I didn't make this up, I read it on Facebook and it is pretty interesting:

10 things we can learn from Japan

1. THE CALM Not a single visual of chest-beating or wild grief. Sorrow itself has been elevated.

2. THE DIGNITY Disciplined queues for water and groceries. Not a rough word or a crude gesture.

3. THE ABILITY The incredible architects, for instance. Buildings swayed but didn't fall

4. THE GRACE People bought only what they needed for the present, so everybody could get something.

5. THE ORDER No looting in shops. No honking and no overtaking on the roads. Just understanding.

6. THE SACRIFICE Fifty workers stayed back to pump sea water in the N-reactors. How will they ever be repaid?

7. THE TENDERNESS Restaurants cut prices. An unguarded ATM is left alone. The strong cared for the weak.

8. THE TRAINING The old and the children, everyone knew exactly what to do. And they did just that.

9. THE MEDIA They showed magnificent restraint in the bulletins. No silly reporters. Only calm reportage.

10. THE CONSCIENCE When the power went off in a store, people put things back on the shelves and left quietly.

Jim Sogi adds:

This is the face they want the world to see. What isn't shown is the massive corruption underylying the nuclear plants and electrical system. Much is hidden in the Japanese culture, like an iceberg. You're only meant to see the nice surface. Its a show. Don't be deceived.

Gary Rogan comments:

Is it really deception though? The restaurants didn't cut prices to protect massive corruption in the nuclear plants and the grieving relatives didn't hold back tears to protect the image of the country. The people are orderly, reserved, and polite to each other in public. Are they angels? No. 



 There's an interesting exercise in cobweb economics setting up in grains.

The idea being that farmers plant for next year based on this year's crop. And when this years price is high, they increase the supply for next year. Thereby lowering the price for the next year. Then they plant less. Prices move in cobweb.

Lorie wrote his PHd thesis on this. Wanted most of all to be a cattle rancher. May corn this year at 6.93 a bushel limit up but December 2012 corn at 5.77.

I took a speculation in honor of Lorie and Watson in the cobweb yesterday and today.

Gary Rogan writes:

Palindrome is taking charge: George Soros making a move to control food and grain production:

Financier and progressive activist George Soros is formulating a move to control food and grain production by purchasing grain elevators in late March in several parts of the United States through his Soros Managment Fund's backed Gavilon Grain . With purchases made in March, Gavilon Grain will become the third largest grain company behind Cargill, and Archer-Daniels Midland.

With strong ties to the Obama administration, Soros now has both the economic, and political clout to begin consolidation of purchasing and shipping domestic agriculture around the world.
U.S. grain firm Gavilon Grain said on Thursday it will buy Union Elevator and Warehouse's 16 grain elevators in the Pacific Northwest , the company's second big purchase of U.S. grain facilities in the last six months.

The purchase of 16 elevators at 12 locations in eastern Washington will expand Gavilon's grain capacity by 8.4 mbu.

"The addition of Union Elevator's grain facilities and origination capabilities position us well to support the growing Pacific Northwest export wheat market and serve the Columbian Basin feed grain market," Greg Konsor, VP and GM of Gavilon Grain, said in a statement. The PNW is the No. 1 wheat export terminal in the United States. - Reuters
When food brokers consolidate into just a few large companies controlling the majority of a market, then prices can be set not by supply and demand, but by corporate decisions and manipulation of supply. If the price for food is too low in the United States, then grain can be shipped to other markets for sale, causing then an artifical supply problem in the country that produced the grain itself.

With George Soros's making this move in backing Gavilon Grain's purchases to control food and grain distribution in the United States, and becoming the third largest grain company in the country, it will lead to the same results that we see in the energy markets as oil is controlled by a small group of corporations, and the price can be dictated by an artificial control over its supply.

Jeff Watson comments:

Gavilon Grain is just the latest resurrection of Peavey Grain. I expect them to have a big presence in the grain markets as they are true "Grain People." Still, being third place IN THE US behind C@rgill might as well be 50th place. I would not expect the Palindrome to make a dent in C@agill's action, as C@rgill is as politically well connected as anyone. The grain companies were always small in number, and historically were known as the "Big 5." The Big Five were, until the 80's, C@rgill, Continental, Louis Dreyfus, Bunge, and Andre with those companies controlling 75%+ of the world's grain trade and food supply. The big companies still control 75-90% of the grains and food supply, not caring what the prices are as long as they make the deal and don't lose market share. Until recently, most large grain companies were private, family owned corporations. The aforementioned five companies are still private, and huge, but companies like ADM, Ralston Purina, Conti-Commodies, General Mills, Pillsbury, Ralston-Purina, etc are all part of or are public corporations. Despite the small number of grain companies, the profit margins are microscopic, the business is cutthroat, and there is healthy competition between companies, without meaningful quid pro quo's between them. One overlooked aspect of the grain elevators and warehouses is that they are a license to print money if run correctly , which is a reason the big grain companies prefer to remain private, obscure, and below the radar. If C@rgill was a public corporation, it would easily rank in the top ten of the Fortune 500 companies and this is the scale of most of the really big grain companies operations.



 I am a decent chess player.

My rating in the room I play in is good, but it varies as much as 250 points. Sloppy play is the obvious factor and is driven by a multitude of reasons: Distractions while watching and trading markets, watching my son, watching tennis, playing after consuming a handful of pints of Stella at the local after the market close with my buddies, or, perhaps just an inconsistent mental capability.

I am often charged with cheating (using a program on the side of the online board). I am not always accused when I beat an opponent who is rated a few hundred above me, but it is often. I don't get upset or offended. Just highly amused.

Chess is a fantastic experiment and exercise of the ego. The fragility of some who typically assume one is cheating when they should just say "well done".

Allan Millhone comments: 

Hello James,

At tournaments I always shake hands with my opponent and never make excuses when I lose. I strive to be humble when I win and do my best to guard my ego. I am an average player.

I enjoyed your post and your points.





 Racquetball for me started in 1971 at the most pivotal national singles tournament that transformed the sport from amateur to professional.

I was a relative unknown, as was racquetball that year, never having paid it attention except for a few hits against the coming king of the decade, my nemesis Charlie Brumfield. Brumfield had moved from San Diego to become housemates at Michigan State University for the prior summer after I had beaten him in the finals of the '71 paddleball nationals where he screamed at the Flint, Michigan gallery before losing, 'Stick a fork in him, you farmers…he's done!' It was my first championship and when Brum returned to San Diego his mentor, Dr. Bud Muehleisen (present holder of 69 national and international titles) counselled, 'Keeley's your only threat, babe. Go back to Michigan and live and learn from him.' He did, and he did.

Later that year, the '71 national racquetball singles invitational rolled around in Mule and Brum's hometown San Diego. Indeed, they called me a hayseed despite beating in succession the incumbent national champion Bill Schmidtke and New York state champ Charlie Garfinkle, before taking on Brumfield in the quarters.

The tournament is memorable for a couple scenarios. At the time I was collecting $50/mo. under the table from Trenway Sports to use their wooden clunker racquet. Then lo, Bud Leach stood in the doorway of the Invitational host Gorham's Sports Center greeting each of the 16 invitees with a green Swinger racquet newly moulded in his garage and a $20 bill wrapped around the handle. I struck a deal with him for equipment and plane tickets to each of the four national tournaments and invitationals in singles and doubles. My genius doubles partner Charlie Drake, also soon to graduate from MSU with a PhD in sociology, hustled Bud at the tournament, and soon owned 51% of the company.

The craziest instant was losing to Brumfield in the quarterfinals. I took the first game with a serve right to surprise him, he flailed a famous forehand and the ball disappeared. He, the ref and gallery searched but could not find it. We adjourned to the drinking fountain where his Swinger racquet dangled by the thong… with the ball stuck between the handle and frame. He screamed to let the gallery know, 'When's Leach going to string the crotch!'

Bikinied girls handed out awards at the '71 Invitational, the Pacific lapped five blocks away, and a year later this hayseed vet school graduate took the sheepskin to California where a snafu in the vet licensing thrust me into the burgeoning sport pro racquetball.



 I never saw a resigned CEO on fin tv before doing some "splainen"– Sokol. Nice of them to invite him on.

Victor Niederhoffer writes:

What was his explanation for those who don't have the luxury of a tv? Did it seem to be favorable to the sage by indirection? Or seem to indicate that it's the kind of thing that the sage wouldn't do (any more)?

Ken Drees writes:

It was pro buff– and you would have like the analogy used by the talking heads– buff wouldn't have anyone on his staff that wasn't playing directly in the field of play, a tennis analogy that he doesn't tolerate behavior in the organization that is even close to the line but in play. So the dealings by Sokol in lub stock were technically ok, but really not up to full standards of mount st buffet and really it had nothing to do with him "resigning" anyway.

So why all the chatter about the stock dealings if it didn't matter? Sokol wants to be a mini buff now career wise. Thank goodness he didn't resign to spend more time with his kids. The whole thing is odd.



 One played a game of checkers with someone likely to be a front runner for president in a few months, and we discussed the importance of Tom Wiswell's proverb "moves that disturb your position the least disturb your opponent the most". In checkers, I think it means not to break up your foundation, not to have too many infiltrator single men far removed from the bulk of your pieces. Not to have too many holes in your position. Not to have too many of your forces divided by big spaces. Maintain your dike which is a solid row of checkers on a diagonal of at least 4 or better 5 or 6. In general, make sure you have near neighbors for all pieces. I got to thinking how this applies to markets. It seems very applicable. Don't put all your chips at one price. Do things on a scale down or up. Don't move into other markets with big positions when you have the bulk in one position. Keep your positions at approx the same size. Don't throw all your chips in at a certain time, but gradualize into positions. Don't get out at close or in at open. Maintain a constant capital stream. Be humble.

What else would you say? How would it apply to life? Don't move into new investments unrelated to what you do without much reflection and gradualization. No staccato in your movements into your second childhood? What else?

Anatoly Veltman writes:

To add: a grandmaster can't use the same sole opening pattern all the time. High level competition will adopt– and they will no longer be disadvantaged. So while it's important to stick with your successful patterns– see if those patterns can be validated for situations arising out of a different opening sequence.

Nigel Davies writes:

I agree with Anatoly. Actually I've often given up opening systems at the height of their success; waiting crocs plus loss of vigilance etc.

Jordan Neuman writes: 

There is a similar thought in baseball strategy. In a situation where one's move will lead to countermoves, it is sometimes best to do the opposite of what your opponent wishes you to do given his perception of his own countermove options.

This is all under the general category of putting yourself in someone else's shoes. I find it very easy to see where others have messed up their or their children's lives. I would say my "win percentage" is much higher in those cases, prospectively, than in my own life. Perhaps the Wiswell proverb describes depersonalizing decisions as a way to make them less emotionally difficult.

Henry Gifford comments: 

Regarding the above about ruining the lives of one's children, my uncle used to say he ruined the life of his son, who was a heroin addict.

Looking at what he said from the other side, if what my uncle said was completely true, then parents have the power to stop their children from doing drugs or partaking in other ruinous activities, something many parents are frustrated to know is not true.

This perspective can ease the pain in some situations in life, and maybe in trading losses also.

Allen Gillespie writes: 

On the violin to play fast one must leave fingers down for the return.



 One of Tom's favorite proverbs on the "moves that disturb" point was "take care of the draws and the wins will take care of themselves." I like the Greek proverb "little strokes fell great oaks" and of course Sondheim in his hateful way takes that song in Company and makes it "it's the little things you do together… that make marriage a joy," as he shows two couples fighting like cats and dogs.

It would be interesting to see if Nigel agrees that "moves that disturb chess positions the least" are best. I believe Art Bisguier told me to try not to break the tension of a position, and I've also been told that once you give away which side of the board you're likely to castle from, the handwriting is on the wall. 

Ken Drees comments:

Sultan Khan an Indian native master player from the 1930s used to wait very long to castle and sometimes not at all since castling was not a legal move option in India where he was schooled in chess. It seems like everychanging strategy and recycling (switches) always is necessary to stay competitive, and fresh. Playing against the unorthodox– like the basketball team full court press (Mr. Watson's recent post), or the uncastled king that seems content in the center with a closed position game illustrates the need to be able to counter the strange or unusual opponent. Get a "book" player out of his book and then your fundamentals will hopefully give you an edge. The emotions that occur when faced with the unorthodox style are one more element that the aggressor has in his favor and one more item that the level headed player must tamp down and counter internally.

As for building and constructing ever more powerful latently strong positions–Nimzovich comes to mind as a chess stylist who always made incrementally stronger and stronger tactical moves. This tension naturally releases at some point in the game and then the gameboard takes on fresh vistas of open lines and changed landscapes. Seeing the new and powerful layouts well ahead of your opponent is key to the entire buildup process.



 Drilling to the earth's mantle and the Mohorovičić discontinuity was pursued by the USA back in the late 50s and early 60s under the name Project Mohole and then attempted by the Russians on the Kola peninsula in the 70s and 80s. Thoughts of drilling to the earth's mantle to find out what is there are being revived.

1) from a national geographic article:

It may not be a journey to the center of the Earth, but it could be the closest thing yet.

Scientists are planning to drill all the way through the planet's miles-thick crust to Earth's deep, hot mantle and retrieve samples for the first time. The samples, they say, would rival moon rocks for sheer scientific import—and be nearly as hard to get.

"That has been a long-term ambition of earth scientists," geologist Damon Teagle told National Geographic News. But a lack of suitable technology and insufficient understanding of the crust have long tempered that ambition."

2) Check out a second article in April 1961 Life magazine written by John Steinbeck during his time on board CUSS 1 at the start of drilling for Project Mohole.

Charles Pennington asks: 

The best place to drill, Teagle said, is in the mid-ocean,
because that's where Earth's crust is thinnest—only about four miles
(six kilometers) thick, versus tens of miles deep in continental

Is there some simple explanation of how we even know how thick the
earth's crust is and what's below it when we've never drilled through it

Pitt T. Maner replies:

It's the depth at which the seismic velocity changes probably due to a compositional change to periodotite type minerals with perhaps some changes due to temperature regimes.

So the only samples that geologists have to look at from mantle depths were brought to surface enclosed in magma as xenoliths.

Other than that there are probably lots of questions as to what will be
found and whether the mantle differs from location to location in

One question they hope to find out is how deep life extends below the earth's surface.

A lot has been learned since I studied Geology 29 years ago.



 Cricket is played at all places where the English language has been, from across the Indian Sub-continent, South Africa, Australia, West Indies and even in Canada. America doesn't play this game. What could be the significance of this? America innovates its own games? Soccer played the American way is very distinct from how its played elsewhere, for an example.What do the sports historians trace this to?

Does this reflect a certain way in which America has come to be what it is and can it provide any insights on how markets and business in general may have been structured differently for, social innovation factors, if any that may have brought a different way of team sports and games in America?

Stefan Jovanovich comments: 

Baseball is a direct descendant of another British game - rounders, which was played by the Scots and the Irish. Cricket was the "polite" game played by the English; rounders was the "rowdy" one played by the people whose allegiance to the Crown was dodgy at best. As the Brittanica entry illustrates, "rounders" has had to be banished from the official record on both sides of the Atlantic: in Britain because it is a reminder of the awful days of real disunion and in the U.S. because we all know baseball was invented by Abner Doubleday.




 The life of John "Earthquake" Milne, developer of the horizontal pendelum seismograph ("Father of Modern Seismology') is well worthy of a screen or stage play.

A quite fascinating person and true gentleman from the Victorian-age. Milne is remembered and honored by the Japanese for his contributions to seismology but little known on his home turf (Shide, Isle of Wight, England) where a pub evidently is named after him.

He must have had a very good sense of humor as this account relates:

'When the seismograph had been set up,' he recalls, 'Milne visited it often but nothing ever seemed to happen. Then, one day, the Professor was excited but puzzled to find a series of enormous swings on the trace for which he could not account. A week later and at the same time of the day they appeared again. Milne eventually deduced that the records were made when the butler and the housekeeper were both off duty together!'

- Earthquake Milne and the Isle of Wight by Leslie Herbert-Gustar and Patrick A. Nott, Vectis Biographies (1974)

Paul Kabrna
has written a book about Milne and it is ironic that Milne's great-nephew is pictured holding a print of a Japanese tsunami. Milne's elegant,Japanese wife Tone is frequently shown in pictures from the seismological observatory in Shide, Isle of Wight and must have been a great help and support to Milne.

This great-nephew, Australian doctor William Twycross is making a documentary about Milne that will likely be completed in time for the 100th year commemoration of Milne's death.

from an article about him:

'The English-born Milne was the first to scientifically measure tremors so that he could delineate the earthquake fault line near Japan's east coast, one of many feats that clearly impressed Dr Twycross. "He was quite an extraordinary man, a watercolour artist, an ornithologist, an archaeologist, a very inventive geographer, an inventor, and he played the piano very well, very much a man of the people," he says.'



Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded—here and there, now and then—are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

–Robert Heinlein



 Here is a very interesting article on a 21 year old online poker player, Daniel Cates. Some facts about him:

1. Highest online poker earnings in the world in 2010
2. Treats dollars as points, not real money
3. Doesn't understand the utility of the value of $n,000,000; believes this is an edge; less fear/emotion
4. End goal is to create a balance of life and connect the poker player with the person
5. Hypothesis that video games create good real-time decision makers, able to process lots of data, control emotions while taking risks, be aggressive and create seemingly random decisions when they are anything but
6. Extremely conservative spender, yet eats fancy meals at cheaper restaurants (good money management)

Jeff Watson writes: 

Ahem.  Some people may well have formed the impression that that kid might be cheating.

Jay Pasch comments: 

Or reading the cards as they lay, a good bluffer with bad cards, much like a futures trader…

Anatoly Veltman asks:

Could you expand: how is trading = bluffing?

Jay Pasch responds: 

Please go read Wall Street books that were printed over 75 years ago. There are countless tactics that are out there and I will restrain from this lesson in taking away from the ability for you to learn on your own. I will however suggest that The Chair has just published about three posts in the last two months that give insight of this tactic of bluffing, just not directly coming out and saying that those who implemented were bluffing.

A couple of points worth mentioning, are that 1) You have heard the sayin' "Paintin' the Tape" 2) Remember it is commonly quoted that Institutions due to vig being lower have taken the individual stock tradin' biz away from small fries 3) Bluffing is form of trading that is categorically multi dimensional not just "buy" or "sell". 4) common trait not learned in law school but one that is picked up in practice is the art of "re-direction" while in trial.

The power or leverage to bluff these days lies in the hands of those that have positions in the respected markets that they choose to bluff with such deep pockets that for you and I to do so is laughable.

Better to learn countin' than bluffin'. Though bluffin' still exists.

J. Humbert adds: 

Did this story make it to the US?

Two traders exploited a weakness in Timber Hill's robot. They made some small orders in illiquid stocks (to push up the price). Then the robot would place a large bid above the average purchase price and they could sell with a profit. They repeated this many times and made something in the $100k ballpark, I believe. Then they got convicted. It's apparently illegal to be smarter than a robot.



Monday was an outside day for the S&P 500 futures, and the close was lower than the low of the previous day. Tuesday was another outside day, this time with the close higher than the high of the previous day. This sequence has occurred only twice in the past 6 years. The changes on the third days in those instances were -1.7% and +0.3%.

Tuesday was the 47th outside day on which the close was higher than the high of the previous day in the past 6 years. After the previous 46 instances, the next day was up 24 times and down 22 times, t=-0.12.



 We have discussed the role of government in the economy and during crisis many times on this site. Greenspan writes about this topic with the paper "Activism" that I recently read. He writes:

The current government activism is hampering what should be a broadbased robust economic recovery, driven in significant part by the positive wealth effect of a buoyant U.S. and global stock market.

Equity values, in my experience, have been an underappreciated force driving market economies. Only in recent years has their impact been recognized in terms of 'wealth effects'. This is one form of stimulus that does not require increased debt to fund it. I suspect that equity prices, whether they go up or down from here, will be a major component, along with the degree of activist government, in shaping the U.S. and world economy in the years immediately ahead."

Considerations about the wealth effect are in my view interesting, but well known to those who tried (and managed) to steer a recovery from the crisis.

The wealth effect has supported the economy so far. How much compared to the "stimulus" is hard to say however. "Manipulation" of markets in order to favor a continued move to the upside concerted by strong hands was (and is) in the interest of many forces who have a prominent role.

Victor Niederhoffer writes:

The wealth effect was very big in the 1960s and before, and Latane had good papers on it. Everyone at the Fed has believed in it for 70 years, to the exclusion of looking at interest rates themselves. And Bernanke often times his qualitative announcements with market lows or highs. A good way to trade. 

Phil McDonnell writes:

Most of the so called wealth effect is really artificially induced by the QE programs. If the price of your stock rises but the value of the dollars the stock will fetch falls then are you really wealthier? How rich do the folks in Zimbabwe feel? 

Jeff Watson writes:

One only has to look at the Weimar to see how the business class in Rhodesia feel. In 1913, the German stock market was at 126. Fourteen years later, the German stock market was at 26,890,000. At the index peak, the value of the Daimler company was only worth 327 of its cars. Interest rates were 900% and the exchange rate went from 4-5 marks per dollar in 1913 to 4+trillion marks per dollar in 1923. 

Ian Brakspear writes in:

My portfolio in 1994 was worth aprox ZIM$10 million in 2005 worth ZIM $ 44 billion.

Victor Niederhoffer comments:

What they did to the farmers makes one cry. Brakspear is the guy that posted the funniest spec post ever. He ordered 2 beers for lunch. It was 10 million Zimbabwe. Then by the time he finished lunch, he ordered two more. The price had risen to 15 million Zimbabwe.

Kim Zussman asks:

So does inflation illusion work? What does it feel like to be a billionaire?

Ian Brakspear comments: 

I have in my wallet 2 fifty billion dollar notes, a one hundred billion dollar note and one ten trillion dollar note-worthless.

Today the main currency in the streets of Zimbabwe is the US$– how all these US$ notes got here is anyone guess.

They are cleaned regularly in washing machines to prevent the spread of diseases– and hung out to dry on washing lines– always with someone on guard.



Nine fatal flaws of hominid finance:

9. Laziness
8. Vanity
7. Hubris
6. Poorly equipped
5/4. Free-riding / dependency
3. Vendetta
2. Distraction
1. Fearlessness



Here is an interesting article on using improv for business:

"Improvisational comedy offers valuable lessons to business, says Lakshmi Balachandra MBA ’04. An improv comic before working in venture capital and finance, Balachandra brought her spontaneous theater skills into the classroom …"

"Improv teaches you how to think on your feet, she says, to accept the facts, and then build on them. All these are excellent business and negotiation skills. In a CNN article, she offers her five rules of improv:

1. 'Yes, and.' Accept a situation and then deal with it.
2. Avoid asking questions. Continually asking questions makes other
people do all the work.
3. Listening. Focused listening is a crucial skill.
4. Add information. Contribute if you want to guide the conversation.
5. Eye contact. In the workplace it’s important to pay attention to
body language."

Russ Sears writes: 

While not improv, here is a humorous Toastmaster speech I gave last year. It won at the club level.

This might have some lessons on risks and reward; parenting and other humorous topics when we think we have it all mastered.

And for those that have not meet me; you get to see my pretty face.



 "It is common to think of individuals to use genes to make more individual, but from the gene's eye view of evolution, its the other way around. Genes use individuals to make more genes. The chicken is the egg's way of making more eggs". p. 114 The Seventy Great Mysteries of the Natural World edited by Michael Benton.

Yes, and its the digits of the prices way of replicating itself to make individual market players create more of those digits. (I wrote about this before here).

The digit 0 plays a big part in the replication game, and it makes individuals sacrifice themselves to create more 0's.

One notes for example that the double digit 00 in 1300 on the sp has been broaches from below on a closing basis from Feb 03 on three times and gone from above to below on three times.

Similarly for the triple digit 000 in 12000 on the DJI. The DAX crossed the triple digit 7000 on Jan 3rd from below, went above below then above then below on Jan 07, then crossed to 7097 on Jan 13 but stayed above 7000 until March 14, then fell to 6436 on March 16, a decline of 10% for the year, and now for the first time on March 25 hit a high of 7006 but failed to close above 6981, a fact which must cause great disennu to the triple 0's in 7000 and they must be inducing much political change in Germany as we speak to achieve that level.

Similar analysis relates to the Nikkei at 10000 which crossed below 10000 on March 11 briefly, but closed at 100075 and then on the following two days declined 20% captures by the triple 000 at 8000 as its low was 7790, a decline of 25% from its mid December levels of 10300.

A similar analysis could be made with the grains especially corn which has shown a similar affinity to 700 as the Dow to 12000 and the SP to 1300.

Instead of taking closing prices for granted we should ask how the digits themselves influence our actions so that we can make them reappear over and over again.

Kim Zussman writes:

A simpler version of this is the opposite of the usual "the market did Y today because of X": We say X because it did Y and we need why.

The evidence is that for many similar X there are many dissimilar Y.

Price is selfish because its impact demands explanation.

Gay Rogan comments: 

I'm having trouble understanding any of this. Genes are selfish in the following sense: if genes don't propagate, they disappear, so the only genes that are here today are proven propagators. How can prices or digits permanently disappear? And why would 0's propagate more than other digits? How do these explanations provide more clarity than simply saying people's brains are attracted to numerical markers, and in the absence of other alternatives they chose round numbers? 

Steve Ellison comments:

One possible line of reasoning is that people are more likely to put limit orders at round numbers. People often put stops near round numbers, too, but the research I have seen suggests stops are more likely to cluster on the opposite side of a round number from the current price. Here, then, is a hypothesis: if the last two digits of the S&P 500 closing price are above 90 or below 10 (i.e., near a 00 round), the change the next day is likely to be in the opposite direction as today; if the last two digits are above 10 and below 90 (i.e., away from the 00 round), the change the next day is likely to be in the same direction as today.

Checking the last 1584 trading days of the futures,

Near 00 round:
N: 366
reversal next day: 194
unchanged next day: 3
continuation next day: 169
% continuations excl unch: 46.6%

Away from 00 round:
N: 1200
reversal next day: 592
unchanged next day: 15
continuation next day: 593
% continuations excl unch: 50.0%

The percentage of reversals was higher near rounds, but the difference was not significant.

What was significant was the number of closes near the rounds. One would expect a close within 10 points of a round about 20% of the time, but 23% of actual closes were within 10 points of a round, p=0.0006.

Victor Niederhoffer writes:

Here is an interesting paper on round numbers for individual stocks. It doesn't look at expectations, but does look at bid

Russ Sears writes:

I believe that this paper could be expanded measure this effect on high volume versus low volume stocks. Therefore its stated cost may not be as large as expected on all stocks. My guess, needing testing is the small stocks have this more frequently than the large stocks, that are often computer traded.



 What's good for the green goose is good for the differently colored gander.



Editor, USA Today

Dear Editor:
Bjorn Lomborg explains that "Earth Hour" is about feel-good self-indulgence and not about actually changing the world for the better ("'Earth Hour' won't change the world," March 25).

The reasoning that leads "Earth Hour" celebrants to conclude that humans "waste" resources producing artificial lighting and other modern amenities leads me to conclude that "Earth Hour" itself wastes humanity's most precious resource: creative human labor.

In the hour when lights are switched off for the "mere" purpose of making a political statement, much human labor is wastefully idled. During that hour, the process of de-polluting our clothing ("doing the laundry") doesn't happen; likewise for the process of de-polluting our dinner dishes and, indeed, de-polluting our bodies. During that hour, there's less studying for upcoming exams in physics or histology or 19th-century Russian literature. And that tinkering in the garage on projects that might be the progenitors of tomorrow's super-computer, water-fueled automobile engine, or other technological marvels that promote human well-being? It doesn't occur. One entire hour of human creativity down history's drain, lost forever. Kaput.

Of course, if Jones wants to make a political statement by turning off her lights for an hour, she should be free to do so. It's her business and it isn't really wasteful. But Jones should see that if Smith keeps his bulbs burning brightly, she has no more basis for accusing him of "wasting resources," "destroying the planet," or "threatening our children's future" than he has for accusing her of the very same offenses.



Here is a humorous article that demonstrates the way history is written is not necessarily the way things really unfolded, or even includes the correct people. Written history is not accurate, and the old saying, "History is written by the winners," is self evident. Because of agendas, PC, and other forces, many historical figures were overlooked in order to make the history more glamorous, or whatever. Needless to say, this quick read is funny and will open your eyes. Unfortunately, all of these people cast aside were the losers, along with the succeeding generations who get an inaccurate portrayal.



 What is the American Dream?

The Dream is to work, to have a home, to get ahead. You can start as a janitor and become the owner of the building. The American Dream is not written into the constitution but it is so ingrained in the national psyche that it might as well be.

Bo Keely comments:

The American Dream is still alive and that's why I return occasionally to USA from globetrotting to selective Shangri-Las around the world. Though the American Dream there is diminished and threaded with nightmares, after 100+ countries it's still the best place to own property, work to get ahead, and use as a base to travel from during retirement. 



 I'm about to sit down to read L'Amour's memoir Education of a Wandering Man. One of the things about this book that immediately appeals to me is that he kept a record of everything he read between 1930-1937 that is available at the back of the book. As someone who loves to read, and also loves lists, it doesn't get much better than this. As an aside, if you're a list fanatic like me, check out Eco's The Infinity of Lists : An Illustrated Essay.

I thought I would share some tidbits on his reading appetite.

Over this 8 year time period, he read 731 books. This works out to roughly:

91.4 books a year
7.6 books a month
1.9 books a week

There are a lot of interesting items on his list. His interests appear to cover a wide range of topics and authors. Everything from detective stories to Nietzsche is on here.

Bo Keely writes: 

Thanks for the reminder & fresh info on L'Amour, who single-handedly thrust me into a lifetime of adventure and escape. My favorite short story is 'the strong shall live' about a cowpoke who gets stranded in the blazing desert near my rancho where one day and night I unintentionally re-enacted the plight and escaped, with a L'Amour tip, by finding a stone cistern of water and spitting guppies, but lived.



Is the war business unaffected by recessions? :

Despite the continuing global economic recession in 2009, the total arms sales of the SIPRI Top 100 of the world's largest arms-producing companies increased by $14.8 billion from 2008 to reach $401 billion, a real increase of 8 per cent, according to new data on international arms production released today by Stockholm International Peace Research Institute (SIPRI).

Many Swedes have been surprised by recent newspaper articles detailing shipments to questionable customers. Actions have been taken to curtail some of those sales (for now):

"We have withdrawn licences (for weapons exports) to two countries … due to the situation in the region," Andreas Ekman Duse, the head of the Swedish Agency for Non-Proliferation and Export Controls (ISP), told AFP.

"We cannot say which countries, due to commercial and diplomatic classified information," he said.

His agency, which controls Sweden's exports of military equipment, would closely watch the situation, and the licences could be restored "if the development in these countries goes in a democratic direction," he said, adding "when that will happen I cannot say."





Directed by Janus Metz and Lars Skree

In February 2009 a group of Danish soldiers, accompanied by documentary filmmaker Janus Metz, arrived at Armadillo, an FOB [Forward operating Base] army camp in the south Afghan province of Helmand. For six months, Metz and cameraman Lars Skree shadowed the doings of young Danish soldiers situated less than a kilometer from dug-in Taliban nests. The outcome of their work is a gritty and almost unbelievably authentic war drama that justly won the Grand Prix de la Semaine de la Critique at the 2011 Cannes Film Festival. Because of the nature of the disclosures in the record of the men's hitches, however, it provoked a firestorm of debate back in Denmark over the controversial behavior of certain soldiers during one pitched shootout with Taliban killers. But 'kinetic military activity' tends to be messy, and not subject to parental supervision.

Through the early tedium of their military entrenchment, through the nightly porn viewings and the computer games, the calls home to Mom on field telephones, through to the steely tension of encounter with the enemy, the filmmakers repeatedly risked their lives shooting this tense, brilliantly edited, and visually sophisticated mirror of the psychology of young men in the midst of a vaguely defined war whose victims seem to be primarily local villagers and farmers. At one point, village Afghanis ask some of the men if they are Jewish or Christian. Momentary pause. "Christian." They ask: American? British? "Danish." The Afghanis are up on their PC bonus points. Surreal scenes remind us that this is a civilian arena, as local children seeking sweets and leftover food rations pop up while the men pick their way through poppy fields ripe for opium manufacture, shooing them off kindly after sharing their food with them. More jostling than scenes in which Taliban tracers zing past their portable cameras is the unblinking footage of the handsome, tattoo'ed and unblemished soldiers as each tries, in the face of constant provocations and problems, to come to terms with waking each day to the realities of being in a terrain of rubble, faced with lethal enemies they rarely see except via overhead drone transmission, green screen computer paradigms and the hasty exits of black-blogged women and children fleeing their villages in advance of what they know to be gunfights ahead.

They are Special Forces, and the array of their equipment is majestic, including medics and translators who play key roles throughout in interplay with the agri harvesters and farmers. Their panoply of gear is the last word in impressive-and contributory to their ability to shout hectic instructions in the field of combat on helmet mikes, making the combat not only frightening, but loud and punctuated with noises and static-y orders, cautions and warnings.

 THE HURT LOCKER comes to mind repeatedly, as does APOCALYPSE NOW. But this cinema verite on the ground is something else. Those dead in the ditch are real men, and that is a real corpse. Though the men are warm and comradely with each other, we rarely catch them openly admitting how existentially terrifying their days and nights are with lives constantly on the line. The CO, commanding officer, seems exceptional, articulately reviewing each expedition and engagement, praising the men when needed, upbraiding them when they are careless, reporting on the progress of med-evac'ed comrades back in Denmark hospitals. Awarding the men, who started out at 180 cocky guys, patches of honor, all too aware of the fragility of temporary successes.

They seem admirably prepared, but how prepared is anyone, in the end, to having an IED blow off a leg? Their time is marked off, titles indicating each month, but each day of continued breathing undamaged, alive, a triumph against the inevitable encroaching odds.


In Danish, Pashto and Dari. Subtitled in English.



 A few years ago, Gladwell wrote an interesting story on how the underdog can beat the favorite. When the underdog plays the favorite's game they lose around 65% of the time. When the underdog refuses to play the favorite's game and plays another game entirely, the win/loss reverses and they win over 60% of the time. This magnificent article has many, many lessons in trading and life in general.

Russ Sears comments:

I loved this article also, and have recommended it to many non scientific minded friends.

However, like many of Gladwell's writing that are entertaining summaries of other experts ideas, I believe he misses some of the more relevant points. Perhaps it is literary license, to make it more entertaining to the masses, or perhaps, it is just poor science to focus on what he believes can tie these ideas all together in a nice neat package without the lose ends that reality always messes up tight arguments.

While I can not disagree with his lawyer like presentation style of writing quasi scientific pieces for marketing purposes, most of his works leave me wishing to talk to the real expert's and scientist's whose life work he is putting into these boxes… to get the real story. The end result I believe is that his work often over-reaches to make a scientific case for his pet ideas. In my opinion, the masses buy them as "science" but they tend to fall apart when the rigor of science is really applied.

One thing that bothered me about this piece was his glossing over hard training to achieve the fitness level of the players for the underdog basketball teams. Knowing a few things about how to get peak running performance out of somebody. It would seem that while those coaches that get their players to consistently peak during the March Madness Tournament would have to loss a few games that they could have won because the players trained too hard and did not sufficiently recover. During the regular season the players would have to train so hard they leave their game on the practice field and loss some to teams that have less talent but are fresher. Then near the tourney, the coach would lighten up the practices to let them peak at the right time. Cardiovascular wise you can only really peak for a little over a month. It would appear to me that those teams that are coached to win every game during the regular season would be ranked higher than they should because they cannot "peak" any more. While those that worked harder, lost more games due to fatigue, are ranked lower than they should be. In other words are they "underdogs" because they train so hard during the regular season that they can peak higher than the other teams or are they Cinderella teams like David because they are prepared and fit enough to attack Goliath.

Also the pacing of the game must be such that the underdog's players are able to still match the jump and burst of speeds of the other team at the end. Some of this can be achieved by burning out the other team's fast twitch muscles early on…but some of this also has to be taught to strategically hold back a little at first, so your team does not suffer the same fate.

I have not watched any game this year, I have been too busy, however, this may explain why all the underdogs are left. And Gladwell may very well have made this style of coaching popular in basketball today. Whatever it is teams like Butler certainly have made the tourney exciting this year.

And while I think the numbers may be overstated, it would appear that there is some substance to the 3 ideas he states that underdogs should try:

1. Take an unconventional approach,
2. Try harder than the top dogs
3. Aggressive attack with determination and no thoughts of losing.

The first one helps you believe in yourself, that it is possible. The second gives you moral basis for why you should win. And the third can stun the others into thinking you will win.



 A young boy enters a barber shop and the barber whispers to his customer, "This is the dumbest kid in the world. Watch while I prove it."

The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, "Which do you want, son?" The boy takes the quarters and leaves the dollar.

"What did I tell you?" said the barber. "That kid never learns!"

Later, the customer leaves, and sees the same young boy coming out of the ice cream store. He asks. "Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?" The boy licked his cone and replied, "Because the day I take the dollar, the game's over!"



 Farm Journal surveyed farmers and found out some very interesting facts, opinions, and intentions. Corn production is going to increase 3.37% while soybean production will decrease 3.46%. Farmers might decrease production of hay to grow more corn or beans. Increased corn or bean production will come at the expense of either corn or beans depending what the farmers shift to. Cotton farmers plan on growing more cotton at the expense of their corn crops. 24% of respondents plan on waiting until planting time to determine what crops they will plant. 56% are making their decisions based on crop rotation.

The article also has break even levels for prices which would induce farmers to shift acreage to other crops.



 This is an article about craft, intuition, art, and "feel" vs science. It's an article and book sure to raise a few hackles in the medical community. Perhaps there are some associations to investing.

I believe most physicians practice in a virtually data-free environment, devoid of feedback on the correctness of their practice. They know very little about the quality and outcomes of their diagnosis and treatment decisions.

And without data indicating that they should change what they're doing, physicians continue doing what they've been doing all along.Physicians rely heavily on the "art" of medicine, practicing not according to solid research evidence, but rather by how they were trained, by the culture of their own practice environment and by their own experiences with their patients.



Here are some interesting bits of history:

75 Years of American Finance: A Graphic Presentation 1861-1935

In 1861 the public debt (according to this doc) was 75 million, a whopping $2.83 per capita.

1862 saw the Legal Tender act "150,000,000 Greenbacks authorized".

1866 "this year income tax collections hit peak $73,000,000".

And so on.



There is a quote from the estimable Walt Frazier in this morning's NYPost that echoes in verbatim spirit what Vic's been saying for some time now.

Toward the end of the game against the Celtics he frustratingly observed: "The Knicks are not attacking, not trying to get to the hoop, man. They're just hanging out on the perimeter. See? Look where they are, 30 feet from the basket!"



 There appear to be deeper messages in this music "Friday" by Rebecca Black– ostensibly market related:

One notes that in 2011 Fridays have not been particularly strong, but Mondays gave Fridays reason to celebrate (attached compares mean of weekday returns of SPY, cls-cls).

Jan Petter-Janssen writes: 

Talking about music… Korean pop is extremely inspired by American culture.

The kids over there apparently cherish individualism and internationalism. It's a very good sign for Korea's future, isn't it?

Hyori Lee 

Girls' Generation 

Wonder Girls 

How do I know about all these? It's impossible not to hear these in Singaporean malls. Much better than Justin Bieber though.

PS: Make a YouTube search on "Indian pop". It's a totally different story.

PS2: Also Chinese pop features some English. And materialism to the extreme…




 The moves in Ford where it breaks through a round number and then opens at the high, and goes straight down reminds me of the incorrigible boy wonder who loved to buy a stock like Anaconda when it wend above 200 for first time, and then to scale into it on a pyramiding basis as it went up.

The boy wonder must have enjoyed much pleasure from the follies Bergeres girls on his payroll during those moments before he was led into bankruptcy again with such activity.

Jay Pasch writes:

And what better place to open it than right on the 15.18 gap… 



Here is an interesting article about oil: "we are in the middle of an epochal tectonic shift" by Lars Schall.

The hegde funds and banks, who control and own the NYMEX, the ICE Futures and the Dubai Exchange, are using the Middle East events. I think they want to try to use that to push the price up to maybe $ 150 to 200 per barrel over the next months. And why? In order to put massive political pressure on Germany and the European Union.


Since the end of the First World War, I would say, that the quality of the strategic economic thinking in Germany has become significantly reduced, especially after 1945 and the US-guided German "re-education" efforts. How well the Berlin government understands that this is a currency war against the euro, because the euro is the only currency on the block today worldwide, certainly not the Chinese Yuan or the Japanese Yen, which could challenge the hegemony as a reserve currency of the dollar, I can only speculate. That euro challenge has to be eliminated from the game. The next target will bw Spain. If they can crack Spain, then they will move on to Italy – and then it will really escalate into a colossal mess for the euro as an alternative to the dollar.

Stefan Jovanovich writes:

The numbers for U.S. energy consumption suggests that the U.S. might only need to put one knee on the ground. 37 years ago, with 214 million people, the country consumed 6,453,000 Barrels per day of Gasoline and 2,552,000 Barrels per day of Diesel Fuel. The most recent numbers have consumption of Gasoline at 8,779,000 Barrels per day and Diesel at 4,099,000 Barrels per day for a population 50% larger.

Dylan Distasio writes:

I found your original link very interesting, and hearkening back to the 70s energy shock, I would not put anything past Henry Kissinger, but I don't know what to make of Engdahl's theories, quoted above. The conspiracy nut in me finds them appealing, and after what we've seen happen over the last few years of the "financial crisis," nothing would surprise me.

That said, and this may simply reflect my naivete, but I don't believe the oil market can be easily manipulated long term. I'm sure speculators help trends in motion stay in motion until the positive feedback loop breaks down and the music stops, but I am skeptical of his beliefs that this is a coordinated effort to bring down Europe and China.

This may be my ugly American speaking, but I think the only thing propping the Euro up is the interest rate differential between the USD and it, and the perception that the Fed will continue to allow easy money to flow while the good burghers are tightening the reigns. I don't see the underlying structural issues with the PIIGs going away anytime soon, and despite the US's fiscal mess, still believe it will end up growing faster than the Eurozone ultimately. I don't think it is going to take $150 oil to bring down the Euro.

But concerning this: 

CNG has always been 40 percent cheaper then gasoline," Oldham said. "Everyone fears that gas will hit between $4 and $5 a gallon, while CNG is expected to remain steady.

I guess Mr. Oldham, in that article, has not heard of the concept of supply and demand. Granted, the shale finds have changed the face of domestic NG supply, but if the demand were to change radically for NG, the price is going to go up significantly. There is still the issue of the cost of building out a national infrastructure as mentioned also.

I'm not arguing CNG is a bad idea, just that it is foolish to assume prices are not going to move towards a new equilibrium compared to oil if we start to get power plants converting over to NG on a widespread basis combined with this hypothetical fleet of CNG vehicles on the road.

Paolo Pezzutti writes:

The issue is about using energy as a strategic weapon to win currency "wars" and much more… Does it make sense or is it a delirium of pseudo opinionists or worse "conspirationists" at any cost?

Ken Drees adds:

"The conspiracy nut in me finds them appealing, and after what we've seen happen over the last few years of the "financial crisis," nothing would surprise me."

Do we all have a little conspiracy flake inside, the need to believe an extreme idea, the need to see one more card and maybe hit that straight, the need to go short against the trend, the need to date that "troubled yet sexy person", the need to get some action to offset the boredom of accepted reality, accepted principles, the correct fold of the hand, the trend is your friend continuation trade or the usual date or evening at home?

Our gambling flake needs to be rewired into a creative outlet that excites the spirit yet reshapes risky behavior into worthwhile enterprise. risky activity is rooted in ego and power–that force needs to be applied in a new direction instead of being repressed.




 If I seem out of place in strange diagnoses with odd treatments of human ailments, it's only because people aren't accustomed to a veterinarian addressing human medicine. Vets take the same courses as medical students but have a long edge in seeing more patients. How many more? About 30x.

We walk lines of kennels and circle pastures while a physician is limited to his practice and hospitals. Vets take a holistic approach to treatment that should be applied to human medicine, accounting for the weather to what kind of scraps farmer John's wife throws to the pigs. We diagnose by gaze and touch more than by dialogue and lab tests. Vets are not specialists, and have been trained in the anatomy, diagnosis and treatment of four species: dog, cat, cow and horse. Finally, the two vets I worked for treated their own kids, from stitches to prescriptions in their clinic. There are masterful human physicians, but if I had kids who got sick, I would tell them to first go to a veterinarian and get a second opinion from a physician.

Rip McKenzie writes: 

I tell others, doctors deal with one species that can talk. Vets deal with multiple species that can't.



I see the Chair is too busy with market extremes (and doubtless the Knicks' loss) to comment on the Oracle in India.

Sort of seems like a last hurrah, Netjetting to all the large, third-world countries in which he's never had the pleasure of personal acclaim before he finishes his Cokes.



One raises the razor blade and puts some lather on the face and checks the prices at 7am and notes many markets near local extremes including stocks, fixed income, oil and the beard is still there, as well as the shaving cream. 



 I used to love to play an opponent who couldn't win because he was trying to do something that would definitely lose. Like setting his feet leaning towards the left and hitting to right, or hitting me a drop shot when I was always fast enough to return it regardless of where it went. The Knicks are like that. They can't possibly win regardless of what they do, or how good the players are, because their system is bad. The 7 seconds shoot doesn't work. It's not percentage play.

Fortunately some others seem to realize it now and the coach says "with all the problems I have, I am not going to comment on others problems". Hopefully he realizes it's his problem not the players.

It reminds one of my friend Joe Yuhas, the Christmas tree guy, who tapped out on a silver trade, from the long side below $ 4 and I said, "you shouldn't have been so big" and he said "but I keep thinking what would have happened if I had been short. I could have made as much as I lost" and I said, "but Joe, it didn't matter whichever way you went, you would have lost either way".

Many systems that people use for markets are like that. And those who day trade and give an implicit vig of a few 100% a year, are in similar positions in the main. They play against people whose costs are 1/10 of theirs, capital 1000 times as great, (and they can borrow from a fairy godmother at 0 % also ), and who have much better equipment and speed. And if all those advantages fail, they can force one out at the close, only to move back to where the profit would have been realized at the next open. And yet, the game must continue.

There is hope if D'Antoni trades places with the fake doc as I asked the sullen Patrick Ewing to do who would consign the Knicks to eternal crossings of the river Styx if he were to get back. There is hope for day traders if they go stay overnight.

Jay Pasch writes:

Words of wisdom on the treachery of daytrade margin as the rope seller is glad to offer plenty of product with which to fashion one's own noose…

Kim Zussman comments:

Don't think it's all the broker's fault. Blame EMH. E.g, if all the rational, logical, comfortable, patternistic things are bid every tick, the only things left are irrational, illogical, uncomfortable, and non-patterned. The only people who thrive like that are successful traders and schizophrenics.



The day-to-day changes in SPY (SP500) and TLT (20+yr Treasury ETF) was checked every 20 days (non-overlapping) for correlation. The attached plots correlation every 20D over time, 2002-present.

There is considerable variation, and two apparent regimes:

~7/03-6/07 with correlation varying around zero 6/07-present, with correlation bobbing around -0.5.

Is a high stock/bond risk dichotomy healthier?



Here is the website of Ruben Gonzalez, a great painter of racquetball.



 There was an interesting story recently about how actress Anne Hathaway impacts the share price of the Sage's firm. I wonder if someone created a fund called the B3rks#ire Black Swan fund and hired a capable Search Engine Optimisation specialist then what would happen?

The stock price of the firm will be in permanent declines or robotic trading firms will get shocked again and again?



I'm starting to look for systematic ways to play currencies. The most apparent one is the carry trade based on relative interest rates. I'm also going to look at relative real interest rates, relative gdp, income, balance of payments, and money supply.

First pass: literature suggests carry trade is volatility dependent. Looking at PowerShares DB G10 Currency Harvest fund (DBV) which buys the 3 highest yielding currencies in g10 and shorts the 3 weakest, is down 6% since inception on 9/18/06. Indicator: compute 21-day standard deviation of close-close[1] changes and then rank today's reading over the last 90-days.

Buy DBV when the indicator is in the bottom 1/3 of the range and sell when it exits the bottom 1/3 (vol is low)

Total Return 32%
Avg 1.1%
Count 29
Std 3.0%
t 2.0

Sell short when the indicator is in the top 1/3 of the range and buy to cover when it exits the top 1/3 (vol is high)

Total Return 21%
Avg 1.2%
Count 17
Std 6.2%
t 0.8

Seems to work symmetrically although this crude strategy appears better at capturing the positive risk premia of the carry trade.



 I conducted a study on this [what would the return on buying one share of every internet related company have been for various beginning and end periods] during 1999 when we were trying to measure the opportunity costs for not participating in investing in internet stocks. I have also used some papers that appeared in the various CFA Journals about the steam engine where it was 13 years between development and commercialization and one on the value to 3 or 4th generation adopters or implementers of new technology. The Nifty 50, etc. The biotechs in my study earned the equivalent of t-note return but with obviously higher volatility for 7 years, then surpassed it. The upside was, however, if you invested after the bust or even waited until the first signs of profitability returns were between 45% and 20% per annum respectfully. My conclusions were successfully to buy Google on its first day of trading and are behind my thoughts how to play china, solar, and cloud computing now.

1) In the mania - long/short (go long profitable ventures and short the unprofitable ones) - but in a more paired fashion (you need the industry and sector and multiple hedges– mismatched books can get difficult (i.e. the MSFT v. cloud issue now). The market when it achieves good clarity will price things on par with "risk free" investments, however, the unprofitable will always collapse at a faster rate than the profitable even within the bubble space. The best thought on this was from John Griffin who suggested shorting those brought public by second tier underwriters. He's logic - if even Goldman, Morgan, Merrill won't IPO it how bad is it. He found 30 internet stocks brought public by Whale Securities.

2) During the bust - redouble positions on profitable names - and pile in on 3 and 4 generation situations. i.e. Google was not the first search engine. AMZN has surpassed its highs just like AMGN and BIIIB of the prior study. EBAY is on the move again. QCOM - the biggest mover of 1999 has moved past its old highs.

3) Develop comps (for Google, we assumed the internet was as important at the PC, so we took Google's EPS divided into MSFT's EPS but assumed a 3x growth rate - on par for ho the PC industry developed). In the case of a NFLX, GOOG, SNDK, etc. look for what existing industry can be cannibalized for valuation purposes. GOOG was about TV ad revenue, NFLX put blockbuster under, and SNDK and the digital camera ate EK. The two way pair test on this would be a company on the Altman Z-Score test like Blockbuster or EK with its opposite on the sales and earnings growth momentum screens.

Current thoughts along these lines - if the Chinese are already the largest player in the physical markets (oil, copper, etc) and they are the mercantilist they seem to be (i.e. BIDU v. GOOG) then won't their financial markets ultimately be the same? If so, they what companies - probably not the ones listed now - who built the interstate? but who has a store on every exist?

SOLAR and alt energies rest on subsidies but if the productivity gains are real there is a cross over but there will be a bust - with only the ones getting to legitimacy surviving.

Cloud computing– another fine area

4) Spin-Offs & cross holding- follow smart company monetization strategies (i.e the Barnes & Noble v. B& effect). Today see LVS, MGM, WYNN, on their Macau holdings. PM v. MO. It is a trend that should be concerning to the country. The companies are showing there is no growth here, so you spin the domestic and load it with debt (aka MO) and price the other for growth. In solar, CY, etc.



 You think you don't have an edge in the market, well, if you don't have this you may just have one…… Toxoplasmosis:

Around 15 to 20 per cent of Americans are infected with the parasite, according to a study by the U.S. Centres for Disease Control and Infection (CDC).

The study suggests that male carriers have shorter attention spans, a greater likelihood of breaking rules and taking risks, and are more independent, anti-social, suspicious, jealous and morose. The behaviors observed, if caused by the parasite, are likely due to infection and low-grade encephalitis, which is marked by the presence of cysts in the human brain, which may produce or induce production of a neurotransmitter, possibly dopamine, therefore acting similarly to dopamine re-uptake inhibitor type antidepressants and stimulants.

Femi Adebajo:

There we go again so many conditional verbs and clauses… suggests….likelihood….if….likely due to….may produce..or induce the production of…possibly dopamine… a flimsy theory built on a speculative (not in a trading sense) foundation.

Victor Niederhoffer explains:

Okay. The mice make themselves sexy so they be eaten by cats. Then the cats spread the mice around through the sewerage system. The breakout occurs and the trend followers jump in (one can now say this with much greater impunity than the last year), and then the trend followers and pivot boys and breakout boys spread their genes, I mean money, around to the locals and the homeostasis boys when they get out. In former days the locals played a role in the detritovore works. 

Anon writes:

[I hate ladies with too many cats.] The scented candle, mystical music, flavored coffee crowd always that has the de rigeur loofah brush hanging somewhere in the shower. It's all part of the Bed, Bath, and Beyond archetype.

Russ Sears replies:

Considering the alternative Bed, Bath and Beyond is to be praised. Besides John Adam's compassionate pining over his alcoholic son, another major difference between David McCullough's book [John Adams ] versus the mini series movie version was his relationship with Ben Franklin. It was not the moral filth of Franklin's mistress that Adams wrote his wife about that he could not stand, it was the literal smell and filth of the pets of this mistress. This filth was hard for Adam's to get past.

Comparing the movie version to the books is a good lesson in the necessary pandering to the liberal stereotyping needed in a movie this days. Let the historical facts be damned.




 One must always remember Slansky's admonition which is that you have to take account of whether you're a winner or loser, and what your average rate of win is relative to the distribution of losses. If you're a good player, never accept a bet with a small edge if it might subject you too close to gambler's ruin, or getting stopped out of you position even if you have an edge. Many a good player doesn't call bets in one's favor if it has too high a variability relative to his bank roll. Many a t-grade should not be taken when the variables like an announcement put the normal tit and tat into jeopardy. I hate to force a weaker player, (assuming I might ever have that luxury again) into making a good shot. Board players are the same way. They can sometimes create a crisis, a tension where if the weaker player makes the rite move, he might pull out a draw or victory. Much better to grind the poor sinner or market into oblivion.

Anatoly Veltman comments:

This is very right about chess and checkers. Grandmasters often lose sight of this good advice: forcing a weaker opponent into a series of the only possible moves on his part - will not necessarily lead to your definite win; but it will certainly prevent your opponent from making a poor move of his own!



 The Knicks inevitable loss to Boston even though they were leading by double digits in the fourth quarter, and their being ground into certain oblivion by a team with a better system has many lessons. Sometimes when you're playing a sport and the other guy gets ahead of you but does it with much non-percentage play or luck, one believes that one will be able to win by just playing more fundamental play and running a little harder and defending a little harder and one isn't too worried about the opponent being ahead. Especially if you know that on an average play you're better than the opponent, and the opponent can only make a point by luck. Such is the situation whenever a team plays the Knicks. They know that they can surmount any reasonable deficit in the fourth quarter as Boston knew.

Same thing in a market that hovers a little below unchanged near end of day when it's ready to move to lead. 

p.s. the talk from the estimable Carmelo, like a robot: "we got to play the system. We have to play the system. Everyone in league knows that D'Antoni system if great for offense and that we have to stick with it. Just take your shots within it" reminds one of the song from Damn Yankees: "you got to play the game". You got to play the game. Of course, Melo is being loyal which is good. But even he couldn't believe that they should play with that terrible system so demoralizing to all the players who have to work to get in position only to see a freak luck shot by a Toney Davis or the celebratedly departed still Gallo for a three tossed up to the basket. One is reminded of Grandpa Martins' letter to Coach Ryan: "when you have an All American like Artie in the game who has made every catch and every tackle… why give the ball to anyone else. no hard feelins either way."



 I recently found this English Literature Dissertation: A Study into Hobo Literature by Nial Anderson

"The imaginative young vagabond quickly loses the social instincts that make life bearable for other men…"

It's about Steamtrain Murray Graham, who was a bricklayer by trade and spent most of his time traveling a lipstick red Cadillac convertible with a white top. (He only appeared to be a hobo in the technical sense).

Steamtrain was a great guy. I stayed with him often in Toledo where he took me to the RR yard to talk to Wokers to help get on a freight. I rode w/ him in the lipstick caddy to a string of elderly people & old folks homes to cheer up dying seniors. He rode freights, not as much as most think & less than the press implies, but is an inspiration. He once advised me to dress in white and walk the back roads of America. That spurred me in the 90s to shift from freights to trails, and dress in green & walk the Pacific Crest, Vermont, Colorado… like I say, an inspiration. His autobiog is Tales of the Iron Road



 As Florida prepares once again to face the preeminent, college basketball 3-point shooter, BYU's Jimmer Fredette (121 of 298, 40.6%, from beyond 20 feet 9 inches), in the NCAA Sweet 16, thoughts of anxious coaches, fans and alumni turn to how to avoid being "Jimmered". Many wonder how Fredette could develop a touch to sink shots from 22, 23.75 (pro distance) and the statistically ridiculous, 25 (downtown) or more feet?

To shut the Jimmer down is going to be a very difficult task. The two schools of thought that come to the forefront are: 1) Let him get his points, contain him as best possible, and clamp down on his teammates and limit BYU shots through effective rebounding and 2) Harass and double-team the boy wonder, deny him the ball in the 3-point zone, and give up defensive pressure on his skilled teammates. There are varying defensive sets and strategies to try out—using UF senior forward, 6 foot 10-inch Chandler Parsons to provide help on the 6 foot 2-inch Fredette, starting a running game with BYU in hopes of wearing out Fredette's legs, working Jimmer hard on defense, and the dubious action of denying shots through fouling and other forms of harassment. In short, hope and pray the Jimmer has a bad day, goes cold and loses his mojo in New Orleans Arena.

But how do these shooters with downtown range develop? A derogatory moniker can quickly become attached to shooters by fellow youngsters— you are a "gunner", "hot dog" or "selfish" player. Coaches will oftentimes bench and lecture players who shoot from pro distances and discourage the taking of "bad shots". Misses from long distances will be decried while less skilled players clank shots off the rim from 15 feet. Multiple laps around the court, "suicides", "6-counters" and other tiring exercises will be prescribed as punishment, to express disapproval and to correct the ways of the offending youngster who dares to shoot from well beyond the arc.

In Fredette's case, his skills and mindset were developed early with the help of family and mentors:

Jimmer's most steadfast supporter was TJ, who recognized a prodigy in his chunky little brother. "He was the most determined, competitive four-year-old I had ever seen," says TJ, who is seven years older. Playing with TJ and TJ's friends on the family's backyard court, Jimmer developed range—at five he could drain a three—and an arsenal of head fakes, scoop shots and floaters to get around the long limbs. "He willed himself to find ways to win, even if he was physically outmatched," says TJ. "From the time he was 10, I was telling everybody he was going to make the NBA."

At eight Jimmer graduated to pickup ball with Al and TJ against adults at Crandall Park, then Hoop It Up tournaments, then trips to Hartford and New York City for no-foul games on the blacktop "that toughened him up," says Al. Jimmer's development was a family affair: Al, a financial adviser, helped coach his AAU teams while Kay—a substitute teacher who coined the nickname Jimmer at birth (his real name is James)—put no restrictions on bouncing the ball in the house and even built him a small dribbling studio in the basement with a linoleum floor and mirrors on the wall. Kay's brother, Lee Taft, a personal trainer who now runs his eponymous Speed Academy in Indianapolis, started him on running drills when he was five. "I wouldn't be where I am today without him," says Fredette, who still works out with Taft. "He's the reason I move as well as I do."



1:1 May Coffee to May Sugar daily may be indicative of new algorithmic participation across markets!



 In Kenya when you go for nyama choma there are no napkins but you wash your hands before eating out of your shared bowl.

The sinks are outside by the tables.

If you don't wash your hands people won't eat with you.

The idea that Africa is less hygienic than the West is as much BS as be idea that Africa is more corrupt than the west.



 One 2AM in 1974 I was awakened by a call from an irate man who said, "Mr. Shay , the (expletive) Lifetime Warranty waterbed you sold me two years ago has a leak in the left front corner and the water is dripping through the floor and ruining our new dining room set downstairs. You're liable for it of course. It costs $1645.33 . My wife is hysterical and she's trying to call her brother who's a lawyer but he's in Washington, D.C. right now and can't be reached until the morning. He added he was calling from Eugene, Oregon, as if that and his lawyer's being in the capital carried the implicit threats that Eugeneites were not to be trifled with and that his lawyer relative was in D.C. advising President Ford for the day. And merely warming up for dealing with me.

It was not the first Womb Waterbed leak complaint I'd received over the four years that had passed since I financed my son's high school project. His canny business plan had incorporated a "Lifetime Warranty Against Leakage!" in big letters, followed by a weasel-worded 6 point type line : "or your money back".

"I'm sorry for your trouble," I said to my caller, "but I think you want my son Richard. He used to be in the waterbed business four years ago. It was his high school business project . You've called me on his temporary phone number at the time."

"Put him on!" said my complainant.

"I can't," I said affably. "He's in Italy , somewhere in the Dolomite mountains, working as a dog minder for a Mafia family. They have 12 big guard dogs that love him and the family doesn't let him use their phone for anything that's not dog related. Give me your address. I'll have Dick send you a refund. $29 less shipping? Right? Do you happen to have your Womb Waterbed receipt in front of you?"

He uttered a string of expletives and hung up.

Aside from laying out about $ 800 for some 50 Taiwanese waterbeds that smelled as if they'd survived a barber shop tsunami, my most important contribution to the business , I think, came the day following an article on Womb Waterbeds in the local Deerfield Review. CBS wanted to come out and do a 12 minute segment at Dick's 80 buck a month one-floor-up headquarters. I advised Dick that whatever he and his girl-friend employee Jody did,whenever the TV guy came close to quizzing them on why people liked waterbeds- for God's sake to forgo part of his usual sales pitch, delivered with an innocuous shrug: "People say it enhances their sex life."

After the CBS show in which Dick deftly fended off anything about sex, (not easy for a 17 year old being pushed by a 1 and l/2 entenderist, a wannabe Mike Wallace) ,Womb Waterbed sales climbed nicely.

When Dick left home shortly afterward to seek his fortune abroad, all I got stuck for was three or four leaky Wombs, one month's rent and two months of storage. A cheap business learning experience for someone with three other enterprising kids.



One wonders whether such past anomalies found as the "the accrual anomaly" based on large accruals in non-cash assets, like inventory and receiveables, which are manipulatable, that flow into earnings are overstating the persistent ability to profit, such as this,  are still profitable. A quote in Malkiel–, "I have never seen a back test that I didn't love, but devil take the hindmost when you try to use it" comes to mind, but such studies that look at the balance sheets seem less likely to have been exploited.

Paul Hendry comments: 

The basic thrust of the paper is that individual equity investors with limited attention are fixated on accounting profitability while neglecting cashflow profitability. The primary cause of mispricing is the net operating assets anomaly or "balance sheet bloat".

Reading over this 50 page study which is highly technical but has a few interesting points:

-They do not believe that mutual funds who identify the mispricing take out all the arbitrage opportunity.
-Most equities with high accruals on the books are typically small size, low price, low liquidity but high systematic risk. Traits not appealing to funds.
-High institutional ownership reduces accrual mispricing.
-Growth orientated mutual funds outperform benchmarks.
-Funds that concentrate of fewer industries perform better after adjusting for risks and styles.
-In general, mutual funds underperform the market by 0.6% to 1%. Transactions costs are significant.

If you accepted their findings then a mutual fund investor should go into an aggressive growth fund, that goes both long and short, low transaction costs, specializing in one or few industries. To capture the mispricing would take consistent analysis that a fund has the resources to do..



 History Lessons for Investors
A Thrice-Told Tale, All in One Book
Reminiscences of a Stock Operator, Annotated Edition
by Edwin Lefevre and
Jon D. Markman,
With a Foreword
By Paul Tudor Jones

423 pages

Reviewed by Victor Niederhoffer

Imagine that master novelist and chess aficionado Vladimir Nabokov wrote a fictional memoir by Capablanca—the 1920s world champion who never made a mistake on the board—and that Bobby Fisher then published an updated and annotated version, incorporating all of the important developments of modern chess strategy, along with a foreword by Anatoly Karpov. A similar multilayered feast on investment is now available, with minor differences. Edwin Lefevre's Reminiscences of a Stock Market Operator is a novel told in the first person by a character inspired by legendary trader Jesse Livermore. This classic is now graced with extensive annotations by investment advisor Jon Markman, and includes a foreword by hedge-fund manager Paul Tudor Jones.

The result is big and beautiful, cutting across two centuries of booms and busts and market and economic history, with a myriad of vintage historical photos and instructive historical charts throughout.

One of Lefevre's favorite adages is that there's nothing new on Wall Street. The similarity between the financial panic of 2008 and the 1907 panic recounted in the book is a prime example.

The numerous squeezes, manipulations, insider trading, government hauling in of scapegoats and frauds settled for pennies on the dollar that Lefevre and Markman recount are horses that are found as well in the modern stable.

The book can be divided into three parts: 1. The bucket-shop era from 1890-1910, when Livermore was able to make easy money by taking advantage of the bid-asked spread on inactive stocks with leverage of 100 to one. 2. His days as a stock trader on the New York Stock Exchange from 1910-1920, when he went bust over and over again, despite his abilities and insights, because he used too much leverage. 3. His career as a stock manipulator in the 1920s, where the fees he charged were 25% of the market value of the manipulated stock.

But there is a fourth part of the story, which happened after Lefevre wrote Reminiscences of a Stock Operator. Markman fills in the details. Livermore went bankrupt for at least the fourth time in 1934. His excess liabilities of $2 million included promised payments to the dancer Lucille Ballantine for keeping him "cheered and amused," and a liability for breach of promise to a former secretary.

Despite having amassed a fortune of $100 million by 1929, Livermore was back where he started at 16. He did not seem to learn from his mistakes. The excessive spending that put him in the hole over and over again was part of a much bigger mistake that he repeated throughout his career. He traded with so much leverage and generated so many commissions and gave away so much slippage in his bid-asked spreads that even a small move against him, one almost certain to occur in a season, would be enough to create ruin and worse. After losing his fortune or going bust at least six times, Livermore committed suicide in 1940 at the age of 63 at the Sherry Netherland Hotel in Manhattan.

 The original book is replete with sensible suggestions for making money. The problem is that many are untested and contradictory. It took a man of sagacity and respect—a trader and shrewd, prize-winning journalist like Jon Markman, to separate the wheat from the chaff.

The appendix contains 100 main tenets of the Livermore method, which are just as profitable for today's traders as they were for Livermore–provided they are tested and used without improper leverage and transactions costs.

This book will live forever.



JPY/USD is at a 40 year high!

So is USD/CHF !!

But then Gold/USD is also at a forty year highs!!! Yet neither of the AUD, the CAD nor the ZAR are at 40 year highs!!

And then the so called Big Growth stories of the world India and China have their INR/USD and CNY/USD about 1/7th and 1/4ths of their 40 year highs currently.

Long live the Long Term Funnymentals!!

Whoever said that markets can be irrational in the short term and hence go for those long term bets!!

Ahh… Keynes did say markets can be irrational for longer than you can be solvent. But I doubt if he too had been able to visualize that markets can be so incoherent for such long stretches of time.

So many different kinds of monies and so many different ways in which they are incoherent with each other.

The arithmetic of money is neither additive nor multiplicative. What sort of arithmetic is the world of money following in this world, in the last forty years? Where is the key to Rebecca?



 Dirty tables. I'm at a place I like for a Boli and the place is busy. I dislike seeing dirty tables and the seats not cleaned. To me for a food business to maintain an edge over the competition they need good food and a clean place to dine.

This place is individually owned. Watching the girl now cleaning tables and chairs with the same rag! Also note our local Panera has the same table and seat issues. Panera and our local free standing Chick Fil A use two cloths for tables and chairs.

Likely all of this has Market implications when an investor chooses a restaurant stock to purchase.



Charles Pennington responds: 

I almost always try to hit restaurants when they're not crowded. I'll grab lunch at 11am or 3pm, or I'll get dinner at 5pm or 9pm. It's a great strategy, except that always, always,always there is someone sweeping the floor while I'm eating. I try to cover up my food, but there's really no way to protect it from small pieces of airborne debris. I understand that restaurants are in a quandary–they have to sweep sometime, but I wish they'd come up with a better solution.

Also Alan is very fortunate to have a Chick-fil-a in town. The Chick-fil-a people should invade the northeast and show everyone how it's done. When I was a kid, Chick-fil-a was mostly a mall destination, but now they are also a highway exit destination. I'd drive an extra hundred miles if it would get me to a Chick-fil-a, where I know the place is going to be clean and they're going to treat me with wonderful courtesy.



 1. The return of Gallo to the Denver Lineup, and his previous absence must be the reason that they were winning before and can be expected to lose now. Such a new beginning should be used in markets to determine the distributions after a new event like the first up opening in x days or the first red or green in the colored co-movement chart that Doc updates on daily spec.

2. I have always eschewed the development of systematic methods based on anomalies for making an extra buck in individual stocks for a different reason than Richard Roll who finds that they never do half as well in real life as they do on paper. My reason is that by the time you consider the extra 2 or 3 percentage points you can make from them at the best, your customers if you have any couldn't cover the cost of their fees and be left with anything good. And if you don't have customers like me, then the return you could possibly make from them would never be sufficient to cover your expenses.

Louis L' Amour in The Iron Marshall has written a great Horatio Alger story that has almost as much accurate stuff about New York City in the 1850s in it and great Titanic Thompson con man stuff in it, as does his usual Western fare, always written with a topographical map at his side. However, I repeat that his constant emphasis on boxing technique as the deciding factor in who gets ahead and his inability to flesh out the endearing personal nobility of relations between friends the way O' Brian or Schaeffer can makes much of his work very shallow.

4. The overreactions in the market last week show how waiting without trading for the time when you normally would have been squeezed out, but then going in big is a viable strategy. The main problem with this is what would have happened to you if you did this the day in October 2008 the market anticipated the inevitability of the community organizer's election and dropped 20% in two days.

5. It is always amazing to me to read the GaveKal analysis of the influence of world events on stock prices. They invariably come to the same conclusions as me, almost always in favor of the long term drift, and almost always taking a contrarian approach to investing. They have a good essay on why they are bullish on Japan now. Based on such things as that their market is underweighted and undervalued relative to other markets, and their own history, it is likely that easing will occur, and that the nuclear crisis was much more contained than fearful reports made it out to be. I have never seen a GaveKal analysis that I didn't agree with except for one of their favorite hobby horses about how the inexorable and unbeatable new type of virtual company arising a la Carefour that can make an infinite rate of return et al.

T.K Marks comments:

The fade Gallo system of basketball handicapping reminds me somewhat of a client that we used to have when I first started out on the floor. There was this direct line phone to a brokerage concern that would ring all day long with order entries. Nothing particularly noteworthy of having with having a busy client, but it was the type of orders that piqued my novice interest.

You see, every order that was entered was a cross: Buy and sell equal amounts at the same price, whether above or below the market, or at the market. As I obviously found the net result of all these transactions to be unduly homeostatic in terms of P&L, after about a week of observing this curious phenomenon I finally mustered up the temerity to ask a grizzled sort twice my age what was the purpose of this.

He just looked at me blankly for a moment before succinctly advising, "Don't worry about it."

So about two weeks later, and after I had passed his vetting process I guess, he out-of-the-blue explained what all those crosses from particular brokerage house's crosses were about.

Their experience being that the equity of most retail accounts having short half-lives, their thinking was to take the other side of every one of their customers' orders.

It was my first exposure to any sort of trading system. And although it was as regimented and rigidly fixed as could be, those characteristics had nothing to do with mathematical calculations and everything to do with human nature.

As far as they were concerned, when it came to silver futures traded in a retail account, everybody was Gallo until proven otherwise. In the long-run I'm not sure what the karma consequences of presuming that everybody is a hoodoo waiting to happen, but the people from that brokerage house were obviously no strangers to some of the darker corners of psychology.



One is reminded of scenes from Iolanthe "proudly let the drums roll/ we are peers of highest station/ pillars of the English nation/ ta ran ta ran ta ra" from memory as the markets after two fantastic drum rolls of upness at the opening repeat it for the third time in a row as of 11 pm, thereby creating a Gilbertian googlewhack.



 One should never use the habits of the Boy Wonder as a source for emulation except in the field of romance and good times before the inevitable last days. Certainly everything he did in speculation was wrong except for his ability to cheat the bucket shops by betting on reversals arising from the concentration of limits at the bid and the asked.

Ken Drees comments: 

I don't know if you are judging him too harshly or not, but I read somewhere that he suffered from clinical depression and at that time was not a known ailment– maybe this led to his "trade–all the time" mentality and other outlets for passions. Beating the bucket shops who cheated the public at their own game seems counting card like to me– which led those cheats to get a bigger and bigger shoe– to keep the metaphor extended.

And maybe I am too harsh on the schooling aspect– but less chit chat, what do you think about the market talk is better for me as I try to extract longer term trend trades and stay with them. As an example, the Middle East shakeup in my mind means one thing, trade wise, and that's higher oil price. I try to minimize the back and forth headlines as much as possible. In that vein, Livermore's isolated trading office was set up to keep outside influence away. I think there is something good to take from that.

Victor Niederhoffer replies: 

One would think that he suffered more from excessive inebriation and the aftermath of womanizing too much than clinical depression. The depression was likely caused by his extravagant and unsustainable life style and vig paying.



 A couple of months ago I was trying to put together a container of coffee from Indonesia, and my experience is somewhat different from SBUX. I find that the "speculators" responsible for the very tight current supplies are the coffee producers themselves. Many farmers have seen prices going up and up, and they therefore hold on to their current supplies in the hope that they can get even more for them. If you do manage to buy some coffee you must be very careful that what you receive is what you tested because there is strong incentive for the farmer to mix in lower-quality beans. Thus it is very hard to put together a large order of high-quality beans. This situation will only rectify itself when prices start to decrease. In this part of the world, that may be around June or July when the new crop comes in. Buyers are now having to consider buying for their anticipated yearly needs at once and storing the beans. Of course, due to their heavy volumes, SBUX has been using forward contracts for a long time, so they have been partially insulated from price hikes.

Though I do not yet have much experience in this field, I do think that higher coffee prices are here to stay. The gross margins on coffee are pretty high, leading to an inelastic demand curve. There is more and more demand for "specialty" coffee, which sells for higher prices and is not price-sensitive. It is also interesting that pricing for Indonesian beans tracks very closely to the New York price.

Ken Drees writes:

If you do manage to buy some coffee you must be very careful that what you receive is what you tested because there is strong incentive for the farmer to mix in lower-quality beans.

An unscrupulous cantonese tea farmer in the late 1700s had the idea too: a very detailed account of tea and its trading, of how it was evaluated, graded and which trading houses bought which varieties was described. The usual cheating methods were illuminated for the reader-stale tea added to fresh tea, chopped willow leaves added for increasing bulk, additives of Prussian blue added for brilliant needed a good Chinese point man at the cantonese port to ensure that what you bought was what was loaded onto your ship for the return trip.

From Otter Skins, Boston Ships and Chinese Goods by Gibson.

Craig Mee writes:

When looking at traditional gold mining in local areas of Indonesia, I noticed I could buy good physical 10% below spot, however this was unrefined, and no doubt paying the bro, and slippage would negate the edge in this case. Then with the added query of dealing size, and you really need another 15% off for "local" risk.

I spoke to local geo about one such query, about a new mining venture. He mentioned a company who had claimed the title got approval for mining (no easy task), shipped in all the machinery, and at the 12 hour, a man's brother appeared out of the forest waving a "title paper", and they had no choice but to pay him off.

It seems there is no better place for knowing your market and its participants.



The increase in the intensity of the electromagnetic soup (the South Park boys call it smug) in urban areas over the past 3 decades has been exponential. The limited research on the health effects in this area has been entirely on the question of whether cell phone use caused brain cancer because the receiver was held so close to the ear. What has not been researched at all is the effect of having transmitters sprinkled everywhere - on airplanes, in hotels, etc. so that the exposure is constant for people who live in urban areas. It is a question that genuinely needs statistical research, especially since Wi-Fi and Cell Phones operate at a much higher frequency than the transmissions that people have previously been exposed to - i.e. AM-FM radio and over the air TV broadcasting.



Heisenberg Japan

Asset all up
Zero interest
Where to go?

Hunt old bear!
He is 20
And die soon

Can aim Nikkei
Can aim Yen
Better hit both



 A rather shocking study which shows that investors in mutual funds receive a much worse return than the actual return shown by the mutual fund through putting most of their investment in before the mutual fund goes down and least of their investments when mutual funds before the mutual fund goes up. The actual underperformance seems to be of the order of 3 percentage points of return a year, i.e, 6% versus 9%, with sector funds and specialty funds and growth funds showing much greater underperfomance. This must be a pretty good indicator of when to go against a particular sector.

Steve Ellison writes:

I read Mr. Swedroe's book Rational Investing in Irrational Times. This is very interesting data, but it undermines his main message, that the market is efficient and even professional managers can't beat it, so you should diversify and keep costs low by buying index funds. If mutual funds favored by the public underperform by a wide margin, something else must be overperforming. One might be able to beat the market by simply avoiding the hot funds and their favored stocks, like Bacon's technique of betting on all the other horses besides the overpriced favorite.

Mick St. Amour writes:

A great contrarian indicator. The retail investor is often guilty of chasing returns and as you can see this is a performance killer.

Larry Williams writes:

Aha, mutual funds are for the masses, while the elite managers of money: Cohen, PTJ, Dalio– are the winners for their clients. 

But hold on a moment here. Lots of professional managers have beat the market for many, many years. It can be done, and it is being done. But not all can do it. Just like not all teams will be in the final four, and while luck is part of the game, in the end skill carries the day. 



 Traders who communicate make more money. A great post by Jonathan Lehrer. 

"Herds on the Street: Why messaging traders are like scared fish" .

Ken Drees comments: 

I think of schooling more related to crowd behavior and not specs– but maybe this author thinks small minded traders are like bait fish in that they react and must constantly tweet, chirp, burp, ping, belch, touch fin, and keep swimming as a group so that when the big gaping maw makes a pass one would be in the 80% not affected and the poor sorry bud from the other end of school gets chomped.

This constant talking and interaction saps my energy– I use the chatter a a contrary filter and in some cases just turn it all off.

Contrast Livermore in his silent trading room to the adolescent instant messaging of the trading crowd.



 Two things we can learn from kids are how to:

1) stay happy, for no reason in particular.

2) keep busy, doing something or the other.

What else would you suggest we could do to keep the child in each of us active, so as to be better adults?

Alan Millhone writes: 

3) Young children are very honest and seldom tell falsehoods.

Jeff Watson suggests: 

To stay a kid at heart, one should spend at least an hour a day engaged in exercise and another hour playing some kind of childish game, it doesn't matter what. It also helps to hang around with kids as they will keep you young. 

Mark Goulston writes: 

4) Every morning think of someone you are grateful to: a) what they did; b) the effort it took for them to do it; c) what it personally meant to you.

5) Make an effort to reach those people (or next of kin) and thank them for those three things



 You know that feeling that everybody who has ever traded has gotten when the market is going sharply against them though with a velocity whose ferocity one knows can't be maintained. But a pain threshold has been surpassed so however around the corner the reversion to the mean might be, the stuff just has to be dumped.

The Mets are doing that now. In what must be the baseball equivalent of not be able to make a margin call, a few months back they went to the Commissioner's office to borrow $25m to remain liquid. So as shakily solvent as they would appear to be, they've taken to dumping onerous contracts in the hole. The other day they released second-baseman Luis Castillo though they still have to pay him $6m for this season and it is widely expected that any day now pitcher Oliver Perez will be cut as well, the $12m he is owed this season notwithstanding.

They're just dumping stuff in the hole. Most don't expect them to be competitive this year and I don't know how much worse they would be with these two guys on the team, especially in light of what they're owed. But those two guys were wildly unpopular. It's as if they sensed they were caught long public relations futures in a cratering market and their fan base was the clearinghouse that demanded they liquidate.



 One could compare hedge fund managers and fish, since in fishing much depends on the conditions of the river and environment. During the higher flows the fish spread out. There is more oxygenated water, seams, pockets and pools to reside in. If weather cooperates there will be insect hatches and good feeding for all in various and abundant places.

However, during the lower flows the options decrease. There are fewer pools and the fish stack up, competing for aerated water and access to a seam where a bug might coming down the current for a meal. In some cases larger trout will even feed upon smaller ones of the same species. Other predators, like anglers, can easily spot the schools during these lean times which add to their vulnerability.

The schooling affect does not lead to success, but is a by product of their collectively looking to be in the best spot given the circumstances around them. Or take a surfing example, a line up is not a result of surfers interested in paddling collectively, but a desire by each to be near the crest of the next nice swell.



This is pretty great.

The identification and exploitation between the difference of two variables — 1) the probability that a team will win, and 2) the likelihood that other people have chosen that team– is very much like the markets.

The difference however, is that in markets we want to trade with others if we can be the first in and against others if we can be the last in, whereas a pool is created in a single iteration.



What would the return on buying one share of every internet related company have been for various beginning and end periods? One is not sure it was a bust, especially taking account of the returns of venture capital companies that invested during that period. One Ebay or Facebook or Groupon could cover many a 0% return.



 This morning I rolled out of bed in Lake Toba recalling an Indonesia visa expiration in three days after two wonderful months in Borneo, Sulawesi and Sumatra. I packed my bag, tidied the $10/day room that includes two meals and a massage, and left for the mountain ferry to the mainland to reach immigration before the expiry.

On the first step out the door, a glance at my visa reads '60 days' starting January 23, and yet the 'expiration date' is a month beyond on April 23, 2011. An embassy bureaucrat two months ago goofed, or warmly provided an additional month after losing the door key and helping me crawl through a side window for the visa. I weighed the options in mid-stride, turned into the room, and unpacked.

Lake Toba is the third of selected global Shangri las in a new career as a peripatetic ex-patriot after being the first California sub-teacher to be canned surrounding a 'playground war' two years ago, and the best. The first two were four months each at Iquitos, Peru and San Felipe, Baja.

Toba has it all: 300-meter waterfall cascading outside my window, hand hewn canoes paddled on an idyllic bay, healthy food, cheap accommodation, good internet, expert massages, and the Batak descendants from the Toba Catastrophe Theory. This volcanic island is somewhere between Robinson Crusoe's atoll and Jules Verne's Mysterious Island.The overstay is welcomed, yet a week ago the massage ladies boycotted me.

I used to stroll the single Toba lane and call into one of a dozen windows to the woman of the house cooking or cultivating rice in the back yard, 'Massage?…' It went smoothly for one month, until a week-ago altercation in a market with a popular matron who forgot the calculator. She took offence at my polite math, snubbed me in the town of 150 (2/3 female), and the call 'Massage' is ignored. This is unprecedented in a down market 3rd world land that time forgot, and is a tribute to the Batak people.



This is quite a funny read and applicable to Vics hoodoo's in markets:

It took me a while to come to terms with this, to take stock of my envy, put my ambition in perspective and draw some life lessons. But eventually I wrote a book about our misadventures, I Was Bono's Doppelganger. The title was inspired by Bono's joking suggestion that we were cosmic opposites, and I had soaked up his bad luck.



The attached plots log(nikkei225). The dark line is from a year before to a year after the 1/17/95 Kobe earthquake (arrow). The red line is log Nikkei from a year ago to +5 days after the 3/11/2011 earthquake (arrow).

The 1995 event - which occurred in a market that was flat to slightly declining - was followed by a modest decline over 4 days, then a small rally, followed by a decline which deepened over the next 6 months.

The recent quake occurred with Nikkei substantially lower than in '95, and followed a flattish period which was rising (with all other markets) over the past 6 months. So far the 2011 tragedy has taken the form of a deep 2-day drop followed by a 3-day bounce.

In terms of contextual backdrop, arguably there are more differences than similarities: Earthquake size/damage/future ramifications, recent global financial crisis, etc.

Craig Mee writes:

Thanks, Kim.

Of note the SP in 1995 was up 18.8% in the following 6 months to 17/8/95.

A spread trade short Nikkei, against one of the more stable Indexes at the moment, (potentially one least effected over the last weeks volatility), maybe a consideration as of 3/20/11.

The Russell 2000 index of smaller companies has lost 1 percent since the earthquake in Japan, a slide that is less than half of the pullbacks of large company indexes like the Dow or S&P 500. That's a surprise, considering that the smaller, riskier companies tend to fall the most during stock downturns. Last year, for instance, the Russell index lost 2 percentage points more than the S&P 500 during a market drop that lasted from April to June.



 Does the orbit of the Moon trigger earthquakes ? If so then March 16 through the 22nd could be interesting. The Moon makes its closest approach Mar 19 during the new Moon.

Here is something from Nolle's web site: his March forecast.

On a more interesting note my research showed that the stock market performs better from the new Moon to the full Moon than during the waning half of the cycle.

Jon Longtin comments: 

I wouldn't lose sleep over it.

The stress that the moon produces on the earth by constantly darting from one side to the other every day is orders of magnitude greater than the small variation in its distance to earth.

Put another way, high tide maybe a few thousandths of an inch higher when the moon is closest to the earth, on top of a several foot swing in sea level that day.

(But such events do make lovely fodder for the doomsayers…)

Peter Grieve writes:

The mixture of explicitly stated science with implied superstition seems to becoming an art form.

Jupiter and Saturn have a combined mass of less than .002 solar masses. And tidal effects vary like the inverse cube of distance. Which means that Jupiter's tidal effect is reduced by another factor of 1/64, since at its nearest it is 4 times further from us than the Sun is.

Putin will undoubtedly be pleased with dire predictions for the West.

Kim Zussman writes:

This kind of prediction is old news: see The Jupiter Effect .

As recalled, at the time astronomers estimated the net tidal pull of the 1982 planetary alignment on the sun (which, in turn, was to effect solar radiation and subsequently interact with earth's magnetic field) of ~1mm. The sun is about 864,000 miles in diameter.

Eventually with enough of these they'll get one right.

Pitt T. Maner III writes: 

Here is a good video on "pseudo-predictions" for this weekend from down under. Multiple, vague predictions debunked by scatter graphs.

I would guess, however, that there will be a resurgence of interest in the writings of catastrophists– Velikovsky being considered one of the last of the old time breed…

Phil McDonnell comments:

Speaking of Velikovsky a version of his theory is now the most favored theory for the formation of the Moon. The exception being that he thought the Moon was formed during historical times and used Biblical references to date it. For example he claimed the parting of the Red Sea was a giant Moon tidal effect. Instead current thinking dates the Mars sized Earth impact at about 300 million years after the formation of the solar System.

More on Moon formation theory:

Giant impact hypothesis

I also ran a test looking at all the earthquakes > 7.0M in 2010. I found that the number that were 'predicted' by Nolle's super Moon windows was 19%. But the number of days covered by the windows was only 10% of the year. On its face it seems like modest support, but the sample size of correct hits was only 4, so the jury is still out.



 The amazing moves this week are consistent with my 50 year old studies as to what happens following cardinal panics like airline crashes, and presidential assassinations. A terrible move down, and then by the end of the week, right where it was before. It happened to i s p and the grains and oil and the dollar yen. What else? How to generalize?

Jon Longtin responds: 

"…how to generalize?"

One thought would be to do a simple curve fit on an instrument of your choice after each event in history. Since the events themselves are unique and relatively short in duration (earthquake, assassination, terrorist bombing, etc.) and also very well defined in time, the trigger point (or time t=0) is well known almost immediately after the event happens.

In general a cusp-like response is observed (very rapid decline, followed by a well-defined apex, and then a rapid ascent (although probably not as sharp as the descent) to some threshold pre-event point (say 80%).

The underlying argument would be that people's mass reaction to any catastrophic event is similar (panic, confusion, and uncertainty followed by the gradual realization that the world is not ending, and things work back to normal). Since the underlying behavior is the same, it's not unreasonable to expect that the financial instrument's response should similarly be the same across different events. One could then try to form a single curve by appropriate scaling (so-called self-similar behavior). Then, when a new situation presents itself (hate to sound so detached when speaking of disasters), one could chart the instrument's history against the curve, and as soon as enough points were collected, match/scale it to the master curve and make an estimate as to the turn-around point and recovery and go from there.

One could further classify events into separate categories, e.g., natural disasters, political events, financial events, etc., and prepare appropriate curves for each, since the nature of the event will be similarly well defined and knowable very soon after it happens.

The engineering analog is somewhat along the following lines: a standard technique to test a system is to apply an impulse response and see how the system responds. Examples include tapping an automobile frame with a hammer and measuring how the structure responses in time, or using a gunshot to measure the acoustics in a large hall. In these measurements, the initial driver (the hammer hit or gunshot) happens so quickly that it has come and gone before the system has had a chance to even begin to respond. As a consequence the resulting measurement is only the response of the system and is not contaminated by the initial response.

In contrast, drivers that that are longer in time have a more complicated interaction with the structure, because the structure will start to respond to the first part of the driver, but the system is still being driven. The analog would be grabbing onto the car frame with your hands and shaking it repeatedly for a few minutes to get it to vibrate: the car frame will begin to response as soon as you start shaking it, but then as you continue to shake it, that further alters the response, which affects the response, etc. etc. = much more complicated to analyze and predict.

 In financial terms, disasters are often very short in duration (seconds and minutes), and subsequently they behave like an impulse response, with the system being society. In contrast, an event such as the wave of unrest in the middle east is a much longer time-frame event (weeks and months): the event and the response become highly coupled, making their analysis more complicated.

Anatoly Veltman writes:

Not sure if it's a separate topic, but there are sometimes dangers when you generalize. For example, the level of EUR currency (and its perceived trend) is significantly higher today than at this sample's outset. To what degree did this influence most commodities' comeback?

Another layer that could be added to this sample's analysis: what to make of the relatively lagging instruments? Sugar, Platinum and Palladium haven't made up their losses…

The President of the Old Speculator's Club, John Tierney, responds: 

How does one make generalizations from the recent events outlined by the Chair? I have no doubt that his 50-year study shows similar market reactions. However, I'm reluctant to adopt any new theories or adjust my current investment outlook due to these studies. The current environment, and one that has existed at least since the Fed initiated QE1, is the involvement of government agencies.

I and others have suggested this surreptitious presence in the past. We have been (rightly) put in our place because we failed to fulfill the Chair's mandate: "stats on the table" (something, by the way, which Rocky was very, very good at).

In the current situation and that which has existed for several years now, we KNOW that our government (and others) have been manipulating the "invisible hand." We may not be aware of the extent of the presence, or where it is being applied, but that it exists is an established (and self-confessed) fact.

With that in mind, I'm left to "guess" whether the current scenario is an accurate re-enactment of past events, or whether it has been manipulated to seem so. For years we on the List have been leery of the efficacy of any government interference in the markets. With that in mind, it's difficult to make a legitimate extrapolation from past events - the new, big, player makes any surmise questionable.

My reluctance to revise my pre-existing view of the market's course is only enhanced by the numerous television experts who are outlining a "bounce-back" scenario based on past bounce-backs. It may well occur but will it endure or will it vanish with the exit of the interference? I'm currently betting (and that IS the right word) against it.

William Weaver shares: 

Check out this interesting abstract:

Behavioral economic studies reveal that negative sentiment driven by bad mood and anxiety affects investment decisions and may hence affect asset pricing. In this study we examine the effect of aviation disasters on stock prices. We find evidence of a significant negative event effect with a market average loss of more than $60 billion per aviation disaster, whereas the estimated actual loss is no more than $1 billion. In two days a price reversal occurs. We find the effect to be greater in small and riskier stocks and in firms belonging to less stable industries. This event effect is also accompanied by an increase in the perceived risk: implied volatility increases after aviation disasters without an increase in actual volatility.

Found via the Empirical Finance blog



 There is something called a googlewhack, something where two words have never been used in conjunction on the same page. There should be a similar thing for markets "a whackpatt?" when a event that's only happened once before in last 15 years occurs. There should be a restriction to only two or at most 3 independent variables or some similar rule of simplicity. Today is a good whack. Was up 10 yesterday, and now same 10 with a few finesses.



 Cliff Swain, charming and unlikely, is the greatest racquetball player in history, in viewing all the champs from '70-03. I watched him dismantle Hogan with these strokes the way Hogan dismantled the field. He is the only player who, though they never met on the court, would control both Brumfield and Niederhoffer. At my best, I would have scored 10 points/game.

Cliff Swain is from Boston, learned racquets on the long (maybe 30') outdoor courts. This is one reason for dominance, the court, like a slow squash ball, demands stepping to volley shots. Plus, the increased distance was helpful resistance training to a young arm. He's extremely coordinated. I watched him closely for hours at practice and tournaments during '03. He's slight, 5'10'', 170lb, mesomorph. The grace provides power– that, as I talked about in the swing tutorial. He generates more force than anyone has every applied to the ball in the split-second '3-5 frames' the strings are on the ball. His strokes, despite the photos, is relatively effortless compared to the rest of the champs. He's the one who stalks the ball in slow motion (due to coordination) around the court, and plants to intensify per muleheisen's rheostat for the setup and swing… then it's back to slow motion til the next setup. It's v. animal like, something between a gazelle and big cat. When I watched he & Hogan square off for a money shootout with many rallies of matched force- you recall no one in history overpowered hogan- except Swain's stroke for strokes were 20% less physical with 10% more pace + weight on the hit ball. It's one of the handful of times that I've been agog. As for Swain, I fibbed: at my best, I would have stood a 50% chance of beating him given my best day repeated forehand wallpaper serve scraping the right wall to his backhand. Swain trained under Mike Quinn, also from Boston. 








 A few months back David Aronson and I were talking about identifying markets as bullish or bearish prior to selecting strategies or parameters for various strategies. The conversation ended up taking a back seat to trading, family, etc., but I think now that markets are showing an increase in volatility it might be a good time to resume these talks.

Below I've included three links to a series of blog posts from Frank Hassler, who created (and explains) his own metric for identifying regimes, and how short term mean-reversion strategies work during different periods. What I find particularly interesting is his use of four possible regimes, whereas I use only two.

1. mefliter

2. using a market environment filter to decide how to trade

3. impact of a market environment filter

I've also found that many traders use simple metrics such as whether the broad market is above of below its 200ma when testing various strategies. My personal preference is to use fundamentals to predict longer term swings in equities.

Phil McDonnell writes:

There are a number of quirky things in the papers but overall the logic is interesting.

One quirk, for example is that he wants to use both rate of change and the slope of the moving average as indicators. Mathematically they are the same thing. Remember that a 200 day ma changes each day by lopping off the price level 200 days ago and adding in the current price. The daily difference (slop) is:

(current price - 200 days ago) / 200

But the rate of change per day is given by: (price - 200 days ago) / 200 Same thing!

We have received the following clarification from Frank Hassler:

I’m fully aware that slope = ROC.

The post isn’t about my trading, it’s rather an example what people should consider. Depending on the type of the system one should consider a different type of market environment filter. 



The flexions are over their head in water, or lack thereof. The solution if any will take years. The flexions don't have years, they operate in bits and days. This is a bigger problem and uncovers systemic flaws in technical as well as flexionic issues. The nuclear storage and energy issues go deep to the core of our system.

keep looking »


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