The contest is far from over (in fact it is only 1/12 done), but it is interesting to look at where we stand:





J. Albert



Sushil Kedia



Jan-Peter Janssen



Bill Rafter



Vince Fulco



Chris Tucker



Pete Earle



Gary Rogan



William Weaver



Marlowe Cassetti



Jack Tierny



Steve Ellisson



Sam Eisenstadt



Kim Zussman



Yanki Onen



Laurel Kenner



Russ Sears



Victor Niderhoffer



Gordon Haave



Mr. Krisrock



Jay Pasch



George Parkanyi



Tim Melvin



John Floyd



Dan Grossman



Paolo Pezzutti



Scott Brooks



Anton Johnson



J. T. Holley



Ken Drees



Phil McDonnell

Thanks to Sushil Kedia for running these calculations.



During my 50 years trading stocks and commodities, I have seen many panics related to world events . On average, the panic has been dissipated quickly and after the big down day, and perhaps a further terrible blow to force the trader's partners to force them out for safety's sake, (not one known to me, however who always says reduce by half), I have seen grand opportunities to haul out the canes. I have lost so many fortunes by being afraid of such things as Russia's entry into Poland and Hungary (a foregone conclusion), and wars in the Mideast. However, on the other hand, when a panic occurs because a speculator is weak, and there is an opportunity to squeeze, or there is more to sell to buy from the weak speculator, then invariably the market will continue until the speculator is wiped out. Thus, the market moves to create busts and booms, but only to take away the chips of those who can be bluffed out to fold.



 Here are some good books I am reading when Aubrey is playing with someone else: The Mind of Bill James by Scott Gray has great stuff about James' methods including many based on regressions, the law of competitive balance, the non-existence of most shibboleths (clutch hitting doesn't work nor do streaks), the prevalence of miracles in compressed markets (leagues), leave a good young stock (player) alone, forget about stealing bases (if you want to win you have to go against the grind), similarity scores are predictive, pareto distribution of talent etc., stay away from the best performers (free agents) et al,

Stigma by Erving Goffman. How we relate to those whose relations stigmatize them, and don't buy them when we should.

The War at Troy by Lindsay Clarke. Finally tells you why the other women, and Peleus and the well meaning Nestor created the war and many other useful facts about the walls and the hypotenuse.

Honus Wagner by Dennis and Jeanne DeValeria. The greatest ball player, and how his business developed, and his touch for the common man and all the postiions he played, the importance of family inheritance et al.

Mortal Games by Fred Waitzkin. Everything about the killer instinct of Garry Kasparov, and how he won his matches even while being distracted with politics and showboating, and the peculiar relation that the writer, his son Josh had with Garry (while standing on his head or otherwise).

The History of Banks by Richard Hildreth, 1837. How free markets worked in the old days, and the attempts at flexonopoly by the banks after the before and after the first banks.

The Seventy Great Mysteries of the Natural World by Michael Benton. It clears up all the mysteries of evolution, and gives the best scientific explanations for such things as selfish genes, why we're big, who rules, why species die, how plants and animals relate.

Roundup by Ring Lardner. The best short stories including "Alibi Ike" which every one who hires or deals with a trader should know.

Secrets of Mental Math by Arthur Benjamin and Michael Shermer. Tells you how to do squares and cubes up to 10000 with a variety of methods, but the close together method is by far the best, and I can only go up to 1000 so far, but it keeps you from old mans' disease when not playing checkers.

Bayesian Models for Categorical Data by Peter Congdon. how to choose models and count outcomes. A highly technical book that requires a pencil and paper and does nothing for those without total background in categories, simulations, and bayesian methods to start. But it's an interesting reference.

American Business Since 1920 by Thomas McCraw. A beautiful discussion of what made p and g great, (the white shirts, the soap operas, the two person partnership, the combination of mass advertising and mass development of purchasers.) Written from a liberal perspective by someone who actually likes business but is a Harvard professor, and the anti-business and fund raising that is part and parcel of that nook of the woods often leaves the reader wishing it was not so biased, but written by a real scholar.

Jeff Watson adds a book:

 Although I have a well known prejudice towards the Rolling Stones as my favorite rock band of all time,

I've been reading Keith Richards autobiography Life. Since reading this book, I have a newfound admiration of his music ability, his composition skills, and his ability to improvise with different tunings of the guitar, eliminating a string making a six string a five string guitar etc. His knowledge of technique and music composition has put him in the category of the best trained from Berkee and Juilliard, His desire to emulate the best of the Chicago Blues, the Mississippi blues, the Nashville Country and the Bakersfield Country made him a much better guitarist, plus he became a very accomplished piano player along the way.

His associations with the people of that period, prefering the black musicians as, to quote Richards, they put the roll in "Rock and Roll." Richards knew and worked with everyone in that era from the Everley Brothers, John Lennon, Jimi Hendrix, to classical composers, to Johnny Cash and Chet Atkins. His love/hate (mostly love) relationship with Mick Jagger allowed for the creation of some of the most enduring songs of the rock and roll era. He was a musical theorist who improvised and created many things that are still in use today. His hooks are legendary.

One thing of particular note was that he stressed firstnlearning to play with an acoustic guitar with cat gut strings, mastering that, moving on to an acoustic with steel strings, before going electric, all the while reading and writing music. His claim was that progression would make one a better player. An interesting fact was that the small musician fraternity would gladly share techniques and short cuts without any expectations other than a quid pro quo. He preferred associating with black musicians over white musicians as he thought they were more original and daring and played with more emotion and soul. Richards is a deeply flawed individual, with many personal flaws such as womanizing, drug usage, legal problems, addiction etc. However, he has since gotten relatively clean, still plays better than most people 45 years younger than him, and has the constitution of a bull. His guitar technique is flawless, and he even had to develop techniques to make up for when the late Brian Jones flaked out and he had to add extra picking techniques as the Stones was a two guitar band.

Comparing the Beatles and Stones is like comparing apples and oranges as the Beatles were mainly a pop group, and the Stones were a rock/blues band. A lthough they did write many remarkable songs, the Stones started as a cover band, but they ended up writing music on par with the best of Lennon and McCartney, and while the Beatles career took a nosedive in 1970, the Stones were just hitting their stride with songs like "Sympathy for the Devil,"." Gimme Shelter,"" Honky Tonk Woman," You Can't always get what you want" and many others too numerous to list here. I manage to see most of of their concerts, and have since 1964, and one thing you can say is that they still have their chops and sound as good as in 1964, even better as one doesn't have to contend with adolescent girls screaming. On another note, they are coming out with an album of entirely new material later on in 2011. Richard's most poignant observation was that "I play not for the money or the adoration of the crowds, but I play for myself." 

Tyler Cowen writes in:

I also like Bill Simmons on the NBA…

Alston Mabry writes:

Exploring the Keef meme lead to this little jewel What Would Keith Richards Do?



 In a nice article about the failure of Hewlett Packard's directors, written from a liberal perspective as are 99% of the stories from b (which caused me to cancel all my subscriptions there, thereby saving much contemplated expense, but probably disrupting the rhythm), he refers to duos that have been successful: Jobs Wozniak, Filo Yang, Page Brin, Hewlett Packard. I know of a number of 2 person partnerships that are successful, but have always felt that 3 person partnerships are very unstable and unhealthy, as was mine when I started with NCZ. I have always felt that the reason is that it's too easy for any two to form a coalition against the third. Have others here found the 3 person triangles very dysfunctional, and is there an economic reason aside from the all too prevalent attempts to better themselves at the expense of another that lies within the human heart? What are the market implications of such?

Bill Egan writes:

My experience is also that two person partnerships work much better, and adding three or more people leads to a mess.

I believe there are three reasons for this. For two people:

1. You have time to try to understand the other person's viewpoint.

2. Combinatorics are in your favor. With two people, there are only four
possible positions to discuss.

3. No politics because no one can get an ally.

With three or more people:

1. You have less time to try to understand the other peoples' viewpoints, which creates more opportunity for misunderstanding and miscommunication.

2. Combinatorics are not in your favor. With two people, there are four possible positions. With three people, there are eight possible positions on any given issue.

3. Politics can get ugly because person one can get an ally (person two) against person three, etc.

Ken Drees writes: 

Treasure of the Sierra Madre comes to mind.

Trader Craft writes:

In gravitational physics, two body systems are orderly and predictable. Once you get to three bodies, the system becomes chaotic.

Stefan Jovanovich writes: 

The Founders' direct experience with bicameral and unicameral legislatures led them to oppose both Franklin and Hamilton's preference for a single body. What the Founders did not anticipate was that the Federal judiciary would become a co-equal 3rd branch. IMNSHO, the instabilities of our system have their source in that unexpected development. For some of us, James Marshall is anything but a hero.



 Pakistan's economy is collapsing:

Pakistan is not only wrestling with a problem of law and order, but struggling to get its collapsing economy back on rails.

The country's commercial capital, Karachi, which accounts for nearly 45 percent of Pakistan's Gross Domestic Product (GDP) (180 million dollars per day) and tax related revenue of a billion rupees per day, is facing a host of systemic problems.

Poor financial and economic management has been compounded by flood-related devastation. This has adversely affected the country's agricultural growth, and damaged its infrastructure (which is already groaning under years of mismanagement).

Given this abysmal scenario, it is extremely doubtful that the Pakistan economy will improve on its 2010-11 growth rate of two percent in fiscal

Here is the rest of the article.



A few years ago, my local library held a sale to purge old books from the shelves. I bought a 1976 book by Norman Fosback, Stock Market Logic, for a quarter. If Mr. Fosback is still alive, he might make a good Spec List member. His book is full of data and testable hypotheses. Best of all from a statistician's point of view, Mr. Fosback has done much of the testing, and one can go directly to out-of-sample testing.

In a chapter on seasonality, Mr. Fosback wrote that the US stock market tended to rise on the last trading day of the month, the first four trading days of a new month, and the two trading days before the market is closed for a holiday. He found that these days, which were only about 28% of all trading days, accounted for the entire advance in the S&P 500 from 1928 to 1975.

Using Mr. Fosback's definition to identify favorable days, I checked recent S&P 500 futures returns:

                               Favorable  Unfavorable
                                days          days
12/10/04-12/31/05        5.7%         -2.3%
2006                           2.7%          7.2%
2007                           5.3%         -5.1%
2008                         -21.9%       -22.2%
2009                           5.6%         18.5%
2010                          15.5%         -0.7%

The favorable days were clear winners in three of the six years. In 2006 and 2009, the per-day return was roughly equal on favorable and unfavorable days (remember that there are many more unfavorable days than favorable days). In 2008, the favorite was beaten as the per-day return of the favorable days was much worse than the unfavorable days. Over the entire period, S&P 500 returns were 9% on favorable days and -9% on unfavorable days.

Lars van Dort comments:

A slightly adopted version of Mr. Fosback's hypothesis of favorable days was tested by me for the Dutch stock market using the CBS Reinvestment Index for the period 1981-2003.

My definition of favorable days only included the last trading day of the month and the first four trading days of a new month. I excluded the two days before the market is closed for a holiday from the definition. (There are different holidays over here and frankly it would be a lot of work to identify them for the whole sample).

In this case favorable days account for 23% of all trading days, as opposed to 28% in Mr. Fosback's definition.

The results:

average return favorable day: 0.16% average return unfavorable day: 0.03%

Over the full sample, being long only on favorable days leads to a cumulative return of 714%. For the unfavorable days this was only 144%, while taking more than 3x as many trading days for this.

Of course, I'm aware of ever-changing cycles, but if this result would still hold, things would be very easy. Buy at close of the next-to-last trading day of a month. Sell at close of the fourth trading day of a month.



 In a fascinating article in the New Yorker Magazine, Lehrer describes the inability to replicate significant scientific studies due to a decay in the significance of the underlying data. It might be caused by the publication effect, the bias toward finding significant results or hypothesis creep, or reversion to the mean. More insidiously he asks whether the scientific method is eroding or some underlying phenomenon is at work.

In market studies significant results tail off with time, and prior significant regularities do not guaranty similar results going forward. The changing cycles affect results. Is the data moving away from normality and are distributions changing or is there some other phenomenon causing this decay of the data previously found to have significance?

In an infinite series of randomly generated characters or events, our entire history, the works of Shakespeare, and the entire laws of physics will appear almost by definition, only at some point to erode to randomness. This is not logically consistent with the scientific method. In a series of a trillion to the trillionth power of 0's and 1, there will appear several sequences of all 1's a million long. Dr. Phil regularly reminds us that of 20 studies, 1 will appear significant purely at random and not signify some important regularity. Are one of these effects at work ? Is this the same problem Lehrer describes or something else?

Stefan Jovanovich writes:

In keeping with my obligation to continue to contest for the title of the site's most irritating contributor, I took the trouble to read the entire New Yorker piece. The "scientific" discoveries that were found to have become invalidated were these:

1. Anti-psychotics, specifically anti-depressants

2. verbal overshadowing

3. extrasensory perception

4. symmetry and sexual selection

Each of these phenomena is one where the measurements are determined soley by the observer's personal judgments; even in the question of symmetry the ruler takes second place to the a conclusive decision by the experimenter.

The article's conclusion gives away the real problem: "Even the law of gravity hasn't always been perfect at predicting real-world phenomena. (In one test, physicists measuring gravity by means of deep boreholes in the Nevada desert found a two-and-a-half-per-cent discrepancy between the theoretical predictions and the actual data.) Despite these findings, second-generation antipsychotics are still widely prescribed."

Our present "scientific" world is one where a bedrock axiom of physics is considered equal in substance to the continuing prescription popularity of a class of drugs that zombifies otherwise troublesome people.

As Thomas Szasz– a professional pain-in-the-ass who puts this amateur to shame, has already pointed out, mental illnesses such as depression have no clinical markers that can be verified objectively as medical conditions. "Verbal overshadowing", "ESP" and "symmetry" are also equally free of any quantitative standards that can be replicated consistently. My, how much progress we all have made since education in America became successfully socialized. 

Gary Rogan writes: 

It's interesting that Global Warming was never mentioned. It was the first thing I thought of when I read "Many scientific theories continue to be considered true even after failing numerous experimental tests", let alone documented massive pro-supporting-evidence discrimination in the selection of results. One shudders to think about what all of this means in the context of government-driven statistical findings where various labor statistics are a running joke, inflation measurement is a "science" in how to find the lowest inflation, and "saved or created" jobs are a statistic that can't possibly make any sense with the best data gathering, but especially when jobs in non-existing congressional districts, etc. are included.




I subscribe to an investment newsletter whose aggregations of insider trading data provide value to me. This newsletter also provides market commentary, some based on technical analysis. One indicator is the number of "buying climaxes" in individual stocks. A buying climax is defined as a week in which the stock makes a new 52-week high, but then closes lower than the previous week. This pattern is interpreted as bearish because it suggests that "distribution" is occurring, i.e., informed investors are selling to uninformed investors.

In each of the last two weeks, a buying climax has occurred in the S&P 500 futures. Is that bearish?

The average 6-month change in the S&P 500 futures since 1983 has been 1.9% with a standard deviation of 15%. There were 74 buying climaxes from 1983 to mid-2010. Six months after the buying climaxes, the S&P 500 futures were up an average of 1.8%.

Using only non-overlapping look-ahead periods, there were 23
non-overlapping buying climaxes, and six months later, the S&P 500
futures were up an average of 2.6%, insignificantly better than average with a t score of 0.51. In defense of my newsletter, it reports climaxes for individual stocks, which may be predictive for all I know.

For the futures, I do not conclude that a buying climax is bearish. The high level of insider selling in the past three months looks negative–but this must be tested.

   Date        next 6 months
 2/15/1985              -2%
 3/21/1986              -4%
 3/13/1987             10%
10/28/1988               9%
 5/26/1989               4%
   9/6/1991               3%
12/24/1992               2%
 9/17/1993               2%
 3/31/1995             15%
12/15/1995               6%
 9/27/1996               9%
 7/11/1997              -2%
 3/27/1998              -7%
   2/5/1999               3%
   1/7/2000              -1%
 9/12/2003               9%
11/19/2004               1%
 7/29/2005               3%
 3/24/2006              -1%
11/24/2006               8%
 7/20/2007            -16%
10/23/2009             13%
 4/30/2010               0%



 The following contract is now available at Intrade:

"Hosni Mubarak to depart his current position as Pres. of Egypt before midnight ET 28 Feb 2011"

The contract is currently trading at bid 45% ask 50%.

This price still seems low to me. US support for Mubarak is quickly weakening. The protesters seem very determined. Ground reports indicate the army generally has a good understanding with the protesters and they are unlikely to do what is necessary to keep Mubarak in power.



 There was a Spencer Tracy movie on this evening: 1954's "Bad Day at Black Rock".

Besides being engaging in regards to prejudice against japanese americans during wwii in the USA, there was a really good line:

"A man is defined by what makes him angry".

T.K Marks replies:

Having never seen the film I don't know the context in which it was used, though it would certainly appear able to stand alone almost anywhere. A great, informative line.

Come to think of it though, the consequences of it's use remind one of a fundamental principle of dramaturgy.

That is, if a gun is shown on stage in Act 1, no matter how fleetingly or incidentally, that gun should be used before the curtain comes down on Act 3.

Or else the audience has been meaninglessly distracked by its appearance in the first place.

Similarly, I would imagine the same precept would extend from stage to screen. That is, if a character says early on that, "A man is defined by what makes him angry," then somebody at some point is going to "express" themselves in a most unabashed fashion.

It's almost guaranteed. The forces of proper structure would be cross otherwise.



Just finished this fascinating article, "Economist Revolutionizes Mapping of Genetic Pathway for Autism". Wanted to share. 



 One day oil spike wonders come to memory: a failed Soviet coup (19–21 August 1991) and Enbridge pipeline explosion of 2008. It took speculators two days in 1991 to sort out their buying fiasco– and return the prices to even lower than the original.

And when the pipeline carrying Crude to the entire United States blew up– it only took half-a-day for specs to get burned, though it took many weeks to repair the pipeline!

Watching your energy trade here…



 Just got done watching Juan Enriquez explain the future of genomics.

While the money-shufflers continue to promote the "We're out of the woods" scenario, take a look at this video ("seven years later") and see what a real entrepreneur is doing.

I've had him (Juan Enriquez [Cabot]) and his VC firm (Excel Ventures) on my Google Watch List for several years now. One might enjoy a couple of meals; while de Grey and Kurzweil remain in the prophetic camp, Enriquez is producing and investing in real advances that continue to remain little reported in spite of their potential to re-arrange much of our thinking.

59 minutes well spent.



 What is precisely the problem with the discussions of the gold standard?

Almost all of them use the term "gold standard" to refer to a world in which coordinated central banking already existed. A few discuss the periods before the adoption of the Federal Reserve Act, but none discuss the Constitutional origins and history of the standard and its relation to banking and legal tender. All the discussions take it for granted that "money" and the near-monies of credit are effectively the same thing. The Mishistas think this is a bad thing and that credit - i.e. fractional reserve banking - should be abolished (isn't it interesting how often Libertarian thinking ends up asserting the monopoly power of the sovereign). The faculty wizards think the unification of money and credit is a good thing - much the way the Unitarians thought abolishing that messy business about the Trinity would set us all free.

What Washington and Grant understood is that the gold standard can only function if trade sits on a 3-legged stool:

(1) A national Treasury that holds the government's savings, borrows money on the national credit and collects the taxes (2) A clearing house for exchanges and transfers of money and credit (3) A constitutional bank that issues the currency, redeems demands for specie by drawing against the reserve

The flaws of the Federal Reserve Act are that it merges (2) and (3) into a single entity. The result is a national accounting that effectively abolishes the Cash Flow statement.

The purpose of the gold standard was straightforward:

(1) It was to be a regulator of the invariable tendency of legislatures to start wars and make other "investments" that the government's revenues cannot pay for. (2) It was to allow credit to exist independent of the constraints of legal tender laws (3) It was to make the currency an accounting standard only, not a commodity/money/medium of exchange to be speculated in

It is hardly surprising that the people who want the government to spend more than it can reasonably earn and borrow more than it can repay literally despise the gold standard. It is equally predictable that believers in the kabalistic powers of economic calculation spent nearly endless amounts of time debating what the particular standard should be while ignoring the central requirement that the standard itself be immutable.

What is surprising to this Listista is that the appeal of Unitarian thinking remains as powerful as ever in matters of money while in matters of faith it has found its proper obscurity.



 1. One is interested in the thoughts as to whether Ford is a good buy now. It would seem that we must have reached the stage where when a company doesn't beat e expectations and it is hit down, there must be ample opportunity to pick up a few bargains, but my former partner likes to point out that my knowledge of automotive is typified by once asking if BMW is a British motor to a very august Teutonic personage. I have subsequently learned that BMW is very useful for remembering the order of the 3 cross Brooklyn bridges, where I often take Aubrey by bike for banana splits at the ice cream factory.

2. It is interesting to read Fred Waitzkin's biography of Kasparov where Kasparov will tell Waitzkin out of the clear blue sky that this is the same landing that occurred in a 1964 game, and Waitzkin pretends to be savvy and somewhat appreciative. The same thing must happen as we talk about what happened in 07 or 97 or 87 or 29, and point out how present similarities are related to it. The liberal that our former consulting psychologist works for is famous for having noted that the first month of 1987 was similar to 1929, and thus he became very bearish, and knew that Oct 19, 1987 was going to be a disaster, and the former partner of the palindrome then used this to reverse all his positions Monday morning after the opening down 15% on the day, to get short. What fools these mortals be.

3. Some poor fool wants to write a book in part about me. He lives in Italy and doesn't know how I have fallen. But he asked me why I was so good at racket sports, even though on that physical test that they have passed around, recently that my friend Lack says they use to train athletes, I would rank in the bottom third as I am neither fast, nor strong, nor balanced or graceful. I have to think about this in trading also, and wonder if there is any reason that I sometimes am successful there.

What I wrote to him was I practiced against myself. I took notes. I followed the rules of eminence of Francis Galton. Organization, persistence, and I practiced from an early age. I had a nice balance of risk and reward in my game, and trained so that I would not get in over my head. I liked to hit the three wall shot where you could make a point on the third wall, but were so far over the tin that you didn't have to worry about making an error. I played a relatively errorless game in squash. I never tried too many great shots. My checker proverbs of Tom Wiswell are very great and contain infinite wisdom on these points. One of the things that Tom said was "take care of the draws and the wins will take care of themselves". One thing I learned was never to showboat. It's best not to mix romance with competition as it leads to showboating. I'll think about this last some more.

4. It occurs to me that the same reason the Knicks always lose after winning from a good team is that the shots they take have random trajectories. It's part of the regression fallacy. Every now and then, they go in and there's a high chance component to the game. The next time, the skill factor is constant, and the randomness goes away. This is a reason also that markets never do the same thing twice in a row.

Ken Drees writes: 

I heard on Fin TV that f never did take bailout money as they did the play by play for the recent severe drop–so f seems to be due for kicks to the body for payback for not drinking from the cup of bailout. There may be some further revenge in for f.

Seems like HRB is still on radio ads touting tax return expectation loan availability–fyi.

Dr. B Humbert Comments: 

August, 2010 was also going to be another 1987/1929 period, and I have learned that it is wise to take profits based on a linguistic count of the word "parabolic".

Perhaps my greatest asset as a psychologist is that I've become reasonably sensitive to the tone and language people use when they speak from genuine conviction vs. a felt need to project conviction. I've never known a trader who was profitable to complain of "manipulated markets". Many bears talk loudly of how the Fed's manipulations have undone their otherwise accurate forecasts.

That and the lining up of charts reminds me of those social psychology studies of the cults that predicted the day of the world's demise. When the day passed, cult leaders used various rationalizations to explain how their faith had postponed the day of reckoning, etc…The more discredited their predictions, the louder they proclaimed their faith. We've been on the brink of a fifth of a fifth of a fifth wave for a while now; thankfully there are always alternative wave counts (that no doubt end ever more bearishly down the road).

dr. b

Mr. Krisrock writes:

The book should be written–for the lessons for life that sports belie. Athletes understand that loses are part of life's experiences, and renewing oneself to win again is more important than most individual's temporary success or failure. In squash you can't blame anyone for a loss except yourself, and you can learn from losing to defeat your opponent and regain success…



 Egypt – a new pyramid scheme?

My newest Tweet:

Though it's cool to back the Cairenes, it's uncertain protest upshot will lead to a pro-West replacement ~ Will this now exacerbate the Mideast mess?

We are conditioned from the–Iranian, failed–Green Revolution (and latterly, the Jasmine) that these street-spontaneous uprisings are 'good,' but in fact, it has both short-term and long-term consequences that are not known and unknowable. Both of these short- and long-term paradigms, however, are shaky for a solid footing on which to base the expectation of mooth relations with the West. Short-term, the price of oil is sky-rocketing, as a fast-and-easy way of measuring the instability of the moment. but even long-term, the likeliest substitute leaders for Egypt might well be worse than the incumbent of the past 30 years–should the Brotherhood come to the fore, the treaty with Israel is of course shot, and there is little expectation that the Egyptian new administration will honor that piece, even if they forego the usual US $1.8 B foreign aid to Egypt, and even if that does not strike observers as very momentous: It is. the domino effect is deeply being felt here, and the net result of all these eructations in Tunisia and now Yemen and Egypt might not be the idyllic result we unconsciously root for.

much as i hate to admit it, the sluggishness and peculiar molasses-reactions of our Administration might instead be based on better Intel than has been shared thus far, and is to be explained by the caution advised by our ears and eyes on the ground that predict a rather worse outcome than the roseate sentiments of the moment. Saddam's insurrectionist town centers come to mind–we thought it was a picnic at fiesta rock when he was deposed and de-statued–but the result was an unseating of the delicate equilibrium vis-a-vis Iran that is our current and future nightmare.

Egypt is the fulcrum in the region, and its stability and hegemony, even if grudging, was a key element. Now we have historic seismic shifting, and no telling what forces will wrest ultimate control. this being the MidEast , it is not an easy guess what ultimately will redound to the contemporary euphoria.

Can Washington be so very out of the picture with their measured support for a dictator? and their reluctance to back this 'revolution'? Or can this mean that Yemen , Egypt , Jordan, possibly other nearby states will be in temporary flux for the next few years, with oil costs reflected in this indecision, at $4/gallon again, on our hugely fragile so-called recovery– and the recovery of our allies?

Exulting on our part is, it seems to me, premature.

Paolo Pezzutti comments:

What is happening in Tunisia and Egypt can be seen both as an opportunity and as a risk. Markets have not considered at all the events in Tunisia, but they are concerned by the situation in Egypt, because of the importance of Suez and the vital role of Egypt in that critical area of the Mediterranean. The question is: are these countries moving toward more democratic governments? Or there is a risk to witness an Iran-like evolution (or involution by western standards…) of the situation? What if their neighbors experience similar shocks (Lybia, Algeria for example)?

The emergence of an arc of instability could have important regional and global consequences. At the same time there is a historic opportunity to move toward democracy. Markets on Friday moved quickly to the downside, and gold and the dollar recovered a bit as "flight to safety" seemed to be predominant. Markets perceived risk more than opportunity. It remains to be seen if this perception is going to stay. Or as it often happens it is only a buy on dip opportunity for the stock market. Interestingly, associated to the news from Egypt some reports from corporates pushed stocks lower. (Why bad news come always in clusters?). In fact, news about Ford and Amazon which posted very good results (but not enough apparently) made the stocks tumble (-13% and -7% respectively). One is made to think if also the perception of earnings expectations is changing. One analyst commented about Amazon (which went up 50% since last July): "When margins go the wrong way on a high-multiple stock, you get a correction, like we are seeing today.”

However, he maintained his own outperform rating on the shares. Instead, Ford's fourth-quarter profits were nearly half of what some analysts expected. It is interesting, however, to see how change always occurs unexpectedly and swiftly both in social systems and in markets. I am far from saying that the long uptrend is over. Many will continue to buy on dip for quite some time, but the doubt is out there and shorts may try once again on different grounds. After the "military" campaign based on the European sovereign debt may be over (at least for now), uncertainty about situation in Egypt and on stocks high evaluations could be a ground for confrontation.

A new battle may have started.



 I love my enemies– need them in fact. They give me reason to get out of bed in the morning. I pray for them– I pray that God doesn't let their miserable lives end just yet, before I can execute the machinations of my rather sick individual revenge. Enemies…..keep life interesting.

And it used to be that I would recommend they see the movie "The Bad Lieutenant." But now, I have encountered one that exceeds even that — "The Black Swan." For those I really hate, please see this movie, take the whole family.

Enjoy the psycho-lesbian scenes, cunnilingus for kids, the blood, self-mutilation, all the little scenes designed for no storyline reason but cheap attempts to shock, the relentless dialog of vulgarity for the sake of shock value (which, I apologize to my fellow movie-goers for laughing throughout– the transparency of the cheap shocks for no reason just struck me as brilliant comedy).

So if you know you are on my "Katrina list," please go see The Black Swan.

Victor Niederhoffer writes:

Mr. Vince's point is brought out by Waitzkin in his bio of Kasparov. Kasparov offered Karpov a draw in their final match because he didn't want him to be too far behind as he needed this dreadful enemy to give him power, and ammunition for the future. Sort of like the dance that the stocks and bonds or gold and crude play with each other.

Russ Sears writes:

While I never got to the point that I dominated my competition but ran some of my best races when the competition was a step above me…including my best marathon time where I was 7th place overall, but top USA. Yet there were many workouts where I would take it easy on the others so they could finish and I would have someone to push me at the end.



 As a person who has an advanced degree in Physical Chemistry, this article about the Italian Cold Fusion saga piqued my interest. Reading the article, the papers, observing their high school attempts at being scientific, and looking at the amateurish lab equipment makes me adopt a "wait and see" attitude, the same attitude I adopted when the guys from Utah announced their debunked "Cold Fusion." I think my "wait and see attitude" will still be in effect in the next hundred millenia or so. One key caveat was when I read that Zero Hedge, Popular Science and other minor players were interested, and the AIP Journal, Journal of Applied Physics, and International Journal of Applied Physics wasn't included, and showed no interest. I like to question why do these pseudo breakthroughs always come from minor league universities and research facilities, and not from MIT, Cambridge, Harvard, Caltech, Rensselaer Polytechnic (The Toot) etc? These attempts and vast pronouncements that crop up every decade or so and defy every conceivable law of science, and frankly, they bore me. Somehow, I suspect that there are gullible investors involved who are chomping at the bit looking for free energy and untold riches. Frankly, I wish they would perfect a perpetual motion machine and do away with all this ballyhoo..

Rocky Humbert replies:

Jeff: One cannot help but smile when one notes that the research was done at the eponymous University of Baloney. (I've forwarded the paper to my brother who has a Princeton PhD in Plasma Physics (say that five times fast)– and who changed careers after both developing a stutter and concluding that we will not see commercially feasible fusion in his lifetime.)I may have already shared this seminal MIT paper– which tests the Effectiveness of Foil Hats … with surprising results. Interestingly, ZeroHedge has not mentioned the paper. See this article.

Michele Pezzutti comments: 

Jeff and Rocky: have you spent more than five minutes in doing research on comments and opinions on their work before brushing this off? Or you have just stopped looking at the words 'cold fusion', the picture or the name of the University? By the way the University of Bologna has very ancient origins, it is considered the first University of the Western world. Conventional date set by a committee of historians dated the origin of the University of Bologna in year 1088. May be it is not cold fusion but an efficient way of producing energy anyhow and deserves attention and funding. And regarding the amateurish lab equipment, many scientists started their work building their own equipments in an amateur way. Is it really true that great discoveries can be done only by huge and rich institutions or it is more the individual genius that matters? Where was Bill Gates when he created MS-DOS? At MIT with a team of 300 scientists or in a garage with a friend? 



Gary pushes:

"Goldman Exec Wants More Regulation — of Hedge Funds, Not Banks"

Gary Cohn is concerned about under-regulation. The shocking thing about this is that Cohn is president and COO of Goldman Sachs — not exactly a proponent of regulatory overhaul. The not so shocking part about his view is that it refers to under-regulation of hedge funds and other businesses Goldman doesn't run…How many hedge fund managers do you think were rolling their eyes during this speech?…Well, at least one hedge fund manager at Davos told the FT that Cohn's remarks were "self-interested"

But hedgies push back:

Mr Cohn's speech has since drawn criticism from some of the hedge fund industry's most well-known names – including clients of the investment bank – which have interpreted his remarks as an attack on their activities…"These statements are just false. Hedge funds are regulated. We didn't cause the financial crisis. We didn't take bail-out money," Richard Baker, the president and chief executive of the Managed Funds Association, the industry's main trade association, told the Financial Times…"



Glancing over the GDP numbers it is comforting to know that, in the era of belt tightening and austerity, real non-defense government spending has increased 15 out of the last 16 quarters and a healthy 3.7% most recently. Real estate and job growth in the Potomac area looks strong.



There has been a noticeable drop in Gold open interest. Since open interest is definitely declining, look at the players. Who is doing the buying here? The Commercials. Small Specs and Large Specs have been liquidating.



I'd like to share this thought provoking article, "It's Time to Make Insider Trading Fully Legal":

The newspapers in recent months have been full of bombshell stories about insider trading on Wall Street. According to an account in the Wall Street Journal, "the investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in US financial markets, including new ways nonpublic information is passed to traders through experts tied to specific industries or companies." The basic argument made against what its detractors call "insider trading" is that the ability to act on nonpublic information creates an unlevel playing field that decreases faith in the stock markets themselves. If access to information is made equal, small investors will allegedly feel more comfortable placing their savings in the markets.

One problem with the above theorizing is that what most deem "insider trading" has never been defined by lawmakers or the courts. Worse, not considered enough is how both the economy and investors are harmed when necessary information is obscured, thereby perpetuating unrealistic share valuations.

Ultimately, it should be said that to ban insider trading is to block use of the very information necessary for markets to function properly. The better solution is to cease prosecution of what is already vague, and in the process reward market sleuths whose efforts will ensure properly priced shares, and in the case of poorly run firms, no further waste of capital.

Read the full article here

Dylan Distasio replies: 

I would assume the author of this article is attempting to ignite a controversy, but I will go a head and take the bait… He writes:

One problem with the above theorizing is that what most deem "insider trading" has never been defined by lawmakers or the courts. Worse, not considered enough is how both the economy and investors are harmed when necessary information is obscured, thereby perpetuating unrealistic share valuations.

To this I would reply: "When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck." or perhaps in the vein of Stewart "I know it when I see it."

Here's an example of what I'm referring to, although in this case, it's a goose not a duck:

Insider trading is an economic plus. Arguably the greatest reason that governments should encourage insider trading has to do with economic growth. To put it very simply, we live in a world of limited capital, and insider trading ensures that share prices will reach fully informed levels as quickly as possible.

To encourage the opposite, as in making insider trading a crime, is to delay the happy process whereby companies achieve a fair price. To the extent that market altering information is kept from reaching the marketplace, companies doing what investors want will necessarily not receive as much capital as they otherwise might. Poorly run companies will receive more capital than they can efficiently use.

This is a laughable justification…Insider trading doesn't help share prices to "reach fully informed levels as quickly as possible." It helps the few with privileged information line their pockets in an unethical manner. The fact that it is insider information by definition dictates that it is not being disclosed publicly and thus does little to allow share prices to quickly reach a new equilibrium. A public news release that a company didn't get expected FDA approval for a new drug, as in the recent case of MNKD helps the stock reach a new equilibrium rapidly.

Hypothetical insiders quietly dumping their shares and trying to cover their tracks as best as possible ahead of a news release serves no one other than themselves (This comment is not in reference to MNKD).

I thought I had seen everything until I read this article, I apologize in advance for feeding the troll.

Rudolf Hauser writes:

An officer or director of a company has a fiduciary duty to represent the interests of the company's shareholders. As such they should not be allowed to use material information about their companies that has not yet been reported to the public and shareholders for their personal advantage in changing their position ahead of shareholders in response to either good or adverse developments. Such insider trading should be subject to breach of fiduciary duty legal actions to reclaim an any advantage plus punitive damages. Given that a company with many small shareholders might not find it advantageous on an individual basis to sue the SEC should have the power to sue on their behalf. Those involved in arranging deals, etc. likewise have a fiduciary duty to the companies involved as their clients not to act on such information. This is what the law would look like if I were writing it.

When it comes to others who are not in a position of fiduciary duty, I too would not make such use of non-public information illegal. If the news is positive it provides the seller with a better price than he or she would otherwise have–which helps rather than hurts them. Likewise, with regard to such selling on non-public information, the investor intent on buying receives a lower price–which again is to his or her benefit, not detriment. The only ones who might be hurt are those who might decide to act based on the new price before the full impacts of the developments in question are reflected in the stock price. I would guess that the former are more likely than the latter instances. The wider the scope of what is called insider information, the more nebulous the concept and the more it discourages analysis. For example, if one has many industry contacts who can provide a feel for industry trends without any providing what would be considered information in itself, at what point does the interpretation of the law become so broad that having such a information network is itself considered inside information? The regulators have a tendency to try to keep expanding the reach of the rules they impose.

But of course, I am not the one writing the laws. So whether good or bad, the law is what it is and should be followed until such time as it is changed by proper legal process.



It's interesting how the continent is so fearful of inflation and the colonies so fearful of unemployment. Both worries are rooted deeply in history, and the result has been playing out over the last several weeks in currency.



 I'm told by a colleague that the rogue's gallery of Bear Stearns mortgage characters profiled in the Atlantic Monthly piece yesterday have found themselves cushy little spots in the other IBs churning out new and improved product. And so it goes…

Russ Sears replies:

While I assume the title to Vince's post "Prepare For The Next Debacle" is tongue in cheek, I find this a defeatist attitude: Not worthy of an optimist's website. Leading to the inevitable conclusion that the only way to win is to cheat. This attitude leaves us without a knack for such to look for the worst possible people for us to partner with.

One of the most dangerous lies we often tell ourselves is that "I am glad he is on our side" when we see a politician, lawyer or salesman double dealing with a third party. The more brazen and egregious the offense the more we love them. If they barely escape prosecution with only the shirt on their back, they will still be in demand. If they leave a wake of destruction, but personally profit from the ordeal, we celebrate them and their stock goes up. These con men will never lack for lovers, business partners or clients willing to get in bed with them.

It seems the biggest dupes, in the end, are those eager to believe that there is honor amongst thieves. That he may be a crook, but at least he is "our crook". What the con fears most however, is not his partners, but all his small victims organizing against him. When they naturally do they gladly sell their "partners" out. If they are willing to cheat the little guy, because they can, you can beat that they will gladly sell you out when they must. If the clients interest is not first, then you can beat that you, without the stomach to personally do such deeds, are a distance third in their minds. Somehow it is overlooked that if they are so willing and in fact are eager to cheat the client, the life blood of any industry, that they can be trusted by the industry.

I believe this is drawn from an over abundance of cynicism. There is a fine line between recognizing the temporal advantage of the flexions, the cheats and the con and believing this is more powerful than the power of the crowd or mutual benefits of cooperation.

When you are the victim of such a con, it is easy to see the zero sum game. It seems for every winner there must be a loser. The con seemingly gets the easy win, without all the hard work. It is difficult to look to the larger picture. It is hard to look beyond your current predicament, to see a world full of opportunities to create mutual good. It is hard to imagine that the predator's life is a rough one. From a closed system of wealth it may appear that theft is the only way to improve ones lot. Further it is a fine line between spotting one cheat that has "made it" and saying all those that make it are cheats. As an individual it is hard to beat a con head on at any one competition. However, as a group over time, their lot is much less appealing.



The more I learn and the more I experience the vicissitudes of life, (and the more aware of my ignorance I become), I think more and more that the wisdom of musicals, especially those of Hammerstein and Ira Gershwin, is especially poignant and sagacious.

Whenever I give advice, I find myself going back to things that I learned from my favorite musicals. I recently told a damsel in distress (one of my card's imperatives besides creating value, destroying ballyhoo, and fomenting revolutions) to listen to "September Song" by Kurt Weil and "Diamonds are a Girl's Best Friend".

I have to expand this thread to market wisdom but don't have the knack that the collab or my brother has in this regard. I believe because the musical word is so much slower than reading, and the scenes have to be so focused and riveting, and they have to appeal to the common American thread that the successful musicals are forced to get to the common nitty gritty that keeps one's feet on ground.

Alex Castaldo writes:

To be in Chair's trading room in August with the temperature 97 F and the musical Carousel playing for the 100th time is indeed a learning experience. 

George Coyle writes:

 Well put, Doc. I had to walk outside into the cold for a second just reading that.

I wasn't a big fan of musicals until I heard them all several hundred times last summer, then they kinda stuck. I find the interesting thing to be that human psychology never seems to change as the messages inherent in the various musicals of the 40s-70s are the same things you hear today adjusted for the times.

The market takeaways to me are:

1. Patterns exist in musicals and markets, find them and potentially reap the benefits

2. Human psychology hasn't changed as evidenced by many of the themes in musicals still being applicable today. In as much as collective human psychology governs markets, markets probably haven't changed much either.

3. Sometimes a 3 minutes song can outdo a thousand page novel at describing some phenomenon…at times keeping it simple beats a lengthy analysis. 

Ralph Di Fiore writes:

 I totally agree with you Victor. My all time favorite musical is the Fantasticks having watched it in Manhattan. Several of the songs from the Fantasticks have wisdom in them that would have saved immeasurable grief in the lives of some families I know (not my own thankfully) had they heeded the wisdom of this musical. One song from the Fantasticks screams out at me when I think of an older gentleman who botched up his family life and has an estranged son but this individual loves spending time in his garden. The closing line from the song Plant a Radish:

Plant a cabbage.
Get a cabbage.
Not a sauerkraut!
That’s why I love vegetables.
You know what you’re about!

Life is merry
If it’s very
A man who plants a garden
Is a very happy man!

A vegitari-
Very merry

Another family had a daughter that brought home a young man and asked her pa what he thought. He hated him so guess who got married… Here is the line from the song entitled Never Say No. Again from the Fantasticks:

Your daughter brings a young man in,

Says ‘Do you like him, Pa?’
Just say that he’s a fool and then:
You’ve got a son-in-law!
You’ve got a son-in-law!

Keep up the great posts, Victor.



 Part of the Russian film Festival at the Walter Reade Theatre at Lincoln Center.

Saw "Seven Bullets" today, a mixture of "Taras Bulba," "Gunfight at the OK Corral," and half dozen knife-slinger fighter cowboys vs. posses/aka guns-for-hire set in the harsh Russian steppes, with blood-thirsty horsemen and soldiers in the Soviet revolutionary war years of 1917-1920. The amazing horsemanship and gunplay, shootings, stabbings, burnings, imagined revenge for killings by wrongly identified people ("No, my son, that is not the killer; your brother's killer was handsome, and much shorter"), is alleviated only momentarily when one sees the brilliant white teeth of all parties. Real bad-guys and counter-bad-guys of that time would surely have had terrible teeth by the time their clothing got that grungy. The interesting difference between this film is that there were no stuntmen doing these leaps onto spirited stallions, or flying from building roof to saddle, or rescuing the unprepossessing young woman who is affianced to one eye-patched tribal leader "for 300 rams"–and men in both sides of the frequently changing sides are Soviet Muslims, stopping to pray inside their prisoner's cells, or facing their prayer mat hung on the yurt wall. Seeing the Russian or soviet mindset refracted through a somewhat primitive understanding of the cult of the moment is frankly fascinating, and a new theatrical experience on a number of levels.

The scenery is austere. It is also ravishing, hard and unvisited by many prior films in our acquaintance. The tiny snarky font shown by the filmmakers, and you can miss it if you aren't attuned, is the etiolated background theme from the TV show, "Mission Impossible," which detracts from the hellfire seriousness of the goings-on, but reminds one that one is watching a film, not brutal hired soldiers en route to delivering a bride-to-be. The color palette seems confined to dusty, umber and dirt-russet alleviated by black and leaden grey. The bride-to-be is a shy filly, not anyone's Hollywood idea of a knockout, but she is passionate and spirited in defense of the cavalryman she has fallen in love with. The purchaser/groom is decades older, of course, and—we learn—not really a be-caftaned and kris-decked bachelor. The men in the gang of horsemen must have families, because mention is made of their family members being trampled or knifed or hung or whatever, but we don't see these back-stories, so any sacrificed wives and children have a porous immateriality. Missing among the overacting and strident facial expressions: Yul Brynner, for whom this would have been catnip.

When the shooting commences in a silent, deeply canyoned village, perfect for an ambush, the audience cannot figure out which team to root for, or who is what, since they none of them wear identifying colors, and the action is nonstop bang-bang for quite a time.

 It is not a fun movie, but it is a rich sociological document. The Asiatic Russian tribesmen, as well as the handsome cavalry riders (no telling which were the necessarily good guys, which the bad, since both seem astonishingly fierce and whacko, except when they show the slightest mercy for the hapless condemned–just a moment, mind you)–speak a tough but clear Russian, and the translations are serviceable.

This film is exceptional in being less than the usual superb Russian lenser output, such as the remarkable Alexei Popogrebsky's "How I Ended This Summer"~ two men set against the icy sweep of the far North at a Russian radiation-measuring station. The two men, one a grizzled vet, the other a green newcomer to the field, interact in ways that keep the mind and eye glued to developments in mood, temperament and story twists, along with the strong 'character' of the rough glacial scenario itself, its unforgiving nature and sudden shifts. This film, nuanced and restrained, but taut from start to finish, lingers long in the memory.

In Russian, English subtitles.



 My friend Rocky's view about calmness being continuous is consistent with the gestalt theory of least observable differences of Fechner and Redel. The frog jumps (has it been tested) when placed in boiling water but stays if it's gradually heated. One imagines one could go to jail for testing. (Certainly wouldn't make it to our web site since our editor is a vegan). Anyway, Redel always said that when they want to keep you in they go down gradually, but the big declines are the end of the decline. All must be tested for each market under different conditions. Nice declines in crude recently. 7 in row and natural gas.

John Humbert writes: 

I think it is important to ask a few questions about this move in Gold:

Is it driven by changes in inflation expectations, the ability of CB's to reign in liquidity, etc ? For example, gold spiked right after the ECB meeting, then after Trichet comments it turned lower.

There are a lot of other "consensus" views out there, and what might this portend for them if driven by the above factors or others? For example, equities, industrial commodities, currencies?

One need not look far to some of the short Euro long anything else trades over the past few weeks to see some consensus unwind.



 Today I made a Delphic prediction when asked: "should be opportunities on port and starboard. But best not to talk to me unless in response to a query or order while I'm on quarterdeck with enemy in site".

This is the kind of thing that kept Delphi in business for a few thousand years. Completely unfalsifiable. Also, it keeps the range bound boys in business, and the wave and Gann boys in business also, as well as the media when they say something resembling a forecast that isn't a quote from someone with a position.

It also occurs to me that this is the kind of prediction that confirms in your enemy's mind that one is a horse's ass and in your friends minds, they thank you profusely for your wisdom.

Jeff Watson writes: 

It occurs to me one could make an excellent living as a financial reporter, financial guru, predictor, prognosticator by learning how to "Cold Read". Applying these methods should impress the general public with one's financial acumen, prescience, and ability to make money. Truly masterful technique allows one to blame the public for their failure when things don't turn out as described.

The best cold readers don't say anything of meaning, and just allow the victim to internalize and believe what they already thought. Cold reading is usually done by fortune tellers, mentalists, con men, and other charlatans seeking to remove money from the wallets of their victims. Here's a good twelve step method on how to learn cold reading. With a little modification of these techniques and an audience, you'll be on your way to richness, and everyone will think you are a genius…..

Remember Chaunce the Gardner, Jerzy Kosinski's creation in Being There, had the highest levels of society fooled and he wasn't even a cold reader… he was just an example that demonstrated that "People will believe whatever they want to believe as long it is an affirmation of their belief system.



Here is a fascinating "CIBOARD" series from the St. Louis Fed.

Mr. Krisrock writes:

It's clear that inventories are peaking and that seasonals can't account for the extreme cold weather and the probability of a weather slowdown in European and North American sales which the Russell2000 underperforming the Dow may demonstrate…so the need to borrow cash right now is high with inventory raw material costs rising in many items. Right now there are many similarities to 2007 patterns, including the rising volatility in stat arb fund counter funds. Finally, there is high likelihood of higher ranges in the week after a democrat delivers a state of the union. With the market above its 50 and 200 day MA, theories of 1220 gold and lower crude are making the rounds…



 While reading this article "Buying Home Is Cheaper Than Renting in 72% of Big U.S. Cities", I started thinking that one of the major errors of most debt deflation theories of our current predicament is their repeated failure to take account of the fact that by and large rents have not changed in the United States. Namely, it is our expectations of the future (and all the economic activity commensurate with such expectations) that have undergone radical transformation, not the set of possible uses of resources in the present.

This is equivalent to saying a society for which the PE ratio of its equity assets declines is not in and of itself getting poorer.



David "Buy Everything" Tepper Will Make An Encore Appearance on CNBC Friday

 Ken Drees comments:

There must be a huge request list for his bullish tunes—second time around play–eh?

Craig Mee comments:

Like a trend, while in the top 10 and runs on the board "I'm all ears" but be quick adjust to those melody changes.

Anatoly Veltman writes:

Tepper comes across a totally brilliant man. His September Bullish call at near 1000.00 SP came out as simplistic no-brainer, and it did mark acceleration ofthe upside trend. Tepper's current call is widely perceived to predict 1500.00 SP within a year, although he did remark that current near-1300.00 market contains that much more technical risk - in pursuit of the fundamentally-justified gain.

It's hard to understand why perception of currently-embedded risk appears to completely escape just about anyone's attention. I contend that current market condition, technically, will not allow much enjoyment over 1300, period. Let alone the distant 1500 prospect. We have the market that nobody appears to want to Short anymore; everyone speaking about the market is totally spent out of any will for Bearishness whatsoever .

Ken Drees responds:

State of the union and 12000dow / 1300 s&p nice rounds at a nice time.



The safety songs written by Irving Caesar one believes are beautiful and save a lot of lives.  "A boy stood on a railroad track it isn't the place to play I'd like to tell you the rest of the story but it's too sad to say. Let the ball roll."



I hypothesize that one reason for the well documented dry spell of every new york sports team is that it takes a coach of much rodomontade and swagger to land and keep a job in new york, witness the Knicks and jets, and they generate let downs and revulsion in their teams on the rare occasions they win, or more to the point their teams can be ground into oblivion in close games.

George R. Zachar comments:

The Knicks and Rangers reap monopoly rents in the largest US market regardless of merit. Their owner's indifference to quality is legendary among fans.

The Yankees and Mets both spend top dollar for talent, but one organization is competent, and the other isn't.



Burgers, by Big Al

January 24, 2011 | Leave a Comment

Best burgers I've ever grilled came about because i was walking through the local grocery store and noticed that they had the Steakhouse Elite ground beef from these people:


On sale for $5.69/lb. It's normally ~$10/lb, but I guess they weren't selling much so they marked it down to move it. I bought a package and brought it home and made the best gal-dang burgers I've ever tasted. So I went back and bought the rest and put it in the freezer. Not sure if i'll be willing to pay $10/lb once I run out, but who knows.



Since the Chair has periodically focused on IBM, a 12 minute video dedicated to their 100 years of innovation.

The Most Inspirational Celebration of Commercial Success Ever



Firstly, 700,000 people are dying every year in China as a result of the extreme pollution, according to the World Bank. They can’t be compensated at some later date with a wind farm. Secondly, and even more crucially, the West “cleaned up” largely by exporting its pollution to poor countries like China. As Watts puts it: “This model relied on those at cleanup stage being able to sweep the accumulated dirt of development under a new and bigger rug. When this process reached China, it had already been expanding for two centuries. Now “the waste [is] getting too big and the rug too small.” Where is China going to export it to? For how long?


A "plastic soup" of waste floating in the Pacific Ocean is growing at an alarming rate and now covers an area twice the size of the continental United States, scientists have said.

The vast expanse of debris – in effect the world's largest rubbish dump – is held in place by swirling underwater currents. This drifting "soup" stretches from about 500 nautical miles off the Californian coast, across the northern Pacific, past Hawaii and almost as far as Japan.

Ralph Vince Comments:

Nonsense. It wasn't "The West" that swept our pollution to China. It was the multinational entities that TOOK it to China because we (specifically, the United States) passed (and enforced) regulations to clean up.

I'm old enough to remember the stench of sulfer in my fair city, and to remember my father pointing out that the orange-rust-colored ribbon 48 stories below was a river.

The rest of "The West" followed in part. Everywhere else was always a pig sty, even absent the heavy industry which would be fleeing The West. Latin America is a pig sty, as is the middle east and, Eastern Europe, and, with the exception of Japan and Singapore, so is Asia. The subcontinent isn't even worth mentioning.

The academic explanation that the collective "West" swept it under a bigger rug is a lie. The United States would have loved to have kept those manufacturing jobs but the decision was made to move it to where they could pollute with impunity by the polluting entities themselves. Later, trade treaties with these places would be opposed by voters in America, but like the misnomered "Health Care" bill of 2010, would be crammed down the voters throats.



A study shows that round numbers pack a psychological punch, motivating pro baseball players The researchers examined the batting averages of Major League Baseball hitters from 1975 to 2008, looking for evidence that crossing the .300 mark inspired unusual effort in a season's final games (including sitting out a game, or an at-bat). If it didn't, the distribution of averages from .298 to .301 would be more or less random. The researchers, however, found that the proportion of players who hit exactly .300 was nearly four times greater than the proportion who hit ..299 (1.4% versus 0.38%).



My ten yr old is reading it now:

Cube gambling game mentioned — six sided cube, one side red the other five blue.

Red pays 4 to 1, all other sides house wins.

Says house always wins in long run–but no details mentioned on game, betting amounts.




 Pitt T. Maner III comments:

One notes that the price of beer has gone up to the point where many beverage companies are selling single, large bottles or 4-packs. Food stamp labels and codes are affixed to supermarket shelves and cashiers ask if what you have in your hand is actually cash or food stamps.

The trend seems to be to reduce sizes and amounts to hide the true costs to the consumer.

Lots of freebies too in Costco and local supermarkets to whet the appetite and induce spending.

Its an odd vibe in many ways. Perhaps companies will begin to even more closely track "spenders" like Vegas does gamblers and comp them accordingly.



WCVarones , another reprobate from coastal California, recently wondered how the Federal debt could increase by $3.55 Trillion in fiscal years 2009 and 2010 while, at the same time, the reported deficit increased by only $2.7 Trillion. Surely, the 2 numbers should be the same. Where, oh, where did the $850 billion go?

Varones noted that the answer could not be found in the Social Security Trust Fund, which had increased by only $320 Billion in that period. That still leaves another $530 billion - roughly 15% of the total amount borrowed - unaccounted for.

$100 billion of it can be found in "Government-sponsored enterprise preferred stock" - i.e. money invested by our Treasury in Fannie and Freddie in the form of stock rather than being lent outright. (The OMB does not show that any dividends have been collected.) But that means there is $430 billion (1/8th of the total increase in the debt) that needs to be identified.

Varones notes that the usual conspiratorial explanation has been offered - "crooked accounting". But, as any sane adult must know by now, whatever else artful frauds do, they never, ever have books that fail to balance. (True story: a client came to us once to complain that a private investment had failed. How could this be possible? The spreadsheets had been in perfect order, and every account balanced to the penny.)

The explanation for the missing 1 out of every 98 borrowed dollars can be found in the OMB Mid-Session Review statements. The mid-FYO9 statement shows a financial asset identified as "Direct Loan accounts" having a value of $196 billion at the beginning of fiscal year 2009. The mid-FY11 statement for the same account shows a value of $689 billion. So, over the 2 1/2 year period including fiscal years 2009 and 2010 and the first half of FY2011 the direct loan account increased by $489 billion. That more than takes care of the missing $430B.

Whatever the government's sins, it appears they are still keeping books whose numbers balance. BTW, those "direct loan accounts" are - surprise - "Student Loans".



In the school parking lot on the way to basketball for my son's game today I decided to do some "outside the norm driving" in the snow and ice covered lot. My son, used to my conservative and lawful ways, was very impressed with the donut skid around one hairpin turn and the other half donut around the parking area into a perfect parking spot.

"Dad, whoa what was that whoopee, yeah– oh wow do it some more". its like a movie stunt—

"Now son, you know I am an experienced driver and did you notice me looking front, rear and all around twice before I did each skid to make sure no one was in the way, coming or going, no chunks of curb, light poles, or other items in the way?"

"whatever Dad–you rock"

Reminded me of the time my father decided to do something mildly driving-wise illegal. He got on the freeway on ramp once (in our sexy station wagon (v8 engine), and just kept accelerating onto the freeway well over a hundred, put it into neutral and coasted to the next exit and got off the freeway. My heart was pumping as I looked at him and he looked at me as he floored it–he said he wanted to see if he could coast to the next exit, so he had a reason it seemed. I thought my Dad had this coolness in him that I never knew before.




Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."



Mises Institute has published a pdf of volume 1 of Rothbard's "Conceived in Liberty ," which provides an excellent overview of the history of the colonies from a Libertarian point of view. Many thanks to the chair who is especially noted by the Mises Institute for his munificence and appreciation in assisting in publishing this seminal publication in the electronic arena. This online publication is evidence of the superiority of the private sector vs the government as one speculates that the government and its agents would not even bother with a history that flies in the face of many popularly held conventions. Many of the popular, mostly undisputed memes include "Washington chopping down the cherry tree," "Honest Abe," and "The manufactured story about the traitor Benedict Arnold,' and too many others to list.






It's pathetic, stifling here in fact. We are governed by those who have no clue (regardless of party affiliation, or this thing would have been appropriately dismantled when either party held power in recent decades rather than only getting worse and worse).

I have to put on another two people — but I cannot do it here, I simply cannot. SS, payroll tax, the insanity of workman's comp., etc. You simply cannot hire someone and pay them — the obtrusive ass of government here, the absolute dead weight of that, is ever present, ever in the way.

It's pathetic and self-defeating; I take my little high school education (incidentally, NOT payed for by government, rather because I got accepted into a Catholic hellhole that was self-endowed, selective, and thought I would be more "cooperative" than I was), I never was assisted by the government in any manner, only impeded at every turn, I do things that create jobs, and have to do it outside the US.

And I'm not even doing it to save costs (as, I surmise, the major players in the outsourcing world are) but rather because the bureaucracy is overwhelming to me — I'm doing things and I don't have time for that crap. 



Research published online Thursday in the journal Science, found that students who read a passage, then took a test asking them to recall what they had read, retained about 50 percent more of the information a week later than students who used two other methods repeatedly studying the material and drawing diagrams). One interesting paradox illuminated by this research is that struggle helps you learn but makes you feel like you're not learning.

“When you’re retrieving something out of a computer’s memory, you don’t change anything — it’s simple playback,” said Robert Bjork, a psychologist at the University of California, Los Angeles, who was not involved with the study.But “when we use our memories by retrieving things, we change our access” to that information, Dr. Bjork said. “What we recall becomes more recallable in the future. In a sense you are practicing what you are going to need to do later.”
It may also be that the struggle involved in recalling something helps reinforce it in our brains.

Maybe that is also why students who took retrieval practice tests were less confident about how they would perform a week later.

“The struggle helps you learn, but it makes you feel like you’re not learning,” said Nate Kornell, a psychologist at Williams College. “You feel like: ‘I don’t know it that well. This is hard and I’m having trouble coming up with this information.’ ”

Continue Reading in the NYT

Peter Grieve comments:

I often use exams as teaching opportunities, because that's when their minds are really open and the adrenalin is flowing. I remember plenty of exam questions from 30 years ago, but very few lecture moments.



First, why are so many people unemployed? The answer is very simple.
Because there is no profitable work for them to do as present labor
rates. Thanks to previous meddles, the US economy focused itself on
building houses and importing geegaws from overseas for people who
couldn't afford to pay for them. This was a dead-end economic model. And
the end came in 2007. Now, the latest figures show an uptick in
manufacturing…which is clearly the direction to go. But it will take
years before the US economy has made the adjustment to a new, healthier
model…making and selling things at a profit.

In the meantime, unemployment levels will remain high.

But wait…there's more. For which the adjustment is taking place, US
authorities are trying to block it. How? By taking resources from the
new, unborn industries and using it to prop up the old, dying ones. Like
Wall Street, for example. The financial industry grew like Topsy in the
bubble years. It began to shrink in the crisis of '07-'09, but the feds
came in and pumped more than a trillion dollars into the financial
sector, producing record profits for the big banks, but depriving the
rest of the economy of much needed capital.

Not only that, the feds also take the pressure off labor to make
adjustments. Food stamps, minimum wages, unemployment compensation,
make-work, shovel-ready boondoggles - all these things cause workers to
think they can continue as before…that a "recovery" of the good ol'
days is just around the corner…and that they'll soon be earning as
much as they were in 2007. Maybe more!

Want to really fix the unemployment problem? Listen up. Eliminate all
bailouts, subsidies, giveaways and support systems - both to business
and to labor. Abolish all employment restrictions and employment
paperwork. All free labor - undocumented non-citizens - to compete
equally with native-born workers. Cut taxes to a flat 10% rate for
everyone. Abolish every government agency that begins with a letter of
the alphabet. Then abolish the rest of them.

We confidently guarantee that the nation would be back at full employment within 30 days.

Tyler McClellan comments:

 This whole argument is bullshit.

The productive industries are by their own choice and for their own
reasons net suppliers of capital to the rest of the economy. It's a
myth, complete myth that capital flows to where it is most profitable.
It flows from where it is most profitable to where it will be accepted.

Stefan Jovanovich writes:

I wish I could agree with Craig, but he omits a significant handicap.
Because of the catastrophic decline in the productivity of American
elementary and secondary and college education, the skill sets of
workers under 30 are far, far lower than they were in 1945 - 1955. The
transcripts are immeasurably more impressive that they were for people
coming out of the military service and leaving college after the GI
bill. That Army confirms this sad fact in its recruiting statistics. The
handicaps for inductees in WW II were that some had had very little
formal education and were underweight from having struggled through the
Depression. The Army found that these could be remedied with "basic
training" in the 3 Rs (Reading, writing and arithmetic) - usually a 3-4
month course - and some decent chow.

The handicaps for recruits now are obesity and the creeping dumbs -
almost all the kids from the inner cities and slum suburbs are fat,
illiterate and without any learning skills. No entrepreneur in his or
her right mind is going to hire these kids, even if Craig's hallelujah
miracle of sane political economy suddenly appears. Full employment is a
long, long way off - as far away for this generation as it was for
people like my father-in-law in 1930. He had degrees in geology and
petroleum engineering from the Universities of Texas and Oklahoma, and
it took him half a decade to find steady work - initially as a
roughneck. These poor (in all senses of that word) kids don't stand a

Gary Rogan responds:

While I agree with all the recommendations, guaranteeing full
employment within 30 day while possible contradicts some fairly recent
Nobel prize work (of course the very fact that Krugman has one
invalidates it stature, but still it's something to consider).

The work of the winners,
Professor Diamond of the Massachusetts Institute of Technology, Dale
T. Mortensen of Northwestern University and Christopher A. Pissarides of
the London School of Economics, is best known for its applications to
the job market.

The researchers spent decades trying to understand why it takes so long
for people to find jobs, even in good economic times, and why so many
people can be unemployed even when many jobs are available.

Traditional economics, after all, would predict that wages should simply
drop, helping the labor supply to meet labor demand automatically and
sweeping jobless workers into whatever positions were immediately open.

These researchers’ explanation addresses the complications that come
from searching for jobs and job candidates: it takes time for unemployed
workers to be matched with the proper opening, since people are not
identical, cookie-cutter units, and neither are jobs.

While all this may seem intuitive, in the 1970s it was considered quite
radical. The resulting insights about how search costs can affect
markets also helped revolutionize not only labor economics, but fields
like public finance and housing economics as well. The work is
especially relevant today, as policy makers try to understand and combat
the causes of stubbornly high unemployment in countries like the United

Stefan Jovanovich responds:

The equilibrium assumption behind the Diamond, Mortensen, Pissarides
study is fascinating. Why should there be any necessary match between
ALL the skills being offered and ALL the skills being demanded? Prices
can adjust supply and demand where markets exists; they cannot produce
demand for skills that offer no profit to the buyer at any price. The
neo-Keynesian fallacy is that money dropped from helicopters will cause
private employers to find profits in having holes dug and then filled up
again; the original Keynesian fallacy was that the government can take
money from the incomes of people whose skills are marketable and give
the money to the hole diggers without reducing the amount of savings
available for investment.

Scott Brooks writes:

Capital doesn't flow where it will be accepted, it flows to where the government allows it to flow.

America is like a sick body riddled with metastasizing cancer. Nothing
works properly in a body that is fighting for it's life. Nothing "flows"
properly. The "Body America" is riddled with the cancer of statism. As a
result, the entire "financial organ" of the "Body America" isn't
working properly.

Mr. Albert comments:

The 'Greatest Generation' had an enormous advantage. After the war,
the US faced essentially no mercantile or manufacturing competition, and
thus dominated foreign markets at a time of enormous replacement need.

It was easy for the unskilled and unlearned to find work in that
environment. This advantage lasted essentially for the career length of
that generation. Fortunate circumstances coupled with the wealth
transfer of government borrowing and spending fuels the illusion that
somehow they had it right and the next three generations don't.

Craig Mee writes:

Thanks Stefan and co. It
seems he brings up many areas, but at the heart of it, is protection,
and political correctness and slowly slowly, and looking after the
flexions. When in fact a case of strong medicine is often needed, and a
swift kick up the butt. 

Stefan Jovanovich comments:

Tyler makes the conventional mistake of assuming capital and savings are
equivalents. People, by and large, have been remarkably canny about what
they do with their savings as long as their money is immunized from the
manipulations of the government and the better class of people
(academic joke). "Capital" - that Marxist construct now used by central
banks presiding over fiat monetary systems - will always want to snuggle
up to the Emperor and the Praetorian Guard and stay as far, far away
from the unruly uncertainties produced by the getting and spending of
the plebs in the marketplace and their insistence of being paid in
actual coin.

Gary Rogan comments:

While there is something to the paradox of thrift as a game-theory
type concept, the idea that the government can solve it through directed
spending is one of the more evil ideas that ever occurred in terms of
practical impact.

Tyler McClellan comments:

I feel very confident in saying you simply
don't understand the paradox. you have likely never read it, have no
idea (unlike stefan) that it arises from the identity of private sector
account that savings must be equal to investment but that our motivation
towards the one is the opposite and equal of the other. That they are
intermediated by the financial system under any circumstance just at a
level that is previously not computable because it would require knowing
what everyone's planned savings and investment were prior to some of
their income being destroyed by or added to based on others similar
calculations. In aggregate society cannot save by dissaving.

Oh yes it can via the production of indeterminant claims by the
government which is a result of excess private sector savings demand
over and above each individuals in aggregate investment demand (real
investment as a flow).

Now Stefan is learned enough to admit that he at least simply doesn't
believe in the identity, which I must admit is too difficult of a
concept for me to think about after years of trying to have kept at it.

Stefan Jovanovich responds:

Tyler and I have a quarrel over the nature of money, and his is most definitely the majority opinion. Mine is the quaint antiquarian notion that (almost) predates utility curves. You find the odd vestige of it (like a kind of monetary appendix) in the valuation of gold at the price set by President Roosevelt's order under the Trading with the Enemies Act (the loophole that allowed the provisions of the Federal Reserve Act to be superceded). This pricing of gold at a U.S. dollar figure other than the current market serves no evolutionary purpose in a world where Tyler's tautology is not only the economic rule but also the legal tender law.

But these odd remnants of a past economic world should serve as a reminder that the idea that a bank's reserve should be specie - a monetary thing tangibly powerful enough to stop even the most severe breaches of trust - was once common wisdom. It is no accident that the term "reserve" came from military doctrine; a reserve was supposed to be the troops strong and brave enough to held back from the front lines with the understanding that they would be sent forward when the frontline troops had been routed. We have nothing like that now. The Reserves of the Federal Reserve and every other central bank are to be found behind the curtains of the neo-Mussolini architecture (both inside and out) of their buildings where there lie printing presses (excuse me - computer keyboards - with linkages so vastly powerful that no skepticism about the ultimate exchangability of the bank's units of "capital' dare be whispered, even by the girl in the ruby slippers. Until now, that is.

Those odd people who insisted that the Federal Reserve Act itself affirm the exchangeability of U.S. Notes (what were to become our Federal Reserve Notes) into gold under the Constitutional standard thought Tyler's aggregations were dangerous because they established a full substitution between money and credit in the name of "capital". Most of the time this aggregation did no harm; but when people were tempted to borrow and spend (as they had in the American Civil War/War Between the States) without any regard to whether the borrowings could, in fact, be repaid in money as good as gold, the ability of the government to create savings by simply increasing paper bank reserves was a fatal temptation. As we have seen, that temptation has been impossible for modern governments to resist whether the war is one "to end all wars" or "against poverty".

Gary Rogan writes:

Whatever the nature of money is, sooner or later there is a war that interrupts even the most stable tax/spend regimes, and there is never enough political will/desire/ability to tax enough to support it. Or there is a "crisis" and the voters in the next election are always more important than the ones in the following one. So sooner or later the government will find a way to corrupt the monetary standard. It just gets irritating when someone like Bernanke is p***ing on everybody's shoes an telling them this is the rain that will finally end the drought.

 George Parkanyi writes:

And what government/country/civilization in the past hasn't done this? It's the nature of the beast. Different regimes will do it a different pace, but the long-term historical result will be the same. Read Machiavelli's "The Prince". This is an excellent treatise on how politics relates to human nature. You could always try working your way into office and try to change the government, or become some kind of guru and try to change human nature -good luck with either.

Stefan Jovanovich responds:

 No, George. Machiavelli wrote The Prince as a satire. That is why the book was banned by the Pope aka the Medici's ally Julius II. Machiavelli was a republican - i.e. someone who thought tyrannies were bad because they were so ultimately stupid. Under the Florentine Republic Machiavelli was in charge of the militia and he insisted that only citizen-soldiers serve, breaking with the tradition of hiring foreign mercenaries. If you want to know what the man actually thought about "how politics relates to human nature", read Discourses on Livy. Machiavelli had no doubt that people can and do change the government and the world of political-economy they live in; it is the Princes who want us to think that history is a Hobbesian monotony.




There is a new book out with a mathematical perspective on the paradigm for future tennis:

Paradigm Shift for Future Tennis

One of the authors also has a piece about Who is Going to Win the Australian Open 2011 . FWIW his answer is Roger Federer.



 Ecology and Financial Markets is on the front page of current Nature.

"In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk."


and from


'Bananas, cacao and bee-pollinated crops are all threatened with collapse in part because of their monoculture management. When a biological or social system is full of uniform individuals—be they bean plants or banks—one shared weakness can spell disaster for the whole lot. Even when a new beneficial trait or tool enters the picture, if all organisms adopt it, as many financial institutions did with credit default swaps and other risky trades that led to the financial meltdown of 2007-08, a tenuous balance can be quickly upset, argued an economist and an ecologist in a new essay.

"Excessive homogeneity within a financial system—all the banks doing the same thing—can minimize risk for each individual bank, but maximize the probability of the entire system collapsing," Bank of England's Andrew Haldane and Oxford University's Zoology Department's Robert May wrote in their new paper, which will be published in the January 20 issue of Nature (Scientific American is part of Nature Publishing Group). Thus even as banks themselves were pursuing internal diversity by adopting new financial tools, across the board "banks' balance sheets and risk management systems became increasingly homogeneous," they wrote. And that similarity led to a vulnerable system.

A thoroughly interconnected food—or financial—web might provide the illusion of security, as "high connectivity distributes, and thereby attenuates risk." But as the authors pointed out, when a shock does hit the system, it will affect more institutions.

One way to combat this issue is to establish more self-contained "nodes" as has been employed in forest management and even computer networks, so that if one element takes a hit, it doesn't take down the entire system.

And rather than regulating with the aim of individual institution stability, Haldane and May noted, attention should be tuned to the overall system's risk. Like the spread of an infectious disease, financial troubles can be launched by so-called "super-spreaders," such as Lehman Brothers. By "focusing preventive action on 'super-spreaders' within the network to limit the potential for system-wide spread," regulators might be able to avoid the contagious hemorrhaging that occurred with the 2008 Lehman Brothers collapse.

Not everyone is convinced the ecological model is ready to be incorporated into policy-making decisions. Haldane and May asserted—and reasserted—that the dynamics they present are "deliberately oversimplified" and that "there are, of course, major differences between ecosystems and financial systems" (including preference of speed over long-term fitness and the interference of governments). Nevertheless, "rigorous statistical validation of any toy model or analogy is essential before policies are suggested," asserted University of Miami physicist Neil Johnson in an essay published in the same issue of Nature. By way of comparison, he asked: "Would you fly in a paper plane that had been scaled up to the size of a 747?"

But other non-biologists are ready to entertain the ecological model. University of Kiel economics professor Thomas Lux noted in another essay in the same issue of Nature that it is "essential" to "take stock of the accumulated knowledge on network structures when studying systemic risk in the banking sector."

Whether or not experts agree that biology is a useful lens through which to study financial markets, Haldane and May suggested that financial regulation is already "following in the footsteps of ecology, which has increasingly drawn on a system-wide perspective when promoting and managing ecosystem resilience."'

Gary Rogan comments:

Good article, but let's look at this conclusion:

'Whether or not experts agree that biology is a useful lens through which to study financial markets, Haldane and May suggested that financial regulation is already "following in the footsteps of ecology, which has increasingly drawn on a system-wide perspective when promoting and managing ecosystem resilience."'

To extend the parallel, who is it that's "promoting and managing ecosystem resilience", generally speaking, in nature? Since we were asked not to talk about religion, I won't answer the question but it's clear where the role of the system-wide regulator fits in this analogy. Of course most ecosystems reach robustness simply by following the rules of survival of the fittest, so it's interesting how a mostly good analogy is used to reach a politically correct, but unworkable conclusion.



World wealthiest man says charity doesn't work— rejects pleas from buffet/gates to give away fortune.



SGX, by James Sogi

January 21, 2011 | Leave a Comment

Heard that Singapore Exchange will get rid of its infernal lunch hour break.

Michael Cohn comments:

As someone who very much enjoyed my old 11-1 TSE break later revised during my tenure to 1.5 hours I regret the lost of civility. Started work at 7am. Exercised during the break. Would work perhaps to 7-7:30pm and home at 8 fully exercised and sated with the work experience.

Jeff Watson writes:

In the old days, I might have said that I would enjoy what basically is two opens and closes in a day, especially from a floor perspective. That being said, I'm sure that Mr' Sogi is relieved as there's not the opportunities today that were present in the opens and closes 20 years ago.



Some new studies have shown that chess and shogi use different, hidden parts of the brain.




"the bottom is always 20% below my bleakest worst case scenario". Author Unknown.

I am thinking of this saying and I am gazing at some metal stocks at the moment.

George R. Zachar comments:

I was explaining short selling to my teenage son last night, and had difficulty communicating the idea of asymmetrical risk. I settled on this: a long stock position can only go to zero. A short position can go to whatever your capital can withstand…plus 10%.

Craig Mee writes:

I was too considering quotes today, and feel that there is no better quote for markets , trading , p and l, the whole spectrum of speculating then the fairly well worn ..'the darkest hour is just before the dawn".

It seems to cover every area that needs to be covered.

The English theologian and historian Thomas Fuller appears to be the first person to commit the notion that 'the darkest hour is just before the dawn' to print. His religious travelogue A Pisgah-Sight Of Palestine And The Confines Thereof, 1650, contains this view:

It is always darkest just before the Day dawneth.

The source of the proverb isn't known. It may be Fuller himself, or he may have been recording a piece of folk wisdom. In 1858, much later than Fuller of course, Samuel Lover attributed the notion to the Irish, in Songs and Ballads:

There is a beautiful saying amongst the Irish peasantry to inspire hope under adverse circumstances:- "Remember," they say,

"that the darkest hour of all is the hour before day."

T.K. Marks writes:

Back in the pit trading days they can recall at times not being entirely above resorting to such folklore logic when the clearinghouse's margin call police came a'callin' about a half-hour or so before the open.

Ken Drees comments:

darkest before dawn always good–agreed.

I like the x% below the worst estimate because it illustrates that the market usually over punishes and it also amplifies the fact that markets have the ability to humilate my best and well thought out assumptions of value—knocking me off kilter. In this flash crash world –the markets can now pulverize any stock, anywhere, anytime.

Maybe an updated version would be:

"The bottom is usually a jaw dropping amount below my worst case scenario, intraday"



One notes limits in Bunds price size "84  478  83  292  82  533  81  43  80  1030  79  181  78  696  77  211" thus the even numbers show a preference from the public relative to the odd ( as is true for migratory salmon? )

One puts on the bath robe, and starts to walk to shower at 7 am,but sits down at the trading for a minute before hand, and gets up 6 or 7 times, but has not taken more than 2 steps, as he waits now for the useless weekly employment numbers, with their ersatz moves, too close in time to get in and out of shower.

Alan Millhone writes:

I am at VA in Chillicothe. I was up at six AM to shower. Dark at that hour and Market in US closed. If I were a trader of Dow only I would shower very early and no distractions.

Note watching news in lobby that DOW and NAS down nicely waiting for poor unemployment numbers to surface.



To what extent are the absolute maximum or minimums concentrated at certain hours of the day, and to what extent does this disprove the random walk theory, and are there any speculative possibilities that derive therefrom. As a first step, one notes many hours later in the day with many more extreme max, or minimums i.e. nothing higher before or after, and this is highly non-random as simulation would show.



Did people just jump in and buy the dip, or was that the result of legions of traders going flat overnight? Wasn't a huge move, but I kind of expected more of a panic.

Victor Niederhoffer comments:

One who was short and waiting could cover his shorts short of the big house.

Paolo Pezzutti writes:

…interesting to know if there is a ten minute effect…

Victor Niederhoffer responds:

Believe it much dissipated and changed in 2010.

Russell Sears writes:

What shocked me was the out performance of the Dow compared to the S&P, especially given the relatively low inter-day vol.

To check this out I did the following, took the ln close to close Dow - ln close to close S&P then ranked them. Today was rank 37th of the 2700 days I look at. Then I took this out performance divided by the max (interdayvol Dow, inter-day vol S&P) where inter-day vol is LN(high/low) for the day. This ratio placed was number one !

I do not know what this out performance means, but looking at the dates that "beat" today or came close did not bring pleasant memories back. They were 2000 to 2001 vintage then big time gap and appeared again in Sept 2008-Jan 2009 and another small time gap. This would indicate that when things get volatile and down it often best to be in the big Dow.

What this means with a relatively weak volatile period I do not know.

I will leave it to the reader to come up with a test to see if this is a indicator of Large over small cap shift that is reverse the small outperforming large gap the last couple of years.



The Edge Question of 2011 is, "What scientific concept would improve everybody's cognitive toolkit?"

Edge posed this question to some well-known scientists and thinkers, and their answers are at http://edge.org/q2011/q11_index.html

Here, for example, is Matt Ridley's answer

"…Human achievement is based on collective intelligence — the nodes in the human neural network are people themselves. By each doing one thing and getting good at it, then sharing and combining the results through exchange, people become capable of doing things they do not even understand. As the economist Leonard Read observed in his essay 'I, Pencil' (which I'd like everybody to read), no single person knows how to make even a pencil … The idea of bottom-up collective intelligence … is one idea I wish everybody had in their cognitive toolkit."

I have always thought the Pareto Principle is one of the great secrets of life, and Clay Shirky advocates it :

"You see the pattern everywhere: the top 1% of the population control 35% of the wealth. On Twitter, the top 2% of users send 60% of the messages. In the health care system, the treatment for the most expensive fifth of patients create four-fifths of the overall cost. These figures are always reported as shocking … Pareto distributions are nothing like [Gaussian distributions] — the recursive 80/20 weighting means that the average is far from the middle. This in turn means that in such systems most people (or whatever is being measured) are below average, a pattern encapsulated in the old economics joke: 'Bill Gates walks into a bar and makes everybody a millionaire, on average."

Pitt T. Maner III comments:

The concept of networks and how they grow is still being researched but it is important at many different scales in the biological, economic and sociological realms.



How can the lunacy of going up on increased sales above expectation and earnings below expectation go on , and isn't this a symptom of flexionicism ?

Vince Fulco responds:

Everyone being led to believe 4% plus growth is baked into the year for sure.

Alan Millhone comments:

There is a election in two short years and all need to be very wary of all stats coming out of Washington.

 On another note two local gas stations have been back and forth from 3.06 to 3.15 twice today. This afternoon I was at our ACF Bulletin printer and had a nice chat with the owner who like me is a small businessman. He feels when regular hits 4.00 it will be a killer for what he sees as a struggling economy. His business is in parkersburg , W. Va. The council there recently passed a 2.50 " user fee " per employee per week of anyone who works in the city. Yet the city has 1.6 million of uncollected fire and police and flood wall fees.

Craig Mee comments:

It could be a relative symptom of lack of striking negative news after a period of so much and then the shear relief of a being able to breath. Bit like a sick person, who is able to walk and go to the park, after months in bed but still has a chronic condition. When the immune system gets hit again, and white blood cell count gets nasty then it will be back to bed….but in the meantime , the flowers are amazingly beautiful.



In college basketball yesterday, #4 Pitt played #3 Syracuse. How's this for an unlikely start between two highly-ranked teams:

"Pittsburgh coach Jamie Dixon almost couldn't believe it as the Panthers built their lead — 5-0, 11-0, 13-0 and finally to 19-0. Syracuse missed its first 10 shots and nearly half of them weren't close…But as inexplicable as the 19 consecutive points were, so was Syracuse answering with a 17-0 run — a burst in which the Orange held the Panthers scoreless for 6 minutes, 35 seconds…"

When was the last time a game started 19-0 against a #3 team, only for them to immediately come back with a 17-0 run against a #4 team to make it 19-17?

How bizarre is that ? Sounds like an equation Mike D'Antoni would be a variable of.  http://sports.espn.go.com/ncb/recap?gameId=310170221



I am reading "Battle Hymn of the Tiger Mother," the book excerpted in the WSJ article for which Mr. Coyle kindly posted a link. Aubrey is taking Mandarin from a disciplinarian Chinese native, and I said I'd be interested in her opinion. Her reaction to the article: She was furious. She had grown up under just such a mother, and it wasn't a happy memory. Her mother would say, "I would rather have given birth to a piece of roast pork than you" to shame her, and the recollection still stung, years later. We may admire the Chinese kids for their "A" report cards, but they in turn envy the American ability to think "out of the box," innovate and found big enterprises.

I like Ms. Chua's style, and the book certainly is thought-provoking. I agree that the best way to self-esteem is to master a skill. However, the short biography she provides in the book provides an unwitting clue as to the drawbacks of the Chinese approach. At Harvard, she was unable to ask questions in class, as her instinct was to simply take notes on everything the professor said. When it came time for a job interview for a Yale professorship, she found herself tongue-tied and wasn't hired. (She did get the job seven years later, after writing a cutting-edge book on how ethnic conflicts doom democratic majority rule in the Third World.)

Dylan Distasio comments:

David Brooks responds to Amy Chua with piece titled "Amy Chua is a wimp ".

I have the opposite problem with Chua. I believe she’s coddling her children. She’s protecting them from the most intellectually demanding activities because she doesn’t understand what’s cognitively difficult and what isn’t.

Practicing a piece of music for four hours requires focused attention, but it is nowhere near as cognitively demanding as a sleepover with 14-year-old girls. Managing status rivalries, negotiating group dynamics, understanding social norms, navigating the distinction between self and group — these and other social tests impose cognitive demands that blow away any intense tutoring session or a class at Yale.



There was an interesting segment on 60 Minutes on 64 year old Bill Walters who apparently is a very successful professional gambler in Las Vegas who uses statistics and inside information to be a winner.

I never heard of him before. Any thoughts or more information on this gentleman.

William Weaver writes:

Billy Walters…betting the opposite side of a weak line to change the spread and then simultaneously hitting multiple venues for much larger orders before the line is updated.

Not too long ago when the price discovery of metals markets was floor-based, dealers would do the same exact thing, or at least try to, all day long. They would have a couple of different brokers in the pit each bid for a 100 lots of silver knowing that the locals would in turn bid in front of them a half-penny higher. All the while the dealer had a customer on the phone who doesn't have access to the floor and has no idea what is going on other than the prints on his screen. The price goes up and the dealer unloads his physical inventory to the customer, a presumed buyer.

If the customer is a presumed seller, say a producer, the routine is reversed.

It's all perfectly legal, and not remotely unethical as the dealer stuck his neck out by putting large bids or offers out there that could very well have been hit.

Such a seeming advantage is all part of any market's ecology and does not come without a price. There's always some barrier to entry, a hurdle that first must be overcome before exerting that kind of leverage.



Barney's Version is about a typical hypocrite mogul who as in every picture from Hollywood is a movie producer. Divorces first wife when he finds her sleeping with best friend, then divorces second one when he finds her sleeping with other best friend, but at same time at his second wedding, he runs away with girl he just met who likes hockey. Tries to kill his best friend, fights with his kids, develops Alzheimer's, treats his employees like dirt, tries to suppress wife's career, always drunk, or at bar watching hockey, disdains the rich, insults his father in law because they don't wish him to ruin wedding.

Deplores the Jewish Princess because she wishes him to use soap before getting romance below belt, loves his father who is interested in nothing but drink and woman, hangs out with wishy washy artistic types who give him psychic values but loathes them because they are Bohemian and will not give him any tangible values in exchange.Typical situation where writer hates every thing about life including what he is writing about and yet makes his living there. Right out of Ellsworth Toohey kind of view of world, and reminds one of Dominique taking Rourke to see " No skin off his nose" to keep him cold. No wonder the review is rated almost 100% by every pro critic.

Third wife, Miriam is decent woman and shows wish fulfillment of totally loathsome Hollywood (in this case Montreal) trash to marry above their self esteem. Film of 2 hours + seems like 6 hours when you're through and makes you feel as low as the Mogul, director hero. Kind of movie that is guaranteed to happen when Flexionism, and its first cousin , cronyism is rampant in market. Grist for a Max Nordeau.

Typical of such self loving director writers, he causes his first wife to commit suicide by being in drunk stupor watching hockey for two days after she begs him to come after still birth, and then physically throws out the father from BRIGHTON BEACH. When he comes to see daughter,he finds out she committed suicide, and tries to console Barney, who is the spitting embodiment in spirit of Woodie Allen, but the link is there, in case the audience doesn't get it at first, because the father is actually Dustin Hoffman who is Woodie's most intimate soul mate.



Krisrock writes:

Sports betting is about emotion more than reason.

People love the Patriots and bet according to their heart.They count one way and others count other way, proving how you can get beat with 100% confidence you're right and all those who you disagree with are wrong.

Walters proves that point especially in the equity markets…he just doesn't know those who count in a different way.

Pitt T. Maner III responds:

I have heard of people that have a "team-like" attachment to stocks like AAPL. It would be almost impossible for them to sell their AAPL stock; almost as difficult as it would be for a Pats fan to bet against his team.They are emotionally attached to Macs, iPods, iPhones and everything AAPL. Perhaps there is some component of this that is reflected in price action. There are not that many companies that have that sort of following. 

Jeff Watson comments: 

The devotion, attachment, or worship of a team by the general public might be the "Achilles Heel" that allows them to exploited and/or manipulated by the flexions. It would be hard to find something rational with devotion, attachment, or worship.

 Gary Rogan Responds:

Most of the story was about his sports betting operation, which looked quite impressive and totally devoid of emotion. He counts, knows a lot about all the teams, diversifies, employs experts with total recall who remember even more, and on top of it attempts to "push the line". The story ended with his complaint about the market, but it seemed like he simply didn't apply any of his normal techniques to a new area and got wiped out.

Jeff Watson comments:

Walters attempts to "push" the point spread is no different than a local at an exchange or a market maker trying to goose the bids or offers to move the direction of trading to prices that have the most liquidity, stops, and booby traps for the unsuspecting. The sports gambling market is really no different than any other market when you think about it, and it's probably percentage wise, more honest.




I came across a good article from Chris Maloney listing ten rules for
betting with a bookie.  Substitute a few words and the list could be
referring to discipline in trading.  

Charles Pennington comments:

From Rule 3:

"There is probably no better bet in sports than playing an underdog at home," Moseman says. "Teams play inspired ball at home. Slim underdogs regularly win outright. Big underdogs often find ways to cover the spread and they rarely give up toward the end of a game in front of the home crowd."

Are the sports betting markets so slow moving and dumb that you can make money doing something as simple as this?



What evil intentions can we infer, by their waiting for a US market holiday to announce Jobs medical leave, whereby the internationalists who trade European markets get out before the hapless retail US investors, one of whom, a young Deloitte consultant, volunteered at a Washington DC school today and experienced this unexpected visi.



Donald Trump is only the latest in a long, if not unbroken, line of famous and successful business people who are completely clueless about economics. LIsten to this for more evidence.



Amare is currently ranked #12 and Carmelo #25. At PER 20.68 Carmelo is currently a "borderline" all star. Melo looks to be rebounding quite well and that helps a team win. He did help lead Syracuse to a National Championship as a freshman— which might be a indication of future ability to raise the level of team play when in a supporting environment.

I can only conceptualize that for a trader it would be how efficient he performs within the boundaries of time, risk, trade size, contribution to portfolio winning percentage, etc. and all those advanced measures you experts use.

The basics of shot selection
, defensive play and positioning, "hustle", and judicious leveraging of innate abilities are pretty important in basketball.

The Player Efficiency Rating is ESPN Insider writer John Hollinger's all-in-one basketball rating, which attempts to boil down all of a player's contributions into one number. Using a detailed formula, Hollinger developed a system that rates every player's statistical performance

All calculations begin with what is called unadjusted PER (uPER).

Once uPER is calculated, it must be adjusted for team pace and normalized to the league to become PER: This final step takes away the advantage held by players whose teams play a fast break style (and therefore have more possessions and more opportunities to do things on offense), and then sets the league average to 15.00. Also note that it is impossible to calculate PER (at least in the conventional manner described above) for NBA seasons prior to 1978, as the league did not keep track of turnovers before that year.

George Parkanyi responds:

 It depends on how many people are directly or perhaps indirectly contributing to the final decision of a trade. For example, how many people have a touch in your organization Victor before you make the final decision to trade or implement a trading program? - research/set-up, analysis, programming, execution, and so on … Any one of the these factors could impact the success (profit) or failure (loss) of the trade.

Steve Ellison comments: 

"What is missing from formulas like Berri's is an account of what Anthony does to the rest of the Nuggets."

There is a hockey statistic called plus/minus to help assess exactly that. Every player on the ice when his team scores gets a plus one. Every player on the ice when the opponents score gets a minus one. The results are cumulative. A player who does not score much but has a high positive plus/minus total is presumed to be doing something right.

Victor Niederhoffer inquires: 

How could this immediately be applied to markets ? There are players on a team also. But rather than simply adding, would a regression work better?

Steve Ellison responds: 

 One might consider various market "players" and what happens when they are visibly "on the ice". For example, when the President is speaking, does the market go up or down? When the Mayor's news feed features the Sage, does the market go up or down?

Victor Niederhoffer writes: 

I would conceptualize that the other players on the team are the other markets. how often does the stock market , create wins for the oil market et al, and for the grains, and are there leads and lags?

T.K.marks comments:

Anecdotal evidence has long had it that the oft-retired Michael Jordan was the ultimate basketball player in terms of making teammates better players. Apropos of the discussion here, it's been suggested that his talent in that regard was not limited to the court, but instead, cross-market in its scope.

From Wikipedia:

"…Jordan's yearly income from the endorsements is estimated to be over forty million dollars… An academic study found that Jordan’s first NBA comeback resulted in an increase in the market capitalization of his client firms of more than $1 billion…"

The journal in which the study is found is a subscription so I'll take Wiki's word for it. Though it would be nice to know by comparison what the overall market cap did during that same time frame.



VIX closed <16 Friday. Also did so briefly 12/10 ("2"), and April 2010 prior to Euro-region fears ("3"). Before that, have to go all the way back to the days of innocence, ca 7/07 ("4").

Isn't it economically irrational to insure against dreams?



 A question from a novice:

Noting the general bearishness on t-bonds I'm wondering why someone would want to participate in a game in which both the bonds and the currency are controlled by the dealer (can't US inc print the money it needs to support the prices, as and when it needs to to keep China inc and Russia inc happy)?

I've played in a lot of tournaments where even the strict rules of chess can be severely bent to favour home grown players, isn't this one a whole lot worse?

Jim Sogi writes:

Well, at least it moves up and down a bit, unlike equities.



In the Eurozone, Greece is downsided to junk and Portugal is trying to reassure markets (and political leaders) that they can manage without a rescue package. The "strong" continental countries are discussing how to politically make viable a rescue plan that would be paid by thier taxpayers. Aid talks are running in parallel with the effort to establish new EU legislation to strengthen fiscal restraints that failed. In this case, for example, Greece would be sanctioned for never meeting the euro area’s limit on deficits of 3 percent of GDP. "Some" countries are calling for “quasi-automatic” sanctions or for a political vote to fine high-deficit countries be left up to a political vote. In my view it is almost ridiculous, hypocritical and not credible to fine a country that is almost bankrupt when you have to lend the money putting together an emergency rescue package… In the meantime, the Greeks may complain that Germans want to make money lending them money at an inequitable interest rate and "control" politically and economically their country. …..and the Euro gained 3.7% last week on the dollar……



 "I've been swindled out of quite a bit quite a bit of money on the stock market. And I bought a lot of Enron stock once. And I got swindled. I bought a lotta WorldCom stock, got swindled. I bought a lotta Tyco stock. I got swindled," he told Logan.

His disdain for Wall Street is one of the reasons Walters decided to talk to "60 Minutes" - a chance he says to make the point that the gambling world is not as shady as most people think.

"I ran into a lotta bad guys, a lotta thieves. I mean, they'd steal the Lord's Supper. But I can tell ya, percentage-wise, I ran into many more with suits and ties on than I have with the gamblers," he told Logan.

"So you would say that the hustler from Vegas got hustled by Wall Street?" Logan asked.

"There's no doubt about it," Walters replied.

Read the full article here.

Pitt T. Maner III writes: 

It was interesting how Walters as a "whale" or "great white" was able to push the sports book line on games by initially placing bets on the team he intended to bet against. I would think it would take more than a couple of 100,000 dollars to do the same in the stock market where the competition is more fierce and pockets much deeper.

It seems that the early games in college season often have very large spreads and might be more exploitable for professionals until the actual strengths of the teams are determined. Someone who has scouted all the preseason practices and knows more than the average bettor will likely have an advantage especially at the start of a season and the lines become more accurate.



 Employees of FIAT, the Italian auto-maker, voted for the investment in the Mirafiori plant in Turin in exchange for measures to limit strikes and curtail absenteeism.

Today, productivity in this plant is about one third of productivity in a similar plant that FIAT has in Poland. At the same time in China inflation and the increase in salaries are a predominant theme. Global imbalancies are going to be coped with in 2 ways in the long term.

On one hand, if western countries want to remain (or become?) competitive they have to realize that the current labor conditions should be revisited. There is obvious resistance, but the agreement at FIAT (in Italy unions are strong) shows that this is the only sensible way ahead although it can be very painful. Workers are starting to realize that unemployment is the alternative to renegoniating their contracts as entrepreneurs move their plants abroad.

On the other hand production costs are increasing in emerging markets. This trend is accelerating and this convergence will continue to unfold over the next years. The problem is we could import higher prices without being able for quite some time to print significant growth rates (especially in Europe).



From today's WSJ:

"One portfolio manager observed that California 6% bonds of November 2039 were quoted at levels cheaper than similar-maturity dollar-denominated debt of Mexico and Columbia."

Noting that these are Dollar-denominated bonds of Mexico and Columbia — I believe that anyone who has a historical perspective sees that Mr Market is in the process of creating an opportunity — which may become even more extreme as the market disciplines profligate muni issuers.

Lastly, and this IS a prediction, should California or any State actually default or restructure their debt, the US stock market and financial companies will not be happy. Furthermore, should a diversified portfolio of muni's yield more than a similar portfolio of corporate bonds, it will attract an entirely new class of investor. We are approaching that point, but are not quite there yet.

Gary Rogan writes:

Meanwhile while the SEC is probing muni prospectuses.

Bill Gross is already well positioned in munis.

This has now become an ugly bailout play where the most well-connected win.

George Zachar writes:

Buying long-dated munis is specifically outside the Fed's black letter authority, as Bernanke noted in his recent Hill appearance.

And with Red State Republicans ruling the roost in the House, any Fed move to bail-out Blue State profligates would be political suicide.

Bernanke has shown himself to be an excellent politician. It's very unlikely he'd make an unforced error of that kind. 



The economic equivalent of Hockey plus or minus might be thought of as quantifying hoodoo-ism, with the highest minus readings belonging to the bringers of doom.



Here's a superb video course on calculus in 20 minutes, but unfortunately it only includes 9 minutes…

Here's a calculus video done to Queen's "Bohemian Rhapsody"

Another "Bohemian Rhapsody" video that teaches and parodies integration by parts.

This parody of "I will Survive", "I will Derive" is very entertaining.

A parody of M.C. Hammer's song, "Can't Touch This," "U Can't Graph This"

Not to leave out the rappers– "This Is Why I Graph"

Another good rap song, "Take it to the Limit"

These videos make a good argument that the total decline of education
and learning, the dumbing down, has been greatly exaggerated.

keep looking »


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