One 's first thoughts upon a trip to Walt Disney World with a four year old son (and the 5 and 7 year old daughters of some very good friends) is that the magic and happiness trumps everything with the little boy and the parents settling into the rhythm of creativity, joy, excitement and healthfulness of the experience. The attractions are beautiful and modern, the cast is friendly and helpful, the little girls are all dressed in their princess costumes and the boys are screaming with delight at the thrilling rides, the parks are filled with an up to date diversity of fun and educational events, teenagers are reveling in their favorites shows and games, and the guests are a cross section of the world that makes you jump for joy at the down to earth enjoyment they can take in something this good, and their productivity in being able to afford this delight.

Particularly heartwarming is the effort taken to give the ubiquitous handicapped memories and undoubtedly the happiest times of their life. The parents were also pleased with all the modern efforts to provide healthy foods, with toffuti, hummus, fresh fruits, and sugar-free commestibles available at almost all locations.

I have 7 kids and all of them have been to Disney multiple times. They look back on their vacations there as among the best and most formative experiences of their life. The four year old boy at first was frightened by all the noise and the discordant notes of all the music, and scariness of the rides and the long waits. But after a few days, he settled into the rhythm and he particularly enjoyed the parades, the Jungle Cruise, the moving sidewalk, the movie ride, the circular garden dinner and fountains at Epcot.

 And yet, I was seething after visiting the Hall of Presidents. The show is narrated by Morgan Freeman, one of the 2 or 3% of the visitors there of his color. The history of the presidents presented would be something you'd expect from Russia in the 1970s with a skip from George Washington to Andrew Jackson and then to the two Roosevelts, with lionization of their efforts to stamp out monopoly, save the country from greedy businessmen, and attempts to take from the rich and powerful and give to the weak permeating and enveloping the whole thing. Particularly loathsome was that the talking was at least 50% devoted to the current president and FDR, the two most agrarian Presidents in history. The collectivist bias of Disney in this show was consistent with the anti business movie that Disney just released about Wall Street, the well known anti business attitude and ego mania of its previous president, and the scary remake of Alice in Wonderland that made the whole show a roller coaster ride of scary escapes rather than the coming of age and creative, thoughtful adventures of a girl trying to cope with the world of the original.

Walt Disney himself, after hatching the idea for Disney World in the 1950s, arranging the financing to buy 40 square miles of swamp land, planning every detail of its infrastructure, managing to buy the land through dummy corporations so that all the land holders were happy to sell out for a song the swamp land they bought in 1912 from the Munger corporation for 5 bucks an acre, never lived to see Disney built. Mrs. Lilian Disney said that he would have been happy to see how it turned out. But how he would turn over in his grave to see the anti business, collectivist bias of the executives who have taken over his idea and made it consistent with the idea that has the world in its grip. (It is interesting to note that Eisner refers to his partnerships with Warren Buffet and Charlie Munger as helping him climb the ladder of success at Disney).

Of course, the Disney parks are a mere 25%, of the total Disney revenue of 40 billion a year, and an even lower 15% of profits. Disney itself is mainly sparked by its 100 million cable television subscribers that accounts for 60% of its profits. When they bought ABC, Eisner admitted in that self deprecating mien of the chronic egomaniac that the top guys didn't even know what ESPN was. But now they do, and the analysts that follow Disney and their capital expenditures of 10 billion here and 5 billion there to develop content make the company a play on the public's addiction to sports. Not to be gainsaid of course is the incredible feat of their movie division to have two billion dollar + revenue producers in one year in Alice in in Wonderland and Toy Story. And they continue to follow their mantra of making all their movies for 1/2 the price of any other company, and then tying it in with every aspect of their operation from parks to gifts to licenses.

Indeed, Disney is the very model of a perfect modern corporation. Its stock at 33 is near its century high of 37. It's up some 3500 % from its offering of 1.3 in 1981. It's near its all time high of 43 from 1997, and its revenues and profits this year are up at least 15% in all areas except theme parks. You have to admire the way this company like Apple has adjusted to modern times, and captured the idea that has the world in its grip, and the things that animate kids of all ages in our current generation.

Tim Melvin adds:

 The best trip I ever took to Disney was in early 2009 with my adult children. They still thrilled at the spectacle but were able to appreciate the effort and industry that goes into the enterprise that is Walt Disney World. Thankfully the hall of Presidents was closed or odds are my Ayn Rand loving daughter would have gotten us all arrested. Disney will always be on my buy-in-a-crash list. My sum of the parts for this stock is right around $38 bucks and when it drifts below $20 in a melt down (this has happened twice in the last decade) it paid off huge on both occasions for those who saw the merits of the mouse at such a level.

Steve Ellison comments:

In the Disney parks, everything is part of the show. I was at Disneyland in 2000 watching Honey I Shrunk the Audience when suddenly the action stopped, and I heard an announcement: "We have had a power outage. Please exit through the doors on the right." I assumed it was part of the show and wondered what would happen next. It was not until the doors opened and people started walking out that I realized there really was a power outage (one of many in California after the failed attempt at partial deregulation of electricity). 

Anatoly Veltman writes:

I take my kids via motorhome every Winter and Spring breaks: can't beat this destination weather-wise. I don't deem them mature enough for busy Disney Parks; ever since my first visit in 1980, I always thought of Epcot (and later Studios and Animal Kingdom) as a prime education destination. Smaller kids love watery fun of Grand Floridian, Polynesian, Caribbean, Coronado, Saratoga, Boardwalk, Orleans, Key West, Swan/Dolphin. You can access all these via comp buses, boats, monorail. The only resorts really limited to guests are Beach and Yacht Club. Feel free to quiz me for hints, or read up some more general wisdom at

Vincent Andres adds:

The picture on DailySpec triggers some analogy. The river is fake and the little boat moves only thanks to a especially built Deus ex machina. Our occidental "capitalist" world is also, for long, a true Disneyland. The main Deus ex machina are our debts and all what our master fakers are able to do with our "major" currencies. But if the debt flow slows down, we'll soon have our little businesses/boats slowing down also.

We though we were good car sellers, but was it really this difficult when our customers get /in fine/ there money thru loans or money printers ?

I'm confident our master fakers are doing all there possible for our deus ex machina to continue to work properly, but it seems the Mississipi debt river is now slowly founding more fertile soils to irrigate. (Spain just downgraded by moody's.) Let's hope our second fake motor will not also have problems.Little boats and there passengers begin to stamp.



 I really enjoyed Maker Faire! There were a ton of great activities, lectures, and geek gear. I was really encouraged to see the amount of young people there who were enthralled by science and inventing, and also appeared very eager to learn.

We hear so much about the decline of US competitiveness in technology and entrepreneurship, and the lack of interest in the sciences. Compared to the dark mood currently hanging over our great nation, this event was a much needed breath of fresh air for me. I saw rows of eager young kids attending workshops to learn how to solder and build what might have been their first electronics projects. Others were learning how to put together tiny BEAM bots. There was a sense of wonder in the air, which filled me with excitement and brought me back to my own early days of discovering the sciences as a child. Who knows what kind of fires these early sparks will lead to, and what amazing new technologies one of these kids may eventually come up with?

I got to finally see 3D printers first hand, that while not perfect compared to commercial models, may usher in a personal manufacturing revolution. For a relatively inexpensive amount, you can build your own completely open source 3d printer that allows you to make objects from different materials in a matter of hours limited mostly by your own imagination and ingenuity. Nigel could print his own custom designed chess pieces!

I was lucky enough to see a lecture from the creator of the Arduino, an inexpensive, powerful, easy to program chip with an assortment of customizable input/outputs that empowers tinkerers, artists, scientists, and others to come up with and control amazing creations.

One of my favorite talks was by a gentleman who had created a locked puzzle box as a wedding gift for a friend that would only open in a specific place to reveal its contents using an Arduino and GPS component.

I also got to see how to do some easy home electroplating which will make a great demo for my daughter when she gets a bit older.Finally, I treated myself to a kit to build an Ice Tube Clock for my next electronics adventure in the Maker Tent which had tons of interesting stuff to peruse and purchase.If any of this sounds interesting, I'd highly recommend checking out their magazine.

It was a wonderful day! As I left, my only regret was that I could not see everything they had to offer. I left full of hope for the next generation of inventors and entrepreneurs, and I loved the Jet Ponies!



The 58th Bilderberg Meeting will be held in Sitges, Spain 3 – 6 June 2010. The Conference will deal mainly with Financial Reform, Security, Cyber Technology, Energy, Pakistan, Afghanistan, World Food Problem, Global Cooling, Social Networking, Medical Science, EU-US relations.

Read an article on it here.  



 This is Feynman's parting wish to Caltech class of '74:

"I have no more time so I have just one wish for you– the good luck to be somewhere where you are free to maintain the kind of integrity I have described (ed: intellectual honesty), and where you do not feel forced by a need to maintain your position in the organization, or financial support, or so on, to lose your integrity. May you have that freedom."

He is less describing freedom than courage.

Mark Schuetz comments:

It seems to me still to be more like freedom than courage. There are plenty of people with jobs in both academia and industry where dissenting from the organization will likely entail the loss of a job, despite most academics' claims for the search for truth and absolute devotion to intellectual integrity. This probably stuck out to Feynman so much because the nature of his personality was to question and rethink even trivially "solved" issues (I will never forget the story of how he spent an entire day away from physics and instead experimented with ants that were carrying crumbs around in his room). Similarly, in most industries, I've heard of very few firms where open disagreement is genuinely valued… often, the bigger the firm the worse the problem. In these cases, I suppose if you have the "courage" to lose your job, then you are right.



 One of the most useful things that humans can do when making decisions about life or market is to form objects into groups. The caveman must have had to decide which animals were dangerous and which foods were edible, and the investor must decide between value stocks and fundamental socks, or between utilities and industrials, the canals versus the railroads, the nifty fifty versus the old favorites, the stocks that old man sage buys versus the ones that the Druck likes to buy after hearing a technology conference, the stocks touted by the wildman, or those in group 1 in value 1 etc., the stocks when bonds are up et al.

Methods for grouping data are given in the Excellent book Cluster Analysis by Brian Everitt, et al of which I have the fourth edition from 2000. It's the very model of a modern book with a list of software to do all the things for free and price enhanced graphs showing all the things that the programs do, and examples from all fields ranging from biology, genetics, pol science, taxonomy, astronomy, psychology, et al.

It's a lot easier to visualize a cluster then to find one. The basic idea is to find objects that are pretty homogeneous within themselves but disparate among the others. That's a lot easier said then done.

First you have to measure the distance between the objects. The usual measures are squared distance, city block distance, generalized Minkowski distance which is the same as the usual geometric distance but scaled to the third or fourth power instead of the second, or Pearson correlations themselves between the values of the variables for just two objects.

Then you have to form the groups. The usual method is to start with the nearest two, then to build up from there. That's called an agglomeration method. Compare this to the divisive methods which starts with the largest group, and then successively removes the ones that are furthest away. One of the thorniest problems is how to handle more than one variable. Methods based on scaling from the extremes then the standardized values are recommended.

A section that shows how to fit the data based on kernel estimates using kernel function for each pair of observations based on a rectangular, triangular or gaussian distribution is particularly helpful. Also interesting is the preliminary methods for discovering groups using one dimensional and two dimensional histograms. A nice section using factor analysis and principal components analysis, and a related method I've never come across in all my years of reading statistics books called projection pursuit is recommended as a way to reduce the number of variables to a manageable and non-correlated set is also given.

Indeed the book is filled with everything you could ever want to know about grouping data, including multidimensional scaling, similarity measures, weighting techniques, standardization procedures, missing value treatments, mixture models.

Everything is there in a fairly accessible form except how all these methods relate to the current worthless non-predictive fad of artificial intelligence relating to neural networks and its extension. Doubtless the current work in the field has shown how these methods converge to the usual clustering methods based on such things as clustering with constraints, or fuzzy clustering.

Much of the work in clustering comes from such institutes as the Rotterdam Institute of Agriculture and the institute of psychiatry at Kings College in London so it's not surprising that no examples are given from our own field, where grouping is so helpful and necessary. How often do we look at a scatter diagram of two variables, and note that there are two modes in the data, or that two regression lines would fit the data much better than one. If only we knew which of the two groups that the various observations belonged to. And if we only knew how to scale such things as currencies and gold to each other in considering the similarities.

Let's take our own humble attempts to group clusters where we put the four comoves and counter moves of bonds and stocks into four colors yellow for stocks up bonds down, blue for stocks down and bonds up, and green for both up, and red for both down. Haven't seen any reds recently until today. And the colors themselves are just one of the many ways of handling binary splits.

Here are some data to practice clustering on from the real world.      

date     stocks    bonds

Sep 28    4.0       0.28

Sep 27   -5.5       1.2

Sep 24    22.8      -1.0

Sep 23     -9.4      0.01

Sep 22     -4.9       0.2

Sep 21     -1.9       1.1

Sep 20     16.0      0.17

The rest of data for the last 9 months is on our site. It's a good exercise to form groups from such data and maybe even to come up with something useful from it. 



 I've been reading the Laura Ingalls Wilder series to my 4 year old daughter at bedtime. I came across the nugget of wisdom last night in Farmer Boy.

He waited till Father stopped talking and looked at him.
"What is it, son?" Father asked.
Almanzo was scared. "Father," he said.
"Well, son?"
"Father," Almanzo said, "would you–would you give me–a nickel?"
He stood there while Father and Mr. Paddock looked at him, and he
wished he could get away.
"What for?"
Almanzo looked down at his moccasins and muttered:
"Frank had a nickel. He bought pink lemonade."
"Well," Father said, slowly, "if Frank treated you, its' only right
you should treat him." Father put his hand in his pocket. Then he
stopped and asked:
"Did Frank treat you to lemonade?"
Almanzo wanted so badly to get the nickel that he nodded. Then he
squirmed and said:
"No, Father."
Father looked at him a long time. Then took out his wallet and opened
it, and slowly he took out a round big silver half-dollar. He asked:
"Almanzo, do you know what this is?"
"Half a dollar," Almanzo answered.
"Yes. But do you know what half a dollar is?"
Almanzo didn't know it was anything but half a dollar.
"It's work, son," Father said. "That's what money is; it's hard work."


"How much do you get for half a bushel of potatoes?"
"Half a dollar," Almanzo said.
"Yes," said Father. "That's what's in this half-dollar, Almanzo. The
work that raised half a bushel of potatoes is in it."
Almanzo looked at the round piece of money that Father held up. It
looked small, compared to all that work.
"You can have it, Almanzo," Father said. Almanzo could hardly believe
his ears. Father gave him the heavy half dollar.
"It's yours," said Father.  "You could buy a suckling pig with it, if
you want to. You could raise it and it would raise a litter of pigs,
worth four, five dollars apiece. Or you can trade that half-dollar for
lemondade, and drink it up. You do as you want, it's your money."

Stefan Jovanovich writes:

Ralph Moody
is also worth a look. Little Britches is the classic, but Shaking the Nickel Bush remains my favorite.



 I woke up thinking about the market–again. The idea that the market is a seeing creature, very blind short term but correct and on target 6 months out really has been taken for granted as an old sharp cutting saw. So what is the market seeing now 6 months out? In April when the market was topping–what did that market see for this October. Thereby in March of this year when the market was moving up–it forecasted the best September in 70 years?!

I really don't get this, but actually am programmed to believe that somehow the market sees things that the crowd doesn't. Now we are told that the market sees a republican victory and stoppage of anti-business actions–maybe the start of repeals against major programs, or at least old fashioned gridlock. What is the best way to use the market as a "seeing" tool?



 Disney parks must be judged through the eyes of a young dreamer. The success of the Princess line of dreams for the toddler set of girls is in sharp contrast to the heroes offered up to the young boys. Perhaps the poor boys last hope is become a pandering President from Hall of Presidents.

Perhaps the pendulum has swung from the days of my youth and before. Before my time when Disney's Davy Crocket was the rage, coonskin caps enabled trappers to continue to make a living many years after their trade would have otherwise dwindled. Swiss Family Robinson inspired several failed attempts by my older brother and me to build a canoe. And I remember fondly The World Greatest … series and Herbie series that seemed to appear in theaters every summer. While I Dream of Jeanie and I Love Lucy occasionally crossed the line to demeaning, it certainly made clear that women can be silly. While now Tim Allen and Tom Hanks supply the laughs, juxtaposed with the women's punch-lines. The women's lines all are through sarcasm, more complete common sense and superiority in minds and romantic motives. It has been a few years for me, since we have been to Disney and I have only daughters, but it is clear to me then that dreams are hard to come by for today's sons.

This of course can now be seen as more women graduate from college than men. The link is a few years old, but I believe a more up to date analysis of the statistics would prove the problem is worse. If you add to this additional stress factor such as poor, black or Hispanic discrepancy between women and men graduates becomes a crisis to some communities. Disney is of course just selling the ideas that has the world in its grip as Vic says. Yet study after study shows that the parents involvement in the kids academics makes the difference. Dads must learn to become more active in their son's dreams to help the dream survive.

Disney's success largely comes from kids natural ability to dream. As a kid everything imaginable is obtainable. A parents job, in my estimation, largely is to keep that dreaming spirit alive but also to mature it so the teen learns to adapt evolve and develop the dreams to turn them into reality.

Kids rather quickly now a days out grow Disney. Yet there again, if you look closely at the "princesses" and the merchandise for sale at the park, it is clear that girls are allowed to fantasize longer than the boys. I would suggest that Dad's indulge their sons dreams well past their peers especially not just in sports. The evolution of the dream, in my estimation the second stage, however, seems not to nearly be as natural for parents of today's youth. Next year both my daughters will be teens. The world is full of narcissistic teens where participation trophies and parents routinely go through social upheaval to get the kids at every practice. Then both must watch them sit over half the game on the bench. This is the new norm. My mother was dead set against her scrawny teen participating in distance running. But she did countless times tell me I was "brilliant" and talented in many aspects. But she also made it clear that being poor, being a fundamentalist preacher's kid and being a runt meant I had to try harder than anybody else to get past their first impression. Consequently I only ran a few Junior high races. I did not train at all until I was at college. Started running as a freshmen at Liberty U on my own. Walked on the team as a sophomore and barely made it. But by the time I graduated with a year of eligibility left I was good enough that my coach at Liberty would not let me use it, if I transferred. I did come back the next year at Virginia Tech and smoked everyone on the Liberty team, with times that would have been a LU record back then. I say this to show that: 1. To get kids to put forth effort, you have to let them know they can fail. True success only comes from negotiating a brutal survival of the fittest world. 2. That as a parent you believe in them, you see their potential and want them to succeed. But you can not want it for them. 3. That as parent, you do not get to choose what the kids are passionate about. It maybe hard to accept, but they know themselves better than you do. And if you taught them faith in themselves tempered with the necessity but not sufficiency of total effort than whatever they are passionate about will make them succeed. These steps would seem somewhat self evident to me. But as a parent, there seems to be little direction in how to achieve these goals in daughters let alone sons. Though I did not qualify for the USA Marathon Olympic Trials until 1996, physically, at 30, I was most capable during the 1992 Olympic,. Around the 92 Olympics I set almost all my personal best time in every other distance but the marathon. The 92 Marathon Trials had a much weaker field than any since then. Based on my 20 mile split (1:42 and change) in the LA marathon, trying to qualify, it would appears that I had a realistic possibility to have made the 92 Olympic team. If I had only learned how to run through "The Wall" that hits racers near 20 miles. But I crashed and burned. With a few more years of experience, to go with the physical development, and who knows what could have been.

Not to say my parents did not do a great job overall in helping me keep my dreams alive and to go all out for them. But to show potential and fine line of nurturing a dream. And a little more understanding of the process of dreaming who knows what the next generation is capable.

With a bright 16 year old daughter trying many shoes to see how they fit, I now find myself on the other end of the nurturing a kid's dream. She has my spunk and determination to make it in something, but she is not sure what yet. She has a beautiful voice and loves music, but is totally put off by the HS music scene. She loves biology, (she likes science yet hates the math), she reads and devours US history. But perhaps her passion and much free time is spent in writing. How could I help her get a coach/ mentor for writing? Expertise appreciated.

Jeff Watson comments:

Still, when I hear "It's a Small World After All" it evokes the emotions that I felt when I was a six year old and first saw it the first time. Same thing with the display, "This is the ways the birdies sing, tweet, tweet, tweet….." Those still get to me 48 years later. Although I denigrate Disney due to the damage they have done to Florida, those timeless pieces still get to me…but then again I'm a sentimental fool.

Mr. Krisrock comments:

You are talking about themes the original Walt Disney enshrined. Right now, DIS is about PC…and super liberal causes that will never survive the test of time…just like Obama's ideas won't.



Shake up:

1. To upset by or as if by a physical jolt or shock
2. To subject to a drastic rearrangement or reorganization



I submit the simple game theory explanation of why democracies fail: the relative perceived importance of a targeted transfer of resources to a small subset of voters is usually much higher than the perceived importance to "everybody" of the average (over the whole taxpayer base) cost of that transfer. So it's only at the very special moments in history like now, when the ship is sinking, that people wake up to the cumulative cost of all those transfers. It also "helps" when the times get so desperate that the targeted transfers go to relatively large groups.

Victor Niederhoffer shares this with Tyler Cowen:

A non-economic analysis by a chip designer.

Tyler Cowen replies:

I fear, however, that it is too late, there is a status quo bias to government expenditure, plus population…



Another interpretation of income inequality is compensation for risk. From updated Saez data, note that top 1% does better in good times, and much worse in recessions:

                                    Real Annual Growth     Top 1% Income RAG      Bottom 99% RAG

Full period             1993-2008    1.30%                       3.94%                        0.75%

Clinton Expansion  1993-2000    4.0%                          10.3%                         2.7% 

2001 Recession     2000-2002    -6.0%                        -16.8%                       -3.3%

Bush Expansion    2002-2007     3.0%                          10.1%                         1.3%

Great Recession   2007-2008     -9.9%                       -19.7%                          -6.9%

Tyler McLellan writes:

I did some work on this a few years ago and determined that the compounding over long periods of time dominates the skew, to be clear compounding of capital and the flow of income there from in any given year.

There is also a very good intuitive reason therefore why income inequality has historically fallen only during calamity, when the actual capital stock is destroyed/seized or more commonly the connection btwn financial assets and real assets is forcefully separated.



The distribution of income is bounded on the low end by zero, but unbounded on the high end. This resembles the distribution of stock returns, and is better described by log-normal distribution.

Presumably humans evolved to anticipate something like normal distributions bounded by zero and bounded on the high end; height or weight for example. If heights were distributed like income, most of the time you would encounter normal-looking people, but occasional 20 footers. Of course tribes of average folk would to try hard to befriend the big guys.

Phil McDonnell writes:

I think there is a statistical quirk. Namely the quintiles are reconstructed every year with new individual members. Thus the 2009 top quintile contains different people than the 2010 top quintile. To understand how this creates a bias we need to look at how new people enter and leave the top quintile and what that process does to the 'average' of the quintile. To enter the top quintile the individual can only come from below. Thus he lowers the average of the quintile below and possibly raises the one above. No one can leave the top quintile by rising out of it. Thus there is an upward bias in the sense that they are retained no matter how high they go. On the other hand they are eliminated if they fall in income.

In the bottom quintile the reverse is true You cannot leave by going to zero, you are still in the bottom quintile. But if you make too much you will move up to the next quintile and thus reduce the average in the bottom quintile.

The middle three quintiles have less bias in this sense because individuals who leave can either go up or down to the next quintile resulting in more of a wash. In the same fashion new entrants to a given quintile can come either from above or below again resulting in more a a net wash effect.

The comparison of the top quintile to the bottom inevitably results in a biased and distorted comparison because of this effect. It would be better if they compared the second from the top and second from the bottom quintiles to reduce the bias. Reducing the bias is probably not the goal of those who calculate such statistics.

Rudy Hauser comments:

This is a different question that relates to what the statistics represent and will be used for. What Phil writes is certainly correct. What the quintiles show is the income distribution at any one point in time. It does not tell you anything about lifetime income or the ability to better one's self over time, that is upward mobility in the quintiles, or the fact that some of the well off become less so over time. For that you would need other measures. The movements between the groups will create the biases described. But to say that the bottom fifth only earn so much over time x and the top fifth earn so much need not have an upward bias to what these statistics actually measure as such movement happens all the time to varying degrees over time and by country. The top fifth are still the best off and the bottom fifth the worst off. Were they stand an any one time is what it is and that is all this statistical approach shows. There is no need to correct this bias but one does have to develop other measures to answer the sort of questions that seem to concern those who point to bias. There is no statistical reason why the growth rates have to favor the top group. That tendency to the extent it exists is due to political economic factors, cultural factors, social factors, etc.




 The euro is getting a little bit too strong for the export-minded Germans. I think they (the ECB, not the populace) will find enough kindness in their hearts to save Greece and whoever else is in trouble in the southern zone one more time and coincidentally increase the supply of euros and save their own banks. Three birds with one stone! Can't get much motivated than that, especially when everyone from BOJ to Brazil is competitively devaluing.



 A controversial new theory has been proposed to explain the disappearance of the Neanderthals—current thinking is that they were replaced and crowded out by modern humans. And [ (2) below] a study on increased crustal tensions being used to predict likelihood of volcanic eruptions within a region.

An untimely overlap of several future natural events (including Mr. Watson's sunspot activity) might produce significant climate effects.

The Neanderthals were a hardy species that lived through multiple ice ages and would have been familiar with volcanoes and other natural calamities. But the eruptions 40,000 years ago were unlike anything Neanderthals had faced before, Cleghorn and company say.

For one thing, all the volcanoes apparently erupted around the same time. And one of those blasts, the Campanian Ignimbrite, is thought to have been the most powerful eruption in Europe in the last 200,000 years.

"It's much easier to adapt to something that's happening over a couple of generations," Cleghorn said. "You can move around, you can find other places to live, and your population can rebound.

"This is not that kind of event," she said. "This is unique."

and from the UK Daily Mail :

"The study's authors write: 'Volcanic eruptions had an unusually sudden and devastating effect on the ecology and forced the fast and extreme climate deterioration ('volcanic winter') of the Northern Hemisphere.'

The team analysed the soil layers in Russia's Mezmaiskaya Cave and identified two types of volcanic ash corresponding to two separate volcanic eruptions in western Asia between 45,000 and 40,000 years ago. "


Dr Hamling said: "If you look at this year's eruptions at Ejafjallajokull in Iceland, by estimating the tension in the crust at other volcanoes nearby, you could estimate whether the likelihood of them eruption has increased or decreased. Knowing the state of stress in this way won't tell you when an eruption will happen, but it will give a better idea of where it is most likely to occur."

Here is a useful blog that stays on top of potential volcanic activity.



Carl HiassenCarl Hiaasen has Dickens's eye for observation. Like the great Charles his politics are sentimentally Socialist (what else can be expected from a lifelong practicing journalist in an English-speaking democracy?), but the man can write.

The reviews have been unkind, but reading the first 40 pages of Star Island from an SFO gift shop copy had me laughing so loud that I had to buy chewing gum to be allowed to continue my stake-out and wait for Smelta to deliver the wife safely home.



 Wondering if the more politically savvy specs could venture some opinions as to the relative flood of departures in the last few months and timing? I've read all sorts of reasons from the left/right and in between varying suggesting the pragmatic to the audacious. Normally I don't pay too much attention but given pols enhanced effects on the markets these days…as Buffalo Springfield sang, "…there's something happening here. What it is ain't exactly clear…"

I have my own thoughts on this but they border on the less probable and would only exacerbate the tensions in the country.

Rocky Humbert writes:

This doesn't address Vince's question, but one of the more obscure points of the conflict of interest laws waives capital gains taxes on required divestitures for individuals who accept government positions. This provision incentivized certain people (particularly in the Clinton and GW Bush administrations) to leave the private sector and sell large blocks of appreciated stock tax free. The tax savings in some cases were worth millions of dollars. If the capital gains tax rate goes up in January, it would be sensible to expect more people with this tax situation to join the administration and address the noted lack of industry executives.

Scott Brooks comments:

I was unaware of this. Thanks for sharing, Rocky.

But I gotta think that unless you're really really rich, this tax savings will not be as much as the lifetime of earnings one will receive from having held a high level position in the government.

On the other hand, there is that whole analogy of rats and a sinking ship. Of course, if the ship was really sinking, I never understood where the rats were going to go as there isn't a $25,000/speech speaking tour available to members of the non-political rodent community.

On the other hand, I think a lot of these political rodents realize that after after 8 years of pushing towards "statism lite" and nearly 2 years of a full on push towards "statism", they see water level rising below decks coupled with a huge lack of support for their policies on deck, that has metastasized into near outright rebellion……well, with all this going on they are scrambling for the life rafts as fast as they can.

Gary Rogan writes:

Summers is leaving in time for the election because he is very unpopular with the base and while he can still count on a couple of years of consulting engagements, and because of the failure of the stimulus. Romer, the architect of the stimulus and the effect it was supposed to have on unemployment , left to keep whatever little is left her credibility, to be the one to actually take the blame for the failure of the stimulus, and to make room for Goolsbee in time for the election because he is supposed to be much better at explaining away any problems. Orszag lost the debate on the deficit, he argued for taking some steps to bring it down.



 Super-clever administration strategists are suggesting Obama name "someone from the business community" to replace Summers, in order to overcome the perception he is anti-business, anti-capitalism and anti-markets.

To affect my perception he doesn't have to appoint anyone. All he has to do is to say something like the following:

"I want to try to correct the impression that the only businesspeople I admire are those who share the Buffet and Gates philosophy of raising taxes for ones behind them on the way up, or those of the type I praise in my photo ops, typically the owner of a new eclectric storage battery or solar panel factory in Michigan subsidized by the government who is creating green jobs and working towards our energy independence.

"That type of person may actually be less a true entrepreneur than what Rahm Emmanuel has told me is called a schmoozer, someone whose greatest skill is befriending politicians and wheedling subsidies out of the government.

"This may surprise you but let me give you an example — two random examples out of many possibilities — of some other businessmen I admire, David and Charles Koch of Koch Industries of Wichita, Kansas. Not enough people have heard of them, they are not as well-known as they should be, but the Koch brothers have taken a business inherited from their father and steadily built it, investing and reinvesting their own money without government subsidies, until it is now I believe the second largest privately-owned business in the country. In fact, some people claim they have created more jobs than my entire stimulus program. I hope that isn't true in that my stimulus program has done better, but nevertheless I admire what the Koch brothers have accomplished, for themselves and for their numerous employees, suppliers and customers. And for the billions of dollars in federal and state taxes that Koch Industries and the Koch brothers have paid.

"At the same time the Koch brothers have been majors supporters of a wide variety of charities and cultural institutions. And yes, of think tanks like the Cato Institute. Which I don't often agree with, but that's okay. The more thoughtful ideas the better, whether the ideas be liberal, libertarian or whatever.

"Now these folks have been demonized in a recent article by Jane Mayer in the New Yorker. I'm pretty busy in the White House and the New Yorker is one of the few magazines I actually subscribe to and read. But this article was really out of line. Any mammoth company like Koch Industries, especially an oil and natural resource company, will have occasional environment problems. And has the full right to lobby federal and state governments on matters of significance to them.

"And, as I said, the Koch brothers have the full right to contribute to libertarian think tanks like Cato. George Soros contributes to liberal think tanks and we don't demonize him.

"I admire the Koch brothers for what they have accomplished in the very difficult free competition of the marketplace. And I admire their philanthropic contributions whatever their political philosophy."

If he would make such a simple statement (of which the above is just one out of a million possibilities), the President could appoint anyone he pleases, could go shoot some hoops instead of wasting time vetting Ann Mulcahy, Richard Parsons and other washed-up veterans of the "business community"



Oswald BoelckeI watched a documentary recently about air power in WWI and was interested to learn of a man named Oswald Boelcke. Wikipedia claims that Boelcke is the "Father of Air Fighting Tactics" and was the first to create a set of formal rules for these which he called the "Dicta Boelcke".  Boelke was Richtofen's mentor. Here it is: 

1. Try to secure the upper hand before attacking. If possible, keep the sun behind you.

2. Always continue with an attack you have begun.

3. Open fire only at close range, and then only when the opponent issquarely in your sights.

4. You should always try to keep your eye on your opponent, and never let yourself be decieved by ruses.

5. In any type of attack, it is essential to assail your opponent from behind.

6. If your opponent dives on you, do not try to get around his attack, but fly to meet it.

7. When over the enemies lines, always remember your own line of retreat.

8. Tip for Squadrons: In principle, it is better to attack in groups offour or six. Avoid two aircraft attacking the same opponent.

There are several lessons to be learned from this list of rules, the wiki article expands on them individually.



 Last Friday in 1869, thousands of businessman were ruined in a Wall Street panic known as "Black Friday " after financiers Jay Gould and James Fisk attempted to corner the gold market–From my morning paper.

Stefan Jovanovich writes:

If Black Friday repeated itself, it would be with the Treasury selling 4 million ounces of gold, not buying. The "scandal" was that President Grant, contrary to the advice of Butterfield (the Larry Summers of his day) and the assorted wise heads in favor of QE, persisted in his commitment to make the Civil War greenbacks convertible to specie. Butterfield had to resign, and Henry Adams (think Paul Krugman on speed) was furious that the United States was not going to cure poverty by printing dollars. The result was an article called "The New York Gold Conspiracy", written by Adams in 1870, which remains the "everybody knows" version of history for this event.



 A friend sends me a biblical commentary, "Farewell to Hope", that tells stories from Revelation that show that what Madoff did was wrong. "People had become rich off his returns, and charities had been helped by the goodness of his heart," his attorneys argued. But the rebuttal was that he "merely gave his clients (and charities) money that belonged to someone else".

Kindly tell me what the difference is between what the idea that has the world in its grip is, as embodied in the taking from the currently rich to give to the currently poor, and this idea of Madoff's. Sometimes kids respond to the idea that if a robber comes up to three people and takes one's money that's bad. Now suppose instead of the robber there's a vote of the three people as to who should give the money to the others, and the two vote for the third to give his money away. Isn't that bad also?

George Parkanyi comments:

It reminds of the Monty Python sketch of highway robber Dennis Moore, who robs from the rich to give to the poor, until the poor become rich and lazy and the rich poor– then he becomes conflicted and finally ends up simply re-distributing the loot amongst the passengers and then riding away.



Doesn't late September USUALLY mark the end of Summers? Or is it Labor day? Either way, now that he's done for the country what he did for Harvard, will he maybe join another Harvard "alum" El-Erian at Pimco, or will "different availability of aptitude at the high end", to quote him out of context, interfere?



It is a Fed that realizes this has been a balance sheet recession and collateral values must be reflated in kind. Action in gold, dollar, and equities seems to indicate this–just my humble opinion.



 Prechter says to sell rally, one reads. One recalls a chapter one wrote about the man who I facetiously said may have caused more financial harm to more people than anyone. The chronic bear of Barron's. One concluded that he never could close out his bearish calls which had been unanimously, completely negative every seek since he started writing in 1966. (For once this is not hyperbole. I was forced to read every one of his columns before a certain collab would let me say it). Prechter is in a similar situation. How could he say that any time is a good time to buy since most of the time he has been bearish since Dow 500 when he took the six month boat ride which regrettably came back to the US. However one must compliment him on his very propitious bullish call near the lows in 2009. As one said about the chronic bear at Barron's, "how one wishes he had stuck to journalism (subtly recapping what B said about Rossini." "how one wishes he had stuck to comic opera)". "If E did not say to sell the rally, he would be closing out a position at a 5000% loss. May both of them join Livermore in a place reserved for those who have inflicted more financial harm than any one else in history. P.S in saying this, one calls out to Dr. Jov for augmentation as to who from history has caused more financial harm. Napoleon? Lenin? John Law?

Jeff Sasmor adds:

Add the legions of "Financial Consultants" working for the big retail brokerages who advised buy and hold no matter what. Couple that with "averaging in" (there was some spiffy term for it I can't recall) we now have a population of boomers who demographically have most of the wealth but have no feeling of confidence in the stock market and no trust in the available advisers.

Burned badly 2x in 10 years has profound negative implications for aging boomers who are concerned that they have no time to make back the losses and just want steady income. Will they feel good when the bonds they've been advised to buy go down in price? Or feel helpless that they get hosed no matter what they do.

Peter Earle writes:

For the most harm caused in financial history - a topic I cannot, if I tried, avoid weighing in on– I put forth he who informed both the philosophical and argumentative implementaria of agrarian reformers of many stripes most plentifully, in my estimation, over the last nearly two hundred years: Claude Henri de Rouvroy, comte de Saint-Simon. Saint-Simon, an early intellectual who disavowed his wealthy, aristocratic moorings, was an advocate of positivism and, applying that practically, a sort of technocratic central planning which, as history has shown, was far more workable than other philosophies he inspired; specifically, Marxism. A contemporary of Hegel, I consider him the rightful heir to the modern scourges of Communism, Socialism, Fascism, the "Third Way", and central planning as a holistic species.



Sukkot Priestly BlessingThe Wall Street saying of "sell on Rosh Hashannah and buy on Yom Kippur" is well known. But more traditional Jews know that Sukkot, the Harvest Festival, is the real bear. There is some secular history to this as farm finance was a major part of markets well into the last century. Anyway, what do the numbers show? Going back to the origins of the S&P Futures contract in 1982 we have the following:

                                                      SPZ              USZ

Sell RH; Buy YK         Avg.               -.7%               +.03%
                               St. Dev.         3.97%               1.58%

From YK-Sukkot        Avg.                -.45%             +.1%
                              St. Dev.            3.47%             .94%

This is interesting in that the large SD is in a period that can be no more than four trading days and sometimes is only one. This is where we are now, by the way, from last Friday's close until the close tomorrow.

Sukkot Avg. +.21% -.08% St. Dev. 4.38% 1.88%

I do not think there is anything to see here, and of course my "memories" were wrong. Sukkot was up. But if anyone wants the raw data to apply their own t squared, or whatever you quants do, ask me in the comments, and I will send it to you. And if you find something, let me know!



PrechterPrechter says sell this rally off of yahoo finance headlines–no need to link, that's probably all you need to know about this move.

But if it is a market bluff, yesterday the market bet before the flop and today you should see the continuation bet on the turn and then a big bet to come on the river. If it's a bluff, then they gotta sell it.

Anatoly Veltman comments:

He's often quoted out of context, just like everyone else– thus everyone's track record may appear roughly same.

Prechter does certain analysis well. Those who understand his writings can benefit by incorporating some of his effort into own analysis. Those few who would actually enter trade on his conclusions– risk not knowing how/why to exit.

Ralph Vince writes:

Entirely true, Anatoly. I may not agree with his prognostications, but he does his work very well. What's more, he is often quoted in overly simplistic terms– such as to be a seller on this rally. I am certain he has a point where he would flip and go long, an alternate count or something. I am also sure he has a downside target– is it Dow 5000 ? Dow 10,500 ? These quotes of his floating around don't really tell you want his strategy is, and that's key. He's a guy who, if/when he is wrong, I have found he has not been wrong by much, often able to adapt to changing market conditions as well as any I have seen.

Larry Williams observes:

Prechter go long? Has he ever? His bearish book riding the wave came out the low the 2002, at the recent market low the clarion call was to sell. Be alert to broken watch correctness.

Dylan Distasio asks:

Hi Vic,

I'm genuinely curious as to why you lump Livermore in with the rest of the financial ne-er-do-wells. I'm not an expert on the man by any stretch of the imagination, but I've read assorted stuff on him, and while he was far from perfect in both trading and life (but then again who is?), I've never seen fit to paint him with that brush based on what I've read. Why do you have such a low opinion of him?

Larry Williams attempts an answer:

Livermore and the Reminiscences are two different stories. The Saturday Evening Post serial that became the book is oh-so well written but it is not just about Livermore it is/was a novel with a fictional character that paralleled Jesse but was also a collage.

In real life once Joe Kennedy took over the SEC, Jesse seems to have never made another penny; in other words he was most likely a runner of stocks not some brilliant trader like Steve Cohen, etc.



 You Will Meet a Tall Dark Stranger

Written and Directed by Woody Allen Reviewed by Marion DS Dreyfus

Cast: Antonio Banderas, Josh Brolin, Anthony Hopkins, Freida Pinto, Naomi Watts, Gemma Jones

One of the many delights of a Woody Allen annual release is that though the casts are different, we know these people. And we 'know' their predicaments.

Dysfunctional men and women in fizzling marriages; desperate bi-polars; older men yearning to stave off impotence or irrelevance via nubile honeys; women unfulfilled with their careers or the lack thereof. Career people in chrysalis or limbo.

The metrosexual mélange, famed population of the toney Upper East Side and the favored haunts of the Hamptons. In this film, as in several of his recent outings, Woody Allen situates his attractive band of locals and ex-pats in an arcadian London that rivals his most beautiful Manhattan cinematographic offerings.

Booksellers and art dealers proliferate in the daily scuffles of the couples being scrutinized. People have to make some sort of living, and books and art are industries, but they are 'clean,' nothing to soil the hand or frighten the hansom cabs. And these are the 'jobs' that are accepted and certified by the type of people populating Allen films and indeed, the Woodsman's real life.

Standing in for the now 74-year-old Woody as "Alfie," yet again, is the snowy-topped plutocrat played by Anthony Hopkins. Feeling his prowess fleeing, though he is very comfortably well-off, he abandons his long-time wife, Helena, played by Gemma Jones. The darkly troubled striving failed doctor cum efforting novelist, Roy, stormily played by Josh Brolin, is married moodily to Naomi Watts, Alfie's daughter, whose desire for children is thwarted by her husband until his latest novel or project is accepted.

Until the novel's acceptance, their rent and basics are subsidized by Naomi's somewhat dotty yet credulous mother, supplemented by an art gallery assistant's job for Sally, who works for the suave, Armani-suited Antonio Banderas.

Across the road, unhappy Josh peers from his window at a haunting guitarist, Dia (Slumdog Millionaire's gorgeous Freida Pinto), who represents something he won't quite verbalize. While he waits for the publisher's decision on his manuscript, he begins seeing the red-swathed beauty for walks and lunch, though she is affianced, slated to marry in the immediate future.

Alfie "dates" a long-faced, colt-like call-girl so quirkily tall and slim-hipped that for a good slab of the film one thought she could well be a he. But no. Desperately lonely without the sweet wife he jettisoned, he impulsively asks his call-girl shrewdie to marry him.

Helena, also hard hit by loneliness, takes comfort in tippling and a fortune teller several times a week. Though the seer, Cristal (Pauline Collins, so touching in Masterpiece Theatre's Upstairs, Downstairs) is bogus, Helena believes in her predictions and insights, and her occult delusionism makes her the most serene character in the film. Afterlives, prelife, contacting the dead, stars in conjunction…my, my.

Voiceover narration beloved of Allen in many of his iconic films indicate the points that characters do not or cannot voice. Cockney Charmaine is so used to her Vegas Johns that she doesn't even know why a man would have to wait for sex-enhancement little blue pills to take effect. Not in her vocabulary zone. Though she is clearly not his age-cohort, dizzy Charmaine (newcomer Lucy Punch) is not so clueless that she doesn't make hay while she can. Furs, jewelry, apartments, clothing. (Must have been a gig to find this woman, Lucy Punch: freakishly tall, horsey features and skinnily voluptuous, with the longest legs since Tommy Tune. On second thought, maybe she is Tommy Tune…?) Alfie soon regrets his culture-free marriage and wallet wail.

Shed of her mopey husband Roy–deep in serious flirtation with neighbor Dia–Sally realizes she wants her boss, gallery owner Greg Clemente. Too late. Greg is already having an affair with the painter being represented by the Gallery owing to Sally's own efforts.

Adultery is a given for these troubled urbanites.

Analyzing the title, one can make the case that it is more metaphor than actuality. We all, of course, eventually meet that "tall dark stranger," a morbid coefficient of all Allen films, even his prior laugh-out-loud funniest, now long gone.

The music and cinematography, always deeply pleasurable in Allen films, match the beauty of the sets, shiny London in the spring (even torrential rainy scenes are lit beautifully, and don't destroy the mood). The cast is superb, spot on, as always. Though the reviewer audience we saw it with was tamped down and rarely laughed, trademark Allenesque laughter hails not from comic lines or particular set-ups as from the viewer's ready understanding of the comic plights of these messed-up people and their life-trajectories, which so many of us empathize with, if we are not actually living at the moment. As well, of course, as from rueful character rejoinders.

TALL DARK STRANGER is couched in this vision of bleak pay for play. Woody with reference to the passage of time and the futility of life—"a tale of sound and fury, signifying nothing" ("Macbeth")—"After all the ambitions and aspirations, the plagiarism and the adultery, what once was so meaningful won't mean a thing. Many years from now the sun burns out and the earth is gone, and many years after that the entire universe is gone. Even if you could find a pill that makes you live forever, that forever is still a finite number, because nothing is forever."

Talk about fatalism.

All the Woody tropes are here aplenty, in a fondly recalled yet disquieting way. Familial chaos, generational unease, mortal discomforts. One of the memes threading these scenes of striving, plagiarism, delusion and pain is a strong moral dimension. Those who do good (a rarity in an Allen film) are mildly rewarded, though not without effort. Those unable to resist the monumentally daft or unethical, however, are not accorded gentle recompense in the Woody canon, which is as morally connected as you can get: Actions are consequential.

TALL DARK is an edgily entertaining, provocative and eye-filling 100 minutes. This will become vintage–already prize-winning– Woody.

David Aronsen writes:

To explain the distinction between falsifiable and non-falsifiable predictions to my students I would contrast two statements. The non-falsifiable one was a fortune teller's "You will Meet a Tall Dark Stranger. The falsifiable one was you will see a man with one red shoe walking east on 42nd street whistling Satin Doll before 6PM next Wednesday. Did my powerpoints somehow fall into the hands of Woody Allen, and should I ask for a royalty? 



 1. Everywhere one looks there is building going on in Washington DC. No vacancies and for rent signs appear on each block the way they do in every other city. The trains going to and from are full at every hour of the day including the 2 am arrival in New York, and all the restaurants are bustling with activity. Scaffolds and cranes seem to surround all the monuments, executive buildings, and lobbying areas. They said that 25% of all the world's cranes were being used in Dubai 3 years ago, but now they must all have moved to D. C. But this boom can be predicted to last.

2. A tremendous number of restaurants that were marginal in other big cities are moving into D.C. with great alacrity and success. I ate in the magnificent, opulent quarters, built with special private rooms for the three branches of Carmines and Kellari, both New York operations doing a land office business there after just a year, and note that Ducasse after his dubious starts in New York has found a can't miss operation there also.

3. A trip to the American Museum reveals the idea that has the world in its grip in every exhibit. As Dr. Voss says "It was sad to see the outrageous leftist propaganda at the Museum denigrating our country's achievements in every sphere of human endeavor. I recall seeing similar exhibits about the U.S. in Moscow in the 1980s." We visit a childrens play scientific exhibit and of course they have a demonstration to show that by turning a magnet around a coil very quickly you can generate electricity which goes by two paths to an old fashioned light bulb and a newfangled compact fluorescent bulb. The bulbs are set up to show that your energy lights up the fluorescent bulb, but not the incandescent. Fluor. bulb - - generator - - - incan. bulb. No consideration is taken of the cost, light quality, life span, disposal problem or human lives lost due to the mercury manufacturing or disposal process. The idea is to show that the old fashioned bulb takes so much more energy to light. But Dr. Voss and I switch the bulbs between the two forks, and find that when you switch the old fashioned bulb lights up. The idea of using this propaganda on kids would be something you would expect in the agrarian reform countries not here, if the entire museum was not filled with apologies for industry, and paeans to class struggle in every exhibit. A typical exhibit shows a sewing factory with 600 employees in Bridgeport that according to observers along with the telegraph and the steam engine were the key inventions of the century but then goes on to point the guilty finger at the classes of wealthy and poor that were created by the factory and the product. No consideration is given to whether the workers in these factories went to work there voluntarily with the idea that their life would be improving.

4. The ecology of the city is very clearly shown by a visit to the White House. Motorcade after motorcade comes there with 5 limos, an ambulance and a bus as visiting dignitaries from the various districts are escorted for tours. The helicopters are reserved to the President. A feverish level of activity emerges as the visitors from the new executive offices, all with windows that don't open, spills over. Outside a protestor against business has been conducting a 30 year, 24 hour a day vigil. Next to the white house, an office of the Bank of America in a neo classical building bigger than the Hoover Dam stands proudly just across from the Treasury. And in a forlorn gesture of Zacharian token opposition a flag waves from the chamber of commerce: Free Enterprise Creates Jobs.

5. New museums grow like Topsy in every corner not already occupied by the offices of the lobbyists and suppliers. One very reprehensible one is the Newseum which has a big exhibit on the coverage of Katrina as if such coverage and expense did not in some way violate the spirit of the separation of the Press and the branches of government.

6. Over the last two years, the number of employees in the Federal Government has increased by 15% while the private sector growth has been -5%. From the brouhaha of actvitity and building in all areas of DC, one gets the impression that they all are compressed and contracted into this one little town. When one considers the multiplier that each job causes with lobbyists, suppliers, family members, spending on local products, administrative staff necessary to support and create the jobs, it is no wonder. But a reverse multiplier is hidden as all the jobs created are extracted from the spending and savings of non-government employees. The negative multiplier is greater than the positive multiplier so total jobs had decreased . But the output situation is much flummoxed by the kinds of things that the money would have been spent on. Creating new offices, agencies, and energy efficiency a la the American Museum on one hand, and for rent and closing down signs in every other business.

7. As we go to DC, a new agency to protect consumers is created. And the idea that consumers are protected by competition and private information agencies is considered an absurdity just as described by Amity Schlaes in the waning years of the depression when the operatives at the White House walked out of a meeting with Good Housekeeping in disbelief that anyone could be against something so obviously good spirited as regulation of what consumers might buy.

8. The three underlying causes of everything that's wrong with health care are that doctors are not paid directly by consumers, doctors are unable to compete with each other, suppliers are forced to go through the three stage 500 million approval process to get a drug approved, and the insurers are not allowed to compete with each other across state lines. No wonder that Hayek's book has been a number one best seller on Amazon.

9. Shades of Willie Sutton when he wanted to turn himself in to headquarters after Thompson hit the home run. My whole party feels the same way after leaving the American Museum with propaganda in every exhibit similar to the fake lite bulb exhibit ( photographic evidence from Susan forthcoming), and going out to two of the most massive buildings one has ever seen outside of the coliseum in Rome, yes the EPA, and the Unmentionable. " Just take it all right now. ".

10. The Museum of Crime and Punishment, with its vivid memorialization of all the ancient torture devices, and its memorabilia and explanation for our fascination with all the great criminals of the past, and the Museum of Espionage, with its code of rules for the would be spy is a nice lagniappe after visiting the mammoth Smithsonian exhibits which must have 1/100 the number of visitors per square foot and 1/100,000 of the number of visitors per value of the exhibits as the private museums.

11. As one is back to the day and fray of trading, I can't check all the above figures rite now, but I am confident that any numbers adduced that support my point of view above that are inadvertently too favorable are counterbalanced 100 times by things I left out that would have carried my point of view of this reverse horn of plenty much more forcibly.

Kim Zussman shares: 

Here is a pertinent article.



 Worst of all was a trip to the Jefferson Memorial which is riddled with apologies for the ideas behind the Declaration, appeals to the adolescent nature of Jeffersons' longing for the Arcadian days when the Saxons lived harmoniously in the forests with representative government, and the naivete of his ideas that out of of their own bounteousness and munificence, the original Americans came here without any assistance from the English and thus no revolution was required to reclaim what was rightfully theirs and ours from the beginnings.

In a Zacharian your own man thing, Ellis, the chief contemporary biographer of Jefferson, and the only such book for sale in their book shop,  joins the Jefferson as racist, slave master, father of the black Illinois Jeffersons from the Hemmings union camp, a view memorialized in all the written material around the exhibit that would make Jefferson small.

And indeed all of Washington today it would seem is designed to show the need for redistribution and the great unworthy gulf between the rich and the poor, and that is why the Great Mall outside the White House is unfit for civilized occupation as it is completely taken over with bums and the homeless —the idea being to show you the great gulf, ( especially when the homeless are not using their cell phones and blue-tooths as they were on my visit).

Charles Pennington comments:

Another approach to Jefferson is that he is an "enigma", as in the liner notes to Ken Burns' documentary:

"Revered as the author of the Declaration of Independence, the most sacred document in American history, yet condemned as a lifelong owner of slaves, Thomas Jefferson remains the enigma that is America."

He wasn't much of an enigma. He wrote and advocated eloquently and at length for the cause of limited government, but that needs to be whitewashed. 

J.T Holley adds:

I was walking the streets of Charlottesville some years ago with my children and came across Nock's Jefferson in hardback. Paying only a buck for it and it being in great condition I felt like I had a precious gift in my possession. It proved that and more.

There are to many things to list about Jefferson that I've learned through studying the Enlightenment, hours of History credits, and reading Notes and a couple of biographies, but here are a few:

1) He technically didn't own his slaves. They were purchased through levering mortgages or notes. He couldn't free his slaves if he wanted to.

2) It is amazing how such a public figure made himself such an "anonymous man" in all aspects of his life that he could.

3) Upon the death of his wife he burned all of their shared writings.

4) When addressing his daughters on choice of dresses to wear he said "Wear what all the other girls are wearing, if you want to be different then do so with your thoughts and mind". I'd like to find the source for this paraphrased quote if anyone knows, it's just stuck with me over these years.



David BartonDavid Barton is a sweet man, and he has the energy and enthusiasm of a true believer; but some of his Christian interpretations of American history are simply not accurate. There is no basis for his attempt to find in George Washington and the Continental Congress' edicts the moral and logical justification for the current refusal of the American armed forces to enroll homosexuals aka "Don't Ask Don't Tell". Washington proscribed the practice of sodomy among soldiers for the same reason he punished whoring while on duty; it was contrary to discipline and good order. Otherwise, he made no inquiry into the sexuality of any of his soldiers; nor did he think he had any business doing so. How could he? The most famous episode of brotherhood sacrifice from classical military history - a story every literate person of his age knew - was the annihilation of the Sacred Band of Thebes at the hands of Philip II of Macedon in the Battle of Chaeronea in 338 BCE.

Barton can't find any comments from George Washington on the subject of homosexuals and how inherently sinful they are and were because there are none; and he would have been literally appalled at the notion that the U.S. Army had any business regulating which kind of off-duty screwing around was appropriate.



soybeansI watch Soybeans and Wheat rally from the open of the electronic session, then finally back off the highs after two to three hours of trading.

I wonder if a market moves a "significant amount" from the open, (especially on a Monday in grains weekend weather), then eases back just off the highs, what are the chances that Europe is going to come in (Oh gosh, check out Dec, Nov Soy) and have have a swing for the highs.

Well they did today, they had a swing for the highs and missed. Then the market proceeded to be offered. Now we wait for the main session.

I wonder if we can get a home run… or whether it's back to the dug out.


Looks like it was back to the dug out today on this one!

Though it does pose the question–after x significant move early, and then x- small percentage pull back in Asia, if opening of Europe high of x is not taken out, and soldiers retreat for, if in first 15mins no bid tone emerges in U.S, what percentage of times does the market retrace for the session?

No doubt you could add all sorts of filters incuding previous days surge, and over what x = to significant move….

Arrrr systems! Sometimes it's easier to trade other ways, but you can't help thinking. 



Charlie MungerMunger says, `Thank God` U.S. Opted for Bailouts Over Handouts ( I guess those were the only two choices).

Bailouts “absolutely required to save your civilization.”

Ralph Vince writes:

Absolutely required?


Interbank trades result in a winner and a loser. When a trade transpires, the net is that no money is created and no money is lost.

Making up for the losing wagers of losers is NOT necessary for civilization. In fact, it jumps the necessary evolutionary cleansing (and pain) life requires.

It was the largest theft in the history of humankind, and if we really were teetering on the brink of economic collapse, those funds could have been far better spent than to selectively (with great cronyism) bailout institutions of losers and compulsive gamblers.




They just announced 1 1/4 years late that the recession ended. Many interesting questions arise. What would happen if you bought and sold a swing system, when they announced recession and when the announced expansion? What are the chances that a random number generator or intelligent robot could do better at calling turns in the economy than the NBER? Many others.

Scott Brooks comments:

The recessions over?!?!!!?

I find that hard to believe. Just a minute….let me turn around and check something….looking….looking….OH MY GOSH!!!! There ARE monkeys flying out of my butt….the recession MUST BE OVER!!!

I work with a lot of insurance related organizations (brokerages, TPA's, insurance companies) and there is nothing happening in the insurance world that indicates the recession is over. Workers insured under workers compensation is down 20%+ off it's high. Workers comp premiums are down. Business insurance premiums are down. There are still more companies that are going out of business than there are start ups. There are still more companies that are contracting than there are companies that are expanding.

At the grassroots level, there is a lot of pain….and the bad stuff outweighs the good.

The recession is not over.

Jeff Sasmor writes:

What they said was that the last one ended June 09. They also said a decline now would count as a new recession. Talk about a lagging indicator!

NBER said "The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

Pitt T. Maner III writes:

Not only is the recession over but now the technical purists say it is impossible to have a "double-dip" since another downturn would be counted as a separate recession. Let the cheerleading begin…

Stefan Jovanovich shares:

"The Business Cycle Dating Committee was created in 1978, and since then there has been a formal process of announcing the NBER determination of a peak or trough in economic activity. Those announcement dates were: June 3, 1980; July 8, 1981; January 6, 1982; July 8, 1983; April 25, 1991; December 22, 1992; November 26, 2001; July 17, 2003; December 1, 2008; and September 20, 2010."


NBER Cycles



 ….to the Chair and the judges. I would like to add that I would have been neither surprised nor disappointed had Mr. Parkanyi's effort prevailed.

Had this contest occurred two months ago, I would have squandered the proceeds on a trip to Tunica and taken a whirl at Texas Hold 'em. However, I wound up doing it on my own dime and learned several hard lessons.

First, bad cards won't kill you; it's the really good cards that are just not quite good enough, that will.

Second, the game itself is slower and duller than baseball; I realize many will challenge me on both accounts - so be it.

Third, the younger players have been watching too much TV. Unlike the older players, they mull for many minutes over almost every hand, wear their ultra-wide brimmed, ostentatiously colored baseball hats backwards, and are generally surly (win or lose).

Fourth, the older players are not a bit shy about calling "clock" when the younger continue to tarry.

Finally, the game can't hold a candle to duplicate bridge. Here you can just "muck" your bad hands and snooze until a good one comes along. In duplicate, every hand must be played and played well and played quickly; a poorly played hand whether a good one or a bad one counts against you, significantly; slow play can get you penalized or bounced.

Despite all that I would play again if they used a format seen in an Australian tournament where you had a max of 30 seconds to make your bet and one couldn't bet "all in" before the flop. It makes for a faster, less theatrical game and prevents a dominant chip leader from foreclosing many good potential hands with pre-flop all-in bets.



And in other news, the World Beef Council has determined that beef is the ultimate health food. Maybe we should ask Palindrome. Oh wait, never mind. The thing about gold is that unlike most other potential bubbles there is a very small number of people in the world who can take certain actions to make it keep growing or not. Therefore, determining its bubbliciousness is an exercise in predicting what they will do as opposed to what the market will do. And when those people will completely lose control of the situation then it will really become a bubble which will not make it any more predictable because predicting the behavior of peaking bubbles is not an a priori solvable mathematical problem, at least as far as I know.



sorosI'm still waking up in the morning trying to decipher this statement as I look at Cotton, Soybeans, Sugar…what time frame…what context, what… whatever else?

For someone as "learned as Soros", besides talking about his book, who is missing what? :

Billionaire financier and political activist George Soros shared his thoughts on topics ranging from Japan's yen intervention to the European debt crisis at the Reuters Newsmaker event on Wednesday. According to the host's coverage, Soros remains bearish on the U.S. economy, noting, "If I had to sum it up in one word, I would say 'blah,'" and there may or may not be a double-dip recession.While Soros is never shy about voicing his opinion on the global economy, the billionaire made particularly interesting remarks on gold prices, where his namesake hedge fund, now actively managed by his two sons, is invested. "Gold is the only actual bull market currently," Soros explained, adding "It will be very interesting to see if there is a decline in the next few weeks," and, "It's certainly not safe and it's not going to last forever.

"Recall that earlier this year, Soros called gold the "ultimate asset bubble," as his hedge fund was more than doubling down on its position in the SPDR Gold Trust (GLD). At the end of the second quarter, the ETF was still the largest position among Soros Fund Management's top-15 U.S.-listed equity holdings, as disclosed in 13F regulatory filings. The firm was reducing its position in the gold trust and miner NovaGold Resources (NG) during Q2, but it left the Kinross Gold (KGC) position largely unchanged.

article here 

Anatoly Veltman comments:

An 80-year-old trying to keep $20b working can't possibly mind some of the frisky markets you and I both love.

Hany Saad comments: 

Soros sports the nasty habit of actually riding a bubble knowing it's a bubble. This seems to have paid off handsomely over the years. Gold is a metal of no industrial use that keeps going up largely due to a universal psychological flaw that it is the only hedge against recession. A lot of similarity between the behavior of Gold and the tulip mania may be, yet fighting it might not be a winning proposition right now.



And of course, how will the Fed be able to finesse a stimulatory action tomorrow in conjunction with this announcement. And most important, were any Clarkian winners at the bureau who might have been anticipated without any direct contact to take care that they didn't announce it too far away or too unseemingly close to any voting.

Kim Zussman writes: 

NBER announcement dates only go back to 1980. For these end of recession announce-dates, here are the SP500 returns for day-of announcement, next day (from close of announcement day), 5D, 10D, and 20D:

Date                     day of  nxt day     5d       10d      20d
07/17/03                -0.012   0.012    0.000    0.009   0.009
07/08/83                -0.003   0.006   -0.017    0.011  -0.032
12/22/92                -0.001  -0.003   -0.003   -0.022  -0.011
07/08/81                 0.001   0.008    0.015   -0.009   0.034

                   avg     -0.004   0.006   -0.001  -0.003   0.000
                   stdev   0.006   0.006    0.013   0.015   0.028

Historically nothing much, but then how do these compare with The Great Recession?



We find that variables implied by the structural credit modeling framework have significant forecasting power for corporate default rates. In contrast, lagged corporate credit spreads have no predictive power for default rates. These results complement and extend (the findings of) others who also find that credit spreads are significantly influenced by factors that are difficult to link to credit fundamentals. Finally, we find that the state of the economy as measured by a recession indicator variable has little incremental predictive ability for corporate default rates.

Rocky Humbert writes:

On a quiet Friday afternoon (waiting for options expiry), I began to read this paper …as the abstract caught my attention. Putting aside the fact that they did a lot of data massaging, the whole thing came crashing down on page 22. When they wrote: "The variance of stock returns is positive and significant….the other structural variables are not significant [to the Structural Model.]

Ok…so let's cut to the chase. They found that the only significant good predictor of bond default is the stock price. That is, when the stock goes up, the company is less likely to default. And when the stock goes down, the company is more likely to default.

As homer simpson would say, "Duh!"

They found no relationship w/ economic cycles which is interesting and counter intuitive. But the nature of economic cycles has changed over the last 150 years…but even so, if the economy goes from Boom to Bust, this result is surprising.

Yet, the MOST interesting thing here is that they found: "ONLY THE STOCK PRICE MATTERS" for predicting defaults. And "THE ECONOMIC CYCLE DOESN"T MATTER" for predicting defaults.

Hence, they are basically telling us that the economic cycle must not matter to the stock market … which is the most interesting thing of all!

p.s. i stopped reading at page 22 when i realized what this all meant. (which is left as an exercise to the investor/reader).

Stefan Jovanovich retorts:

As "everybody knows" the country is suffering a slump brought on by a failure of aggregate demand; and that can be cured by an exercise of the sovereign's power to stretch the currency aka money supply. The authors, on the contrary, are heretical enough to think that balance sheets matter. They also think that risk assessments based on business cycle data are effectively useless as a method of determining the probability of whether or not someone is going to pay off the debt they owe, with interest. "The worst three-year period is the 1873-75 period in which the default rates total to 35.90 percent. The 1892-1894 and 1883-1885 periods resulted in total default rates of 18.69 and 16.06 percent, respectively. The 1933-1935 period during the Great Depression ranks a distant fourth with a total default rate of 12.88 percent. Thus, while the Great Depression may have been the worst economic period during the sample period, it is actually very far from being the worst credit event experienced in the corporate bond market. The fifth and sixth worst three-year periods have total default rates that are very similar to that of the 1933-1935 period. Observe that the 2000-2002 period is the only post-World-War-II period in the top twelve three-year periods listed in Table 3. We note that the year-to-date corporate nonfinancial default rate for 2009 as of the end of September is 2.46 percent (per Moody’s)."

The authors' point is that bond defaults are a function of leverage and that there is a correlation between leverage and diminished returns to both bondholders and shareholders. My point was that the elastic currency introduced by coordinated central banking has shifted the risk of leverage from businesses, which can no longer afford it, to sovereigns.

If one is looking for an explanation of business cycles, Eric Falkenstein's is still the best.

Rocky Humbert responds:

Stefan: You're operating at a higher level than me on this. I'm not quarreling with your comment below. However, because the study covers such a huge period of time, they had very limited data to study. For example, they used "high quality New England municipal bond prices" versus commercial paper prices for calculating the effect of the yield curve shape. Those two metrics broke down in 2008, and similar chaotic distortions may have occurred during other credit crisis periods making their analysis and conclusions suspect.

The other thing that the paper observed (which I think is interesting) is they found that owners of corporate (non financial) bonds who held through the entire study period had an excess return … even after defaults. They note that this is consistent with other studies which explain the excess return due to a liquidity risk premium.

If the authors included money supply in their analysis, I missed that. (Which is entirely possible.) But they used muni bond prices in the 19th century precisely because they recognized the gold-peg effect … which made govt bond prices effectively risk free (in gold terms that is.)

Stefan Jovanovich replies:

My comments are on a much lower level, Rocky. I am continuing my neo-political rant about how unification of the credit and monetary systems (along with the Federalization of legal authority) since the Progressive era has become its own form of leverage. Just as the authors of this paper had to search for evidence of default among the equity court records (no Federal bankruptcy), all our present calculations of sovereign leverage are incomplete because they do not include an assessment of the net obligation of all the guarantees and promises made. As Chris Whalen points out, with ZIRP those IOUs that are not traded cannot even be discounted. To be specific, California has no idea what it now owes its prison guards because it has no idea how much should be saved now for a payout to be made in 2040. That is fine with our legislature because they are the gang that never counts straight; but it means that the pools of investment capital dedicated to pensions are now sailing without either a map or a compass in terms of their future obligations. To me that forecasts a default rate in pensions that will mimic the post Civil-War collapse in railroad bonds that the authors studied.

Sinking further down. The reason Grant remains the least appreciated President in history even as he was the most popular one while still alive is that he had the wisdom to understand the common sense view of the ordinary citizen - that public money risk had to be completely separated from all credit risk (both private and public) in the financial system. Grant favored uniform regulation and clearing - the national banking system that the Federal Reserve effectively took over is one of his legacies - but he insisted that the government, because it had a Constitutional monopoly, must resume making legal tender exchangeable into specie - a commodity whose supply and demand could not be manipulated by the stroke of a pen or tap on a keyboard. The markets - left to themselves - could deal with fraud and deceit and failure and even banking default through effective discounting as long as the participants all knew that they had to resolve the matters themselves, without free money from the Treasury or manipulation of the interest rate.

As Rocky notes, the authors said absolutely nothing about the money supply, and they did not even mention leverage directly. They left those inferences to us drop-outs. Enjoy the weekend, all.



 It's amazing to me how certain songs can cue up such strong memories. It's even more amazing to me how my 46 year old mind filters out the negative emotions and focuses on the good…or at least the good that should have been…the good my young mind was not capable of grasping.

I had an apartment at 124 S. Lorimer Street in Cape Girardeau, MO during my junior and senior year of college. My bedroom was a basically a giant bay window that hung over the south side of the house. I could look out my east window and see over the Mississippi river to fertile plains of the Illinois bottom land. Below me, lay the river front of Cape with it's old buildings, and giant flood wall to block the high waters that inevitably came.

Every morning, I would awake to the sunlight breaking in through east window. I usually just pulled the blankets over my head went back to sleep. But often I would get up and sit in the chair next my closet and watch the sun come up over Illinois and glisten on the surface of the greatest river in America.

In the evening, I would often be studying at my desk, which, unfortunately faced the wall to the west. But I was no immune to the lure of the setting sun to the west. So I would often get up, go sit in the furthest bay window and watch the sun set over the 100 year old houses across the street to the west. Then as the sun dropped below the horizon, I would turn to the east and watch the radio towers in Illinois light up their blinking red lights.

Looking back, I realize that those were good times…good times that I wasted on the things that are important in youth…but now, as an adult, I realize they were largely meaningless. Melancholy days wasted on pinning for lost love. Days of distress over boredom with school and an inability to stay focused on my goals…I look back on those days and think of that young man sitting there in that room, not sure what was going to happen to him, seeing my goals shatter before me and I want to tell him to enjoy life and not worry about things that will (I promise) look so trivial in the hindsight of maturity.

But I guess in hindsight that it was important that I go through those times to make me appreciate what I've got and the journey that I took to get where I am today. You can't understand how good the sweet is until you've tasted the bitter.

When you're young, you don't understand that high waters come and may make things look hopeless. But if you just hold on, those waters will eventually recede…and in their place they leave a new, changed landscape, filled with fertile opportunities.

That was 25 years ago. I wonder, 25 years from now, how I will look back on these times. I wonder what I will clearly see then that I can't see today?

I look forward to that journey and all the wonders that remain to be discovered when whatever rising waters I will face in the future eventually recede….just like they always do.

Here are a few songs that triggered these thoughts tonight.



 Wikipedia and Snopes cite his autobiography as denying he ever said he robbed banks because "that's where the money is."

"If anybody had asked me, I'd have probably said it. That's what almost anybody would say…it couldn't be more obvious.

"Or could it?

"Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I'd be out looking for the next job. But to me the money was the chips, that's all."

"Go where the money is…and go there often."

How many of us feel fully alive as we try to sneak a few coins out of the vault before the flexions notice anything is amiss?

According to Wikipedia, Sutton was arrested four months after Thomson's home run when a clothing salesman recognized him on the subway. The Mafia killed the clothing salesman a month later "because he was a 'squealer'".

I grew up in the Boston area, where the Irish tradition of contempt for informants was very strong. When my family moved west, I was astonished to see a sign on a highway in Washington state that said:

Fine for littering $250

Report violators: 1-800-xxx-xxxx



By her appointment all I see is the creation of more government.  A very bad thing.



The red line on the attached plots instances when the DJIA closed within 20% of 1000 (800<X<1200). When +/-20% of 1000, the red line is horizontal with value =1. When not in-range, red = 0. Vertical red lines are transition points into our out of +/-20% of 1000. The blue line depicts the same pattern with +/-20% of 10000. Also plotted is log DOW.

Note that the 1K dance occurred in the "range bound" period of 1964-1985. The current 10K dance started in 1997 and frugs along to this day.



The average correlation between SPY and its main sector etf's (xle, xlf, xlk, xlp, xly, xli, xlb, xlv) has been very high recently. I wanted to see how volatility tracks with correlation (correlations go to 1 in a panic). I regressed the 60-day volatility of SPY on the average 60-day correlation between SPY and the sector etf's from Sep 2005.

sectorCor = .77 + .04*spyStd
spyStd t-stat 19

Then I updated the regression for 2010 and found
sectorCor = .78 + .10*spyStd
spyStd t-stat 38

Any thoughts on the rising correlations or the relationship to volatility levels?

Vince Fulco comments:

Ex. the most recent vol decline, which we'll see how long it lasts, it is my contention that as spreads have come down, for quite some time, the Street have been manufacturers of vol & opacity in new fangled products and facilitators of fake 'information' for its own sake. What kind of system allows for the trading of 300MM shares of C with a penny spread and the rebate boys still go home big winners? Leveraged and branded ETFs provide more vig for dealers to trade within and sucks in the naive who can't or won't trade the futs space and don't understand the derivatives underlying the products. As we've seen time and again, liquidity which everyone seems to expect and demand esp. when it disappears, would seem to be the defining issue as increasing correlations demolish old theories of portfolio creation. Lack of diversity would seem to badly endanger the system as it does in nature. Perhaps I will be wrong if the tail sellers in this phase overwhelm the vol creators…Or maybe both sides win with enough switches. 

George Zachar agrees:

I agree with what you said about how lack of diversity would seem to badly endanger the system as it does in nature. The investing monoculture gives the illusion of stability and reason, while in fact offering a brittle alogical ecosystem.Street research now is heavily biased toward encouraging carry whoring, which is of course vol selling. 

Gary Rogan comments:

This is also an indication that those who attempt to trade on the fundamentals have exited the building. It's not clear exactly why, but my guess is it's a combination of the lack of trust in any published accounting data related to the out-in-the-open distortions in the financials' balance sheets, the uncertainty about the future and what the fundamentals imply about the future, and the self-reinforcing relative rise in the volumes due to algorithmic trading. When the robots trade based on the algorithms that evolved in the presence of fundamental investors after they are no longer there, sooner or later the results will resemble what would happen to the surface of the earth if gravity were to suddenly disappear. 

Rocky Humbert writes:

Gary: I would be interested in your basis for making this case. One could argue that it was in the late 1990's when those who invest on fundamentals were forced to leave the building. Unlike Elvis, we've now re-entered.

Intel at 11x earnings (now) makes more sense than at 70x earnings. (then). Pfizer at 10x earnings (now) makes more sense than at 55x earning (then). Coke at 14x (now) versus 50x (then) … Internet stocks etc etc …

Gary Rogan responds: 

Rocky, first of all we are talking about slightly different time frames. Certainly the late '90s were a unique period when even the most stubborn fundamentalists had their believes tested I'm talking more of what transpire say between 2003 and 2007, after the "buy on the dips" fully died down and before the full force of the credit crunch was appreciated vs. today. While I don't have a scientific basis for this, what I wrote was based on reading literally hundreds if not thousands of comments on financial blogs, some serious, where the writers expressed disgust at the market reaction to (a) some piece of negative macro news (b) another "stress test" (c) another major bank's quarterly release claiming a great rise in profits immediately deconstructed on that same blog to be (supposedly) completely fake. So many claimed to have given up looking at the fundamentals and expressed so much suspicion, I thought that perhaps there IS something to what they are writing and it's not all a conspiracy to confuse someone. I have also read several articles about the relative rise of machine-generated volume vs. retail investors, as well as the reasons for the market rise in the presence of mutual fund outflows.

I'm not sure that P/E compression by itself signifies trading on the fundamentals. Certainly SOMEBODY does when that happens, like our good friend the sage in the early/mid '70s doing his "oversexed guy in a harem" impersonation. But overall I think it's more indicative of the lack of confidence. I guess what I was referring to is some "typical" market where momentum traders are driving various stock and sectors in all kinds of directions (but not as far as the in the '90s) and some Gabelli-like or Lynch-like character gleefully commenting on the kind of opportunities those idiots gave them in the value space. I'm not sure some space cowboys riding C and BAC like wild mustangs on unbelievable volumes quite gets you there.

Here is more on asset correlations and intraday patterns:

By now, after Zero Hedge has been demonstrating for about a year, even the kitchen sink is aware that cross-asset correlations between stocks, bonds, FX, and commodities is at or near all time highs, which in itself is a very deplorable situation simply because it eliminates virtually all long/short hedging opportunities, courtesy of the Synthetic CDO redux boom whereby most of the trading in stock is conducted via ETFs, as both high beta and low beta, or quality and crap assets all trade as one. But few if anyone was aware of peculiar intraday correlation patterns which may be an eye opener to some readers who believe that stocks are uniformly broken during the day. That is not true: in fact, stocks are only untradeable for the rational investor during the times when the market is most active, around open and close. In fact, in a paper by Michael Bommarito II, "Intraday Correlation Patterns Between the S&P 500 and Sector Indices", we discover that average return correlations have a very distinct U-shape, whereby correlations are near their highs (0.75) just after the open, and before close, while dropping to a statistically significant 0.6 at 1 pm, when volume is the lowest. This merely confirms that increasingly more market participants, read - electronic traders and algos, trade exactly the same strategies at the time when volume is at its peak, indicating that most strategies have nothing to do with actual fundamental investing and all to do with gaming market structure, and hoping to capture some idiot who thinks they can beat the machine. And as we demonstrated recently, many traders no longer trade during the hours between 10am and 3pm. Which means that this is actually a very interesting arb opportunity, for those who wish to take advantage of the machines' downtime, but shorting correlation at open and close, and bidding it up during the day. In fact the trade can be structured as a pair trade with almost no capital downside opportunity.




sunspotsSunspots form on the sun due to magnetic anomalies in the sun, the oscillation of the magnetic field results in sunspots being formed. Sunspots are cyclical in nature and right now, we should be gearing up for a susnpot peak, yet there are very few sunspots. In fact, for the past 7 years years, the number of sunspots has been much below average and seems to be going down vis a vis past cycles. Anyways, here's a good article predicting that sunspots will disappear for many decades starting in the year 2016. 

The article states that, "The last time the sunspots disappeared altogether was in the 17th and 18th century, and coincided with a lengthy cool period on the planet known as the Little Ice Age." The market implications of a change of this magnitude cannot even be fathomed, especially with the high population of humans on the planet .As an amateur radio operator, the study of sunspots is one of my interests, and I plot the numbers every day (a habit I started in high school). I also study things like the J index, K index, and total solar output (which has been declining for years.) I have seen a downward trend in solar output and sunspots for several years.

Someday, the markets will wake up to the solar events, which could(at worst case) have a very detrimental effect on our climate and economy on the earth .

While the aforementioned article is mere speculation, it is a fact that the sun has cycles, and right now the sun is going into a "solar minimum."
There might be climate change going on, but it will be the type of climate change that will be the exact opposite of what Mr. Gore and the cabal of anti business academics and government types so eloquently and passionately tried to sell the general public. In fact, this type of climate change would require the exact opposite of what people of Mr. Gore's ilk profess, and demand everyone to increase their carbon footprint by multiples.
Either way, the market implications of a change in solar output are enormous, (Like nothing we've ever seen before) and deserve statistical modeling for different scenarios. Events of this magnitude, the climate changes, occur in a matter of months, not decades, so time is of the essence.



Willie SuttonI mean, when you're playing against someone using mitigants to generate optimum MEQ to prevent your pinging him, why for crying out loud, what kind of chance do you have. One feels like Willie Sutton when Thompson hit the home run and turning oneself into police headquarters immediately or at least closing out all trades with one clearing house immediately. One has not seen such assured intellectual prowess since the quotes from the Harvard fund managers themselves in Edspec memorialized by Susan.

From "The Education of a Speculator" page 131:"One of the strategies Harvard favors is to buy undervalued securities and sell short comparable overvalued securities with the same industry."  "In discussing how such strategies reduce risk, Harvard Management Director Jay Light, a professor at the Business School, states that, if the market falls, "We will get hammered less than, no more than, and almost surely less than we would have been hammered had we just had [our portfolio] in domestic equities.""

Quote from Vince Fulco's 9/15/10 post: "Tusar: It's about the routing strategy, and the order placement strategy. The best techniques and the best mitigants to prevent what you just described from happening are pretty simple blocking and tackling kinds of things. In other words, ***randomize your order size and ***placement of orders, using 'Minimum Execution Quantity,' because I don't want people pinging me for odd lots and then finding out I'm there and stepping in front of my order, etc."



 If you look at it from the perspective of the Chinese this headline has got to be maddening. They are desperately driving millions of indigent citizens to work for next to nothing under extremely hazardous conditions to send real good to the US and elsewhere. The citizens are always ready to rebel due to this treatment, and the main goal of the Party in reality is to keep the citizens from rebelling. In return they are getting a heavier and heavier anchor that prevents them from their second goal, taking over Taiwan (the potential of repudiation of the US debt is pretty much the only thing that's keeping them from attacking) and military domination of everybody else around them. They can't stop this charade immediately, because then the citizens would rebel due to joblessness and thus it's being perpetuated. So they are shifting their debt into the Japanese government obligations and getting involved with the Japanese trade policy for a totally spurious reason. I'm sure if they knew how to make every citizen instantly rich and totally shift to domestic consumption with just some exports to nearby Asian countries they would. If all that wealth the government is sitting on could be distributed in a one-time deal, I bet they would go for it, but the logistics must be truly daunting.

Jeff Rollert writes:

I suggest you frame the point in a 100 year time frame, as China is doing now.

China has to look inwards for 20 years, or at least until this generation has trained enough world class managerial talent to run multiple multinationals, without foreigners.

By buying Jap debt, their are securing a flank. By buying our debt and acquiring the manufacturing through pollution/tax/labor cost arbitrage, they are industrializing quickly.

I look at their debt maturity in the same way a general looks at an opponents perceived strength and structure. Short term average suggests the need to protect is growing smaller. The size of the maturity buckets bought gives you an estimate of their timing for a reduction/increase in the perceived threat.

Debt weaponization…thrust (buy others debt) and parry (issue debt, then imply decline paying).

It's MAD all over again…we won't default to handle a Taiwan situation because it would remove our reserve currency yield advantage. China is not ready to assume anything near a reserve currency role….and they won't push us that way until they're ready to do so.

Stefan Jovanovich writes:

After the ruins of the Great War aka WW I, the negotiators at the Versailles Peace Conference spent days and weeks discussing the details of how the maps of Europe, the Middle East, Africa and the Western Pacific would be redrawn. No one did an accounting of the liabilities that had been incurred; they only discussed the real estate assets to be acquired. When– and if– the Chinese decide that they want the rewards of seignorage, I pray that the U.S. will follow the model of the Danish Department of Defense during the Cold War and have a recording that says "We surrender" in Chinese, Spanish and Arabic.

Also, take a look at this on the Gini Coefficient:

"The Gini coefficient of different sets of people cannot be averaged to obtain the Gini coefficient of all the people in the sets: if a Gini coefficient were to be calculated for each person it would always be zero. For a large, economically diverse country, a much higher coefficient will be calculated for the country as a whole than will be calculated for each of its regions. (The coefficient is usually applied to measurable nominal income rather than local purchasing power, tending to increase the calculated coefficient across larger areas.)

Gini coefficients do include investment income; however, the Gini coefficient based on net income does not accurately reflect differences in wealth-a possible source of misinterpretation. For example, Sweden has a low Gini coefficient for income distribution but a significantly higher Gini coefficient for wealth (for instance 77% of the share value owned by households is held by just 5% of Swedish shareholding households ).[10] In other words, the Gini income coefficient should not be interpreted as measuring effective egalitarianism.

Comparing income distributions among countries may be difficult because benefits systems may differ. For example, some countries give benefits in the form of money while others give food stamps, which might not be counted by some economists and researchers as income in the Lorenz curve and therefore not taken into account in the Gini coefficient. Income in the United States is counted before benefits, while in France it is counted after benefits, which may lead the United States to appear somewhat more unequal vis-a-vis France."

Rocky Humbert writes:

It would be interesting to see a Gini Coefficient for the major industrial companies of the world. (That is, income distribution within corporate enterprises … [i.e. the income dispersion between CEO's, staff and mail room clerks].It would be then be most interesting to see if there is a correlation between long term ROE/ROC/stock price performance and the Gini Coefficient…

Does anyone know of thorough study that has done this? I know of studies of CEO pay versus performance, but that's a different question. The study would have to analyze after-tax income of course…

Lars Van Dort comments:

Here is a paper from Belgium that addresses this question. Maybe not the major industrial companies of the world, but anyway.

PDF available for free download.

This paper examines the relationship between intra-firm wage dispersion and firm performance in large Belgian firms using a unique matched employer-employee data set. On the basis of the Winter-Ebmer and Zweimuller's (1999) methodology, we find a positive and significant relationship between intra-firm wage dispersion and profits per capita, even when controlling for individual and firm characteristics and addressing potential simultaneity problems. Results also suggest that the intensity of this relationship is stronger for blue-collar workers and within firms with a high degree of monitoring. These findings are more in line with the 'tournament' models than with the 'fairness, morale and cohesiveness' models.



 Hi gang,


From my book research, I believe that this number is far too low… maybe only 25% of the truth based on two units per family and corporate profits diverted into Chinese stock markets, which generated paper wealth used for subsequent leverage in real estate (and visa versa).

Compared to US 2008 Crash, PRC bubble presents much greater (valuation and inventory) parametric risk due to mass and velocity of pre-bust (2001-present) rate of vacancy:

China: Property speculation leaves 64.5 million vacant homes in ChinaSpeculation in the real estate market has generated such a high rate of housing vacancy that it could lead to social disorder and financial problems, an economist with the Chinese Academy of Social Sciences says. The government, meanwhile, crosses its fingers

full article.



Because I buy and hold, I am a sage I’m told
But no one showed me how to sell, now I am old
Try as I might, I just can’t get it right
I can’t sell, can’t you tell?  It’s my hell.

On Berkshire Hathaway, I did the math that day
Looked pretty good, bought, as I should, I had a play.
But where’s the thrill?  In a crumbling textile mill?
I can’t sell, can’t you tell?  It’s my hell.

And then the thing just grew, T-shirts and tanks - who knew?
Parlayed into Coke and news – insurance too!
Got out of hand; this I had never planned.
I can’t sell, can’t you tell?  It’s my hell.

They told me make it split, but when I thought of it,
That might only reproduce this piece of _____
So the price just swelled – somehow as though compelled.
I can’t sell, can’t you tell?  It’s my hell.

Then Munger and I clicked, thought that might do the trick
I’d bounce ideas off him and he’d say I’m a dick.
On his advice, the share price tripled – twice.
I can’t sell, can’t you tell?  It’s my hell.

OK now this is nuts, who out there has the guts?
To kill this psycho thing from Massachussetts.
Need a plan unfurled, before it eats the world.
I can’t sell, can’t you tell?  It’s my hell.
I can’t sell, can’t you tell?  It’s my hell.  (Help meeeee)
I can’t sell, can’t you tell?  It’s my hell.



 This is the perfect time for Palindrome to recreate his "breaking the Bank of England" feat in reverse by buying the yen and breaking the Bank of Japan. He will probably need 100 times more capital, but he seems to have a few more friends in high places so this shouldn't be a problem. Palindromic code name for the operation? "BOJ Soros Job".

Anatoly Veltman writes:

How can a sovereign Central Bank ever be defeated in their resolve to keep their own currency from further appreciation? My (maybe simplistic) argument: what can prevent it from infinitely supplying its own currency to market gluttons?

Current important situations: what will hamper BOJ's and SNB's efforts to halt the rise of the Yen and Swiss Franc respectively? Future academic study scenarios: if Bank of China were to attempt to reign in renminbi– what would all relevant parties do, in what sequence and to what degree (please save moral suasion part, I'd like to follow the actual hard/soft payment process); what could/would Australia do to halt their currency (in case of ever-rising natural resource prices)?

Rocky Humbert agrees:

Anatoly, EXACTLY! A country with a Fiat currency and resolve has the ability to sell UNLIMITED amounts of its currency using so-called "unsterilized intervention." Or, as Chairman Bernanke explained it in 2002/2003, there is "something called a printing press." However, the opposite statement is not correct– i.e. a country with a fiat currency does not have the ability to purchase/support its currency ad infinitum. That's why Mr. Rogan's point is wrong– the Bank of England's attempt to support the Pound is not analogous to the BOJ's attempt to weaken the Yen.

I've frequently wondered why the MOF/BOJ haven't done this over the years. Other than morality and sound money principles, my best answer is that the bulk of their debt is held by Japanese. And the unlimited printing of a currency will (eventually) harm the (domestic) Japanese debt holders. 

Alex Forshaw adds:

FX intervention has a permanently distortive effect on domestic prices in the immediate term, to the extent that it is deployed in domestic positive-velocity assets (eg domestic bonds)FX intervention has a permanently distortive effect on global prices to the extent that it is deployed in foreign positive-velocity assets (eg China shorting its own currency to buy USTs)… which over time filters into domestic prices if the intervention is sustained for long enough b/c of impact to raw materials prices that filters through the chain.

Stefan Jovanovich comments:

What a few innocent skeptics wondered in 1910 is the question that a century of higher-minded thinking still cannot answer: why must the central premise of monetary authority be that all legal tender prices clear simultaneously throughout the world? Wouldn't that result in (1) the abandonment of domestic gold exchange rights of U.S. citizens and those foolish enough to put their faith in the U.S. dollar and (2) a banking theocracy? The Swiss are discovering the dubious charms of bi-metallism, but they are asking the right questions. 



a campfireWhat's the worst that could happen? Potlatch! Everyone who owes goes bankrupt and the government just issues new currency. It's happened many times before in many countries. People, roads, buildings and all that will still be there– only the medium of exchange, and the mix of who owns what, will change. People will still produce and consume, so there will still be an economy. Granted, it may get messy for a while– the lawyers will need something to do. If you have something in hand that gives you title to real property of some kind, you'll be able to keep most of your chips unless they are forcibly taken. If it's all paper and electronic blips, well …

If we pollute our planet beyond repair, that's a little more problematic. I guess we'll just cross that bridge when we get to it.

Scott Brooks says:

I have given this further thought and have determined that a potlatch and camp out at my farm is in order. Gary, Rocky and Stefan please make arrangements to fly to Missouri and we'll make smore's, roast wieners and marshmallows, drink some ice cold beverages, and debate until all of this is settled….or until the haunting silence of a beautiful full moon night is broken by the howls of coyotes. Or, if there's a new moon, we can get out the optics and gaze up at the heavens and see constellations with the naked eye (or a good pair of binoculars) that you could never see in the city.

You will be entranced with the simple beauty and simplicity of life, and all these debate issues will slowly melt as we all discover our commonality of purpose under the stars that one can only see in the middle of nowhere.

We can debate or just share life stories as our friendship grows thru the night. And then, when the skies begin to turn from black to blue, to purple to red, and the world comes alive around us with song birds, and whippoorwill's cry fades off into the distance, then is when we'll all realize that all of these debates are mere exercise.

When the turkeys fly down from their roost and the first deer of the morning move from their feeding area's to the edges of the forest and creeks to bed down for the morning, then we'll realize how tired we really are and how pleasant our camp out has been.

We'll head back to the farm house, crash for 5 or 6 hours, get up, eat a hardy breakfast around noon and then I'll take you on a tour, around the place. Maybe we'll ride in a tractor. Or if the family that farms my land is harvesting, I'm sure we can go get a ride in a combine and watch the miracle of the harvest.

Early in the evening, we'll grab a fishing pole and see if we can't catch a bass, bluegill, crappie or catfish. Maybe we'll shoot some clay birds. Then we'll go to town and sit in the local bar and grill and watch the locals wander in. I'll even introduce you to a few. You'll meet small town businessman and farmers and ranchers. You'll meet laborers, and school teachers and those just passing thru. And you'll find many of them to have unique stories of success. Their scripts will be different, but you'll see that they are really just like you and me….only with a different calling in a different geography.

We'll eat small town food and feel our arteries clog in the process. I'll have a water with lemon and you guys can then start a different kind of debate….a debate about trying to remember who owes who a drink. And then you'll decide to just not worry about it.

And that, my friends, is the effect that the BrooksFarms has on one and all that take the time to travel there.

So smile guys and enjoy the debate and remember, it's all amongst friends…..friends who are only a plane flight away from a campfire, some smore's and the haunting howl of a pack of coyotes under a blanket of stars.



"on the street where you live" I have never talked downbeat before

And the peasants were always in complete rapport

All at once am I not held quite so high

Knowing I'm on the Street where I reap.

Are there platitudes more mundane than mine?

Are the markets really not quite so sublime?

Do optimists not dominate the floor?

No, it's just on the Street where I reap.

And, oh! the cowering kneeling

Just to know somehow I'm near

The all empowering faith healing

That suddenly the bear will disappear

People sit and stare when I'm on TV

No better pulpit from which to preach the jubilee

Let the prime go high, I won't care if I

Am short on the Street where I reap.



FreddyEd.: The contest features a prize of 500 bucks to the person who composes the best lyrics to "on the street where you live "  relative to the sage. The winning song to be performed live at a future Spec Party.

(Note: Mr. Humbert's song should be sung to "on the street where you live" in the style of Dean Martin.)

Ben Graham taught me well — how to buy, not sell
  When there’s opportunity - they don’t ring a bell
When my stocks go down, I buy more, not frown;
   I tap dance to the job that I love.
When the bankers fax, they may get the axe
  Just buy the whole darn thing — others pay the tax
Munger says I’m wrong – railroad’s my torch song;
 I tap dance to the job that I love.
When the tide goes out, I don’t need a boat
  I’ve got sixty billion bucks – all in excess float
I sold too-many puts, yet Berkshire ’s not caput
‘cause I tap dance to the job that I love.
Since we joined the S&P,  I spend more time on TV
  Becky orders me a Coke  (I don’t drink iced tea).
I wear expensive suits, while talking pure grassroots
I tap dance to the job that I love.
Bill Gates called to say – I should give it all away
 There's an envelope for The Board,  if  I die one day
I ask other billionaires, for checks to my affair
I tap dance to the job that I love.



 The first time that the discount rate or funds rate is increased, the expected number of subsequent increases is about 12 and during about 2 1/2 years. Thus, one would expect a tremendous decline in the short term bond prices when it occurs. You see bond investors are very wise and rational. And as soon as the first increase occurs, no matter how many "once is enough" demurrals ensue in expiation, they factor in the the subsequent 12 increases. The effect usually spills over to the long end for 1 or two weeks, until the realization that it's deflationary steeps in. One would expect it also to be one of those blue days when both stock and bonds decline wildly, as for once the canard that bad output numbers are good for bonds and bad for stocks is gainsaid.

Such increases in the old days were invariably preceded by declines in the stock market as they were announced during the day, but now the announcements are calibrated so as to make sure that those buying the bonds auctions would not have their sensibilities discommoded by such news after they have committed.

The process of borrowing at the 1/4 % fed funds rate, and buying the long bond at 3.8 % must be likened to the selling of premium. It has to be a very profitable strategy most of the time until the day of disaster comes that wipes one out. When will it occur? When the the idea that selling premium in such fields as fixed income is a losing game is right for the wrong reasons. The premiums that the sellers receive are often very high in relation to the expectation. It's just that the other side that does the buying often is better capitalized, bigger, and thus on the rules committee and the margin committee, and a market maker. on the rare occasions that the piper must be paid, they squeeze the sellers into the point of oblivion. But that doesn't mean that the average buyer of premium is not going to suffer a loss. The participants in the squeeze are limited to the top feeders. One says this in relation to the likely outcome when the long bond buyers get squeezed and does not apply this to anything else for obvious reasons.



 Assume that only daytraders are left trading. Assume they all enter in direction of recent moves sometime after open. One would believe that they try to maximize profits by trailing or waiting til near close to close position, then on close close position and pull orders. What would market result be? I am guessing something like today's price action might result. It is difficult to verify this, but perhaps the assumption is not too far off or just a case of fitting the theory to the facts after the fact?

Jeff Sasmor asks: 

Are you talking about human daytraders or robot daytraders?

I doubt human daytraders have much effect on anything these days. Isn't it so that something like 3/4 of volume is robots trading about 100 stocks?

Jim Sogi replies:

The "robot" trader needs to be defined. There are human system programed execution bots, and perhaps a few "intelligent" trading systems which do not have pre-programed systems, but rather gather current info, process that, make a quick rule, test it, and trade on it, but I strongly doubt it. There might be market making algorithms which might be classified as bots, but I doubt they are making directional bets all day long looking for legs. IB has some entry algo's such as VWAP and I think a few more algos for order execution. Seems on the 5-6 flash crash some skirts were lifted with a glimpse into some order spamming systems which would have to be automated at that speed. You and Russ might be best to say what is out there and what is possible and I sure would appreciate what might be possible.

Russ Herrold comments:

 Yes, real time adaptive and intuitive systems are to some degree possible and exist– consider robotic market maker assistant algorithms, that are permitted to 'fly themselves' with no-one with sentient hands on a 'dead man's' switch, assuming so long as the market stays within known parameters [some of these gone haywire (or simply unimaginatively constrained) clearly could have been 'goaded' into playing on May 6]

I took the open question to be tested to be a restatement of the buy (or sell) at close, and to sell (or buy) at open, [perhaps biased by an anticipated mean reversion 'bias' to decide which way to lean, as a first extension].

As I recall we've had posts on this in the past here, and I was just going to run a couple of simple scenarios through some back testing and do some 'binning' or anticipated 'regime changes' based on the a look-back of 'scheduled news' calendar.

The market making algorithms that could be classified as Bots have performed well, all day long; other times, they fall off the tracks wildly as well. Thus the need for that 'dead man's switch'. The question becomes, can one train a few 'turtles' to spot regime changes that a bot cannot, at a low enough cost to pay them to 'play the video came' in shifts and cover a trading day.

Concerning what you said about how "IB has some entry algo's such as VWAP and I think a few more algos for order execution. Seems on the 5-6 flash crash some skirts were lifted with a glimpse into some order spamming systems which would have to be automated at that speed"…

The data response feedback loop rates have long since gone beyond the limits of a remote link and having an electron crawl back and forth. Local computers in a data center are competing with one another, and the trick at this point may simply to predict how the battle will progress, grab hold, and hang on for a ride!

I am set up to test it fairly readily, and that ZH listing seemed promising. I rather hate to publish my personal culling screens rather than to use one explicitly in the public domain, as I invest some effort 'sharpening' how I look at data and would lose the benefit of the effort by floating that personal symbols list.

Ken Drees comments:

The motorman–someone drives the train, someone slumps and the dead man's switch kicks in. The Taking of Pelham 123, the great movie from the 70s, not the butchered remake, was telling about an operation–a good sleuth can sniff out your footprint and catch you as you sneeze unknowingly. Gesundheit!

Robots all have humans in charge and humans are chained to their human condition and flash speed just makes a human's mouth open on occasion and then they do something emotional. We are now into the area of advanced human overload error–flash crash redux will not be hiccup. 

Russ Herrold replies:

I was approached a few years ago by a couple of vendors on the design of such feeds, and the meta-tagging to be added. An XML delivery is easy to parse with existing Open Source tools, about which I wrote a couple of years ago.

Just as one of the themes of this list is 'ever changing cycles', it seems to me that another 'ever changing scales' having fractal repetition of patterns as one 'zooms in and out' (a la Mandelbrot). Interestingly, the site includes a 100 page Word document of capsule reviews of 'The (Mis)behavior of Markets', for those of you who have not slogged through the whole work… the takeaway being that the bots can play for the penniescompeting against one another, without a lot of analytic skill perhaps; while the humans still can play in longer time frames, again (perhaps) with the benefit of deeper insight.

It is a Brave New World, every morning, and perhaps the trick is to adapt and swim with the flow of what one cannot control, and to stand firm when one can make a difference.



Looking at the distribution of extrema (20-day min and 20-day max) on a closing basis in the S&P futures by year:

2003 69
2004 67
2005 68
2006 65
2007 63
2008 60
2009 81
2010 96 (annualized)

The process generating S&P prices seems to have shifted somewhat on this metric. What are other ways markets are trading differently? On what metrics are markets trading in line with prior years?

Kim Zussman responds:

A variation on this is count of 20D highs and lows for non-overlapping 200D periods; this time using SPY counting back from 9/14/10. Here are the counts for 20D high, 20D low, H+L, and respective 200D returns:

Date       20D H 20D L H+L    200D ret
09/14/10    49    22    71     0.04
11/25/09    50    14    64     0.35
02/11/09    13    32    45    -0.39
04/28/08    19    24    43    -0.08
07/12/07    57    6    63     0.18
09/22/06    39    12    51     0.06
12/06/05    41    18    59     0.07
02/22/05    39    21    60     0.10
05/06/04    44    10    54     0.14
07/22/03    36    13    49     0.24
10/03/02    12    42    54    -0.28
12/17/01    25    29    54    -0.07
02/27/01    21    24    45    -0.11
05/11/00    27    23    50     0.06
07/28/99    44    4    48     0.37
10/09/98    42    19    61     0.07
12/23/97    41    11    52     0.18
03/11/97    43    10    53     0.22
05/24/96    47    6    53     0.24
08/10/95    61    3    64     0.23
10/25/94    25    17    42     0.00
01/10/94    26    9    35     0.08

The current H+L is the max since 1994.

Correlation between 20DH and 200D return = 0.81
Correlation between 20DL and 200D return =-0.85 (no surprise)
Correlationbetween H+L and 200D return = 0.3



While gold got a jam job last night, the USD was weakening the night before aginst the Euro but accelerating sharply today. Who is calling the shots? Equity market? Major Crosses against the Dollar? or Gold? Or most likely…none of the above. Some times (most of the time) the matrix can get a bit congested…



 At this moment in the earth's history, we are closing in on being in a calorie per acre race against starvation. I know food shortages have been predicted for years/decades and we have not seen them (at least in the US) yet. But population is rising, and in the most optimistic scenario arable land would be a fixed commodity (it's not, we have less each year). At some point, the math takes over.

Part of the hidden cost of organic farming is the production lost. You can't grow 200 bushel an acre corn or 60 bushel an acre soybeans or 50 bushel an acre wheat "organically".

Organic farming can be economically feasible for certain crops in certain situations. I don't see it being able to replace "modern agriculture" in production capacity.

Chris Cooper comments:

Perhaps organic farming has some benefits. According to this study, strawberries grown "organically" are better.

Ken Drees adds:

Isn't the premium paid for organic foods more than enough to compensate for yield? Of course this is not regarding staples, but for boutiques?

An organic radish commands a higher premium then a pesticide radish to the right consumer. So the cost of input to the radish crop is covered in both cases and then health benefits are the "kicker" that can not really be proven and are thus under the umbrella of cult. 



random warThe seemingly chaotic action around markets the last few months has had me dwelling on institutions' attempts to break up order flow into patternless activity. To some degree, often hard to know if the HFT guys are probing with random behavior as we've seen from Nanex blog posts or the real money boys are trying to execute while covering their tracks. This comment popped up in a new interview with one of GS's senior elec. trading guys (I added asterisks):

Tusar: It's about the routing strategy, and the order placement strategy. The best techniques and the best mitigants to prevent what you just described from happening are pretty simple blocking and tackling kinds of things. In other words, ***randomize your order size and ***placement of orders, using 'Minimum Execution Quantity,' because I don't want people pinging me for odd lots and then finding out I'm there and stepping in front of my order, etc.

If a concerted ongoing attempt is being made to randomize order size, price & time, making activity less bursty (for lack of a better word), what big stat theories need to be applied besides our existing individual bag of tricks?



 Warren Buffett (who sometimes gets harshly criticized in DailySpec land for his politics and and pronouncements) was opining on the economy yesterday. He remains consistently upbeat on the economy, says that he sees no signs of a double-dip, and he has shortened the duration of the BRK bond portfolio substantially. Sadly, even Buffett fans must see that the effects of age are starting to show in his elocution.

I generally try to ignore his pronouncements and other self-interested comments, and focus on his portfolio and performance. His performance is once again startling: (All numbers are total return)

One year: BRK=+19.9% ; SPX=+4.93%
Three year: BRK=+1.3% ; SPX= -23.8%
Five year: BRK=+41.9%; SPX= -4.5%
Ten year: BRK=+105.9; SPX= -30.9%
20 Year: BRK = 1754% ; SPX= 393%

The one year return is the most surprising to the "what have you done for me lately?" crowd. Darn amazing!

Russ Sears comments:

Let us at least compare GrannySmith Sour apples to Red Delicous apples. The Ishare Russell 2000 index give the following as of 9/13/10:

1 yr: 10.40%
3 yr: -15.42%
5 yr: -3.01%
10 yr: 92.81%
20 yr: no data

While still over performing in all periods, the numbers suggest that the over performance has been during the financial crisis. And before that there was a 5 year period of large underperformance… almost as large as the over performance. Which given his reputation leads one to ponder, if his over/under performance of the Russell 2000 value is a good pessimist/optimist index or perhaps government fiscal policy intervention index vs. laissez-faire i.e. Govt can tax and spend our way to prosperity because they are so much wiser than the individual, especially the rich. 



 Napoleon's Buttons: How 17 Molecules Changed History by Penny LeCouteur, Jay Burreson is a fascinating book. Isoeugenol is a single molecule that fits with certain human receptors. This molecule from the nutmeg gave rise to the Age of Discovery, discovery of the new world, the East India Trading Company and the development of stocks. Glucose drove the slave trade, and built capital that gave rise to the industrial revolution. The difference between molecules is often a small difference in the bonds or the location of the hydrogen bond to carbon atom and can have huge practical differences. The title derives from the property of tin to dissolve in the cold resulting in Napoleon's army falling to pieces when their tin buttons dissolved in the Russian winter. They could not fight when they needed both hands to hold their clothes on in the cold. The lines of that conflict remain today between East and West.

Of particular note to speculators was the discussion about the diagramming notation of chemical compounds. The diagrams contain many layers of information that are informative and aid analysis and understanding about the structure of the molecules. Chair asked why there is no table of elements for the market. The key to this would be a notation system for market patterns similar to a chemical notation which not only conveys information about the relationships of prices to each other as in your typical chart, but also the nature of the underlying structures and their composition. My soon to be Phd. daughter advises me that there are stereo notations that go beyond the 3 or 4 dimensions in standard notation. The fact that right hand, or left hand iterations of molecule react differently is a concept useful to speculators following this idea. For example, up markets differ markedly from down markets displaying a 'handedness" Standard chart notation like "W" or "M" lack this information and thus lack the tools for proper understanding and analysis. The visualization of information as Tufte demonstrated has benefits to analysis beyond charts, and formulas. Seeing the location of turns, tops, bottoms and the way those were created helps in quantification and testing. The nature of the bonds (I don't mean debt instruments, but refer to intermarket and intramarket relationships) in market relationships make a big difference in future price action. A visual notation of this could reveal important but previously hidden relationships. Many Nobel prizes in chemistry were awarded for discovery of some of these important relationships.

Stefan Jovanovich elaborates:

Napoleon's army did not freeze to death; they starved. So did many of the Russians and Prussians who fought against them. The French buttons may have failed; but no one with half a brain was using clothing as a shield against the cold in that campaign. They wrapped themselves– and their horses - in blankets (the officers used furs). As for "the lines of that conflict remain(ing) today between East and West", James has a point, but it is not the "lesson" he draws from this campaign. The old lines are being erased: the Germans seem on the verge of reaching a fundamental alliance with the Russians similar to the one that existed between Prussia and Russia in 1812. Napoleon's great error was to be foolish enough to insult the Austrians so badly that they decided - for once - to ignore their standing hostility towards the Prussians. The line of conflict between East and West that Europe lived with for the past hundred years came not from the divisions present in Napoleon's invasion of Russia but from their abandonment: Bismarck's stupid successors overthrew his sensible Prussian foreign policy of alliance with Russia (the Balkans are not worth the life of one grenadier) and chose to take the Austro-Hungarian and Turkish side of the argument. As for all other inferences about how molecules changed history, I offer no opinion.

Jim Sogi adds:

Another interesting factoid is that the Dutch and English fought bitterly over the spice island Banda where nutmeg was grown. It was valuable at the time. To settle the dispute, the Dutch signed over a small useless island known as New Amsterdam. The English renamed it New York. The Native American tribes called it Manhattan, "the place where we all got drunk". Still appropriate after many years. The spice turned out not to prevent the plague, and the monopoly was later broken when starts were smuggled out to be grown elsewhere. Banda is relatively abandoned except for rare tourists.

Marion Dreyfus comments:


I have been to Banda Island, where the king ("King," he said he was) offered me his throne if i married him–he gave me nutmeg! I brought it back to the States and of course it was confiscated as suspect importation, despite my protests that "the king of Banda gave me this as a earnest of his love!" and gave me other things, too. His wife had died some time earlier, I add. There are many lovely parrots there, but the dancing girls and the twittering photogenic fowl do not make up for lack of A/C, I am afraid. His home was spectacular, marble floors and walls, thatch covering more modern materials under the thatch; long, graceful rooms, not many rugs, but solid furnishings with luxe sewn into their DNA, and power-connotative. But I was not partial to the heat nor his particular nonmetrosexual demeanor. He gave me other gifts I cherish that were not taken from me by the immigration men. But small-island life as a way of life is not alluring to the overeducated big City female, I think it safe to say.

More's the pity!

Would my life have been far more glam and amazing? I would surely have saved a great deal of minutes and hours from huge gusts of email I would not have gotten, but one is forced to wonder what he could have given me that I don't have more of, and better of, right here in costly midtown Manhattan, with or without air conditioning. Gratitude for one's life, especially when arrayed against a might-have-been.




These were both 20 day minima.

Rocky Humbert comments: 

There is a nugget of wisdom is The Chair's comment worth quantifying:

From 2000-2010, the R-squared of US 10-yr note yields and 10-yr bund yields was 0.59
From 1990-2000, the R-squared of US 10-yr note yields and 10-yr bund yield was 0.33
(both using % change, weekly data from Bloomberg.)

Or, to quote Michael Jackson and Lionel Richie's "We Are The World:" "…We can't go on … pretending day by day … that someone, somewhere will soon make a change.."




Wallaby huddleAfter writing an earlier piece on this site about the amazing ability and accuracy of the Australian goal kicker Matt Giteau, it seems the tide has turned…at least for the moment. What a good illustration of how whether in sport or tradin, we must be always on our toes and ready for change.

Flying doctor van Straaten was called in to cure Giteau's kicking crisis, but when he is not the consequences can be dire. Such was the case on Saturday night when he missed four of seven shots which could have netted the Wallabies 10 crucial points from failed conversion and penalty goal attempts.

The 26-year-old has landed 50 shots from 58 attempts in 2008, including 16 straight at one point, at a conversion rate of 86 per cent. "I feel as though I'm striking the ball better and more consistently. That's the biggest thing," Giteau said.



 This article on income mobility will put in perspective the malaise affecting our economy. It's the 40 % from each of the lower 2 quintiles who moves to the top 2 quintile that has made us beautiful and created the jobs and responded to the past incentives, and dolorously "prefers not to" create jobs and value now.

Australian Nick White comments: 

This is a great country. Being back here the last few weeks just reinforces to me how lucky America is– even if you're in a perceived funk right now. This is the country where anything can get done…that's not the case in any other western nation. You have freedoms that you take for granted every day (even post legislative amendments that may have eroded them more than trivially). You have every type of geography and lifestyle. You have 36 different choices of one brand of orange juice fer crissakes! (which you can drink while watching one of thousands of tv channels).

I don't know much, but I know that if America continues to focus on the the things that got them to here– without trying to reinvent the wheel– you will all be just fine. The only danger I see is increasing reliance on form rather than substance– but this is a malaise of the world in general, not just the US. 

Rudolf Hauser writes:

This data on income mobility does not give us a complete picture. Large gains or losses from realized capital gains/losses, special bonuses payments, decisions to take long breaks from work, etc. can all influence results for any one year. One would also expect income from most careers to advance with experience and age. What would be interesting to see but probably very difficult data to obtain would be an average of five years of data say at age 50 with those relative income positions of those households income compared with that in the same period in the lives of their parents. I suspect that there would be a good deal of upward income mobility demonstrated by such an analysis, but it would nonetheless be most interesting to have that evidence.

Russ Sears writes:

Isn't this the premise of the sitcom "The Big Bang Theory"?

A group of nerdy physicists meet their neighbor, a beautiful blond girl waiting tables at the cheesecake shop… but even she is hoping to become an actress.

But you miss the point– from the Will Smiths to the nerds in physics to the marathon runners to the Saints QB, they are all incredibly talented, even the WS geeks, not just the WS geeks.

And as someone seen how letting a small business owners put the money back into a sport can revitalize: it can change how everybody developed talent. In 1992 The US marathon trials were a joke, but these guys changed it.

The world will never know the talents that were not developed for lack of a few dollars, but I have seen first hand how thin the pie can be sliced at the top, and how a few centimeters thicker can change everything. 

Jordan Neuman comments:

It is interesting that you mention the varieties of orange juice. I just read The Paradox of Choice which argues that our lives would be better if we did not have so many choices. The varieties of grocery items was the author's starting point.

It would not matter unless such ideas had support in this Administration. The references to health insurance in the book are illustrative. And I found the interview with the author in the afterword absolutely chilling. This professor was sure he and his "expert" friends knew better.

Larry Williams writes:

Living in the US Virgin Islands means giving up many choices in foods, clothes, cars, etc. I have found that a wonderful thing; it causes one to focus on what is really desired (that can be ordered from off island). It makes for a simpler life style and turns ones attention from man made consumables to the ocean, the trade winds, local markets and such.

Sam Marx comments:

I remember one of the escaped English spies then living in Moscow, when asked what he missed most about England, he replied Lea & Perrins Steak Sauce.



 It's finally time to paint or get off the ladder. The markets are sending eerie signals that they're out of whack vis a vis the past program of attempts to rob Peter to pay Paul. Witness the US stocks at 1105 a 20 day high in conjunction with bonds at 13000 a 20 day low. Something has to give. Or as Osborne would say, someone's going to get tarred, raw squawking and fully feathered, and something tells me it ain't going to be bonds. Finally the bond vigilantes are doing their job. The 10 and 30 year back to back auctions are about the worst in history. Finally, everyone who bought it didn't make an immediate profit. Indeed a 1 percentage point loss.

Finally, the whirlwind of spending money to weather proof buildings and create naming rites on highways for the program's reinvestment activities is meeting resistance. The idea that the money taken from the ordinary man who would have spent it on productive and useful thing, and given to organized labor and earmarks is meeting some resistance.

This backdrop is playing out against some shocking declines pointed out by Aubrey's rowing mentor in the payroll numbers. How will they be able to hold back the floodgates for two more announced numbers on the employment front?

If the bond vigilantes don't capitulate immediately as has been their wont in the past, one would predict some post employment depression in the stocks.

Alston Mabry writes:

Preseason is over. Regular season begins on Monday. Barring injuries, the first string will start every game and play most of the minutes. Offense will be more innovative, but defense quicker and tougher. The game will be played with more seriousness, more at stake.

Victor Niederhoffer writes:

the expression in mind is "someone's going to eat crow, raw squawking and fully feathered….

Gary Rogan adds:

In an interesting metaphor-to-reality twist this post was the first thing I read after I finished painting and got off the ladder. More substantively, I would like to hear from anyone who has an opinion as to what the bond vigilantes could have seen last week that they didn't see six month ago, a year ago, or a year and a half ago. Has not the course of what actually transpired been obvious since the plans were first announced? Are they finally seeing signs of inflation? Are they collectively playing a game of chicken where nobody moves until they believe everybody else is about to move? If so, will their actions now be quick and violent?




 I really enjoyed The Romantics last night. I've never seen a film that laced together so authentically the tensions between desire and duty. The scene between Tom and Laura on the lawn was brilliant– one of my favorites in any movie, and I've never seen one that so accurately reflects some of my own experiences and emotions in such situations.

I really felt this was one of the best movies I've ever seen. Its understatement and subtlety was magic– a film truly aimed at a much higher common denominator. Galt should be very proud. The film resonated with me a great deal, and I would love to send her an email expressing appreciation. Truly a film for a much higher common denominator.



 I am doing an independent study in grad school regarding the predictability of movie revenues. I recently purchased a primer to become acquainted with the inner works of the biz. The book is titled, "This Business of Film" by Greenwald & Landry. As I spent several years in various fundamental equity shops, it strikes me this could be an area primed for M&A activity. The industry is dominated by the 6 major studios.

Some fun facts: approx 33% of films made are studio films, studios get 90% of industry revenues, new technologies are always feared but usually result in longer term revenue (sound, TV, video, DVD, cable, etc.), barriers to entry are very high, new technologies are generally allowed to incubate in smaller companies before being adopted by the studios, verticle integration is big in the industry. Right now the new thing is online exhibition and the market is dominated by, yup you guessed it, AAPL and AMZN. A few more facts: theaters account for 20% of revenues, TV 34%, and DVDs 45%. WMT controls 40% of the DVD market with TGT, NFLX, and BBI accounting for most of the rest. Target audiences are going to theaters less so the internet based models stand to work better. We all know what MP3s did to CDs. All these facts make me ask a few questions:

1. If DVDs go the way of CDs WMT is in a bad way, would they buy a company with online exhibition abilities vs building in house?

2. AAPL is the 2nd biggest market cap company in the SPX500 (behind XOM) and they have the exhibition medium (ipods) and the distribution medium (itunes). A media conglomerate likely doesn't have the market cap to buy AAPL. How long until AAPL considers getting into the production business? Depending on their legal status, they may be able to get an exemption from hiring union labor thus lowering their production costs.

Unfortunately, it doesn't seem a lot of the potential players are public but food for thought.

Stefan Jovanovich comments:

Sound did not "result in longer term revenue" for the motion picture studios for individual pictures; its effect was the reverse. It merged movies with radio and gave the public the same expectations: that there would be a new picture at the theater every week just the way there was a new script for Jack Benny on his radio show. The studios did everything they could to break that expectation by developing "epics" and building up "stars" so that they could hold over pictures for additional weeks, but they never really succeeded. That explains why the aristocracy of Hollywood hated television at the same time the people who were used to B picture production schedules - Lucille Ball, Dick Powell, for example - were busy creating their own mini-studios for TV. As your numbers indicate, online exhibition only accounts for 1% of current revenues; do you have any idea how much of that is going to Hulu?

Sound hurt revenues per picture because the audiences demanded new movies each week just the way they expected to hear new radio shows. Total revenues went up, but profits went down. The financial history of the motion picture business in the 30s is one of rising revenues and continuing restructurings. In that sense, George may be absolutely right; as profitability falls in an industry, people look for ways to lean against each other.

The economics of film production remains horribly simple: make once, show many times. Chaplin's silent comedies ran for months and still sold out. Birth of a Nation was an unimaginably big hit in the same way. There is no way to comprehend what a marvel the "movies" were in the 1920s and how thoroughly they captivated people's attention all over the world. Chaplin's Tramp and Rudolph Valentino's Sheik were universal icons in a way that no one - except possibly Muhammed Ali at the time of the Thrilla in Manila– has ever been since. Nothing in "talkies" came close. If you want to see what sound did to the profits in the movie business, United Artists is a perfect example. Nobody built Pickfair in the 30s and the "artists" never again could seriously try to take over the asylum after sound came in the way Douglas Fairbanks, Sr., Mary Pickford, and Charlie Chaplin had.



Momentum trading is often dubbed speculative behavior. Too often specs jump on the bandwagon (arguably) late in the game. Some are content with day-trading profit - where they ride futures contract or stock strictly inside of the North American session, biased to prevailing longer-term trend/sentiment. Others keep positions overnight, sometimes pyramiding profits - in anticipation of a blow-off grand finale! My discussion will include entirely different sort of speculation, more akin to "value investing" or contrarian play. In my conclusion, going over a number of modern markets, I either felt that a recent move has been grossly overdone - inviting a significant price reaction, or I sensed an upcoming event - the possibility of which the market has not discounted.

Throughout trading history, there have been arguments on behalf of both styles. Trend-followers argued that the race is naturally easier with tail wind. Contrarians would say: in zero-sum game, how can you shoot for a disproportionately large gain, while siding with disproportionately large camp? Then the 64K question would arise: when and where is market a zero-sum game? How much difference does leverage make? In my opinion: a lot.

I have entered commodity futures trading in 1986. I was intrigued: in the course of the 1987, strong up-trends were playing out in most futures and in stocks - with prevailing laissez faire MO at most infrastructure firms, who allowed customers extraordinary risks via leverage. The kind of environment, where "everybody made money" - obviously not a zero-sum game. I lacked experience and under-rated my stupendous million-dollar gain (from small seed capital) accumulated on precious metals positions - and surely the bubble burst, gobbling up my entire stake. The irony: I'm not sure that those Short-from-the-top have collected all of their gain on April 28, 1987 - as some locals disappeared, their trading cards rumored burned. Not sure what went on behind the clearing house curtains… That market was so inflated by locals using 1,000-10,000% intraday margin leverage; and also by many specs allowed 200% overnight leverage - on top of 50:1 exchange-margin requirement! So obviously, conditions were set-up for parabolic blow-off. Current precious metals market is enigmatic: many claim that derivative contracts and even ETF's deem much more gold and silver exists than is physically true. Is it a zero-sum market? It so happened, that every time gold spiked over $1260 this year - I would get extremely alarmed by sloppy attitude of the Longs. Glance at the daily and weekly charts - and you reach a starkling conclusion: most Bulls would surely convert into Bears on any break below $1160. Is this wise planning: to be Long at 1260, only to reverse to Short at 1160??

Remember an un-backed trade in the infamous $13/bu wheat market of 2008? One Man branch associate electronically entered Long position exceeding reasonable broker limits by 1,000%. Controls subsequently got overdone the other way, eventually deflating Wheat futures back to sub-$5… CFTC's "Niederhoffer rule", to boost option-writing margin requirements, was another example of leverage-busting. Overall, I feel that market conversion to electronic execution significantly decreased historical patterns of blow-off reversals. Throughout the 80's and 90's futures trading, I have empirically observed: trends almost never reversed before holidays, weekends, etc. The adage "turn-around Tuesday"; losers procrastinate, failing to surrender in advance of Fri bell. Lo'n'behold, carnage persists Mon; and this time losers, who had the luxury of weekend time to design their exit orders - execute them. And only in the course of Tue - with all of the hapless banished by now - the market embarks on proverbial Lobagola the other way… This pattern might have broken, since electronic futures trading limits don't allow as much over-leverage to begin with, and liquidating orders get triggered sooner rather than later… And those are the reasons that make the opening argument in favor of not being scared as in the yester-year, and do anticipate potential contrarian plays!

Going through archives, I see just how outraged I was at market participant indifference at start of 2009 in regard to 80-cent Gasoline, 1.30 Copper, 40c Cotton (those commodities subsequently rose to 2.40, 3.60, 90c by 2010!). Spring 2010 sported 4.50 Wheat, 3.50 Corn, 13c Sugar (8.00, 4.60, 23c about 2 Quarters later!) I didn't have to predict Russian Wheat embargo by name - but certain price action always triggers logical alarms… Today's participants are disinterested in $3.70 Natural Gas (but many followed Cramer cheering them on at $13.70, looking to "inevitable" $16 two years ago!) To round up this brief market survey, we can expect Cramer and such to lure their audience into "safe" 2.5% long-treasuries– just wait for a momentary equity market spell.v



 As we mark another backward roll day for the equity futures, I long those good old contango days. It just does not feel right marking down the distant month. Aren't things supposed to be better in the future. Of course I understand the arbitrage with the cash market, dividend and interest rate, as proxy for the fed model. And for some a positive carry is great. Maybe I am just jealous because I can't borrow at 25bps, cost me more like 500 or so.



the rivoliI'm far from an expert on Hollywood, but I believe that air-conditioning (yes, air-conditioning!) was as disruptive to the Hollywood statu quo as "talkies." It's also been a better investment.

A quick Google on this subject reveals that the Carrier Corporation pursuaded Paramount to install a/c in the Rivoli Theatre (supposedly their "flagship" movie house under construction in Times Square) in 1925. Over the next five years, Carrier installed a/c in 300 movie theaters across the country and transformed the summer months from a financial write-off for Hollywood to its most profitable season of the year.

A/C technology required large capital expenditures and was a competitive disadvantage for any theatre (or other business) which failed to install it. It's also easy to see that after everyone installed a/c, there was no further competitive advantage, but unit ticket sales did remain at a higher level. (In 2010, it's amusing to imagine theatres charging extra for "air conditioning" as they just did for the 3-D version of Avatar.)

This is just another example of how technology causes (1) an initial (but not lasting) competitive advantage and (2) increases revenues. Profitability and revenues are very different, and picking the winners from a new technology is awfully difficult (as the 1995-2005 internet period demonstrates.)

So, who's the big winner in this a/c story? Answer: The Carrier Corporation has survived and prospered, and is the world's largest HVAC company, part of United Technologies. No Hollywood studio has provided an investor similar returns over this period.

Which brings me to the old joke: What's the greatest invention of all time? Answer: Thermos Bottle. Why? Because it keeps hot things hot, and cold things cold. Question: What's so great about that, you ask?

It can tell the difference!!!



my eldest daughter, by carl larssenIn most families the sons will be eldest sons and the daughters eldest daughters. Take a population of 200 families that have two children. The fraction that will be eldest boys or girls will be 3/4. Look at a population of 200 that each have 3 kids and the fraction of eldest will be 7/12. Only children will all be eldest.

Several studies have shown that for all populations that the fraction of eldest children is over 1/2 and for most populations it is well over 1/2. With smaller families being the rule this day, the families with single children virtually cancels out the families with 4 or more children. In the US, the average number of children in a family has been reported to be between 2.1-2.3 which would validate that most children are eldest with a fraction ranging from ~ 7/12-3/4..



 1. The difficulty of choosing between marriage partners is similar to that of choosing between a stock that looks great and is one of the best performers and a stock that has weathered many weaknesses in the income and balance sheet, and business model and is in the middle of the performance pack. The price performance of the one is likely to have shown positive continuations — a bullish trend followers dream — and the other is likely to have shown many a positive reversal.

2. Reviewers are more likely to favor a movie based on characters from prison or a mental institution than one that is based on characters that are intelligent, successful, and Ivy League graduates.

3. The difficulties and travails of getting funding to launch a movie is similar to those that every fund manager faces in launching his hedge fund or investment vehicle.

7. The limited budgets of independent films makes the buyer of clothes a key figure as he/she shops for bargains that fit the script.

9. The key to a successful film is not only to have a good script, and director, and talent, and marketing, but to have all the talent promote the film and believe in it after it's in the bag.

Alex Castaldo adds:

The film The Romantics was reviewed by Kyle Smith in The New York Post.

It has a web site like any film nowadays, with pictures and snippets.

It is showing in Los Angeles at The Landmark , 10850 West Pico Blvd, Los Angeles, CA 90064. In New York at Regal Union Square 14 , 850 Broadway, New York NY 10003.



 Here's an interesting article about how tennis is improved by playing on soft surfaces, moving in all directions, and not concentrating on winning at early ages with obvious market implications.

Pitt T. Maner III comments:

One doesn't remember seeing the top Spanish players missing a lot of easy overheads, double-faulting on key points, and letting line decisions get into their heads. They are mentally prepared to grind it out and play with "corazon" and a bullfighter attitude—and an added touch of machismo for those long 5-set matches. The Spaniards look better able to play and adjust to windy conditions too.

From Chair's referenced article:

Jose Higueras, a former Spanish player who is now director of coaching at the US Tennis Association, believes that playing on slower-paced courts has taught the Spanish to become more athletic and make fewer mistakes. "If you grow up on hard courts, missing becomes a lot more normal because the courts are faster and you don't have much chance to get set up," he said. "On clay, the misses are normally not as acceptable."

The current physicality of tennis seems to favor body types that are generally lighter, faster and stronger. These players have become masters of taking away the advantage of bigger opponents possessing more powerful serves and groundstrokes. Federer, for instance, has an unbelievable ability to return balls hit hard at him that would normally break down a player's stroke and cause a weak return.

Federer's fastest, well-placed serves at around 120-125 mph also are extremely effective (he had an 18-2 ace advantage over Soderling last night). The 6' 3'' to 6' 7'' players with the ability of hitting the 130-140 mph serves know they will have to hold serve almost every game against Roger or Rafael Nadal. That adds a lot of pressure, particularly on getting the first serve in.On the physical nature of tennis played with the modern, powerful racquets:

Training guru Mackie Shilstone, who has worked with Serena Williamssince 2008 and has educated many elite athletes, says tennis is among the most taxing activities on muscles, joints and tendons.

"I've seen it all," says Shilstone, whose clients range from boxer Roy Jones Jr., to baseball's San Francisco Giantsand hockey's St. Louis Blues. "It is one of the most grueling sports you will ever encounter."

I think most free, community tennis courts in the S. FLA area are hard because you have to maintain clay courts and that costs money and makes it necessary to charge fees that are somewhat stiff to the average Joe who can more readily find a free football or baseball field or basketball field to play on.



Talking about anomalous events, this is the worst set up for a 30 year bond auction, now at 11 est for bids, that one has seen in last 15 years. Possibly, finally, the vigilantes at least up to 1 pm, when announced are objecting to printing of money, free lunches, transfers from the undeserving rich to the deserving poor, et al.



 No doubt there's plenty of market lessons across the board in this lot. The ten bloodiest bed time stories :

Remember the cosy nights of your childhood tucked up in bed as mummy or daddy read you softly to sleep?Well have a read of this lot and you may discover that the tales you remember fondly are actually pretty gruesome.
From the Little Mermaid's suicide to Geppetto the child hating carpenter in Pinocchio, the shine applied to the Disney adaptation wears off upon closer inspection.

Tales of fathers selling daughters, matricide, serial wife killing and cannibalism. Sleep well children…

Kevin DePew writes:

My wife recently brought home a "classic Sesame Street" DVD from NYPL for our two-year-old. The beginning had a stern warning: "For Adults Only. These early 'Sesame Street' episodes are intended for grown-ups, and may not suit the needs of today's preschool child." So we looked it up and found this Virginia Heffernan review from the NYT from 2007:

"The old "Sesame Street" is not for the faint of heart, and certainly not for softies born since 1998, when the chipper "Elmo's World" started. Anyone who considers bull markets normal, extracurricular activities sacrosanct and New York a tidy, governable place — well, the original "Sesame Street" might hurt your feelings."

Well, it's true that bull markets no longer seem normal.

Dylan Distasio writes:

I have a nice illustrated hardback of DER STRUWWELPETER, one of the darkest of the German books of which you speak that I am planning on introducing my daughter to…A free illustrated English version is available online on Project Gutenberg.

Victor Niederhoffer comments:

The literature on why children should read horrible stories is pretty voluminous and convincing. German kids are exposed to particularly horrible stories. I had the pleasure of receiving the original of one that he invented and illustrated for his family from the great MFM Osborne as a token of esteem for Gail, my first wife.



 The remote sensing of gunshot noise in high crime areas becoming more widespread. Here is an article about it.

Vince Fulco writes:

I happened to see similar technology in use in Iraq/Afghanistan about a year ago which pinpoints sniper shots in less than a second. Each Humvee is equipped with a pod bristling with omni-directional microphones. Upon registering a shot, it instantly calculates direction and distance often not allowing a second one to be delivered before a counter response. As I recall it was an offshoot of MIT research. 

Jeff Watson adds:

Nassau County uses "Shot Spotter," which is the same technology. Yesterday, the police used that technology to determine where a bunch of shots were fired. Unfortunately, the person who fired the shots defending his family and property went to jail for excessive force or something like that. I'll save the editorial for later.



6.73%, from Steve Ellison

September 8, 2010 | 1 Comment

Where can one find a decent return on investment? 3-month U.S. Treasury bills yield 0.13%. 10-year U.S. Treasury bonds yield 2.71%.

The expected earnings of the S&P 500 over the next four quarters are 74.30. At current prices, the expected earnings yield is 6.73%, nearly 2 1/2 times the 10-year bond yield. This "Fed model" ratio was below 1 for years in the 1990s.

Alston Mabry writes:

In early 2000, if you aggregated the top 10 companies in the NASDAQ 100 into a single virtual company, that company had a market cap of $1.6T and sold for 14.7 times revenues and 83 times earnings, for an earnings yield of 1.2%. It seemed like a pretty rich valuation, but people were willing to pay it– for a time. Who's to say the yield on the 10-yr won't go to 1.2%?

Tim Melvin writes:

While not disputing that there are opportunities in today's market, anyone who bases any decision on expected earnings is making a foolish mistake. The margin of error on these estimates is incredibly wide. 

Stefan Jovanovich writes:

Big Al's speculation about how rich the valuation of bonds can get finds some confirmation in the modeling of Marcelle Chauvet — another of California's intellectual property imports.

Rocky Humbert writes:

Quick, back of the envelope, the R-squared between the professor's recession index and the closing monthly bond price is 0.18. The r-squared between the professor's recession index and the closing monthly spx price is .16. If I lag the bond price, the r-squared drops to 0.03

The Professor's Index seems to be as useful as a blind man looking in the mirror….

Which means ….that bonds may yield 1.2% … or 3.2% … or …. ???

Tyler McClellan writes:

Time for the repeating track,

The real return to bonds in the 20th century (relatively long time horizon) ex post does not substantiate the claim that we are at an unusual place vis a vis the return to savings in the government bond market, which is the market for which there is much ability to coerce the means of paying this debt regardless of the source of economic prosperity from which it does or does not arise (I am quite confident unique in that stead, and the reason why anyone who has done a deep study of social security/etc… know that there is very trivial difference in the end between fully funded, pay as you go, etc..we get the prosperity we get, period.)

Future inflation expectations do seem to be very historically unusual in both their low mean level and the historically unusual international dispersion around this level.

keep looking »


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