As a golfer the Speaker of the House is clearly Lee Trevino. He is the only one of our present leaders who comes from "the people" - i.e. the vast majority whose families had little, if any, capital. Cantor, Pelosi, Reid and Obama all has the rough places in their upbringings made smooth by money and influence. Let's leave aside the question of the substance of the present political debate. What choice do we have when you consider that a 2% across-the-board cut in the current expenditures of the Federal government would be scored by the "non-partisan Congressional Budget Office" as a "Cut of $13 to $14 trillion". It seems to me that Boehner has successfully portrayed himself as someone who is barely hanging onto control of his caucus and that the Democrats will have to take whatever he proposes - even if it leaves the matters of the Debt and the Deficits to come up again next year during the election season.

"I'm going to win so much money this year, my caddie will make the top twenty money winner's list."

Gary Rogan writes:

I don't think it's easy to deduce what Boehner's real goal is. He has been recently accused by serious people in engaging in a charade to not really cut spending but to appear eager to do so. In this line of thought, this charade involves a pretend tug of war between his plan and Reid's. I don't really know whose side he is on or what his game is. If anyone knows, please post. I do think that the participants have differing goals, to some degree, but the overall framing is a complete con.

Vince Fulco writes:

So with this intensifying impasse, how do both groups walk away saving face and claiming victory? I guess only in the political world can one fool themselves that that can be done. Next few days should be rich with opportunities…

Kim Zussman adds: 

see: Brinkmanship

Gary Rogan replies:

Clearly the resolution is not predictable in any meaningful sense by those without the maximum access to information, and probably not even by those with it. Even the simplest game of chicken ends in three possible ways, and this game is more like a game where hundreds of participants are racing along multiple highways towards the center of the city, where the center is marked by a huge piece of concrete. If anyone hits the concrete, they all lose. While on the highway, they have to keep moving at roughly the same speed (assuming the distances are similar). They can swerve individually, or keep moving. There are no other choices. The game is complicated by the following:

-In this game, unlike an actual collision nobody dies even when they all lose. So the stakes for each participant are lower.
-Some participants believe that they can actually gain if the "loss" occurs.
-The stakes are also very different for each individual participant and are not fully known to the outside observers.
-Each participant may be communicating with any number of other participants, again not fully observable.
-The participants are forming fluid coalitions not fully observable by the outside observers via multiple communications channels.
-Many of the participants are in constant communication with multiple outside stakeholders who have enormous stakes in the outcome, and variable ability to influence the participants. All participants can hear the "roar of the crowd".

-Some of the participants are engaged in very public communication to the outside world through varying media channels. A large percentage of the participants are engaged in trying to misrepresent the pressures they are feeling and their real estimates of both the chances of the loss occurring and its consequences.

-There are points gained by having the "right" reason for not to swerving. The scoring is done both in real time and many months after the game is over. Observers can materially hurt the participant in a number of ways months after the race.
-There are points for appearing cooperative and there are also point for appearing uncooperative. Different observers have different rules, and they are unclear.
-The observers are under constant barrage by the media trying to shape their opinions about the race.
-Some participants took a pledge to never swerve under any circumstances.

-There are multiple disagreements about the distance to the center.
-"Losing" or "winning" without the right side-agreement will eventually result in the whole city being nuked (again figuratively, because nobody except a few unfortunate observers really dies, but many suffer a great deal of discomfort).

I can go on for a while, but I am not really shedding any light other than illustrating that trying to predict an outcome of something like this is futile. It's much more complicated than the Cuban missile crisis. On a side note, the Cuban missile crisis could have resulted in the nuclear war through a little known sequence of events when the captain of a severely damaged Russian submarine under extreme stress from almost unimaginably horrible environment inside the submarine and being pursued and bombarded by the Americans with training depth charges, and with the submarine secretly equipped with a nuclear-tipped torpedo was ready to order for that torpedo to be launched. He was talked out of it by a single member of the crew. It's the little known things that count.




 This is an interesting study on what makes a winning sprinter. I wonder if there are applications and lessons to trading? For example in the use of leverage and sizing as applies to the amount of force used? The volatility of markets in relation to leg speed? The size of the fund and alacrity that may be required in various markets do to sizing and visibility and physical characteristics of a sprinter?

Jeff Watson writes:

This reminds me of a thread on DailySpec last year about the golf swing problem that nobody could really give a correct answer to.  The observers of the runner were correct in their methodology in measuring the underlying influences of a quick sprint. Separating and isolating all forces (seeing what forces are really influencing and in play) and solving them independently is the first lesson that they teach you in any physics 201 class. 



 I cannot find a single compelling reason to own Japanese stocks (but for one.) The demographics are horrible. Their debt problems may be worse than Greece. They get hit by catastrophic earthquakes, tsunamis and radiation. Even Toyota is a mess. So (other than the fact that their stocks are reasonably priced, and in some cases, extremely cheap), am I systematically nibbling at Japanese stocks with a *10+ year* horizon? The answer is: any country that doesn't like the cult of apple cannot be all that bad. check out this article on the subject.

James Goldcamp adds:

As a casual observer another interesting anecdote confirming the degree to which Japan is out of favor is the bleed out of assets in Fidelity's Japan and Japan Small Companies fund. Not surprisingly in a yield hungry world their junk bond (C&I) and floating rate loan funds (variations of low quality debt) are near an all time high.



 Guaranteed they will wait until the last minute. The tactic will be to give the bill to the Senate and the President at the very last minute in order to put them under the gun to avoid the blame. The game the D- Senate is playing with the Republican House is that under the rules as I understand any differences in the House and Senate bills will be worked in a Committee and bypass many of the deals made in the house. Negotiation, brinksmanship in a complex and far reaching environment. Its unfortunate that they have used the markets and public as fodder. The breath holding would be comical if so much were not at stake. Its the old make 'em wait in the lobby, your mother would be ashamed ploys.



Today I was asked when to use logs and when to use a linear growth model. My answer follows. Hopefully this is a meal for some.

The formula for continuous compounded growth is:

e^rt where e is Euler constant (2.72..) r is the rate t is time

If you are assuming a constant growth rate model then this is the correct model and not a linear model. In that case you would take the log (ln for financial work). The model then would be linearized by taking the logs. So you would regress:

ln next period sales = b * ln( last period sales) + a

Then to reverse ln( sales ) you would just take exp( ln(sales) ) to get the dollars or units. But the idea is to do the regression in log space because it is linear there and when you have your log answer convert back to the desired real world units.

the model could also be:

ln( sales ) = b * ln( t ) + a

The general rule is when you have arithmetic growth then a simple additive linear model is correct. when you have compound growth then the log linear model is the best.



I always enjoy finding interesting resonances from the past…

Here is Peter Bernstein, writing in the 1960s, in A Primer on Money, Banking and Gold, pp 165-7:

We know that interest rates reflect the interaction of the demand for and supply of money. With business activity rising so slowly, the need for cash to finance expanding production during the 1930s was obviously also growing at a slow rate. With ever-rising amounts of money in the checking accounts of individuals and corporations, those who held these idle dollars pressed to find some employment for them. Long-term yields on corporate bonds had been above 4 percent when Roosevelt took office in 1933; by 1938 they had fallen to little more than 3 percent and at Pearl Harbor were down to only 2 3/4 percent. At the same time, yields on short-term paper, which had run well above 4 percent before the crash of 1929, fell to nearly zero.

Yet, while the pattern of interest rates conformed to the theoretical proposition that yields will go down when the supply of money exceeds the demand for it, the most striking feature of this period from our viewpoint was really the degree to which the banks and their depositors were willing to hold dollars idle. Despite the avalanche of reserves that the gold rush brought to the banks, the banks were willing to lend and invest only a small part and were content to let cash resources in the billions sit idle, earning nothing. Even though the money supply rose about one-third faster than the output of goods and services from 1933 to 1941, the decline in interest rates was persistent rather than precipitous. Finally, it was clear that the sheer pressure of funds was by no means a sufficient condition to drive business activity upward to its full potential - nobody's money seemed to be burning a hole in his pocket.

Monetary policy as a means of stimulating business activity fell into wide disrepute as a result of this combination of circumstances. Some people saw little point in efforts to increase the the supply of money if no one wanted to spend those additional dollars on goods and services. What was the point of giving banks the resources to buy bonds that people wanted to sell of the sellers just sat on the proceeds instead of spending them? Others argued that the banks were clearly unwilling to buy long-term bonds at low interest rates; therefore, no means existed to push interest rates down far enough to encourage businessmen to take the risks of borrowing and investing money in new factories to create new jobs.

Indeed, as a result of both a general sense of insecurity and of a basic reluctance to part with cash for such a small reward in interest, the fetish for liquidity during the 1930's was extraordinarily powerful — the simple creation of money (or receipt of money from abroad in the form of gold) was no guarantee that it would be spent. Some observers compared the stimulus of monetary policy with the effectiveness of pushing on a string. As a result, increasing interest and attention was focused on Government spending in excess of tax revenues - deficit financing, as it came to be called — in which the Government would borrow the idle dollars no one else wanted to use and spend them for things the community needed.



 My friend Russ Sears and I were talking, and he was differentiating between "crooks" who behave with rational motives and "pathological liars."

He told me, "in 6th Grade I had a friend that was a pathological liar. He would lie even when telling the truth would have been more beneficial to him. He simply could not help himself, when he was asked a question he had to lie. He had a platform to showcase his "talent" and he could not tell the truth no matter what."

Without regard to whether politicians are necessarily pathological liars, his 6th grade friend brings to mind Smullyan's "Knights and Knaves " logic puzzle — which (as opposed to a meal for a lifetime) can cause indigestion for a lifetime. That is because a pathological liar is vastly preferable to an "alternator" who alternates between lying and telling the truth; and is also preferable to a "normal" who says whatever they want.

Knights and Knaves is a type of logic puzzle devised by Raymond Smullyan.

On a fictional island, all inhabitants are either knights, who always tell the truth, or knaves, who always lie. The puzzles involve a visitor to the island who meets small groups of inhabitants. Usually the aim is for the visitor to deduce the inhabitants' type from their statements, but some puzzles of this type ask for other facts to be deduced. The puzzle may also be to determine a yes/no question which the visitor can ask in order to discover what he needs to know.An early example of this type of puzzle involves three inhabitants referred to as A, B and C. The visitor asks A what type he is, but does not hear A's answer. B then says "A said that he is a knave" and C says "Don't believe B: he is lying!" To solve the puzzle, note that no inhabitant can say that he is a knave. Therefore B's statement must be untrue, so he is a knave, making C's statement true, so he is a knight. Since A's answer invariably would be "I'm a knight", it is not possible to determine whether A is a knight or knave from the information provided.In some variations, inhabitants may also be alternators, who alternate between lying and telling the truth, or normals, who can say whatever they want (as in the case of Knight/Knave/Spy puzzles).

A further complication is that the inhabitants may answer yes/no questions in their own language, and the visitor knows that "bal" and "da" mean "yes" and "no" but does not know which is which. These types of puzzles were a major inspiration for what has become known as "the hardest logic puzzle ever".



 Between any two occurrences what changes is time. This is true in life other than in markets. For a life in the markets, between penury and wealth what changes is price. Between a well funded account and a margin call, what changes is price. A mere change of time as known in the world will not bring by these changes in a life in the markets. But a change in price will bring these by. So, an equivalent notion of time in markets is then price. It is the connecting thread on which all change propagates.

In this frame of thinking then, measuring progress or regress of one's affair with the markets then against only time is at best half the story or likely less than half. The real story is in measuring things against price. Two stocks both move the same dollar amount over the same time period but one was priced at 100 and the other 200, for example, when you opened the long position. Obviously your capital and you succeeded more with the stock priced at 100.

Now measuring things against price may be more than half the story. Yet, life in the markets has more and immediate refinements. The stock at 100 may move the same amount as the stock at 200 and yet the stock at 100 may waver around a lot more. So not only do we need to measure our enterprise against price but also the likely distribution of prices or the risk undertaken and risk realized.

Time, continues to stick in our brains, being the primordial human instinct. Life in the markets is contested against the primordial instincts of avoiding risk. Market is a place where human beings contest their abilities at claiming better understanding of uncertainty (risk).

Compared to all other forms of human enterprises from the arts, sports, sciences, war, love, cooking, eating, family matters to any thing, the market is a place that requires one to be past one's most basic instinct of time. Of course, who does not time the markets, with some acknowledging it and some not acknowledging the act of timing. Yet, neither the timers nor the self-advertised non-timers are both playing a game that at best is only half as good.

The beauty of the beast called the market then expands to another dimension. You cannot even debate creating time or reversing time. But prices reverse all the time and it is still an ongoing debate if prices can be created. Well some do it most of the time.

With this humble thread of thought, do I get any clues from anyone if the Einsteinian equivalence of time and distance can be modified to include not just the price as holding some equivalence relationship with time, but the distribution of price along with it may fit into some sort of equivalence with price?



 A Monitor Lizard in your home brings bad luck according to Thai superstition, however the 5' specimen that crossed my path this morning rang in a grand day. It raised an eyelid and dashed into the underbrush. A mile down the road a cloud of a hundred Flying Foxes with 5-foot wingspans, the world's largest bats, lumbered like eagles before alighting in trees and staring at me upside down. A mile later, I snapped a picture of a mural of Muslim schoolchildren in robes when a real swarm ran out to practice English. The teacher set up chairs on the lawn beside the mural so the motorbike morning traffic could watch the new sub. The one-room schoolhouse of all grade levels owned an accumulative vocabulary of about 50 words that the kids quickly doubled with the nouns of our dress and surroundings. Each had arisen at 5am for the first of five daily prayers and to my raised eyebrow, 'Why?', a ten-year-old smiled, 'Life is a struggle!' After thirty minutes of English, I continued down the path less traveled.



 If the financial Armageddon does happen this week it will be the most well forecasted one in history. Now CME raising bond futures margins in anticipation of increase volatility and declines in bonds. While actual volatility for bonds around 10% roughly where it has been all year and well below say last December, and if I am not mistaken Nas 100 is just off 10 year highs.

Gary Rogan adds:

Speculation about what the "stubborn" conservative Congressmen "need" to "do the right thing" and "compromise" has reached a fever pitch. So many cannot understand why the markets are oblivious to the obvious failure to capitulate and are not providing the necessary pressure to avoid "the terrible fate of default". The best way I heard it put on a radio program full of "thoughtful" independents and liberals is "Why would they seek the safety of a bomb shelter if the bombs are not falling?" 



How has beta been working lately?

Attached is a graph of the compound growth since 1999 of $1 dollar invested in each of five "pentiles" of S&P 500-like stocks, sorted according to each stock's trailing beta. (I will specify the technical details more precisely below.)



At first glance, pentile 5, the high beta stocks, looks like a disaster. After 12 years, it's at break-even, and that's after suffering enormous white-knuckle drawdowns of almost 90%. The other four pentiles all show an annualized compound returns of 6-8%, all with lower volatility.

So are high beta stocks a big disaster? Recently the idea has emerged that low risk stocks offer superior performance, or at least risk-adjusted performance, than high risk stocks. Eric Falkenstein wrote a great book (Finding Alpha ) and writes an ongoing blog on the broad theme that risky assets don't have the pay-off that they should, and recently some institutional offerings of low volatility stock portfolios have emerged, such as the Powershares Low Volatility S&P 500 ETF.

The results presented here seem at first to support the thesis that low risk stocks are the way to go, and that high risk stocks should be avoided. However, if you take a closer look, these results turn out to be in close agreement with the "Capital Asset Pricing Model" ("CAPM", the model of beta) and more broadly, the efficient market hypothesis.

Briefly, the reasons that high beta stocks have the illusion of underperforming are:

1) Because of their high volatility, their geometric compounded returns sharply lagged their arithmetic returns. That's not a fair comparison with low beta stocks, though, because an investor does not need to invest as many dollars in high beta stocks to get the equivalent market exposure. With a lower dollar exposure, the geometric and arithmetic returns would approach each other.

2) Because an investor doesn't need to invest as much money in high beta stocks to get the market return, he can use the remaining money to earn the risk-free rate — and that benefit is not properly credited to risky stocks in a simple plot of their compound returns.

Both of these issues can be assessed and addressed by analyzing data with the standard CAPM formula:

R - Rf = beta * ( Rspy - Rf) + alpha

where R = return, Rf is the risk-free rate, Rspy is the market return (which I take to be the return of the S&P 500 ETF SPY), and alpha is what efficient market purists would call an "error term", representing the amount by which the return was above or below what it "should" have been. From our point of view though, alpha is the out-performance or under-performance that we're trying to measure. Our question is, "Do high beta stocks have negative alpha?". The short answer is that they don't (or at least they didn't from 1999 to now).

Here is a summary spreadsheet of the statistics.

The annualized alphas for pentiles 1 (low beta) to 5 (high beta) were 3.3%, 3.5%, 3.3%, 4.8%, and 5.5% respectively.

The reader may be very surprised that ALL the alphas are positive, which is sort of a "Lake Woebegone" effect. That's equivalent to the fact that the "equal weighted" S&P 500 index out-performed the traditional cap-weighted index over this period.

In any case, the alpha for pentile 5, the highest beta pentile, was 5.5%, the highest of any pentile. Pentile 1, the lowest beta pentile, was tied for the lowest alpha, at 3.3%. So from that point of view, the highest beta stocks were the best performers of all, despite having the worst compound annual return. To be fair, the annualized volatility of pentile 5's alpha was also the highest, and the ratio of pentile 5's alpha to the volatility of its alpha (which is equivalent to the Sharpe ratio of pentile 5, hedged with an appropriate short position in the S&P 500 index) was the lowest, so from that point of view pentile 5 was the worst performer (and pentile 4 the best).

We shouldn't over-analyze which of these alphas is the best, though, because within statistical error, they are all the same. The statistical error for the alphas of the pentiles are all about 2-3%, except for pentile 5, which has a 6% statistical error. The alphas themselves range from 3.3 to 5.5, and so the inescapable conclusion is that within statistical error ALL PENTILES WERE ABOUT THE SAME in terms of their alpha.

So my soapbox message is that the performance of high beta stocks may look terrible at first glance, but you've got to correct for the fact that you don't have to hold as much of them to get your market exposure. Don't penalize them by using geometric returns, and make sure to credit them for the interest you'd earn (or the margin interest that you wouldn't have to pay) because you don't have to hold as many dollars' worth of them.


1) This study used a database (MarketQA) that I believe to be free of survivorship bias

2) The 500 stocks used in the study are not the actual S&P 500
components. At the start of each calendar year, I selected the 500
largest market cap US domiciled stocks, trading on either NYSE or Nasdaq.

3) On each trading day the 500 stocks (excluding any that were trading
at less than $5 per share as of the previous close) are sorted into 5
pentiles based on their total return beta with SPY. Beta is calculated for each stock based on the prior 250 trading days of close-to-close moves.

4) The daily return of each pentile was calculated as an equal-weight average of the daily returns of the (roughly) 100 stocks in each pentile.

5) The daily risk-free rate used is taken to be the 3-month treasury bill yield index (divided by 252, assuming 252 trading days per year). It averaged 2.6% over the period of the study, but it ranged from zero (currently) to values much greater than the average.

6) The daily alpha for each stock is calculated as alpha = (R-Rf) -beta * (Rspy - Rf). The alpha for each pentile is calculated as the equal weight average of the alphas of the (roughly) 100 stocks in the pentile.

7) "Annualized" alphas for each pentile is 252 times the average of the daily alphas. There were 3,154 trading days. Annualized standard deviations of the daily alphas of each pentile is the square root of 252 multiplied by the standard deviations of the daily alphas of each pentile.



 Even amid acknowledgment by US leaders of the need to reassure jittery investors, world markets fell and both fell with the Aug 2 deadline to raise the gov borrowing limit fast approaching. What a joke. We can now see yet another function of the stock market aside from its benchmark for how costly it is to raise funds, and a source of liquidity and enabler of all to participate in the returns from enterprise, and its main function of transferring resources from the people at the bottom of the feeding chain to those at the top while paying for the vast infrastructure needed to provide the above functions.

It's function is to provide a signaling mechanism and excuse for service revenues to be increased and for the geese to be plucked with the least amount of hissing by appeal to the terrible things that would happen if it were left to its own courses and it went down were spending not to be maintained, and service revenues from those who have more than the common man to be putatively increased.

Jack Tierney, President of the Old Speculator's Club, writes: 

I'm not sure if we're all looking at the same markets. I just checked out the 12-month performance for all the major averages. All relatively close to their 12-month highs. If these results are due to "jittery investors" then I confidently predict that the DJ average will crack (or come close to cracking - within 200 pts.) its all-time high by the end of '11 if ANY debt ceiling settlement is reached.

Fear-mongering seems to be at an all-time high. Curiously, leaders of the world's major religions are criticized by some who claim their structures are built through fear utilizing the sweat-labor of gullible peasants. Well, this very sane, quantifiable, transparent capitalist structure we call "the market" appears to operate in much the same manner. Yet it is lauded by many of those same individuals.



To put some conviction behind my surmise, I just purchased some DDM at 65.35. Check back with me next January. 



 When I read this article I instantly thought about price and if it was going against me (looming) in a trade or if it was going in a profitable direction (receding). Time passage does seem different under the two conditions and thus my mindset and behavior must be different.

In fact, some investigators have suggested that the amount of energy spent during thinking and experiencing defines the subjective experience of duration. In other words, the more energy it takes to process a stimulus the longer it appears as a subjective experience of time. Something moving toward you has more relevance than the same stimulus moving away from you: You may need to prepare somehow; time seems to move more slowly.

Jeff Watson writes:

One of the best things in surfing is when the wave is breaking hollow and you can get inside and surf completely covered up by the wave in all directions except in front of you. This is called, among other things, "Getting Tubed," and although it's a very short experience, it's one of the most exhilarating things in surfing.

Surfing legend, philosopher, and master, Gerry Lopez , one of the best tube riders of all time, once observed that "Time expands inside the tube." He's right, as the typical time spent riding inside the tube is a couple of seconds, but to the rider it feels much, much longer. Here's a short video that captures 1/100th of what it's like inside the tube of decent waves.

There are other, holistic benefits to one's health gained by regularly riding tubes, but the benefits cannot well be described on paper as they are of a more metaphysical nature.



 A marvelous passage from A.J.P. Taylor’s English History; 1914-1945? :

Until August 1914 a sensible law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country forever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. For that matter, a foreigner could spend his life in this country without permit and without informing the police.

Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state who wished to do so.’

‘The Englishman paid taxes on a modest scale; nearly $400 million in
1913-14, or rather less than 8% of the national income. The state intervened
to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours. The state saw to it that children received education up to the age of 13. Since 1 January 1909, it provided a meagre pension for the needy over the age of70. Since 1911, it helped to insure certain classes of workers againstsickness or unemployment.’

‘This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted ony to help those who could not help themselves. It left the adult citizen alone.’

‘All this changed by the impact of the Great War.’



 I just finished The Mighty Atom. It was a delightful read as well as educational on several levels.

Chris Tucker adds: 

This reminds me of a passage in The Psychology of Risk: Mastering Market Uncertainty, by Ari Kiev, M.D., (John Wiley & Sons, 2002) pp. 39, 40: 

Commitment is an example of what Joe Greenstein, a circus strongman in the early years of the twentieth century, believed was necessary to overcome what he called "impossibility thinking." He believed in a Life Force that we all have but fail to activate because we are constantly thinking, "I can't do that. I'll hurt myself."

According to Greenstein, the little voice in you - that instinct for preservation - does not give us an accurate picture of our capabilities. We all have mental and physical abilities beyond our own estimation, but to realize them the mind must be deconditioned from impossibility thinking. Only after this deconditioning does it become possible to do what you will.Greenstein believed you could do almost anything if you applied your mind and body to the task with enough diligence. The critical step to take is to overcome the instinct for self-preservation, which inhibits action. To do this, he believed, it is only necessary to become totally focused on the event at hand, with no reservations and fears of anything untoward happening. In traders, this instinct shows up in the form of such things as mental accounting and loss aversion.

Nothing could more vividly illustrate the importance of belief in a favorable outcome without reservations or fear than the large number of people who were able to run sub-four-minute miles *after *Roger Bannister broke the magic four-minute mile barrier on May 6, 1954. Until that time, the four-minute mile was no longer a vain, exaggerated dream but an attainable goal that could be reached by any runner who was capable of overcoming the pain, adversity, and anxiety involved in reaching it. Once the barrier had been broken by Bannister, the event itself suddenly became relatively easy. By the end of 1978, as many as 274 runners had broken through the "magic, impenetrable barrier."

Kiev then progresses into an interesting discussion about the nature of commitment. Highly recommended book along with his Trading to Win: The Psychology of Mastering the Markets, John Wiley & Sons, 1998



The average costs per launch for the Space Shuttle, according to today's WSJ, were $1.5 billion; the average payload was roughly half the capacity of Delta IV rocket (23,000 kg to LEO).

SpaceX is now offering a lift package on its Falcon 9 for the same size payload at $50-$60 million (3-4% of the average cost of a shuttle launch).

Deflation has also come to the lift insurance market.



 It has been interesting to see in the course of these negotiations how every dodge and feint from the Zacharian and Remusian play book has been used so frequently. We have seen "Your own man" and "don't throw me in the briar patch" many times, and "you're the one that broke it up" and "You're taking care of your interests much better than I'm taking care of my interests" and "here's a gift to star the negotiations (the golf game)" et al.

I haven't seen commented or named by Zachar however, "I'd like to go through with your deal but my sister in law is opposed to it". By this I mean, that "Rand Paul and the tea party boys will not vote for any deal that has a tax increase" or "Nancy Pelosi and the Women Senators will not agree to any reduction in social security".

What we need is a systematic classification of all these negotiation techniques so we can catalogue them as they come out. At the head of the list is "what will happen in Asia if we don't agree to increase the service rates?" Or "what we need is another 500 point drop before the service rates go up". The stock market plays a role, and I also like "the bond market went down for the first time in 3 weeks amid fears that a deal (a service rate increase) was not reached." Forget about the fact that it's within a point of a yearly high.

The Goddesses of the market look down upon us and have a belly laugh at our foolishness as we sway. That's for sure. But can money be made by seeing through all these snares and delusions?

Well in retrospect, we know that the stock market when it's down much is merely being used as a tool. But how to withstand the 20% drop of oct 2008, as it is used for its evil purposes?

George Zachar writes:

Negotiation tactic taxonomy appears to be a developed field. Check out these articles.

negotiation tactics

How to beat dirty negotiation tacticts: 10 tips

How to overcome the top ten negotiation tactics


Jim Sogi lists some of his own negotiation tactics:

1. Higher authority. The absent person with authority needed to approve(ie the wife, the husband, the underwriter, the supervisor at the car lot, the rank and file in Congress. Classic negotiation gambit. I'm on your side, and I'm with you on this, but I have to convince etc etc.

2. You're really killing me on this deal. I'm losing my shorts on this. My kids are going to go hungry.

3. I really like you. I want to help you make this deal. You look like a good guy.

4. Ok we have a deal, but there is one last detail I'd like to discuss…

5. A really good one is when you have a deal, but then the negotiations just start . Oh we'll have to change delivery, the supplier just called and there's a strike, oh there's a slight problem with that model, oh the bank just called on the financing and…etc etc

6. First or second round….I'm laying all my cards on the table here, and here is my absolute maximum authority.

7. The nuclear option: if you don't accept this deal the sky will fall down.

8. Make him an offer he can't refuse. The Godfather.

9. Stall stall stall when time is asymmetrical making one party ("O") look really bad.

10. Your mother would be ashamed of you. The voters will be ashamed of you. Your boss will fire you.

11. Listen I just got fired, my cat died, my pick up truck just broke down and my mother died. Can you pleeeeze give me a little slack here?

12. Nibbling. Oh can you throw in gas, free trip, delivery, warranty, extra this that etc etc.

13. Silence.

14. Negotiating against yourself. You'll have to do better than that.

15. The hypothetical. If I was to offer you x, would you consider that a good offer?

16. Bracketing. I'm not going to give you a penny more than x. That's the beginning and bottom of the scale.

17. The red herring. I'll give you x and y for z, but would be willing to give you just x for z-1. (form of bracketing)

18. Reluctant seller. (Brer Rabbit). 

19. That offer is an insult, a slap in the face.

20. Keep 'em waiting. Soften them up at bit. Let the salesman sit in the waiting room for about an hour. Let the car buyer sit for about a half hour while the salesman and manger talk about golf.



With the President being so concerned with the markets on Monday in the absence of a debt deal, is this not a test of who is calling the tune? Bernanke points to the Russell 2000 to judge QE2 a success. Does the market have to come down Monday to keep the theme alive? I would think if non-Governmental market participants had their say, they would rally stocks as a giant middle finger to the President. Who is he to invoke markets?

Gary Rogan writes:

It's a test whether the truth can triumph in spite of all the propaganda

Media Blackout: Nets Ignored Popular Cut, Cap, Balance Bill

Sushil Kedia adds:

The Zimbabwean markets went up like something….. with their QE ad infinitum. Eventually the only thing everyone needed to buy was chastity locks…



Amid the terrible talk about what might happen in Asia overnight, Israel change overnight which is about 95% correlated with S&P change overnight moved to levels at a 10 day high. Thus the posturing of the parties pointing to the terrible fate of the financial markets which are all near 2 month and 5 3 year highs can be seen as part of the Uncle Remus stories about "don't throw me in the briar patch".



 I interviewed for a job at HP once about 20 years ago. Back then at least, they had a lot of divisions that were more or less silo-ed, trying to be profit centers on their own. If that's still what they do, then it would be a pretty good situation for doing spin-offs and that sort of thing.

Eastman Kodak. By chance, I was thinking about EK day or two ago and about how easy it is to be wrong. In 1997 I was visiting China. I looked around and tried to think about how the emergence of China and how it might play out in investment themes. My best idea, I thought, was that as Chinese consumers moved up in the world, one of the first things they would want would be film to take pictures of their children. So I thought that already beaten down EK might be a good investment. The WSJ reported the other day that EK's bonds are falling away to zero now. It's believed that they could default in as soon as a year or two.

On the same page in the WSJ there was an article about IBM's booming earnings, three-something billion in the most recent quarter. Yet another "insight" I had long ago was that IBM could never make much money after the mainframe business died. When that was happening, the stock was way, way down, and Gerstner took over, and I'm pretty sure it's been a good-to-great investment ever since. Even now, I don't really understand what they "do", and how they make $3 billion a quarter doing it. I read that they make a lot on consulting, but anybody can do consulting, and it sounds tough to even gross $3 billion on that, let alone net.



Mara Hvistendahl , the author of "Unnatural Selection" was on TV a week or so ago and suggested male-female ratio imbalances will cause some Asian countries to become like the American "Wild West" and more war-like and aggressive in nature in the future. Interesting (if not flawed) idea with possible market implications (at least until equilibrium is re-established).

It sounded a bit Malthusian though too…

from an article on npr:

As men find it more difficult to find wives in these countries, Hvistendahl says, "it is leading to unrest and almost certainly will lead to more." Unmarried men are responsible for more violent crime than married men. And, Hvistendahl adds, research in eastern China showed a correlation between a high male-to-female sex ratio and the crime rate.

Don Boudreaux adds:

In light of the fact that the most creative and versatile resource (by far) is the human mind, world population today truly is not too great but, rather, too small. Far too small.



 After euro leaders announced a new (big) aid package for Greece and measures to prevent bond yields rising further in Spain and Italy, it seems that Europe has solved its sovereign debt problems…. Markets celebrate the European version of QE. Also Europeans (we'll see what Americans will now do about it, but I think the answer is pretty clear and markets know it) can now delay any tough decisions on deficits. Someone else will pay the bill. Pretty sad. However, markets go up and everybody is happy so far.

Kim Zussman writes:

Do not recall the oft-heard warning that a Greek default or failure to raise US debt limit will result in financial Armageddon prior to the Lehman collapse. That not yet distant memory still has usable power. Perhaps a day's meal in that.

Bruno Ombreux writes:

The 100s of billions will mainly come from the pockets of the German, French and Dutch taxpayers, since the ECB printing powers are limited. As for the Greek, they have lost their sovereignty but they will find freedom though work. You know. Arbeit macht frei. That is at least for the next few months until bailout 3 is needed and the whole show starts again.

Also, about the question from the bleachers: How are the ECB's "printing powers" more limited than the U.S. Federal Reserve's?

read this: European Central Bank

They need to maintain some capital and this capital is provided by the central banks of the member states. They cannot do too outrageously stupid things, because they can get bankrupt if some member state central banks stop capitalizing them.
And you can be sure that the German or Dutch have an uncle point.

Politically, the ECB is also far less inclined to print than the Fed:

- It has only one mandate, low inflation, whereas the Fed has a dual mandate: inflation and economic growth. In effect, the ECB doesn't really care about economic growth. - The German have been paranoid about inflation since Weimar and would not let the ECB go too far. - If you look at the ECB board, it is predominantly hawkish according to analysts and observers that spie every word uttered by these guys.

But the main reason they have less power to print than the Fed is that they have to please a lot of member states. Which creates checks and balances. Whereas the Fed only has to please one guy, the US president, who nominates board members.

John Floyd adds:

Leaving any debates on what is considered QE and what is not.

The ECB has lent to the periphery through its rediscount window Euro 330 billion, this is in addition to the Euro 75 billion in secondary market purchases of peripheral country bonds. The ECB has a capital cushion of about Euro 10 billion. One could argue this might be a stretch of the single mandate of the ECB's 1998 charter.

To Ireland alone the ECB has exposure of Euro 180 billion, or about 100% of Irish GDP.

Other thoughts on the most recent Euro summit:

The general reaction in markets and the street research has been this plan delivers slightly more than expected and is a bold plan. Not surprisingly this has been the analysis of most of the rescue packages globally since 2008. Yet, the failure of the packages on so many levels is fairly evident if one looks at economic growth, interest rate spreads, etc.

The most recent package clearly will buy some time. How much is an open ended question but I expect much less than previous packages as the Pavlovian reaction wears thin.

Amongst the many issues of implementation, political approval, private sector etc. I think the key failings are:

1) There was no increase in the size of EFSF. Furthermore, even the relatively paltry and debatable rating of current EFSF has yet to approved. To cover Spain and Italy would require 1.5-2.0 trillion Euros.

2) Concessions on rates and maturity extensions for Ireland and Portugal are nice but small relative to the fiscal adjustment required.

3) The debt relief to Greece is insignificant and will bring debt to GDP from 172% to around 150-160%, depending on whose estimates you are using.

4) Given that there is not much debt relief and the fiscal adjustment is massive there cannot be much hope that the domestic political willingness in Greece will be there to stay the course.



 Why Oslo? … you ask

Actually, Norway and all of Scandinavia serve as an excellent barometer for the "progress" of Islam in the West.

The best blog I've found to monitor developments has been The Gates of Vienna. There is yet to be an update for the 22nd, but keep an eye on it. (All their articles are translated.)

Also keep track of one of their regular contributors: Fjordman. He used to keep his own blog, but now contributes to others -one of which, The Brussels Journal, also gives the current developments in the EU.

Jan-Petter Janssen writes:

*Muhammed cartoons re-published last month
*Troops in Afghanistan
*Supports coalition in Iraq
*F16s actively bombing Libya these days
*Very bad integration
*Large muslim population
*100s of muslims went to the streets protests last year: Peaceful, but
one speaker warned against a 9/11 on Norwegian soil
*Nobel peace price
*Mullah Krekar

… and so the list goes on…




The embarrassing aspect of this particular instance is the leak of market-sensitive information came from the ranks of the government or the legion of public servants who were aware of the details of the carbon tax package before it was released to the public on July 10.

Politicians don't understand investment markets and never have. But asking their own regulator to police a market that Canberra abuses is outrageous. Having played with selective leaking of information, Canberra has a nerve asking its regulator to get tough on insider trading.



 Tone is as important to music as pitch. You've heard a new violin player playing the notes on the chart but the tone is awful. Yo Yo Ma plays sweet modulating tones. Focusing on just price without regard to tone leaves out relevant and important information.

The market has tone. Quiet, jumpy, weak, anxious, thin, bullish and dense internals. The environment, political, news, economic, social, international also establishes a mood and tone to the market that cannot be ignored except at your own risk. The prior tone is also relevant as music is not discrete tones and notes, but a integrated statement over time. Emotion is the main vehicle of music and also with the markets.

Tone both creates emotion and is the result of emotion. Voice carries emotion: The cry of a baby, the angry tones of politicians, the whine of the complainer each has distinct tonal qualities. The tone carries meaning and has persuasive force. The question is how to quantify it or even qualify it to learn the meaning in the market.

Emotion also has established patterns: Denial, anger, acceptance; fear, capitulation, numbness; catastrophe,catharsis; infatuation, love, boredom, hate. If tone both reveals and creates emotion, understanding the tone of the market will reveal its emotional state and reveal its emotional stage giving a clue to the next phase.

Jordan Low writes: 

The yogis believe in seven chakras in the human body, each corresponding to one of the seven pitches, each corresponding to a different emotion. The stages of grieving you describe go from lower chakras/pitch to higher.

Soros reacts in his gut, which is one of the lower pitches — probably a survival type of emotion. The tone probably is the intensity of the energy at that chakra — I am thinking market volume. We are probably saying the same thing — I find it interesting but am adding quite little.

BTW, the chakras also correspond to the colors in the rainbow, red with the lowest frequency is below.

Laurence Glazier writes:

 For these reasons I find alternating attention between composing and trading congruent, as they are carriers of emotion at different scales.

From my point of view the Elliott Wave framework fits well, being a sequence of eight stages whose final three are labelled A, B, C. As I often use a fractal structure in music, that is another similarity. I may be slow, but it has taken me years to internalise patterns which are lately becoming clearer to see.

Yesterday I put sixty years of the S&P into Advanced GET. The astonishing rise from the doldrums must, in part, be a distortion reflecting the love of printing money, but even were this transcribed from dollars to ounces of gold, I think the ascension of computer followed by internet technology would show how much these developments have added to the wealth of the world.

As I move between Monthly, Weekly and Daily views, the software messes up the precision of my placement of wave counts, and I am thinking to move the whole thing into a graphics program, with the different scales, whether grand or minuettes, callable up via layers. This would help me watch day by day what's going on, a work of art within an art program.

It is impossible to experience in full a piece of music from a short excerpt, and I think likewise the Market, with all its waves and eddies, needs attention from up close and afar.

Also, the rainbow, the universal belief that there are seven colors in it may stem from Isaac Newton's assertion, which was based on his mystic ideas about numerology.

However if you look at a rainbow and count, it is not clear whether blue, indigo and violet are really three colors or two. Also the yellow band is very narrow, though often depicted as equal to the others.

I think context in time is part of what the Market (like a human being) experiences, so as well as volume one might want might look at moving average based indicators, and fractal perspectives.

Laurel Kenner writes: 

Mr. Sogi is exploring an endlessly fascinating topic with his exceptional lucidity and depth of experience. Great performers play the heartstrings by varying tone within phrases. (They also vary dynamics and duration of individual notes in phrases.) They learn how to do this by spending years with master teachers and figuring things out on their own. That's why synthesized music can sound only like an approximation of the "real thing." Because the market is a bazaar of human voices, expressing workaday practicalities, aspirations, fears and strategies, I don't think it's unduly anthropomorphic to look at it as a great performer. And while some of a great performance is spontaneous, much involves muscle memory that training has made reflexive, and must therefore be susceptible of being "sussed out."

Rocky Humbert writes: 

 There's an old game/tv game show called "Name that tune". The gist is that competitors would try to identify the title of a song by hearing only the first X notes; the winner would correctly name the tune in the fewest notes. Human memory being what it is, it was possible to name many popular pieces and classical symphonies by hearing only the first measure of a piece.

However, if one picked a RANDOM measure from somewhere in the middle of the same piece, it was vastly more difficult to identify the title correctly with the same consistency.

This is a reflection of how our memories work; and this phenomenon may have relevance for people looking for patterns in the middle of time series — as opposed to the beginning and ends of time series.

Alan Millhone writes: 

Hello Rocky,

My old friend and top Master checker player, Karl D. Albrecht from Michigan was walking around the playing room full of players at the Tennessee tournament. As Karl walked by many games that were being played into the mid-game he could by sight and memory accurately tell you from what checker opening each board position originated. I found this remarkable.





1:28pm| The New York Times report was written by veteran journalists Carl Hulse and Jackie Calmes. The paper appears to be standing by them, despite denials from all sides.


1:25pm| Carney says report that administration informed congressional leaders that a "grand bargain" was near "is incorrect." Says discussions going back and forth..


1:25pm| A spokesman for Eric Cantor tweets: "To be very clear: @GOPLeader Cantor is not aware of any deal or aware that any deal is close."


1:24pm| Carney says he "will not address current negotiations and the parameters of them." Won't comment on whether tax reform, entitlement cuts still on the table.


1:23pm| NBC News: White House Legislative Affairs Director Rob Nabors seen waiting outside Speaker Boehner's office..


1:22pm| NBC News is reporting OMB Director Jack Lew was spotted going into Senate Democratic lunch..


1:21pm| Carney: The suggestion we are close to a deal is incorrect."


1:20pm| Carney: "There won't be a deal until there is a deal… Not having one now doesn't mean one won't be reached… We are cold-eyed realiists to the challenges to reaching a deal." 1:15pm| Carney says "We are not there, but we are hopeful we will get there." Says White House confident a $3 trillion to $4 trillion deal can still be reached.


1:12pm| White House Press Secretary Jay Carney has started his briefing. Updates to follow.


1:11pm| More from White House Press Secretary Jay Carney: "there is no progress to report but we continue to work on getting the most significant deficit reduction package possible.” He added:”Talks are ongoing over the phone and in person at the staff level and above."


1:10pm| The New York Times appears to be standing by its reporting, tweeting again: NYT NEWS ALERT: Obama and Boehner Close to Major Budget Deal, Officials Say.


1:09pm| Sen. Tom Coburn (R-OK) says Gang of Six deal can't be passed by Aug. 2 deadline. He wants Cut, Cap, and Balance to be the final deal.


1:08pm| The New York Times has posted their report here.

Read the whole thing here.



This is the current universally accepted monetary model of our earth-centered universe:

1. Aggregate money surpluses from whatever source (whether private savings or government lending to itself) equals aggregate investment — the stuff we use to make more stuff and do more things
2. The amount of aggregate debt has no impact if the government stands ready to lend and guarantee more
3. All investment is equal– a Pell Grant is the same as a bulldozer



 I would like to ask the fellow readers of the dailyspec if anyone has some thoughts on the subject of physics vs markets.

If you bring a GPS along on a bicycle trip, you will see that the altitude-time graph shares the same qualitative properties as a stock price. A bicyclist declines hills faster than ha climbs them. I'm no physicist, but if I remember my high school physics correctly, gravity pulls one down with a constant force = M*G = bicyclist's weight * 9.81 m/s^2. On a horizontal ride one will never notice this force because the road pushes up with an equally large force. On a climb, however, one does not have this luxury. One's muscles must generate M*G*cos(angel of climb) just to fight gravity. Indeed, for anyone except Superman, climbs will be much slower than descents.

(Please note that the physics description may have some mistakes. This is not my area.)

If one instead plots altitude against distance, not time, on the horizontal axis, the declines-steeper-than-climbs bias disappears. Would the same be true for stock prices if one plots these another way, e.g. against volume instead of time?

If so, can any lessons be drawn from physics? Has anyone tested this?



Monday morning serious scare tactic. Tuesday afternoon O reaches out, market slings higher on political hope as gold gets old and tired at the round. AAPL blows out earnings to take the market into the next electron orbit tomorrow. Now that is power that comes from a crouched position. What a day for a public hearing and a foamy pie in the face– best market up day all year!



 Last year our national checker tournament was held in Springfield, Illinois. I stayed over an extra day to visit the beautiful Lincoln Library and educational center. Near the site of the Lincoln Law offices was a lovely old book store. Soon as I opened the door I could smell the books that filled every aisle and stacked on the floors and on tables and chairs. What a delight! I bought a couple "still" iron banks while there. I asked to see their Checker books and found a dozen stacked on a chair. I bought them all which included a scarce hardbound HORSFAL's problem book and GOULDS and other early books at a more than fair price for the lot. Glad I had my car and not flying with the extra weight of the books. Amazon has its place as does the Kindle. However, nothing will ever take the place of one browsing through old books and the aroma of those books.





This is an excellent, but flawed article in Smithsonian.com discussing the first great Global Warming debate, which was between Thomas Jefferson and Noah Webster.



 It was Superbowl Sunday about 20 years ago and we were moored in my boat at my favorite remote bay. The night before there was no wind and absolutely no waves with the ocean flat as a bathtub. Its never like that. I thought to myself, "This is strange. So calm. Very unusual."

Sure enough around 2 am the palm trees start to sway. By dawn the wind was blowing 60 plus. My anchor let loose and the boat headed for the rocks. Just before hitting the rocks, the anchor caught. I was trying to move the boat but the motor wasn't strong enough to fight the wind so I had to pull the anchors one by one to pull the boat away from the rocks.

I remember distinctly my surfboard flapping in the wind horizontally on its cord totally out of control. I could not look into the wind as the rain and wind stung my eyes. The sea was foaming. That day 7 boats went up on the rocks or sunk. Later that afternoon the storm abated, sun came out, and I made it back to harbor.

Pitt T. Maner II writes:

There is a belief in the health and safety field is that "all accidents are preventable". The key is to properly access the range of risks and the "worst thing that can happen" and have the plan in place to mitigate those risks.

It appears that a good portion of local sailing instruction these days is devoted to teaching youngsters proper health and safety.

Strangely the least experienced and most experienced people, however, are often the ones that have the majority of accidents. The young have no experience and do not realize the risks, and the older ones have the experience and knowledge but have become complacent or willing to cut corners since "nothing like that has happened before".

Often there is technology and knowledge available to prevent accidents and deaths. So for those to suggest that a "true sport" need be associated with risk of death and imply "acceptable number of deaths" doesn't seem quite right for modern times— definitely heresy for those in the health and safety field. An idea best left for Hemingway stories.

One would think that once the full facts about the tragedy are learned that new safety procedures will be considered and improvements made.

I had the chance to hear Gary Jobson speak here in S Fla at a leukemia charity benefit about 10 years ago and he is a very impressive individual.

For example,  

Safety tethers have been proven to have saved countless lives, and their use is absolutely the best accepted practice for sailing offshore, at night, or anytime that there is even the slightest chance of a crew member going overboard; PFDs, of course, should be worn at all times. These practices were exceeded by the WingNuts crew.

Is there any Health and Safety product made or which could be made to handle such extreme conditions? In cold water you have to fight hypothermia and drowning in rough seas.

Advanced survival suits?




 When a man has lived without illness to 99 years old and is still going strong, having won 122 national tournaments along the way, served as a lawyer for 70 years, visited hundreds of countries, played with every tennis player of the past 100 years from Bill Tilden to Jon McEnroe, won the Wimbledon doubles at 47, started a major animal rescue operation, witnessed murders, had a career in politics, played with all the famous Hollywood actors of 50 years, played with kings, Presidents and Duchesses, there is much to learn from him. I was pleased therefore to pick up Gardnar's autobiography written at the age of 95 and self published but available at the Newport Casino, where he was a thorn in the side of the powers that be there for 70 years. Writing at the age of 95, when many of his enemies have passed away, one benefits from his not holding back as so many auto's do these days for fear or libel or hurt feelings.

The first thing one learns from him is an anecdotal secret of a healthy life. He is a vegetarian, doesn't drink or smoke, has no air conditioning, gets to sleep early, and floats around the court at a single steady. His recipe for life is to enjoy the great pleasures of life — eating, exercise, sex, sleep, and bathing. (He recommends bathing with an olive oil cleaner rather than soap.)

 Of course, as in all things, it's a combination of genes and environment that got him so far. He has two sisters in their 90s, his mother died at 95, he and his father were National father and son champions 3 times. He was a star football player, diver, and boxer at the University of Miami. He practiced on a home spun clay court with his father and was winning tournaments at the age of 13. He was married for 50 happy years to his college sweetheart, a beauty queen and swim champion.

Having played against or seen many of the players that he mentions in action, I was particularly interested in the stories about such low lifes as Bobby Riggs, Frank Shields, Herb Flam, Art Larsen, Ted Schroeder, and John Mac, who he praises as possibly the greatest tennis player but criticizes as a self centered poor sport who tried to kick him off a court at a Wimbledon prep because he was Mac. He has a beautiful, heartbreaking story about Gloria Butler whose father started the Monte Carlo club, but has given away all her possessions because her "master" has told her she should live as a hermit and give all her money away to guess who.

It is also quite educational to hear his take on the things that have changed during the past 80 years of tennis. He points out that just as important as the new materials in the rackets these days for faster and better play is the pressure of the balls. Because of the high pressure, and the change from a rubber center, topspin must be hit to keep the ball in, and this almost mandates the much lamented by all players of the era, extreme western grip. He believes that with modern equipment the old players would have fared quite well against the current crop.

Many other murders and near death incidents occur. For example, he describes how he got his friend Mike McLoughlin out of jail in Cuba as all the other casino owners were being executed. And he describes the suicide of Gladis Helman, the strange death by drowning of Frank Froeling's mother, and the attempted murder of FDR that he witnessed.

 His love for his father shines thru and he describes with heart breaking detail how this 45th degree Mason lost his lumber business in the Hurricane of 1926, and was thwarted in all his entrepreneurial ventures thereafter because of the common problems of the depression. Apparently Mulloy inherited his father's inability to make money, as he seems to live very modestly in a two bedroom house, and he never seems to have 25 bucks extra to his name. I like the fact that of all the tournaments he's won he is proudest and happiest with the 3 father son tournaments he won with his dad.

Amazingly, although he has singles wins over almost every great player of the last 75 years including the two Pancho's, Bill Talbert, Vinnie Richards, Riggs, Welby van Horne, Frank Parker, Godfrey von Cramm, Rosewall, Borotra, Cochet, he is not remembered much as a singles player, but is mainly renowned for his many grand slam doubles and Davis Cup victories. There's a nice youtube video of him playing with Trabert in doubles and he plays a nice fluid, but not overly forceful game, with a medium sized serve, a mediocre overhead, and good backhand volleys as highlights.

He was constantly fighting with the powers that be of the official associations. And with good reason. He describes how James van Allen refused to give food to the tennis players that lost in the Newport tournament, how he was defaulted by the Californian official Jones for complaining about favoritism to the Wasps, and how the officials were only interested in siphoning off all the money in the game for themselves rather than let a player make an honest living from the game.

His example of rich man Avery Brundage who disqualified Jim Thorpe for playing semi pro baseball is typical of what he faced as the tennis association made it impossible for a self respecting player to play the game unless he were independently wealthy or a special favorite of the "sponsors".

In a chapter entitled the pompous dictatorship of the USTA, he describes his experiences with the officials– mainly Holcumbe Ward, Julian Myrich, Robert Jones, and James van Allen. They were constantly on his back whenever there was money to be made by them at his expense. His experience reminded me so much of what I experienced in squash when I decided to turn pro because I couldn't afford to be a gentleman amateur any more. These experiences are sisters and cousins to what we experience so much today where those with access to power, money, and information gracefully slide from the political arena into the banking arena, consulting, private sector, or institutional arena as opportunity and advantage arises.

Gar is a man of respect and as he nears his 100th birthday, still winning the 90 and over's regularly in doubles, one should pause to hope that one could live as happy and productive a life as he doing the thing he loved the most and was so good at.

Jeff Watson writes:

That was the best biography that you have ever reviewed. Mulloy reminds me of my grandfather in so many ways. It would be interesting to list the similarities between productive old centenarians like them, because they all seem to share a common thread. I don't know exactly what the thread is, but it probably includes luck in the genetic lottery, and guys like these seem to have something extra, a joie de vie or something like that. Not like the miserable old 95 year old people that I run into here in Florida on an everyday basis. Mulloy also reminds me of a Mr. Woodykind, who I knew as a kid. Woodykind was an avid tennis player who retired to Pompano Beach and played tennis at the clay municipal courts back in the 60's when I lived there as a kid. He was in his 80's, very healthy, and was a champion who supplemented his retirement by wagers on his matches. He was a great guy who was also very sharp with many stories to tell about the old days. He gave me some advice that I still live by today.



In the SP500 Financial sector over the past 3-years, REITs comprised 9 of the top 20 performers and 2 of the bottom 20:

Symbol Company Name Industry    Total Return 3 Year
DFS Discover Financial Svcs Consumer Finance 96.97%
AVB AvalonBay Communities Real Estate Investment Trusts (REITs) 76.37%
EQR Equity Residential Real Estate Investment Trusts (REITs) 75.15%
PSA Public Storage Real Estate Investment Trusts (REITs) 60.62%
FHN First Horizon Natl Commercial Banks 58.61%
BEN Franklin Resources Capital Markets 56.50%
SPG Simon Property Group Real Estate Investment Trusts (REITs) 51.61%
VTR Ventas Inc Real Estate Investment Trusts (REITs) 48.09%
AMP Ameriprise Financial Capital Markets 47.82%
TRV Travelers Cos Insurance 42.68%
HCN Health Care REIT Real Estate Investment Trusts (REITs) 40.75%
HCP HCP Inc Real Estate Investment Trusts (REITs) 40.66%
COF Capital One Financial Consumer Finance 38.45%
CB Chubb Corp Insurance 38.35%
AXP Amer Express Consumer Finance 37.44%
HST Host Hotels & Resorts Real Estate Investment Trusts (REITs) 37.21%
CMA Comerica Inc Commercial Banks 36.35%
CINF Cincinnati Financial Insurance 36.01%
MTB M&T Bank Commercial Banks 34.60%
BXP Boston Properties Real Estate Investment Trusts (REITs) 30.82%

Symbol    Company Name    Industry    Total Return 3 Year

STI    SunTrust Banks    Commercial Banks    -23.01%
PFG    Principal Financial Grp    Insurance    -23.03%
STT    State Street Corp    Capital Markets    -23.64%
KEY    KeyCorp    Commercial Banks    -24.81%
BK    Bank of New York Mellon    Capital Markets    -26.70%
ALL    Allstate Corp    Insurance    -28.30%
NTRS    Northern Trust    Capital Markets    -31.10%
KIM    Kimco Realty    Real Estate Investment Trusts (REITs)    -32.92%
MS    Morgan Stanley    Capital Markets    -35.63%
GNW    Genworth Financial'A'    Insurance    -39.22%
RF    Regions Financial    Commercial Banks    -40.30%
AIZ    Assurant Inc    Insurance    -45.39%
HCBK    Hudson City Bancorp    Thrifts & Mortgage Finance    -45.74%
BAC    Bank of America    Diversified Financial Services    -52.23%

HIG    Hartford Finl Svcs Gp    Insurance    -56.92%
ETFC    E Trade Financial    Capital Markets    -57.54%
JNS    Janus Capital Group    Capital Markets    -59.93%
PLD    ProLogis Inc    Real Estate Investment Trusts (REITs)    -61.70%
C    Citigroup Inc    Diversified Financial Services    -75.05%
AIG    Amer Intl Group    Insurance    -93.36%



Why does the S&P, when in a certain stage, go down when there is good economic news because the interest rates go up when there is good news, and stocks are valued as an infinite stream of discounted earnings so the interest rate is more important because it is compounded recurringly while the effect of output is ephemeral as everyone knows. I believe that the reason that stocks go down on the rating announcements is it impacts the desire of everyone to hold risky things during uncertain times, but the more that the ratings are cut back, the greater the chances that a deal to cut spending will be made and this is good for interest rates.

Rocky Humbert responds:

I'm probably being dense, but I still don't follow your logic. You first sentence doesn't address my point about what's happening in the PIIGS right now — sovereigns are being shut out of the bond market, but blue chip borrowers are conducting business (pretty much) as usual. The rising sovereign interest rate seemingly is becoming less and less relevant to the conduct of business to business lending. In pointing out this 7-sigma phenomenon in a private correspondence with a very knowledgeable spec this morning — that this is a a very different world than we've seen for the past 40 years — the spec replied, "[This is closer to ]the world that JP Morgan inhabited, where sovereign credits were more risky than sound companies and the banks bailed out the Treasuries. I grasp what you mean in the context of not-owning-risky assets when things seem uncertain. However, this is a mindbending paradox. The risk is arising from the riskless asset. So if the riskless asset is becoming more risky, does it follow that the risky assets are proportionally more risky? Because if you sell the risky asset because you're scared of the riskless asset, do you buy the riskless asset even though it's becoming risky even though it's what made you sell the risky asset to begin with??? Off to the gym… 

George Parkanyi adds: 

Corporations (at least the true going concerns that serve a broad economic need) seem to have the resiliency of cockroaches (e.g. the Japanese and German companies that survived the massive bombing in WWII being case in point). Companies have more flexibility than governments (in general) to adapt to changing economic environments. They can more quickly re-deploy capital and can cut costs more quickly and aggressively.

It has occurred to me that if sovereign debt, massive amounts of which are out there, eventually are widely perceived as crap, there could be a veritable stampede out of it - especially in conjunction with declining currency and/or inflation. So where is that money to go? The first look would probably be commodities - especially precious metals, and the initial panicky inflows will likely drive up prices dramatically. We've seen some of this already, facilitated by the advent and growth of commodity ETFs. By the same token, there are legions of equity ETFs, funds and well-run companies which will be perceived as a safer than sovereign debt because of the survivability advantages of corporations. As commodities soar, equities will start to look like screaming bargains in comparison. Dividend-paying big-caps may very well become the new bonds from an institutional investor's perspective. This transfer of capital from debt to equity could drive stocks much higher as well in a boom similar to what commodities are experiencing. Interest rates may not matter. At high stock prices, companies will be able to raise capital through equity offerings, and dividends may come into vogue as another way to attract that outflow from bonds. As bonds are being sold, they may get to the point where they are so low that governments (that still wish to avoid default) may start buying them back on the cheap to retire them. If you had a trillion in debt that just got marked down to $500B, and you had that money and/or could print some to fund the buy-back, wouldn't you take that opportunity to wipe the $500B off your balance sheet and improve your credit rating?

Now that I think about it, jacking up interest rates to short your own debt (to buy back later) could be one bizarre option the Fed could try at some point. Although you'd likely strengthen your currency doing that and it could backfire … unless … you short the other guy's currency first … and use those profits to buy back your debt. You could probably do this once. 

Interesting times indeed. Rocky's PIIGS observations are very well worth thinking about.

Paolo Pezzutti adds:

As a country defaults I do not expect to see all companies go bankrupt. The financial health of a government does not imply that companies cannot make a profit. In a sell off type of environment where asset managers weigh down their portfolio in a troubled country, I agree you can find good bargains. One problem may be the timing. When in 2008 prices plunged I started to buy stocks of very solid companies in Italy. Unfortunately prices continued to the downside some tens of percent. It took more than a year to see prices go back to my level. during a panic also good quality stuff can sink. In Italy there are some of these companies. I look at the utilities sector,luxury, oil. I look also at banks. Most of them are well managed and are mispriced right now. But we'll probably could buy at much lower prices. Imagine what could happen in these troubled countries in case of a slow down of the global economy.



 I still ride/race little kid BMX bikes. My buddies get a kick out of the fact I don't show up for 6 months and blow past them down the straits with all the jumps. I get a kick out of the kids. "You don't look that old"… On the feeling old front, it takes forever to recover after vigorous exercise. We must force ourselves to just ride. I got out almost every day and never feel like riding. Most days it's a lap around the neighborhood with the little ones. Once a month or so, hit it hard. You will feel great. If you hit it all too hard, feel sick, after an hour or so you feel awesome. I feel like a kid again.

On the roadie bike front, I have never been a roadie. My dad would not allow me to ride one of those "bikes with those stupid skinny tires that can get caught in a drain and you do a face plant".

Yet, road bike training is one of the best ways to train to race MX motorcycles. Try to ride a long duration with a high rollout gear on a BMX bike and you cant average more than 15MPH. A road bike you can really fly. The new breed of mountain bikes are awesome. They have the Urban series that is a BMX frame, Fox shocks so I can ride long distance and still ride down stairs and jump over anything. Nashville is a blast to ride downtown. I am going at 6am.

If you don't ride much or for a long time your butt needs to get into bike shape. Nothing gets more sore than your hind end. It takes 2 weeks. Also you do not use your hamstrings much or at all riding bikes. It's imperative to stretch them anyways. After B ball or a run you can always feel your tight hammys. After vigorous bike riding you can't. But your quads get stronger so there is a ying and yang. Stretch them our or your lower back will hurt like all hades. It's not your back!

FOOT DOWN is a great game to play in the drive with your kids to learn bike skillz. Mark off a box where if you leave, go over a line your out. We play drive way to drive way. You ride and try to make the other riders put their foot down. You're not allowed to touch or grab. It's not good for 5k road bikes in case some one does hit your wheel. I knock all the kids in the neighborhood out. I can pull in front of them stop, hold my brakes and still balance for a minute or I bunny hop out of a jam.

We can teach - 3 year old kids how to ride bikes. They can race at 4 and for sure by school age. For years we took the cranks and pedals off the cheap walmart 12" wheel bikes and let them scoot around. A few years ago our BMX buddy starting this company. Of course he has little show races about 30 yards on some part of the track and it's cute.

 Kids don't ride bikes much anymore. I encourage every kid to ride a BMX bike or buy a MX trail bike if they are not interested in team sports. The biggest group of racers used to be 11-14 year olds. Now, not so much as both parents are forced to work and can't bring their kids to the races. Our biggest group of new racers is 5-8 year olds. That is the time where kids cant dribble, hit or catch a ball that great. Also that is about the time where mom has second child, a new baby in her arms as the little grommet is out there racing their new bike.

There is something to economic numbers/jobs and sport participation. I noticed the same thing in the 80's. It was a wicked recession back in the day and dad didnt work much and if he did it was out of town for a boiler repair job 4-6 weeks working 7/12's. So we never went with out. Yet once the economy picked back up the amount of racers attending the big races dropped off. I see that again now. People say, that is because the economy is so bad. I say, naaa it's because people are going back to work. They need to make some cake. Many men were out of work during the recession. Americans said, fine, screw it, I am going racing with my kids.

Now it's time to start to "get back ahead of the game" I hear that a lot lately, and it's an attention getter. Dad said that so many times. I can tell you one thing for sure. It's very difficult to be a sprinter after you hit around 40. In BMX racing we have Vet Pro and its 30. I complained for years it should be 35, best 37 and over. I see a few guys still in pro ball in their pate 30's. I didnt lose much sprint speed from 28 til 38, but I lost a ton of power at 39. Yet endurance sports can be played forever. My wife as most female runners do got better with age. All my X Motocross buddies are back racing. They had some vintage class the 50+ guys raced and my buddies started there. Glad I didnt fall back into that. They are all now on Brand new Honda's and Kawasaki's racing Nationals. Oh it's not that I can't or I am scared of injury. Perhaps that's a problem. Naa, the real problem is it's costly and I'd spend time away from my little girls. My son is Mr. highschool football and escaped the racing addictions. I'd hate to take my little girls (who do race BMX) to MX races and have them want to be a girl pro. Yes, now a days there are awesome young women that are professional MX racers. They are fast!

Check out Ashley Fiolek.



This is a medical/physics & math article that I believe has implications for we speculators. The counterintuitive point is that viewing data through a somewhat murky filter can actually give you a better picture that viewing that data directly. Looking at data through filters is essentially what specs do when they look at moving averages, point-and-figure representations, Heiken-Ashi, data clouds or any of the numerous tools available.

I know of no other compact optical system that combines such high resolution with a field of view that large," says Mosk. He hopes to see a hybrid system that combines his resolution with Choi's speed and field of view. Ultimately, he says, the technique could improve surgeons' views of what to cut during keyhole surgery. "Light scattering may seem detrimental to imaging, but in fact a scattering system can make an almost perfect lens.



 Have the dept of treasury's statements ever not been a theatrical farce?

Ken Drees writes: 

I was taken in by the hushed tones of interviewer, Steve "lies" man, the dimmed lights, the Maria Bart dusky set, and the hunching closeness between the two — I thought it was a soap opera. I thought either a kiss was coming or an unannounced visitor was going to enter stage right.

I mean if Obama doesn't get his tax hikes we are gonna get it — screw the seniors, scare the markets with a down day after the t secretary gets in your face on fin tv (lesson here), and all the other drama that this market is trading about. I mean monday morning theatre!!!!!!!

Is this the norm? Maybe this is not a meal for a lifetime –but it's surely market popcorn. 



Eyeballing June and July turns shows the turn off the bottom characterized by volatility and a range but the turn at the top is characterized by stagnation, a few doji's, then a sharp reversal. Is this a generalizable characteristic of big turns a la Magee or Nison? Second question. Will the top of the June range at bottom provide "support" at this level? What is "support" and how does it work? Is it psychological, or are the actual orders in place? Despite despised topic of the question its kind of hard to ignore. Certainly patterns can be quantified and tested but not without problems of generalization.

Paolo Pezzutti writes:

The top was printed as exhaustion of buyers. But the importance of the 1300 level should also be considered. It means that at present few people have the guts to buy new highs. However there are still many out there willing to buy dips, supports (such as round numbers), retracements, new moons and so forth. Don't know what would be needed to change this approach of investors and traders and start a new 'cycle' with different behaviors. What is needed to shake this confidence? Bad news about the US debt? Or the European crisis? No way. Already tried… Probably an unsatisfactory earnings report by Apple…. Paolo



 This morning something called "OTR Global" started a rumor that RIMM will discontinue the Wi-Fi version of the PlayBook tablet. This was picked up by an exceedingly large number of blogs and later more serious websites. In particular, the widely-read, openly pro-Apple BGR blog I had mentioned before picked this up and published an article without the "Wi-Fi" in the title, with a headline that RIM is about to kill the Playbook altogether. It later added the "Wi-Fi" to the headline. In the article it now cited Mike Abramsky of RBC who has recently turned dramatically anti-RIM with the following: "In a note to investors Monday afternoon, RBC Capital Markets Managing Director Mike Abramsky reiterated an OTR Global report that Research In Motion is possibly planning to stop production of the BlackBerry PlayBook’s Wi-Fi model." Interesting choice of words, "reiterated…possibly planning". I could "reiterate" that Hu Jintao is "possibly planning" to personally pilot a new kamikaze nuclear-tipped missile into a major US city, and I wouldn't even be lying. I mean it's not very likely, but possible. Later in the day RIM tweeted that this is "pure fiction", but who will notice? This denial is now on a few obscure websites and some comments elsewhere, but the damage has been done. They are truly trying to kill it.

This morning some Forbes columnist in his blog wrote another deathwatch post on RIM that was widely distributed as well. In it, it stated that RIM is planning to release QNX phones at the end of 2012. I posted a comment on his blog article saying that the company had repeatedly said that it would be in EARLY 2012. He replied that that wasn't true, although I have personally heard it in the quarterly call and also read it in a live blog from the shareholders meeting. He was later called on it by another commenter.

I just find this to be an amazing effort.

Rocky Humbert replies:

Mr. Rogan: I don't think this subject is boring at all; it's a live laboratory experiment in all of what makes up speculating, investing and more generally, human psychology. It's generally accepted that a speculator should primarily concern himself with what other market participants are currently thinking — and what other market participants will be thinking in the future.

In contrast, an investor should be focused on his assessment of the intrinsic value of the enterprise and whether Mr. Market is pricing the enterprise sufficiently below its probable future intrinsic value so as to provide a margin of safety and attractive return on shareholder capital. It's critically important to not confuse the two, or as Keynes said, "In the short term, the market is a voting machine, and in the long term, it's a weighing machine."

If, based on your research, you have decided to own this stock for a few years (as an investor), you might consider tuning out the market chatter since it's value is relatively limited for someone in your shoes. However, I believe that chatter becomes important for investors only when the chatter (and speculative flows) cause feedback loops. A falling share price (and credit rating) causes an increased cost of capital for an enterprise. That harms the enterprise's competitive position (versus companies with lower costs of capital); it makes recruiting and retaining talent more difficult; and it can also scare off potential customers (even if the product is excellent). These feedback loops (a variation of Soros' reflexivity) can help explain why certain trending strategies appear to work.If you believe this pernicious feedback loop is underway, it may reduce the future intrinsic value. Lastly, assuming that RIMM survives in some form, I believe the most difficult question for a value investor is when and how much capital to commit to a stock that is declining while other sexier stocks are rising. If the investor's money management is flawed, or his timing is flawed, RIMM may prosper yet the investor doesn't.

Lastly, I'd argue that one of the biggest mistakes any investor can make is thinking "I just want to get back to even." Because if RIMM turns around on its business execution, you will surely be tempted to exit in the high 40's … whereas all of my work suggests that you should consider buying more RIMM should the fundamental turn — rather than selling.

Dylan Distasio writes:


If RIM actually delivered a quality product that people wanted, all of the below would be a moot point. People trading RIM stock might have skin in the game on the short side, and be enjoying churning the rumor mill, but again, if RIM actually made anything people wanted to buy, the stock price would eventually follow the sales/earnings. RIM is headed the way of PALM if they don't get their act together soon. Balsillie and Lazaridis are on another planet, and refuse to acknowledge the dire situation they have put their company in. In addition, they have not been making friends in the press or with analysts.

I'm not sure what is so amazing about this effort. The weak are preyed upon in both the marketplace and the stock market. The vultures are circling, and shorts are doing what they always do, piling on as much as they are able to. If you're buying what RIM is selling, look at this as a buying opportunity.

FYI, I have no exposure to RIM or any of its competitors, so I have no axe to grind, but what is happening now appears to be out of the standard playbook for a heavily shorted, potentially dying entity.



 I had a delightful dinner last night with a Porsche 911 owner and Swiss resident. In a discussion of marginal tax policy, he noted that Swiss traffic fines are increasingly based on personal wealth and income — rather than the American fixed penalty model.

This is a wonderful illustration of the BENEFITS of marginal tax policy: In crafting a deterrent for the reckless endangerment of innocent people, a 500 franc fine will have a different deterrent effects on a working man versus a multi-millionaire. Scott: It's impossible to quantify "power," but creating and destroying incentives can be observed and measured — and in this Swiss example, it can be measured in nearly real time.

Here's a Fox news story story
from January 2010 that cites a $290,000 Swiss speeding ticket on a Ferrari driver. (In the unintended consequences/unintended incentives department, this might be just one more reason why people are buying gold and hiding visible assets.)



This is a great article in Newsweek, of all places, on the science behind winning.



Posted here some years ago.

A study showing that a Country winning World's Cup has significant out performance of stock in following year.

Japan up?



With Google cap above $ 191b and price up more than 12%,  I wonder if the earnings surprise is really worth about 20B$. Google+ may finally be the solution to the next stage of goog growth, but I am always skeptical of these big gaps (probably because I never own the stocks when they happen …. and I am a contrarian by nature).



It is hard to resist commenting on the debt issues as I get a chance to play macro global economist. But in a three liner it seems to me both sides rejected a decent bi-partisan plan in Simson-Bowles. So talks are a dead end now. The fed policy is to inflate away the debt and pay back creditors with devalued dollars which makes sense. Too bad for tax payers that most of the debt is owned by us, not the asias. If I were a macro player I want to own stuff, stocks, gold, land, and no paper debt or any currency. Of course they will raise the debt limit, but it could go over the self imposed deadline just to make it interesting. Default no, downgrade, not this year.



 The Blue Ray disk is a classic really bringing back a golden era in music. Grace Slick looking and sounding great with Jefferson Airplane, Jimi Hendrix burning his guitar, Mamas and the Papas, Simon and Garfunkel, Janis Joplin, Ravi Shankar, The Who, Otis Redding and more. Definitely one of the best concert films.

Also, Rock and Roll Hall of Fame: 25th Anniversary is one of the best concert movies ever on Netflix streaming with Stevie Wonder, Simon and Garfunkle, Aretha Franklin, Sting, Jeff Beck, Lou Reed, Metallica, U2, Crosby Still Nash, James Taylor, Jackson Brown, BB King, Smokey Robinson, Little Anthony and the Imperials and more, more more. I wish the 4 Seasons were on too. How mackerel! What line up. Great performances, great mixing and sound and staging. Nice bookend to the Monterey Pop video with current performances of many of the same bands.




 I never look at the news, but I usually can tell what the news is from the market moves, and I would guess at 7 pm, S&P issued their catch up warning on rating change, and yes, I would guess that those selling at 3:55 pm bringing the market to 1301.5 knew that the S&P would join. But they were temporarily discommed by the Google announcement but then baled out by the 7 pm announcement, and then people thought that the first announcement by Moodies did not make the market open down, so maybe like the last announcement that dropped the market to 1301 this one will not have a staying influence, and then the problem is that the options expiration is tomorrow and the "market makers" usually have positions bearish when the market has been going down and 1300 is a target. How to play it? What evil lies in the hearts of men. Only the Shadow knows.

Ken Drees writes: 

Skulduggery indeed. That darn Google is messing up my arrangements. Tessio, the underboss who brokered the meeting with Barzini.

Alston Mabry writes:

This sounds like revolution to me. Bond vigilantes riding through the night, striking fear into the hearts of the king's men.

Kim Zussman adds:

"why Moody's or S&P or Fitch or anyone else's rating on US Government debt should have had, or continue to have, any obvious and/or immediate effect on the S&P500 price"

Perhaps in part a conservation process: a back-and-forth conversion of equity capital to political capital. Markets regained much of 08-09 losses in great measure due to government interventions, creating a debt for the beneficiaries. Payment by the class that owns stocks can take the form of higher taxes or lower asset values, in either case accruing to the creditors.



 Once again the market has been fast in recovering, and it seems that certain levels cannot be broken to the downside. What are the structural reasons for the US market better performance? One is tempted to say that the bear case has no hope. However.

Allen Gillespie writes: 

The bear case is as strong as ever in real terms. There are only 4 ways out of a debt crisis.

1) Inflation = losses to bond holders in real terms
2) Deflation = losses to other claim holders and parasites (austerity)
3) Default/Restructure = shared burden between all claim holders
4) Productivity Gains = actual improvement in debt servicing capabilities

Historically losses in sovereign defaults are estimated to be around 40% over 8 years. Recall the official policies are thus

1) Fiscal = "I want to spread the wealth around" - notice the use of the word wealth not income. Wealth is all accumulated savings of income. And how do you tax wealth - inflation and regulation.
2) Monetary = Inflation targeting at 2%. Inflation targeting is nothing more than a gold standard with a higher base rate. Under the gold standard there was no long term inflation, so short rates tended to be volatile but long rates very steady. Flat yield curves prone to violent inversions like the one we got prior to 2008 (19 months).

I think the government model is the 1940s where government was ramped up during the War and then handed things back off after the war to the private sector. This was a time of 2.5% interest rates and 5.5% inflation because inflation would go from 0 to 10% twice in the decade.

We are close to inflection - the food companies have announced that food inflation will be 7-8% next year.

The saddest part is that the powers that be think only #1,2,3 are possibilities because they have no appreciation or trust in people for #4. Peter Thiel is the best thinker on that issue.

Take energy as an example - are earnings up because of #4 or #1? Obviously, more #1 than #4 but some of both looking at nat gas. However, the Prez wants to determine the winners and losers so that is disadvantaged to other lobbies. It's sad.

Are you shorting in nominal or real terms - important question.



 Of course there is a theory of fixation with the market getting fixated on vivid events, even when they are, as almost all the time, meaningless. So when Germany fixed its Greece problem the market went up 10%. Before that the market went down 10% on problems in Greece as if, as was said here by Rollert, the Greeks are such charlatans that it was foregone that they would accept bribes.

Thus the market is fixated on such things in the us that affected things in Greece and other countries so whenever the Greek type scenario comes up the market drops a quick 1%. That is indisputable. Those of us who follow it minute by minute have seen these 1% moves in a second about twice a week for the past month including the immediate impact of the Moodies announcement and the S&P announcement. Of course, these are wrongful ephemeral moves, due to the little man, with a short term horizon and they are quietly reversed by those with access to unlimited capital who already knew about the news as lackey points out et al.

Not to be one upped, the other rating service weighs in. They know much more apparently than the 10 year bonds market at 2.7% yields, a 9 month low about the risk of default and the likelihood of debt causing insurmountable problems and inflation. Let's all join hands and make sure that the service rates are increased so that the small man can satisfy his feeling of envy and vote accordingly for the party that made those that have more than they do suffer assuming they were not able to shift the burden and that the more they suffer the worse it is for jobs and growth. 



 The future president is at this establishment again and it made me focus on the many scams that one is exposed to each day because of intervention. Here are 3 that happened today out of many hundreds we are exposed to.

The nanny wants me to talk to her Dr. An operation has been scheduled. But the Dr. doesn't have time to tell her the studies that show why the operation is required because of…. (probably the minor reimbursement she'll get from co-pay or some such like the terrible plan with a british college name. All Drs hate when you present that Oxbridgian name and it makes them your enemy because to help you, you're going to suck their life blood out of them by making them do something that helps you, but costs them much more in opportunity cost than the Oxbridges pay back). The Dr. says that she can only talk to family members, so I get on and say in Jamaican "Mon, what's the problem here. We have to nooo what the problem is before the procedure in this family," but the Dr. asks me my name and my position and I relent in pretending I am the husband and give her my "This is DOCTOOOOR NIEDERHOFER HERe" but it don't work, and he says he can't talk on phone with anyone but a family member because of government regulations.

Then I go downstairs to jog with the future pres who's a frequent triathalon winner, and there's a grassy knoll about 10 feet in diameter next to an outdoor minuscule bike rack. I explain that when you do these things you get service credits for being a green building and I point to the solar panel facing the North which is a horse from same garage. He says that in his construction business he frequently ran into that kind of thing and it's de rigeur in all buildings these days. I am the only person that uses the grassy knoll in the building because I am the slowest.

Then I go to get my hair cut at a beauty salon that has good prices and fast service. They can't use a scissors because they're not licensed to do so and they can only use an electric razor and can't get the hair off the old man places because they're not licensed for that also.

I ride Aubrey back on a bike and get stopped by the park fuzz. They have more green policeman patrolling the paths than riders. I am not allowed to ride near the river because it's reserved for pedestrians and must ride next to the west side highway which is choked with car exhaust and is bad for a son. Here's one of a thousand regulations prohibiting victimless activities that take away the margin of choice and pursuit of happiness that was so prevalent in the golden days.

The future president likes to say that half the prisons are filled with those engaged in victimless crimes and we have the highest incarceration rate in the world because of that, and what would happen if these 3 million people were put back on the street and could do productive things instead of figuring out how to get cell phones inside of prisons et al.

There are many others cons and margins of doing the right thing taken away but there's a start.



Despite the news about the debt in the US and the crisis in Europe, the S&P danced up and down in a trading range for weeks. It is a sign of uncertainty but also a sign of strength in times of bad news. I find interesting however that the dollar remained pretty weak over the past weeks which means markets are weighing more the problems of the Us debt rather than the Euro crisis. In fact, last year in May the dollar went down to 1.19 when the problems of the Greek bailout started. Today it is above 1.40.



My take (unimportant ramble) on the following article:

This is very important for all traders but as an algorithmic trader (Dailyspec being comprised of many counters as well), I have done well in executing the statistical set-ups generated by my systems (not to say I have been overly profitable, just to say I can follow the triggers). However, I will often look for confirmation (see confirmation bias) of a discretionary contradicting opinion in less useful statistics that may take my system(s) out of the market. Truth be told I could spend 30 minutes a night making sure my data is clean, setting up orders for the following session and go to sleep. As it stands I rarely sleep more than 5 hours, I spend upwards of 12 hours a day researching, another 4.5 coaching rowing, and the rest making sure my girlfriend doesn't get jealous of my time with the market. So basically this tells me I should just relax… And let this not come across as "I have my systems, I don't ever have to research again", but rather as "okay, I have my orders for tomorrow, lets not spend another all-nighter testing the hundreds ways I can throw rocks at my system." And I will still probably not sleep tonight, but at least I'll have more confidence in my positions, right?

Here is the article: How decision makers complicate choice.

Jeff Rollert comments:

This is a very important trend. It helps establish dominant economic players.



 Determining what art will be valuable 10 to 50 years from now is a very speculative endeavor but evidently a Rothko painting was identified early on as a good investment by Fortune magazine:

Rothko had one-man shows at the Betty Parsons Gallery in 1950 and 1951, and at other galleries across the world, including Japan, São Paulo and Amsterdam. The 1952 "Fifteen Americans" show curated by Dorothy Canning Miller at the Museum of Modern Art formally heralded the abstract artists, including works by Jackson Pollock and William Baziotes. It also created a dispute between Rothko and Barnett Newman, after Newman accused Rothko of having attempted to exclude him from the show. Growing success as a group led to infighting, and claims to supremacy and leadership. When "Fortune" magazine named a Rothko painting as a good investment, Newman and Still, out of jealousy, branded him a sell-out, secretly possessing bourgeois aspirations. Still wrote to Rothko to request the paintings he had given Rothko over the years. Rothko was deeply depressed by his former friends’ jealousy.

Here is a very interesting story from Mr. Sosnoff at Forbes in which he almost buys a Rothko after returning from the Korean War and now sees today's growth stocks as a better value compared to prices for "blue chip" art.



 One guesses that the review by the ratings company of the rating on US debt is a shot across bow to force service revenues from the rich to be putatively increased and must have been vetted before hand for that venerable purpose.

Jim Sogi writes:

You can be sure this whole dance is choreographed. When the music stops, some one will be out of a musical chair though.



 Part of the new game seems to be to make each favorable price last for such a small nano-second that it's impossible for a person not a champion video gamer to place an order. Thus the only way to get those favorable prices is with the limit orders. And because of the unlimited capital, ability to borrow at zero, bailout investments, purchase of all non-performing assets at favorable prices from the tarps, ability to pledge non-performing assets at face value, and placement of their physical facilities at the exchanges themselves, and programs and technology and rebates that give them the first crack and priority at any limit price level, you can't compete with the cronies and banks on the limit orders. So it's catch twenty two. Only a Sholem Alechem could appreciate the impossibility of this situation. You can't compete unless you wear official clothes, but if you wear the official clothes, you're a flexion or worse.

Jim Sogi writes:

 Despite all the flexions' advantages, if your order is in queue ahead of theirs at the right price, you should be able get your fill before theirs. I don't see how their advantages, other than money and info, prevent you from placing that order ahead. Even the long string of 50 lot orders 100 lot order shooting like machine guns won't necessarily stop a price move or be at the right time or price. I try to see their size and position as a disadvantage, making them slow movers, dinosaurs, and having specific weaknesses that ought be able to be taken advantage of. This is the the tactic used by the Taliban, the VC, the Insurgents in Iraq, when fighting a more heavily supplied, heavily connected, better financed foe. They used stealth, night raids, hit and run, ambushes, and hide during heavy action periods.

That brings me to the next subject. The record of prices in charts provides a good record and good memory. It appears helpful to set orders in relation to prior price action, as there is both a record, and a memory at those particular prices. That record may not necessarily appear in the raw price data alone as visibly. Every statistics text you have recommended said eyeball the data for interesting relationships. Why not use that record in addition to prospective price expectations which don't give good specifics of price, but more typically of time/yield.



 If I were a rich man I would after seeing Sholem Aleichem last nite have gone down to the bourse as he did and bought the stock markets and the Germanys and the Londons the way he did in 1890 after inheriting money from his father in law.

When he wasn't writing about the conflict between the old ways of life of the Jews in the shetl and the market place, beset by the forces of modern commerce and the industrial revolution, he was busy speculating. The Jews in the wave of shetls those days were blamed for every calamity, every assassination, every downturn so he had to speculate when not writing to soothe his heart and take care of his big family.

He started his career as the son of a wealthy merchant and was talented with the books. He got a job as a tutor to the daughter of a most prosperous banker merchant. He was caught in a romantic dalliance with her, and his pay check was left on the desk of an empty house with a sleigh waiting for him outside. After getting a government job, he was able to make enough to elope with her.

He inherited his father in law's fortune. And then went to Odessa to trade on the bourse during the day and write Yiddish stories for newspapers during the evening. He wrote a story a week for 25 years despite bad health.

During the day, he lost everything frequently. First in the stock market, then in venture capital. When he said " I'm talking 10 million rubles if this speculation works out " my partner and I immediately looked at each other and she said " I didn't say anything ". Next in commodities. Finally in real estate , and London and German bonds. He fled after declaring bankruptcy but the mother in law called him back and paid off his debts. She continued living in the house and never spoke to him again.

He tried to make his fortune in America but his plays talked about the old ways of life and the young Jews who attended the plays in those days in 1916 were interested in the new ways. He was unsuccessful . He then tried to make a living by going on lecture tours a la Mark Twain, Dickens, Kipling. He was well received but could not cover his expenses, and died a pauper.

After his death, he became popular again first in Russia, then in Israel and finally in the US. 200000 people attended his funeral in new York.

With Fiddler on the roof,the play and the movie, one of most popular shows ever, his estate became very prosperous again.

 What can we learn from Sholem Aleichem. He would have thought it was a matter of course that the big people, the connected would have the inside information and contacts to make money at the expense of the little people. Some of his best stories, talk about the morals of the business man. I like the one about the business man who insisted on charging his guest for the meals and lodging even after begging him as a favor to miss his train and be the tenth in a minyan .

He is a prime example of the evils of thinking that because you are good at one thing, in his case writing stories and philosophy that you could be good at another. He knew nothing of the fields he speculated in, and pyramided, and was defrauded and was guaranteed to lose everything.

He is also a good example of how envy is an insidious disease that cause you to become a degenerate and die broke almost as much as gambling. He saw the Rothschild's making money, and walking and marrying with the prime ministers, and wanted to have that himself. The only avenue to achieve it was at the bourse where he was victimized by the same forces that keep the little man at bay today.



 Like a Pod Person out of Invasion of the Body Snatchers, the leader of the pods can always be counted on as a matter of courtesy to never discommode the cronies who buy the auctions before the auction. One remembers often the times they raised the discount rate at 1030 before the announcement and such. Contrary to those terrible innuendos, I don't believe that all the actors have already been snatched. It's just guaranteed to happen.



 Communism inflicted itself on Russia the same way it has inflicted itself on the rest of the world — through compulsory schooling. The exceptionalism of the United States (so far) has to do with the relatively late arrival of a state ministry of education. As Gary and Rocky both know, Vladimir Ilyich Ulyanov was the treasured son of a state schools inspector and school teacher. All of their children were "educated against the ills of their time (violations of human rights, servile psychology, etc.), and instilled a readiness in them to struggle for higher ideals, a free society, and equal rights" (sic); all but one of their children became a revolutionary. The miracle of the world is that there are people who escape from official education; the tragedy of it is that so many people have their minds permanently closed.



 PPPD. I'm going camping the Montana Rockies carrying ultra light gear later this summer. Food is a substantial percent of the load. The problem is to carry enough food but not too much that you don't eat it all. One method of computing food needs is pppd. As a rough measure it ends up being about as accurate as calorie counting, and a lot easier. So I thought why not try use it at home. An average person on a camping hike will use about 1.4 pppd, more or less based on size, metabolism, level of activity, temperature. At home, without continuous activity the amount should be less. A simple scale will avoid the common and pernicious miscalculation of portion size. The proponents claim that the calories and nutrition needs will generally balance themselves out, as few will eat all butter and chips.

I know without asking that many of you battle weight issues and overeating. I offer PPPD as an easier way of counting accurately consumption. I'm going to try it myself though I am at my perfect weight. It can also avoid wasting food and money.



If flexions inject money into a company, then the way to profit is to buy BEFORE the flexion money comes in, and sell immediately afterwards.

Why do investors expect profit? Because the borrowers need money. Generally, the greater the borrower's need, the higher the expected return to the investor. There is no reason to think that putting your money in after the flexions should be profitable. And it is not surprising that doing so is unprofitable.

Or am I misunderstanding the concept of flexion?



 59% of the U.S. Population (roughly 181 million people) receive direct or indirect benefits from the Federal government

46.5 million receive Social Security payments
42.6 million are eligible for Medicare payments of medical expenses
42.4 million are eligible for Medicaid payments of medical expenses
36.1 million receive food stamps
12.4 million receive housing subsidies

Total direct and indirect benefits paid to U.S. Households by the U.S. Treasury were $2.3 trillion in the last fiscal year During that same period taxes collected by the U.S. Treasury were $2.2 trillion

There have been 2 periods in American history when income support and other benefit payments exceeded tax revenues for the Federal government:

a. 1931 to 1936 b. 2008 to the present



I believe the 10/30 year bond market right now price in no principal default, possibly a few late interest payments and no major deficit reduction plan. If they reach some type of real deficit reduction plan (unlikely), then 10 and 30 year rally. The real bear scenario would be if there were actual principal defaults. But this is also unlikely to happen. They raise the debt limit on August 4th and all go on summer vacation.

Regarding all the models, CAPM, EFT, Black Scholes and others depend on a risk free rate but substituting a nearly risk free is probably good enough. They are all just models and even Fama admits the EFT has too many exception to really work. The IRR and NPV that companies uses for capital projects usually use a cost of capital or corporate bond rate.

I think politicians are definitely watching the market and not the other way around, and no real deficit change will occur until 10/30 year yields are much higher. It is just to cheap and easy to keep running deficits for now. The bond market will drive the policy and for now rates are amazingly sanguine.



 Market mavens and Shtetl life; what besides women and money can bring man to his knees:

"The attitudes and thought habits characteristic of the learning tradition are as evident in the street and market place as the yeshiva. The popular picture of the Jew in Eastern Europe, held by Jew and Gentile alike, is true to the Talmudic tradition. The picture includes the tendency to examine, analyze and re-analyze, to seek meanings behind meanings and for implications and secondary consequences. It includes also a dependence on deductive logic as a basis for practical conclusions and actions. In life, as in the Torah, it is assumed that everything has deeper and secondary meanings, which must be probed. All subjects have implications and ramifications. Moreover, the person who makes a statement must have a reason, and this too must be probed. Often a comment will evoke an answer to the assumed reason behind it or to the meaning believed to lie beneath it, or to the remote consequences to which it leads. The process that produces such a response—often with lightning speed—is a modest reproduction of the pilpul process.

 Not only did the Jews of the shtetl speak a unique language (Yiddish), but they also had a unique rhetorical style, rooted in traditions of Talmudic learning: In keeping with his own conception of contradictory reality, the man of the shtetl is noted both for volubility and for laconic, allusive speech. Both pictures are true, and both are characteristic of the yeshiva as well as the market places. When the scholar converses with his intellectual peers, incomplete sentences, a hint, a gesture, may replace a whole paragraph. The listener is expected to understand the full meaning on the basis of a word or even a sound… Such a conversation, prolonged and animated, may be as incomprehensible to the uninitiated as if the excited discussants were talking in tongues. The same verbal economy may be found in domestic or business circles.



Raising the yearly rate to hold a stock or bonds account will push away small investors from markets. More importantly it shows once again how in Italy private investing is made difficult if not discouraged. Italians over the past decades have invested their money in housing. The percentage of home owners is very high. Also it is well known the initiative of small companies run by families. This is at the same time the strength and weakness of the country. The development of the stock market was always neglected. Private savings are high but what could happen (or is it already happening?) is that capitals move abroad to safer places.



 I like this quote of Paul Romer's:

"Every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. Possibillites do not add up. They multiply."

Would have been great to have him at the Tyler Cowen talk.

Tyler Cowen writes: 

Over time Romer has come closer to my view. He did read my book and sent me some comments. I don't think he believes in "increasing returns" any more. I actually think Romer (the old Romer) is right about increasing returns, just over a longer time horizon, not over short horizons.

You should try inviting Bryan Caplan (linked is a good article of his) to speak.



As Lionel Ritchie sang, "All night, all night, all night long."



 From Wikipedia:

Panic attacks are periods of intense fear or apprehension that are of sudden onset and of relatively brief duration. Panic attacks usually begin abruptly, reach a peak within 10 minutes, and subside over the next several hours.

It looks like the part about occuring sharply and subsiding over the next several hours is the key, to determining whether a market is having a panic attack, or a more controlled situation. What was today? Well the market was sold heavily on the open in Asia, and got hit all day, with volatility not essentially picking up until the last hour (this may be a crucial element, as it does appear that the attacks end with lower volatility then higher and this may signal whether another one is in the offering)

No doubt some of the causes in the wiki article on panic attacks can be directly compared to economics.

Steve Ellison writes:

Much may depend on one's choice of time frame, but I doubt the original Specialist in Panics would have been excited by a 1.7% decline that started 1% off the 20-day high and 2% off the 2-year high.



 Suddenly, after all these years they can not use the 5000 - 10,000 workers. Even if (which is usually total BS) the average comp was 100k and they did save a billion.

Goes back to my 10 year discussion we have had on this list going back to INTC and Andy Grove's mumbo: "America doesn't produce enough engineers" Yeah, that will work for 15 bucks an hour.

Read the full article here:

Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.



 A quick and vicious storm blew through Chicago this morning, with some wind gusts up to 75 mph. Many trees were cleared of the weaker branches. The storm passed and the stronger branches gained from the weaker ones losses. They now get more sun and nutrients and are even stronger. I wonder how many weaker hands sold off in the midst of the day's decline, only to watch near the end as the strong hands gained from their losses with a nice rally back. This seems to reoccur often, even when investors "know" the worst time to sell is in the panic. It shows how strong a motivator fear is.



I go away for a week to eat BBQ in North Carolina and look what happens. Tyler, with his very good brain, dives into the political swimming pool that is already more than half empty. Can't we go back to discussions of savings vs. capital and the definition of the gold standard?

Social Security payments go directly to the people who had at least 40 quarters of payroll employment or self-employment tax payments; but it is unfair to call them "transfer payments". The gross payouts are simply the return of the money paid in plus 1% per year. We can debate whether or not this is a munificent reward to geezers in a ZIRP environment; but using the label "entitlement" hardly seems appropriate. People were legally required to pay the taxes into a Trust Fund that Congress dedicated to old age and disability payments; if the Treasury's bondholders are entitled to get their money back, it is not unreasonable for Social Security beneficiaries to expect the same treatment. In a steady state world where the Federal government matched revenues against expenditures and there was no net increase in debt, the returns of and on capital - i.e. Social Security payments, with administrative costs - and interest on the debt (excluding debt held by the government itself) are 25.88% of the 2011 budget.

The actual "transfer payments" - Medicare and Medicaid - are 26.08%. However, to argue, as Tyler does, that these payment represent "net largess" to old people is more than a bit of a stretch. None of the payments go old people except for the doctors who are still practicing. The money goes to hospitals, nursing homes and medical practices and the bureaucracy that regulates them. It is not a lie to say that these payments represent a net benefit to the patients; but the money does not go to them. Just as the defense contractors and bureaucracy and non-combatants swallow 90%+ of the costs of "Defense" even in a time of war, the academic medical service complex are the people who actually get the cash we old folks are supposed to feel guilty about. BTW, the Department of Defense is now in 2nd place in transfer payments in the name of the greater good; it receives 20.13% of the 2011 budget.

The real theater here is in the notion that these extraordinary expenditures have net benefits anywhere near their costs. It is what the public school teacher unions do when they argue that the salaries and bonuses paid to them are an "investment" (sic) in America's future.

Tyler is also wrong about the demographics of American voting. We "old white people" (sic) have shifted our preferences towards the Republicans by a grand total of 4% over the past 2 elections; more than 43% of us are still gullible enough to believe Nancy Pelosi has "saved Medicare". It is only in academia and among black-skinned voters that the "homogeneity" Tyler attributes to "groups" has come true; they vote 90%+ for Democrats.

Sam Marx writes:

As insane as it is, 50% of the potential taxpayers pay no significant income tax.

Stefan Jovanovich replies: 

Nor can they. The lower half of all people who earn money in the United States through wages or self-employed work have family net worths of less than $30,000 and a net savings rate of 0%. They are poor even if they think of themselves as "middle class". The nation's tax revenues, excluding employment taxes, come from the upper half because they are the only people who have the cash. If the Left has a massive hypocrisy about the net benefits from government expenditure, the Right has one about the capacity of the losers in our economy to pay up. Conservatives are right to complain that the Earned Income Tax Credit is largely a scam; but they are as blind as any professor to the reality of where the money goes. It goes to the income tax preparers– whose fees can easily net as much as half of the refunds received - or at least they did in the good old days when I had friends in the retail tax farming biz.



 In talking with the web mistress about checkers versus chess, I told her I am not convinced at all that the road to Italy is open for Lubo. She said that it's probable that if he's that good at checkers he must be very good at other things. I said that I know a lot of chess players that are very good at chess, but not very good at much else. Then I said I think that checkers has more applicability to life than chess because it's a binary game with up and down forward or back, but chess is a war game with a special board and moves. I believe that the logic of checkers has more applicability and to be good at checkers has more generality. I am not convinced by my argument but many wonderful things can come from simple on and off, high or low, 1 or 0 as computers and circuits show.

Anatoly Veltman writes: 

I always tell a story about my adolescence, where I was groomed to become a Soviet Checkers Champion ever since introduction to the game at the age of 5.

Among customized tutorials by special instructors of the KGB fame: lessons on peripheral vision (when moving up from 64-square national game to the 100-square international game) and on how to forget things (when you blank out a totally missed move, to allow complete focus on task currently at hand). And yes, to most professional players that checkerboard was a model of life — very hard to explain to a non-pro.

I think, one of distinctions that the Chair is after has to do with "obligatory jumping" in checkers vs. no such thing in chess. This rule leads to more logic and structure in checkers, while allowing more improvisation and artistry in chess.

Michael Ott writes:

I was recently talking with a friend about the differences in Western vs Asian mindsets. He remarked that it may have something to do with chess vs. Go. In chess, you need to totally dominate the opponent, knocking out many pieces and eventually capturing the king. In Go, you can be behind until the last few pieces are played and still come through to win 34-30. His declaration was that Go players are comfortable with a tight game if they have an exit strategy. They are comfortable with a victory, even though it may be by a small margin. Chess players, on the other hand, tend to go for the kill and the big victory.

There are obvious exceptions, but I thought it was valuable to share.

Don Chu writes:

I wrote this a fair while back, commenting on an old DS post, Chess Gestalt:

Between chess gewalt (violent force) and a sharing of black & white

But GM Davies is of course right about how relative game complexity has everything to do with board size, and less about the relative merits or the fuzzy ‘rhetoric’ (word used in its modern pejorative usage, not the ancient noble art) of hemispheric mindsets.



U.S. Economy: Payrolls Grow at Slowest Pace in Nine Months, Bloomberg News  

If he had honest press perhaps the paragraph(s) in question would read something like this:

Policy makers, who in the past were confident that the measures they were undertaking would result in much lower unemployment than we are seeing today, had to fall back on their generic and meaningless refrain and warned to “expect the unemployment rate to continue to decline but the pace of progress remains frustratingly slow,”  It is clear that the policy makers have no idea what they are doing or that their highest priority goals are at odds with their stated goals.  We are thus dealing with a bunch of corrupt liars because we do not believe they could be this incompetent.

These policy makers have borrowed around $4 trillion and printed trillions to supposedly bring the economy back from the brink.  While no one can know what would have happened to the economy had they not done so, their competence has been shown to be lacking by the frustrating pace of the recovery and a multitude of predictions that have not come to pass.  Many economists believe that the actions these policy makers undertook only worsened the overall financial situation, and that the real goal of these actions was to pay off their political allies.  Many economists also believe that the Stimulus was a corrupt failure and Quantitative Easing traded a brief but sharp recession for a prolonged one, while simultaneously creating inflation risk should the economy ever recover.  Some economists also believe that the real purpose of TARP was to save the politically connected bankers and not to stabilize the economy.

The uncertainty these corrupt policy makers are created is believed by many economists and businessmen to be the real reason why unemployment remains stubbornly high.  Yet like possessed zombies they only ask for more of the same.  In addition, they are using class warfare language to justify raising taxes, something very few economists believe will result in any improvement to the economy.  Also like possessed zombies, they are using widows and orphans rhetoric to justify refusing to cut spending. It is clear that their minds are not open to free-market economics.  Two big questions arise: what can be done to get rid of all of them as quickly as possible and how can their shenanigans be covered in the mainstream press?  We should also ask ourselves a deeper question: how could America, the bastion of capitalism, become a fascist quasi-dictatorship without a lot of alarm bells going off?

Sam Marx writes:

The one thing that I’m missing in this High Unemployment/Recession period are the interviews/coverage of those in misery because of job losses.

Funny how in a Democrat administration the media do not interview the unemployed, the homeless, the displaced, families in misery, etc.

This administration is causing great misery in our country because of its Socialistic economic policies and it’s not being covered by the media..

A record number of families are now on food stamps. There is misery in many parts of the country.



 Like an evil demon the market in the summer has to do much more gyrations and unusual things to keep the natural volume up like it is in 2 million futures a day as it would recede and the infrastructure would go down if it didn't have these things like 2 down opens of 1 1/2 % or so, sort of a record.

Victor Niederhoffer adds:

Today [2011/07/11] the market seems to have visited the low priced service station about 12 times before finding a bargain.



 In Reminiscences of a Stock Operator there is a scene where a tout runs up the the Commodore and says buy such and such stock. The Commodore phones his broker and says sell 10K, then says sell 10 more. Tout goes, "What are you doing, I said Buy!, not sell". Commodore says, I need to see how the market is taking the orders.

Does it make a difference how your orders are being filled? Are they gobbled as price passes thru as if you weren't even there, or does it nibble nibble at the order and partially fill, or does it touch and fill, or does it sit on price touch, touch, not fill, then fill? Do these variations even make a predictive difference in what happens in the near future?

On an a somewhat unrelated matter, the drop this morning was interesting in that it didn't have the panic drops and sell, rather a very very broad based slow decline with over a 30:1 ratio of NYSE downvol to upvol for almost the entire period. That seemed unusual. Marty Zwieg had some prior era contra trades based on the high ratios which don't seem to apply in the current market.



A new phase of the European crisis started with the attack to Spain and Italy in particular. It was launched by rating agencies and supported by strong forces. Some hope it may find self sustaining strength. This side of investors or speculators or financial armies are close to those who have an interest to profit from a crisis of the euro and/or of Europe in general not only financially but also from a geopolitical standpoint. The beginning of this phase was carefully orchestrated. It may support the dollar and the perception of the American system as a safe haven in a critical moment for the US and the Wall Street establishment. Mors tua vita mea. And actually it is Europe and the Pigs that are the weak part of a declining western 'system'. In a balance based on relative strength and weakness who goes down first could matter. With the huge outstanding debt, it's hard for these countries to defend themselves.

Ken Drees writes:

In a Bacon type fashion instead of one at a time like Ireland, and then Greece last year, we now have the two largest countries hit at once.

keep looking »


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