This passage from Tolstoy's "A Confession" makes me think of the evolution of "word of mouth", "stock hyping", "fax machine penny stocks", "Newsletters", "Weekly Column's" and all that has come from the button wood to the very blogs that are today dispatched daily with affiliate money making profit that it is all to be dubbed Financial Pornography. No wonder, Vic, you gave the suggestion to read the Enquirer and avoid the 'body snatchers' in the "lunatic asylums" :

"From my intimacy with these men I acquired a new vice: abnormally developed pride and an insane assurance that it was my vocation to teach men, without knowing what.

To remember that time, and my own state of mind and that of those men (though there are thousands like them today), is sad and terrible and ludicrous, and arouses exactly the feeling one experiences in a lunatic asylum.

We were all then convinced that it was necessary for us to speak, write, and print as quickly as possible and as much as possible, and that it was all wanted for the good of humanity. And thousands of us, contradicting and abusing one another, all printed and wrote–teaching others. And without noticing that we knew nothing, and that to the simplest of life's questions: What is good and what is evil? we did not know how to reply, we all talked at the same time, not listening to one another, sometimes seconding and praising one another in order to be seconded and praised in turn, sometimes getting angry with one another–just as in a lunatic asylum.

Thousands of workmen laboured to the extreme limit of their strength day and night, setting the type and printing millions of words which the post carried all over Russia, and we still went on teaching and could in no way find time to teach enough, and were always angry that sufficient attention was not paid us.

It was terribly strange, but is now quite comprehensible. Our real innermost concern was to get as much money and praise as possible. To gain that end we could do nothing except write books and papers. So we did that. But in order to do such useless work and to feel assured that we were very important people we required a theory justifying our activity. And so among us this theory was devised: "All that exists is reasonable. All that exists develops. And it all develops by means of Culture. And Culture is measured by the circulation of books and newspapers. And we are paid money and are respected because we write books and newspapers, and therefore we are the most useful and the best of men." This theory would have been all very well if we had been unanimous, but as every thought expressed by one of us was always met by a diametrically opposite thought expressed by another, we ought to have been driven to reflection. But we ignored this; people paid us money and those on our side praised us, so each of us considered himself justified.

It is now clear to me that this was just as in a lunatic asylum; but then I only dimly suspected this, and like all lunatics, simply called all men lunatics except myself."



It's amazing how something, showing all the resilience of a bull one day (or over several days), then turns to water the next, where the past means nothing, and is another "market force" by the mistress which the speculator has to navigate. Like changing winds in the ocean from a increasing build to absolute clear water today. Yesterday's strength, can not be guaranteed to for anything, and only gets in the way, like a ghost plays with the mind. Where this weather was at 3- 6- 12 months ago, is no doubt a truly better indicator. (Even for those looking for a reversal of behavior.)



 Low energy need not accompany travel any more than going to a job. The over-complained symptoms of headache, nausea and compromised mental skills sour too many vacations and shouldn't undermine business efficiency. There is no airborne infectious agent, only a compromised health that could, and often does, allow a secondary condition such as a cold to take hold.

Prevention is the standard treatment, including being rested before travel, being fit, drinking liquids before departure, and relaxing. After landing, or alighting from a boxcar, the conventional treatments are symptomatic for nausea, headaches, etc. with a possible alcoholic or energy drink, or tranquilizer. Good sleep during travel is essential, as is proper food and continued liquids.

Crossing repeated time zones provokes various strategies. Some travelers choose a flight that arrives at the hour that begins the normal workday; or, alternatively, arrives at the usual bedtime hour and immediately go to sleep. A further option is to arrive for an important meeting a couple days early to prepare by relaxing. Finally, some prefer to reset their body clocks several days before leaving home by developing a sleep-wake cycle similar to the destination clock hours.

All this is elementary to the modern barnstormer, but I may add a few nuances after having crossed by camel, foot, thumb and Jeepney, as well as conventional jet, thousands of time zones.

Arrive hours early at the airport and kick back as prelude. The distraction of rushed passengers soothes for an hour, and then read a cliffhanger book. The amenities of flying business or first class are efficacious, if affordable. You may visit the executive lounge with computers and manners, or use the airport gym and showers. Moreover, Victor Navorski taught us while trapped in 'The Terminal' that there's plenty to do. Once. after a month on a 13-country inquiry for a speculator, I became dull, and the overnight reports suffered; however, on upgrading the tickets to business class and by following the ensuing tips, sharpened in a couple days and the sponsor benefited.

I divide traveler's syndrome into two categories: short and long term. The short occurs in the first couple days of a vacationer's two-week holiday or businessman's protracted swing. The causes are the myriad stresses of haste, schedule changes and crossing time zones. The long-term condition comes weeks or months into a tour due to being intense for so long, hence is more neurological. The preventions and treatments differ accordingly, as follows.

For vacationers and short-term businessmen, get to the terminal early, be in shape when you step on the first flight, and block an hour or more a day of exercise during the trip to quash symptoms. Physical fitness is directly proportional to resistance to Traveler fatigue. Liquid intake should increase with miles traveled, to your limit. Take your own fluids into the airport for the wait, and once past security buy more to sip during the flight without nagging the flight attendants. (I carry a trucker's boot- small bottle- in my suit coat for frequent urinations.) I also pack a first meal in case the flight, train or bus is delayed. Some authorities advise eating less to beat traveler's malaise, but I disagree and eat more as long as there are extra fluids. Finally, the "redeye" or night trip is favored to sleep during transport, and awake fresh with eyeshades and earplugs as if never having moved.

Long-term educational travel of six to eighteen months is my strong suit, and this anecdote finds me in the Sumatra jungle across from a few thousands curious human-like orangutans. My round-the-world ticket peers- nearly all European- are going ape on Skype to touch familiar bases. I may ask for their Email addresses to quiet them. On other journeys over the decades, I've witnessed them rave and cry without knowing why and, admittedly, as a greenhorn I weathered a couple bouts before gaining insight.

Somehow, the CNS is liable in world travel (probably from chronic amplified visual traffic and inner ear imbalance). I tell journeyers to force themselves monthly to stay in one place for 4-7 days in proportion to their disturbance; I've been here for two weeks after three brakeless, reckless months on the road. The best Shangri Las are white sand beaches scattered around the globe, or dense jungles like this one with fresh fruit on the trees and hiking trails. After three decades of nearly constant travel to a hundred countries, the longest swing was 18 months through Africa, South America and the South Pacific where I learned that traveler's illness mitigates the longer the trip, as long as the rest breaks are observed.

The best tip to your better travel health is to pack a pair of running shoes for sightseeing, and use them at any speed.



30 M Gone: Jetsetter Accused of Having A Lend:

Due to the lack of funding available after the financial crisis, many of them were teetering on the verge of collapse. Unable to secure funding in Australia, dozens of businesses beat a path to luxurious offices in Bahrain seeking financial salvation….

Each was required to pay a non-refundable fee of £26,000 ($41,800). Not only that, borrowers had to pay an upfront fee of 1.6 per cent of the value of their loan. That meant most of the Australian borrowers handed over more than $1 million each.

Not one of the dozens of people who signed up for loans with WGA have received their money.

…This is all the more extraordinary considering that only six years ago Mr Ali, then living in London, left behind a messy flat and £7800 in back rent. He also owed council taxes.

Mr Ali has morphed into a billionaire claiming, erroneously, that he was a graduate of the London School of Economics. Back in Australia, desperate investors are too afraid to speak out as they still hope to recoup their fees.



 I leave tomorrow for a yearly checker tourney that is 500 miles each way. Regular at 3.55 today.

The oil companies must track my upcoming trips.



Russ Sears writes:

My training friend in the 90's had a similar lament about his marathons and training vacations…

He was on a tight budget to squeeze in a many trips as possible. I think he made 2 mistakes. One, I always thought he over-weighted the times he lost due to gas prices and did not complain the prices went down, and 2 because he planned more trips when the prices were low.

Paying the entry fee and the preparation time of training made it hard for him to back down. In other words, he always bought high because he sold low like many 401k investors do.

I believe his trip to England to race one year was nearly half price his original budget due to favorable currency rates. But then he did look at it as a trade and "hedged". He bought pounds early over-hedged because he thought they were under valued, when he came back sold at a nice profit.

If you do "hedge" your trips, you might remember to including vig and taxable gains, makes it hard to break even in a hedge that is not recieving IRS hedge treatment.



What a way for the new seasonatarian fund to start, thereby giving its holders a nice 3% deficit if they did start already, and how guaranteed it was to happen, and how consistent this is with rational expectations.

Jim Lorie and Milton Friedman (there is no such thing as a free lunch) will rest peacefully from above tonight.

Phil McDonnell writes:

Here is a link to a Ziemba paper which updates the research on seasonality. There are a few choice comments regarding the Almanaterians in the intro and F@m@ & Fr3nch on pg. 4.



Toria has suggested that to modernize our blog, we do video. Okay, I'd like to get all our contributors a wider but still dignified exposure, and we've been flat with about a million hits a month. So I said yes. I think one of first things we should do is have a reading of the "The Lady From Sorrento" on our site. I'd like to have a beautiful woman who can read well play the part of "the Lady" and a well tempered guy play the part of "the admiral". I'll provide the admiral's uniform a la Captain Aubrey. I need volunteers. I want to do it this week.



 As a man in a dream who fails to lay hands upon another whom he is pursuing- the one cannot escape nor the other overtake even- so neither could Achilles come up with Hector, nor Hector break away from Achilles; nevertheless he might even yet have escaped death had not the time come when Apollo, who thus far had sustained his strength and nerved his running, was now no longer to stay by him. Achilles made signs to the Achaean host, and shook his head to show that no man was to aim a dart at Hector, lest another might win the glory of having hit him and he might himself come in second.

Then, at last, as they were nearing the fountains for the fourth time, the father of all balanced his golden scales and placed a doom in each of them, one for Achilles and the other for Hector. As he held the scales by the middle, the doom of Hector fell down deep into the house of Hades- and then Phoebus Apollo left him.

–From Book 22 of Homer's Iliad, translation Samuel Butler

The scales have tipped against the seasonatarians thereby allaying the massacre they administered in the month of January.

Russ Sears writes:

One is reminded of March of 03 when fate was sealed and the hunt was on for a different dictator. 

Victor Niederhoffer writes: 

One is reminded of Secretary Baker's battle while talking about his meeting with Tariq Aziz, in January 09, 1991.

The dooms were placed on the scale and the terrible word was uttered "Regrettably…. " A 5% decline, big for those days ensued in the next minute. 

Alston Mabry writes:

In college we read the Lattimore's Illiad and the Fitzgerald's Odyssey. It was a great combination.

Russ Sears adds: 

Given that it looks like the US military will stay out of this, and the Secretary appears to have only a small part on the world stage, I am hard pressed to identify what the trigger may be. The timing and scale is always a mystery. However, not knowing the actors in this drama, it will certainly take people like me by surprise. 



 Please let me augment my message about the March 3rd meeting of the Junta.

A weary traveler stopped his horse in a storm at the Potamac in 1804 on his way to Washington. The ferry was not operating. And a man of respect had stopped him asking for a ride. "Hop on," he said. The two of them managed to cross the raging Potamac.

"Who are you?" the grateful traveler said. "I am Thomas Jefferson" going to my inauguration.

Okay. David Friedman, the incomparable son, wrote me an email saying he unexpectedly is going to be in New York on Thursday, March 3, and he'd like to speak at the junta. Now, knowing that Gary is a man like Thomas Jefferson, and they would both be thankful to learn from each other, I immediately said, "by all means, we generally are booked up a year in advance, and Gary is already scheduled and quite a draw. But I'm sure he'd be happy to share the stage with you."

David wrote back, "It would be an honor for me to share the podium with him."

Haven't told Gary yet, but sure his answer would be like Jefferson's.

P.S. Junto now has a Meetup group with current information on it. Feel free to join the group or pass on to friends.  



 With all the attention the Federal Reserve has gotten lately, Rothbard's "Origins of the Federal Reserve" has been published in pdf form. Very interesting read.

Stefan Jovanovich writes:

Veronica Wedgwood said somewhere (sorry– I can't find the reference) that the test of a historian is whether he or she lets the facts change opinions. Wedgwood herself passed that test in her own work. That is why her history of the Thirty Years War is still the definitive work– 75 years after it was published.Wedgwood also said that a book was only worth reading if you could take its facts and find that they were true.

I wish I could share Jeff's enthusiasm for Rothbard; but, when I took one of the first paragraphs in Rothbard's book and put it to the Wedgwood test, it failed badly.

"The alliance of big business and big government with the Republican Party drove through an income tax, heavy excise taxes on such sinful products as tobacco and alcohol, high protective tariffs, and huge land grants and other subsidies to transcontinental railroads. The overbuilding of railroads led directly to Morgan's failed attempts at railroad pools, and finally to the creation, promoted by Morgan and Morgan-controlled railroads, of the Interstate Commerce Commission in 1887."

The Revenue Act of 1861 was extended in 1862 to apply the excise to gunpowder, playing cards, feathers, iron, leather, piano, billiard tables, yachts, drugs, patent medicines and whiskey. At the end of the war, the taxes were repealed on everything; only the traditional excise - on liquor and tobacco - remained. The same Revenue Act of 1861 enacted the income tax. It was a flat tax - 3% on all income above $800 (what would be $20-25K now) - and 5% on the income of all Americans living abroad. The 1862 amendments changed the income tax to a progressive tax system; they also included an explicit date for its repeal - 1866.

Rothbard is correct in noting that the Morrill Act introduced "high" protective tariffs; but even that statement is out of context. The overall tax rate under the Morrill Tariff was 26%; for dutiable items the average rate was 36%. That was higher than the Walker Tariff rates (17% overall, 21% dutiable). The rates in the 1820s had been much, much higher (roughly 50%).

At heart Rothbard is making the standard doctrinaire Libertarian argument that the sons of the South were only seeking liberty and small government (never mind the first attempt at the legislative reach of Obamacare - the Fugitive Slave Law). But, try as they might, those who try to make the Morrill Tariff and not slavery the central cause of the Civil War/War Between the States run up against two very inconvenient facts: (1) President Buchanan, a Democrat, signed the Act into law and (2) Morrill's bill would never have passed the Senate, let alone gotten through Conference if the Secessionist Democrats had not already left the Senate.

I will spare everyone any further lectures for now, but I promise to return to those thrilling days of yesteryear and explain why Rothbard's history of the Interstate Commerce Commission and the Indianapolis Monetary Convention is just as specious.


I promised to return to Rothbard's history of the Indianapolis Monetary Convention.

First factoid: "the Rockefeller forces, dominant in their home state of Ohio and nationally in the Republican Party, had decided to quietly ditch prohibition as a political embarrassment and as a grave deterrent to obtaining votes from the increasingly powerful bloc of German-American voters".

Since all political parties are coalitions, there is a hint of truth here; but only that. The Republicans, in general, favored the "dries" - Methodists, Northern Baptists, Southern Baptists, Presbyterians, Disciples of Christ, Congregationalists, Quakers and Scandinavian Lutherans. The only concession made on the issue of prohibition was that McKinley decided to serve wine in the White House, symbolically reversing Hayes' no-alcohol policy. That was hardly "ditching" prohibition; neither political party dared publicly come out for "rum" or even "beer".

Worst factoid: "As soon as McKinley was safely elected, the Morgan-Rockefeller forces began to organize a "reform" movement to cure the "inelasticity" of money in the existing gold standard and to move slowly toward the establishment of a central bank."

Rothbard reads into the Report an elaborate Rockefeller-Morgan conspiracy to defeat popular opinion when the issue was anything but hidden from the public. The country was openly divided on the question of bimetallism with the Democrats supporting it as a means of issuing "cheap" dollars and the Republicans opposing. Even the Prohibitionists were split among themselves. The "gold" Prohibitionists - i.e. those who sided with the Republicans on the monetary question– won control of the Prohibition party itself .

For James Lawrence Laughlin and others, the purpose of the report to the Indianapolis Monetary Convention was to escape, once and for all, the snare of bi-metallism. The Report is unambiguous about that purpose. Here is the preamble:

We submit, for the reasons hereinafter stated, a plan of currency reform, in the hope that it will, if enacted into law, accomplish, so far as possible, these results :

1. To remove, at once and forever, all doubt as to what the standard of value in the United States is, and is to be.

2. To establish the credit of the United States at the highest point among the nations of the world.

3. To eliminate from our currency system those features which reason and experience show to be elements of weakness and danger.

4. To provide a paper currency convertible into gold and equal to it in value at all times and places, in which, with a volume adequate to the general and usual needs of business, there shall be combined a quality of growth and elasticity, through which it will adjust itself automatically and promptly to all variations of demand, whether sudden or gradual ; and which shall distribute itself throughout the country as the wants of different sections may require.

5. To so utilize the existing silver dollars as to maintain their parity with gold without imposing undue burdens on the Treasury.

6. To avoid any injurious contraction of the currency.

7. To avoid the issue of interest-bearing bonds, except in case of unlooked-for emergency; but to confer the power to issue bonds when necessary for the preservation of the credit of the government.

One more thing:

John Taylor finds himself once again defending his Rule.

The questions that James Laughlin would have wanted to ask Professor Taylor and Chairman Bernanke are these:

(1) how can you have "reserves" in a banking system with a sovereign monopoly on legal tender and no specie exchange requirement?

(2) if a rule is to be the only constraint on unlimited "supply" of money in a world where money and sovereign credit are synonymous, how can the rule avoid circularity when sovereign spending is one of the major components of "growth"?

Rocky Humbert writes:

And for reasons related to Professor Taylor, one finds oneself again poking fun at Anatoly's continuous calls for a top in gold.

On February 9th (18:45), Anatoly wrote:

"We used to be mesmerized by round numbers. But ever since Crude topped at that $147.27 print, I've gone on red alert well on approach of 150-ish. Lo'n'behold, next came an all-time high in 30-y bond futures at 143. And Gold print of $1431, in my opinion, will stand for years…Nothing beats an audited track record (and an internet paper trail) to debunk nonsense and test veracity…for both traders and central bankers."

Anatoly wrote: "…the gold print of 1431 … will stand for years…"

It didn't even stand for 8 weeks!!!!

Even before this latest crude spike, real interest rates were re-testing their record negative yields. Now, the feedback effects of negative real rates are percolating even faster ….

P.S. The gold price continues to rise at a 27% annual rate. While gold options have a sub-15% volatiltiy. Get the "drift" ???? With a nod to the options quants who wince at this bastardization of black-scholes, this risk-averse speculator gets the drift.

Russ Sears writes:

 When hundreds if not thousand of people are dying in the streets from their own government firing at them, millions more hungry because of rising food cost creating the helplessness needed for uprising, and the emerging markets have billions people with new found wealth to protect and a long tradition of hoarding gold for the hard times… the demand is not all about trader/speculators.

I have told the story to the list more than once, how my grandmother's family came to the US with only the gold they had around their house in lamp-stands, candle sticks and silverware made of gold, when their factory, land and home were taken by the WWI revolutionaries, leaving them to flee for their lives. She was seven at the time but she told the tale every time "gold" or "silver" was mentioned in her presence. Tell her gold is useless. The demand does not have to be a bubble soon to bust. Without the shock and awe of the US or Britain and especially not the Israeli military intervening, I would say we are in for a longer haul of uncertainty to the unrest than has been the case to most recent Middle East wars.

Rocky Humbert writes:

Howard Marks (Oaktree Investments) wrote a nice essay on this subject. Because he's a respected stock & bond guy, his articulate thoughts are worth a read.

One of the more pithy things he writes:

My view is simple and starts with the observation that gold is a lot like religion. No one can prove that God exists, or that God doesn't exist. The believer can't convince the atheist, and the atheist can't convince the believer. It's incredibly simple: either you believe in God or you don't. Well, that's exactly the way I think it is with gold. Either you're a believer or you're not.

I'll add that a speculator has a slightly different spin on this. A successful speculator needs to assess the conversion rate from gold atheist to gold believer to gold atheist.

One remembers that when Moses returned from Mt. Sinai, he saw the Israelites worshipping the Golden Calf (Exodus 32:4). This posed a "problem" because it was both wrong for the Israelites to be engaged in idol worship, and it was wrong for them to ascribe a physical representation of God. (Both acts are forbidden.) Nonetheless, 5000+ years ago, Anatoly would have bonded with Moses — because both saw the Golden Calf as an "outrage." Yet the successful speculator would have been long gold — while the calf was under construction — but it's unclear whether the speculator would have subsequently shorted gold due to the nuances of the Biblical story.

Gold prices will rise and fall — based on supply and demand. However, the belief that stocks are (in the long run) are the best performing asset class has elements of religion too — as this too requires "faith." Just faith in different things.

Anatoly Veltman defends himself:

My trading biases come from chart structure - but I would never bet money on something I don't understand. To that end, before putting up $10,000 deposit to Comex - I'd make sure that charts mostly reflect the supply and demand, both near- and long- term.

My family also fled Europe, albeit not in WWI - but in the course of more civilized era of a mere Soviet excursion into Afghanistan and subsequent US-led Olympic boycott. We were able to make necessary transatlantic connections over the phone to arrange currency swap of Russian Rubles here for US Dollars there (at four times premium to official non-competitive exchange rate). Thus, we didn't have to risk trafficking gold through customs. I guess, my bias in that sense is slightly different. I'm not a believer in impending world currency backwardation, and I see even less sense in Silver playing any role in this. So as an investor, I was always very interested and Long Silver in $4-$5 historical areas - when it would languish for a long time devoid of any speculative interest. I remember a stretch of over 5 straight years (and possibly even 8, depending on stats reliability), in which silver usage outstripped silver mining - yet world price hasn't perked by a penny!

Going into Labor Day 2010, I commented that Silver is obviously breaking out of an unprecedented protracted base in $17 handle - and that Shorts will be 100% squeezed. Rocky, who has apparently kept up an e-mail folder of "Anatoly's predictions", should be able to dig it out. Now, since price doubling has been fulfilled - I try to use events like Lybia to invest in Shorts.



Today it will be another fight between the almatarians and the reversalists. Last month, it was a massacre in favor of the former.

Andrea Ravano writes: 

Doomsters on the run advising on "how fearful this market is". Surely, they will be right sooner or later, unless of course they have some leverage in their positions. 

Victor Niederhoffer writes: 

I am on the run.

Steve Ellison writes:

As I noted when I studied the almanac effect a month ago, the almanac has only worked well in 3 of the past 6 years, and it had a good year in 2010. I have a hunch the introduction of the Barclay almanac fund may be a turning point.



 The view of the bay was breathtaking. The evening breeze caressed her skin. She shivered. "I am sure he loves me," she said, "but I'll never manage to get out of this situation. It hurts so badly."

"I cannot command winds and weather," he started. "Nelson was the greatest Admiral of all times. He meant to say that you cannot change the facts of life. You have to adapt, understand the forces at play and use them to your advantage".

He would not follow the herd. When prices plunged 50% he bought those stocks although there was no real setup. From there the market panicked, the pain seemed to be unbearable. Nevertheless he did not close the trade. It would have been a blow to his self-esteem. Then the market printed a long rebound and he recovered half of his losses. The pain became less intense. With time wounds heal and only scars remind you what happened. Even if you are still losing big money.

He explained: "I learned from markets that taking a loss does not mean there is something wrong with you. Get rid of his ghost, wait for a set up and open a new trade. It is as simple as that."

He was lying to her and to himself. They were friends, but he had always considered the possibility of a different relationship. She was beautiful; there was something intriguing about her. But he was well aware there was no future. She would not be the right person. Her unhappiness, her attitude towards life would drain his energy and he was already exhausted. He needed a dreamer; someone that would give him strength, incentives to do things and not complain or regret something that had not happened or could never happen. Nevertheless, he stuck to this relationship. The same way he stuck to his loss in the stock market. It had been pretty painful at the beginning. Now he had scars to remind the pain and he was still uncomfortable. This would never go away.

Suddenly, as if she was reading his mind, she said: "I will love him forever. Nothing will change this. I must try to forget him even if I know it will not work. I need to replace him in my mind with someone else. That someone cannot be you". He had been awaiting his turn, sitting with his legs at the edge of an abyss and helping her whenever she allowed him to do it. It was like a flash, and he realized he had to do something about it. He turned on his IPhone, accessed the trading account and introduced a sell market order at the next day's open. He had decided to get rid of his long held position and to close a losing trade in his life.

Then he said: "There is no reason for me to be in this trade, I need to get out. I want to look to the future, to the next trade". He thought he would also be a better trader from now on. She looked at the dark sea: "It is your choice. I will not ask you to change your mind. Maybe one day…" He did not let her continue. "Hope is for losers in trading as in life. He managed to say, holding back his tears: "Once a trade is closed, you don't want to look back…to feel regret…or remorse."

He left without turning back. He could imagine her on the terrace, as beautiful as ever.

There was a lady in Sorrento wearing a pink dress at a party that night…

George Coyle asks:

This is great. I thought it might be literature but for the inclusion of the iPhone. The patterns in romance and trading are so similar. Good trades are easy to get into, they go in your direction almost immediately, and they require minimal effort and are a pleasure to have on. Thinking about them makes you feel good. Bad trades inspire doubt and rationalizing, can result in sleepless nights, and usually begin with immediate loss which results in more rationalizing such that even if you are down 50% a small rally inspires unwarranted optimism (even though you are still down 45%). And one generally winds up in emotional distress and makes rash decisions exiting at inopportune times. I have drawn the parallels many times; hope and human psychology seem to be at the core.

I think this is why systematic approaches are so popular in the short-term in trading, the human element is removed. But a systematic approach to dating doesn't really work. For one, by definition if you are in fact part of the dating pool, every relationship you had up until now has failed so it seems a fool's game to even play based on odds. It becomes worse if you have an adequate enough sample size to have approximated the population via the central limit theorem! And you could be viewed as cold and calculating, two things which seldom result in romantic success. Inevitably the initial honeymoon goes awry and a rolling stop results in the end of a relationship. And the vig can be very high so it might pay to approach relationships with a long-term hold investment bent post some initial time based rolling stop out (if one wanted to use a pseudo scientific method). But being a trader, one is always aware when the trade feels bad which can lead to dismay as the patterns usually don't lie!

Craig Mee writes:

The market mistress plays with one's inner demons. On a big turnaround, you can't help but get on, though your immediately exposed to the gun slingers, but as traders know the worst of the two evils is when that baby pops to the moon, and you're not on. To commit and face certain high winds or not commit and be left in the shallows. .. mmm I hate harbour.



Th former motto on the Bahamian flag would be good against the flexions:

Expulsis Piratus Restituta Commercia

(Expel Pirates Restore Commerce).



 The Morningstar stats are:

years: 1945-2010 (count: 66)
mean S&P return: +9.08%
mean S&P return, 3rd year of prez cycle: +17.15%

Setting up a simulation that, for each run, randomly resorts the set of actual annual S&P returns among the actual years and then recalculates the mean return for the set of "3rd year of prez cycle" years:

simulation resorts: 1000
mean return of all simulated "3rd year of prez cycle" sets: +9.07%
SD of the set of means from 1000 resorts: 3.78%
z of actual "3rd year of prez cycle" mean (+17.15%) versus simulated set: +2.14

Victor Niederhoffer writes: 

Wouldn't that have to be adjusted by by a factor of slightly less than 3 or 6 to take account of the fact that each year might be the best or worst, and another factor of 5 or so to take account of different markets like fixed income or grains, and another factor taking into account when they started the years from, thus reducing the 1 in 100 to say 8 in 9 in favor of finding a difference as big as this. 



 Googling "Flexion" I came across some physiology references and also one astrophysical that seemed apropos:

Gravitational Flexion (pronounced "flecks-shun" for the uninitiated, and yes, it is a real word) is a new technique for measuring 2nd order gravitational lensing signals in background galaxies and radio lobes.

Unlike shear, flexion directly probes variations of the potential field.

Moreover, the information contained in flexion is orthogonal to what is found in the shear. Thus, we get the information "for free."

(some graphics at the site).



 I recently was asked a good question: does high altitude resistance training actually work?:

Certainly using oxygen filtering masks works to simulate high altitude training. You may get the same benefits with an oriental exhaust mask (that cuts air intake by about 30%, and I currently use) over the mouth. Moreover, you may put training stress on your lungs by willfully controlling respiration– learn to breathe less oxygen per breath by many means such as through the nose, heating air by holding in the pharynx, diaphragm breathing, filling just the lower lung lobes, & so on.

Yet, the $89 training mask is ingenious. Thanks for the site, however, the company's argument of equality of passive vs. active training holds no water, and this is a lesson for all sports, dance, bedroom, or walk in the park. Having ambled on most of the world's major ranges, active training out-performs passive in myriad physiological gross & microscopic ways, despite studies to the contrary by lazy bone scientists. Isotonic overpowers isometric. Physical doing beats mental rehearsal almost always.

Physical training made easy is grasping there are three techniques to fitness gain: increased weight, repetition or frequency. This is a distillation of every exercise physiology class I ever took, and Joe Wielder's technique to stop getting sand kicked in my face. The best gain for most sports is by increasing weight (resistance), e.g. the ankle weights I'm wearing & 10lb. of books, bills & camera stuffed in my hiking shorts.

The face mask can be said to increase the resistance of respiration. Future elite athletes, I think, will train in underwater gyms like track horses to increase resistance on every square-inch of skin, and later Olympic champs will train on Jupiter (or a simulator) requiring more effort for every muscle fiber to contract. Until then, you may sink your gym set in the shallow end of a swimming pool, and dog paddle with a weight belt between sets.

The resistance trainer will win nearly every time against one who doesn't, whatever the activity. I used to tell competitors that the wire on my tournament racquetball racquet was a coach's antenna.

Russ Sears weighs in:

Altitude training is a lot like life: it is not how you are torn down that matters but how you re-build. What runners have found is that it is the recovery especially sleeping at high altitudes is what build endurance by forcing the body to adapt in the recovery. Hard training in high altitudes is not as much nor as quick and it is close enough to race pace or conditions. The newer mantra is to train low and live high. They achieve this either by stimulated altitude chambers or sleeping tents or by driving down a steep road to train, at least to do the faster harder stuff.

The newest mantra is to use "anti-gravity" treadmills (they hold you up at the waist so the pounding is not as hard). This enables you to train more distance and to increase the turnover and pace beyond a normal race. So the idea is to train "gently" so as to train as much as possible and to also stress neurologically system occasionally beside the muscles.

While Bo certainly could tell us more about the bodies adaptation than I could, the main effect as I understand it is to increase the red blood cells and therefore the bodies ability to carry oxygen and repair damage. This is similar to the effects of EPO, except EPO tends to let your blood turn to sludge and cause heart attacks if you dehydrate too much. The tale tale sign of a drug cheat is to see if they pull out of a meet/race when the weather is hotter than expected. But I can attest that even a trained runner can pass-out from dehydration, as I did last June.



 I see free reserves are, yet again, at a new high (of all time, and by an enormous margin). Consider that at the height of the financial crisis, free reserves were about 25 TIMES higher than the previous all-time high.

That's one big pizza.

Now in fact, about 20% higher than that. There's some sort of "membrane" holding back this unimaginably large tidal wave of liquidity, and I don't know what/when/how that gets pierced and things get flowing again (flow as in we'd be ants on the beaches of Phuket in Dec 04).

I am referring to Free Reserves" as posted in Barrons each weekend. If you go to my site you will see I keep a spreadsheet with these numbers on it.

Gary Rogan writes: 

The membrane is the inability of the banks to find regular profitable opportunities to lend in the economy thus making the puny rate they are getting in their FRB accounts the default "investment" choice. So you get high inflation if the economy is in the toilet and hyperinflation at any sign of life. That's the situation the Keynesian/Bernanke cabal has created. Uncle Ben can claim all he wants he can raise the FRB rates any time he feels like it, the reality is (since the Fed refunds all govt bond "income" net of costs back to the treasury) that he can't because this will immediately worsen the deficit.

Stefan Jovanovich writes:

Gary has described the truly ironic result of the triumph of Keynes' notion that, through central banking and fiat currency, "stones can be turned into bread" at no cost. We are still using a 19th century vocabulary to described as 21st century world. The term "Reserves" had meaning in the world of Jackson and Polk and Grant and Cleveland and even Teddy Roosevelt because it described specie - the Constitutional Coin that had to be there to assure people that the bank's notes were backed by something other than the market price of its outstanding loans. Our Bush II/Obama I system has solved that problem by both evaporating the market for mortgage loans and eliminating the necessity that banks mark those assets to a market price. The banks now have a choice between 2 kinds of bad paper: (1) reserves, which are "good" in terms of price risk but offer lousy interest returns and (2) long-dated loans (mortgages, tax-frees, even Treasuries) that offer a wonderful spread on funding costs but are perceived - rightly or wrongly - to have real risks of default and value destruction through inflation. This is still an improvement over the bank's former situation - when they had enough truly bad paper to bankrupt them all. In that sense the central bank and the Treasury did save the banking system; but to do it they had to turn public and most of private finance into bouncing the rubble. If they had used the Treasury's then good credit to simply guarantee deposits and left the markets and the bankruptcy courts to offer their cruel but effective remedies, the cost to the country and the world would have been far, far less; but the guys at the Treasury and the Fed would have lost all their lunch buddies, and Paul Krugman would have said even nastier things than he does now. That would have been - for those making the decisions - far too high a price to pay.

See this wikipedia article on Mancur Olson.

Bud Conrad writes:

Thank you very much for providing the Barrons spreadsheet in zip form on your web site. I plotted the reserves column and it is the same data I pointed to in my post. It was just slightly higher in the middle of the crisis than now, but that is unimportant.

I see you have a couple of additions, including a model for stocks and for bonds.

The discussion here is the more important point since the actual reserves measured are really the result of the Fed completely running wild to bailout banks in the 2008 crisis, and they are firing up the after burners again in the QE 2. They create these reserves in the name of the banks they buy paper from. The monetary base is at new record and is easier to understand as it adds the currency to the reserves. The point is valid that there is a whole trillion of money that banks have access to for making loans such that the original structure of the Fed as having some way to limit the expansion of loans and thus money is far from having any effect. The reserve requirement is also so small at $60 B to be completely irrelevant as it has been for decades. The membrane analogy makes sense. I agree that the risk of inflation is high.

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