Nor how firmly beheld the meme,
I've had the strength to see it through,
Riding capital's tidal stream.



 On August 27, 1918 Christy Mathewson became the only manager in professional baseball history to volunteer for military service. He was 38. He was gassed in a training accident in France and had his lungs ruined. He died on October 7, 1925 at age 45. His only son had an equally tragic life.

"You can learn little from victory. You can learn everything from defeat."

"It was wonderful to watch him pitch when he wasn't pitching against you."
– Connie Mack

Victor Niederhoffer comments:

His book Pitching in a Pinch is one of my favorites of all time, and it was also one of our good friend Larry Ritter's.



Heyerdahl on the Kon TikiThe archaeologist Thor Heyerdahl went a bit further than most scholars to prove his theories :

"After the war, Heyerdahl continued his research, only to meet a wall of resistance to his theories amongst contemporary scholars. To add weight to his arguments, Heyerdahl decided to build a replica of the aboriginal balsa raft (named the "Kon-Tiki") to test his theories. In 1947, Heyerdahl and five companions left Callio, Peru and crossed 8000 km (4300 miles) in 101 days to reach Polynesia (Raroia atoll, Tuamotu Archipelago). Despite skepticism, the seaworthiness of the aboriginal raft was thus proven and showed that the ancient Peruvians could have reached Polynesia in this manner."

If I tell you that the first man to reach the South Pole (Roald Amundsen); the first woman to do the same (Liv Arnesen), the first man to cross Greenland on skies (Fridtjof Nansen), and the first non-Indian in America (Leiv Ericsson) all have one thing in common with me; they are Norwegians– then my lifestyle gets into perspective…

Stefan Jovanovich comments:

The Norwegian "lifestyle" has had an extraordinary longevity. Those scholars who have studied the runes and other archaeological evidence from the age of the Vikings estimate that each time the crew of a long boat put out to sea from home, they faced odds of 1 in 3 that they would not return. Gareth Williams, curator of early medieval coins at the British Museum, has written about how the Vikings used a "silver standard" in their economy with hoards of silver being held as a kind of reserve depository against outstanding monetary/social liabilities. Williams has just published a biography of Eirik Bloodaxe, the Viking king.



 Did you know that eating in the dark apparently means one consumes fewer calories? A recent study says that's so.

Wonder whether that means it is an eye-mouth-salivary thing, so if you don't see 'em, you don't feel like eating 'em? Or whether you are not induced to feel the lust for, say, dessert because you don't make the connection of pretty colors and icing and chewy configurations? I think there is much more research to be done before we understand the mechanics behind this finding. It seems that the wiring could be broken when in the dark–but does that not fall of its own accord since everyone in the modern world knows we delightedly chow down on snacks in the dark–particularly in a theatre. I went recently with a swain to the movies in a museum, to a venue where they forbid food. Unacquainted with museum policy, he looked at me, concerned: Where is the popcorn? Do you mean we can't eat candy or goodies here? Why not? To many of us, movies and popcorn are inextricably linked. Smell popcorn, and, like Proust, the mind harks back instantaneously to the womblike coziness of a theatre palace or movie-plex. That is always in the dark.

Living across from the biggest and most popular movie house in the country, Sony Lincoln Centre on 68th Street, I am a test subject: Delicious hot popcorn smells waft at passers by as they amble the nether side of the theatre: Is that why I love movies so much?

I hypothesized the museum sponsors don't want vermin from food crumbs. In various countries I have lived in, there were indeed rats and other undesirables in the theatres where food and snacks were encouraged for obvious reasons (profit margins are far higher on food than for entry admission for the films themselves).

But the mind swirls: What if the appestat that controls our hunger is depressed in the dark, hard-wired from antiquity to eat in daylight, sleep in darkness? Thus it would be depressed automatically when we enter a darkened chamber for any length of time. Or what if the body prepares for a different activity in circadian terms, and slows down all processes, including that of the salivary response to food, or the mind/stomach's cues of hunger? Does it matter how much physical labor one does in the light or dark? Or if the work is strenuous mental work, versus sweaty physical labor? What about celebratory occasions, medication addenda, post-op, coming out of some grueling task?

Certainly, the darkness also engages for many the erotic impulse, but maybe that is linked to learned habit from a life of erotic endeavors in bed in the dark. Were we to have a lifelong habit of erotic engagements in the daylight–would that change our current tropism? When I was among Papua New Guinea natives, the Azmat, they separated the men from the women, all the males above about 8 or so living in a men's long-house, a thatched hut like a bivouac/dorm. The women lived in their own detached cottages.

When men wanted to couple, they visited the women's homes. But did they couple in the daylight, or the night? They are an interesting tribe because, for a long interregnum, they also experiment tribe-wide with polyamory, and men experiment with men and women with women, in tandem with their coupling with members of the opposite sex. They seem to come to a heterosexual norm after their teen years. But no opprobrium or disfavor attaches to homophilia at all. And since these are overwhelmingly lean people subsisting on taro and ambient greens, even if they ate night and day, they would not put on much in the way of Sumo wrestlers. And do Sumo mountains eat only during the day, to maintain their prized avoirdupois?

(Margaret Mead's Samoan recollections are also germane in connection with sexual behaviors among tribal peoples, though she made a number of protocol and research misjudgments that have been carefully examined, and her pioneering work in Samoa has been largely debunked from its shock-value onset. She did not record night-eating habits of 'her' Samoans. Subsequent studies have revised most if not all of her research. I was privileged to work on her Samoa collection in NYC's American Museum of Natural History archives, under her tall crook and ornery instruction, just before she died.)

Getting back to food.

It seems such a study requires a massive sample, double-blind, preferably, and cross-correlated cultural comparisons, in order to be valid at all. If the same variables are true for the Inuit as are true for Trobriand Islanders–if all people lose calories or interest in eating in the dark, then we have something of scientific merit. What of those people who, for exigencies like the Holocaust, lived in the dark for years–my former dentist and his parents lived in a sewer in Austria for years. They emerged barely alive, blinded by the street colors and light of the sun, he told me. Would they have been more robust if they had eaten in the light? And noted human rights champion (Christian) Brigitte Gabriel lived underground for years in the Middle East when her family was hunted by muslims. Yet they ate whatever food they could find or scrounge, any time, mostly found at night. Of course, such examples are extreme, as one must eat, and they would have been forced to eat whatever they could, whenever they could.

Do Scandinavians in their long, dark Arctic winters lose weight? Do people in the Antarctic gain weight because when they are doing their research, in the Antarctic summer, they are in bright light 24/7?



irish dancersYesterday S&P cut Irish debt ratings and their yields blew out relative to other sovereign bonds. Today, an Irish debt auction was TEN TIMES oversubscribed at yields that were 48 basis points lower than an auction just two weeks ago. The Irish Finance Minister should buy the S&P analyst a pint of Guiness!

From Bloomberg:

The Dublin-based National Treasury Management Agency sold 200 million euros of securities due Feb. 14, 2011, at an average yield of 1.978 percent, 48 basis points lower than at an Aug. 12 sale. It also sold 400 million euros of April 18, 2011, debt at an average yield of 2.348 percent, down 46 basis points. Both securities were oversubscribed. Irish bond yields soared yesterday after S&P cut the country's rating to AA- amid concern that the rising cost of supporting banks will swell the budget deficit. S&P increased its estimate for recapitalizing the banking system to as much as 50 billion euros from 35 billion euros previously. While the government has spent almost two years on an austerity drive totrim the country's deficit, the cost of supporting Anglo Irish Bank Corp. has undermined sentiment. "The very high bid-to-cover ratios and lower borrowing costs are eye-catching," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. "It suggests some investors do see value in Irish securities after the recent sell-off. What I find encouraging is that the NTMA decided to stick to the amount it planned to sell even though they could have issued more given the strong demand." Investor Bids Investors bid for 10.1 times the Feb. 2011 securities and4.1 times the April 2011 debt. That compares with 3.6 times and 3.1 times at the Aug. 12 sale, respectively.

John Floyd writes:

Clearly the rating agencies are not at the forefront of forecasting and there may be some short term consolidation or decrease in yield spreads in the short term. However let us put this in proper context and look at the increase in yield spreads recently and take into account these auctions are being bought/funded by the ECB indirectly.

And in the medium to long term the ways out for Ireland and others in Europe is becoming a very narrow street that is leading with increasing probability to default/restructuring scenarios and much wider spreads.



Howard S. Katz
August 23, 2010

Being gold bug's lots of fun.
We've got the bad guys on the run.
The autumn season does behoove
For price of gold to make its move.

Al Abelson, he was a fool.
He sold his gold and broke the rule.
He sold his gold, what do you know
At price that was the very low.

Gold is, in fact, at its typical juncture of later years– where it has again moved up throughout the entire calendar month of August, silencing the skeptics and allaying the fears of the cautious!

This time: throw in spice into the mix: Silver, which was mired in unprecedented tight range for roughly half-year, has been on Bullish rampage this week. The kind of move that is almost guaranteed to fleece hapless Shorts, pre-Labor Day weekend.

Here is what I will be watching:

1. Expect Silver to dominate, putting a smoke screen around Gold– which is getting progressively overbought, to begin with.

2. At first sign of US Treasury market finally reversing to tighter course– end will be all but near to remarkable Bullish performance in non-yielding holdings such as the Yen, and Gold.

3. Have Gold bulls plan for contingency? I mean being Bullish and Long around the record highs may somehow feel comfortable to most Bulls– but would a move later in the year to below $1160.00 turn them into all-out Bears?

Rocky Humbert shares:

It is an ancient Trader
He's stopped out three of three.
"By thy margin clerk and glittering screen,
Now wherefore trades for me?"

"The Fed Vaults doors are opened wide,
And they are long of gold;
The public's met, the feast is set:
May'st hear the merry din."

The Trader raises his skinny hand,
"I am short," quoth he.
"Hold off! Unhand me, you gold-short loon!"
Eftsoons his hand dropt he.

Higher and higher every day,
Till over 1260 at noon-
The bullish public here beat their breast,
Ignoring Trader and bearish buffoons.

And when the GOLD CRASH came, and Trader
should have been tyrannous and strong;
He was instead bankrupt
because he had turned long.

Value, Value, everywhere,
And while good stocks would sink;
Value, Value, everywhere,
But Trader chose not to drink.

My inspiration came from here.

Kim Zussman adds:

Being a bull is lots of fun
When we come out the bears will run
Coming soon - our day in the sun
Fedmodel extrema (that's no pun)

Uncle Ben did everything fix
Hidden it is in daily ticks
Mr Gross still up to tricks
Allah Erian us to no sticks

The blowing blimps are good for us
Nattering nabobs we always suss
Better get on the leaving bus
Or wind up like an old fat Zuss

and while I'm at it, here's another on charts:

Charts! Charts!
Good for your smarts!

The more you look
The faster you fade

The more you fade
The better they feel

Read some charts it helps them steal!



A very interesting article:

It's a mystery that presented itself unexpectedly: The radioactive decay of some elements sitting quietly in laboratories on Earth seemed to be influenced by activities inside the sun, 93 million miles away.

Is this possible?

Researchers from Stanford and Purdue University believe it is. But their explanation of how it happens opens the door to yet another mystery.

There is even an outside chance that this unexpected effect is brought about by a previously unknown particle emitted by the sun. "That would be truly remarkable," said Peter Sturrock, Stanford professor emeritus of applied physics and an expert on the inner workings of the sun.



sign at Stew Leonard'sIn a not entirely pleasing article on Bloomberg, Scott Soshnick deplores that sports teams "are nothing more than profit-seeking companies– don't seem to care about the customer". He goes on to say with rancor that the reason that teams try to win is that "a winning team draws more fans who fork over ungoldy and unjustified sums for stadium drink and food." He deplores parking fees and the sale of accessories and "all the other junk that's hawked at stadiums." Apparently teams like to win because "a winning team makes more national tv appearances… escalating ticket prices". He admires Augusta which charges 2 for a domestic beer and 1.50 for a ham and rye compared to the 5 bucks the Yankees charge for a bottle of water and pizza. He suggests that fans "don't go, don't buy, don't watch."

Of course the main thing wrong with the article is that the author hates the people that he's writing about. He doesn't follow the Rabelaisian idea of rolling around with the audience, making them feel that you are one of them, that you share their likes and weakness and can together look at the human predicament as wonderful in its folly and greatness.

On a more positive note the article from the sports editor or Bloomberg leads one to think of many ideas that might make the stock investor better. The first is that the only way to get customers to buy your product is by giving them what they want. The customer is king and is becoming much more so in these days. That's why Walmart, and Costco and Target are able to prosper with profit margins of 3 to 6 % on the dollar of sales. All their cost savings are passed on to customers. If they charged more, the competition from internet and imports and all the other competitors who provide a more luxurious retail environment at a higher price would put them out of business.

An interesting article attributing the merger of Gillette and Proctor and Gamble to competition by James Surowieki of all people has many poignant points about how the customer is king, the reign of consumer sovereignty has become even more pronounced than the days of Ludwig Von Mises in the 1940s when he first memorialized the idea in Human Action and was followed by Milton Friedman in Capitalism and Freedom.

The studies of consumer satisfaction by consumer reports which list 98% satisifaction on all fronts for almost all major companies they survey show how satisfied the typical customer is. By following these surveys and buying the companies that have the highest consumer satisfaction, e/g Costco, Target and Walmart, I hypothesize an investor would do much better than random. The editor of this site is a typical out of college consumer, and recently bought the 8 companies she was most satisfied with as documented above and made about 5 times as much as the market in the last 5 months in this regard.

The question emerges as to why big businesses, big billionaires such as the founder of the firm that put the article up are so prone to hate the customers. The reason has to be related to the idea that has the world in its grip, that the purpose of life is to do good for others rather than to pursue happiness. This idea is behind the multifarious handout and bail-outs and vote getting that big business must be behind if they are going to participate in those emoluments. Thus, the 40 rich who have signed on with the oracle and the upside down man to give 50% of their wealth away.

The idea of buying companies based on their selling cost as a % of sales, or the number of salesmen they have relative to total employees comes to mind as profit making. Instead of looking at the sales relative to guidance one would suggest a better measure would be the increase in salesmen relative to cost of goods.

All these ideas must be tested. (to be continued). vic



 Two x Two x Two

Two Dramas Lebanon Directed by Samuel Maoz

This unremitting, visceral film is based on the director's own experiences as a 20 year old novice IDF grunt serving for Israel during the 1982 Lebanon war after repeated and persistent missile- and incursion provocations. Using his own claustrophobic recollections, he brings rapt viewers inside an Israeli tank during the first 24 hours of the '82 Shalom Levanon invasion, Maoz restricts the film's action entirely to the tank's interior. He shows us the outside world only as the four tremulous soldiers themselves see it–through the lens of a periscopic totoch, tank gun sight. A brilliant film every bit as captivating as HURT LOCKER was last year.

Written and Directed by David Michod

If you liked The Sopranos, you'll eat up ANIMAL KINGDOM, whose very name is as clever as the rest of this outstanding Aussie film. A sober teen, Josh (expect more from James Frecheville), goes to live with his outlier Melbourne kinfolk after his mother dies suddenly in front of the telly. This family is a festering nest of explosive malignancy, each uncle and cousin a study in quirky hatreds and malevolence. Who takes the cake for closest kin to Lady MacBeth is Jacki Weaver, hands down the creepiest, most formidable colossus baddie the screen has seen for a dog's age. And as she destroys anyone who crosses her petty con thug-sons, she smiles and tilts her head in a deceptively winning rictus. One detective (Guy Pierce) stands out as honest among a slew of cops. The title is well chosen: These are human animals, and they kill or are killed. Lest you think the film intolerable, it is lensed balletically, gorgeous in its rhythms and bardeaux, sometimes slowed, sometimes over-exposed, sometimes hectic. The police in this exurban Australia are as corrupt and unapologetic as the cons. Not to be missed.

Two danceterias

STEP UP 3D Directed by Jon Chu

STEP UP is, well, fun. If you are in the mood, or want a popcorn two-hour-filler while you wait for the main course. It's hip-hop at its jaw-dropping best, taking place in various venues including the Village, NYU University and a remarkable midtown grungy but flabbergasting studio for a loose configuration of 'dancers' who jiggle, pose, skimper and scamper in athletic pas de quatres and variations of what we all love to watch as we go into the Apple store for a new iPad. The 3D is exceedingly fun, too, though not quite needed, since the film is rich with pyrotechnics and romance and adorable talent making your eyes pop. It's two dance gangs competing for honors and a prize; but what drives the 'story' is less potent than the spectacular movement and exhilarating cast of raw energy peopling the screen.

It is a lot more fun than the overproduced comic favorite, SCOTT PILGRIM VS. THE WORLD. Which is also in 3D, but even as a comic book come to life, takes itself too seriously. If you liked Batman on TV, this will evoke it for you: THONK! GRrrrr! SPPPLIFFF!

MAO'S LAST DANCER Directed by Bruce Beresford

On a nobler note, but disarmingly gorgeous, is this "true story" of a 1970s Han Chinese country boy, shanghai'ed from his farming family, selected by Maoist committee to be one of the likeliest body types to shine, with enough education and training. He tries, he fails. He practices in secret, determined to succeed. His beloved teacher is removed to the equivalent of the gulag for recommending and admiring the dances of the West. Impolitic in the PC (Practice being Chinese!) spy cadre evident even in ballet school. At a performance of "Swan Lake," a party member watches with a stony expression, thence to ask, "OK, I guess, but where are the guns? Where is the shooting?" The rest of the audience watches her reaction, and does not applaud when she is clearly displeased. The ballet must be molded to the Revolution, even if the bodies of dancers rebel at the harshness and ugliness of the military 'dance' form. Li Cunxin's skill is sparkling enough, with the right partner, to get him sent as a dance emissary to the US. This must be voted on: Is he strong enough to withstand the pollution of the West? His teacher solemnly says he is strong enough. His loving family, where he is known simply as Son #6, is told. "My son will fly on an airplane!" exclaims his proud mother. The music and dancing while he falls in love, and dances immaculately with American companies, are sublime, though several critics thought it all too pat, unlikely or exaggerated. We loved it, and it satisfied our love of theatre, dance and spectacle–even if I neither saw nor heard anything about this celebrated dancer when I lived there. Maybe that's what you get for living in the sticks, near a pig-farm, bison and goats in one city, and among peasants and blue-collar workers in other towns. And since Li and his dancer-wife live in the States, maybe it is understandable why the Chinese don't make that much of a fuss.

Two romances

CAIRO TIME Written and Directed by Ruba Nadda

Patricia Clarkson, who shines in this delicate, unforced film of an attractive American abroad, Juliette, trying to meet up with her husband, is not a youngster. She is in that awkward time for Hollywood that gaps from LOLITA right to DRIVING MISS DAISY, the great desert for even extraordinary actresses who aren't named Meryl or Glenn or Angelina. But Clarkson is a steady, luminescent being who brings delight, verve and nuance to all her many roles. Here, she effects a dreamy, intelligent but buzzed-out, almost medicated essence to her voice that is in keeping with the fuzzy glow of the Cairene cityscapes and Pyramids. She has chosen just right for this marvel of an actual film made for non-teens. CAIRO TIME is emollient with pregnant pauses and the radiant, meaningful development of unintended affection. This deep sensibility grows between handsome, somber Egyptian Tariq (Alexander Siddig), a ringer for popular British actor Hugh Laurie [House], a former official with Clarkson's husband in the UN. Husband is alas doing something in Gaza for untold weeks, and she has come to visit with him after a long absence–this elegant, charming, cautious, intelligent lovely mature woman played by Clarkson. Aside from one gratuitous and irritating scene demonizing an Israeli military unit stopping a bus en route to Gaza, which ought to be softened and made more reasonable and truthful, the movie is one of the most enjoyable two hours in the theatre in recent memory.

Again, one of our companions thought it another in the long and provocative skein of films that feature sexually adventuring American singles hunting for the exotic Javier Bardem or Antonio Banderas in foreign climes. This romance/drama however is not sexual tourism, now so much the rage in the Caribe islands. Clarkson's character, a dutiful wife, is not chasing anyone, and loves her husband. She keeps her wits about her, despite some funny (and true!) scenes of being on her own among the natives in Cairo. One felt very close to the story unrolled in this old-time entertainment, an update of SUMMERTIME with Katie Hepburn and Rossano Brazzi.

My companion asked me if it is really so rapacious a city for solo women: From experience, yes, the wolf-pack does indeed gather and importune every unaccompanied female.

Directed by Nicolas Pereda

Part of Hispanic Film Festival ongoing at the Walter Reade Theatre of Lincoln Center

Two dufus-y amateur movers in their shabby truck in Mexico City wait every morning for somebody to contact their cells to move their effects, then navigate around people in stress. They move in and out of oddball couples, people on the run, lunatic relatives, random heartbreaks and family dust-ups in this teeming city of 13 million. As a device to show characters without getting to learn very much about them as they hire our protagonists, this is a serviceable McGuffin. The occasional situational humor, however, is often overtaken by the underlying sadness of so many lives, including the main characters'; the young guys in their truck, playing baskets between gigs, have no idea what or why any particular contract is undertaken. Their short-term clients live their existential lives, stitched by beers, cigarettes, hopelessness, unsated lust, the hope of meeting a hottie in their next move around town, and coping with their mothers' expectations. Engaging overall, even amusing for long stretches, even if the resolution leaves one hanging. Too many close-ups, maybe. And the cinematographer leaves the film running too long too often, when there's no one in the frame, and nothing doing.

Could you get a better name for this kaleidoscope on the move? Young director Pereda has shot five films in only three years, and this feature won Best Mexican Feature at the Guadalajara Film fest.



 For anyone interested in learning more about what life is like inside North Korea, I'd highly recommend checking out "The Aquariums of Pyongyang" written by Kang Chol-Hwan who after returning to North Korea from Japan with his affluent family who dreamed of a Communist utopia, ended up in the Yodok concentration camp at the age of 9.

It's a heartbreaking description of his 10 years of internment there. He eventually escaped North Korea and even met with Dubyah.

It's available on Amazon and well worth checking out in either book or Kindle format.



Great Op-Ed in the Times called Japan and the Ancient Art of Shrugging by NORIHIRO KATO:

"GROSS domestic product figures for the second quarter show that China has overtaken Japan as the world's second largest economy. I have been traveling while on leave from the university in Tokyo where I teach, and was in Paris when the news broke last week. My first reaction, frankly, was one of relief. In English, perhaps, one might say it was "a load off my shoulders."

In Japanese, people use the phrase "right shoulder up" to describe a graph that keeps going up, with each year's figures rosier than the last. Of course, if that climbing line is someone's right shoulder, it means the left is languishing somewhere out of sight. We're seeing only half the person.

Reading the papers that morning at breakfast, I saw a graph indicating the point in the 1990s when Japan's G.D.P. had peaked, after which the line started jagging down and up, over the long run comparatively leveling out. The relief I felt had something to do with the person I saw there, no longer so awkwardly bent. Finally we know where Japan stands — on level ground.



From the blog Mindhacks:

The Economist has a great article on how computer models of how bees, ants and birds operated in swarms, are being deployed as 'artificial intelligence' systems to solve previously unassailable problems.



FinlandVictor Niederhoffer writes:

What is going on with the Finnish windfall tax. I posed a query to an Itinerant Norwegian, who replied:

Finland is similar to Norway, I guess, in the sense that it is a Mecca for "brilliant" tax and market reform planners.



These were the top 5 lessons that the market taught me last week:

1. When the meme is to trade everything on the second derivate it doesn't matter that earnings beat by 114% as the container division in x did.

2. When the world is balancing between hope and despair (double dip) the risk premia ought to be very high and thus the risk reward owning equities unusually favorable.

3. It often pays to stick to your long term cases and not change around too often. xx lost a quarter of the market value last week. xxx finally moving higher etc…

4. Bad/ low quality companies have a tendency to be unlucky. xxxx comes to mind

5. Analysts have a predisposition not to care what is priced in. xxxxx is lower now than before the news that Finland will not implement the windfall taxes.

Steve Ellison writes:

The lesson I have learned this summer is that the counting trader should consider the data mining bias and expect that returns from a backtested method are likely to be lower in real trading than in the backtest. As Bacon recommended, having a trial period for a new method in which one paper trades or trades with tiny amounts can be valuable for assessing whether the method performs well out of sample.

Relatedly, I first heard of the Hindenburg Omen in 2005 (here is a link from that time. Therefore, while some suspect data mining or curve fitting, I am certain that at least the last four occurrences were out of sample. In 3 of those 4 cases, the S&P 500 was lower three months later (and I evaluated only three-month returns, not other intervals, which would have been another form of data mining):

 Date    S&P 500   3 Months  S&P 500
 of Signal   Close     Later     Close   Change
 10/5/2005  1207.8   1/5/2006  1281.3      6%
 4/18/2006  1324.5  7/18/2006  1245.7     -6%
10/19/2007  1515.3  1/18/2008  1325.3    -13%
 6/18/2008  1341.6  9/18/2008  1203.2    -10%



Much has been said about the Hindenburg Omen and its negative implications for the stock market. However, I would like to propose the Jim Cramer indicator who on last night’s show was straight out bearish. Mr. Cramer even proceeded to talk about an ominous head & shoulders pattern on the S&P index.

For the past few years I have been using Mr. Cramer and CNBC’s Fast Money crew as contrarian indicators with much success. I therefore here proclaim (albeit untested and solely based on my empirical experience) that it is time to buy stocks.



The real return to bonds in the twentieth century was 1 percent: 1! [Source: Dimson, Marsh, Staunton]

I think a cross section of all developed countries and 100 year periodicity of returns is enough to say, things are just about right, perhaps real interest rates around the world are still slightly too high (I expect long term, 20 year tips rates to settle right below 1 percent eventually)



The report from ICI that bond funds in the US attracted more money than their equity counterparts in 30 straight months through June, the longest such stretch in 23 years…

23 years ago was 1987…when yields (at the high) were at 10% for ten year treasuries.



Summiting mount kenyaI have been learning about ski mountaineering and climbing. One aspect of safety is setting anchors and belay points called protection. When starting up a steep pitch where falling and injury or death is possible in case of a mistake, the climber creates an anchor by tying a loop around a rock or putting pitons or nuts in a crack which will hold the rope tied to the climber to limit how far he can fall. As the climber climbs higher, the rope is shortened, and new protection is placed limiting the fall length. In case of a fall, there is some give in the system to avoid too hard a shock.

In climbing there are other "stops". One is the summit…goal reached, or back home. The other stop is time. If the climber has not reached the summit by enough time to return home by dark or before bad weather hits, its time to stop and turn around.

The trading applications are obvious, and in both cases it appears to be an art. Phil has stated that stops do not improve performance, but merely lower deviation of return. Senator has always advocated using stops. What is unclear to me is some scientific way to determine the optimum stop. Time stops seem common. Profit stops are too common. The difficult question is the use to trailing stops and the distance or adjustment and size. I've never seen a satisfactory analysis. Adjustment for volatility seems a must. Chair has advocated adjusting or limiting leverage, rather than stops as "protection".

Advice sought.

George Parkanyi writes:

This is very timely, because I just set three rows of stops in August trying to catch the down-leg (short) while keeping my risk low, and I got taken out of the meat of my position all three times– FOMC fake-out, sheared right before the 20-point drop, and sheared again this morning before the market settled down again. Arggh. Luckily still made a little something on the scraps, but basically managed to completely miss the move. (Please feel free to point and laugh.)

Sometimes taking a larger position (and risk) and commensurately narrowing your stops can pay off big, but there's something to be said for taking smaller positions and more forgiving stops (and a longer holding period to adjust reward to risk). While I was frantically trying to catch the equities just so, my relatively smaller short oil position (whose stop I had not touched) was plodding along building up nicely, looking over now and then going "What's YOUR problem?" Maybe you do a hybrid. I don't know.

So, what looks good on the long side then? Bargain-hunting in the long bonds perhaps?

Phil McDonnell comments:

There are many interesting themes in this discussion so I will address a few.

First a few basics assuming a random walk - if you use stops:

1. Your expectation will not change. You will neither make or lose more money assuming a random walk.

2. Your variance will be reduced (a good thing)

3. Your probability of having a loss as least as great as the stop will DOUBLE! Suppose the odds are about 16% that a stop loss set at 1 std deviation will be exceeded to the downside. If you use a stop loss at that price point, the probability it will be hit is 32%. The reason is the Reflection Principle of Statistics which essentially says that every path that reaches that point has an equal and opposite path that reflected back from that point. There are some graphs in my book Optimal Portfolio Modeling (Chapter 4) which illustrate this point.

4. If you use profit targets the preceding points are reversed.

5. On Friday I posted a 9 minute video with charts to which discusses my use of stop profits with respect to options. It is in the Options Profits section but people can get a free trial at the site.

In my opinion it is possible to optimize a stop loss or profit target provided you first specify an objective function that you want to optimize. My preference would be something that includes both risk and reward like a Sharpe Ratio. In one sense a stop loss and a stop profit are much alike. They both double the odds of winding up there. But a loss is more important in the sense of compounding your money. A 25% loss needs a 33% gain to break even. But this information is captured by taking the log as your weighting function. The trick is to take the log at the portfolio level and not the trade level.

Optimizing stops can easily be done in Excel using the solver. But I am not saying that such optimization will always be productive. Essentially it is a search for an anomaly just like a trading system. Just like a trading system it requires a significance test and sufficient data. Adding the stop parameters brings one that much closer to the slippery slope of data mining and curve fitting.

Nick White's interesting point about information is spot on. If you compare the formulas in my book to the formulas developed by Claude Shannon the father of Information Theory they are essentially identical. Yet mine were derived from first principles and compound interest math. As an aside the formulas in list member Ralph Vince's book are essentially the same math even though when you look at them Ralph does not use logs (mostly) so on the surface they appear different from the formulas Shannon and I wrote, but they are not.

To me this says that the market pays for information. That explains the beautiful symmetry between the formulas of Information Theory and portfolio optimization.



 How to Be a Hobo

The Art of Manliness Brett & Kate McKay

September 10, 2009

Am I the only boy who secretly dreamed of becoming a hobo? Riding the rails, traveling across the country, and carrying everything you own on your back has a romance that appeals to every man's desire to wander.

In a 1937 issue of Esquire magazine, an anonymous writer penned an article called "The Bum Handbook." Unlike most bums, he had chosen his vagabond lifestyle. And he was tired of seeing the sub-par job most other bums were doing. This was during the Great Depression, and many men found themselves homeless, lost, and ignorant of the art of bumliness. The author had being a hobo down to a science and claimed to enjoy 3 meals a day and a comfortable place to sleep each night. While he didn't desire to return to regular society, he knew that most fellow hobos did, and so he offered these tips in hopes they could maintain confidence and a respectable look and thus find their way back to steady work.

Although much has changed since the 1930′s, if you by chance find yourself a hobo during this Great Recession or desire to become a bum by choice, perhaps you can learn some tips from hobos of old. Enjoy these excerpts from the article and this fun peek into the past.

Keep yourself clean. Filthy men can't charm the housewife into giving food, the passerby into relinquishing money, the man of business into giving jobs: the housewife is scared and repelled, the passerby is annoyed and anxious to be away, the business man responds curtly. And there is no need to be unwashed. Every gasoline station and railroad depot has a washroom replete with running water, soap and paper towels; anyone may use these facilities, the bum should wash and shave there. In the handbook for bums the first motto is: A bum should be clean.

Stay away from the cities. City people have submerged their humanity. I think the reason for this is their security from the elements, for the family that is sure of food and shelter becomes easily forgetful of other human beings' needs and thinks vaguely of organized charities…The farm family, on the other hand, knows that deficit of sun or rain may touch more than its comfort, that the house it has built must be a citadel against cold and storms; therefore, their humanity comes more quickly to their mouths and hands. I do not say that city dwellers cannot be "hit" with success, but it is more difficult and only among the poor ones have you a fair chance of receiving hospitality.

Avoid intermediaries. Direct appeal is the best: individual should appeal directly to individual. Once I remember speaking to some soldiers in a town that had only two restaurants. When it was time to eat they insisted on going into one of the restaurants with me and pleading my case with the proprietor. There was much whispering and finally after some minutes the proprietor said, "All right, I'll give him reduced rates." Reduced rates and I didn't have a cent in my pockets! I thanked my well-meaning friends, went into the other restaurant alone, and received a bounteous meal. I am sure that had I spoken to that first man myself, I would have had no trouble obtaining food. Another time, because of the solicitude of some CCC boys, I found myself without a bed at three o'clock in the morning: they had insisted that I sleep at their camp five miles away, and when I had arrived, their superior objected strongly.

Travel by highway and not be rail.Automobiles provide slower travel but the rails have more serious disadvantages, not only the filthy and bumpy riding of the freight cars but also in danger. You may be arrested and locked up for vagrancy, you may be beaten up, you may even encounter that certain railroad detective who stands by the tracks with a rifle and picks off the bums as the cars roll into the freight yard…Another reason for working the highway is that through hitches one learns of jobs to be had. Friendly drivers have informed me that one can earn $1.50 a day and board in a lumber camp, $3.00 a day picking apples, $.06 a barrel picking potatoes (the average worker fills about a hundred barrels a day) et cetera. The field of seasonal labor is tremendous and extends all over the United States. By traveling from state to state one can be employed practically every month of the year, and there is always more demand than supply, the wages are high. Also, people in automobiles sometimes become really interested in you and offer you employment. This does not happen too infrequently. I should say that I average about one offer every three days. I have been a gardener, a waiter, a gravedigger, a fisherman, a lumberman, a farm hand, a clerk, a newspaper reporter, a ghost-writer, a chauffeur, a toy salesman, and garbageman. I never keep these jobs long because I am over-fond of the road, and after a week in one place I long to be on an open truck again, watching houses slip by and the land change.

Speak forthrightly. Do not slink, speak too humbly, or cast your eyes down when you make a request. Address most men as "sir" and speak to them in such a way that they will call you "old man." Women should be talked to lightly, gallantly. There are of course many exceptions to these rules but one learns to recognize them by their faces.

Do not use hyperbole. To say "I haven't eaten in two days" just doesn't convince the average person, or else it scares him. That a man hasn't eaten in two days is a strange thing to most people and they react unfortunately to the information. Merely to say that you haven't eaten breakfast that day is enough to provoke the sympathy of the housewife.

How about other necessaries: tobacco, clothing, beer?Well, people never refuse you when you ask for a cigarette; very often they give you three or five. As far as beer is concerned, any number of people you talk to on the street invite you to a bar, particularly if your tales are interesting. Also, bartenders at closing time are apt to be friendly. Clothes are more difficult to obtain. It is best to enter a small haberdashery and explain that you've just arrived in town and that you're looking for a job-obviously you can't get work when your shirt is so torn, et cetera.

Don't sleep in dubious jails and flophouses.Try to find a farm house before dusk so that you can ask the farmer to let you sleep in his barn. Hay makes a very warm and satisfactory bed, it molds exactly to the body…But if the farmer refuses to let you use his barn for a bedroom, ask him to give you some newspapers. Then go into a pasture, build a fire, wait for it to die out, spread the ashes, cover them lightly with dirt, and you have prepared a bed that will stay warm all night. For covering, use the newspapers and a poncho (you should always carry a poncho with you, they make excellent raincoats, tents, and blankets). Or you can go to a garage, garagemen will often let you sleep in cars; furnacemen will let you sleep next to the furnace, et cetera.

I did not leave home because of an impossible wife or because I could not get employment-I had no wife and I had a well paying job with a millinery house, a job into which I had been recruited because I had never become excited about a future and planned it. But I was not happy in the city and more than others I looked forward to vacations; at those times I would travel constantly trying to absorb as much as possible. I found it increasingly difficult to return after each vacation. Finally, the inevitable happened. I just didn't return, I just kept on going. It really made no difference. I had no dependents and milliners could show bad taste without my aid. Now I am completely happy. All the infinite phases of nature I can observe at leisure, all the different types of country I can live with in their optimums. The spring I spend in the West, the summer in the far North, the fall in New England, the winter in the South. In a few years I shall probably want to go to Europe, and I shall go. And since I have been on the road I have in many ways improved myself: my sensitivities have been sharpened (I even write poetry now, and it's not too bad), my education extended, and my health become superb. I don't know whether I shall ever settle down again, and I don't much care.

Victor Niederhoffer comments:

Some useful intelligence.

Stefan Jovanovich adds:

This time the orneriness comes not from me but from my betters– Dad and father-in-law Buster Turner. They both rode the rails– Dad to get from Denver to San Diego each summer where he worked at the Hotel del Coronado as a bus boy and then (when the management discovered he could speak grammatical English) as a room service waiter and Buster to get home from Oklahoma (where he was studying petroleum geology at the U.) to the family ranch in west of Austin).

They both told me the "the bulls" and the "railroad dicks" were pure inventions left over from the time when the railroads still had brakemen. They said that the cities and towns in California and Texas all had hobo camps located by the rail yards because that was the easiest place to keep the bums off the streets and away from downtown. In an age when vagrancy laws were real, standing by the side of the road anywhere near a town was a formula for getting "vagged". (That was how Robert Mitchum ended up on a chain gang in Georgia when he was, in his words, "still only a stupid kid and as skinny as a ferret.")

Still, the idea of the ferocious "railroad bull" does make for a great movie character and story.



 Hi Victor,

It was a pleasure coming to Junto a couple of weeks back and chatting with you. I've been very impressed with how easily it is to speak to people and how willing they are to share their thoughts and insights. It's a great resource. Finally, I wanted to say thanks for adding me to SPEC list; it seem to be wonderfully rich living dialog, and I am learning a lot, even if many of the conversations still are beyond my knowledge level at this point.

I've been thinking a bit about our conversation after dinner at Junto a couple of weeks back about how you might foster your son Aubrey's interest in things mechanical. You have done the obvious things of getting him all of the construction and science toy sets and the like. My dad was quick to notice my interest in mechanical stuff, and, to a large degree, really helped to get me to take the career path that I did. Thus here is a potpourri of other thoughts that I wanted to pass along to you.

Before I make my own recommendations, I thought I would pass along some thoughts from my father, who, by chance we visited last week in Ohio, and I asked him about his thoughts on your question. He said that with me he always tried to encourage exploring without being too quick to interject, e.g., in taking something apart with the very real chance that it will be broken for good. He felt it important to let the exploration process happen naturally with a minimum of intervention, with the idea that the child makes-and learns from-his own mistakes, trials, and tribulations. In essence, then, he took a Libertarian view.

In terms of my own thoughts, one thing that I bet Aubrey would really enjoy doing is taking some things apart to see how they work. Great candidates for this kind of thing include, in no particular order, kitchen scales, motorized toys especially with gears and such, CD, cassette or VCR players, old mechanical clocks, old inkjet printers or computers, and the like. He'll need some simple tools to do this with, and, of course, he would have to be supervised for many of these activities, but I would guess he would love the process of exploring and understanding as he takes things apart. I always did. I wouldn't be a bit surprised if he was able to get many of them back together again in working condition.

An interesting twist on the above would be to give him a simple object that doesn't work and see if he can fix it, preferably by taking it apart. I realize he's at a pretty young age, but it might be worth a try. You could even "rig" things so that the repair was fairly obvious, then gradually make it more challenging.

Another thought would be to take him to a museum of science and industry. My parents took me to the Museum of Science and Industry in Chicago when I was 11 or 12 and it changed my life:

I realize Aubrey is a little young, but this still could be a very impressive and entertaining experience for him. To that end, there is a children's museum of science and technology in Troy, NY. Here is a reference to the New York Hall of Science in Queens. I've never been there, but it might be worth a look. There may be several others in New York City, and would be worth looking into if you haven't done so already.

Consider also an aviation or automobile museum. There are some local, I believe. If you are ever in Dayton, OH, there is a spectacular military aircraft museum at Wright Patterson Air Force Base. Chris Tucker may know of others (as well as science museums for that matter; he has been to several around town with his kids).

Another simple thing to do would be to take him to a local hardware store like Home Depot or Lowes or even a craft store. There's a lot of fun mechanical stuff in those places, and they also have the raw materials to make all manner of things. If nothing else, it's easy to do and you could gauge his interest in various things to see what he likes most.

You mentioned that Aubrey likes structures. My all-time favorite structures are (in this order):

1. The Hoover Dam

2. Arch of St. Louis (Gateway Arch)

3. Eiffel Tower

4. Washington Monument

5. Sears Tower

A trip to any of these would probably be an absolute delight for him. Oftentimes these places will have museums on the structure, and you can get kits or books or videos at the local gift shops there that could further his learning and interest.

Other things to look for include films/and documentaries on the above structures. For example, I saw a very interesting show about a suspension bridge that was built in Europe somewhere (Norway maybe?) and they assembled the bridge section by section, building off of the previous sections. The film chronicled the building construction over time and also highlighted some of the technical challenges and behind the issues that the engineers faced. It was a great show.

Some other things that I have always been fascinated with, even as a kid, that he might also find interesting:

. Power plants - there is just about everything in one of these, and everything is super-sized.
. Mechanical Equipment rooms in buildings of all kinds with pumps, ducts, pipes, valves, gages, and control systems. To this day I still love this kind of thing.
. Water towers, especially the kind where the tank is suspended off the ground with legs - I can't tell you why I liked these so much, but I always did, and there was one close to our house in Ohio when I was a kid.
. Factories- again, there is just about everything here: robots, assembly lines, machining operations of all kinds, conveyer belts, hydraulics, pneumatics, electirc motors, sensors, etc. Factories are usually very densely packed, so you can see a lot in a small space.
. Dams- perhaps it's their sheer size, or the enormous amount of water that they hold, but there is something incredibly captivating about a dam. It's no coincidence that Hoover Dam is my single most favorite structure.
. Cars and engines - Underneath the hood of a modern car is a marvel of engineering. Just to see the belts turning and fans spinning might be very enjoyable. Obviously use caution.
. Bridges - I've always liked them, although they never captivated me as much as some of the other things above. Still, they are impressive structures, and there are a bunch around the greater New York area to have a look at. It might be worth looking into possible tours of any of the bridges.
Yet another great resource are any number of TV shows: There is one called "How It's Made", by the Science Discovery channel. that covers everything from soft drinks to fiberglass to fire hydrants. I've seen it several times and have enjoyed every show. Info is here:

Then there is the web. A site that I have sent my own students to on several occasions is called "How Stuff Works." They usually have nice graphics to describe all manner of devices and mechanisms. It might be a bit advanced for him now, but he could certainly look at the pictures and animations.

Finally, you mentioned in passing a tutor of some kind. One thought might be to hire an engineering student or physics student to spend some time with Aubrey, say once every week or two, or to come for a week during the summer. Many students post flyers offering their services for tutoring and the like around Campus, and they are always interested in making a few bucks. Columbia and CUNY have good engineering programs, as does Polytechnic. It would take a bit of effort to get the right person, but if and when you did, it could be a great experience.

All thoughts welcome. If I think of other things that would be useful, I'll gladly pass them along if interested.

Jon Longtin, Ph.D.

Associate Professor and Undergraduate Program Director

Department of Mechanical Engineering

Rocky Humbert writes:

things of scienceDoes anyone know whether there is a successor to "Things of Science?"

My parents subscribed my brother and me to this in the 1960s. Each month a little blue box would arrive in the mail with genuine hands-on scientific experiments suitable for children. It was a much simpler time (before the internet, etc.) but the program whet our appetite and contributed to our both pursuing engineering/science in college, graduate school and beyond. 

Jonathan Bower adds:

This is one of my favorite "toys" for learning.



On a related note, not to diminish from the honoring of any one of our own, but perhaps to add to it, may I remind the list that two weeks ago today, August 9th, was the 3rd anniversary of the passing of our dear friend, John Kuhn.

I had intended to note that anniversary on the date, but for the life of me, could not. It was simply to difficult to write about it on that day. Please excuse the personal anecdote, but I do recall sitting in a hotel room in Milwaukee that day in '07, slumping in my chair, stunned to read Laurel's note advising of JK's death. My wife, who was in the room on a conference call at the time, noted my distress, and mouthed 'what's wrong?' I wrote her a note, simply, 'my friend John Kuhn died.'

JK was different than Bill, as we are all different from one another, but, also very much like him in that he was a man among men. Always that infectious beaming smile and a kind word for those he called friend, JK was a decent and generous spirit. He shared information willingly and contributed to our betterment with his insightful thoughts. John was one of those refreshing individuals who was never divisive nor derisive, who never preached nor engaged in pettiness. Nor did he toss about platitudes or hyperbole. JK was a good listener and very simply spoke when he had a question to ask or something meaningful to say, a quality all of us might strive to achieve.

I'd been thinking a lot about JK during the month of July and figured it must have been the coming anniversary of his passing that had crept into my head, though I couldn't remember the exact date. In a computer crash, that email had been lost from the archives, so I asked our good friend Dr. Lack, whom I suspect would not view this next as a betrayal of confidence, he said "August 9th 2007 Laurel wrote to list John passed", then he added, "I loved that dude."

It can't be said any better or more succinctly than that. Yes, as we loved Bill, so did I love JK, as did many others here who knew him, especially Jeff, his dear friend and business partner. And, yes, JK and Bill will both be missed, but they will not be forgotten.

Thanks for the indulgence in the middle of a trading day.

Victor Niederhoffer adds:

John was a giant like a Rabelaisian Gargantua. Knew everything about life. Loved all sports. Great intellect. Beautiful mind. Appreciated all aspects of life to full. Knew everything about the high and the little. Always ready to experiment and add his creative touch. Had many pleasant visits with him on his trips to perfect his table tennis game. Gave me the pleasure of saying that while he had visited the homes of many centions, had never seen a museum home like one in Weston. But had a compliment of that nature that would leave one beaming for life for everyone. 



One thing that is totally anti TA is no man's land. TA patterns love lines and rules and levels and such. Maybe no man's land is a trading concept worth a look. One can always buy or sell based on a line break–but what about once that initial breach has happened? You are in TA desert for a day a week a month???



I am so sorry to hear that Bill has passed on August 15th, 2010. He has been a highly valued friend and mentor since 1992, when I was aerospace reporter for the Daily Breeze in Torrance. I left Southern California for New York in 1994, but we stayed in touch over the years.

I had hoped to introduce my four-year-old son to him. Aubrey is obsessed with space exploration, and I had wanted him to know Bill, who will be remembered as one of aerospace’s brightest stars.

My deepest sympathies to Bill’s family.

An obituary ("William “Bill” Everett Haynes, 86, decorated Vietnam fighter pilot, of Rancho Palos Verdes, CA") appears on his web site

Alex Castaldo adds:

Here is a passage Bill wrote many years ago reflecting his appreciation of Daily Spec:

[DailySpec] is often a window on the souls of its members.

And a window on our own souls is often opened when we read what

Others write here.

It is lessons on life.

Chess strategies.

Investment in markets, life, family, nation and the future.

It can be and often is profound and superficial; deep and shallow and always enlightening, even when a writer may not be.

It sends out tendrils seeking answers and finds them, coiled about ideas we would never have found alone.

The [site] lives and throbs with the insights, prejudices, wants and experiences of the members.

There is a selection process at work here, as some find an intellectual home … others move in for a while and then move on.

Those who remain don't always agree and contention boils up, simmers and fades, sometimes leaving a residue of hostility but never, never boredom.[…]

Surely we, the weavers [of this tapestry] are much the better for it, and must acknowledge the debt each of us owes to each other, and to the two who first spread the warp and the woof.
Thank you Victor; thank you Laurel. Bill

Also interesting was his post on the national debt from March 31, 2008. (Though the figures today are completely different).

Notice to readers: to honor Bill we will stop updating Dailyspec for the next 24 hours.

Laurel Kenner adds:

Bill Haynes embodied the ideals of courage, persistence, mastery and friendship. Young at heart to his death this month at 86, he stayed clear of the cynicism, apathy and fear that often silence those who can offer innovation and guidance to realizing daring visions.

I met Bill when he was in his seventies and nearing the end of a remarkable career in the space industry. I was an aerospace reporter at a Los Angeles daily newspaper. Bill was then working for SAIC, a top space consulting firm. He took on the daunting job of educating me about the industry, inviting me to aerospace conferences where he would be found exchanging choice anecdotes about the beginnings of the aerospace industry or holding serious talks with groups of brilliant young engineers who looked to him as a mentor. He passed along to me his outrage about waste in the industry, but he also inspired me with dreams of unbelievable adventure that might just lie right the corner: voyages to Mars, commercial space exploration, cheap space launches. He introduced me to the ideas of geniuses like Gerald K. O'Neill'Neill and scientists exploring the barriers of longevity.

Bill was doing 100 pushups a day well into his 80s. The Friday before his fatal car crash, he flew the ultralight plane he had just finished building this year. 

Outspoken to the last, the essay he posted on his poignantly titled "Time Left" blog in April of this year succinctly summarized his vision:

*Human Space Exploration <>*

*The primary current barrier to space exploration is cost; the exorbitant cost of getting into low earth orbit, currently in the high thousands of dollars per pound.  (Space News Apr 21-27, ’97, pg 3: $22,222/lb on the Sp Shuttle; ref NASA) But I see that as a transient problem.  Without going into what we will do specifically to lower the cost of getting in to orbit (although there are a number of efforts under way), we can cite historic precedents for saying that the cost will come down.  Every means of transportation known to humankind has gone through a cycle of high initial costs succeeded by steadily reduced costs until the transport means is available at low cost to everyone.  The earliest example is walking; Luke tells us in the parable of the prodigal son that the father welcomed his son’s return by telling the servants to bring him a robe and sandals. The sandals were generally reserved for persons of stature and were a symbol of authority two thousand years ago. A later example is the horse, which in medieval times was generally reserved for the nobility, so much so that it is called the age of chivalry, from the French “cheval”, for the horses ridden by chivalrous knights.  A modern example is the jet airplane which began as the high cost, limited domain of the military and has now become the transport of choice for millions of people.  That space transportation will be the first exception to this rule seems unlikely,  but the effects of cheap space transportation on our civilization will be much more far-reaching than these older examples.  Cheap access to space will lead to mankind populating the solar system, yes.  But far more important, it will give us access to unlimited raw materials and energy.  Combined with the access to information created by the computer revolution, this will give mankind all three elements necessary for unlimited wealth: unlimited energy, raw materials and knowledge.  The unspoken assumption is that we will exhibit the wisdom necessary to exploit those elements.* 

Among those attending Bill's memorial was his long-time friend, Apollo astronaut Buzz Aldrin, who said meeting Bill had been the best thing about the Apollo program.  Another friend, Rand Simberg, wrote on his "Transterrestrial Musings" blog:

*Remembering Bill Haynes

*He flew for the military from the post-WW-II era to Vietnam, was a jet test pilot, was an F-100 squadron commander, risked his life many times for many years, and continued to enjoy commanding high-performance machines all of his life, when ironically, it suddenly and unexpectedly ended with him losing a battle of momentum between his Mazda sports car and a Toyota Highlander, on his way to church, a devout Lutheran who spent his life dreaming of the stars, now at final peace with his God. In that regard, he reminds me, sadly, of Pete Conrad, who after commanding a mission to the moon and back, and becoming a leading light of entrepreneurial space, died riding the motorcycle that he loved on a tight curve just outside of Ojai.* 

*Bill Haynes used to tell the story of when he joined the US Army Air Corps in the 1940s, and told them that he wanted to go into space. “Better put down ‘extreme high-altitude flight,’ son,” the recruiter told him, after thinking for a bit. “The army doesn’t have a space program. Yet.” It still doesn’t, of course, because not long after, it spun off the Air Corps into the Air Force.*

*I first met him in 1981, when we were both working for the Aerospace Corporation in El Segundo. He was working the Military Man-In-Space program, which was looking into military applications for humans in space, which would be tested with military astronauts on the Space Shutte, which was just going into service. After his military career ended in the late sixties, he had worked on both Skylab and Spacelab, and probably knew as much about space station design issues as anyone at the time. He was highly critical of the space station studies occurring at Marshall and JSC at the time, and predicted many of the problems that the program would encounter over the next decade and a half before it finally started actually launching parts into space.* 

Victor and I have a four-year-old son, Aubrey, who is mesmerized by space launches and knows every stage of the Apollo mission. Hardly a day goes by when Aubrey doesn't "go to the moon." One of my fondest wishes had been to introduce him to Bill, so that he could learn from the best and kindest of masters. Goodbye, old friend. Thanks for being a star. Obituary:

William “Bill” Everett Haynes, 86, decorated Vietnam fighter pilot, of Rancho Palos Verdes, died Sunday, August 15, 2010, while driving his little red sports car to church. His loss is deeply felt.

Bill was born in Paris, France, on January 18, 1924, to Everett Campbell Haynes, a noted jockey in Europe between the World Wars, and Edna Heise Haynes. The Haynes family, including his younger brother, John Barrett Haynes, returned to Oklahoma in 1933, and moved to Los Angeles in 1942.

Bill relentlessly pursued his goal to be a fighter pilot and his dream of space travel. In 1943, he volunteered for the US Army Air Corps, where he served until the end of World War II. He obtained his undergraduate engineering degree at UCLA in 1949, and immediately joined the US Air Force.

His Air Force career took him and his family to Arizona, Germany, Ohio, Oklahoma, Southern California, Florida, and Virginia.

Prior to his service in the Vietnam War, Bill continually educated himself on the principles of flight and aircraft design and maintenance. He graduated from the Air Force Institute of Technology at Wright-Patterson AFB, Ohio, in 1954, and from the USAF Experimental Test Pilot School at Edwards AFB, California, in 1956. In 1965, he earned his Master of Arts from USC in research and development systems management.

Bill worked in the Minuteman missile program in Cocoa Beach, Florida, starting in 1965.

From 1967 to 1968, Bill bravely served as the commander of the 90th Tactical Fighter Squadron (nicknamed the “Dice”) at Bien Hoa AFB, Republic of South Vietnam. Bill flew 187 combat missions over the Ho Chi Minh trail. He was decorated with the Distinguished Flying Cross, the Bronze Star, the Air Medal and the Vietnam Cross of Gallantry. For the rest of his life, Bill enjoyed keeping up with his fighter pilot buddies via email and reunions.

He capped his Air Force career with a year in the Pentagon. He retired as a Lt. Colonel.

Following his retirement, Bill worked from 1969 to 1991 with various defense contractors, including Martin Marrietta, Nord Micro, Dornier System, Goldsworthy Engineering, Aerospace Corporation, and SAIC, in Colorado, Germany and Southern California.

Bill moved to Rancho Palos Verdes in 1977, where he lived with his beloved wife, Christine Apelles Haynes, until his death.

Bill is survived by his wife, Christine, his daughters Susan Ellen Roberts, of Dallas, Texas, and Kirsten Michele Howland, of Palos Verdes Estates, his sons John Barrett Haynes, of Los Angeles, and Richard Craig Haynes, of Pilot Point, Texas, and his grandchildren, Emma Kent Roberts and Caden Everett Robertson Howland. His parents and his brother, a Korean War veteran, predeceased him.

In retirement, Bill enjoyed anything involving flight. From 1998 to 2004, he worked with a team building a replica of the original airplane flown by the Wright Brothers. After that, he flew his own hand-built Ultralight airplane. His most recent flight was last Friday.

Bill continued to be actively engaged intellectually until the end. He held US Patent no. 4,828,207, for “fluid lock” technology. He wrote and published articles on various scientific issues, including the presense of “Square Craters on the Moon.”

He deeply loved his grandchildren, his pet parakeets and holding forth on the great issues of the day.

Bill was a loyal member of St. Paul’s Lutheran Church, Rancho Palos Verdes, for over 30 years.

Prior comment by Laurel Kenner (5/25/10):

Department 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 .

Jeff Rollert comments:

Bill was wonderful, in giving me and my kids a tour of the aircraft he was building at the Compton Airport. Yup, that Compton.

He was a classic gentleman and a refreshing person. Not a single shred of ego (though he was really proud of still being certified to fly the Wright Flyer).

We'll miss him.



As many have commented it is amazing to see the fixed incomes going up up up in conjunction with the stocks going down down down. Indeed the amazingness is such that putting a littling quantification on it on a four week basis with maxima and mimina respectively, one notes that it's only happened like this on 15% of all Fridays the last 4 years. What happens in the future on this amazingly frequent 1 in 7 event? In general the fixed incomes have deferred back to their old normal with about 2 to 1 odds.

One can only guess that the reason for this unusual consilience has something to do with point 32 of a conservative diatribe I received which could have been sent by the other list itself: "when he took a huge spending bill under the guise of stimulus and used it to pay off orgs, unions, and indivdis that got him elected, people said…" Yes. crowding out, and lack of incentives, and demoralization, create a revulsion to invest and hire. Perhaps Keynes would have done better to have noted this then to conclude that expectations of further increases in bonds tend to be self reinforcing et al in creating the lm.

Alston Mabry adds:

And one must consider the whims of the flexionic organizations who can borrow from peter at zero and then lend to paul "risk free" and skim a few hundred basis points for their trouble.

Ken Drees adds:

A hint of Japanese style negative interest rates rear view mirror double play USA helps the reinforcement of trend on a "believable story basis".



the gateway archBeing from St. Louis, I'm partial to the Arch and what it stands for. The construction of the Arch is quite a story to behold. But what the Arch stands for is even more impressive. There is a reason that St. Louis is called "The Gateway to the West", and the Arch symbolizes the spirit of all those brave men and women who went into the great and untamed wild of this country.

The Arch is probably one of the most under appreciated monuments in the world–the true embodiment of Manifest Destiny and the "Mind of Man". The same spirit that built the skyscrapers and great cities of America was found in those that ventured west to settle this great land and lay foundation for the revolution of freedom that was to come.



Bear BryantWith the college season just a couple of weeks away:

The Bear lays out the 4-year plan to incoming freshman. His math is a bit fuzzy but the message about dedication, discipline, teamwork and preparation comes through strong. Anything less than a National Championship just doesn't cut it.

In the 60s Bryant had Namath and Stabler as quarterbacks and the Alabama teams were built on speed, effort and conditioning—with smaller wiry players the norm. With integration occurring in the 70s and the advent of larger, faster and more powerful football players (like those on the Nebraska, Oklahoma and USC teams) Bryant changed his strategy and started recruiting the John Hannah, Dwight Stephenson, Barry Krauss and Curtis McGriff-type players and adopting a "wishbone-attack" of ground and pound. Although the "wishbone" offense was later modified to allow for more passing plays for Richard Todd and Ozzie Newsome it eventually faded away as an effective offensive formation in the changing cycles of Xs and Os.

Alabama with Heisman Trophy running back, Mark Ingram, has been selected to repeat as National Champions but "2-peats" are rare in recent decades and Auburn, the traditional in-state rival, could be spoiler if the Crimson Tide is not careful. Oddly if Boise State is able to defeat Virginia Tech in their opener (the same opening team that Bama had for their championship season last year) they may have an outside chance at the title given the plethora of returning players they have. Ohio State, Nebraska, Texas, Florida, and several others will have a shot too. Oregon appears to be the most volatile position-wise amongst pollsters.

It is always fun to see the preseason polls and compare them later at season end to see how far off the football prognosticators were.



 It's rather startling to realize how much of the time we stumble about completely unaware of what we are doing, moving on autopilot. A simple example of this is if some asks you to tell them what color your wife's dress is without looking. Or more commonly, finding your keys after you've put them somewhere and can't find them. As you try recreate the minutes the realization hits that you were totally unaware of what happened as you went through your motions.

One of the most difficult tasks is determining where the market is. Is it high, is it low, where is it going, what is it doing. We watch, but are we aware of what it is doing? Do we overlay our preconceptions on it. Are we mindful of its movements and what they mean? Are we looking at the current situation or trying to pigeon hole the market into our prior experience?

In Eastern transcendental philosophy one of the main concepts is mindfulness. It is an awareness of current actions and avoiding the trap of autopilot while the mental tape runs blinding us to what is going on. It would be good to apply this to the market before entering a trade and during. During a trade bias and emotions can overwhelm a calm observant mien. The conflict between prior expectation and current action is not easy to resolve during the fray.

Another interesting thing is the ability of the human mind to comprehend complexity and perform at high levels based on experience and intuition. Playing catch with a baseball is a good example of complex things done naturally. I am sure there are great traders who trade on instinct and do well. Can they beat a rigorous systematic approach. Probably not consistently because of the fallibility of the human condition prevents continuous high level performance. How about a combination of systematic analysis and discretionary trading. Will that beat systematics?

I've argued this with list members who concede that even systems are tweaked in a discretionary manner blurring the line. Their argument says that "discretion" is really just an unstated system that may or may not work better. The human mind can observe changes in cycles faster than a lookback system and also incorporate qualitative input. The human weakness is sadly the stumbling block.



 This talk about the "new normal" reminds me a little of the new economy at the turn of the century where by high p/e's were the new norm, where sky high values were the new norm. The talk has shifted to bonds, where the sky high values and super low yields is now the new normal. We saw what happened when that last bubble burst. Is this another one of the Fed's bubbles like the last one they created? It seems many of the market disruptions are cause by the unintended consequences of governmental actions getting out of control. Like the thermostat experiments.



 It's 2010. The real challenge to anyone cobbling an equation is to accompany the seemingly impenetrable with the same in graphic form. If done properly, the impenetrability lifts, the simplicity and beauty resonate.

I think to simply be able to manipulate symbols is not what mathematics is. Rather, it is being able to convey what is in the mind's eye, and now we certainly have the technological tools to do this.



1st column: Date of first Hindenburg
Omen Signal

2cnd: # of Signals
In Cluster

3rd: DJIA
% Decline  

4th: Time Until

4/13/2004 (1)   5       5.4%    30 days
6/20/2002       5       15.8%   30 days
                              23.9%   112 days
6/20/2001       2       25.5%   93 days
3/12/2001       4       11.4%   11 days
9/15/2000       9       12.4%   33 days
7/26/2000       3       9.0%    83 days
1/24/2000       6       34.2%   44 days
6/15/1999       2       6.7%    122 days
12/22/1998 (2)  2       0.2%    1 day
7/21/1998 (3)   1       19.7%   41 days
12/11/1997      11      5.8%    32 days
6/12/1996       3       8.8%    34 days
10/09/1995      6       1.7%    1 day
9/19/1994       7       8.2%    65 days
1/25/1994       14      9.6%    69 days
11/03/1993      3       2.1%    2 days
12/02/1991      9       3.5%    7 days
6/27/1990       17      16.3%   91 days
11/01/1989      36      5.0%    91 days
10/11/1989      2       10.0%   5 days
9/14/1987       5       38.2%   36 days
7/14/1986       9       3.6%    21 days

Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty-days.

The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%.

Phil McDonnell comments: 

The HO signal is negated when the McClellan advance decline oscillator turns up. It turned up briefly, hence no signal. This is the case even though the MCO has now turned negative again.

The probability of making money when you sell at the high of a given move and buy at the low is 100%. Now would someone kindly tell me when those are going to occur?

Jonathan Bower writes:

I'd like to know when they would occur too!

Phil's assumption is based on the notion that 100% of the position is in place at the high. If one were to follow a strategy (not suggesting that one should for any number of reasons) that added to the position as the market fell (perhaps one was not 100% sure it was the high?) and cover some of the position if a big enough pull back occurred (oops, maybe I'm wrong about this move), then one could get chopped up with sufficient vigor such that covering the entire position on the low would not generate sufficient P/L to cover the losses that occurred from over trading. At least that's one way you could sell the high and buy the low of a move and not win….

Phil McDonnell responds: 

Perhaps I was a bit too indirect and subtle. The people who believe in the HO cite 'back testing' that is seriously flawed. Their back testing methodology requires perfect knowledge of the future. In order to duplicate the claimed results one would have to sell at the high and buy back at the low. And yes they are selling 100% at the high and 100% at the low but that is irrelevant to the broader issue of flawed analysis. This is very flawed because you have to know exactly when the high and low will occur (knowledge of the future).

Looking at results this way you need to ask yourself how often large drops occur at random. It turns out that they are a regular feature of markets. Then we ask the question whether these particular results were unlikely to be due to chance. Remember the distribution of highs in a random walk is controlled by the Arc Sine Distribution not the Gaussian. Same for the lows. The Arc Sine is a U shaped distribution which is ALL tails and not much in the middle. For a discussion of Arc Sine see Feller's An Intro to Probability Theory & Applications. Vol 1 deals with binomial random walks and Arc Sines and Vol 2 moves on to Normal random walks.



Andrew Carnegie, robber baronThere is an aspect of the Robber Baron period that I did not touch on in my previous post.

The Panic of 1873 was brought on by the discovery that neither Jay Cooke nor Bethel Henry Strousberg was good for the money, but what followed was the first time in history that literally millions of people had money wealth– not just skills and courage and land tenancy or ownership but actual coin and cash.

We have no way of understanding the breadth and depth of popular political support for "hard" money and open trade (not "free" trade– but trade subject only to uniform ad valorem tax, without prohibition or prescriptive regulation).

Our current flexions are a reflection of how much "belief in the ready" has been replaced by demands for government promised annuities. The numbers for our Pyrite State are an illustration; California will– in a matter of weeks– once again be on the brazzle standard.

Our current FY state budget is $80B, and we have a $20B deficit. The unfunded liabilities for the state's employees pension plans have a present value of $400B– 6 years 8 months' worth of the total state tax revenues - assuming a discount rate of 4.5%. (The trustees, in their infinite wisdom, assume that they can make 8% each year from now until the rapture.)

Our latest Republican hero, the Governator (Nixon's spirit back from the grave) thinks it appropriate that the state's own pension funds should lend the Controller the money with which to make the legally required current contributions to the same fund. Amazingly, the trustees and the Democratic Controller appear to agree. No figure from California's past no matter how radical (neither Hiram Johnson nor Upton Sinclair) would have tolerated such obvious fraud.

This is– like the age of the Robber Barons– an age of technical wonderment; but it also is one of enormous moral stupidity. Just as the Robber Baron Supreme Court had no difficulty in voiding the 14th Amendment by denying individuals the standing to assert their rights, our Ninth Circuit is on the verge of making the same presumption– that only officially recognized institutions will have the standing to assert rights popularly enacted into California's Constitution.

One of the truly awful aspects of our current political world is that even our most intelligent radicals– people like William Greider– fail to see what everyone from John Lilburne to Richard Cobden took for granted– that the citizens' basic rights to contract, open trade and hard money were the necessary preconditions for popular liberty, whether you were talking about Athens in the 5th century BCE or England in 1650 or the world in 1875.



Obama21 August 2010

Editor, USA Today

Dear Editor:

Many Americans are confused over President Obama's faith ("Obama invites confusion about his faith," August 20). I, for one, am not at all confused about it– at least not about that species of his faith that affects me and every other American outside of Mr. Obama's immediate family.

While I have no idea what Mr. Obama's theology is (and nor do I care), it's crystal clear that he has a fiery faith in his and his political colleagues' wisdom to legislate and regulate for what that faith assures him is the public good. His blind faith in the necessity and goodness of his own central commands– and his cocksure rejection of ideas that conflict with this faith– reveals not only an antediluvian ignorance of economics, but a magnitude of self-assurance found only in persons whose faith protects them from the uncertainties that arise by confronting facts with reason.

Sincerely, Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030



jail for Clemens"Joe Maloof, who owns a casino said this about athletes: "they always think they can win. The great ones are the worst. It's as if they really think that odds don't apply to them." (relating to Clemens going to jail).

Russ Sears comments: 

From what I have seen of steroid use in athletes, the surest sign displayed for all to see, is the change of cockiness at the start of there use. It goes from stubborn determination needed to succeed at those levels, to self assured immortality/indestructibleness. This I believe is why steroid use only gives a athlete a temporary boost if he/she has already reached their peak without them.

This omnipotence includes superior intellect, especially over drug experts and authorities, that borders on the teenager's omniscience over authoritative parents. They have experienced something clearly beyond science or the laws possible grasp.

If libertarian views on drugs use is to gain anything but derision from the masses, it must address these self delusions drugs inflict, Both on an educational campaign on these self delusions. And make clear that while we may have some similar end goals towards freedom. The means to get this freedom would still place a heavy personal burden on these poor delusional souls. But perhaps a more enlightened view of their self assured self destruction, and a more productive repayment program for the heavy social and economic burden their deluded actions places on all of us. I hate to see Clemens go to jail, but he certainly owes us all a big debt for robbing the integrity of the game.

Nick White writes:

I would advise anyone interested in this topic to look at the before and after interviews of almost any professional cyclist convicted of doping offenses…take your pick of nation or language…there are hundreds….all from the sharp-end of the knife, not "also-rans".

I would also present - as exhibit A - the cocksure attitude of one particular, multi TdF winning "hero". I would advocate the reading of affidavits from staff, team-mates and others in forming your judgments.

Right now, I'll pull out this card, and wait for the ensuing vitriol.

My own two cents? The popular attitudes required of professional athletes is akin to being short gamma in a fast market. I would say for any individual involved in an activity where the best outcome that can happen is the keeping of the sold premium, there is going to be an element of delusion just to keep "sane" while the position is on….sports, business, life, politics, personal goals or philosophies. 

Russ Sears adds:

If innocence or guilt was really the question, then drug use in sports would accept evidence like any other crime. But it is assumed not just innocent until proven guilty, but that anybody that witnesses the crime or has knowledge of the crime has turned to the other teams, is jealous or simply got bought off…at least this is what the sports leagues/teams would have you to believe. See Nick's post. Now you have a crime that can not be reported, because you are assumed the guilty party more than the drug cheat.

Now if they really wanted to clear drug use out of baseball, they could enact a system like college's uses to keep their players from accepting a dime. If a team's player is caught breaking the rules, now or from the past, the whole team lose major league status for a year, and their players contracts must be honored but the players can choose to be free agent. Likewise for Olympic sports. In track it was well known that the Chinese women had the best runners by times, in the late 90's, but they were cheating and therefore did not get invited to real track meets. But if the track team would have been banned for a Olympics you can beat, the Chinese would have taken care of this before they were banned.

But as it is drug testing is the only way to "prove" guilt, despite its clear drawbacks.

If this type of system, giving punitive punishment to the whole team where the team really wanted to eliminate the users were in place, then your testing would be invaluable.



Chalmers JohnsonI was speaking a few months ago with a financial strategist/blogger about the US repeating decline of Roman Empire. Noticed this week UC-Berkeley Professor Chalmers Johnson releasing a new book on the same. His argument is we need to cease military operations, stop being the world's policemen and re-route all efforts to better infrastructure, energy, education, etc. Whether you agree with him or not, he's a great researcher/writer and his work on Japan was the basis for my undergraduate honors thesis. Always something to learn from him.

Stefan Jovanovich opines: 

Vince, I think your characterization of Chalmers Johnson is off base. He is anything but "a great researcher/writer". He does the kind of scholarly study that is best described as "Jane Fonda homework"– a quick visit to the point of controversy, interview the local celebrity dissidents and back on the plane. In the "Sorrows of Empire" he recounts his inspection of Camp Hansen, the Marine base on Okinawa, and concludes by saying that it is "lush". Camp Hansen*&*%*^!!! There is no way to take the words of such a man seriously. Johnson's use the Roman Empire metaphor should be a pure tell. Which decline and military defeat is he talking about? Cannae? Arausio? Carrhae? Teutoburg Forest? Johnson never does specify.

Edward Gibbon thought the Roman Empire declined because our own Gibbons' Christians took over, not because the military collapsed. Even so, "The Fall" took another 1000 years. If money is an appropriate measure, the United States has long since stopped being the world's policeman. In 1968, during our last major police action before the present one, the budget of the Department of Defense budget was 46% of total Federal expenditures. Forty years later it was 21%. During that same period those dread entitlements - Medicaid, Medicare and Social Security - went from 17% to 41%. It is part of Professor Johnson's wilful blindness that he refuses to see how many swords have already been beaten into plowshares. What he should be examining instead is how many of the "investments" (sic) already made in education and infrastructure (aka more school buildings) have produced the same kind of literate but completely unskilled mob of patronage seekers that the author of the Decline and Fall saw as the greatest threat to his own country and its future empire. All the best. Stefan

P.S. Not everyone on the Berkeley campus these days is a faux scholar and historian. The trouble is that for every 10 Chalmers Johnsons, there is only one Andy Stewart.



 I found this interesting post on the Mercer Museum in Pennsylvania. See the whole post here:

Henry Chapman Mercer completed the museum in 1915 to house his collection of pre-industrial tools and relics which were largely disposed of in the whirl of early 20th century technology. Many pieces were rescued from the trash or bought for pennies at auction. In essence, Mercer created a museum to show how life was lived in the 18th & 19th centuries before industrialization took over.

This interest of Mercer's made sense: while a renaissance man of epic proportions, he was by trade an arts and crafts tile master who founded the Moravian Tile and Pottery Company. These tiles were (and are) made by hand–a craft that the industrial revolution was quickly stamping out.

Objects as diverse as a whaling boat hung from a railing (seen above on the right), baby cradles attached to the ceiling and pre-industrial tools in stalls surrounding the walkways educate the viewer in 'how did they used to do that?'.

The building is essentially a fascinating maze. I'm not sure if Chapman was a madman or a genius, but I like the results.

Visit the Mercer Museum website.



 I read an article "How Venice Rigged The First, and Worst, Global Financial Collapse" by Paul Gallagher. Whaddya think?

Bill Rafter summarizes:

Skimming the article one gets the opinion that the author blames most of the 14 Century economic failures on Venetian bankers rather than on the Black Death. 

Victor Niederhoffer writes:

We must hear from Stefan on this subject to get the truth, the whole truth and nothing but. 

Stefan Jovanovich commentates:

I am feeling damn near invincible this morning having had Susan's corn meal and flour drop bisquits for breakfast (also the 10-year old boy cat's favorites) so I am going to pretend that this opinion offers what Vic requested– "the truth, the whole truth and nothing but the truth". I have read Charles Lane's book , and I do know something about the period because my own faith comes closer to what is now called the Eastern Church than any other Christian sect; and I have always been curious about its fate. As Bill tactfully suggests, perhaps Black Death had something to do with the decline in European population that the essayist blames on those awful Italian bankers. The later Crusades and the mere Hundred Years war (which, together, had relative costs greater than WW II and the Cold War combined) may also have played a part. Blaming the bankers for the decline in food production that began around 1300 also seems more than a bit of a stretch. The farmers themselves thought that the end of the Medieval Warm Period was a more likely cause.

The author is right: there was a credit bubble. But like our most recent ones the bubble rose out of a dramatic reduction in the real prices for the things people lived by (computing for the tech bubble, household and home improvement goods from Asia for the consumer/real estate bubble). The rise of the Italian city-state bankers came from the dramatic declines in the costs of transportation and protein. (Archaeologists are finding that around 1100 Europe relatively suddenly went from eating freshwater fish to cod and other salt-water species.) These changes came from developments in naval technology and an outbreak of relative peace. The Italian bankers couldn't have been able to cheat poor King Edward if they hadn't had the means of getting themselves and their gold to London and back quickly without risk of having the Vikings waylay them.

The bubble continued and then broke because events moved against people and then as now, the bankers kept their mansions but most of them lost the better part of their fortunes.The essay assumes that there was ONE GIANT FINANCIAL VILLAIN without which the rise of benevolent national governments would have continued and everyone would have lived in peace and prosperity. This essayist blames the Venetians; others have blamed (who else?) the Jews. What is indisputable is that the bankers kept better books and minted more honest coin than the governments they lent to. How that allowed them to "control the Mongol Empire" and switch legal tender from gold to silver and back again remains unexplained. But, then, so does the modern notion that the Great Depression and the rise of the Nazis were mostly a function of the New York Fed's misadventures with the money supply.

The costs in blood and treasure of WW I, the influenza epidemic and the Tokyo fire and earthquake and the Mississippi Flood of 1927 were entirely incidental. What made people stretch so far for yield that they were willing to invest in match monopolies in the 1920s is the same cause that brought people to do serial refinances with the Bardi, Peruzzi and Venetian banks. Events had left most of them without the incomes they had come to expect so they borrowed and risked more and hoped to make it back when the weather changed and they won the next war.

Phil McDonnell adds:

I have to side with Bill Rafter on this. Arguably the Bubonic Plague may have begun in Europe when the Mongol Golden Horde laid siege to the nearby Genoan city of Kaffa in 1345. The siege was only broken when the Mongols were too badly stricken with the plague and forced to go home. Within a couple of years one third of Europe had died.

I think Plague and Mongols invaders would have a strong chilling effect on trade. Conversely, a banking panic cannot cause the Plague.

Steve Ellison comments: 

One of my pet peeves is the overuse of impenetrable equations in
peer-reviewed finance publications (and I think I'm pretty good at math;
I can still occasionally help my son with his calculus homework). To
cite a recent example, it would not seem to require calculus to explain
that spending on durable goods falls faster in a recession than other

Russ Sears replies:

Mr. Falkenstein's argument should be applied to all modeling, not just economic modeling. Even in a field with time tested product pricing models as actuarial science, I have found time after time that to truly add value, you must ask "where is the model blind spots?" People drove a convey of trucks through the MBS model's blind spot in pricing and ratings. And if left to their own devices FASB mark to market models would have driven all of us to a great depression. As I said at the time, (see A modest Proposal to the SEC)

They were blind to a liquid assets that can quickly turn illiquid and have huge liquidity premium on a mark to market model.Exploit the loopholes, and if nobody ask if this is simply a blind spot that you are exploiting, you will look great on paper like AIGFP… for awhile…until it become apparent that your resource allocation has a divide by zero error in it.

Modeling and regulatory modeling in particular, have replaced the central planner of the failed communist system.



vintage shredded wheat adI was taught in high school history that the evil corporations formed monopolies and gouged the common man until the government broke up the trusts. However, this 100-year-old advertisement seems to suggest that government trust busting was driving food prices sky-high.

Advertisement in Nevada State Journal, August 18, 1910:

Make Your "Meat" Shredded Wheat These are troublous times for the man who eats food. The government is after the beef trust, the poultry trust and "the cold storage egg." But while congress, state legislatures and grand juries are "investigating" the high cost of living, your meat bills and grocery bills are soaring higher and higher. The food problem is an easy one if you know SHREDDED WHEAT. It contains more real body-building nutriment than meat or eggs, is more easily digested and costs much less. Always clean–always pure–always the same price. Your grocer sells it.

Stefan Jovanovich comments:

The Robber Barons were scandalous precisely because their energy and enterprise and eye for innovation brought the Tonto question into sharp focus. When Ralph writes about "our" national parks, he is highlighting that same question. The recent debate on the List about the "ownership" of one's own body also raised it in detail.

Neither the Declaration of Independence nor the Constitution defines the right to property. Jefferson showed his precocious talents for propaganda politics by substituting "the pursuit of happiness" for "property" because he knew that the definitions of "property" were the very issues that divided the colonists. Sam Adams and his fellow radicals argued that regulations were as much property as physical stuff and that those regulations were the monopoly privileges of the Crown's favorites. The Tories argued that the Navigation Acts and other rules were necessary to preserve "the public interest".

a california sea lionAs a lifetime lover of marine mammals and the one-time joint keeper of Stevie, a Steller sea lion, I have spent 40 years living in California and watching the Tories of environmental regulation make the same snobbish arguments in favor of their superior pedigrees. Instead of examining and answering the basic questions of who owns the Pacific fishery and its mammal predators, the environmentally righteous have spent enough money on bureaucracies and international conferences and endless discussions to have bought out every whaling company and purse-seine trawler in the world. If the people who wanted to "save ANWAR" were as shrewd as they were righteous, they would be lobbying to define and auction off the specific property rights that are involved. Of course, what they would discover is that the greatest obstacle to such a process would come not from the E&P companies' unwillingness to preserve the environment but from the regulatory bureaucracies themselves. Like the tenants in a rent-controlled apartment, the people sitting in offices in Washington, D.C. and elsewhere get the most direct benefits from "preserving America" even as the place crumbles around them.

I agree with Ralph that all the arguments in favor of drilling in the name of reduced oil prices and "energy independence" are complete hooey; so were the Robber Baron arguments in favor of preferential as opposed to uniform tariffs. But, one can hardly blame the E&P companies for using the same fatuous logic of the collective "good" that their environmental opponents do; if the question of "who benefits" is to be ignored and never, ever reduced to an actual accounting, the forces of "evil" - i.e. people who want to drill for oil - will just as likely to resort to "public interest" arguments as anyone else. What is interesting is the historial contrast between the failure of preferential tariffs to gain much ground and the obvious success of the regulatory model. The explanation is simple: the advocates for favoritism in tariff rates had to answer the direct question of cost. The beauty of regulation is that it offers the benefits of ownership without all the fuss that comes from having to fess up about what it will cost. We are long past the age when a Vanderbilt could ask a journalist "when did 'the public interest' ever buy a ticket?" (That is the first part of his famous remark about "the public interest be damned" that never, ever gets quoted.)

As long as the questions of property (who exactly owns what?) can be avoided, the tragedy of the commons will continue. As long as the gullible and excessively schooled (often one and the same) can share the illusion that "we the people" will all be as happy, healthy and secure if only the government is allowed to make rules to abolish scarcity and evil, the greatest profits will come from working the system; and, when those rules fail to work, the diagnosis will always be the same as it was in the age of blood-letting: we need do more.

P.S. For those who don't know it, "the Tonto question" is the reply the Lone Ranger's faithful Indian companion allegedly gave when the two of them found themselves out of bullents and surrounded by Apache and the Lone Ranger bravely said, "We've come to the end of the trail, partner." "What you mean "we", white man? I was first told this joke by a member of the Taos tribe in 1965. What made it funny was that, as a Pueblo, Tonto would have enjoyed no better fate at the hands of the Apache than the Lone Ranger. The illusion of collective interest is always funny to people wise enough to appreciate actual human action.



Picture book ad for HPBack in about 1994, my wife and I started investing in individual stocks. We did not have much to invest but if we had a couple hundred from say a race won or a tax refund we would research what to buy. We would go to the local library and look up the latest issue of Value Line, to come up with our top ten prospects. Then we would look at their recent statements compared to its competitors to screen out the candidates. HWP was one of our initial purchases,(before the COMPAQ merger ticker switch to HPQ).

While we made several mistakes on other stocks, HWP initially was a great buy., as were most any tech stock back then. Still HWP bet the QQQ.and IBM for first few years. While we had a good initial screening plan, we made several beginners mistake. We had no exit strategy, except to rely on our broker. Further, once we had about 10 stocks we simply started adding to the over performers buying highs.

Then in July of 1999 thing quickly changed with the announcement of Platt's retirement and Carly Fiorina as the replacing CEO. The market voted their disappointment with their feet. Quickly the over performance turn to underperformance compared to QQQ. Meanwhile IBM had started addressing it problems and was out performing by about 96. And of course in hindsight I would have been much better to sale and switch to IBM in 1996.

But HWP was my second best stock, so I kept buying. Then of course the QQQ dropped in 2000 and 2001. But in 2001, to add injury to insult Fiorina got into a proxy fight with the founders son, a board member over the Compaq merger. I kept voting against the merger, but kept getting packets asking me to change my vote. Once they got enough votes by the big mutual funds they finally merged. This of course did not improve things. Finally, I got the message and sold in 2001.

Carly was out by 2005, by shareholder accounts a failure, compared to the QQQ their peers and by price the stock had lost half its value.

Hurd brought HPQ back to over performing. But with his ouster, the stock still has made up for Carly underperformance, but has given up the long term over performanc (to QQQ) of his and Carlly combined tenure.

The moral of the story, is perhaps Platt, Carly, and Hurd or any other CEO is not worth, the billions that is lost by the market. But the Board is telling the market something. Are these isolated events? These stumbles would seem to be predictive of future mistakes or perhaps predictive of simply poor oversight and contempt for the shareholders?

Further, while mergers, may not subtract value, such as Intel, in and of themselves, but do they signal poor future decisions and similar contempt for the shareholders?

Has there been a study to see if these CEO drops are actually predictive of the incumbent CEO tenure? And has there been a study to see if these bad merger announcements, ones that the sums of the parts are clearly negative, signal future underperformance.

Victor Niederhoffer says:

Russ's post about his "layman's" experiences with HPQ should be on television. It's a perfect and useful story for our times. Everything the fast runner does is pitch perfect in my opinion.

Rocky Humbert replies:

There is abundant academic research which shows that most mergers don't create value, particularly in technology. However, the results are skewed by a handful of large deals — and don't give consideration to whether a company is buying a technology which can be exploited — or whether it's some sort of obtuse synergistic strategy proposed by investment bankers and ratified by megalomaniac CEO's. It doesn't take a genius to realize that if a buyer pays a 30% to 50% premium to the market for an acquisition, it's a difficult hurdle to overcome [unless the target was too cheap before the bid.] Importantly, these studies can't answer the question "what if"– since there are an infinite number of alternate scenarios which might have been even worse than overpaying for another company– especially depending on the timeframe. There's also a Wall Street meme at work here. Back in the days of Cendant, every deal "created" value– even though it was just smoke-and-mirrors.

You ask whether an academic has studied "whether the market's initial reaction is predictive of the long term success of a merger," and I'm sure there are papers on this– and I'm also sure that the papers are useless for investors since the forest gets confused with the trees. Case in point: The market "loved" the AOL/Time-Warner deal. Enough said.

There are a lot of papers about CEO departures. Here's one. It's EXTREMELY rare for a CEO to depart after good stock performance (except for retirement, health, etc.) I generally don't pay attention to CEO's unless I consider them to be lazy, unethical, inconsistent or undeserving of their job.

Lastly, I should disclose that since 1997, I did not invest (as distinct from speculate) in technology stocks. Putting the business/innovation/franchise aspects aside, it's only in the past year that certain technology stocks have finally reached valuations which can generate double-digit returns for investors with a static p/e assumption and 3-5 year time horizon…

James Goldcamp comments:

I took Rocky's post to imply something I also believe to be true. Much of a CEO's (perceived) performance is the result of random factors and timing and in many ways are like the ephemeral economic reports, to which chair often refers, that get revised (just like Neutron Jack, Chainsaw Al, and the ousted CEO's predecessor get revised down years later after being previously uniformly lauded). Also, CEO stories probably cause to much focus on the narrative, rather than the underlying business fundamentals, causing mis-pricing of securities when there is excessive negative or positive headlines regarding the executive (to which Rocky has alluded with a prior post about the departure of HP's CEO and questions of how many B's the CEO is really worth).

I didn't take from Rocky's post that CEO's are overpaid, though I will go as far to say that in my opinion directors of public companies have not (in general) been sufficiently diligent with compensation and insuring an appropriate alignment of interests between shareholder and management, especially with respect to cases where said executives do not have "skin in the game".

Disclosure: I was a buyer of shares in HPQ and INTC this week. (among other things)



 Just a heads up for science buffs:

There are two very interesting shows on the Science channel these days: Wonders of the Solar System, with brit physicist Brian Cox; and Through the Wormhole, with Morgan Freeman.

I like a good science show and I'm really enjoying these two series. The Brian Cox show is particularly surprising because one thinks one has already seen whatever can be shown on tv about the solar system that's interesting, but WotSS surprises often and rewardingly.



 I was just doing some work on Intel. (I have a small position and added to it this morning.)

Before the open, Intel announced the cash purchase of McAfee at a substantial premium to its closing price. They paid a 2.7B$ premium to MFE's close, and the market immediately took $3.7B off the market cap of Intel. (This was before the market went down a lot.) So this means that the value of MFE inside of Intel is worth less than the value of MFE outside of Intel. This is not entirely crazy, but it doesn't smell right to me.

It means that the market place:

1) Puts more value on the cash that was sitting inside of Intel than on yesterday's market cap of MFE … or

20 it believes that Intel will harm MFE's business.

Vincent Andres comments:

Maybe the "substantial premium" (60% !) has been considered as shocking in today's mood. (Not considering if the deal is good or not) was such a premium really necessary to make the deal? Kind of bad execution? 



Gold jewelry in ancient EgyptBeing a trader and not a math guy like our host I may not be able to prove there is or is not a seasonal pattern for gold to rally in August, but I am impressed when I create a seasonal chart for Au from inception to 2000 and see what looks like such a general pattern. I then run the same tool on data from 2000 to date and see about the same thing and, then again, I am very prejudiced on this seasonal concept as I wrote the first book ever on seasonal studies and even way back then we saw this pattern in gold. So to me it seems there is–at times–a trading advantage or bias here. (plus I am long as this is written from 8/11). My views on seasonals have altered since that 1973 book quite a bit; seasonals are not a mandatory thing but often offer confirmation and a suggestion of what is in store.

I have tried to attach charts to illustrate this point but size is to large (will send if you just have to have them), it is different opinions that make for horse races.

Happy Trails to all,


Victor Niederhoffer says:

The handball senator said about seasonality, the chair agrees with
the senator. I was too hasty involved in a position. With humble mien.



 A little debate brewing in the ethos-sphere about drilling in Anwar (the artic national wildlife refuge). Now I wonder who could be behind that? Someone who stands to profit from the involuntary transfer of assets from the people of the United States to them.

One of the arguments in favor of drilling in Anwar is that it will help suppress to cost of oil domestically. But consider we not only went through the Deepwater Horizon spill, bu a moratorium on drilling in the Gulf of Mexico. That drilling WAS purportedly being done to suppress the cost of oil domestically.

If that was a valid argument, I would have expected prices at the pump or on the futures exchanges to have risen and risen noticeably. But the contrary happened. So why should drilling in Anwar be any different?

I propose that exhange rate manipulation (an entirely legal and sino-time-tested tactic) would have far greater influence on oil prices."A matter of national security?" Really? That presupposes that the oil producing countries can shut off the taps or store the stuff, when in fact, they burn through that revenue daily just to maintian themselves. They HAVE to sell it and they don;t care who the buyers are. It is a far different world and market structure than it was 40 years ago. Additionally, we don't make cellphones in America, but rather, most in suicide-inducing Sinosweatshops. No one seems too concerned about national security on the myriad of other products we now import.

Drilling or not in Anwar will have essentially zero-effect on oil prices, just as drilling in the gulf showed us. These are fake arguments with a private agenda behind them and have no effect on markets.



 Just get rid of the TV cable all together. TV is evil and rots the minds of children. It glorifies evil, immorality, bad attitude, consumption. I have not had TV for 35 years. Its absence has allowed time for the family, for exercise, for reading.

Throw it out.

Nigel Davies comments:

I'm not convinced that banning either computer games or television is the only way. There are lessons to be learned from television shows just as there are interesting computer games.

My son currently chooses not to watch television, earlier he had a period in which he watched a favourite show at every opportunity. He also plays a computer game called 'Hotel Giant' in which you build hotels and increase profits if you find out what the customers want.

He knows he's free to play shoot 'em up games if that's what he wants, but for some reason he's just not interested. OK, it's probably clear to him that I think this stuff is garbage so it doesn't come with parental approval. But he knows it's not banned either, and maybe that reduces the attraction. 

Jeff Sasmor comments:

We have 7 TVs in our house. Once over 14 I let the kiddies watch whatever they want.

My kids have had their own internet connected computers since they were 6 years old. I don't block anything.We have a PS1 PS2 PS3 Dreamcast Wii Gamecube NES.

Only 1 rule: No TV until homework is done.

Both have A- averages in HS. The older one is in college and is running a 3.8 in freshman year at Barnard, which is not an easy school. Neither is a libertine nor a drug user nor an underage drinker. Unfortunately I was never able to get them interested in Python programming.

Funny thing– with all that availability they don't watch that much TV. Younger one draws all the time (illustrator) and the older one writes all the time (fantasy fiction).

One good thing– they have me in the house every single day (well maybe they don't think that's all that good…).

I think parental encouragement and involvement in a non-shaming fashion is more effective for positive child development than anything else one can do. It worked for my family. I don't believe in any restrictions aside from those necessary for safety reasons.



New Chip Startup Plays the Odds on Probability Processing:

Conventional processors rely on the sequential processing of zeroes and ones, an approach that may not be the most efficient for applications like search, fraud detection, spam filtering, financial modeling and genome sequence analysis, which require simultaneously considering several possibilities and deciding on the best answer. Lyric Semiconductor’s chips are built around probability processing.



 Jim Cramer keeps yelling that September is a bullish month for gold– and that viewers should "BUY NOW!" to participate in this inenvitable September rally. Is this ballyhoo? Or is there a persistent bias?

For Septembers since 1992 (from before the current bull market), gold has risen 14 out of 18 times. For Augusts since 1992, gold has risen 9 out of 18 times. And there's only been one occurence when a positive August was not followed by a positive September. But is this statistically significant?

Monthly % Change






























Kim Zussman adds:

The attached is a comparison of monthly mean returns for ETF GLD, ca 11/04-present. For the etfgoldbugera sapiens, September is good, second only to November (though none significantly different from the global mean).



Powell's books in PortlandSome of my favorite places in the world are Powell's Books in Portland, The Ohio Book Store in Cincinnati and the Renaissance Book Shop in Milwaukee, among other like retail monuments to the written word. Imho, there is nothing quite like browsing a bookshop for hours, squeezing through narrow mazes of underlit, overcrowded shelves, savoring every breathe of must and dust and dry-rotting pulp, hoping to find an overlooked first edition [doubtful anything so rare and glorious as a copy of Poe's 'Tamerlane', but there are finds to be had].

Unfortunately, indeed, the handwriting is on the wall. Ebooks are the future and even old book scouts like us are contemplating Kindles.

Some visitors to the house a while back walked into the library and said 'My, look. Books all over the walls. We're out of our league in the brain department'. I said, 'Not to worry, we don't really read, it's just a big mural we had painted so we look like readers'. Everyone laughed, but in 5 years, it may very well not be a joke. Instead, they'll ask 'Oh, my, a Kindle. What version of firmware do you have?'

It may be the future, but it just ain't the same…heavy sigh…



 The market trades much differently at bottoms than in the middle, and the tops. How to figure where we are is in part disclosed by how the market trades. Entries and trades should be completely different, but its very very hard to switch gears from day to day.

Seems like Sumo trading where one side gets the momo and knocks the other side clean out of the ring till the next match at few moments later.



Being Wrong by Kathryn Schulz [cat]

Horse Trading by Ben Green [cat]

Analyzing Multivariate Data, J. Latvin [cat]

S&P Security Price Index Record [cat]

On Fencing, Nadi [cat]

Conceptual Physics, Hewitt [cat]

The Ticker, volume two [cat]

Short Novels of Jack Schaefer [cat]

Difference Equations, Paul Cull [cat]

State of Humanity, Simon [cat]

Introduction to Biomathematics, Robeva Kirkwood et al. [cat]

Modeling Dynamics, Adler [cat]

Musimathics, Loy [cat]

An Introduction to Regression Graphics, Cook [cat]

The Energy of Nature, Pielou [cat]

Biological Invasions, Williamson [cat]

Epidemic Modeling, Daley [cat]

Science of Swimming, Counsilman [cat]

Fifty Years of Wall Street, Henry Clews [cat]

Court Martial of Mackenzie [cat]

Checklist Manifesto, Gawande [cat]

Fourteen Methods Magazine of Wall Street [cat]

Wall Street Stories, Lefevre [cat]

Makers of Modern Strategy, Paret [cat]

Elements of Forecasting, Diebold [cat]

Statistical Methods in Psychology, Howell [cat]

The New Bill James Historical Baseball Abstract, James [cat]

Stocks and Shares, Withers [cat]

Price Theory, Landsburg [cat]

Price Theory, Friedman [cat]

Discrete Mathematics, Rosen [cat]

Extraordinary Chemistry of Ordinary Things, Snyder [cat]

Conceptual Introduction to Chemistry, Bauer cat

Introduction to Sun and Stars, Green [cat]

Handbook of Linguistics, Aronoff [cat]

To Rule the Waves, Herman [cat]

Rainbows End the Crash of 1929, Klein [cat]

I would like to reread all of these if I had some good light and time and money.

Jim Sogi writes: 

Here is my current top shelf.

Wild Snow, by Louis Dawson (Classic ski descents North Am.)

Free Skiing, by Choukas (best encyclopedia on subject)

Glacier Mountaineering, Andy Tyson  (best book on subject)

Statistical Models, Freedman

R-Reference Manual, Vol I

Alaska Backcountry Skiing: Valdez & Thompson Pass  by Matt Kinney                                           



kindle on an ipod

Are Kindles good for kids?

George Zachar answers:

My 11 year old daughter was a reluctant reader until we got her a kindle. Now we can't get her to stop reading.

My 15 year old son seems to have his kindle surgically attached. He reads while doing yoga.

I recommend an iPod touch with the free kindle app. It fits in any pocket and lacks many of the distracting attributes of the iPad.




In the last few days, my 8-months old, Dimitri, has become mobile. Not officially crawling yet. He has mastered the soldier barbed wire technique and can move a long way across my living room in a handful of seconds.

Though I would never test it officially, if I were to put out a cookie, a tennis ball, a beer, and a knife all across the living room at the same time in random order, I guarantee you he would go to the most dangerous of these objects first and then gradually move down in rank to the least dangerous object.

Aside from the thought that "he must certainly be a Tar", I think you may get my point. Perhaps it is an infant and deeply ingrained primitive quality (or instinct) for humans to be attracted to trades that are inherently more dangerous than the others in a set of opportunities. I can only imagine how many people have tried, and blown up, trading options when they should have been playing stock.



the ipad bookshelfIn a moment of surrender to momentum investing, I recently purchased an iPad (the gadget, not the stock). Its greatest attribute as a book-reader is the ability to adjust both font-size and background lighting. Balanced against the missing tactile pleasure of a fine book, is the pleasure of not needing reading glasses. Its other virtue is the embedded dictionary– enabling one to click on an obscure word and instantly get a definition.

One can access both the 676,061 titles in the Amazon/Kindle library and the somewhat smaller Apple/iMac bookstore. The Kathy Schulz "Being Wrong" text is there– but most of Vic's other books are not yet available in E-format. Arbitrageurs will appreciate that the Kindle Store has free book collections including Dracula, The Adventures of Sherlock Holmes and sundry other classics. Many popular magazines are available for purchase, which means that "reducing my carbon footprint" is no longer a valid excuse to avoid driving into town to buy Barrons.

Birdcages throughout the land must be feeling the pain. Hence there may be a Cockatiel "pairs trade" here….?



Amity ShlaesIn an amusing and incisive column that suffers from the recency and non-ever changing cycle bias, Amity Shlaes says that presidents tend to learn at the end of their term that they have to solve the social security problem and that Bill Clinton called up senator Bill Archer to solve the problem and Archer remembered it because "Rush Limbaugh was on the phone and we had to turn it down." Reminds one of how a certain real estate personage remembered that a certain governor came in every Thursday for 25,000 in cash (before he passed away): "He would jog back from his girlfriend's house and he was always so sweaty. Then he'd sit down in my good leather chair and I'd get so upset because he sweated it up so much I'd rush over to him and take the bag and escort him out."

Stefan Jovanovich comments:

The irony of the present situation is that Social Security is only "in trouble" because the Trustees allowed the Congress to prevent the Trust from having actual assets– i.e. Treasury securities that the Trustees could sell on the open market to pay for benefits. If the bonds in Al Gore's famous "lock box" were actually negotiable, Social Security would have a surplus.

The Social Security crisis exists only because the Federal government has literally stolen Social Security contributions and now finds itself needing that same money to pay promised benefits. Social Security is the broadest single program in the American history, and it remains enduringly popular for a simple reason: it allows even "ordinary" people to avoid outright destitution when they get old or disabled.

If its early participants received more money than they would have received under a defined contribution plan, that was intended. Many more recent participants (yours truly, for example) now receive far less from the program than they would be making if they had been allowed to invest their Social Security contributions. That is partly a function of the fraud that the Congresses and Presidents have committed, but it is also in the nature of the system. If some of us could have done much better, many would have done far worse. Those of us who have skills where making money is concerned have other resources; we are not going to suffer because the rate of return on our contributions is less than we could have made for ourselves.

The flaw in all privatization plans is that they presume that everybody is good at investing. They are not. That is one of the reasons why Franklin Roosevelt wanted Social Security program to be established as a defined benefit plan, and it is a very good reason why it should stay that way. What we need to do is follow through on the rest of Roosevelt's plan. He wanted every person to know exactly how many Treasury bonds were in their own Social Security account and how much those bonds were worth.

It is time for the Federal government to make good on the rest of Roosevelt's promise.The only other "reform" we need for Social Security is to expand it to include all employees and self-employed people in the country no matter who their employers are. The present state, local and Federal pension problem exists for one reason only: the people in those pension plans wanted more than Social Security recipients get.

George Orwell once said that the public servants in a rich country are mostly just people who want a special annuity in the name of "the public good". No one has ever explained why public employees are somehow more deserving than other working people. It is time for all those special annuities to be cancelled; everyone who works at a legal job serves the public good, and they should be entitled to equal treatment by the government where public pensions are concerned.

 A Social Security reform that abolished all other public retirement plans would require a sacrifice. It would mean that the specially entitled– members of Congress, for example– would only receive what other people with the same earnings history received. What a shocking idea– that public servants should receive the same Social Security retirement benefits that citizens and other legal residents have earned and nothing more.

If George Orwell were alive today, he would probably add one other comment about "fiscal conservatives". The people who want to call Social Security an "entitlement"– as if it were somehow unearned or excessive– are, at bottom, arguing that in the name of "Social Security reform" the Federal government should be allowed to find a way to default on the broadest promise it has ever made. The cure for having had a government that has lied, cheated and stolen is not to allow further lying, cheating and stealing in the name of fiscal prudence.

P.S. Medicare is a very different matter. The projections are truly scary, but they are like world energy forecasts in 1850 made on the basis of whale oil prices. The current Medicare and Medicaid projections assume that there is no possible way for medicine to be done better, cheaper and faster like everything else that is subject to competition. That goes against all common sense, unless, of course, you assume that Obama care will remain the law of the land. If it does, then American medicine will be the Slumdog Millionaire version of Amtrak.

Here endeth the rant.



bacteria seen through a microscopeTwo recent scientific theories I find interesting: first, bacteria causing rain ("bacteria infects a plant, multiplies, is aerosolized into the atmosphere and then delivered to a new plant through atmospheric precipitation.")

Second: plankton causing hurricanes. Bacteria plays an intermediary role producing DMS, and "Sulfur in the DMS sticks together in the air and creates tiny dust-like particles. These particles are just the right size for water to condense on, which is the beginning of how clouds are formed."

Individual bacteria have quite limited thinking power (and bacteria politicians presumably have less), but with 5,000,000,000,000,000,000,000,000,000,000 (five million, trillion, trillion), that's a lot of bacteria action in response to scarcity.

People carry an estimated two to nine pounds of bacteria, all working on particular projects, with 2-4 pounds in our digestive track. 85% is said to be beneficial to digestion and particularly beneficial containing the evil designs of the other 15% plotting to do us harm.

We should be able to develop theories of bacteria influencing financial markets.

Also in a related theory: bacteria cause heart disease. As I finished my earlier post I received an email from our college intern telling me her father had just had a heart attack. I remember her earlier telling me her mother was diagnosed with lyme disease. The connection is proposed in the theory of oral spirochetes that cause both gum disease, lyme disease and heart disease/inflammation.

Apparently government regulations make it difficult for MDs studying heart disease to venture into the oral domain of periodontists: "We also discussed whether Physicians have the right to treat Oral Lyme Disease (Periodontal Disease). He felt that he had the legal right since it was a systemic disease and Physicians are responsible for the whole body, not just everything other than the oral cavity. Also, he is looking into getting an Hygienist. This is a very significant step for a Physician, but he realizes the systemic implications of oral spirochetes."

I have no idea if William Nordquist's research in this area has been independently replicated (his is author of "The Stealth Killer: Is oral Spirochetosis the Missing Link in the Dental-Heart Disease Labyrinth?". But the history of medical research is replete with unexpected connections between different fields of research (as when it turned out that bacteria caused most ulcers). That story is told in Fortune, and here, (and Barry Marshall later did win the Nobel Prize. His lecture is here.

This Forbes article, also notes bacteria's role in heart disease ("Today the idea that bacteria and viruses can cause chronic diseases, such as many cancers of the throat, stomach and cervix, is well established. The bacterium Chlamydia pneumonia is strongly suspected of playing a role in coronary heart disease.")



An organ transplantI was engaged in a discussion with a statist, collectivist friend of mine about the merits of organ transplant, organ donation, state ownership, and government regulations of our bodies. He was of the belief that the government does not own our bodies, and I disagreed. My main argument was that if we are not allowed to sell our organs for profit, to be transplanted, we don't own them. My hypothesis is that if you really own something, you should be allowed to sell it any time for any reason, like any other personal property. Since there are laws in this country forbidding the sale of organs, especially for profit, we really don't own our bodies.

If we were allowed to legally sell our organs, the supply of available organs would increase, costs would come down and the lives saved would increase. Government regulation of the "organ market" has distorted the market, made for lengthy waiting lists, and increased the costs in regulation and transport.

I made a few other points regarding the illegality of suicide and the taking of drugs being a control by the state over our bodies, but my statist friend didn't buy it. Although he was unable to give a rational response to my hypothesis, he left feeling that he had won the argument. I wonder what type of state would have to exist in which we, not the state, would own our bodies. Does such a state exist in today's world? Do we own our bodies, or do we merely rent them?

Rocky Humbert writes:

If your main argument was that if we are not allowed to sell our organs for profit, we don't own them, it's not clear that the sine qua non which defines "ownership" is the unfettered ability to sell that item for profit, as it ignores ethics and regulation.

For example, the Government imposes regulations on markets (for better or worse). I can own certain ivory and switch blade knives, but I cannot "sell for profit" ivory and switch blades. But as possession is "9/10th of the law," my inability to sell switchblades and ivory does not mean that I don't own my ivory and switchblades.

Another example is that I can own a dog or cat, but it is generally unlawful to starve and torture the pets which I own. Also, I am not permitted to sell a "sick" cow to a slaughterhouse for profit. But there's no question that I own the dog, cat and cow.

And of course, the abortion/murder/etc discussion illustrates the profit question too. A woman may "sell" her eggs or body (as a surrogate mother), but if she is pregnant, the fetus at some point is considered a separate human being, and the discussion goes down a different path– where the mother's rights of ownership conflicts with the fetus' rights of self-ownership… etc.

A final example is conscription and coercion. You can be threatened by a mugger to give up your wallet. But that doesn't mean you didn't "own" the wallet before you handed it over. Likewise, when the Government calls you up to serve in the Army….

Lastly, you use the word "profit" in a strange way. In order to have a profit, one needs to have a cost basis. What is the cost of a kidney for sale? How does he know that he's not selling a kidney at a loss (instead of at a profit)? How does one account for the investment and depreciation?

Obviously, traditional accounting doesn't work too well in this genre.

Nick White comments:

Lord PannickI remember in law school learning that you can't patent your genes or "own" property in them, but a drug company can patent/ own a derivation of your DNA / biological material if you sign some obscure consent during some procedure that allows your DNA to be used in research. Inevitably they discover some miracle cure for xyz that they then Venter into billions whilst you continue to struggle with a terminal case of athlete's foot or whatever you originally went to be treated for.

The law is a twisted, inconsistent creature and, like any human creation, will be imperfect no matter how we decide it. For more, I would recommend the work of some legal philosophers who wrestle(d) with such things– amongst them Lon Fuller, HLA Hart and, in our day, Richard Posner. Bastiat will be familiar to most here, but he also had much to say on property rights etc etc.

Slight diversion, but best legal columnist and, I believe, one of the very sharpest legal minds in the world today is Lord Pannick, QC who writes for The Times of London…unfortunately, Uncle Rupert now charges to access his stuff, but you can find access to some of his court arguments by following links here and his wiki profile here. In terms of literal "human rights" and state authority over them, Pannick has argued it all.

And, of course, one of the best reasoned arguments for state ownership of anything (though, in the specific it deals with tax) can be found here– "Tax Avoidance in Practice" by David Goldberg, QC. Generous hat-tip to Nozick, John Rawls et al also necessary.

Victor Niederhoffer comments:

Since the purpose of life is to do good for others, according to the
idea that has the world in its grip, a personage of superior
sensibilities far above our own selfish volitions must make that

David Hillman writes:

 I suppose some might oppose Jeff's hypothesis arguing that freedom to buy/sell one's body parts would lead to wholesale profiteering by individuals, families, persons of influence, predatory brokerages, etc. but, if we should not be free to sell organs/parts privately or on some exchange, why, then, are we encouraged to give blood and why can anyone pop into the local bloodbank three times a week and 'donate' plasma for $20-$30 a visit? I suppose it has something to do with plasma being regenerated, as well as societal mores and fear of things that go bump in the night, of Igor and of the ghoulishness of sectioning the body.

The 'personage of superior sensibilities' seems to dictate that personal profit motive is out, and 'in the name of science' is the threshold of acceptability. But given the present state of the law, as Nick points out, one wonders if the state isn't acting less as an owner of our body parts than it is as an enabler of corporate profiteering from of same….'in the name of science', of course….?

In regard to the question at hand, may I suggest reading The Immortal Life of Henrietta Lacks, Rebecca Skloot, Crown, 2010.

From Skloot's website:

Her name was Henrietta Lacks, but scientists know her as HeLa. She was a poor Southern tobacco farmer who worked the same land as her slave ancestors, yet her cells-taken without her knowledge-became one of the most important tools in medicine. The first "immortal" human cells grown in culture, they are still alive today, though she has been dead for more than sixty years. If you could pile all HeLa cells ever grown onto a scale, they'd weigh more than 50 million metric tons-as much as a hundred Empire State Buildings. HeLa cells were vital for developing the polio vaccine; uncovered secrets of cancer, viruses, and the effects of the atom bomb; helped lead to important advances like in vitro fertilization, cloning, and gene mapping; and have been bought and sold by the billions."Henrietta's family did not learn of her "immortality" until more than twenty years after her death, when scientists investigating HeLa began using her husband and children in research without informed consent. And though the cells had launched a multimillion-dollar industry that sells human biological materials, her family never saw any of the profits. As Rebecca Skloot so brilliantly shows, the story of the Lacks family-past and present-is inextricably connected to the dark history of experimentation on African Americans, the birth of bioethics, and the legal battles over whether we control the stuff we are made of.

If her mother was so important to medicine, why couldn't her children afford health insurance?

free at Google Books.

Wiki reference.

Ryan Bickley adds:

I am actually reading The Immortal Life of Henrietta Lacks as required reading for my freshman year at Johns Hopkins. I'm about halfway through and second David Hillman's recommendation. It's a very well told story with an engaging plot that reads almost like a novel, except that it's completely true. It gives a good history of how cell research has evolved over the years and all of the problems that scientists and patients have faced over consent, the owning of tissues/cells, and the profits of this research. 

Femi Adebajo asks:

Let's look at those climes where there is a thriving underground market in organs then. India comes to mind. How have these forces of demand and supply shaped the market there then? I won't bore you but there were some interesting articles on this subject in the British Medical Journal a few years ago on this subject. I can send you references if you'd like them.

I'll just be as keen to hear your thoughts about what the response should be to those who choose to sell essential organs, in the knowledge that their removal will result in their death.



 While passing through the security screening at the Bank of England, the screener inquired of our origin. When we responded, "New York", he commenced a vitriolic monologue about our "one term president" and O's mis-handling of the ground zero mosque, bp, etc. etc.

It was rather endearing that this Brit felt the need to unburden himself, and the hostility towards Obama was refreshing and surprising– especially since he had no idea to whom he was speaking. One wonders whether this attitude is becoming widespread throughout Europe, and whether the bust of Winston Churchill is still sitting in it's crate… waiting to be returned to the oval office in two years.

Separately, it was striking how little traffic there was around Threadneedle Street. Congestion pricing must really be working.

Stefan Jovanovich writes:

Perhaps we are seeing a replay of the relation between the Dutch and the British in the early 19th century with the U.S. taking Britain's place and the Brits the place of their lowland cousins across the North Sea. After Waterloo the 2 countries were never again on opposite sides of any conflict. Their financial and military ambivalence about their greater wealth but lesser overall importance is what shaped their finance and diplomacy towards the Ottomans, Americans and Russians. For the modern analogy read Islam, the new democracies (India and Brazil) and China. Palmerston's career probably has more to say about our future than we can yet imagine. 



Africa from outer space

Excuse me, but I have to butt in here.

I would like to clarify that "congressional acts" have been restrictive on the money supply. Read the first two sections here on excess reserves .

All the new debt issued by .gov is counter productive to QE, proportionally.

The Fed is far from running out of ammunition. One example is that a change to this act, in the wiki article, could remove the incentive for banks to store excess reserves at the fed. This would likely force this $800 billion into other assets.

More importantly:

On the subject of being optimistic I would like to remind anyone to study the important components of any decent growth model (the importance of the idea that is total factor productivity from the Cobb-Douglas function, the Solow model, the Romer model). For the very long run, the Principle of Transition Dynamics can provide a patient simpleton with riches. Generally speaking the fastest growing nations will be those with the lowest per capita GDP relative to their ability to acquire capital, investment, institutional reforms, and education. That has been true for a very long time, probably all of human history, and I can find no reason that it will not continue.

It is commonly stated that China has been the wealthiest country for 15 of the last 18 centuries. According to the McKinsey Quarterly, Africa (yes Africa), will have the largest labor force in the world by 2030. Vietnam and many South Asians are reforming. Vietnam's average age is under 25 years old, 28% percent of the population is urban, and they are urbanizing at over 3% a year. They are not alone in these very attractive demographics. Indonesia is arguably more promising in the near term. There is an inconceivable amount to be optimistic about. Would anyone here honestly claim that there has been more at any other point in history to look forward to? The World can and will grow without the United States; our humble pie has been baked and now lies in wait for us on the table.

If we must dwell on the what we are doing to ourselves in the U.S., I would like to point out that our unemployment rate at this trough is still better than that of France or Canada at their peaks. Those are two of the premier developed nations of the world.

Ken Drees comments:

If the incentive to park funds is removed, then a flood of available funds will be gushing into the hands of the public at most likely very low rates due to excess supply. And where does hot money go first–especially if business and housing are still on their collective backs? Stocks! So really why worry about deflation at all when it's obvious that a waiting flood behind a dam could at any time be let go.

You also seem to have optimism about large demographic countries and how our high unemployment mark is much better in respect to other countries. In contrast to this last night on Covuto, Donald Trump was most vocal about taxing chinese goods to the moon and taking all that revenue and paying off the deficit. He cited unfair business practices etc. Cavuto said "trade war," Trump said, "we need to get our best business people into positions of authority in regards to china trade policy and effect a hardline approach– after all the USA built them up to what they are now through buying their goods."

Change happens.



electricity produced from magnetic coilIn the Dictionary of Theories, which contains an enumeration and 2 par explanation of 5000 different theories, I come across the question of how many theories in different fields have applicability to ours. The question makes one think that there are vast areas for formulating hypotheses and that many simple theories in one field are applicable in others. The almost exact relation between electricity and magnetism, and the many dualities in different fields leads one to search for general theories as well.

One of the most suggestive theories I came across in the dictionary was the Correspondence Theory. It says thats what true of the microscopic level is true of the macroscopic. I wish that were true. I studied the bid asked 50 years ago, and found many regularities. I have made a few augmentations at the microscopic level since then, but one wishes that they held up at the macro level.

One notes that when I found that closing prices tended inordinately to cluster at the round numbers in 1962 operation research, my thesis adviser at the flexionic university said I'd have a hard time getting it through the acceptance mill since it was really not economics. But now I note that almost half the articles in AER are of a market microculture level or expectations relating there to level.

Alston Mabry writes:

Concerning your thesis, this is a good example of how the quantity of new theories and published papers is related to how much work is required and what tools are available. Studying market microstructure is so easy now compared to back in the day. 

George Coyle shares:

Here is an academic paper on micromolar theory:

A micromolar approach to behavior theory. Logan, Frank A. Psychological Review, Vol 63(1), Jan 1956, 63-73



Dracula's castle in TransylvaniaI know we don't trade off feel around here… but this is creepy. if I close the blinds it feels like a dark cold, full moon night with the backdrop of Frankenstein's castle in Transylvania. I'd feel a lot more comfortable giving it the old full swing for fences in stocks here if the freaking bonds were not up more than a full point over open prices.

I see the Dow 30 yields more than 10 year. So I see the DOW techies INTC under 20 and CSCO post earnings lows rally the best, but their cohorts are being dragged along at a pace that feels like a retreat slow and steady vs. a hasty defense.

It feels like Kobar towers in '91 when a 500 pounder went off in my AO and we saw the shock wave, dawned our gas masks, and you could hear a pin drop. Total silence.Yet we all know full well the war will be won, and if bonds drop big we will be trading 1100 before I can say cease fire… but I dunno if this is just the start of the air war and the G day or ground war will be in 6 weeks with a full armored assault that lasts 100 hours bonds at month lows and stocks at highs.

Seemingly the same propaganda on defensive positions in markets– a well dug in enemy, tank traps, rings of fire, the mother of all battles weeks later an an entire army destroyed in 100 hours… "if mountains and oceans can be over come anything built by man can be over come… defensive positions are monuments of the stupidity of mankind" –Patton movie

Vince Fulco comments:

Right on, brother… but what fake action will the bots necessarily create before a meaningful base is found…The subtitle to Blade Runner resonates here, "Do Androids Dream of Electric Sheep?" 



 The solemn and ominous sounding bear cultists are bringing out the flaming hydrogen ballons. Several mentions today of the Hindenberg Omen– not talked about on this site since an April 18, 2006 mention (at a time when the market found helium and moved up roughly 20% over the next year). Nattering nabobs of negativism…

The traditional definition of a Hindenburg Omen requires that:

The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 79. (Source) The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day. The NYSE 10 Week moving average is rising. The McClellan Oscillator is negative on that same day. New 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

Paolo Pezzutti comments:

More about it on this chronically bearish site. To me it looks like a nostradamus prediction more than a pattern. Bears are trying to find new ammunitions…and last week was encouraging.

Victor Niederhoffer comments:

I can't tell if everyone is kidding or not about Hindenberg. But in edspec, I show how a run of 25 in one direction is not inconsistent with randomness, and Birinyi turning points and come up with an infinitely better indicator than Hinden.

Marlowe Cassetti replies:

But The Chair should admit that Hindenberg Omen has such a funereal appeal, an air of foreboding. Rather like the Mayan 2012 Prophesies. 

Russ Sears comments:

But could you come up with a better marketing name? It has great name recognition and implies that they know something that others do not, but will soon after the fact think it should have been obvious. It would seem the splashier the name of this or that indicator in the media, the more desperate their position and need to bring in the masses to offload their positions. May be profitable if one could quantify such an inverse correlation. 



Snowy mountains of new south walesDriving the car back from the snowy mountains in New South Wales Australia yesterday, made me contemplate the areas of trading that can not be taught and that are often overlooked. Though it's scary to admit, having travelled at times over a 500 kilometre stretch where at times I failed to remember any specifics of where I was due to chatting and listening to a Indian guru on some radio interview made me think that only due to my 20+ years on the road, can I be relatively safe in the knowledge that my checks and rechecks in being behind the drivers wheel had become automatic, and my safetly mechanisms, and "soft hand " approach had left me in relatively good hands….touch wood.and so be it with trading.

Not much is spoken of the ability that comes from time in the field that gives the infantry man an advantage when taking on full frontal attacks on a daily basis. Im not refering to gut feeling, but absolute awareness, that time (maybe the Malcolm Gladwell 10000 hour rule") allows you to achieve.



Masa restaurant

I had the best steak in my life last night in Sandpoint , Idaho. A filet of Wagyu beef, bred locally. - Dan Grossman.

The main surprise in Dan's post now that we know that it was suitably down to earth was that a local product like that should be of such a high quality near to the source. Invariably the best quality is at distant locations like Masa from Japan where the transportation costs make the necessary marginal utility of purchasing the product much higher. One leaves as exercise for reader how this can be applied to meals for lifetime in markets.

Henrik Andersson comments:

Maybe the way some successful investors that are far from the information centers (like Wall Street) are widely regarded legendary analysts (at least outside this site)– like Templeton in the Bahamas, Buffett in Omaha… 

Yishen Kuik writes:

a nile perchMany tropical fruits produced in Malaysia get sorted by quality grade, the best of which are sent abroad because they can fetch a higher price in higher GDP/capita countries. Locals complain that they only get the imperfect fruit. Probably useful to note that when you buy and eat a beautiful fruit from Whole Foods, it's possible that is because 4 or 5 other people elsewhere are eating fruit from the less beautiful left tail of the distribution.

An extreme example of this was featured in the documentary Darwin's Nightmare, where Nile perch from Lake Victoria were caught by local fishermen, turned into Western supermarket friendly fillets and airflown by Soviet pilots to Western Europe. The remnants of the fish carcass are fried and sold locally.

However, I would assume the best sashimi is likely to be sold locally in Japan. The whole mysticism of a Platonic ideal for fish is taken very seriously over there and the population is wealthy enough to bid to keep the best specimens at home.

The best product goes where it will fetch the highest price it seems.

Victor Niederhoffer emails Tyler Cowen:

What is the economic analysis of this? The thread started with a friend saying he had some great wagyuo beef in Idaho and I said I was surprised that a local high quality product like that was not shipped far away because of transportation costs and diminishing marginal utility et al.  

Tyle Cowen replies:

I don't think the Alchian-Allen theorem holds so often for perishable foodstuffs. First there is the spoilage problem.

Second, consumer taste is often more sophisticated near the product's source (maybe people ate it more growing up because of higher absolute quantity). Japanese have better taste in sushi than we do, for instance. That means Japan ends up with the higher quality sushi.

Alston Mabry comments:

But Japan is also by most accounts the most expensive country in the world to live in. If sushi were native to Angola, then Angolans would eat lousy sushi and export the good stuff. Japan, being rich, keeps the good stuff. The good stuff tends to flow from places where prices are low, to places where prices are high. 

Jason Thompson adds:

 Concerning what you wrote about how "Japan is also by most accounts the most expensive country in the world to live in."…

Indeed it's close and this fact is critical to recall when one hears the canard about Japanese "deflation" and their lost decades. It's amusing when stooges like Jonathan Laing (Sp?) of Barrons uses Japan to advocate further dollar debasement and expanding the Fed's role to buying SP futures. It goes to show how the fascist kleptocrats have won when such nonsense can be discussed as if based on sound foundation of fact and logic. Japan is a mess because of a

1) a bubble fueled by massive credit creation made possible by funny money

2) the unwillingness to accept the consequences of said bubble popping (As this would mean that many ofthe elites that run the show would go broke/lose power/lose face)

3) terrible demographics combined with terrible social entitlement programs whose math only computes w/rising taxpayer base.

Don't misunderstand me, parrallels exist between Japan and the US, it's just that the kleptocrats don't want you to figure that the connection is their behaviour– that they are the problem. 

keep looking »


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