base of giant sequoiaSequoias are often thought of as the monarchs of the Sierra Nevada ecosystem with good reason if you think how tall and old they can grow to be. The main cause of their death is toppling, since they are so resistant to diseases. Sequoia groves adapted to natural processes that must continue if they are to remain healthy.

As a reader of this site, I wonder if there are similitarities between the natural processes that help sequoias remain healthy and markets. These monarchs remind me of big banks and corporations that dominate and have dominated the markets over the past decades.

During a visit to the Sequoia National Park, one of my girls asked me why there were fires in the forest and no one was doing anything to suppress them. I was surprised to find the answer as I was not aware of the importance of fires for sequoias. Fire is actually one of the major processes essential to the health of giant sequoia groves. In markets as well, fires can be important for the health and growth of the financial markets ecosystem. Researchers have determined that low intensity fires swept through the trees approximately every 5 to 15 years. Sequoias rely on fire to release most seeds from their cones, to expose bare mineral soil in which seedlings can take root, to recycle nutrients into the soil, and to open holes in the forest canopy through which sunlight can reach young seedlings. Sequoias also need fire to reduce competition from species such as white fir and Incense cedar, both of which compete with sequoias for water and nutrients. A natural fire cycle thins these competing species, and provides suitable conditions for sequoia growth. That is why forest management policies are aimed at restoring fire to its natural role in Sierran conifer forests. This is accomplished by prescribed fires burning.

Here are a few more reasons why fire is so precious to sequoias and how this could relate to markets:

- Seebed preparation. In a sequoia-mixed-conifer forest, moderate to heavy surface fires provide soft, friable, ashy soil on which the lightweight sequoia seeds fall and in which they are buried. Each crisis is good to prepare the environment for the next trend and expansion. Companies restructure and reorganize, governments improve the framework for investors.

- Nutrient recycling. Fire plays a significant role in returning various mineral nutrients to the soil. The ash deposit increases available phosphorus, potassium, calcium, and magnesium. Entrepreneurs reallocate efficiently capital to increase their returns.

- Impact on succession. Species requiring sunlight, such as pines and sequoia, were favored over shade-tolerant forms such as white fir and incense-cedar; and fire-resistant and fire-dependent species and associations were favored over nonfire-dependent forms. Big banks and corporations are favored in this environment of small and moderate fires because competitors don't manage to upscale their operations enough before the next crisis arrives.

- Formation of a vegetative mosaic. Periodic burning causes development of uneven-aged stands, comprised of even-aged groups of trees of various age classes. Crisis and recessions create a landscape of investors and entrepreneurs which is rich and varied as old farts disappear and new players appear on the scene.

- Faunal relationships. The influence of fire on wildlife is largely related to fire's role in stimulating germination of plants and trees that are useful to animals for food or cover; or making openings in the forest that favor wildlife. Fires create new opportunities and inefficiencies that can be exploited by market players.

- Influence on insect-suscptible trees. Fire apparently has a sanitizing effect by thinning stands or eliminating old stands or old trees before insects and disease have overtaken them. I think here of the role of crisis to get read of scams and market cancers (see for example Madoff or the dotcom situations of Enron and others).

- Influence on fuel and fire hazard. It is believed that the worst enemy of a fire-suppression agency in this regard may be its own efficiency because "the longer forests go without burning, the greater the fuel accumulation and the greater the hazard". Trying to avoid recessions and suppress fires may eventually lead to bigger problems for the ecosystem as a whole. Through fire-suppression programs, the cycle is slowed and it occurs a higher buildup of fire hazard. The 2008 crisis came after a long time where measures were taken to keep the economy going (may be unnaturally?). The crisis was so big that almost burned even the big giants so resistant to fire. Only the government help managed to avoid a profound reshaping of the ecosystem with the "too big to fail" considerations that were made (except for Lehman).

Many other questions could be asked, such as:

- What is the role of regulkators in managing prescribed fires?
- Even after a big fire, the forest grows again. It is just a different forest. With no sequoias. Is it good or bad?



 I introduced my 28 month old daughter to the Wizard of Oz recently, and we spent the morning watching the entire thing on Blu-Ray. It's hard to believe this movie was made 71 years ago! The Blu-Ray video and audio quality, by the way, is phenomenal. Warner did not skimp on the transfer; the technicolor pops off the screen, and the sound is crystal clear.

It is hard to imagine what this film must have been like to produce. The movie was shot with a film speed of ASA 8! As a result, the amount of lighting required almost defies the imagination, resulting in 100 degree non-air conditioned sets with most of the actors in heavy makeup and costumes. The cameras at that time weighed 500+lbs which presented a challenge for any type of shot where they needed to move. Early Technicolor shot colors differently from their underlying ones, so the ruby slippers and yellow brick road had to be tweaked painstakingly to find the right tone. The sheer number of custom costumes that needed to be designed and created is rarely tackled in a modern day feature.

Amazingly, Over the Rainbow was almost cut from the final movie! It may sound corny, but every time I hear Judy Garland singing that piece, I'm moved and saddened.

Anyways, my daughter is absolutely in love with the movie. I don't necessarily expect her to take away any messages from it as this age, but I think there are worse things to teach a child about than the importance and true meaning of brains, heart, and courage.

I've seen the WOZ many times at this point, having grown up with it on television as a kid, and now that my daughter is hooked on it, I'm sure they'll be more viewings than I care to imagine, but it never gets old. It's a great story, with fun musical numbers, and amazing production values.

I'd recommend giving it a viewing if you haven't watched it lately. The 71st anniversary just passed, Google had a cool homage for the day. My recent viewing has also re-ignited my interest in reading the original novel which somehow I have never done.



It's interesting to see how the public gets involved with derivatives trading via such homely apple pie deals as this   (18% if stocks don't go down, money back if they do). Reminds me of a gas company's offer for customers to lock in the price near the peak.



 Considering the nature of governments, markets and timing, I find it instructive to contrast the timing of the British government's sale of gold in 1998 (which came at, or at least very near, the lowest prices of a decade-plus time frame) against the timing of Blackstone's IPO, which came within several hundred points of the highest levels the DJIA had ever seen.

It seems to me that the perfectly logical, state hostility toward markets (begrudging their existence for purposes of fruitful taxation) would suggest that unique issuance events and decisions associated with them are likely to coincide with market bottoms, but that study has a very small 'n'.



We know that historical earnings yield is highly unstable. The attached Shiller P/E [i.e. price divided by average earnings for the last 10 years] for SP500 (1880-2010) depicts a range from 5-45, which translates to a one order of magnitude range in yield; 2%-20%. There are several instances when we were near the current level (~20 P/E); some were good entries, others were not. Perhaps there are better valuation metrics, but it is likely they are unstable too.

If stock prices do not reliably track valuation metrics (or reliably mean-revert to them), how does one know when a given entry-point value is a long-term bargain? Is value better considered in context, such as current historically low bond yields (ie the FED Model says beg/borrow/steal to buy buy buy).



The flag of ballyhoo deflationA respectful question to the Chair, in view of his tenet of ballyhoo deflation–can it be that this supra monied propped economy soaked in debt has no chance of deflation? Riding the surfable wave of inflation has been the way to go through the general market lift but is it now time to begin worrying about something worse than simple inflation? With the countable Federal and State growing deficits, economic structural destruction in terms of jobs, production, GDP growth, et al. and the printing of massive QE money through Fed activities and Congressional acts the chances of a deflation seem remote.

Is it bearish to see these structural facts and thereby decide the economy may not recover for some time? And if the market continues on then it is a simple inflationary hedge that is better than traditional dollars that are cheapened daily. When one stands on the beach, sand is cheap. How do you square markets and market behavior when the water that they float upon being money that is rotting–and that rot is now visible?

I am interested in how you can have neutral, steady as you go market outlooks that have roots in economic realities when those realities are increasingly toxic bearish? I know markets move no matter the wind. But are you concerned about a total change in market reality? Of course I am not privy to your thoughts not shared here, and I know you have a total grasp of the players, rules, cheats. etc. These are the actors and factors we daily engage; is there a time when you anticipate change in conditions that disturb the market fabric to such a degree that a warning ever needs to be raised?

Is it time to bring the deflation flag down and raise the flag of ballyhoo to normal economic arguments? Or simply add a ballyhoo flag to the masticated economic reporting numbers game that we all seem to live under the fear of? If a Volcker-like turn in monetary policy happens in the future then of course we can return to status quo. But the present time seems to me to be quite an anomalous one.



Central bank of IcelandOne states that "the market does move to levels consistent with the state of affairs…"

Quantitative Relativity indicates that markets do so but not in absolute terms, which is where EMH as a popularized theory appears to fail in its proof.

How can "all information" be filtered or assimilated or correlated into some collective pricing function or series of indicators? AW's opening statement seems apropos as a response.

Regardless of indicators and functions one may develop, adapt, promote, or swear by for purposes of pricing markets and their listings, what appears most elusive among industry know-it-alls and the smart-boys (as Truman called them) is understanding the relativity of information to pricing.

For instance, "On October 3 [2008] it was reported that Wachovia had rejected the previous offer from Citigroup in favor of acquisition by Wells Fargo, resulting in a legal dispute with Citigroup… On Wednesday night, October 8, the Central Bank of Iceland abandoned its attempt to peg the Icelandic króna at 131 króna to the euro after trying to set this peg on Monday, October 6… By Thursday October 9, the Icelandic króna was trading at 340 to the euro when the government suspended all trade in the currency… On Friday, October 24, stock markets plummeted worldwide amidst growing fears among investors that a deep global recession is imminent if not already settled in."

Are those October 3-9 information events invariant references that correlated to October 24 price action? As the chair likes to query, "how does one quantify it?"

The answer is that, yes, one can so quantify. The problem becomes a matter of conversion, whereby information is equated (to include discounted) into the currency of any given bid and ask.

Why a problem? Because electronic market exchanges are sanctioned, to wit: they are rules-based constructs. EMH is theory, and existing sanctioning paradigms do not formulate substantive (or objectified for that matter) informational parametrics into exchange systematics.

Designing FSM logic for order execution protocol, one can see how EMH is irrelevant for quantitative purposes due to its lack of invariance — see conservation laws in physics.

Actually, electronic exchange systematics provide that property of remaining unchanged regardless of changes in the conditions of measurement, not any given (weak, semi-strong, or strong) degree informational reference. With evolution of electronic information and exchange systematics a la the Internet, evidence supporting this relativity unremarkable yet popularized phenomenon (EMH) appears to be frequently if not increasingly rebutted or disproven.

In that price action represents a form of energy, informational invariance does not exist; therefore, the conservation of (non)directional indicators and functions is a fallacy… what the chair reduces as being "the constellation of current events and future cognizables and reasonable unknowables taking account of randomness in the process."

Could not have said it better…


See wikipedia on the Global Finance Crisis for cited references.



The small chart below is trade by trade buying on the open of the 13th, exit first profitable open or 3,600 stop. In the S&P 500 since 1982 there have been 46 trades. 80% were profitable and not stopped out– but, always a but…risk reward is .48 and drawdown was equal to a little less than 1/2 the net profits. Bottom line: looks like an advantage that might be traded by the nimble but a filter would help. Happy trails to all.







highgate cemetary, LondonGreat to know that even at death, they take your life blood away. Vic

Bury monopolists.

13 August 2010

Editor, USA Today

Dear Editor:

Kudos to Scott Bullock, Jeff Rowes, and their colleagues at the Institute for Justice for defending the right of monks at St. Joseph Abbey in Louisiana to sell caskets– and, hence, for defending the right of people to buy caskets from whomever they please ("In defense of monks and free enterprise," August 13).

I have personal evidence that Louisiana's requirement that all caskets be bought from a licensed funeral director is simply meant to protect funeral directors from competition.

When my mother died in 2008, a friend recommended that we bury her in a casket from St. Joseph Abbey. While making arrangements at the funeral home– but before we mentioned an Abbey casket to the funeral director– my family and I were shown several caskets that the home offered for sale. All were pricey. When we finally mentioned that we were considering a casket from St. Joseph Abbey, the funeral director suddenly remembered that he offered some less expensive caskets. Only then did he show us his more competitively priced models.

Sincerely, Donald J. Boudreaux

Professor of Economics

George Mason University



Wall of Johnson and Johnson BuildingJohnson & Johnson just sold $1.1 Billion in new debt, which according to their underwriters (Citi) have "the lowest 10-year and 30-year coupon on record." Their 10-year came at 2.95% and their 30-year came at 4.5%, a 43 and 68 basis-point spread to Treasuries. Their stock currently yields 3.69% and it's trading at about 12x earnings.

This historical moment is not a market call on bonds, stocks or Johnson&Johnson, but rather an observation that 1958 (the last year when the stock market yielded more than the bond market) is just around the corner.

Does the "crowding out" effect only impact stocks? And not bonds?

Scott Brooks writes:

In 1958, the market had, with a few exceptions, been consistently rising since the market lows in the 1930's. The economy was greatly improving, employment was constant and/or improving. Educated people were entering their late 30s/early 40s, new technologies abounded and the US was at peace and had been at peace for well over a half a decade.

Demographically, we were on a rise as the "Bob Hope Generation" was maturing and entering into the peak of it's power base.

Tyler Mclellan writes:

Yeah and the dividend pay out ratio was twice what it is now, so… not so obvious. The theoretical answer is that equity prices do not in fact get crowded out because it's so hard to know what an equity price means given the whole capital stock gets revalued at the last transaction priceSimple example, how much money does it take to add x billion in stock market wealth? Infinite number of answers. How much money does it take to finance 10 billion in capital expenditure? 10 billion. 

Jim Sogi writes:

And bank accounts paid 5% interest, and we were on the gold standard, and the rest of the world had just been destroyed.

Stefan Jovanovich adds:

(1) in 1958 the great Age of Retirement Trust investing had barely begun; most holders of stock were corporations, trusts and individuals whose income from interest, dividends and capital gains was fully taxable (except for the dividends-received exemption);

(2) on all taxable income over $50,000 corporations paid 52% tax; for individuals the highest marginal tax rate was 90%, and it only required $32,000 of AGI for a married couple filing jointly to be in a 50% bracket.

Jeff Sasmor comments:

And I recall that at that time 32K AGI was a huge amount of money. 10K was an exec salary IIRC.

At this point (as someone else pointed out) with sales tax, property tax, State income tax, local income tax, etc etc etc the total tax is pretty mind boggling. IMO all that stuff is very inflationary over time since after all we have to pay for food and such too.

Kim Zussman writes:

A partial explanation is altered investor preference for risky assets post 2008. The attached chart compares the ratio HYG/TLT (etf's of high-yield bonds / 20Y treasuries, respectively), to a scaled version of SP500 (SPY*0.007), 4/07-present.

Going into the melt-down, stocks and HYG/TLT moved more or less in tandem. However since bottoming, HYG/TLT has recovered more; suggesting investors have become more comfortable with risky bonds than risky stocks.

A note from the President of the Old Speculator's Club:

It's interesting that Rocky should bring this up. In a 12/2/08 column, Mark Hulbert comments on Peter Bernstein's views on this "anomaly:

In a recent issue of his newsletter Economics & Portfolio Strategy, Bernstein recounted what it was like in 1958 when T-note yields — for the first time in U.S. history — jumped above the stock market's dividend yield:

"This … was unprecedented. The two yields had come close in the past but had always backed away at the critical moment. In 1958, they reversed their historical positions and have never looked back…." When this inversion occurred, my two older partners assured me it was an anomaly. The markets would soon be set to rights, with dividends once again yielding more than bonds…because stocks were riskier than bonds and should have the higher yield.

The article
goes on to discuss the conflicting views on why one or the other deserves ought to offer the better yield. Is the Fed model a johnny-come-lately?

Stefan Jovanovich chimes in:

Peter BernsteinWhat Bernstein's older partners and most people could not see was that the "risk" in both stocks and bonds was no longer corporate or national insolvency but the decline in the exchange value of the currency in which the interest, dividends and bond principal would be paid. When Nixon and Connolly "took the U.S. dollar off the gold standard", the market had already begun discounting the exchange value of future dollar claims for nearly a decade. The U.S. equity market knew in 1958 which only a few cranky Frenchmen were foretelling about the U.S. dollar and its economy: nominal growth, which could outstrip inflation and could have the taxes on its gains deferred, would be more important than cash income, which was immediately taxable and would have to be invested back into stocks if its exchange value was to be preserved. 



 Mr. Brooks has regaled us with a litany of bad things about the current state of affairs versus the late 30s. Yes. however, the question is whether this is bullish or bearish? The market does move to levels consistent with the state of affairs so that the anticipated rate of return takes into account the constellation of current events and future cognizables and reasonable unknowables taking account of randomness in the process.

Mr. Brooks responds: 

To be more clear, I am bearish. I don't see the market doing well, now, or in the near term. My money is where my mouth is. I'm short Europe, NAZ and long long gold with a large cash position to take advantage of opportunities that will arise.

I work closely with insurance companies, insurance brokers, TPA's, and small businesses. There is universal pessimism amongst these organizations (and these are quality proven businessmen/women). They are NOT hiring. They are hording cash and not spending on capital expenditures. They are fearful that their lines of credit will be cut. They don't like the onerous regulatory environment that metastasizing around them.

I am not a bear, but I am a realist. But I am not a trader like most of this list. I have, historically held positions for well over a year (on average), but that isn't working anymore. Therefore, I search out short term opportunities where I can find them (and they are few and far between), and I am looking at PE opportunities in businesses that produce cash and do well in hard economic times (I wrote about that on this list in the recent past).

I don't care whether the market is up, down or sideways, with either low or high volatility. The bottom line is that I have to make money for me, my family and my clients. If I'm wrong, I'll be a man, fess up to my errors take my lumps and move on…but I'd rather be right! 

If you want what I think is a real good indicator for what is really happening in our country economically, look at Workers Compensation insurance. Look at the numbers of employees that are employers are paying for (i.e. that are covered under a corporate WC plan), and look at the total premium dollars being spent on WC. Both are down substantially.

The total # of employees covered by WC are down substantially, and the total WC premiums are down (proportionally) even more.

Look at the money that companies are spending on things like liability insurance. They are cutting their premiums, and cutting their coverage.

There are many things that you can learn from this information.

Now, where to find this data? Well, I get mine from my insurance clients via conversations. I don't know where to find it out in the real world, so I can't supply a link….my anecdotal data will have to suffice. Sorry I can't give more than that.

Rocky Humbert adds:

Alan AbelsonFurther to the chair's comment and just to shake things up a bit, I will confess that I am bullish on stocks over the next decade, and believe that they will substantially outperform cash and bonds (from these yields ). From these prices, I expect returns in the order of 6ish percent. I also have a ton of cash right now because I want to exploit the volatility of the markets which will probably dwarf that 6% drift.

yet, other than valuation (which got me out of stocks prematurely and into bonds prematurely) in 1997, the single best reason to be bullish is that none of the really smart people on this list can articulate any reason to be bullish.

For example, I owned Intel pre-internet-bubble at a 10-12x p/e … and sold it in the 2nd inning of the bubble, and felt like a fool as it rose to 70+ times earnings. As of this afternoon, Intel is back to 11x earnings and it's a stronger company today than ten years ago and it has a 3.1% dividend yield to boot. With all due respect for my bearish speclisters who see a permanent lack of prosperity (and who may indeed be right), the single most important thing to an investor is the price you pay for an asset. To think that you see things that the rest of the world doesn't see over the next decade is repeating the same mistake that people made in 1999.

I have no clue what the market will do over the next month or six months. But when no one can spin a bullish story, it's important information…. And if you look back to 1958, you'll discover that an entire generation of investors had been turned off the stock market by the great depression and who swore that they'd never buy stocks again…only to miss wonderful opportunities always looking into the abyss for the next shoe to drop. We're all Alan Abelson's now!

Jeff Sasmor writes:

I could buy into Rocky's thoughts but I have the conviction that humans have less and less to do with what's going on; and market makers aint what they used to be.

Indexing, etfs, double etfs, double inverse etfs, commodity & metal etfs have changed the landscape quite a bit in ways I needn't elaborate for this group. For sure, Jeff is in the bearish camp, for the (intermediate) time being. But not really on emotion as on observation. One can't be married to these concepts as we all recall the ever changing cycles.

That said, I agree with Rocky that cash is a good thing to have right now, and wait for some real panic as we wait to see whether the various indices' "death cross" is actually a predictive thing or not.

What will it be this time? China dumping Treasuries? Some new allegedly pandemic disease? Radioactive ash from fires near Chernobyl? Eddorians or some other intergalactic baddies?

There'll be something…

For what it's worth from a lowly daytrader.

Ken Drees comments:

 I am bullish since the dollar is no store of value and stocks at least promise a share in profits. How that anti dollar hedge plays out is a whole other can of worms.

But you must consider equities at some point when they are finally puked up and sworn off by the public if that time does come. The gov will probably force treasury purchases for retirement on the masses during their exodus from risky stocks.

And I like the idea of cash to a degree –relating to that Buffet comment from a while back–in that you have the ability to buy panic.

Jim Sogi writes:

I am of the 60-70's persuasion: 40 % up 40 % down multiple times. That would mess up the most people. We've seen one pump already. 

Charles Pennington coments:

I agree with Rocky. Every week I lazily read Barron's, and they'll have an article about some solid growth company at 12 times earnings, paying a big dividend, and holding a lot of cash in the bank. J&J is a good example, but there was even an article about Ebay recently, and the stock valuation sounded like it was Bethlehem Steel. If you step back and look, though, there's never anything special about the stock that Barron's is covering, it's just that the market as a whole is offering all this pretty much everywhere you look. And if these companies can earn money now, when can't they?



 Actually, now that I think about it, this dating stuff is very much like trading. You can be a scalper or a buy-and-holder.

I would advise young guys to be scalpers. Buying-and-holding can produce long term satisfaction. But it can also produce terminal drawdowns. Odds are 50/50 that it is one way or another.

Scalping, on the other hand, never has big upside or downside. But the little upsides can add up quickly. There is no downside actually, because contrary to trading, you cannot lose. If she says no, you gain or lose zero. If she says yes, you gain a small something. And you only need a small success rate to be successful. Go out once a week, then ask 5 girls. If only 1 in 20 says "yes", it is still more than 1 girl a month. Go out twice a week, and it is more than 2 per months.

In practice, we are not looking at constant rates. There is some variance. Spend 15 days at Ibiza in summertime. That's 15 girls. Then you can get into a 1-year relationship, that's 1 girl in 1 year.

Why do I advise young guys to be scalpers? Because it makes for an happier life later. Since you will have done it all in your misspent youth, you won't feel the need to cheat on your wife. And when you reach old age, you will not go through the all-too-common crisis, buy a Harley, chase young skirts. You won't need to, because you will be thinking that you have not wasted your youth and you won't need to prove anything to yourself.

There is a French saying: "Les jeunesses sages font les viellesses dissolues". Which can be roughly translated: well behaved young men make unbehaved old men.



 One disruptive technology that has changed everything in recent years is the search engine. It is a paradigm shift which enables even non-specialists to compete on an even playing field.

Let me give an example. I am a fairly specialized tech type who cannot even do basic repair on a car. I had a van some years ago that developed a squealing sound when the front wheels were turned far to the right or left. I took it into National Chain F for repair. They wanted $1200 to replace the entire front end. When I googled the symptoms there were several people who had experienced the problem and fixed it. In this case the solution was to use a needle tipped grease gun to lubricate the joint which was making the noise. I took it into my mechanic friend who did what I asked without even charging me because it was too easy.

Then there was the time my wife's laptop went black. After watching the video some nice guy posted on how to repair my brand's monitor backlight I tackled it successfully.

My point is that one can obtain a reasonable degree of working knowledge with respect to almost any problem encountered from a search engine. I am not afraid to try things I might have felt were out of my comfort zone before the Internet. The same thing holds true for broader policy discussions where a knowledge of facts is relevant but can easily be researched on the Web.



Mark HurdI note with interest that the CEO and Chairman of HP suddenly resigned last evening amidst sexual harassment allegations.

The market promptly knocked $10.6 Billion off the market cap of HP stock in after-hours trading. My very progressive daughter instructed me to buy some HP stock for her account, and I happily obliged.

Mr. Hurd was a fine CEO but he is not worth $10.6 Billion in market cap–if anything, the Board's reaction is a testament to the strength and integrity of this enterprise. It's also ironic that his predecessor is Carly Fiorina– who's running for the Senate in California, and who didn't get credit for the successful HP/Compaq merger.

Alex Forshaw comments:

I couldn't disagree more, Anonymous.

Hurd took "non recurring charges" every quarter from prior acquisitions, such as the big s***pile EDS.

He rewrote the HPQ narrative so well that it was almost too good to be true. Its market cap is up 50 percent since he turned the ship around. He has been a gold mine for M&A bankers and HPQ has been assiduously massaged by the sell side as a result.

I have no idea what his "worth" is but a lot of people at HPQ owe him a lot.

It's very counter-intuitive that a five- or six-figure "improper payment" could outweigh the political clout Hurd has amassed within the organization unless some of Hurd's other decisions are going horribly wrong beneath the surface.



 10 10 10 by Suzie Welch is a fructiferous but deeply flawed book whose purpose is to help people make decisions. The basic idea is to take any decision, pose the decision as a question, gather data, whether in work, romance, or family and look to see what happens 10 minutes, 10 months, and 10 years into the future.

Many anecdotes from friends, students, and personal life are given to illustrate the technique. The author in every case decides to make the decision that leaves one in the best possible light in 10 years. No account is taken of the discounted value of time, the randomness of possible outcomes, and the much greater uncertainty of 10 year predictions, or the completely opposite views that intuition and snap judgments a la the pseudo scientist M.G would lead to opposite decisions.

One read the book with pleasure for the insights it gave into Jack Welch's persona and management style. Here he is after 20 minutes of an interview with Suzie saying,"do you have a guy?". There he is telling her having never met her before that her Dr. boyfriend is too boring. Or that he'll kill the people that liked to pleasure themselves at her shift 20 years ago when she was a boss in the night shift of AP. Everything we learn about Jack is consistent with the persona that emerges from his penchant for having Saturday bull sessions with all his assistants and never understanding why some of them would like to spend it with their family instead of talking about golf, deciding which companies or divisions to sell from the silo, or figuring out how the finance company could once more pull a rabbit out of the hat to maintain the earnings streak, ( even in the face of 9/11 where their 3 major divisions were devastated).

One can't help but think what an intelligent all around personage such as S. Welch, who doesn't play golf could have seen in such a person considering the skepticism that she greets every one else with. Some insights in this direction are provided by the opening example where she laments taking her kids to Hawaii for a lecture and can't understand why the wives of the attendees are not friendly to her. The benefits of the trip to the kids, the memories of seeing their mother in a productive activity, the exposure to Hawaii at an early age are not taken into consideration, but she rues the one or two catty remarks about working mothers that the wives make without in any way seeming to realize it's because she is attractive and productive that they dis her.

The book leads one to apply 10 10 10 to market situations. Where will you be in the near term if you put your position on? Will you be close to a point where you can be run out? But more important, where will you be 1 hour from now? Will your set up change? And will you wish to get out with a frictional cost that will offset any expectation that you had at inception? And most important of all, will you ever be able to exit the position if it goes in your favor. One wishes one had applied such decision making to all his positions in derivatives in his career. And the 10 10 10 approach is very good for such things.



Looks like the SEC is following the hedge fund model in their new Whistler Fund with a straight 30% over a $1mm hurdle going to the most talented moles. Nice to see big gov finally embracing an incentive structure. I wonder if you turn yourself in if you can still collect on the reward, or how they handled that in the old West.



 I thought this should be on the dailyspec, though I don't really believe that robots are doing the trading. From a slashdot post:

Jamie spotted a fascinating story at The Atlantic about "mysterious and possibly nefarious trading algorithms [that] are operating every minute of every day in" the stock market:

"Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there's no way they'd ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants."

Spotting the behavior of these bots was possible by looking at much finer time slices than casual traders ever see — cool detective work, but as the story points out, discovering it is just the beginning: "[W]e're witnessing a market phenomenon that is not easily explained. And it's really bizarre."



Ralph AlpherNext week, August 12th, will be the 3rd anniversary of the death of Ralph Alpher. If there were ever a career that confirmed the truth of the saying that "the pioneers are the guys who have the arrows in the front AND the back", it was Alpher's. Footnote #4 is a pointed reminder of how the good old days were not so wonderful.

Alpher's contribution to the war effort was as extraordinary as his work on the big bang. He and others developed the Mark 9 and Mark 10 torpedo exploder mechanisms, which replaced the disastrous Mark 6– probably the greatest single folly of the U.S. during WW II. Alpher's exploder allowed torpedos to detonate below ship's keels. It was used in the attack against the Yamato, which was, by conventional calculation, considered to be truly unsinkable and was the greatest warship ever built.



The next meeting of the junta is, as always, the first Thursday of the month, August 5th. Tyler Cowen will speak on why we are having a jobless recovery. At the Mechanics Institute at 20 West 44th St between 5th and 6th Avenues. Meeting starts at 7 pm, speaker starts at 8 pm. All are welcome.



 I agree with the spirit of what Mr. Vince said about the sponsors. Everything they do, everything they say, is self referential, and designed to talk their book or their current product. The assistant sponsor presided over the almost demise of Harvard endowment with pride and pleasure. And they have been one of the Dow 5000 boys forever as long as they were pushing bonds over stocks since 1990 as they have been.

Vince Fulco adds:

Moreover, I often find the sponsors writeups in the FT too be so rudimentary and common sensical as to be beneath the paper and readership. They could often be written by a 1st year macro-econ student. One wonders why he is accorded such praise and I don't think it is a matter of Einstein's "make everything as simple as possible, but not simpler".

Masses certainly have a love affair…At a cocktail party a few weeks back, two Allianz insurance wholesalers were singing the group's praises and they thought the sponors' insights were worth every bit of his $50MM base salary. The idea of him talking his book and taking the other side of public pronouncements never entered their minds.



 Git yourself a trading account and ride fast up the wall of worry:

For Fannie Stock, Even Betting Pennies Is a Risk


New York Times

Published: August 4, 2010

It is flotsam of the housing wreck, a stock no longer worthy of the Big Board. But penny by penny, the mortgage giant Fannie Mae is being salvaged in the stock market.

Nearly two years after it was effectively nationalized, Fannie Mae has become the nation’s hottest penny stock — and, perhaps, its most dangerous. Even though the shares are almost worthless, they are changing hands at a furious pace. Since June, about 31 million of them have been traded on a typical day, more than triple the average for Goldman Sachs shares.

All those Fannie Mae shares do not add up to much money. The stock closed at 40 cents Wednesday, about the cost of a first-class postage stamp. In mid-2007, before the housing market deflated, it fetched nearly $85.

“The volumes are astonishing,” said Bose T. George, a financial analyst at Keefe Bruyette & Woods. “It’s like a casino.”

The knockdown price partly explains why Fannie Mae typically ranks among the liveliest financial shares in the market: it doesn’t cost much to take a flier on Fannie.

But the Lilliputian price also explains why Fannie Mae might have buy-and-hold types feeling queasy. A penny or two change in the price translates into a big move in percentage terms. Last week, for instance, Fannie Mae’s shares rose 47 percent one day, only to sink 14 percent the next.

Behind all of this commotion are day traders, those creatures of the dot-com era. Mutual funds and other institutions have mostly abandoned Fannie Mae, as well as shares of its cousin Freddie Mac. The big money has ceded the marketplace to individuals who are bold enough, or perhaps foolish enough, to gamble on these stocks for a few hours.

Just don’t hold Fannie Mae too long, Mr. George advised. He predicted the stock would eventually fall to zero. It is difficult to know what other analysts think, since Mr. George is just about the only one who still covers Fannie Mae’s stock. His recommendation is an understated “underperform” — Wall Street code for sell.

“It’s not really a stock anymore — everyone knows this is going to zero,” he said.

Well, not everyone, at least not right away. But the running interest in Fannie Mae’s stock might seem surprising, considering that this company was the Titanic of the mortgage market. During the bubble years, Fannie Mae and Freddie Mac bought up so many toxic mortgages that the government was forced to take them over. Their stock prices promptly plunged.

The federal government today owns almost 80 percent of Fannie and Freddie, and few people, in Washington or on Wall Street, seem to know what to do with them.

Despite the trading frenzy, Fannie and Freddie have become pariahs. Most big investors won’t touch them. As of March 31, Fannie’s shareholders included two big money management companies, the Vanguard Group and BlackRock. But together they owned a mere 1.2 percent of the company, a pittance given the size of those investment companies.

Big institutions typically sell if a stock price sinks below $5. Fannie Mae has not traded that high in two years. Last month, both Fannie Mae and Freddie Mac were ignominiously tossed off the New York Stock Exchange because their share prices had languished below $1 for more than 30 days straight.

And so the once-mighty Fannie Mae and Freddie Mac have been banished to OTC Bulletin Board, home to lowly penny stocks and thinly traded “microcap” companies. As the Securities and Exchange Commission says in its guide for investors: “Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.”

The question of what to do with these troubled giants vexes policy makers and bankers alike. Together, Fannie Mae and Freddie Mac own or guarantee roughly half of the nation’s $11 trillion home mortgage market. The new overhaul of financial regulation did nothing to address the companies, even though they played a central role in inflating the housing bubble.

The Obama administration plans to hold a conference on the future of housing on Aug. 17 to seek advice about reforming the rules governing mortgage finance. The goal is to deliver a proposal to Congress by January.

What that proposal will say is anyone’s guess. Fannie and Freddie’s harshest critics want the companies shut down. But even banking executives concede that, for now, the federal government will probably have to play some role in mortgage finance, given the industry’s dependence on Fannie and Freddie.

“The fundamental problem with Fannie and Freddie is that no one really knows what to do with them,” said Bert Ely, a financial and monetary policy consultant based in Alexandria, Va., and a longtime critic of the companies. Until Washington comes up with answers, the day traders will no doubt try to ride the swings in Fannie Mae and pocket some more pennies while they still can.



A large oil tanker on fire

M StarThe unexplained damage [picture #2] to a Japanese oil tanker in the Strait of Hormuz last week is a bit unsettling and reminds me of the 1982-1988 Tanker War . Tankers (i.e. 20% of oil supply) in the Straight of Hormuz would appear vulnerable to attack by small high speed boat packed with explosives. There must be, however, many classified military counter measures in place to prevent such.

An initial testing and probing effort by militants?

From the WSJ:

An al Qaeda affiliate said it attacked a Japanese oil tanker in the Strait of Hormuz last week, adding a twist in the mysterious incident and raising fresh concerns about the vulnerability of the vital oil-supply route.

The United Arab Emirates has taken charge of the investigation amid suspicions that a militant attack damaged the supertanker, the M. Star, according to diplomats and government officials familiar with the situation.



Mr. Salmon continues the extraordinary tradition of French cartography. His web site's maps of the Presidential elections in the U.S. since 1789 are a wonderment.

Jay Cost has cribbed them for his latest column, which is– as always– worth reading.



Lauren Bacall and Harry TrumanHarry Truman was a different kind of President. He probably made as many important decisions regarding our nation's history as any of the other 42 Presidents. However, a measure of his greatness may rest on what he did after he left the White House.

The only asset he had when he died was the house he lived in, which was in Independence Missouri. His wife had inherited the house from her mother and other than their years in the White House, they lived their entire lives there.

When he retired from office in 1952, his income was a U.S. Army pension reported to have been $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an 'allowance' and, later, a retroactive pension of $25,000 per year.

After President Eisenhower was inaugurated, Harry and Bess drove home to Missouri by themselves. There were no Secret Service following them.

When offered corporate positions at large salaries, he declined, stating, "You don't want me. You want the office of the President, and that doesn't belong to me. It belongs to the American people and it's not for sale."

Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, "I don't consider that I have done anything which should be the reason for any award, Congressional or otherwise."

As president he paid for all of his own travel expenses and food.

Modern politicians have found a new level of success in cashing in on the Presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Political offices are now for sale. (Illinois )

Good old Harry Truman was correct when he observed, "My choices in life were either to be a piano player in a whore house or a politician. And to tell the truth, there's hardly any difference!

I say dig him up and clone him!

Stefan Jovanovich respectfully disagrees:

TrumanThis is the worst kind of hagiography; almost all of its facts are fictions. Truman was, in fact, the first modern President to "work" his retirement as a public celebrity. The drive back to Missouri was the most carefully publicized "private" trip ever taken by a President in American history; it was the promo for the damn book! He did have Secret Service protection; after the assassination attempt at Blair House, anything else would have been absurd. Truman was not offered board seats because he was the President who had threatened to nationalize the U.S. steel industry and had (unsuccessfully) vetoed Taft-Hartley; in the days when corporations were still run by business people, not lawyers, and government contracts were as much a nuisance as an advantage, having "that man" on a Board would have cost businesses real customers and not gained them any advantages. (Even defense contracting was closed to Truman: McDonnell-Douglas already had Stuart Symington in the Senate and no Navy contractor would have touched Truman; the admirals were never going to forgive him for trying to give the Air Force ALL the airplanes.) Truman was hardly bashful about using his influence; he got his daughter Margaret a publisher, and he was absolutely shameless about book proposals. (He was appalled to learn from my Dad that he was actually expected to write the American history text book that he proposed.) Truman collected money from public speaking from public speaking (something no other former President had done); he just was clever enough to use the dodge of having the money contributed to the Presidential Library (also a first). Truman was an artful politician; part of his con from his early days was that he was a simple, thrifty man. If you were the bagman for the Prendergast machine in Kansas City, it would have just been plain dumb to play it any other way. I admired our current populist President for his ability to work the same game; what has been disappointing is to see him fail to heed Truman's example of ostentatious thriftiness in the matter of public vacations (Truman "only" vacationed at the Naval Base in Key West - oh, the suffering!). It has always bewildered me how conservatives can rant endlessly about poor Franklin Roosevelt's "losing" eastern Europe at Yalta, even though the Soviet Army had already occupied all the countries that it later held behind the Iron Curtain. Yet, at the same time, those same conservatives (and all liberals) manage to give Truman a pass for failing to support our ally in China. The consequence of that lovely bit of progressive diplomacy was a third of a century of Asian wars and the loss of more than 100,000 American lives. Thanks, Harry.



 On my ride home on metro north the other day I was sitting backward (relative to the train direction) staring at the power lines watching them appear to dance along by virtue of the train's moving (a reasonably decent form of entertainment when toting a dead computer and no book) when I noticed they resembled approximate mirrored images of stock chart patterns. I say mirrored because gravity was pulling these power lines down but the various towers and poles obviously prevented this from happening. Stocks tend to drift higher pulled upward by demographics, globalization, technology, earnings but with occasional corrections similar to the inverse of the tower's impact on power lines.

Naturally the depth, size, and nature of the poles/structures supporting the power lines varied in conjunction with the size, weight, and quantity of the power lines. This made me curious if anyone had any similar thoughts about this relationship mirrored on stocks or if I am too far out in left field. My gut feeling is there may be some way to test the market's resiliency and correction frequency/depth utilizing some combination of market "weight" metrics (NAV, breadth, put/call, AUM of etfs, P/E, etc.). Perhaps viewed in association with the rules of gravity governing objects but altered and reversed to account for the upward motion of markets over the long haul (potentially utilizing the growth factors mentioned above).

The whole thing reminded me a bit of Charles Dow's "Dow Theory" predicated on the ripples/waves/tides evident in bodies of water. Power lines do remain largely taut and parallel to the ground while markets can go parabolic, but it seemed like adequate food for thought for the list. So I would like to subject the concept to the intellectual acumen and experience of the readers of this site should you be willing to pose any thoughts or suggestions?



 Looking at the general readers response in letter sections to investment articles, I've noticed they seem to be quite in your face, i.e, yeah, but that didn't happen then…etc..Yeah, but for how long will it take place– I need to know!

That's fine, questioning the writings, but the way people do it, is with a certain right of passage. Either this showcases the need in today's society for instant gratification or at least it certainly explains why a lot of people struggle to make money trading, i.e, they will not take from the information supplied and use it as a part of the greater game.



Comedies are always refreshing, whether one is a child or the adult ferrying said tot to the dark, healing sancta of frosty air conditioning in the presence of popcorn and celluloid.

 Despicable Me

Animation this clever, this delightful, is rare. Children delight in its silliness and ultimate message (redemption conquers even mean-spirited villains who let the love of kiddies into their hearts), and adults thrill to the vocal stylings and hilarity of Julie Andrews, Russell Brand, Kristen Wiig and Will Arnett. In a nutshell, the plot can be summarized in two words: Superbad superdad. A piece-of-work criminal mastermind (Steve Carell, a superb dastard) deploys a cute troika of orphan girls to accomplish his scheme of foiling his arch-enemy (Jason Segal), and becoming the most fearsome thief, ever. (He wants to steal the moon.) Winningly, he is soon felled by a sudden rise of love and caring for this trio of tykes (Say it ain't so!). Witticisms dot the script for the alert: The meany's bank vault is supertitled "Formerly Lehman Brothers." The banker himself is a no-frills nasty. For market followers, jokes and ribbing galore at the expense of the money industry, tech wizardry and science biz.

My Dog Tulip

 Almost as wonderful, the multiply-diverting animated panels of My Dog Tulip. This is the quirky, gigglesome touching tale related by a widower grump (voiced by Christopher Plummer) who acquires an obstreperous Alsatian he never wanted, and how he got his now-beloved female dog well-mated and house-trained. Written, directed and animated by the glorious filmmakers Paul and Sandra Fierlinger, this is the first feature to be entirely hand-drawn and painted using paperless computer technology. Wonderfully voiced by the late Lynn Redgrave (her last work) and the plumy Isabella Rossellini. A bit more adult than most children under 5-feet might 'get,' a bit more sexual than most children will comprehend, it is a delight to voting-age and above viewers who have the blessings of literary, novelistic and movie references. Witty, astringent, British.

Cats & Dogs: The Revenge of Kitty Galore

 CATS AND DOGS (The Revenge of Kitty Galore), a live-action film interpolating human voices into the aforementioned popular house-pets, is another in the growing annoyance of 3D (for extra oomph–but also extra dollars). The eternal guerrilla battle between felines and pooches is enjoined here, with generous borrowing references to the full James Bond galaxy of fond memories, MEN IN BLACK set pieces, STAR WARS nudges, and the panoply of sci-fi stories of world conquering, except writ small. Kitty Galore (recall, of course, Bond's Pussy Galore)—Bette Midler–is an elite spy for intel service MEOWS, but has gone rogue. She will bring her canine enemies to heel and control the world of humans. Faced with this cataclysmic menace, cats and dogs have to bury the hatchet and…work together to fell the feisty feline. Live action mixed with cutting-edge puppetry plus computer animation, the voices featured include Chris O'Donnell, Christina Applegate, Neil Patrick Harris, Nick Nolte, Joe Pantoliano, Paul Rodriguez, SNL regular Fred Armisen and rapper/comic Katt Williams. The first half is an ongoing series of open-mouthed amazement that filmmakers (Andrew Lazar, who made his first go-round in 2001, CATS & DOGS) could pull this off: These are the paw-soldiers of a vast network of canine and feline coverts, surveillance pros, and 4-legged assassins of every fur and stripe. the second half palls somewhat, and becomes cloying. Children will not get much beyond the secret lives of pets, which will initially delight them. Parents will find it a bit tiring after an hour, and the audience in which we sat, some 400 people, did not feature many delighted chortles from the dozens of tots in tow. The 3D glasses are cumbersome and annoying after a time, too.


HelenNot for the kids, HELEN, directed by Sandra Nettelbeck, is a sober consideration of how long-hidden clinical depression, and an unexpected breakdown, fatally compromises the life of a beautiful, talented, happily married college professor, a loving mother of a gifted daughter. Sophisticated viewers will soon cotton onto the baffling reason behind Ashley Judd's sudden incapacity and withdrawal. What surprises is that in 2010, her savvy businessman husband (handsome Goran Visnjic) does not seem to be aware of depression and the symptomatology attendant on this well-known and pandemic disorder. He seems to be completely at sea as to how to handle recovery or treatment. Only another depression sufferer, Mathilda (Lauren Lee Smith), helps bring a ray of something resembling hope to the protagonist, When we were editing SELF Magazine (a national woman's monthly) a few years ago, we noted that every issue, without fail, covered depression in one form or another, in medical briefs or major features. Depression, either clinical or subclinical, bulks large in the lives of American adult females. It took Nettlebeck a decade to get this project onto the screen. It is not clear that she captured the scenario at present, with her hospital personnel and treatment modalities; the film seems to be about someone a few decades distant from present-day consciousness. It is beautifully acted, but scarcely a pick-me-up for audiences seeking either an entertainment compilation, or a comprehensive wardrobe of contemporary responses to this disturbing, persistent problem afflicting so many. Director Nettelbeck hoped, she says, that "audiences might be able to provide direction and hope to victims of depression in their own sphere"; or "seek help" themselves. Do we need a 2-hour disintegration of a fine family to tell us to go to the doctor?

 Neshoba: The Price of Freedom

A documentary that seems to be heavily indebted to clips and tapes, photographs and family portraits from a dozen other such documentaries, NESHOBA is the revisiting—40 years on—of the terrible murders of civil rights workers, in 1964 Mississippi, by Klansmen never prosecuted or indicted when the murders occurred. Directors Micki Dickoff and Tony Pagano had been just slightly younger then the Freedom Riders of that ugly summer, 1964. Murdered and brutalized were idealistic young men James Chaney, New Yorkers Andrew Goodman and Michael Schwerner, who had come down to Mississippi to help register blacks to vote. In 2005, one man, Klansman-preacher Edgar Ray Killen (odd name for a man responsible for so much death) was finally tried and held accountable for the injustices of 1964—though there were at least a dozen more implicated (a dishonor roll unspools with the end-credits) who even today have not been brought to the court of justice. The city of Neshoba still boasts people with the livid mentality of hate and bigotry we all thought expunged by the Civil rights Act of 1965 and the passive of much time. Hearing Killen and his compatriot "ex-Klansmen," the viewer is sickened by their unregenerate hate and bile, even today. Some 100 other civil rights workers and associates disappeared in those years, found in the riverbed or shallow graves, but their murderers have not ever been identified. A powerful, not altogether immaculate documentary, NESHOBA is a hard-to-stomach but riveting account.



 According to the old iron rule, low hemlines usually mean a good economy.

Hemlines are an indicator, because when things go swimmingly, women do not have to worry about rousing the male libido, as they are raring to go with the hormones and juices produced by success.High hemlines, contrarily, of course, indicate the scarcity of male interest, bad economics, hence the attempt to snare the male viewing equipment and unleach those deepseated urges.

I do hope this index of presaged economic plenty is valid once again. My fear is inflation, double-dip recession, continued joblessness.

Stefan Jovanovich adds:

Hemlines by themselves used to be the sole measure of immodesty. Even flappers kept their chests covered. Now that the styles of the ages of Franklin and Bonaparte are back in fashion, bosoms need to be added. This past weekend the brains of the outfit and I read the August Vogue. We were struck by how much it– the magazine issue– has shrunk. Our read of the fashions was that we are back in 1971-72. 



Pimco's El-ErianIn several recent essays, Pimco's El-Erian et al claim that reversion-to-the-mean investing will be less compelling in the months/years ahead. Even if one accepts that the US economy will experience slower growth, less leverage, and more regulation, his arguments may be tantamount to endorsing primitive trend-following and saying "this time and every time is different."

He writes; "…, investing based on "mean reversion" will be less compelling. Even though flatter distributions with fatter tails have means, the constituency for mean reversion investing will shrink as those means will be much less often realized in practice. A world where the realized return rarely equals the expected valuation creates a bigger demand for liquid, default-free assets; it also lowers the demand for more volatile asset classes such as equities.

He continues: "… frequent "risk on/risk off" fluctuations in investors' sentiment are here to stay. Investors, based on 25 years of rules of thumb that "worked" during the great moderation, thought they knew more about the distribution of risk than they in fact did. This led to overconfidence during the bubble. The crisis reminded investors that these rules of thumb are less useful, if not dangerous.

He continues: "….With declining confidence in a reliable set of investing rules, markets have become more susceptible to overreactions to daily news and are, therefore, more volatile. Just think of the number of triple-digit days in the Dow. Moreover, because of the complex and broader involvement, real and perceived, of governments in the economy, separating policy signal from noise, and execution vs. intent, has become as important as – but harder than – forecasting the macro data. Third, tail hedging will become more important. An understandable consequence of the crisis is less trust in diversification as the sole mitigator for portfolio risk. We are already seeing increased investor interest in tail hedging, though the phenomenon is still limited to a small set of investors."

My reactions:

1. If the markets experience risk-on/risk-off gyrations, that is the very essence of mean-reversion. (i.e. one should be greedy when others are fearful.) If the constituency for such trades are smaller, it should mean that the surviving participants realize out-sized returns on smaller position sizes. (Exactly the opposite of his conclusion.)

2. If he believes that the systemic tails are larger, "hedging" the tails simply moves the risk from one market participant to another market participant. Absent a directional speculation, if the hedges are correctly priced, there should be no incremental return achieved from hedging which cannot be achieved by sensible asset allocation/position sizing. We've known for years that S&P puts are systematically overpriced relative to calls. Is he claiming that this is no longer the case?

3. Once it's conventional wisdom that we are in a world of everyday fat tails, asset valuations should embed this risk premium, and the phenomenon should self correct. Otherwise, using a slow, primitive trend-following methodology which captures ever bigger fat-tails should produce out-sized returns.

I would be most interested in other's thoughts on his three quotes and my observations. It seems to me that some of his thoughts are contradictory. While the Pimco folks are obviously self-interested, it should be possible to analyze these concepts while ignoring their bias.

Jim Lackey writes:

Mean revert as in 2004 to 07 being levered 14-1 as in no downs greater than 10%… Umm no… so again it's the definition of what "is" is… or forget leverage as that's a function of predictions and max draw downs etc…

How about the fact that we are seeing streaks that have never happened or only happened in 2002, 1933, '34 or all the time in the 19th century. It's been going on since the first shot across the bow Feb 2007. But that's just short term trading… are you talking investing? Then he's dead wrong as the current meme is long term returns are Zero and all I see and hear is "range this adjust for inflation that's a loss" or as usual in any business for a time all rates go to zero…and the get the joke is…that's why so many are tarpitudes and Flexions they need govie contracts rules and regs to profit. So sad.

P.S. I asked the machine tool trader at BMX last night if it's the same trading with Koreans all good vs trading with GE. He said yes but GE is even worse now that it is the government. I said oh come on, you talking bailouts or what. He said no it's like trying to get paper work and all approved to do a trade with the government. Reminded me of in the Army attempting a "lateral transfer" as my tank had an extra M-60 we could use an extra M240 same machine gun one right one left hand feed. It took us forever to get the supply SGT to get the paper work and I found a guy in the Infantry unit that wanted the trade at the mess hall. It took months. But years later the govie got smart and it's all M240's now a days. ha.

Jim Sogi comments:

Mean reversion is too broad a term. The time needs to be specified. The market has multiple time frames and it may be mean reverting in one while trending in another. It is one thing to do mean reversion at 1 hour, and a different trade all together to hold for 4 years in the same vehicle. It is necessary to define the time frame in which there is a claim of reversion or trending, or as Kim notes, positive or negative correlation. 



 Meanwhile the S&P has a 2 point range as of late.

So last week for the first time in years I saw big huge whales buying a few stocks. These guys were so big they did not give a…. Anyways the S&P would drop 4-5 handles and the stocks would rally. I mean really move big caps to no junk. So on this day we are very long these stocks. My buddies are cackling what if snp drops to 1100. I said so what 1100 will fail, it will do 97 and back through, who cares, these type of stock buyers unless we drop 30 today it is in every one's best interest they close at highs.

I am not BSin', 5 minutes later a fed head says Deflation. Boom. The S&P is sliced 1000 and stop run city. Ut oh.

What did the stocks do? They ripped right back up and new highs. Wow. Markets chill buyers calm down. End of day all is looking good, we can close 1100 down on day. if we have a tiny down day we will do excellent. My buddy says unless another fed head says… BOOM DOJ comes out and says ORCL has issues. All tech falls apart. It killed the close. Buddy says I wish these fed guys would just shut up or wait til after the close to talk. I said naaa. I wish they would get their friends and family long so they can talk bullish intra day.

One of the stocks was not strong long term but last week it was a rockstar…RIMM. So today all the pre market chatter was RIMM and goodness, what is with the sheiks and rimm job. Maybe it's War with Iran– close down all internet. I laughed and said maybe or perhaps the sheiks are long AAPL and they are @299

I guess you had to be there.



 One of the most common and one of the most intense irrational fears is the fear of public speaking. Even the best speaker can lose his cool giving a spontaneous speech in a high stress situation, say at job interview or meeting the in-laws for the first time (I believe they make movies about this one). On the other side however, one of the most common forms of self-destructive behavior is saying too much. I believe everybody has had an experience where they have said something in anger, spite, arrogance or some other irrational momentary emotion, destroying or badly damaging a valued relationship. Many of the most miserable people I have known are constantly spitting out acidic words, chipping away at others, often at those beaten down souls closest to them.

I've have been going to a Toastmasters club most weeks now for over a year to help me overcome my fear of public speaking. And while I believe that the Toastmasters meetings were helping me, perhaps I made my biggest breakthrough once I realized that for me, and perhaps for most people, the problem boiled down to one word. This word, which Aretha Franklin spells for us, is r-e-s-p-e-c-t. We all crave this in our relationships.

The reason that respect or acceptance and esteem can cause such irrationality is that we develop many of our conditioned responses when we are toddlers and kids. Our ideas of respect get greatly distorted as a kid. It is almost impossible for a kid to understand that their parents reactions may have nothing to do with them. Further given that parental/adult acceptance is seen by a kid as such a necessity for their survival, many distorted and warped views can develop.

Finally, much of what makes a child be held in high esteem is not the same things that make people admire an adult. Sometime they are even the opposite. Take for example our grading system and testing. We hold the kid that makes the fewest errors as the best and brightest. This training can cause several distortions in a kids view of acceptance. For example, kids may come to believe:

1. Mistakes are always bad. Overcoming errors is not possible. But as adults we find the most successful are those that failed and got back up. We admire those that overcame though odds and many failure

2. that they should only worry about what is tested. Curiosity beyond the known is not encouraged. But as adults we admire the discoverer, the explorer, those that do not accept the standard answer and therefore come up with a better one.

3. Excelling at the subjective is a waste of time. But as adults we admire the artist, the actors, the great orators.

4. Kids are to be seen but not heard or not to speak unless spoken to. But many of the highest paid jobs are for the salesman.

5. Respect adults and discount a child's understanding.

Many people are like me, they are fine talking if they are sitting down. But make them stand up and suddenly the primitive brain kicks in… and many of these distorted views from childhood on acceptance impulsively take over. 

It seems to me that much of the Toastmaster's system is designed to get you to rethink and recondition much of that training you received as a child. Everything is critiqued, however, all suggestions for improvement are supposed to be sandwiched between praise. At each meeting everybody's grammar, filler words (such as "um", "ah" "and" or "so") are counted and everybody is timed. Roles are assigned to each element of the evaluation (timer, grammarian, wordsmith, etc.), and before each evaluation, they are to explain the goal in their critique.

 The speeches for the day each have a specific purpose to help the speaker improve. Usually this purpose is rather subjective, such as "vocal variety and quality" or "getting to the point". Every meeting has chances for impromptu speaking, standing up and giving a 1-2 minutes speech on the spur of the moment. Even the meetings themselves are critiqued.

The overwhelming implication to all this is that improvement is the most important thing, that any problems can be overcome, and to build on what you did well. I was seeing some improvement in my fear factor as I went to these meetings. However, I think for me the big breakthrough was realizing not just that these fears were irrational, but that they came from my distorted views of respect, acceptance and esteem developed as a child. Not that my parents meant to teach me this, but this is what often develops, within the simple mind of a child, trying to interpret the motivation and meaning of an adult's training.

Only once I started going through my fears one by one and seeing them as an adult did these fears dissipate. I think I stopped believing in these fears. Instead I saw them as "a" childhood interpretation of what I was taught, when there were really many, often much more valid possibilities than just that simple one sided interpretation. Often what I considered my parents "response", was simply AN interpretation, one of many, that I developed as a child.

Another interesting thing I learned at toastmasters concerns body language. For instance, for the impromptu speech, I have learned to listen closely and intently to those asking the question. I consciously direct my body language to suggest that I am hanging on their words. Then when I respond, I relax. I listened closely to them so I have "earned" their attention. I repeat their question, often putting it into my own words to show that I got the emotional part of the question they were conveying, not simply verbatim rote repetition. It shows I cared. Hence as equals they should listen to me. Why should I fear them being bored or inattentive?

It would appear that ramblings and shouting are also an effort to gain respect. General McChrystal spouted off to the journalist apparently because he felt slighted by Obama's "indifference". Understanding these triggers and detonating them before they explode can help control the tongue. For example, if you are in a heated argument standing up, try sitting down. Bring them in closer. If they are a loved one try holding their hand. In contrast, if you are confiding too much, stand up. Distance yourself from them. Of course seeing these situations for what they are in the moment rather than after the fact can be difficult. Yet, if these kinds of situations seem to occur too often, perhaps reconsider whether your motivation and view of respect and acceptance might be a simple child's interpretation and consider how it might affect the situation.

Likewise one speculates that such recurring problems in trading and investing could also be improved by reviewing your childhood understanding of how to gain respect and acceptance. One also speculates if standing to make a trade encourages one to be more aggressive, while sitting more passive, and whether other body postures could help. Say when you are closing a trade, try standing to be more aggressive.

George Parkanyi writes:

An aha moment for me about being self-conscious came in my early twenties at some point, when I realized that people are far more worried about what others think of them than what they happen to be thinking about you. Their pre-occupation with themselves is deep and permanent. Their pre-occupation with you highly transitory– especially in an arms-length engagement such as a public speech. Also, people will tend to be empathetic. If you slip up, most will not be thinking "what an idiot!" but rather "I'm glad it's not me up there".

Once in a while I'll see a guest on a business show that looks really nervous and is clearly struggling. I start to feel uncomfortable for that person, mentally cheering them on, thinking to myself "come on, get it out, get it out…"After that, for me public speaking was more about being prepared, and finding ways to keep the audience interested and engaged. If you do have to wing it, stories and anecdotes are a good way to come up with something on the spot. Usually you can relate something from your past to the current situation. People generally love to hear stories. 

Craig Mee adds:

Also someone mentioned to me years ago, "just think you're talking to your best mate" But preparedness seems to help…Tim Ferriss is never far off the mark. His article Public Speaking: How I prepare Every Time is great. 

Russ Sears responds:

 Yes, understanding the truth that people are not that focused on you because they are thinking about themselves helps. However, often when the fear is impulsive, simply knowing what is right is not enough. Think of some common phobias: fear of heights, germs, etc… most often the phobic knows the fear is irrational. People are great at holding two incompatible ideas in place and impulsively choosing the irrational one to act on.

What I am suggesting is that you kill the root of the impulse– your distorted belief that is causing the fear. I am suggesting you do this by re-interpreting your childish beliefs caused by a childish interpretation of the threat. To do this you have to dig deep and figure out what your fear is. Is it making a mistake, looking stupid, indifference or several other common fears?

Then you re-interpret that childish belief, for example, that adult esteem = survival, from the adults perspective. Once this is thoroughly done, what I found was what was once held as a "truth" is shown as an immature interpretation of the situation. Hence using both, killing the old belief and giving a new one in its place can end the impulsive fear.

Further, I am suggesting that using this dual method, can improve many areas of our life. Perhaps most if not all of the hubris in trading may stem from similar simplistic childhood misinterpretations of the situation.

Ken Drees writes:

Ellen Degeneres doing standupTaking a theater course or a stand-up comedy training seminar may help by pushing one's self into deeper water and then one could recede back and take a public speaking course to put structure around the process of public speaking. I am lucky to be gifted in public speaking, but scared of stand up comedy–which I think I could do but I am frightened of people not laughing, and thereby having no defenses against ridicule, or of an unloving crowd staring back at me and not laughing.

If I was to pursue it, I would do a lot of structure: rehearse, tape myself, fine tune, do small test groups, ask for feedback–seems like a job now.

I have a tendency to become red-faced when embarrassed or in some terrible stressful moment. If this happened during a routine –oh no. I would have to come up with some sort of routine if it happened–draw the audiences attention to the red face and use it somehow as a joke routine–turn the disaster into something funny. 

I remember playing in a poker game for the first time in multi years (3-4 years ago). There was retired cop at the table (9 or 10 people) and I was bluffing in a showdown hand–I could feel the heat coming into my face and knew that I may get called because of it. The guy folded to me and the cop from the other side of the table said "you gotta do something about that red face of yours" then everybody stared at me and then everyone busted up laughing.

The cop said that in interrogation rooms he learned a lot about lying. Needless to say as time went on and practice makes one better, the red face doesn't appear at the table anymore. 

Russ Sears replies:

Surprisingly, people say I am funny. I seem to have little problem coming up with a spontaneous humor during a speech. I have found that if the audience understands that you yourself are the biggest target for your jokes, that you do not take yourself too seriously, they are much more willing to give you liberties on almost anything and find it funny. As Ken implies making fun of yourself, almost always gets some attention, if not laughs.

As far as bombing goes, the best comics sometime threw in bad jokes on purpose, just so they could make fun of the hole they had dug themselves into. However, Toastmaster's club is doing a humorous speech contest and we will find out how funny I really am.

Brett Steebarger comments:

It's a very interesting topic. Where I might differ from Russ is that many of those irrational impulses are less the result of distorted beliefs and more related to emotional imprinting that bypasses critical, rational awareness. Edna Foa from U. Penn has done very interesting work in this area that is relevant for those engaging financial markets. 

Russ Sears responds:


One is impressed after reading about Edna Foa's work, in which significant change can be measured in Vets suffering from PTSD, in only 12 sessions, by getting them to focus on the emotional events and the trauma. How does this relate to much smaller "trauma" but perhaps, much more frequent conditioning. Say taking tests weekly at school, and the learned emotional implusive response about exactly how to please the teacher and parents.

Does focusing on the emotional take less time to "correct" the irrational impluse, because the "trauma" is not intense at all? Or does it take more effort because the conditioning was wide spread and reinforced often?

Further, what does such ingraining in children teach a parent to do? Make sure that the child knows that your esteem for them is based on a well rounded education with plenty of real life experiences?

What would you recommend for my girl who upon entering high school last year is showing clear signs of test anxiety, especially in Math?



Zimbabwe inflationThis is a shout-out to all the futures exchanges: How about a contract on the Consumer Price Index? There is a wide dispersion of opinion on what CPI will be in the months and years to come. There are plenty of pundits predicting deflation and roughly an equal number predicting Zimbabwe-style hyperinflation. Many people feel a need to hedge against inflation. They would be natural buyers, and they'd probably lose money most of the time in the hopes of making a killing someday. As opposed to S&P futures, where just about all the trading is in the front month, for CPI futures the volume would likely be distributed over several years forward. There are already successful contracts on Fed Funds that have that feature (not to mention natural gas and some other commodities).

CPI is announced once a month, at 8:30AM. Futures contract settlement dates could be set on those announcement dates. A reasonable contract size would be $10000 for full CPI percentage point. Maybe the January 2013 contract would be trading at 4.5% now. If someone went long and then the January 2013 CPI measurement turned out to be 5.5%, then he'd make $10000 per contract. That's pretty simple. How about it? Maybe one of the more nimble exchanges, such as the CBOE Futures ( ), will pick up on this.

Rocky Humbert responds:

As I've written previously, the current 10-Year TIP may not be a good measure of inflation over a short time horizon — because it's structured to capture the CPI over a ten-year holding period and is path dependent. Using a *constant* maturity 10-year TIP may exaggerate this effect. If you use a 2-year or 5-year TIP, you may find that it produces more accurate inflation forecasts for short-term horizons.

There's tons of academic literature on predicting CPI — if you Google-Scholar the subject, you can spend weeks reading the papers and building your models. Monthly changes in CPI have been nominally small over the past decade (although big in percentage terms), and it should be fairly easy to predict the CPI out a month or two — but becomes incrementally more difficult for each subsequent month. I've dubious of the investment value of knowing next month's CPI — but I would love to predict with confidence whether the CPI is going to be either consistently negative or consistently over 3.5% next year this time. That could be extremely useful — whereas a CPI between those two bounds shouldn't matter much.

As of this writing, the 5-year tips "breakeven" CPI is 1.38% and the 10-year tips "breakeven" CPI is 1.77%.



The Globe TheaterThe best clam shack I have eaten in is the clam shack in Kennebunkport, ME and the worst is Red's Eats in Wiscasset.

The show "Love Never Dies," the sequel to Phantom, is better than Phantom, has more good melodies, better special effects, and a more believable plot helped along by Frederick Forsysthe.

The Henry IV, Part 2 at the Globe really brings one back to Shakespeare's times and it is interesting that the Thrales Brewery was on the spot of the Globe and Johnson loved Mr. Thrale as a man always loves those who provide for their supper even when he acted worse than the average slave owner towards Mrs. Thrale vis a vis such things as his unconcern about her 14 pregnancies.

One still doesn't believe that Shakespeare wrote the plays and nothing at the Globe, including the handwriting on the will shakes that belief. There would have to have been some writings, some books of reference besides the standards, and the knowledge required was too great for one as uneducated and involved so greatly in the day to day of the business and the performing.

The history of the world might be written some day as an attempt to provide the flexions with the greatest profit relative to the disruption caused in feeding on the publics.

Ralph Vince comments: 

Hmmm, c'mon Vic… Greasy Nick's, Pelham Bay?

Gibbons Burke comments: 

By'm'by… Thrale's daughter Hester, another favorite of Dr. Johnson, figured as a recurring character ("Queenie") in the Aubrey-Maturin series of novels by Patrick O'Brian.

I was lucky to be in London the week the rebuilt Globe opened for business, and on a lark on Saturday was standing in line for a groundling ticket to see "Henry V", when a woman approached me in line and offered to sell me her second ticket which her husband was unable to use. That play is sort of interesting because the prologue actually breaks the fourth wall and refers to the globe theater. During the "band of brothers" speech, the actor playing King Henry plays it to the groundlings, as if they were his army. I left my ticketed seat to go down to be among that crowd for that speech and it was quite stirring. Margaret Thatcher was in the audience for that matinee.

The Johnson house is a great tour; got to see the garret where he compiled his Dictionary.



 This may bring on another round of Fight Club; but, having just watched the Giants stay even with the best pitcher in baseball– Mr. Johnson of the Marlins– and then destroy Florida's bullpen, I feel even luckier than usual. As many readers of this site know, my Dad built what was at one time before it was dismembered, the largest text, test and academic journal publisher in the world. In the last 5 months of his life, when his kidneys were failing, he and I spent 2 to 3 hours a day on the phone. He said he had come to enjoy talking to and at me because I had remained as much of a pain in the ass to him as I had ever been; and, in the waning days of his life he found that exasperation was the only thing that kept his mind sharp and I was as good a supply as ever.

The primary finding of his 65 years in education as a student, teacher and publisher was:

There are only two factors that affect the intelligence (I.Q) of the student– The I.Q of his or her parents and the I.Q of the teacher; Nothing else–class size, text books, teaching methods, expenditure per pupil–has any comparable effect.

Here are a few of his other observations made in the years 1999-2000; I doubt very much his opinions would be much different if he were still alive today:

Intelligence is a form of talent; it can be nurtured but it cannot be manufactured.

Skills, on the other hand, can be taught. They are what schools are supposed to be for. The challenge is to find out what skills the student is actually willing to learn.

The failure of the present school and college curricula is that, for all of their perpetual changes of style (what else would the education schools have to study?), the subjects themselves are as completely irrelevant to the needs and interests of the students and their parents as Latin and Greek were for the children of Boston in 1875.

The public schools were invented first to corral the unruly children of the urban poor and second to make certain that the immigrants' children were properly cowed.

Americans continue to believe in "education"– against all the evidence that it is no longer is worth what it costs– because schools and colleges are now the biggest public works program in American history. No one can afford to say that the money is almost all wasted– except for the fact that schools do continue to give parents a place to send their children during the day and colleges remain the only apprentice program available to the NBA and NFL.



dragonfly eyeDid you see the scene in Karate Kid where he gets the fly with a chopstick? Have you ever tried to swat a fly? Flies are in a lower time dimension than we are. We probably look like the sun moving across the sky to them. 

Some of the lower time frames and tick trading by computer is a similar phenomenon. They are operating in a different time zone, and humans are not fast enough to see or concentrate. Chris posted an analysis of the level that the exchanges are gaming each other. But they still operate under fixed rules of the system, and the lines, and are programmed by programmers with psychology. Because of the fixed rules they cannot be effectively adaptive immediately. The big May crash was an example. Perhaps they are reading current conditions quickly, but there should be certain conditions outside their realm of observation or adaptation, like the flies.

Ken Drees adds:

What about dragonflies which have 30000 eye facets–the highest number on a species I think? You can never catch them really, and they seem totally above the market or pond, should I say. 



I recently watched an excellent talk at TED by Prof. Laurie Santos at Yale on how monkeys deal with risk just like people.



 Baseball's straight hits record broken. A portentous sign? A hot hand omen?

Wonder what the odds are for this occurance and how they compare to other types of streaks–like market days up in a row? Reminds me of the Isner/Mahut tennis match where only 1 game was needed to secure the win yet it went on and on and on. In the Cubs case it was one out needed to finish the inning. Sisyphus rolling an ever increasing mental load up the hill.

From the Denver Post:

"I have never seen anything like that," manager Jim Tracy said, echoing what Cubs boss Lou Piniella said down the hall.

The Rockies delivered a season-high 21 hits, impressive but hardly as remarkable as the eighth inning alone, when they scored 12 runs. They strung together 13 hits, including 11 straight, which is a major-league record. To put the onslaught in perspective, the Cubs took 28 minutes to get the final out. The Rockies batted around twice, and the 12 extra-base hits for the game were a franchise record. So much for Huston Street's save opportunity. (It was 5-2 when the inning began.)



 A portentous Narragansett arthropod was recently found: "Yellow lobsters are rare, but not unheard of. When one was brought ashore in Massachusetts last year, several experts said its coloration came from a gene carried by both parents, and it occurs in about one in 30 million lobsters."

Which reminds me of a nice stay in Newport, RI several years ago looking at the fabulous "cottages" and mansions of the Gilded Age. The fried seafood and beer later at Flo's Clam Shack really hit the spot. There also is a strong Portuguese influence in the Providence, RI area and many wonderful chowders and hearty soups are to be had there. But its hard to beat those "Reds" shrimp from the best shacks and dives around Gulf Shores, Alabama. Steamed and soaked in butter, they are just sweet and delicious. Hopefully the BP release will have little impact on the future availability of these fantastic, succulent shrimp.



July was a great month for agricultural commodities, led by sugar, up 22%. It was an awful month for precious metals.



Truck GardenOnce upon a time these were called "truck gardens", and they were exactly that– local gardens whose produce could easily be trucked to market without refrigeration. Not surprisingly, the first efforts of the Dept. of Agriculture during the Depression were to limit sales of local produce for "health" reasons. The larger grower co-ops were finding themselves undercut by truck gardeners, and the economists in both the Hoover and Roosevelt administrations had "proven"  that the solution to the Depression was to raise the price level. Then, as now, open competition was great for the customers and painful to the producers. Then, as now, the votes in Congress went with the large producers and the civil servants, who were, as always, certain of the marginal utility (for them and the public interest) to be found in government's unhidden hand.

Michael Ott wites:

FYI, if you ever need anything to plant in your backyard garden, check out seedsavers. It's the largest non-government seed bank in the US and they have amazing varieties of nearly every plant that you've ever heard of. Their business is booming because they were into the organic local movement before it became hip.

Full disclosure– Seed Savers was founded by my cousin and she is still on the board. If you're ever close by, it's a fantastic and relaxing way to spend an afternoon.



 We haven't done too much on maps here lately, so I thought maybe it was time. Frank Jacobs authored Strange Maps last year and in addition to many other useful and informative topics, his very entertaining work can be found on the Big Think blog. There's nothing earth shattering here in terms of new projections, etc and some of the offerings are cartogrammatic rather than cartographic, but cartograms are usually more fun and entertaining, and that's what Jacobs seems to be going for anyway. Among the interesting titles of these creative visual treats are, Map of One Arm Waving, Slapstick on a Map: The Three Stooges Starvania, Marge Simpson's European Adventure, and my personal fave…Area Codes in Which Ludacris Claims to Have Hos



 Which lie has the highest moral velocity?

A. Scientific rumors on the web
B. Government numbers on the web
C. Corporate earnings announcements on the web
D. Current quote of publicly traded assets on the web
E. Pictures of women on the web



I am quite skeptical that nowadays it is enough to be a good programmer to make money on Wall Street. A very famous trader recently said in this regard that what is and will always be important is understanding human nature. However, it seems that successful programmers want to strike deals that give them the possibility to share profits and retain the ownership of the code they write. The companies they work for make $100K a day when they may be paid $150K a year. It is an intellectual property problem. When competition increases in high frequency trading, margins will decrease and programmers might want to go back to the old "safe" way they were paid. Sometimes I have the doubt that it is enough to have a piece of spyware, which can monitor information from programs that use certain protocols to make big money. A hacker could monitor someone's trades dropping a sniffer and intercepting trading programs. It would be a sort of real-time insider trading. A modern version of an old, and "sure", way of making money.

Read more in this article.

James Lackey comments:

Stick a trading sheet with a programmer's name on it with a 500k daily loss and see if he wants to enlist in the traders training program or go back to his desk. Ha. It's easy to target shoot but it's harder when they are gunning for you.

But Tony C on here years ago thought he discovered Spyware on his quotes from Enron. Drag your mouse cursor over the quote and see if HFT lifts their 100 share penny offer.

 Charles Sorkin writes:

I've often suspected that something like Tony C's situation happens in the options market. For instance, I can't tell you how often I've entered limit orders on an option with limited activity, and I get "pennied," so-to-speak.

For instance, consider a market for an equity call option that is quoted as $2.50 - $2.80, for a few hundred contracts on both sides. I enter a limit order to sell 10 contracts at $2.70, making the market $2.50 - $2.70, hundreds x 10. Hardly a second later, the market updates again, to something like $2.50 -$2.65, hundreds by 10. GRRR!!!!

Somebody/ something steps in front of me, on a contract that potentially has hardly any open interest, and very little activity in the whole series, perhaps with the expectation that I will lose patience and hit the original bid.

Very frustrating. Sometimes I pull my offer, and watch incredulously as the quote reverts to it's original level.



fearSex, Drugs, and Body Counts,

July 30, 2010  

Numbers we encounter in the media are often, to say the least, untrustworthy. Some, like casualty figures in Darfur, may be deflated, some, like the street value of drugs, may be inflated, and still others are simply pulled by institutions out of thin air. Brown University professor Peter Andreas, co-editor of Sex, Drugs and Body Counts: The Politics of Numbers in Global Crime and Conflict, says that numbers are even chosen because
of how they’ll sound on the news.

Numbers justify fear. 50,000 abducted children, for example, or 50,000 predators prowling for kids online. That last figure was once touted by the NBC show "Dateline." But where did it come from? As this piece from 2006 points out, 50,000 is something of a Goldilocks number in the media-– not too big and not too small, but, for scaring the public, just right.

KEN LANNING: I was somewhat curious about the fact [CHUCKLES] that it was 50,000. That number had popped in the past, because I had been an FBI agent for over 30 years.

In the early 1980s, this was the number that was most often used to estimate how many children were kidnapped or abducted by strangers every year. But the research that was done in the early 1990s found that somewhere in the neighborhood of 2 to 300 children every year were abducted in this manner.

BROOKE GLADSTONE: It seems bad things don't come in threes – they come in 50,000.

KEN LANNING: The other one that I specifically [LAUGHS] remembered kind of came in the late '80s, where there were a lot of people who were talking about satanic cults that were supposedly running around the country engaging in human sacrifices. And when you'd try to say, well, how much of this is going on, once again, [LAUGHS] the same number popped up, 50,000 a year.


KEN LANNING: Yes. That's what they were alleging. [LAUGHS] This one here was a little bit more obviously problematic to me, because we do have good data on homicide. And at that time, there was somewhere in the neighborhood of 20 to 23,000 murders every year, so this meant that the satanists all by themselves were killing twice as many [LAUGHING] people as all the other murderers combined.



May 6 was the big swoosh with the bid jammers jumping the inside market and gaming the system closing right around 1122. Undoubtedly a number of stops and margins were triggered and the move cleared out a lot of the book. What effect would that have on the second try at this level, if any? Or would the recent action be the legacy of the move and its effect is over? If the book was cleared, there would be more volatility for a given volume of trades and we've seen higher volatility recently.



At the London ZooA few observations from a trip to London.

The Baring Brothers circa 1890 were bailed out by the Governors of the Old Lady in similar fashion to the current bailouts of banks.

Outside Threadneedle Street and across from the Old Lady is a sign that the stock market was held there from 1270 to 1750 ish.

The Nationalization of the Old Lady in 1946 did not change any operations or procedures of the bank according to their text.

The Diderot Encylopedia 5th edition has a picture of the pin factory (and the 18 manufacturing steps) that Adam Smith and presumably Babbage used to show the efficiency of specialization.

I visited all the sites that Sam Johnson and the Thrales resided in during their 25 year acquaintance. Mrs. Thrale borrowed the equivalent of 18 million from friend to bail out her husband's brewery during distress caused by the reduced trade accompanying the American Revolution.

The life of women in Georgian England was not a happy one unless they had a big inheritance or married well, and the book Hester (or Thraliana ) is a great read similar to 50 Years on Wall Street by Clews in telling what the 60 year sweep her diary covered was like.

The Boston Tea Party and the intolerable acts and the revolution were apparently caused by trying to make the flexions of the East India whole on disposing of some surplus tea.

The interest rates on mortgages in England is well below 3.8 % with many signs advertising 10% down financing available.

The lists of the 50 best retailers in the consumer reports and similar lists should make a good starting point for superior performance of companies. Costco is their number 1 best .

The zoo in London is a mere shadow of its old self when animals were presented for human happiness and education and now is mainly devoted to saving the environment and breeding endangered species.

GE 's big advertisements all over London speak of their 13500 wind turbines around the world and how much good they are doing. Reminds one of BP's ads lionizing their environmental activities before their fall.

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