It is amazing how poorly coached the Knicks are. They were winning 93-84 with 4 minutes to go and managed to lose. They missed 6 foul shots in a row. They had the ball stolen 3 times. And they had two technical fouls called on them previously. The grind of the house upon the spastic day trader never comes through more clearly.



 Nothing says Vegas like swinging by safeway at midnight for a quart of milk and seeing three grandmas feed their social security checks into the slots as if they were reverse ATMs. I was reminded of my favorite (apocryphal) Vegas anecdote: "the city has passed a law prohibiting the pawning of false teeth."

What other field do we know that acts as a reverse ATM besides day trading, non-exchange trading derivatives, and penny stocks?

Kim Zussman writes:

Having children.

Gary Rogan writes:

Death and taxes.



 One often reads that many successful investors are often "too early"; buying and selling too soon. Certainly looking at screens frequently (or never not looking at them) is an impetus for action, even if waiting would have been better.

It should be possible to check your timing by going back and moving the timing of your trades forward and backward to see if P/L would have been different, and a consistent lag or lead found. The amount of shift would correspond to the timescale of the trade, possibly some fraction of the holding period.

Of course identifying such a trend would be easier than correcting it. For example if you are on average 15% early, you could decide to purposely delay entry or exit by this amount of time. But this thought could Heisenberg you, and change the way you identify timing signals.

Alternatively there may be a psychological element at play. Given that the pain of losses are about 2.5X higher than the pleasure of gain, and that most trades entail some pain, it is possible we mistakenly emphasize the memory of this pain and heuristically conclude "too early". The memories of missing the pain of early trades outweigh memories of early profits. Most likely the distribution of early/late is random for most traders.

Relatedly, some men have other problems with prematurity; one treatment for which is SSRI antidepressant therapy. Another way to study early birds would be to separately analyze traders who take SSRI's vs those who do not, and look for a difference in timing skill.

Speaking of elections, conspiracy advocates wonder whether there is anything funny about the timing of the Yemen packages. The next Michael Moore show?



How would the speed up stuff (see below) work in trading?

Trading while standing up?

Trading with a gun rather than a mouse?

Taking a fast 4 ticks?  (guaranteed to lose money unless you have the infrastructure of a flexion)

Trading 3 markets in succession??? 

Larry Williams adds:

Going from yesteryear's 200 day moving average to a shorter one? Trading instant spreads? 

Jim Sogi writes:

It's a whole new skill set, both different motor and mental with a learning curve. Years of practice with certain tools cannot be discounted. Like switching from squash to tennis to ping pong. Or longboard to shortboard. 

Ralph Vince writes:

Great questions. Based on my own, limited, life experience, I would add that there is an element of a certain mental "groove," to all of this, necessary to success, not altogether very different than that of an athlete on the top of his game (we have discussed this at length in this forum– some great discussions on it I think) or when you are thinking a problem through– a very difficult, elusive one, threatening to drip off the edge of your consciousness…….and I'm not so sure that is even timeframe-specific, so long as you find your groove.

When I put on a trade, I KNOW I'm going to make money on it, I'm not worried about it one jot. You get into certain habits, which are a function of your cadence, and "settling in' to that, whereas I think it IS timeframe-specific, seems to be timeframe specific to the individual and how he trades.

I very much believe that the kind of "hurry up" trading you are describing here may fit certain individuals and may sabotage others. Even if on a purely mechanical basis. What comes to mind for me on this is trying to play simple, basic strategy blackjack at a table with a fast cadence– I can't handle it, and am certain to fumble it.

Ken Dreees writes:

It would be interesting to create a dynamic trading skills test in which you had mutliple positions open in multiple markets and were then given simulated info in a real time sense that caused market disruptions. You would be graded under criteria such as:

1. exiting safety

2. capital protection
3. Finding and exploiting panic etc.

Like a trading version of star fleet's test.

Jeff Watson adds:

Here's an interesting site with info on CBOT full seat prices from 1898-2004. There's a handy little excel download in the site with the high/low of CBOT seat prices on a yearly basis. 1942 was the year to go long the CBOT. 

Russ Sears comments:

My opinion is that building up the endurance to concentrate for long periods of time is not like riding a bike. If you've been away from it a while train yourself back into it.

Taking scheduled stress relief breaks should be required to be on your best defensively, especially in volatile markets. 




UO football

Oregon football: Ducks' success on offense is just a matter of time

Oregon's fast offensive tempo has baffled opponents this season, and USC will try to solve it Saturday

By Rob Moseley

The Register-Guard

Appeared in print: Wednesday, Oct 27, 2010

In college football, it's best to take things one week at a time - unless Oregon looms on the schedule.

Because of the Ducks' withering offensive pace, USC has increased its tempo in recent practices. And not just this week or during the preceding bye week, Trojans coach Lane Kiffin said, but even earlier than that.

"Over the last couple of weeks, even going into the Cal game, we've picked up our tempo in practice whenever we were going against the defense," Kiffin said Tuesday. "I just think that if you try to all of a sudden do it in the week you're playing Oregon, it's not going to help a whole lot. …

"We've been doing this for a few weeks and took a different approach to the bye week than if we were probably playing someone else, by the speed we practiced at and the way we approached it."

The list of top-ranked Oregon's scoring drives this season, entering Saturday's 5 p.m. game at No. 24 USC, includes 16 shorter than a minute, and only three longer than four minutes. To some extent that reflects the big-play ability of such stars as LaMichael James, Jeff Maehl and Josh Huff, and also some favorable field position owing to the 25 turnovers forced by the UO defense and special teams.

But it also illustrates the tempo at which Oregon's offense plays, and the minimal time the Ducks take between snaps. Mostly, that's determined by how long it takes officials to spot the ball after the previous play.

"We're playing at a pretty good clip right now," UO coach Chip Kelly said. "I think it's because our players have a really good understanding of what we're trying to do. We just try to eliminate that time between plays, and then just go play."

Snapping the ball just a handful of seconds after the previous play minimizes the time available for the defense to call plays, substitute or react to Oregon's offensive formation. It's a common occurrence to see defenders spend those moments with their hands on their hips, a sure sign of fatigue.

Oregon doesn't have such trouble signalling plays to the offense. The Ducks streamlined their terminology in order to play faster on offense when Kelly was promoted to head coach in 2009, he said, and they employ a complicated system of signboards and hand signals to indicate plays during offensive possessions.

The signs each include four images - faces of ESPN personalities are among the most recognizable.

Kelly said the signs indicate a package of plays, and hinted that they can sometimes be used as a decoy. Sometimes, he said, players aren't asked to "go to the board" to get the call.

"It's just another way to play fast," Kelly said. "The analogy I can give you is, iif you go to McDonald's and order a No. 2, that's all you have to say and you get a Quarter Pounder and a drink and fries, and you just say, 'No. 2.' If we send them to the board, one picture can mean the formation and the play and the snap-count. That's all it is. It's just another way to play faster."

The Ducks' tempo seems particularly suited to their spread-option offense, which doesn't feature excessive pre-snap shifting and motion to fool the defense, as in the scheme employed by Boise State, to use just one example. But Kelly said he'd look to push the tempo even if Oregon's personnel was best suited to packages requiring three tight ends and a fullback.

"You could play up-tempo no matter what you do," Kelly said. "You watch (Indianapolis Colts quarterback) Peyton Manning, they're not running any option but they play as fast in the NFL, in terms of him being able to get their plays in and the speed they want to play at. So it's not married to the system."

Kelly also quipped that, "The byproduct is, as the play-caller, you can call a lot of really bad plays, and people forget about them quickly because we're on to the next one." But clearly Kelly, whose offense leads the nation in points and yardage, hasn't had many missteps in that regard.

The potential drawback to playing so fast on offense is that Oregon's defense is on the field so long. The Ducks are 114th out of 120 teams nationally in time of possession, at 26:40 per game; the 516 plays defended by Oregon are more than anybody else in the Pac-10 but Washington State.

The Ducks try to mitigate that with a regular rotation of about 25 players at the 11 positions on defense.

But Oregon also uses about 20 players regularly on offense, another challenge for opponents.

"The different ways they mix and match that personnel in terms of personnel groupings and formations, you're trying to identify what their top runs are and their top passes are, and when there's more of them it's hard to really pinpoint what their favorite ones to do are and defend them," Stanford coach Jim Harbaugh said.

Kiffin and his staff at USC are trying to tackle that challenge this week.

"You don't know who's going to be in when," Kiffin said. "They do rotate guys in. I'm sure it's because they know they're going to play a lot of plays because their offense scores so fast and doesn't use very much time.

"The 14 touchdown drives under (54) seconds, that's unheard of for four years of games, let alone half a season. I'm sure that's why they do that. I don't think until this week I realized how deep they were. For them to play so many people on offense and defense, they've got great depth."

All of it speedy, as Oregon tries to keep pushing the pace of this historic season.

"We just try to eliminate that time between plays, and then just go play."

- Chip Kelly, Oregon Football Coach

Pitt T. Maner III shares:

On speed in practice:

Bill Walton on Wooden and UCLA basketball practice, from (With Steve Jamison) Wooden: A Lifetime of Observations On and Off Court, Contemporary Books (Lincolnwood, IL), 1997.

For us, it all started with our practices at UCLA, which were nonstop action and absolutely electric, super-charged, on edge, crisp, and incredibly demanding, with Coach Wooden pacing up and down the sidelines like a caged tiger, barking out instructions, positive reinforcement, and appropriate maxims: "Be quick, but don't hurry." "Failing to prepare is preparing to fail." "Never mistake activity for achievement." "Discipline yourself and others won't need to.

"At the same time he constantly moved us into and out of minutely detailed drills, scrimmages, and patterns while exorting us to "Move…quickly…hurry up!" It was wonderfully exhilarating and absolutely intense.

In fact, games actually seemed like they happened in a slower gear because of the pace at which we practiced. We'd run a play prefectly in scrimmage and Coach would say, "OK, fine. Now re-set. Do it again, faster." We'd do it again. Faster. And again. Faster. And again.

I'd often think during UCLA games, "Why is this taking so long?" because we had done everything that happened during a game thousands of times at a faster pace in practice.

Ralph Vince writes:

It's a game of evolution, the hurry up, with a mobile quarterback, an absence of putting a man in motion (and hence, plays that aren't contingent on defensive reads) and spread out receivers.

The counter to it is the part I am trying to study, and seems to be confusing blitzes (which are difficult to coordinate when faced with a no-huddle), middle zones and man for man on the outside (and, surprisingly, it appears the outside coverage man should take the INNER of to wideouts on the same side when that occurs). 

Russ Sears writes:

Football is a sport requiring quick short burst of speeds. Speeding up the normal pace of the game cause the recovery time to shorten drastically. An offense that knows before the position of attack can rotate the burst of speeds, where as the defense must all be ready and attacking. The stamina to endure these burst of speeds with short recovery takes a good month of training. This is, I believe, the Indy Colts advantage also.

In basketball, it takes even longer because of the aerobic base needed. Wooden and several other great basketball coaches practiced running stairs and full court press. As full court press is the basketball equivalent to no huddle offense.

In distance running the equivalent is cycles surging the letting up the pace. If you practiced this you could beat better runners who are not prepared for this.



 It is interesting that the good table tennis players spend hours with glue before they play, and that the good tournaments require a special biologist tester to test the toxicity of the different layers of glues and sponges used nowadays. What a mess the officials of table tennis made with the game in their efforts as all officials of associations are tempted to do with the exception of our own Mr. Checkers, to siphon as large a chunk of the profits from the players to the officials. (Let us all wish Mr. Alan Millhone good luck in taking care of his mother on the critical list at 88 now). You have to hand it to the exchanges and the pro basketball and baseball associations for their ability to make it win win for the players and the officials. Also, of course the exchanges themselves that have made the members so wealthy while not neglecting to wet their own justifiably long beaks.



 A few months ago, I observed that there was a bull market in bearishness underway. In addition to the AAII bearish consensus that rivaled the 2008/2009 lows, there was a consensus that the Fed had run out of bullets, that Europe was kaput, that HFT bots had taken over the casino; that a January hike in tax rates would smother any recovery; that equities yielding more than comparable bonds didn't matter; that decent earnings didn't matter either because they were due to efficiency rather than revenues; that Congress and the White House would continue to pursue a stock-unfriendly agenda; and (of course) Google Hits on Nouriel Roubini spiked to a cycle high.

Today, we face a mirror image– just as we approach next week's trifecta: Fed, election, jobs.

The AAII bearish consensus at 21% has made a three year low; the Fed will launch its well-telegraphed latest policy adventure; Germany is growing, France and the UK are biting the bullet; there have been no more HFT dramas; the January tax hike is anything but certain; equities have had a meaningful rally — while bonds have been rather soggy; the Democrats in Congress are not asking "if" but rather "how bad" they get spanked; and Mr. Roubini's google hit count has fallen below the radar. The only bearish story that I can find right now is the banks continuing ability to shoot themselves in the foot…

I make no attempt to "call" the market on a day-to-day basis, and I'm neither particularly bullish or bearish — and have no clue whether the next 5% is up or down. But as someone who likes to always have dry powder on hand (for both fading the nattering nobs of negativity and avoiding chafing after warm showers), the previous paragraph demands that I put a few canes away in the attic before next week's trifecta. In addition to my concern about equities, I'm especially concerned about industrial metals.

No matter how many years that I do this, I always buy early and sell early. But this allows me to go to bed early and get a good night's sleep.

Ken Drees  writes:

There seems to be a general consensus feeling that the market will sell off after the election/qe2 news– the market has bought the rumor and will sell off like textbook trading 101. In keeping with a contrary eyebrow raised, a market surging up next week may well rip any bearishness out by the roots– and send the bearish consensus plunging even more.

A better and more diabolical market may well drop 300 dow points after the fed news and then turn around and rip higher to end the day up 200. Now that would be ursa major horriblis.

market is flat calm today for the most part–vol is coming.



 Flu has not been mentioned much in the news so far this year. Local availability of flu shots is good and many supermarkets and drug stores are providing vaccines. New strains may require a vaccine update sooner than expected acccording to some. A difficult subject for prognosticators and vaccine developers:

Influenza pandemics and epidemics have apparently occurred since at least the Middle Ages. When pandemics appear, 50% or more of an affected population can be infected in a single year, and the number of deaths caused by influenza can dramatically exceed what is normally expected. Since 1500, there appear to have been 13 or more influenza pandemics. In the past 120 years there were undoubted pandemics in 1889, 1918, 1957, 1968, and 1977. Although most experts believe we will face another influenza pandemic, it is impossible to predict when it will appear, where it will originate, or how severe it will be.


Researchers overseas think that the H1N1 influenza virus may be mutating, but say more study will be needed to determine how deadly the new strain is.The slightly new strain is beginning to show up in Singapore, Australia and New Zealand, RedOrbit.com reports.

Ian Barr, of the World Health Organization's Collaborating Center for Reference and Research on Influenza, in Melbourne, Australia, told RedOrbit.com that more study is needed to determine if current H1N1 vaccines can protect against the new strain completely.

"It may represent the start of more dramatic antigenic drift of the pandemic influenza A-(H1N1) viruses that may require a vaccine update sooner than might have been expected," Barr said, RedOrbit.com reports."



 I just saw an item on the news that RBC I believe, had created a bubble index from data from many previous bubbles. I have not been able to locate it though they were looking for gold to hit over USD 3000. If anyone on the list has more info that would be interesting to know a bit more about the makeup of it. Though I did find this story from 2002 , which if it was indeed correct, would outline a reason for a lot of the pent up energy in the market together with demand and supply shifts in the years since, leading to gold where it is today.

The RBC report says the price of gold is going to explode and cites "Increasing Evidence of Unsustainable Gold Price Manipulation" as one of its reasons. The RBC report points to 11 "factors" of evidence regarding the gold price manipulation:

1) Aggressive gold lending, which from an economic perspective is indefensible, has filled the supply/demand gap.

2) New York Fed gold has been mobilized when the gold price is rising.

3) Timing of Exchange Stabilization Fund gains/losses corresponds to gold price movements.

4) Audited reports of U.S. gold reserves show unexplained variances.

5) Minutes of Fed meetings confirm officially denied gold swaps.

6) Rules on gold swaps have been revised and then denied. However, individual central banks have repudiated the denial.

7) U.S. gold reserves have recently been re-designated twice, initially to "custodial gold" and latterly to "deep storage gold."

8) Statistical analysis of unusual gold price movements since 1994 indicate high probability of price suppression. The invalidation since 1995 of Gibson's Paradox — that gold prices rise when real interest rates fall — suggests that the real manipulation began then.

9) New York gold price movements versus London prices trading defy odds.

10) Timing of huge increases in bullion bank gold derivatives is consistent with gold price declines.

11) A rapid decline in U.S. Treasury holdings of gold-backed SDR certificates is not explained.

The RBC report goes on to say: "One or two of these factors could be viewed as random, but the full body of evidence is overwhelming."

Anatoly Veltman comments:

It is important to keep exchange of info and ideas un-biased.

1. The bottom story of "suppression" is from GATAwebsite– this should be disclosed in BOLD LETTERS.

2. When RBCcame out with February 2002 report, gold was completing a four-year basing formation on price charts, trading in $200-handle most of that period. I also believed that market was dislocated to the down-side. I was 100% Long and was admonishing anyone willing to hold a Short position.3. Re-printing "same story text" following un-interrupted price move from that level to last week's $1388 record– again, one ought to attach tons of qualifiers. The accusations against US/other authorities remained unproven a decade later. Most important: how relevant is it in context of current price, fully 550% off that former bottom? 



 Rare earth metals are in the news. Chinese are the main producers of them at present but substitution and/or mining of these metals in other countries may change the picture over time. The following article gives an overview of the situation:

Stepped-up mining operations and accelerated manufacturing schedules in Africa, Australia, Canada, Malaysia, the United States, Vietnam and elsewhere could provide supply-chain alternatives to China, which controls more than 95 percent of the world's rare earths. The U.S. House of Representatives, fearful the U.S. military might become dependent on Chinese-made electronics, approved H.R. 6160, the Rare Earths and Critical Materials Revitalization Act of 2010, late last month.
Japan, one of the countries hardest hit by the tightening of rare earth supplies, has fast-tracked efforts both to recycle rare earths from discarded electronics and to develop alternatives to the materials for use in electric motors and the nickel-metal-hydride batteries deployed in hybrid vehicles.

Recent testimony from Professor Eggert at Colorado School of Mines:

"First, world generally has been successful in replenishing mineral reserves in response to depletion of existing reserves and growing demand for mineral resources. Reserves are a subset of all mineral resources in the earth's crust. Reserves are known to exist and bothwe are not running out of mineral resources, at least any time soon. The volume XXVI, number 4, 2010, pp. 49-58. The paper discusses minerals for national defense as well as for emerging energy technologies.

In this testimony, I do not discuss military or defense issues. Reserves change over time. They decline as a result of mining. They increase as a result of successful mineral exploration and development and technological advancements in mineral exploration, mining, and mineral processing. Over time, reserve additions generally have at least offset depletion for essentially all mineral resources.Second, rather than focusing on running out of mineral resources, to consider the constraints imposed on emerging technologies by the costs, geographic locations, and time frames associated with mineral production. because over time production tends to move to lower-quality mineral deposits—those that are less rich in mineral, deeper below the surface, in more remote locations, or more difficult to process. The result is higher costs for users, unless technological improvements are sufficient to offset these cost increases. Thus the constraint that mineral availability sometimes imposes on users is one of higher costs rather than physical unavailability."

Prepublication version of paper Eggert refers to in his testimony.



 While natural gas has been the butt of jokes after 50 out of 50 winners…The one loser on my screen was the bank index bkx & BAC. It may be too early to call a trend, but I have noticed that 6 days so far in Oct the bank index has been down while the S&P has been up. Most of these have been since Oct 13th when the markets started hammering the banks over servicing mbs and foreclosures.

Looking at each quarter, the S&P was highly correlated with the bank index from 2003 late 2008. In hindsight it seems so clear that the banks index switching from low or average beta to a high beta correlation to the S&P index was a sign of the impending explosion before Lehman hit the beta for the 3rd quarter 2008 was 2.70 according to my regression. This is after a fairly stable Beta hovering around 1.0 .

Looking back during the 90s when tech not banks were driving the market, the beta of the bank index on any given quarter would bounce around and the correlation would also, but in general was much lower (the bank index data I had only went back to March 1993).

Of course with banks were issuing those IPO's back in the 90s where as by aughts they were switching to securitization and financial engineering to manfacture their edge.

But do banks still matter? With the government effectively backstopping their balance sheet, do they really have a reason to exist? (aside from the political gains do they havea wealth creation reason?) If not, does "too big to fail" still apply if they do not fit the political agenda?

What are the new numerical disconnect saying?

S&P r        BKX r        correl      Beta        Alpha  quarter          Year
0.0381     -0.0150     0.58344     1.16939     -0.0035    oct     2010
0.1018     0.00173     0.93421     1.64995     -0.0026     3     2010
-0.126     -0.1199     0.92693     1.42600      0.001      2     2010
0.0475     0.19681     0.69486     1.18386      0.0023     1     2010
0.0534     -0.0999     0.84697     1.64582     -0.0029     4     2009
0.1396     0.25845     0.78197     1.62397      0.0005     3     2009
0.1416     0.25874     0.84468     2.78847     -0.0022     2     2009
-0.124     -0.4542     0.84269     2.43938     -0.0025     1     2009
-0.255     -0.4237     0.81996     1.23216     -0.0017     4     2008
-0.092     0.15255     0.91565     2.57134      0.0061     3     2008
-0.032     -0.3060     0.75759     1.54808     -0.004      2     2008
-0.104     -0.1154     0.85674     1.68488      0.001      1     2008
-0.038     -0.1793     0.86751     1.50680     -0.0019     4     2007
0.0154     -0.0629     0.85999     1.23968     -0.0013     3     2007
0.0564     -0.0085     0.83763     1.00614      -0.001     2     2007
0.0018     -0.0316     0.91944     1.09838     -0.0006     1     2007
0.0576     0.03269     0.75834     0.83588     -0.0002     4     2006
0.0482     0.04607     0.83727     0.98334      0          3     2006
-0.021     0.01923     0.77312     0.89102      0.0006     2     2006
0.0407     0.02143     0.79510     0.95712     -0.0003     1     2006
0.0166     0.07061     0.78553     0.91498      0.0009     4     2005
0.0229     -0.0276     0.84186     0.99538     -0.0008     3     2005
0.0161     0.02979     0.84171     0.89760      0.0002     2     2005
-0.026     -0.0753     0.85131     0.98382     -0.0008     1     2005
0.0837     0.06477     0.90318     1.02108     -0.0003     4     2004
-0.023     0.00936     0.85927     0.85178      0.0005     3     2004
0.0162     -0.0401     0.82188     1.02596     -0.0009     2     2004
0.0114     0.03282     0.91278     0.92618      0.0004     1     2004
0.0974     0.09482     0.87883     0.89619      0.0001     4     2003
0.0323     0.03224     0.88914     1.07428      0          3     2003
0.1388     0.19254     0.93348     1.10238      0.0006     2     2003
-0.036     -0.0558     0.96863     1.01468     -0.0003     1     2003
0.0761     0.07047     0.92250     1.30637     -0.0005     4     2002
-0.193     -0.1740     0.93277     1.12174      0.0007     3     2002
-0.146     -0.0743     0.87331     1.00450      0.0011     2     2002
-0.001     0.03820     0.89408     1.26995      0.0008     1     2002
0.0979     0.08147     0.78028     1.05444     -0.0004     4     2001
-0.163     -0.1527     0.89156     0.97725      0.0001     3     2001
0.0723     0.13445     0.80468     0.89475      0.0011     2     2001
-0.136     -0.1037     0.79788     1.19917      0.001      1     2001
-0.103     0.03487     0.71966     1.05525      0.0023     4     2000
-0.002     0.12468     0.54630     1.03989      0.0022     3     2000
-0.032     -0.0248     0.58095     0.88924     -0.0001     2     2000
0.0285     0.01104     0.70553     1.24602     -0.0001     1     2000
0.1301     0.04747     0.73276     1.53207     -0.0025     4     1999
-0.027     -0.1303     0.74732     1.10596     -0.0018     3     1999
0.0197     -0.0155     0.77527     1.11365     -0.0003     2     1999
0.0506     0.05411     0.81441     1.17468     -0.0001     1     1999
0.1621     0.16835     0.82698     1.52850     -0.0013     4     1998
-0.077     -0.2254     0.90935     1.33349     -0.0019     3     1998
0.0255     0.00949     0.71068     1.12551     -0.0003     2     1998
0.1616     0.15019     0.81421     1.14996     -0.0006     1     1998
-0.001     0.03142     0.91399     1.11496      0.0005     4     1997
0.0535     0.08639     0.88248     1.10622      0.0004     3     1997
0.1174     0.08028     0.81751     1.23158     -0.001      2     1997
0.0435     0.07625     0.83011     1.37483      0.0003     1     1997
0.0984     0.15136     0.77470     1.36041      0.0003     4     1996
0.0318     0.10855     0.86728     1.10377      0.0011     3     1996
0.0173     -0.0125     0.83779     1.40889     -0.0006     2     1996
0.0613     0.09627     0.78498     1.11939      0.0005     1     1996
0.0553     0.04865     0.62770     1.22768     -0.0003     4     1995
0.0645     0.12961     0.49631     0.92225      0.0011     3     1995
0.0794     0.14789     0.67762     1.12278      0.0009     2     1995
0.0911     0.10919     0.76762     1.71786     -0.0008     1     1995
-0.006     -0.0715     0.72703     1.11738     -0.001      4     1994
0.0406     -0.0271     0.80706     1.00491     -0.0011     3     1994
-0.002     0.07169     0.75132     1.07790      0.0012     2     1994
-0.043     -0.0368     0.77869     1.18102      0.0002     1     1994
0.0089     -0.0698     0.47082     1.12801     -0.0013     4     1993
0.0269     0.05376     0.48552     0.84299      0.0005     3     1993

Gary Rogan writes:

The upcoming change in the political reality and some dangers to the biggest protectors of TBTF, the servicing/foreclosure controversy coupled with the possibility of a Countrywide mortgage putback made the group a lot more risky. Who is to say whether another balance sheet shock will be met by bailing out the bondholders again? TBTF may become redefined as just full protection of deposits vs. every stakeholder. There will certainly be less appetite for the latter after Nov. 2. Plus if on Nov. 3 QE2 is really modest and limited to Treasuries as opposed to the recent speculations of everything under the sun due the "shortage" of new issue treasuries, coupled with possible Fanny/Freddy uncertainty again due to the change in the political reality the naked truth staring in the face of MBS and plain old mortgage holders, and even CRE doesn't look too good. 

Phil McDonnell comments:

Thanks to Russ for a counting tour de force. I have a few questions which I shall pose as assumptions.

I assume:

1. S&P r is the daily serial correlation of S&P changes at lag 1.

2. BKX r is the daily serial correlation of daily serial BKX changes at lag 1

3. correl is the daily coincident correlation between S&P and BKX

4. Beta is the beta of a regression of BKX changes on S&P changes on a daily basis5. Alpha is the alpha for the same regression

Correct me where I am wrong.

Russ Sears writes:

S&P r is S&P return for the quarter on lognormal basis. likewise for BKX



The 40 Year Food Outlook:

   • World population will grow 2.3 billion by 2050, to over 9 billion
   • Nearly all this growth will come in developing countries
   • This population growth will require a 70% increase in global food production
   • In developing countries, production will need to nearly double
   • Making this happen will require annual investment averaging $209 billion.

Jeff Watson writes:

With our productivity in agriculture, the population increase will be great for our exports and great for business. With science being applied to agriculture, yields/acre have been steadily increasing for the past 300 years. There's no need to think we've hit the maximum in production either. 40 years ago, Erlich, in The Population Bomb sounded alarms about the population doubling by 2010 and he laid out a doomsday scenario. We're here and none of Erlich's predictions have been realized. 

Michael Ott writes:

Jeff makes great points. Additionally, yields for commodity crops are surging and seed companies are investing in growing crops in suboptimal soil.

This year's decline in yields is an aberration due to late season flooding. Farmers that I have talked to are getting 190-200 bushels of corn per acre or 120 if they were flooded. It's netting out to an average of 168 or so with a leptokurtotic distribution. I expect next year to average 180+, given reasonable weather. Combined with new crops designed to grow in arid and sandy soil, we should be swimming in excess.

Seed companies are scrambling to find uses for extra corn, so famine and starvation not an issue for those who are actually paid to grow the food.

George Zachar writes:

It's wealth, not religion, that governs birth rates.

Alternatively wealth is caused by (low) birthrate.

Kim Zussman comments:

GZ's excellent link sheds light on a prior study sent to the list, showing high positive correlation between national per capita GDP and distance from the equator ( abs (latitude) ). Fertility rate is generally higher in countries closer to the equator, which on average are poorer.

1. It is warmer and women wear less

2. There is little work and more idle time

3. Indoors + outdoors vs just indoors

4. Mountain movement necessitates more Mohammeds



 For well over a month no more than 2 days have passed before another new monthly high is reached. How long can these record sessions continue, I wonder.



SUP, from Jim Sogi

October 28, 2010 | Leave a Comment

 Stand up paddle boarding didn't exist 10 years ago, but now it is a fast growing sport. It is not intuitive to stand up on a surfboard and paddle it with a paddle, and there is a short learning curve. Contrary to my initial impression that it was a fad that would soon die out, the sport has exploded. SUP can be done not only in surf, but in flat water, lakes, rivers (a guy went down the Colorado!) and the open ocean. You could do it Central Park or the Hudson River. (It won't fit in an elevator or subway tho. They are 11 feet long, 30 inches wide and 4 inches thick.) It doesn't take the strength required of surfing because the paddle leverages the power, and the board is huge and is stable and floats so many women who lack arm strength can do it, as can children, and older out of shape guys. In fact the big growth is in flat water paddling. There are even expedition SUP boards that can carry gear. Guys paddle interisland Hawaii, and from England to France.

The larger board and long paddle gives leverage. It makes is harder to turn around, and forcing one to commit to a swell sooner, and requiring one to be well committed when the swell arrives. It take longer to turn your position around, but one can ride not only smaller waves, but larger ones as well. Some friends that make them went to Florida to surf Hurricane Igor and got 15' waves a mile long on 12 foot boards.

Its a great way to get outside and get some exercise even when the waves are small.

My twist is going to be try a small kite and let it pull me on the board, rather than struggle with the small kite boards.



The attached plot is the Case-Shiller house price index, Jan 2000- Aug2010. The 20-city US composite is plotted in blue, Los Angeles in yellow, and Washington DC area in red. All three indices are normalized to 100 on Jan 2000, so it is possible to directly compare them.

LA's bubbly party was bigger than DC's, and both were much bigger than the 20 city composite. From 2000 to peak in 2006, LA increased 2.74X and DC 2.51X. To the extent that risk and reward are related, one would anticipate that LA would decline more than DC. Indeed this was the case: From 2006 peak to 2009 trough, LA declined 42% and DC dropped 34%.

Following the same logic, the reflation 2009-present should have been larger for LA than DC, but it is not: LA increased 11% and DC increased 18%.

Rocky Humbert writes: 

Instead of thinking about price as the independent variable, perhaps we should think in terms of supply as an independent variable?

The housing stock of the nation needs to grow– broadly in line with population growth.

Ralph Vince writes:


You are onto an interesting thread of thought.

I have been thinking that "Units per capita/average family size" may be the ONLY thing to eventually pull this market back from the brink. I think the notion of actually owning the dirt — the earth, and all it's rights from your feet to the center of the earth — the unique sovereignity of that, expressed as a certain intrinsic value, has been (as I have said in the past) diminished to a big bag of smoke.

We are property-taxed to death (at least in Ohio and Florida, where I own properties). Essentially, property values need to rise a GEOMETRIC average 5% per year just to keep pace with property. Additionally, the rights to our property have been all but relinquished to the municipalities, the death blow coming in USOC's KELO decision in mid '05 (corresponding most interestingly on the chart of home prices). (This cuts both ways incidentally. In one corruption-prone community I own property in, which abuts a large park system, where there is a 3 1/2 min acre per home, the village council, in an act of abject corruption, granting 130 variances to allow a developer to violate all of these rules and build "cluster housing" abutting the park, I have managed to get those elected officials tossed out and I am managing to garner enough local leverage it appears to take that as-yet undeveloped property via eminent domain).

I am wondering if the only thing to salvage property values is, in fact, an historic mismatch in the ration expressed earlier in this message.

Nigel Davies comments:

I'm totally unconvinced by this line of reasoning. If you look back in history, even one small century, there were often 20 or more people sharing houses which today would be occupied by 4 or less. And this is still the situation in many parts of the world today.

To me this means there is plenty of room for contraction in demand in which case supply stats become meaningless.



 An Open Letter to Jon Markman.

Your annotation to Reminiscences about the rise and fall of William Crapo Durant brings to mind many consiliences. First, the story that Hans Sennholz told of his talk in Houston about his book on silver. After the talk, some Texans came up to him and said to him, "Professor, do you know how much money we made from your book–345 million." And Professor Sennholz responded, "do you know how much money I made? " $25.

Durant had an entrepreneurial career starting with his buggy whip business. He started General Motors, lost control, got it back, formed pools in the 1920s market, regained control, hired Sloane and Kettering to run the new General Motors, and then tried to bull the 1929 market up in 1929 and 1930 and declared bankruptcy in 1936. He ended his life running a bowling alley in Flint, living on a modest pension provided by Sloane.

Jon, with your writing gigs at the Journal and MSN, and your ability to write books of the caliber of Reminiscences, I don't think you will ever be forced to run a bowling alley, or live on a modest pension provided by the boy wonder who dropped out of Harvard to form the parent company to MSN.

I hope I am as fortunate as either you or Crapo, as I am an entrepreneur like him, and have been too early and had too little capital to hold on to the General Motors of my career, including Navtech and Etrade and Rex Radio, to say nothing of my various once number 1 performing forays into the hedge fund business, either one of which would have made me billions if I had the helping hand of a Sloane, or a bailout from the government.

Thanks for the memories and the story about Durant, who rightfully belongs in the entrepreneurs hall of fame.





 This story about the auctioning of the most sought after baseball card in history is something of interest to me. Though my time is better served now elsewhere, it still is worth mentioning. I once had a gentleman breakdown the following to me as places to invest your money:

1. equities

2. fixed income
3. commodities
4. real estate
5. arts and collectibles

Now we all know of the derivatives and options that exist of the above so this list is just for simple purposes. The auctioning and selling of arts and collectibles seem to take place only in bankruptcy or death at estate auction? The Nun inheritance of this card is baffling on many levels. The brother of the Nun who died knew what he had, kept it, just didn't get to sell it. I would like to know the cost of purchase for the card from the brother to use the auction price to determine percentage appreciation. I'll assume zero though.

I know the sports card market very well and have met with the best of the traders in this market and talked with "hedge fund-like" partnerships. It is amazing that this is kept on the low down as much as it is until only a prized jewel emerges?

It is in my opinion that on that day in November don't be surprised if an anonymous buyer gets the winning bid and that this buyer will probably represent the greatest hockey player to play in the NHL. He's done this trade before!

I need to pay more attention to Mr. NHL, I sit on a pile of Canceco's, Bond's, and others that reality depreciated recently! I'm a small tiny ghost walkin' around Trinity in the sports card world.



 The predator becomes a meal :

The assassin bug (Stenolemus bituberus) is a spider-hunter. Sometimes, it simply sneaks up to spiders on their own webs before striking, plunging its dagger-like mouthparts into its prey. But it also has a subtler technique. Sitting on the web, it plucks the silken threads with its legs, mimicking the frequency of weakly struggling prey. These deceptive vibes are an irresistible draw to the spider, who rush towards their own demise. The bug effectively has a way of ordering for delivery when it doesn't want to go out for a meal.

Gary Rogan writes:

Good article. If you look at today's situation, not that different from Goldman establishing a de facto consensus that there will be a $2 trillion QE2 without the Fed ever saying any such thing, luring the unsuspecting little spiders with the hopes of a lower dollar and higher everything only for those expectations to be crushed today. I actually came across several speculative articles to this effect yesterday, so someone's hand may have been forced.



 Interesting article on tools to detect fraud in silver.

Victor Niederhoffer comments: 

While we prefer an independent summary of important articles transmitted, there are some like the article on fraud in silver including spoofing, (bids or offers but cancel them before the close), banging (acquiring a substantial positions leading up to the close then offsetting the position in the final minutes to manipulate the closing price), and quote stuffing (flooding the market with large numbers of orders) that are so sui generous that they resonate through all our experiences.

How many of us have been victimized by these direct manipulations, and how many of them can be quantified in markets to show how temporary efforts at manipulation lead to opportunities. It would repay careful study.

As discussed, being on the rules committee is a good first line of defense to make these manipulations more effective and harder to punish. Also, setting of margins against the other side of your trade,by being on the margin committee, or entitlement to do so at your volition by terms of your contract, a la famous examples in the 2008 crash, and 2007 August stock market declines provides a nice synergistic platform in conjunction with the other manipulations, and many others not specifically named, but covered in part in such books as Reminiscences.

Alex Castaldo adds:

An interesting quote from the article:  "The CFTC's only successful manipulation prosecution in its 36-year history was against a broker charged with manipulating settlement prices for electricity futures in 1998."



"(T)he rapid progress true Science now makes, occasions my regretting sometimes that I was born so soon. It is impossible to imagine the Height to which may be carried, in a thousand years, the Power of Man over Matter. . . . O, that Moral Science were in as fair a way of Improvement."

- Benjamin Franklin, 1780



Today is 20/10/2010. What exceptional things happened today? Why did no one say anything about it today. At least I did not hear or read anything ?about it. Why are some symmetrical dates more talked about than others?

Do special number combinations have any significance on the way affairs are conducted? Like on 07/07/07 so many people married the world over. Why did nothing exceptional happen today?



 One of the funny things about Secretariat was seeing deceased Harvard devl eco prof Hollis Chenery showing his true colors raw and ugly when he thought that there was an offer of 8 for the horse and his share would be x. "I'll sue if you lose it," he immediately told the sister. All family ties went out the window. Apparently in breeding syndication deals, there is a performance clause which is that you don't pay as much if the horse doesn't win the triple.

Amazingly Chenery apparently gave the other owners of the syndication rights a guarantee that Secretariat would only lose one race as a three year old. Or else the price was reduced substantially.

The movie is played out against a backdrop of the decline of the racing business. "It's a minor sport," said Chenery, and it's good to see it back in the news. When we went to Belmont with the specs a few years ago, on a high August day near the Belmoont Stakes there were about 3 people in the entire track, and we got a real bargain on the food since no one was there besides us. At Meadowlands, there's a lonely Ben and Jerries and that's it.

Steve Leslie comments:

It is often said one thing that separates a champion from all the challengers is their heart.

Now there is the physical heart and there is the intangible heart. the heart within the heart.The spiritual heart. The heart that cannot be defined by physical measure. The true spiritual heart cant be quantified by mechanical means, it cant be captured nor conquered. There once was a champion who had the rare blessing of both.

Secretariat was in all likelihood the greatest racehorce of all time. He was sired by the marvelous champion Bold Ruler and foaled March 30th 1970 In a sport that measures margins of victory as "by a nose" or "by a neck" and a "photo finish" Big Red as he was called was so majestic and powerful he won he just didn't win. He vanquished. He crushed. He completely destroyed the field at the 1973 Belmont Stakes winning by 31 lengths and establishing a world record at the mile and a half distance that stands to this day. Although I watched the race on television and it happened 33 years ago, I will NEVER forget the image of Secretariat charging toward the finish line on the backstretch with no horse in sight. And even though the race was never in doubt, there was absolutely no quit in him at all. It was as if he were telling the racing world that I am going to give you a show that you will never see again. You bought a ticket to watch me run and I will not disappoint you. And the ground shook and crowd thundered. They should have created a word to describe the event that day. Secretarian. Even though I grew up in a blue collar town in the rust best of the United States, From that moment on, I became a life long fan of the Sport of Kings. He gave me a story to tell to my children and my children's children that I had the honor to watch the mightiest of the mighty. The greatest of all the greats.

He also set speed records at the Kentucky Derby and the Preakness. The only horse in history to accomplish that herculean feat. He thus became the the first triple crown winner since Citation in 1948. All in all, there have been only 11 horses to have been christened triple crown winners. This requires an entrant to win 3 races in 5 weeks against the most elite field in its sport and across 3 varying distances on three different tracks. A bronze statue of the great horse stands in the paddock area of Belmont Park in Elmont NY forever immortalizing this most unique of equines.

After his unfortunate death in 1989 due to laminitis an incurable hoof disease, he was euthanized on October 4th. He was buried whole at Claiborne Farms in Paris Kentucky. This is such a unique honor befitting the great champion. By tradition, thoroughbreds are buried by parts, their head to symbolize intelligence, their heart to signify strength and their legs to describe power.

An autopsy was performed at the University of Kentucky; by Dr. Thomas Swerczek, the veterinarian who performed the autopsy. To his utter amazement, he found that Secretariat's heart was the largest he had ever seen in a horse—approximately three times the size of a normal horse's heart. Unlike most enlarged hearts, Secretariat's showed absolutely no signs of disease. The heart weighed 21 pounds (9.6 kg); the normal is 7 pounds (3.2 kg). He had a powerplant that was nuclear when all the others were running on diesel.

In 1999 a commemorative stamp was issued by the United States Postal Service to honor the spectacular champion. A fitting honor to one whose likes we may not see for a hundred years or more.

As we approach the Kentucky Derby and the Run for the Roses I wanted to take the time to honor this most amazing turf warrior with a humble tribute befitting him . I can only say that if you ever saw him run My Lord you would never forget it.

An autopsy was performed at the University of Kentucky; by Dr. Thomas Swerczek, the veterinarian who performed the autopsy. To his utter amazement, he found that Secretariat's heart was the largest he had ever seen in a horse—approximately three times the size of a normal horse's hea



 Not being an expert on the current state of accounting principles, the ability to hold stocks like KFT on your balance sheet and not write them down to market value because "you are confident that they will appreciate" would strike one as totally amorphous, spongelike, and grievously misleading if anyone other than the sage were to say it, but in his case would seem like a sanctimonious display of ignorance and epater the bourgeoisie.

Stefan Jovanovich writes:

I am too lazy to do the research, but I suspect the answer is to be found in the reserve accountings required under the various state insurance laws and regulations that Berkshire and its subs have to comply with. Buffett and Charlie (I don't need to show you no stinking compassion) have been playing that flute and harp duo for decades: contingent policy liabilities deductible against present taxes UP, present restricted - i.e. has to be in plain cash with no derivative chasers - reserve contributions DOWN. No wonder they have such instinctive sympathy for the public employee unions and come up with the same policy prescription– namely, the rest of us should pay more taxes. 



This is a delightful quote I found while poking around the New School's History of Economic Thought page.

Every school of thought is like a man who has talked to himself for a hundred years and is delighted with his own mind, however stupid it may be. (J.W. Goethe, 1817, Principles of Natural Science)



Tectonic activity along the Indo-Australian and Eurasian (Sunda/Java Trench portion?) plates may bear watching in light of tsunami and eruptive Merapi phases. Very dangerous volcanoes and faults in this area :

The signs were all there that Merapi was headed towards a new eruptive phase and today at ~6 PM (local time in Indonesia), Merapi erupted. This is a double (possibly triple) whammy for Indonesia that is suffering after a M7.7 earthquake off Sumatra that generated a tsunami as well. The Indonesia government has their work cut out for them as they try to evacuate over 50,000 people from the slopes and nearby region around.



 While horse racing has run into a major headwind, dog racing has floundered and is sinking quickly. The animal rights activists have persuaded the state governments to outlaw dog racing in 36 states. There's only a few tracks left, with a majority in Florida. None of the tracks in Florida are doing well. The handles at my local track are 35% less than they were in 1995, with expenses and taxes going up every year, and declining attendance. The local track tries inducements like $0.50 beer and hot dogs. Because of the law of unintended consequences, the local homeless have discovered the cheap eats and the place has become a de facto soup kitchen. Our dog track has become a dangerous place to hang out, and muggings in the parking lot at night are very common. Pan handling at the track has been elevated to a high art, and petty grifts are an everyday occurrence.

On a personal note, I would be afraid to cash a big ticket and walk out at night, because the crowd is so sketchy. In fact, the crowd at the dog track resembles those desperate souls one finds at the bus station (Greyhound), or the local shelter. But, then again, our local track only has an average attendance of a few hundred which puts a bullseye on your back for those with evil intentions. One tries to find solace at the upstairs club, but since the track offers ways to get free admission, it's no better than standing at the rail. The jury is out as far as the simulcasting during season, but simulcasting does offer the degenerate year round access to the tote boards and action(even after live racing is done). Simulcasting is a very expensive proposition, and the extremely high vig makes it as likely to see a yeti as to win at the track. Recent studies have shown that the simulcasting handle has gone down significantly in the past decade.

The lotto has really hurt the dog track business, as now one doesn't need to go to the dog track to get long odds with high vig….just go to any gas station, 7/11, or Publix to get your fix. Online poker and other internet gambling have also taken a toll on the dogs. Most tracks are fighting back by offering poker rooms and other casino games and/or machines. The aforementioned games seem to all have very high vig, and the vig at the poker room is larcenous. In poker tournaments, the vig sometimes runs in the range of 10-22%….for a poker game. In the small cash hold'em games, the vig runs around 10-12%, making it impossible to beat in the long run if you are not a gambler. A grinder would find it impossible to make it at the poker room upstairs from the track. Somehow, I suspect that dog racing will survive in one form or another, just as jai alai is hanging on by a thread. There might be enough die hard fans to keep it alive and I'd be willing to offer 6:5 that dog racing will survive for another generation….after that, who knows.

Is Florida greyhound racing on the decline? Examiner.Com  



SPY since last week in Aug low:

Friday    Monday

Up            dn (aug)
Up            dn (mon was holiday- tuesday sept 7th treated as first trading day after friday)

Up            Up

Dn            Up
Up            dn
Up            dn (10/1 - 10/4)
Up            Up
Up            Up
Up            Up (10/22 - 10/25)

Fridays have been all up since low (one time only down) and since the QE has been backed up by no fed against QE, its been Fridays and Mondays up giving the market a feel of power. Best monthly September in years and now a full blown pretty darn good October.

This should be a Happy Halloween indeed for all– except Nat gas people, of course. 

Kim Zussman writes:

Another phun phact: Since 1950, if you bought the SP500 index at the
close of any calendar week, you could have bought it for less at the
close of at least one of the following 50 weeks 83% of the time.

(2601 of 3123 weeks were followed by 50 week periods with at least one week which closed lower)

Also encouraging for skeptics who miss asinine rallies.

Rallies are usually characterized by a higher % of up days (rather than just larger gains per up day), so you would expect more up-runs regardless day-of-week.



The Bear is a fantastic film by Jean-Jacques Annaud. Market applications abound!



Novie expires this week. No significant cold weather is showing into most of next month. Storage inventory is likely going to finish at or very close to the levels of last year. We should begin seeing withdrawals right on the normal schedule according to my models. On the long term bullish side I am beginning to notice a slowing in the growth of production. It still is increasing, but at a slower pace. At this point the bulls can hope for a colder than normal winter in the Midwest and Northeast. Exporting LNG might also be helpful… on the LNG front the NBP/HH spreads are showing the gas should stay in Europe this winter. Also at these low [price] levels I'm hearing talk of coal plants in the SE turning off in favor of gas (aka coal-gas switching), which will help boost gas demand.

Just my $0.02… I am a natural gas market analyst in my day job.



In the future, regardless of how foreclosuregate pans out, and in the absence of being able to find a secondary market for the securitization of mortgages, who will want to be in the mortgage making business?

I think it will require at least 50% down in the not-too-distant future.



 Baltasar Gracian (1601-1658) wrote many popular maxims:

33. Know when to put something aside– One of life's great lessons lies in knowing how to refuse, and it is even more important to refuse yourself, both to business and to others…it is worse to busy yourself with the trivial than to do nothing…All excess is a vice, especially in your dealings with others.

51. Know how to choose– Most things in life depend on it. You need good taste and an upright judgment; intelligence and application are not enough…Two talents are involved: choosing and choosing the best.

89. Know yourself-– The key to everything.

104. Have a good sense of what each job requires-– "Far better are the jobs we don't grow bored with, where variety combines with importance and refreshes our taste."

110. Don't wait to be a setting sun. Similar: Quit while you're ahead; don't wear out your welcome

121. Don't make much ado about nothing-– "Few bothersome things are important enough to bother with…Many things that were something are nothing if left alone, and others that were nothing turn into much because we pay attention to them." Similar: Take it easy.

139. Know your unlucky days – "On some days, everything goes badly; on others, well, and with less effort…Take advantage of such days, and don't waste a moment of them."

140. Go straight to the good in everything. Similar: Think positive; be optimistic. Thoughts: Everything has a "good" and "bad" side. Focusing on the negative just makes it harder to get anything done.

176. Either know, or listen to someone who does. [M]any people are unaware that they do not know, and others think they know when they do not. Attacks of foolishness have no remedy…Asking advice won't diminish your greatness or cast doubt on your talent.

198. Know how to transplant yourself. "Everything foreign is held in esteem, whether it came from afar, or because people see it only after it is well formed and has reached perfection." Thoughts: In nature, seedlings cannot grow tall in the shadows of their parent. Sometimes you have to move away in order to spread your wings and fly. Part of it involves opportunities for personal growth, but the other part is acknowledgement, which Gracián discusses above.

200. Have something to hope for – "If all were possession, all would be disappointment and discontent. Even the understanding needs something else to learn, something curiosity can feed on." Thoughts: Always set new goals after achieving old ones. Nothing is more dangerous than boredom; think of how many successful people proceeded to ruin their lives because they "didn't know what else to do."

229. Parcel out your life wisely – Gracián's suggestion: "What makes life pleasant is a variety of learning. For a beautiful life, spend the first act in conversation with the dead (books)…Spend the second act with the living: behold all that is good in the world…The third act belongs entirely to you.

"The 1892 book of his maxims has a full view in Google.



 "Liberals come in three varieties: evil, stupid, naive?"–Bill O'Reilly

The statement is factual IF one believes contemporary "liberalism", as defined by the American mainstream, is merely the gauzy smiling mask hiding those who yearn to be the next Stalin.

Axelrod, Rahm, & the dr0me, arguably fit in the first bucket.

Those who do not know what comes after "social democracy", to wit, socialism (where all political conversations end at the point of a gun) and finally communism (where all political conversations start at the point of gun), go into the third bucket.
The second bucket is populated by those who who've been shown the historical arcs of the 1930s and believe their would-be masters are intrinsically benevolent and that the examples of the past are not relevant. "It's different with us. We're good guys, really."

Jeff Sasmor writes:

It's interesting that most liberals also think the same thing about conservatives: evil, stupid, and/or naive. If this is true on both sides then are there any altruistic, bright, and informed (?) persons at all?

And what happens to R's if they go against R orthodoxy? They're RINOs, correct?

Exactly what's the difference (aside from each side believing they're right). It's a remarkable situation…

Is it possible for disagreement without contempt?

To be clear, I think what NPR did to Williams was wrong.



 I've been thinking lately about some of the skills that have to be learned in order to work effectively as an air traffic controller and how they might translate into effective trading.

One of the toughest things to pick up seems subtle at first but must become second nature in order to ensure success. In order to illustrate this I'm going to ask you to imagine two aircraft. Aircraft A is traveling east along the top your computer screen, aircraft B is traveling northbound along the right edge. Our goal is to keep these two aircraft separated by at least 5 miles. The routes of these two aircraft will intersect at the upper right corner and we will name this location ZZZ. All things being equal, if both aircraft are the same type and traveling at the same speed over the ground and there is no wind, if they begin equidistant from ZZZ, they should arrive at the same time. Upon first glance, the two aircraft and the intersection form an equilateral triangle so one might assume, prior to ingesting the speed data, that they will be in conflict with each other at ZZZ. Now lets assume that aircraft A is a jet moving over the ground at 480 knots and aircraft B is a prop moving at 300 knots and they are both 25 nautical miles (nm) from ZZZ. After three minutes, Aircraft A will have traveled (8 nm/min * 3 min) = 24nm and will be 1 nm from ZZZ. At the same time, aircraft B will have traveled (5 nm/min * 3) = 15 and will be 10 nm from ZZZ. After 4 minutes, A will be 7 nm east of ZZZ and B will still be 5nm south. So they will not conflict with each other.

The point I'm trying to make is that at first glance, these two warranted some attention and some thought. In our lingo we would say that they looked "a little tight", but after a quick calculation, we can project into the future and see that they will not be close at all at the crossing point. Now add a 120 knot headwind to aircraft A and see what happens, now it is no longer perfectly clear that they will be clear of each other or "clean" in ATC jargon. Or perhaps make the wind out of the south southeast, accelerating Aircraft B and slowing Aircraft A. Or add some turbulence and now Aircraft A advises that he will be slowing down to dampen its effects. Or add a thunderstorm at ZZZ and try to guess what the two aircraft will do to avoid it.

So this idea of projection, of a vision into the future is critical. We cannot simply look at where things are, but where they *will be. *And then, we have to constantly monitor and check if conditions are changing and make adjustments as necessary. Our projections must be based on sound and rational expectations. I KNOW that if there are thunderstorms about, then there will be turbulence and I cannot expect any aircraft to maintain normal cruise speeds, I have to be able to adjust for that in my assumptions * before* it happens. My assumptions must take into account current conditions and projected conditions. Every assumption I make must be verified repeatedly to ensure that my vision of the near future is correlated with reality. If not I have to find out why and pronto. So being able to see accurately into the future requires some very thorough knowledge of aircraft characteristics, ie. rates of climb, speed in the climb and speed in cruise (sometimes radically different), knowledge of the airspace and procedures, current winds at various altitudes, weather, amount of traffic, and anything out of the ordinary. In the above sentence you can substitute any number of market phenomena and you come up with a similar picture. Granted, markets have many more random factors, but the idea seems to translate well.

The thing about a situation like this is that it is not immediately obvious what will happen. You have to do some calculating, some thinking in order to come up with an accurate projection. Situations may appear obvious at first but upon reflection may turn out to be entirely counter-intuitive. One thing about projecting is that it takes time for things to develop, you have to allow that time to pass in your mind to project and then allow it to pass in reality to check the validity of your projections.

It takes some exposure and experience to have confidence in your projections, to know the difference between what *might* work and what *will* work. And then to truly recognize what is working and what isn't. One of the things we try to teach people is, if a situation needs fixing, the most important thing is to do something, ANYTHING, right away. To make a decision, a choice, even if it is not the best choice, just make it and act on it quickly. Then let that guide you toward your next step. If the first choice was catastrophically wrong you will know soon enough and then you can use that information to change your plan. Continued exposure and experience will teach you how to make correct decisions more and more frequently. You begin to learn what doesn't work much more quickly than what does and tend to avoid those types of decisions. People who don't learn don't last.

A big key in the above is learning to be flexible. To not be so committed to a plan that you can't change it. You have to be able to allow yourself to be wrong or you won't be able to recognize the fact when it happens. When you learn to cut and run from your mistakes you find freedom in your ability to adapt. This tends to conflict with ego. Ego gets in the way, the truly great players have conquered their egos or at least don't let them interfere with getting things done.

High performance in any field also involves a willingness to try things, to tinker. And an ability to accept sage advice while picking and choosing the bits that fit your own style and discarding the rest. Unless you are truly capable of making anothers way of thinking yours, you will have to come up with your very own. Otherwise you will have no confidence in your decisions and when push comes to shove you will get steamrolled. Finally, you have to be willing to push. To go the extra distance, to surpass yourself. Again, if your ego is too big, there is no reason to do this. Lose the ego and the barriers that it creates vanish. Easier said than done of course. 

Chris Tucker adds:

Something important that I forgot to discuss: What happens when your expectations are violated? Here is an example from air traffic control.

Controller A tells the leading a/c (aircraft) to maintain 290 knots or greater and the following a/c to not exceed 290 knots. He does some other stuff, gets back to these two, sees that his plan is working (that is that the following aircraft is not gaining on the lead, which can happen, even when speeds are assigned, especially if the following a/c climbs faster as ground speed will increase with altitude at the same indicated air speed), then he notices that the lead a/c has crossing traffic at FL230 (Flight Level 230 is 23,000' more or less, another story) and asks the lead a/c to expedite his climb through FL240. Controller A then observes the lead a/c leaving FL240 and is no longer traffic for the guy crossing at FL230 so he issues a frequency change to controller B, who sees the assigned airspeeds in the data block and assumes everything is hunky dory. And rightly so, controllers must trust one another in order for the system to work. Then, as a few minutes go by, controller B looks again and sees that the following a/c has a 100 knot (groundspeed) overtake on the lead and is about to lose separation (5 miles is the minimum at this altitude). Controller B thinks "what the heck?" and asks the lead a/c his indicated airspeed and the pilot responds with "220 knots and accelerating".

Why is that? Well, controller A made a mistake but it is a subtle one, but one that all controllers should understand. When he asked the lead a/c to expedite its climb, he was asking for something that this particular a/c could not do while maintaining the assigned speed. So the pilot bled off airspeed and traded it for altitude, then when he left the required altitude he began accelerating again. In the pilots mind, the new instruction to expedite the climb superseded the instruction to maintain forward speed so he did that first and then went back to trying to go fast, which is difficult for this type a/c to begin with. The pilot sort of/kind of made a mistake by not informing the controller that the vertical maneuver would kill his airspeed, however I contend that controller A should have expected this. Controller B made a mistake by asking questions first and fixing it second. When we recognize an imminent situation we are taught to shoot first and ask questions later. The query ate up valuable time that could have been used to tear these two apart (not to worry, they did not get dangerously close).

A significant point is that it took time for the overtake to show up in the data. It takes five sweeps of the radar (one minute in most cases) for the tracking software to get an accurate bead on speeds, so the overtake was in place and the gap was closing before the data even presented itself. So when the speed is changing, the data will always lag by about a minute. This is why we have to understand not only how we should expect aircraft to perform, but also the limitations inherent in our systems. Its an important point, one that is not obvious and one that takes a while to sink in. So when your expectations are violated there is important information there that has to be sorted out and sometimes acted upon with alacrity.



 With respect to Anatoly's post about a biased CFTC judge, one should note that almost all brokerage contracts that I have signed including my cash bond agreements call for arbitration at the NYSE. These judges, all of whose average age is 95, are selected by the NYSE based on how often they rule in favor of the Broker, I believe. I had a terrible experience in my arbitration case against them where I served as my own council and then I realized the poignancy of the defendant's warning to me when he urged me to settle: "remember, the NYSE itself is going to arbitrate this." A typical moment at the trial came when I noticed the defendant holding a rolled up wad of paper in my adversaries pocket when I questioned him. I asked the judges to kindly let me and the court see those papers as I suspected it had all the answers that the defendant was supposed to give to my questions as he testified. They refused saying, "we all know that defendants are prepped before testifying.

One of the greatest mistakes I made in business among hundreds of others was not to settle cases before I sued the defendant in my early days. Time and time again I turned down offers of 70% and even once 95% of my claim, only to spend more on legal fees and in some cases ending up receiving nothing at all as the final decision. Regrettably when I started in business I felt that it was mandatory for all parties to be honest and that it was wrongful rather than normal to be chiseled out of a fee or some such. My training in athletics, where I learned after 4 years never to appeal a referees decision, and from Artie where he taught me always to take the judge out for Chinese food, should have been paramount.

In my favor, I must say that I won many a squash match by not dissipating my energy arguing with the referee while my opponent fumed. I still have not learned that lesson as well as I should have in the law courts of life.

Anatoly Veltman shared:

CFTC judge claims colleague issued biased rulings


Published 10/14/2010

Futures Magazine

Commodity Futures Trading Commission (CFTC) Administrative Law Judge George H. Painter made serious allegations regarding fellow CFTC judge Bruce Levine in announcing his retirement.

In a notice sent to complainants and their attorneys, Judge Painter claims that Levine told him that he had promised former CFTC Chair Wendy Gramm "that he would never rule in a complainants favor". Painter's notice goes on to say, "A review of his rulings will confirm that he has fulfilled his vow."

In the notice Painter recommends the CFTC request the services of an administrative law judge to be detailed to the Commission from another regulatory agency to handle the remain cases on his docket. Painter writes, "If I simply announced my intention to retire, the seven reparation cases on my docket would be reassigned to the only other administrative law judge at the Commission, Judge Levine. This I could not do in good conscience."

The judge also attached a December 2000 Wall Street Journal story by Michael Schroeder titled, "If you got a beef with a futures broker, This Judge Isn't for You—In Eight Years at the CFTC, Levine Has Never Ruled In Favor of an Investor" that details Levine's penchant for favoring brokers over investors seeking reparations.

An attorney who handles futures litigation says that the notice "will freeze [the seven cases currently in Painter's docket] for a considerable amount of time.



 My ten year old (just turned) just finished six weeks of beginning fencing (15 hours or so total of lessons). I am told he is aggressive and unrelenting, unafraid to be hit. I was waiting to pick him up the second to last lesson and the lesson ran a full 30 minutes longer since the teacher had brought about twenty different weapons (repros mainly) and they were passed from student to student with a short description of the time period, what region of the world, etc. The most interesting item was a "sword breaker" a short sword type weapon with strong hilt and hand guard, one edge being sharp and the other edge having grooves or channels cut into it every 1/4 inch. The idea was that you could use this and catch your oponants blade in the channel or notch and quickly snap your wrist and thus break your opponents blade.

Coincidentally at this age, my son is also newly interested in chess– I tried teaching him years ago and even bought him a small computer from the USCF. All of a sudden he is into chess and he plays on the bus and has a chess friend at fencing– they played during the break at class. The teacher was also into chess and was supportive. My son was watching the 80s movie "war games" — shall we play a game of chess??? And all of a sudden he dug out the chess computer and he is into it!


–just because you introduce something and the interest isn't there at first, let things proceed naturally. (chess)

–back up your fencing class with books on fencing (I had my old college book and passed it to my son). I also told his teacher in front of him that he was reading a fencing book which got the teacher excited and my son "committed" to a degree. Tell the instructor about you child's level of interest.

–From insisting on him reading the fencing book he was more ahead of the other students and relating to the teacher more than the rest.

–reinforce how brain work and body work compliment each other.

–reinforce how fencing exercises and footwork should translate into basketball balance and footwork this winter for league play.

–reinforce the idea of being educated in many different ways. fencing and chess have style rules/customs etc.

–Play up the good vibes with mentioning how good it is that he has been introduced to an olympic sport and to a royal game.

And of course never ask your son how he liked "sword-play". "Dad, a fencer would never call his foil a "sword"–get with it".



Much of what medical researchers conclude in their studies is misleading, exaggerated, or flat-out wrong. So why are doctors– to a striking extent– still drawing upon misinformation in their everyday practice? Dr. John Ioannidis has spent his career challenging his peers by exposing their bad science.

From the article "Lies, Damned Lies, and Medical Science" in the Atlantic.

Craig Mee writes:

Thanks Bill, outstanding read. Everyone should read that including the whole family. It does most reality tv shows and glossy mags out of a job….that's how enjoyable it is. Test and retest, especially the original basic findings seems to be one of the main messages (which dailyspec emphasises often)…and everyone has got their own agenda mixed up in everything all the time.

Replacing quants and traders for reasearchers and physicians in this passage brings some interesting thoughts, and for the passage: "there's simply too much complexity in patient treatment", think individual markets.

"Researchers and physicians often don't understand each other; they speak different languages," he says. Knowing that some of his researchers are spending more than half their time seeing patients makes him feel the team is better positioned to bridge that gap; their experience informs the team's research with firsthand knowledge, and helps the team shape its papers in a way more likely to hit home with physicians. It's not that he envisions doctors making all their decisions based solely on solid evidence—there's simply too much complexity in patient treatment to pin down every situation with a great study. "Doctors need to rely on instinct and judgment to make choices," he says. "But these choices should be as informed as possible by the evidence. And if the evidence isn't good, doctors should know that, too. And so should patients." 

Victor Niederhoffer comments:  

I have always said that aside from the licensing of Drs. , the insistence on double blind studies needed for approval is one of the greatest reducers of life expectancy, and of course, maintainers of anti competitiveness, and of course, improper use of statistics in the real world aside from our own field.



 Jeff Watson just put up a great story about rogue trader Darryl Zimmerman on his blog.

Reminds me of my own little rogue trading episode when for a brief time I was a stockbroker in the early 80s. It had to do with options, and a margin calculation error in the firms computer system that I had stumbled on. But I didn't purposely set out to exploit it. It's just that when my position went under water (undetected), I used it to try to buy time and trade out of the hole. But of course it only made things worse. I would bet you that is how 90% of rogue traders start out– innocently and just unlucky. They get under water, mistakenly try to dig out by taking on more risk, but never make it and instead get sucked into a vortex that spirals totally out of control. (I would also bet there are a lot of rogue traders that do managed to dig out and no-one is the wiser.) I was down about $50K or so at the worst point. Pretty scary for a young guy on a $5000 monthly draw barely making his commission nut (it was the bear market of 82).

I managed to battle back and cut the loss in half, but at that point the firm detected the error. I had already given my notice, having decided to leave the business, so I didn't even actually get fired. (I didn't get invited to stay either.) The firm pointed out to me the error in the margin-calculations, but never asked me directly if I knew about it, and didn't even grill me in the way that I had expected (I was scared shitless going into that meeting I'll tell you). They also settled immediately for only about a quarter of the value I owed them (their offer). I dawned on me that it was much cleaner for them that this little software problem just be quietly fixed than get into messy investigations, fines, and the loss of credibility. In that sense I probably actually them a favour in a way. My strategy was certainly not mainstream (I think it was something stupid like selling deep in the money stock options and using the premiums to buy bonds at 12-14% interest rates), but it inadvertently uncovered the bug. Some option trader with real money could have blind-sided them pretty hard at some point.

So what does it feels like to think you have lost everything (and more). Some time shortly after, I was driving up to nearby Edelweiss Valley to go night-skiing, and on the way the dam just burst. I bawled my eyes out for about 20 minutes. And then suddenly this tremendous feeling of peace and calm overwhelmed me. It was an indescribably liberating experience - of having hit bottom, of having nothing left to lose, and having nowhere to go but up. To know that whatever you did next, by definition would better than what you were doing now. I had a great ski that night, and not long after was on a whole new career path– in satellite communications.

It's a strong reminder to me today, that if you're utterly miserable and struggling to hang on to something or to keep some situation together, if you just cut yourself loose and let it all go– all of it– there is some kind of beautiful, magical, power in that. There is nothing like a truly fresh start– pure, unadulterated, unblemished possibility.

BTW none of my clients money was involved. This was all in my personal options account. (As a broker, I was always much more interested in trading than selling anyway- I was not a great broker from the firm's perspective, even before the flame-out.)



Geithner is learning about trying to negotiate without leverage. Either that or doing some creative role-playing.

Gordon Haave writes:

The whole concept of the "competitive devaluation" is a farce. No country has ever gone broke because it's currency was strong. A competitive devaluation is the equivalent of burning down your own house so that now you are so desperate for work you will work for less than anyone else. 

Gary Rogan adds:

I am no expert on the history of monetary standards and I'm not interested in or prepared to advocate the gold standard, but I have seen and read enough to claim that a system that severely limits the variability in the quantity of money in circulation by some decentralized feedback mechanism would work better than a few voting members of the FOMC being able to decide to target higher inflation, buy trillions of whatever securities strike their fancy, and just in general behave like a bull in a china shop while citing questionable economic theories and their discredited judgment as justification.

And are they politically motivated? I can't read their minds, but all indications are that they owe allegiance to whomever happens to be President at the moment. Overall I consider them an un-democratic (small d) and anti-democratic institution and one in the long list of poster children of how bad centralized control of anything economic really is.



I was told that if a stock or security dropped below 5 dollars then that would trigger selling from margin account holders. The holders supposedly cannot hold low priced stocks in a margin account and would be forced to liquidate. That forced selling would keep the stock under pressure once it crossed 5. Is that phenomena still a force in today's market? Seeing UNG at 5 and change brings pause under this scenario if true. Or is this a dino?



Interesting clustering of closes in SP last 7 days 6 of the within 2 of 1175.5 .

Jay Pasch comments:

The sine wave immediately comes to mind. as she continues to cloak her direction there was one event registered yesterday on the nasdaq composite, the golden-cross thing, that could provide a directional clue; when nasdaq's 50sma crosses above its 200sma with the index trading in the upper one-third of its 52wk range, the index is up 16-for-16 with an average gain of 3.2% about 11 days after the cross. 



 I saw Secretariat on the recommendation of the list and had a few comments. A Very direct, 4 square film. Plain vanilla.

To try to get good critical reviews, they didn't use the usual device of turning the radio on to anti republican stuff, or selfish sounding things about people who don't believe the purpose of life is suffering, but they signaled their liberal credentials by having the girls doing anti war stuff throughout, and putting down the father for being a establishment type.

The Mrs. Tweedy, the daughter that inherited the farm, was a very poor loser. After winning 6 races in a row, she was ready to fire the trainer and Turcotte, the jockey, after one third place finish. Only when she found out it was an abcess did she let the trainer off the hook. Sort of like the trading manager or customer who gets angry the first losing month.

The race at the Belmont Stakes where Secretariat wins by 30 lengths was amazing in that he reversed his usual form and went out for the lead instead of staying in back. Sort of like the market that likes to go up at the end of day after being down throughout, then changes tempo the next day, and opens unchanged, and then going up and up and up further each hour of the day. To the amazement of the other side. Racing jockeys is a very tough game as Turcotte suffered a spinal injury and now is in a wheelchair because of his driving to win style, and presumaby the resentment of his fellow jockeys.

It's good to see a woman, Mrs. Tweedy, running a business successfully, but her decisions seemed based on emotion rather than horse sense. Someone helped her with the idea of syndication at a high price which was very good. The husband was a jerk and a petty hanger on, as befits a ivy professor living in the shadow of his wife. He was ready to leave her when he thought she might risk some of his stake. Amazing if they stayed married.



 While I am no critic of classical music, I do know when I am in the presence of greatness. Tonight my wife and I had the pleasure of hearing a performance by the Emerson String Quartet. As they performed a new composition commissioned by them by Lawrence Dillon, String Quartet No. 5: Through the Night (2009), with its wistful and ethereal passages, I wandered off in thought of markets and how themes can travel back and forth between instruments, sometimes juxtaposed, sometimes counterpoint, sometimes feeding off each other into rising tension, sometimes coalescing together into a single powerful movement or crescendo and capitulation. These thoughts continued as the quartet was joined by pianist Gilbert Kalish in a simply amazing performance of Brahms Quintet in F minor for piano and strings, Op. 34. After meeting chair I don't think I can listen to classical music without contemplating markets. An enjoyable rendering of the finale performed by Arthur Rubinstein and the Guarneri Quartet is here on youtube. 



I have been intrigued by recent discussions of ETFs by List members, in particular the UNG and UNL ETFs. Not long before this discussion, there was a discussion indicating that UNG got gamed every time that it needed to roll over the futures that provided the underlying asset for the ETF. Finally, there was a mention by Rocky that UNG had lost 78% of its value since inception while the nominal underlying asset had lost 37%.

Is the relatively greater loss in the value of the ETF a product of this gaming? If not, what alternative theories have been posed?

Other ETFs dealing in commodity futures where there are expenses associated with taking delivery would seem to also be subject to similar manipulation. Have the values of these ETFs experienced similar erosion? Isn't any such commodity ETF bound to erode away given enough time?

Finally, it seemed that today most ETFs were down significantly more than their underlying components. Did any news come out that would appear to be distinctly unfriendly to ETFs in general?

Gary Rogan writes:

This ubiquitous article explains enough about the storage costs and their effect on performance. I came across an additional explanation that the predictable patterns of buying and selling on certain days depress/inflate the prices enough in the wrong direction for the holder to matter as well.

Phil McDonnell comments:

I think it is useful to separate the concepts of 'gamed' and 'carry cost due to contango'. Having contango in the related futures market induces a roll cost every time the fund rolls forward into a new month. That would seem to be an unavoidable structural flaw in many of these funds that will eventually lead to their demise. But the gaming aspect is somewhat different. Specifically I mean that gaming is due to the actions of other market participants who front run the roll periods making it more expensive for the fund to perform its roll operations. That activity simply adds to the roll costs that already exist from contango. 

Michael Cohn asks:

Should I be thinking any differently about the deferred option contracts on these products such as VXX (Barclays Volatility Futures ETF or for that matter the UNG discussed here? How do I think about the changing nature of the basket with respect to these term options that are outside of the existing futures basket for the current composition of the ETF and at their own delivery subject to a new basket? I am convincing myself that I need to learn about basket options influenced by the passage of time.  

Rocky Humbert comments:

The VXX currently has some similar roll phenomenons — however, because it is not a physical commodity, it is not bounded by the same physical supply/demand characteristics of things like natgas, crude, wheat, etc. Rather, volatility is a second-order derivative with no physical delivery — and so the roll can swing wildly and remain in a positive carry condition for very extended periods of time. For example, during the 2008/2009 period, VXX experienced the exact opposite condition — and the rolls were very profitable (because short-term volatility was higher than long-term volatillity expectations).

I want to be clear on an important point: If a speculator is bullish on natgas and believes that prices will rise sharply (in a relatively short time frame), then the UNG is a perfectly reasonable vehicle to express this bet. Natgas periodically doubles and triples in a short period of time. However, if you want a long-term exposure to the nat gas market, then this is a horrible vehicle.

Similarly, having a longterm short of the VXX to pick up the rolls is somewhat analagous to selling far out of the money puts on the S&P. You'll make money most of the time. But you will also occasionally wake up and have a dismal mark-to-market and perhaps give back more than you've ever made. Some may argue that this risk can be managed — but that's as much art as science.



 I'm sure we'll never agree on who was the best but I ask you not to forget Minnie Minoso. He had some great stats although he never had an opportunity to play in the "bigs" until he was 28. (And continued on until he was 65.)

What made Minnie stand out was his determination to get on base. If the White Sox really needed a runner or Minnie was in a slump, Minnie had the sure-fire way to get on base.

He just stuck his head over home plate and took one in the ear, got up, and jogged to first (and frequently stole second). Led the league in this category 10 times, Never saw that in the Yankee Clipper, the Man, the Mick, or the Splendid Splinter.

Stefan Jovanovich writes:

Yogi Berra - Minnie Minoso story: Whitey Ford was starting for the Yankees and they were playing the White Sox when they had their great 1950s team. Ford throws the first pitch - a fastball - and Luis Aparicio lines a single to center. Nellie Fox comes up and Ford and Yogi decide to switch to the curve ball; Fox hits if off the right field wall for a double, Aparacio scores. Minnie Minoso is next; and they decide to go soft ball. Minoso hits the change-up into the left field bleachers. 3-0 White Sox. Casey Stengel decides to invite Yogi to join him in making a visit to the mound. "How we doing, boys?" he asks Ford and his catcher. "Well, Skip," says Yogi, "Whitey's mixing up his pitches." "Yes," says Stengel, "but how is he doing?" Yogi answered: "I can't really say. I haven't caught any yet."

Jeff Watson comments:

Not wishing to diss the Mick who's easily in my top ten, but my favorite person in baseball of all time would have to be Ty Cobb. Not only was he was a great rough and tumble, aggressive ballplayer, he was a sagacious trader who died rich off of his investments. Cobb had a "need to win," part of his make-up that came straight from his gut– it's too bad that he had more than a few character flaws. But then again, one could make an argument that his flaws were a sign of the time….apologists make that argument for Jefferson all the time. 

Tim Melvin writes:

My favorite Cobb story from wikipedia:

Cobb's competitive fires continued to burn after retirement. In 1941, Cobb faced Babe Ruth in a series of charity golf matches at courses outside New York, Boston and Detroit. (Cobb won.) At the 1947 Old Timers Game in Yankee Stadium, Cobb warned catcher Benny Bengough to move back, claiming he was rusty and hadn't swung a bat in almost 20 years. Bengough stepped back, to avoid being struck by Cobb's backswing. Having repositioned the catcher, Cobb cannily laid down a perfect bunt in front of the plate, and easily beat the throw from a surprised Bengough.

Sam Marx writes:

It is usually agreed that Ted Williams was a better hitter than Joe DiMaggio, but what quality is it that allows a lesser hitter, like DiMaggio, to have hitting a streak of 56 games whereas no other hitter ever came close. I believe DiMaggio also had other long streaks of hitting in games including when he was in the minors. 



 Having lived two blocks from where PENTHOUSE used to be domiciled, I am probably the only one on this Spec List who met and–mirabile dictu!–actually worked for the man.

It was a funny job, with the lingua franca the stuff of which most homes wash their children's mouths out with industrial-strength soap. I was re-writing and editing what can probably best be described as …literary schmutz. I enjoyed the work, though: Not only did it pay better than the other magazines I had written and edited for, but the office was less than 5 minutes' walk, and the people wafting through were often the meat and potatoes of the gossip tabloids and the supermarket fantasies of the male half of the population. When they moved elsewhere, I was less interested in moving with them.

The stylebook all editors work around, at every mass circular and mag, used words and phrases that would make most seminarians blush (and why did that word pop into mind, rather than the simpler teacher), but we had to be mindful of phrases that upset the Canadians, or Brits, making the magazine unsalable in Toronto or Manchester. Similarly, I had to watch terms that were too graphic, even for us. Words alone, but combined in fetishistic conjunction, became verboten. It was amusing to slide the judgment yea to this cornucopoeia of heat, nay to that. Or launder to suit: I was for a time the washerwoman of choice.

The office was a human zoo. Giraffe-like women with impossible figures and imaginary clothing that almost covered them. Famed bucks, writers and inventors and marmoset entrepreneurs passed the office as I looked up from my shvitzy drudgery in 4-letter coin. Small and expensive inner-office soirées to which I was hardly invited, and did not go, as I knew I less wanted in than did the male staffers who hankered (drooled comes to mind) for entrée.

Robert Charles Joseph Edward Sabatini ["Bob"] Guccione—17 December 1930 to 20 October 2010– founder/publisher of the adult magazine Penthouse, which went a step or two beyond safer, more hygienic pioneer, Playboy.

Guccione struck me as perfect for the place, and perfect for the 'job' he did–spending lavishly and often to get noticed in the columns, earn printing ink and news stand sales. He was not exactly buttoned down, but he tried to present in as Ivy a mimicry as he could manage, considering that deep oiled tan, and that voice, and those eyes.

At the time, I was struck by how amazingly subdued the place was, aside from all the glory gadabouts drifting through the halls. I used to joke with the then-live-in beau, "The sexiest thing you hear around the office is 'Want to meet for coffee before we catch the 5:35?'" Because inside the Penthouse offices was pretty much 95% … business. Magazines are about getting the next issue out: catastrophes, personal crises and subterranean faults aside. Even the drip, drip of the hotbed content mattered less than the civilities of interacting with co-workers in maximal efficiency. Sigh.

The Letters were my particular forte. Though they supposedly came in from real men, somewhere in flyover-yearning country, in truth, they seemed to be scrawled by someone in a nearby hutch, someone with a nicely honed, hyperactive imagination. I would tweak them. Add a little pet nickname here or there, clean up the grammar if not the bloated claims, zestify the naughty bits to get to the 'point' quicker.

In my darkened hovel of heightened humors, I vastly enjoyed the chance to get paid for working on this [bottom-sludge] with so many highlights and -low.

Of course, occasionally, I would edit the fine interview, or the long and flamboyantly cerebral piece on deep space or the interior workings of engineering marvels. These were a delight and a great change of pace, lagniappe, and repaid my work on the 'liquid pieces' fivefold–both instructing and correcting my—um–skewed recent view of the world according to Guccione.

When I wrote an Asian cookbook, working for a serious publisher up in Cambridge, I used to run home and blam open the door with "Let's go eat! Chinese!" And he responded with amiable accord.

Now, working for Bob G, dealing all day with mostly salivary and licentious images, the tautened fervors scribbled by lads barely old enough to shave, to the aged who barely had to shave any longer, I ran home with something else in mind when after a long day’s labor I opened the door.



 Frank Norris, author of The Pit, wrote this short story in the early 1900s. It's critical of the grain trade as it paints the farmers and consumers as victims. Still, the story is a very quick and easy read. Also attached to this link are some other great stories of the old and new west.

Many valuable trading lessons here.

George Zachar writes:

The Pit is a true classic. It's one of my favorite books of any genre. I can see my copy from where where I'm sitting now. 



 A recent study shows that Asians need about 50 points higher on the SAT to get into college than White students and 100 more than Black students. It is well known that Asians have a higher IQ by 5 points than Westerners. This is tested in numerous academic papers. Also, well known is that the more intelligent the CEO, the better the performance of his company or hedge fund. One hypothesizes therefore that the companies whose CEO's are Asian will show superior performance to those headed by your average non-Asian Harvard Business School Graduate, (although if they haven't taken the mandatory ethics course there, they are more likely to be caught in flexionic pursuits that the elite schools are so good at whitewashing). What is the support for all these statements? and: How could they be tested?

One knows that this is the most rancorous subject under the sun, and I have lost many friends when I was foolish enough to discuss this in the past, and point them to the incontrovertible evidence about individual differences from a Galtonesque perspective, but let us please try to keep it civil, and stick to the scientific literature (none of this armchair stuff about this or that study being culturally biased as the more culture free the tests, the greater the differences) and no anecdotes, but predictions and tests and references.

Alex Castaldo adds:

Since the Chair does not give footnotes, it is not easy to find the sources for his information.

I believe the "50 point study" may be the one mentioned by Steve Sailer's blog.

An IQ figure of "6 points higher" is given in the Rushton Jensen review paper.

Russ Sears comments:

I have doubts to the usefulness of CEO's IQ test as over-performance of a companies stock. It is not that CEO's do not need to be smart, it is simply that there are enough smart people around and business is tough enough that those that made it have been culled out and vetted pretty completely. Show me the numbers, I am a skeptic.

Further, while creativity to overcoming obstacles in ones life may suggest carry-over into a CEO's performance. I doubt that overcoming one political rigid standard of race by offsetting another no doubt equally rigid political standard for entry into elite colleges would translate into the creativity needed for a successful business. Rather it signals the willingness to conform for acceptance. You mention Asian, but how many of the Asian's admitted for instance are women, versus men? Any stock study of CEO IQ education and minority must consider that education by minority race in the USA is widely distorted by the politically preferred sex of a student. May I suggest that one takes the list of Jewish Noble winners find how many come from the ivy league schools and compare this percentage to the non-Jews. Yes, the ivy league alumnus have a smaller world than most. But may I suggest those with the creativity to overcome this lack of sheepskin, are those that would out perform.

Here are some reasons why I believe IQ can be a handicap to a CEO…

1. Those great at answering questions that others already have the answers, a test situation, often find it uncomfortable and difficult to switch to asking questions that the answers are not known. The ability to ask questions that others did not is a key to make a difference.
2. Necessity is the mother of invention and desperation is the mother of risks taking. A well paying job, is often the road-block to starting a business. Probable failure is hard to choose when you have almost certain path to mild success. Yet it is the probable failures that succeed that skyrockets company. And vise-a-visa its the probable successful businesses that are blind-sided by innovation.
3. Like Reagan, often the most brilliant performers as a team are those that want to work with the smartest minds, they do not have to be the smartest guy in the room. The successful CEO does not have to ask the right question, he simply has to ask the right person to ask the right question.
4. High IQ people perform best with less stress, they can choke more in stress, does the Peter Principle apply to them under stress?

There are a couple thoughts that come to mind that could be tested.

1. New Research has shown that the brain does develop new cells, These baby brain cells are produced by cardiovascular exercise. Further, test after test suggest that cardio improves your creativity. Do CEO's that exercises out perform? There was a study of CEO gulf handicaps, is there a similar study of say 5k times? Are there other test of creativity, say CEO's that are talented pianist, CEO's that are writers do they out perform? Do CEO rising from the operational side ( engineers, IT etc) outperform those that come from the marketing side?

2. A few years ago it was suggested that many CEO's are dyslexic, Could a twice exceptional CEO (high IQ but learning disability) out or under perform?

There are a couple thoughts that come to mind that could be tested.

Victor Niederhoffer adds:

For those interested in a factual, scientific discussion of environment versus innate influences, rather than armchair speculations so grievously present in our environment, and so dysfunctional to proper thinking about markets if similarly believed or proposed, I would recommend this article and the references cited thereto.

Also note the same kind of commentary there relating to making all individual differences consistent with the idea that has the world in its grip, and the purpose of life being self sacrifice.



 One wonders if by considering the distances and weight of one market from another one would create a gravitational attraction possibly related to square of distance. Would this be even better way to explain recent market moves than twitter? So many markets are up that they pull stocks with it. Every day the crude and the gold and the grains and the metals exert their gravitational attraction on stocks and it's hard for stocks to go down when gravity of everything else is pulling them up?

Ken Drees comments:

Attraction theory may also pull monies from undervalued sectors-like nat gas for example– keeping these sectors starving for investment.

Anatoly Veltman writes:

My take is the former recent relationship has been more a product of U.S. dollar's daily devaluation. Thus the commodity part of it was only a further derivative.

Phil McDonnell writes:

Imagine we are on an island with only two things to trade stocks and gold. Naturally we use sea shells for money. At any given time there is only so much money M. So the total price of stock and gold is proportional to that. In fact we can visualize the possible prices as a circle with radius M and the X and Y axis are the prices of gold and stock respectively. The locus of possible points they can lie on is given by:

M^2 = G^2 + s^2

where I have changed the x and y to g for gold and s for stock.

Since M^2 is a constant at any given time we can just call it c and then we have.

s^2 = c - g^2

showing the relationship. This is all very pretty theory but does it stand up empirically?

The coincident correlation base on daily percent changes between gld and spy for the last 105 days was about 1%, so not much linear going on. but when we look at the relationship between spy^2 and gld^2 we get a 42% correlation consistent with the formula above. When we rewrite the formula for m and not m^2 we get:

m = ( g^2 + s^2 ) ^ .5

which is just the distance formula from high school.

Thought question: What happens when the Fed adds Q to M during QE 2?

Sushil Kedia writes:

The House Money effect works the same way. There is more valuable collateral, there is a larger amount of mental wealth, there is a larger appetite for risk. Akin to the rabbit coming out of an empty hat, money grows in the minds of the market players, when things are moving up.

As one large down move comes in a widely betted asset it gravitationally sucks away the value of the collateral utilized for playing other assets. Like the invisible forces of gravity the various contracts naturally move by in varying proportions broadly in similar directions, mostly together.

I would be inclined to recognize the effect of the varying amount of bets inside different pits and the varying spread of those bets across hands of differing strengths. With that in place any static relationships in assets or contracts is less than likely to be existent for any periods of prediction worthy time horizons. The ever changing cycles are likely originating from this varying nature of the spread of the bets. The vector sum total of all current and past and future bets may indeed by hypothesized as zero. Yet the similar sum at the present moment is not zero. Every changing tick hurts or rewards different sets of people simultaneously.

So, without so much as trying to invoke my limited numeracy skills before the mighty minds, I lay a case, that the pursuit of discovering constant relationships in the markets is the innate desire of men to find a constant while knowing fully well that the meal for a lifetime indeed is the knowledge of ever changing cycles.

Ralph Vince comments:

I lay a case, that the pursuit of discovering constant relationships in the markets is the innate desire of men to find a constant while knowing fully well that the meal for a lifetime indeed is the knowledge of ever changing cycles.

What could be more true than that statement?

We build models of the market– some, with ever-increasing complexity.

Take the stochastic differential equation for price changes in continuous time, where the second term is the Weiner process:

S0 = u S1 dt + dX

Involved math for many of us– but, as a model for how prices change, …it too is pathetically lacking. Our models are not reality, just little peepholes on it's behavior at times.

Sushil Kedia replies:

To add, one early school beginner's physics question:

If gravity works the same way on a feather as well as on a stone, then why does the stone drop sooner to the ground?

Well, the air that provides so much of rest to the feather that it takes longer to come down.

Likewise, the "air" inside the markets that is the varying size of bets of any individual participant as well as the varying size of the total bets present in a market bring by the gravitational pulls to still carry wide and varying variances.



 If you've noticed how quiet I've been, don't be overly concerned (or joyous if you're one of my numerous debunkers, trend followers et al) that I have lost everything again, but my quietude was due to having to write a book review for a publication that one has read two times each for 60 years, (once to count the greatest cult story since Festinger) of Markman's oversized 500 page 200,000 word masterpiece about Jesse Livermore, who married a woman who had five husbands, each of whom committed suicide. The contagion spread to all three Jesse's, the son and grandson who also committed suicide, as well one would expect for someone who paid so much vig to his counterparts. Very interesting crookery that Jesse used to beat the bucket shops, closely related to n and o on market making referred to before. The main thing about Markman's book is that it's as exuberant as the old bond pit at the Chicago Board of Trade. It makes you want to jump out of your skin.



 Here is an interesting article about how twitter predicts the stock market.

Rocky Humbert writes:

One conclusion is that anyone with an off-sides short position should post thousands of tweets that read "Life sucks" to get the HFT AI-algo-sniffers to sell based on this nit-twit research. This will work until the algo-bots start generating their own "Life is great" tweets to camouflage their positions too.

All of this is way noise is why I stick to my low-frequency Westminster Kennel Club Stock Market Indicator– which is maintaining it's PERFECT track record since 1911. See this old post.



Variation in US historical CPI has not been stable over the past 100 years. Using BLS data (1913-2010), compared mean monthly change in CPI for months prior to one's birth spasm (4/55) and after. Here is the comparison of mean monthly change in CPI before one (BK "0") and after one (AK "1")

Two-sample T for CPI:

BK AK    N   Mean  StDev  SE Mean
0           507  0.203  0.933    0.041     T=-2.58
1           665  0.315  0.354    0.014

Inflation has been significantly higher since one's random aggregation, consistent with the central bank's anti-deflationary bent and one's corpulent dint.

In addition, volatility of monthly CPI has been severely curtailed in the inflationary era:

Test for Equal Variances: CPI versus BK AK

95% Bonferroni confidence intervals for standard deviations

BK AK    N    Lower     StDev    Upper
         0  507  0.8714  0.9329  1.003
         1  665  0.3337  0.3543  0.377

F-Test (normal distribution)
Test statistic = 6.93, p-value = 0.000

Levene's Test (any continuous distribution)
Test statistic = 167.58, p-value = 0.000




Counterfeit Money and the Yankee Scoundrel

Economic and monetary historians have largely ignored the role of counterfeit money in the Confederate inflation because data are not available on the amount of bogus notes. Nevertheless, contemporaries and scholars of the Civil War have noted that counterfeit money posed a serious problem for the Confederacy (Hughes, 1992). More money chasing the same number of goods created inflation, reducing the central government's take from the inflation tax. The Confederacy was unable to curtail counterfeiting because they lacked the resources and equipment to produce high quality money. Counterfeiting was such a widespread problem that people sometimes joked that fake money was of higher quality than government issued currency.

Weidenmier (1999b) studied the effects of counterfeit money on the Confederate price level by examining the history of the war's most famous counterfeiter, Sam Upham. The Philadelphia lithographer, printed nearly 15 million dollars of bogus Confederate notes during the war. Upham claims that he originally printed bogus "rebel" notes as souvenirs. Although this may have been initially true, Upham certainly became aware of the fact that smugglers were using his notes to buy cotton in the South. The businessman expanded his business to include mail orders and placed advertisements for his bogus notes in leading Northern cities, including Louisville and St, Louis. Upham's venture was so successful that the Confederate Treasury Secretary Memminger made the following comments about the "Yankee scoundrel" in June 1862: 

"Organized plans seem to be in operation for introducing counterfeiting among us by means of prisoners and traitors, and printed advertisements have been found stating that the counterfeit notes, in any quantity, will be forwarded by mail from Chestnut Street

[Sam Upham's address], in Philadelphia to the order of any purchaser." (Secretary of the Treasury Memminger to Confederate Speaker of the House of Representatives, Thomas Bocock, quoted in Todd, 1954, p. 101).

President Jefferson Davis and the Confederate government placed a $10,000 bounty on Upham. The bogus money maker was never caught and some have suggested that the U.S. government protected the businessman with secret service agents.

Weidenmier (1999b) attempted to quantify Upham's effect on the Confederate price level by making different assumptions about the proportion of Upham's notes that ended up in the South. Weidenmier estimates that Upham printed between 1.0-2.5 percent of the Confederate money supply between June 1862 and August 1863. Upham stopped printing bogus notes once Confederate money had depreciated so much that it was no longer accepted as a medium of exchange in cotton smuggling. Given that the Philadelphia businessman was one of many counterfeiters, it is probably safe to assume that bogus money makers had a large impact on the Confederate price level. The actions of bogus money makers fueled the Confederate inflation via a large increase in the money stock.

from "Money and Finance in the Confederate States of America" by Marc Weidenmeir

Pitt T. Maner III comments:

One of my ancestors kept a roll of Confederate notes in a house safe just in case outcomes changed. Evidently he also stored cotton in England during the Civil War and sold it for considerable profit post-Appomattox. With the cash from the cotton he engaged in several successful real estate ventures. Subsequent generations spent the money very quickly, squabbled over land ownerships and inheritances, and left little– other than memories of grander times.

Some of the notes have considerable collectible value today. Perhaps this also is true for the original Confederate counterfeit money.

It also is interesting to note, and Stefan can confirm this, but there were areas in the South, that were fairly pro-Union, such as northern Alabama, that did not have as large a financial interest in maintaining the cotton trade and probably resented having to fight in the Civil War.

Stefan Jovanovich writes:

After watching the Giants and Phillies play last night, I am in anything but an ornery mood; but I have to say that this article is an example of why Shakespeare was wrong - the econometric historians deserve to go before the lawyers. In the initial flurry of lunacy after Fort Sumter and First Manassas the Confederacy collected all the Southern banks' specie in exchange for bonds, which promised to pay interest and be redeemed in gold; but within months people realized that they were living in the equivalent of Zimbabwe. There are lots of "prints" of transactions during the history of the Confederacy from which to draw econometric conclusions like those by Professor Weidenmier, but the data is, as the guys from the Car Show would say, "BO-O-O-GUS". Transactions for supplies for the state militias (remember: other than the fewer than 20,000 soldiers and officers from the Regular Army, everyone who fought in the Civil War/WBTS served as a member of a State military unit; no one was a member of "the Confederate Army") were denominated in Confederate dollars but they were effectively requisitions, not purchases. Upham's "counterfeiting" (sic) was openly advertised precisely because no one - North or South - took the Confederate dollar certificates to be anything but curios. The reason Grant ordered all the Jews expelled from the Army of Tennessee's jurisdiction is that the cotton brokers loyal to the Confederacy were trying to exchange cotton in exchange for Union greenbacks which would, in turn, be used to buy gunpowder and other military supplies. (But why "Jews"? Because cotton brokerage in the ante bellum South was an exclusively Jewish trade; so, for that matter, was finance itself. No one in the Confederacy thought it anything but natural that Judah Benjamin should be the Secretary of War and then Secretary of the Treasury.) There was no Confederate inflation in any real sense because the currency never took hold in the first place. Professor Weidenmier's elaborate calculations are very much like the conclusions reached by Fogel and Engerman on the economics of slavery; the numbers make sense by themselves but the premise is complete folly. People took Confederate money in the same way that Soviet citizens accepted rubles; whenever they had a choice, they said no.

P.S. Since even Professor Weidenmier's later scholarship confirms this we may have to relent slightly and give the econometricians and the attorneys equal billing. 



 Some advertised black swans that are market killers:

–commercial real estate next shoe to drop
–dollar going to zoo

–Hindenburg indicator–Prechter's warning
–foreclosure mess
–healthcare going to kill us all
–astrological death formation –grand cross
–banks still closing
–hft / flash crash 2 is due
–bonds are topping for the final curtain

The "QE" moon rises into a dark and scary night near the foggy pond and the swans paddle into the shadows, melting into reeds and rushes.

Just in case –get your canes ready for a walk down to the church.

J.T Holley writes:

 My still in progress theory is the use of alliteration in Wall Street propaganda. I'm still collecting samples and building the database. 



 Here is a nice article on the "greatest president of the past 100 years." He shows the value of restraint. Just what we need today.

Scott Brooks writes:

When ranking the greatest American presidents, I believe one has to use separate categories.

One for the Founders who became president and one for everyone else.

Coolidge, in my opinion is at the top of the "everyone else" list.

Now as to the bottom of that list…the worst presidents ever (in descending order):

7. (a tie) Bush 1, Bush 2,

6. Clinton

5. Carter 

4. (a tie) Nixon, TR, Wilson, Hoover

3. LBJ

2. FDR

1. Lincoln

Stefan has laid out a well thought out argument as to why I am wrong on Lincoln, but I still stand by my assessment. And BTW, I believe Lincoln ranks at the bottom because of acts of "omission" and not acts of "commission". The rest are there because of acts of "commission"

And as a future prediction: If Obama keeps going the way he's going…well, let's just say he is fighting for the top spot (at least #2).

Stefan Jovanovich replies:

The only reason it is safe for me to argue with Scott (who is decades younger, in much better shape and a much, much better shot) is that his fierce opinions are always tempered by his piety (yet another argument in favor of that bizarre practice known as faith). So, here goes:

I think ranking Lincoln is like assessing the performance of a captain of a ship in a typhoon when someone else decided how much ballast the vessel should take before it left port. Susan and I are doing the ancestry hunt for the Lipscombs, Austins, Gayles, Turners and Gaudelocks from whom she is descended by searching the graveyards of South Carolina and Virginia. Among the sites we have seen on the way have been Appomattox, Blacksburg Junction (the logistical Gordian knot that Grant, with his usual genius, cut within a month of taking effective command of the Union Armies in the East) and Limestone College (largely funded by Jefferson Davis' daughter). The Civil War (War Between the States, whatever) was the greatest single disaster in American history; it dwarfs everything else, and we still live with the legacies of its idiocies and nobly mistaken loyalties. Whatever anyone says about it is going to fall far short of telling the truth.



 Most Gold followers disagree, and I will enumerate (should the former be the number one factor? Well, not always).

1. Metals have been at mercy of daily/intraday currency moves for many weeks now; thus first reason to suspect great Bull's virility.

2. Currency observations: Euro had zig-zag (as opposed to Bullish impulse) rise from 1.19 to 1.41 - while single-currency woes hit temporary lull. Swiss Franc appeared reluctant to continue into .94-handle for the first time in history, on straight-line daily voyage from 1.17 - just too much too fast for its Central Bank and its good. Japanese Yen got into its own historic 80-handle, very much to its government concern - who wowed to stop its appreciation. Australian Dollar traded to exactly par on a straight-move from 81 - and appeared to simply be along for the ride. Brazilian Real on a straight-move from 1.91 encountered daily intervention to hold it from slicing through 1.65 - and had to eventually succumb to its own Central Bank.

3. The actual reversal signal came from Canadian currency, which was stringing its fourth counter-trend daily move overnight. This will be important to remember– those wanting to hold Long USD positions, from here on, should do so vs. CAD– the only major currency not to have been in any Bull market of consequence vs. USD this year. CAD pierced parity for a split second October 14; since that day, CAD has made the US Dollar look like a real champ - and so very few observers noticed!

4. In fact, the very same tom-tom beat hit Inbox this morning: a widely followed newsletter (claiming over ten thousand paid customers) in its author's 52nd year: "Since the first week of June, the Dollar Index (which I quote every day) has slumped from 99.2 to 76.7, a lapse of over 23% in terms of international currencies, most of which have been declining. Has anyone noticed or am I living on an economic fantasy island?"

5. On Gold price charts' own technical position: it has rallied from $1,160 to $1,388 without a breather, buoyed ostensibly by Swiss Franc daily appreciation - no mystique. It's hard to think of any powerful entity, who is truly interested to help this trend– and simple cheering never made any sense to me. By this morning, intraday price movement from $1,388 record traced out (typically) one of the most Bearish patterns in charting universe: Monday's shortened impulse up to $1,376, followed by this morning's even shorter impulse up to $1,371. Yes, there is no headline change in Gold's fundamentals, but has there really been one on the entire recent run up from $1,160?



 Let's not forget the existence of many other distinct possibilities when dealing with microcap, possibly shell stock issues; the two currently being discussed here– simply 'going to zero'' vs. 'shooting up to $100/share'– are not, by any means, the only two possibilities, and in my experience traipsing about the world of Bulletin Board, Pink Sheet and letter/Restricted stock trading, I'd actually deem those the least likely outcomes. Adding to those:

Possibility #3: "The Yawn of Death". Company trades sideways for years - literally years - within a one or two cent range from the current price. (#3A: This, but periodically mgmt issues a few million/hundred million shares, expanding the float and ensuring little or no movement in the price other than possibly slipping agonizingly down towards 'bid wanted'.)

Possibility #4: "The Roach Motel". Company rises from, say, 4 cent per share present price to trading @ 10, even 15 cents per share (or drops to, say, 2 cents per share) - then volume drops to nothing and the bid/offered spread explodes; in former scenario, to 3 bid/20 offered or in latter 1 bid/5 offered, with only a scant bit trading daily.

Possibility #5: "The Long Goodbye". Company rises to, say, 15 cents per share (or $4 per share, for that matter), is suddenly and unexpectedly halted by a regulatory body, and either (#5A) never reopens for trading, leaving you with your sole 'return' reading regulatory proceedings concerning your dead money, or (#5B) reopens to trade 0.0001 bid, offered at 0.0003 for years.

Possibility #6: "The Shapeshifter". Company, with nary a hint of warning, issues a Press Release one day saying it is changing its business from stem cell research to researching and eventually opening the world's first chain of cold-fusion powered laundromats.

The world of corporate finance fairly bristles with avenues and options for locating and funding good ideas and talented entrepreneurs. Scant few - none, that I can recall - have ever come through the drillbit equity markets.

Jeff Watson writes:

Speaking of penny stocks…..are there any good studies out there comparing the vig in penny stocks vs regular exchange listed and NASDAQ stocks? Although beyond the scope of my limited intelligence, I would suspect the vig in penny stocks to be the highest of them all, as high or higher than a game of keno.

Kim Zussman adds:

It is hard enough to find something to buy which will one day go up. But after you buy at 0.05, what will you do when:

1. It doubles? (On the way to 10X or 0?)

2. Stays at 0.04-0.06 for 5 years– giving you plenty of time to get discouraged and sell– only you check back at year 7 and it is now trading over $1?3. You have enough guts to hold until 10X, and realizing this was a miracle, sell. Only to find it was the next MSFT

All hugely successful long-term investments will, along the way, ask what you are made of. For most of us this information is carefully concealed and thus the path is non-navigable.

Vince Fulco comments:

Moreover I would argue the energy required to follow the situation will exhaust the h-ll out of you and absorb the precious time you can use to find vastly more profitable situations. In the mid-2000s, way past the Net burst, a colleague who should know better bot converts and common in a new age company (prefer not to mention the industry to protect the innocent), participating with a top tier Greenwich HF in financing rounds. For the HF, the position was de minimis but whose participation was a great selling point to other investors. The technology underlying the company was patented but time was wasting on it and it faced much bigger competitors. It took only a few days of fact checking and looking through the SEC filings by me to realize something wasn't right. While the company surrounded itself with all the buzzwords of the day and had a great marketing effort, its cash burn was always way too high relative to its size and it was obvious existing shareholders would be diluted ad nauseum if the company were ever to gather sufficient resources to really grow. Deals booked were always tiny relative to the market potential and industry installed base. Bottom line: the red flags were all over the place but you had to be willing to listen and not drink the kool-aid. The majority of penny stocks are simply fool's gold surrounded by a sub-culture whose sole purpose is to tout by any means necessary. Suffice it to say, my Pal is still nursing this POS (piece of %^&*) as we call it in the industry. 

George Parkanyi writes:

Back in 1980-82 I was a stockbroker. One of the guys in the office, Paul C, connected with some guys out in Vancouver who were promoting/pumping a junior coal company. Paul had his clients buying the stock, and some of the guys in the office, including myself bought a little as well. I had about 5 or 6 people in it– some friends and relatives, and for a few weeks it rose nicely and I averaged up the positions.From what I heard of Paul's end of the conversations, you could tell these Vancouver guys had a certain amount of money they were using to work the stock, and the rise was carefully choreographed with orders placed just so and press release this and press release that timed just so. I wasn't paying a lot of attention, but Paul was constantly on the line with the promoters and with his clients. At some point, I forget the reason, my mother wanted to sell her position, so thinking nothing of it, I sold her out at the market at a good profit somewhere in the $5 or $6 range. Not 30 seconds later, some guy is on the phone chewing out Paul about "market orders coming in from his office". Paul looked really uncomfortable and came over to talk to me about it. I remember saying to him, "Are you *^&%$# serious? My mother's rinky-dink order is "messing up their market"? I'm outta here, and you should be too." So as quickly as I could call everyone in the stock, I blew out all the positions– at the market. Within days the whole thing collapsed. I personally got out already on the way down, only because I had to get all my clients out first. Paul and his clients never got out. I can still picture him sitting leaning back in his chair, staring out the window with that blown-up look, absentmindedly swinging his telephone around in circles beside his chair. He took it like a man though, and never held any of it against me.

As a general rule, unless you REALLY know something, never get into these things on the buy side. You need to assume that they are all pump-and-dump operations, no matter what the story. In fact, I remember doing a study at the time and concluded that a great strategy would be take a pool of money and short every Vancouver stock that popped its head over $5. When these things go, they collapse like a house of cards. Sure, a couple would have burned you, but if you did them all you would have made a killing.



 Referred to me by the folks at the Museum of Mathematics, there is a great article in NY Times that refers to M. F. M. Osborne's 1962 paper: "Periodic Structure in the Brownian Motion of Stock Prices"

Excerpt from the op-ed article "Magic Numbers" by Daniel Gilbert:

Magic “time numbers” cost a lot, but magic “10 numbers” may cost even more. In 1962, a physicist named M. F. M. Osborne noticed that stock prices tended to cluster around numbers ending in zero and five. Why? Well, on the one hand, most people have five fingers, and on the other hand, most people have five more. It isn’t hard to understand why an animal with 10 fingers would use a base-10 counting system. But according to economic theory, a stock’s price is supposed to be determined by the efficient workings of the free market and not by the phalanges of the people trading it.

And yet, research shows that fingers affect finances. For example, a stock that closed the previous day at $10.01 will perform about as well as a stock that closed at $10.03, but it will significantly outperform a stock that closed at $9.99. If stocks close two pennies apart, then why does it matter which pennies they are? Because for animals that go from thumb to pinkie in four easy steps, 10 is a magic number, and we just can’t help but use it as a magic marker — as a reference point that $10.01 exceeds and $9.99 does not. Retailers have known this for centuries, which is why so many prices end in nine and so few in one.

Gary Rogan adds:

I found this article that says a different numerical bias affects the entire universe under various guises.

Ken Drees asks:

Would it be fair to say that "deliberateness", a concept of action, is required for Benford's law to engage in natural environment. A quake, a wind, a measurable force?

Gary Rogan replies:

I don't think so. I was trying to explain to myself how something so basic yet so powerful can exist and this is the explanation I just came up with (and it's fully consistent with randomness of certain processes).

Imagine yourself shooting projectiles at an infinite log base 10 labeled axis. What are the chance that any number you hit starts with 1 if everything is completely random? My geuss was it's log base 10 of 2, and voila: I just calculated it and it's equal to .301, or the percentage they cite (30.1%). This law must characterize any truly random phenomena where the measurements are distributed over many orders of magnitude. When you don't see this law, this must indicate absence of randomness or a close concentration around some mean.

Jeremy Smith comments:

In the binary number system, all numbers save zero begin with a 1. 

Gary Rogan writes: 

The probability of the number starting with a 1 is log of 2 base whatever type number system you have other than of course for the binary system. It's just the ratio of the distance between 1 and 2 on the log axis divided by the distance between 1 and the number equal to the base of the system. There may be even a way to express it so that it works for the binary system since log of 2 base 2 is 0, but not right now.

Victor Niederhoffer comments:

Osborne was reporting on a phenomenon he and I studied in a number of papers see "N and O Jasa 1966" for references, and his work was not a Benford thing. it was a specialist thing with all the limit orders concentrated there. It's related to Livermore's breakthrough "the round number" and much else. By the way I consider Osborne the greatest researcher in this field to have ever graced the behavioral finance and efficient markets field. His creativity was unbounded.



Does anyone know whether the samples of data IB uses to display their charts and trades in order to keep up with fast markets is representative and proportionate on either side of market or where that info might be researched?

Phil McDonnell replies: 

My understanding from list member Chris Cooper is that IB skips trades to maintain real time numbers. The way to test for bias would be to get hold of some real tick data and compare for anomalies or bias.



 One of intelligent honest things that Livermore did was to get out of one market by selling a related market, inducing the other traders to think that there was weakness in one market which would carry over to the related market. The art of indirection and letting people use their own intelligence and inferences to come to their own conclusion. for example if he wanted to get out of cotton, he'd sell some coffee. If he wanted to get out of a common, he's sell the preferred or a related company that owned a big chunk of it, like sell Christiana which owned general motors et al. This technique one wonders how often is it used today. When it happens, is it artful indirection or chance? How to quantify and what predictions to be made? Would the robots be smart enough to do this?

Anatoly Veltman writes:

There was a moment in late 80s Energy trading, when legend has it that a great admirer of Livermore who runs a venerable hedge fund near New York was Bearish to the tune of 40,000 lots. If you think it's not much, just remember that Exchange limit for open speculative position in any contract was 6,000. Of course, his positions were in all possible inter-month spreads and across products. So once decision to cover was made, he picked up the phone and asked for the cockiest trader in the Crude pit. "Are you a man or mouse?" Trader thought it was a prank: "Come on Paul, what do you want?" "I'll give an order to sell 1,000 market, and I mean worst. But if I don't see Crude print through even– they're all yours! Do you accept?" 

Tim Melvin comments:

Smart enough? Its one of the key concepts the black box guys I have spoken to use every day? I am not a programmer, nor do I play one on TV but it seems to me that a good one could set that up in short order…. 

Jeff Watson comments:

One technique still used today on a limited basis is to buy or sell a large order in a single batch and see how the market digests it. A trader can glean a lot of information about direction by seeing if his bid or offer is gobbled up or many of the same order comes out of the woodwork. This method worked great when the pits were active, and still works somewhat in the computer age. 



This article on "Why the U.S. Has Launched a New Financial World War– and How the Rest of the World Will Fight Back " was a depressing item to read. But one thing is for sure–more and more articles like this are blossoming like desert flowers across the financial reading landscape.

So is the US fostering a "weak dollar" policy—Fisher Fed Head didn't say so specifically this am on CNBC, but the more often spoken phrase of late, "inflation too low", speaks volumes –short term at least.

Maybe inflation expression through prices is now unhideable and thereby "getting in front of the issue" makes them more in control in that they "own" the issue and create the illusion that higher inflation is indeed good and all according to the plan.



 I took the kids to see Secretariat at the movies this weekend. Doswell, VA is just a hop, skip, and jump from Richmond. Chenery's Meadow Farm is now a part of the new Virginia State Fairgrounds and a monument to Big Red and Meadow Farm.

The movie is a must see for readers of this site. Filled with strategy, come-from-behind, coin toss, determination, empirical touch by Mrs. Chenery's decision of choice, working with nothing, maintaining morals while striving for profit, lesson of why not to brag or boast and be humble, and Family devotion. There literally is a part in the movie for all topics that have been discussed over the years on this very Spec List for those that have been here and committed to the topics and digested them for nutrients while giving and sharing as well!

Some of my favorite parts were:

1) the scene of Mrs. Chenery-Tweedy walking into the Gentleman's Club to discuss choices

2) Eddie Sweat, the empty bucket of oats and him humbly walking out on the dirt of Churchill Downs in the early morn and yelling to no one of what was about to become

3) the use of the producer for the second race to make it not at Preakness, but in the home of the Tweedy Family in Denver

4) Choice of Oh, Happy Day to set the tone of not only of the Virginia roots, Gospel music, but the theme of reward from sacrifice (taking religious connotation out)

5) The intensity, amazement, and disbelief of greatness tone set at the Belmont by all in attendance, but the ones with hearts and profit on the line still hangin' and rejoicing.

6) acknowledgement and hand shake of the "House-wife from Denver" by Sham's owner after the race.

7) Luscious burning the old "losing" clippings and letting go so change could take place and

8) the many parts of Mrs. Chenery looking inward/outward using reason with heart coupled with common sense.

Powerful movie!

I wouldn't be surprised if the cinema photography of this movie is nominated for an Oscar. Equally, Diane Lane's portrayal of Mrs. Chenery and John Malkovich's portrayal of Lucian Laurin probably will be nominated as well. Great choice of cast in the movie all around.

This movie has to be put on the List of Spec Movies to watch!

Ralph Vince writes:

Not looking to take anything away from the topic here of "Secretariat," But saw "Jack Goes Boating" which I must say was the best movie I've see n since "Babble."

The characters played by the Hispanic couple in the movie (I don't know their names) are absolutely superb.



 One of the fascinating things in Reminiscences of a Stock Operator is the constant interplay between duplicit and dishonest practices of Livermore himself and the crooks he deals with. It reminds one of the crossroaders book where the two best friends cheat each other with a mechanical mirror and other means in constant games between them. Only when they realize that the stake between them keeps getting smaller do they realize that they're both getting poorer because they have to pay the third crook, the "mechanic" for the use of the mirror. The rake was constant. They both show no compunction about cheating their best friends until they realize they've been viged to death by a third party.

Livermore is constantly appalled that in the nefarious schemes of manipulation and cornering that the holders of worthless securities engage in with him, that his customers have no honor among mutual thieves like the crossroaders. His terms for a manipulation are as follows: suppose the manipulators have 200000 shares of a listed stock at 40. Livermore will take call on all 200000 shares of stock at 40 for 1 year. They will also put up 6 million in cash for him to make a market and engage in his own insider trading with.

I doubt that the two most wealthy fellow travelers themselves and friends of the Oval who engage in such transactions with the triangle of their colleagues in the banking, and legislative branches receive such favorable terms or insider information today, albeit they seem to have more influence on the terms and policies.

In any case, how would you value what Livermore's normal take was for such a manipulation? He receives a call for 1 year on 2000000 shares and that's worth about 10%, so 800000. Then use of 6 million for manipulation for 1 year, enablling him to front run with that stake. How to value that aspect? Let's say 500000.

He engaged in these transactions in the 1920-1929 period. No wonder Livermore was worth 50 million at the height of 1929 before losing it all, and declaring bankruptcy the fourth time, and going bust for at least the twelth time in 1934, before his suicide at the Sherry Netherlands.

it reminds one of the radi0 show tag line "crime does not pay".



 A recent BBC documentary revealed how ingenious pirates have set up a pirate "stock exchange" to encourage investors and build an economy, albeit a black one. Pirate groups of a certain size register themselves in the same way that established companies can on a regular stock exchange. Individuals can then choose to invest in one or more groups, by donating weapons or buying shares. They then get a cut of the earnings when their pirate group strikes lucky.



 For the currency traders, AUDYEN, trading in a two big figure range for now over 1 month, got me looking at the elements in combustion .

No doubt the organic compounds are building up, and a production of light in the form of a explosion in price will be on us soon.

(A quick glance over the last two years has not seen such a period of drought in this market…though 2007 April and May brought about such an occurence, where the result was trend continutaion for 7 big figures in approx the same time 6 weeks as the consolidation)

A loaded Aussie and likewise Yen against the perils of the usd have created a unique atmosphere if not the perfect storm, where we maybe in the eye at the moment.

We await the outcome and hope for direct winds and a full spinaker and not many crosscurrents on the break to prevail.



 A Time to Reverse Caloric and Cash Accounts

America and Americans face very small problems. It is just that a hundred million small problems combine to loom large. And a decade of small daily choices made poorly combine to wreak the health and finances of American families.

The great news is that slight alterations to daily protocols can turn surpluses to deficits and deficits to surpluses. Slight rule changes in a few institutions would alter incentives, turning dead zones to flourishing ecosystems.

Through most of human history social institutions combined with known technologies to produce monthly money surpluses but caloric deficits. Responsible people and societies knew to preserve and set aside food from the few days of successful hunting, harvests, and fishing for the long winter months when nature would yield no calories. A high savings rate is the standard habit of mind for the poor. Americans after the great depression counted their pennies (when pennies still had value). Hundreds of millions across China–the recent or still poor–have equally high savings rates. Woven deep into social institutions is the reality that without high savings in good times, a single season of too much or too little rain will starve all families without buying power set aside.

A very interesting review of Cormac Ó Gráda book, Famine: A Short History updated my understanding of famine through history, but confirms that Malthus was wrong in his pessimistic claim that population growth would lead to famine. Ó Gráda confirms that combinations of bad weather, war, and bad government have ever been the sources of great famines.

Good money is the means for the poor to survive crop failures. But governments have a habit of seizing surplus crops and debasing money. (Amazon automation is, as I write this, busy picking and packaging my just-purchased copy of Benn Steil's "Money, Markets, and Sovereignty" which was just yesterday highly recommended by a friend.) Hard money is the great technology for converting via the marketplace, daily and weekly food surpluses into the means to survive occasional harvest, hunting, and fishing failures.

But in the modern world, in America at least, historical reality has been turned on its head. The average American can hardly last a few hours in caloric deficit. For so many centuries the central challenge was setting aside food surpluses in summer and fall to survive winter (one stratege: a parade of harvest feasts to accelerate weight gain through summer and fall). The modern lack of winter is the new challenge. (Ships and airplanes filled with Southern Hemisphere harvests allow us to avoid even the canned food common a decade ago.) Restaurant chains serve millions of feasts to constantly celebrating Americans morning, noon, and night. Omelets that would feed a village hang over plate edges each morning at IHOPs across America, with hash browns stacked alongside, and a separate plate for hotcakes or toast.

Overstuffed with food, Americans find it hard to think about savings (or about anything else for an hour or two as all available blood is allocated to digestion).

It used to be so much easier because it was infinitely harder. Most jobs required exercise so most people were fit. Only the very few rich had enough leisure and wealth to systematically overeat, and gout provided one of nature's many punishments for the undisciplined aristocracy.

America's major problems are just this simple to solve: exercise, eat, and save responsibly. Vast billions of future health care spending will be avoided when Americans learn the long history of famines and the rich and very unusual world they were born into. Daily labor that is no longer an exhausting enterprise providing a free on-the-job health club. So now volition is required to stay fit.

People have to notice and take responsibility. With so much food so easy to find, people no longer have the natural urge to set aside daily surpluses. Yet a modest savings rate and a sound currency would solve most of today's economic and financial problems. A savings rate as slight as ten percent would go entirely unnoticed in at least ninety percent of American households. Saving twenty or thirty percent would be little challenge for most households. Just waiting six months to a year before purchasing the next big-screen television, car, or computer, would allow the price to drop enough to set far more savings aside.

But without a great book, movie, faith, or movement to push the social reset button, it is not clear how people will come to think clearly about these simple things. Chains of habit long forged are hard to break. A politicized public is distracted repeating what they hear about corrupt politicians, greedy corporations, and other external causes for claimed social calamities. It is easy to miss the most basic reality that in the modern world's market economies of the modern world we have an historically rare opportunity to take responsibility for our own daily cash and caloric accounts.

Though bottom up changes work better than top-down reforms, if insurance companies could fully charge overweight customers for expected higher medical expenses, that cash cost would add to the daily discomfort of being overweight and spur change. And if airlines could charge more for heavy customers, fewer people in the future would suffer being mashed in the middle seat between obese and obviously unhappy people (as I was on Thursday).



This is an interesting example of pseudo science in a field different from ours but with the same kind of methodology. Vic



I have yet to see/hear/read about an investor who believes that QE will change the fundamentals other than inflation, but that's probably because I only watch CNBC sporadically. The reason it seems to be a positive for the market is (a) the self-perpetuating belief that you can't fight the Fed (b) somehow all this inflation is likely to be positive for stock prices (c) they will do whatever it takes to prop up the market until the election and see (a) for the conclusion.



 "Market sell order at close" is one of those concepts from quantum mechanics where it seems to exist until you use it, but when it doesn't seem to exist, it's actually there. It's a very subtle point, especially during the day.

George Zachar comments:

Call it Schrodinger's Stop. 

Rocky Humbert writes:

You must mean Heisenberg.

Forgetting about the slippage, I think a lot of this stuff turns on time frames, slippage, and the underlying economic and trading nuances of different asset classes. I brought this paper up because I find the conclusions appealing and it says it addresses some issues not previously studied. Not because their conclusions are achievable.

Furthermore, if a market participant believes that they have actually achieved "lower risk", they may be inclined to use more leverage, which arguably is much more risky! (Which is why pure VaR trading desks seem to blow up every several years.)

It's just food for thought….and the Big Question for an investor such as myself is: when do I know that I'm wrong???? 



 With the dollar being so despised and the revulsion to owning green backs, with Aussie near parity, Euro at 1.4, gold, silver, corn, wheat, sp ,etc all at or near extremes, I wonder when the vigilantes will get around to the bond market. That too is dollar denominated, and of course you can't fight the fed on the short end of the curve, but the long end once was held in check. It reminds me of Ed Spec when every one wanted goods and no one wants to hold cash, then a speculator obliges.



Speclist members debate the pros and cons of stop-losses from time-to-time. Don Fishback's blog mentioned this paper, Lei & Li (2009) … which I had not previously read about the use of stop-losses for stock market investors….which may be of interest to people.

Full download is here.

The jist from the abstract:

The results indicate that traditional and trailing stop loss strategies neither reduce nor increase investors' losses relative to the buy-and-hold strategy. These findings are in sharp contrast to the common belief that using stop loss strategies can improve investment returns, and the results are robust whether future returns are independent, autocorrelated, or from momentum samples, and whether we consider transaction costs or use alternative data intervals. These results also confirm our previous finding that trailing stop loss strategies can help investors to reduce investment risk. For instance, we document a risk reduction effect ranging from 28.66% to 47.08% for median and high-volatility stocks and for median and high-past return stocks under the SP strategy, when the trailing stop price is initially set at 5 daily return standard deviations below the purchase price. Collectively these findings suggest that realizing losses sooner by certain stop loss strategies can be of value to investors. This value, however, may come largely from risk reduction rather than return improvement.

Our results show that stop loss strategies do not hurt investors on their investment performance. There is no identifiable efficiency loss on the realized returns or the investment risk under these stop loss strategies. Since these strategies may provide investors with disciplines and the potential to reduce investment risk, our findings suggest a possible explanation for the widespread use of stop loss strategies in practice.

Victor Niederhoffer comments:

One wonders whether the academic paper on stops takes proper account of discountinuities in price, i..e moves that go through stop where you wouldn't be able to get out at the stop. One would need tick data for that. Also, one would state that whatever results one achieves from using stops on paper, are not valid for many reasons including the point that you never know whether a stop price has been triggered until the end of day– (a very subtle point), and less subtle, the stop price has a gravitational impact on prices making it infinitely more likely that it will be elected to ones cost than if it hadn't been elected. Usually the election is such that the price would not be hit if the stop weren't there. 

One would point out that continuous tick data would be necessary to do this properly because often the price goes through the stop and then back to a non-stop level even with 1 minute tick data, thereby making all studies using non-continuous every single tick price totally vitiable, and falsely alluring. 

One was not critiquing Mr. Humbert's summary (one knows better than to do that even if one had that in mind which one didn't) but merely pointing out a very subtle point that often prices move through the stop in continuous time, but not in time with say 1 minute tick data, and you never know whether a stop has been hit vis a vis the close until the open of the day following when the price achieved is very different from the price at the stop level or market at close level. It's so subtle I cant even explain it properly.

Rocky Humbert replies:

And I agree with The Chair's observation. The problem is reminiscent of being short (too many) options on a stock that is pinned at it's strike price on Friday option-expiry 4pm. One knows that if one hedges, it won't be assigned. And if one doesn't hedge, it will be assigned and will gap Monday morning. Kind of like carrying an umbrella– and it never rains. 

George Zachar writes:

If I may, a Schrodinger Stop is one that you place with your broker, as the physicist places the cat in the box.

But, regardless the prices you're quoted, you don't know if the stop was executed or what the fill price was, until after the session has ended….just as one doesn't know if the cat is alive or dead until you open the box.



This is a brilliant article about a spec hero.



 With HFT machines pushing the pico second barrier and text reading pattern recognition engines parsing every press release and newswire, it takes a gaggle (like the imagery) of State Treasurers, with a pre-announced press conference, to freak out finance co. investors, at least in the CDS space but maybe coming to a stock near you. Meanwhile the talk of mortgage pushbacks and growing lawsuits has saturated the blogosphere. Will always be fascinated by what is or is not baked into valuations and the timing of concerns surfacing.



The attached chart compares log Nikkei 225 and SP500, adjusted in time such that the SP500 high in 2000 aligns with the NIK high in 1989. For comparison purposes, log SPX was also scaled by 1.44X, so that the peak values of both indices are the same value.

The first decade of Japan's lost decade was characterized by more high-frequency volatility in stock returns than the first decade of our lost decade. Japan lost ground over their first lost decade, while we have held up pretty well. Compared to the Nikkei, the SP500 rose faster to its 2000 peak, then experienced two large peaks and two deep dips. This shows that our central bank is better than theirs, if the goal for investors is lower frequency and greater amplitude.

The next lost decade of our lost decade is still to be determined, but for the sake of our entitled youth hopefully the path will differ from Japan's.



A while ago there was some discussion on the list on the Hemline index. It's of course also mentioned in EdSpec.

New research from my university finds:

Urban legend has it that the hemline is correlated with the economy. In times of decline, the hemline moves towards the floor (decreases), and when the economy is booming, skirts get shorter and the hemline increases. We collected monthly data on the hemline, for 1921-2009, and evaluate these against the NBER chronology of the economic cycle. The main finding is that the urban legend holds true but with a time lag of about three years. Hence, the current economic crisis predicts ankle length skirts around 2011 and 2012.

Thus, it is found that the economy may predict the hemline, but not the other way around, making it difficult to benefit from this finding, unless maybe one is active in the fashion industry.

Ken Drees writes:

If the recession double dips then we should expect long garments that trail onto the ground after 2012–or at best years of long floor length fashions –maybe fashions that tuck into boots?

And since this is a "recovery" maybe we get a long ankle length fashion in 2011 that has a slit or cutout along the leg line near the ankle–indicating the breather in the economy.



 In one of only useful parts of the original Reminiscences of a Stock Market Operator Livermore describes a con based on his intuitive grasp of something that could have been counted, and is of modern day resonance and suggestiveness. The set up is as follows.

1. Stocks up from the previous weekend's close.

2. A bank announcement– in this case surplus reserves of banks were supposed to decrease.

3. A decrease in surplus reserves, whatever they were, is supposed to be bearish.

4. Stocks that had gone up the most during the week would have "the usual reaction in the last half hour of trading." These of course would be the very stocks that the bucket shop had been most active in.

5. Because Livermore was so good, and the bucket shop took the other side of every one of their customers trades for an eighth, they wouldn't mind if he shorted those stocks since the bucket shop would already be short those stocks and now by taking the opposite side of his position they would be reducing their short. Livermore was so good that he had to hide the fact that indeed he was trading at all.

6.The bucket shop would be happy as there was nothing better than "catching the suckers both ways and nothing so easy with one point margins." After some more conning of the broker pretending that Livermore was just a rural rube hoping to have a few dollars left to lose on the track.

The outcome was stocks went down in the last half hours as Livermore figured. "The traders hammered the stocks in which they figures they would uncover the most stops, and sure enough prices slid just as I figured. I closed out my trades just before the rally in the last 5 minutes on the usual traders covering." There are many parts to this big con that are reminiscent of many things we face today.

What similar situations and predictive inferences might be drawn from this big con with its counting juxtaposition?

keep looking »


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