The NYC Junto will feature Janine Wedel , author of The Shadow Elite, inventor of "flexions" and store keeper of all Flexionic activities talking at 7:30 pm on Thursday October 6, 2011. The meeting takes place at the Mechanics & Tradesmen Library, 20 West 44 Street, NYC. All are invited.



After all these years I just realized what separates the wheat from chaff in leadership. Trading is one thing… in the panic periods most nights are sub 4 hours of sleep and some night none at all. It's no big deal as anyone that is ex military can tell you. However go a few weeks on that and you lose ability. I now get the joke on those who rise above Brigade command or LT Colonel or Top, first sergeant to full bird Colonel or CSGM… they can go the entire war without loss of ability.

Stefan Jovanovich responds:

Schopenhauer wrote that talent was aiming at and hitting a difficult target but genius was hitting the targets no one else had even seen. Nimitz deployed his submarines across a third of the globe to attack Japanese merchant shipping that was considered so secure that convoys were never considered, let alone put into practice. Nelson's "primitive" tactics of heading straight towards the enemy (as opposed to the more sophisticated ones of maneuver, thrust and parry used by the French, Dutch and Danish navies) had the genius of seeing that the pure rage or iron discipline needed to withstand the rain of iron and splinters could only be sustained for tens of minutes, not hours.



Daily SPY was used to calculate volatility as normalized range:

norm range = (H-L) / {(H+L)/2}

The attached compares mean normalized daily range by month; first period was 2000-2005, and the second period 2006-sept 2011.

In both periods, mean normalized daily range for Octobers (month 10) exceeds the global mean.



Did Bank of America upset every woman in the world with their 5$ a month fee? The wifee just came in with new account info from a local bank. It turns out these little banks are offering lagniappes to new customers. She has been asking me for years should we move here or there for a simple checking account. I was informed I had ignored her requests but enough is enough for her. I look at the stock quote and thought.. why didn't she come with that idea yesterday.. It may have saved us more than a five a month. I didn't see the news till now about how the politicals told all to close their BAC accounts!

Ralph Vince comments:

Yeah, this is a very interesting phenomenon, and it is interesting in a twofold manner:

1. Women seem extremely steamed at this, even more so than men, and ARE acting with their shoes here.

2. Raising prices, on anything in this economic period, is akin to suicide, regardless of your industry. Just ask NetFlix or look at cable-tv providers, look at price-sensitivity on airline tickets or look how well the Chevy Volt has sold.

I think this move from Bank Of America is going to make them do a full-scale retreat on it — should be interesting. (Incidentally, just what IS their product?) 

Anton Johnson comments:

If debit card fees don’t stick, banks will have a revenue reduction, retailers will have lower costs, and consumers will be unaffected or benefit slightly because it is highly probable retailers won't lower prices commensurate with the purported 22 cents savings per debit card transaction attributable to the Durbin Amendment’s swipe fee caps.



Would everyone agree that the employment numbers serve the same purpose today that the money supply did 15 years ago. Merely a number to make people weak and to flexionisize so that more money to the cronies will be paid. How can the ADP numbers be up while the BLS numbers are down when they both take the same sample. Surely the seasonal adjustments and hedonistic adjustments can't be that different. There must be immense horsetrading going on with the numbers being vetted back and forth, and heads up to the various cronies going this way and that way before the final meaningless tweaks are given. Depends on how close to an election also one would think. Do you feel this is all wrong on my part and I am much too cynical?

George R. Zachar comments:

 One can't be too cynical in this environment.

The ADP and BLS samples do overlap, but they are not identical, the former being literally just the businesses serviced by ADP.

Also the massaging is rather different, with ADP's count subjected to secret sauce by Larry Meyer's firm in St. Louis. And g-d knows what manipulations BLS performs in its bowels.

How odd ADP reported +91 today, having reported
+91 last time, and Blankfein's shop touting a
+91 topline forecast just now on CNBC. Bloomberg
reports +90 is consensus for private payrolls.

The clustering and repetition could be a coincidence, but that's hardly the way to bet these days.



Since the Fed Head expressed great satisfaction with asset inflation through the capital markets, particularly stocks, just a short time ago, surely he can't throw his theory and intervention(s) out of the window so soon? Blunt instrument indeed.

Kim Zussman comments:

 BBQ phase change from warming the corporate economy to juicing the protesters and the electorate.



This article contains what has to be the quote of the day:  " the market never goes up or down in a straight line ". 

This quote by Zemsky is interesting: “There’s no sign of recession in the U.S. and yet the market is pricing for one."

As an anecdotal data point, I saw an advertisement for gold to protect against the double-dip recession on a market-oriented website today. I interpret this sort of advertising to mean that the meme of the coming recession is now general among the public.

Bud Conrad adds:

I have a different take on what happened: The margin reduction was leaked ahead of time. I'm getting pretty cynical about the manipulation of metals and stocks from the margin clerks at the CME:

ZeroHedge : Soaring Financial Vol Leads CME To Announce A 33% Margin…Cut

Victor Niederhoffer responds: 

I believe the margin thing was key. The financial times is apparently manipulated the way the message boards are when they wish to bear a stock down. Was a foreign general disrespectful to one of our general's wives? I like Gen. McArthur's mother who accompanied him to West Point to make sure he studied.



Here is an interesting table:

. Concurrent moves in euro and s&P  close to 8am
.             number of rises        number of declines
. euro move          in sp               in sp
. <-200                 2                     8
. -200<eur < -100      14                    63
. -100<eur < -50       29                   117
. -50 <eur < -1       158                   190
. 1< eur < 50         246                   131
. 50<eur < 100        102                    53
. 100<eur <200         60                    13
. euro > 200            6                     1

Thus there is a very high coterminous correlation between euro moves and sp moves in the same period which is particularly pronounced for moves more than 50 absolute in eur. I.e. If you knew the euro move, you would know pretty much the s and p move in the same period. ( current euro 1.3350 down 37 ). To forestall meal for a day questions, one notices no predictive properties for the future in any of these 16 categories.



 A re-make of the movie The Thing (previously done in 1951 and 1982) is coming out October 14th.

An indicator of fearful times?

The 1951 version played on Cold War paranoia. The movie is based on a 1938 novella "Who Goes There?" which has been rated one of the best science fiction stories ever written.

Here is the website for the 2011 movie version.

"Who Goes There? has been adapted three times as a motion picture. The Thing from Another World (1951), with James Arness as the Thing, Kenneth Tobey as the USAF officer, and Robert O. Cornthwaite as the lead scientist, was a rather loose adaptation. Its 1982 remake The Thing by director John Carpenter, from a Bill Lancaster screenplay, stuck more closely to Campbell's original story. Prior to John Carpenter's involvement, William F. Nolan, author of Logan's Run, wrote a Who Goes There? screen treatment for Universal Studios in 1978, not published until 2009 in the Rocket Ride Books edition of Who Goes There? Nolan's alternate take on Campbell's story downplays monster elements in favor of an "imposter" theme, in a vein similar to Invasion of the Body Snatchers by Jack Finney. A third adaptation, also called The Thing, is due for release in 2011 and serves as a prequel to the events of Carpenter's film."

Here is the original story by John W Campbell.



SPLV is an ETF with the 100 lowest-volatility stocks in the SP500, which started trading May 2011. Using close-close daily returns, here is regression of SPLV vs SPY:

The regression equation is SPLV = 0.000693 + 0.697 SPY

Predictor Coef     SE Coef    T      P
Constant 0.0007 0.00038 1.83 0.070
SPY        0.69662 0.02207 31.57 0.000

S = 0.00383423 R-Sq = 90.8% R-Sq(adj) = 90.7%

beta of SPLV is 0.7, and alpha for the 4-month down period is almost significant 0.07%.

And so far SPLV is indeed less volatile than SPY (comparison of variance of daily returns):

Test for Equal Variances: SPLV, SPY

95% Bonferroni confidence intervals for standard deviations

           N     Lower            StDev       Upper
SPLV 103 0.0108657 0.0125769 0.0148974
SPY 103 0.0148627 0.0172035 0.0203776

F-Test (normal distribution) Test statistic = 0.53, p-value = 0.002

Levene's Test (any continuous distribution) Test statistic = 4.72, p-value = 0.031



I think the dynamics of the market now are the following:

If the market goes down a lot, then people become convinced that Obama will lose, and so the market recovers.

If the market goes up a lot, then people worry that Obama will survive the election, so the market goes down again.

These ideas explain (in retrospect, of course) the range-bound market over the past couple of months, with typical daily swings of 30 or more points, yet bound within the range (until today) from 1100 to

The equations are:

dM/dt = epsilon1 - k1 * dO/dt

dO/dt = -k2*dM/dt +epsilon2

M = the market level
O = perceived probability that Obama will win
epsilon1 and epsilon2 are "noise" k1 and k2 are positive constants



There's always a bull market somewhere. Right now it's seemingly in long bonds and the dollar. Both of which elicit howls of skepticism from the muffin-top crowd. As for the stock market, I noticed that the sagacious British stock market pundits posted signs throughout the London Underground, warning investors to: "Mind the gap."

[Definition of a muffin top: A person, or group of people who, consistently and unprofitably, call tops in markets. After getting their faces schmushed multiple times, their countenances bear an uncanny resemblance to a blueberry muffin top; and their demeanor bears a resemblance to pickled herring (in wine sauce. Not cream sauce).]



How many markets have opened today [October 03, 2011] like the end of the world, and then ended with a "hope spring eternal". And is it related to human psychology, the first day of the month, life imitating a football game, randomness, or an anecdotal description. Take Japan and Israel as cases in point.



 If you got Pennington to find any valuable info when you asked him to develop quantitative analogies between forest life cycles and those of corporations to find some profitable trades you could certainly do the same in finding some numerical formula that could identify trade opportunities by analyzing baseball.

Each team– a stock, the aggregate teams– the market, each player– a corporate division, each salary– an investment made in the division and the company, each relevant performance statistic– a relevant performance statistic. Identify the right decision mix that makes teams perform better over time and improve over time and analyze similarities in companies doing the same.

The greatest liability is  also the greatest asset– human decision and performance permeate the game of baseball from start to finish and one could question whether it's possible to find a truly consistent system as a result. I would argue that this complexity makes it a perfect analogy to market/company performance. It moves based on imbedded and sometimes unexplainable intellect and experience of its participants. The chaotic human decision making process is pervasive in both.



Interesting chart of the day.

Kim Zussman adds: 

Plotting Intrade vs SPY shows congruence over the period (including sell-the-news post Osama). However the daily change is not significantly correlated:

Pearson correlation of chg spy and ch barry = 0.109

P-Value = 0.138



The calendar quarter just ended saw the SP500 lose 14.4%. Since 1951 there have been 17 quarters with SP500 return less than -10%. The subsequent quarters had mean return of 5%, though not significantly different from all quarters 1951-2011:

Two-sample T for next Q vs all Q

           N    Mean   StDev  SE Mean
nxt Q   17  0.0495  0.0985    0.024  T=1.2
all Q  245  0.0209  0.0779   0.0050

Date            qtr ret    nxt Q
Sep-10    -0.119     0.107
Jun-09    -0.117     0.152
Mar-09    -0.226    -0.117
Dec-02    -0.176     0.079
Sep-02    -0.137    -0.176
Dec-01    -0.150     0.103
Jun-01    -0.121     0.055
Dec-98    -0.103     0.209
Dec-90    -0.145     0.079
Mar-88    -0.232     0.048
Dec-81    -0.115     0.055
Dec-75    -0.119     0.075
Dec-74    -0.261     0.079
Mar-74    -0.100    -0.037
Sep-70    -0.189     0.159
Sep-62    -0.213     0.028
Dec-57    -0.104    -0.057



Besides what we already know, how much of the need for all relevant parties to keep an unlevered book headed into quarter end is there for balance sheet purposes? The bulge bracket firms are not in a position to bulk up their books, n'est-ce pas?



 Another snub from the Rock and Roll Hall of Fame for my favorite freedom loving Canadian rock band, Rush. The Beastie Boys, Guns n' Roses, and disco singer, Donna Summer are nominated this time around, but not Rush.

Ike and Tina Turner, The Rascals, Abba, Gene Pitney, and Madonna are already members which suggests that the Hall of Fame's standards are not too high. Only the Hall of Famers the Beatles, Stones and Aerosmith have had more consecutive gold or platinum albums, with Rush nipping at their heels, turning in a whopping 24 consecutive big selling albums. However, one might suspect that politics might be involved, as Neil Peart is an Objectivist.

Here's one of their signature songs, "Tom Sawyer".

A modern-day warrior
Mean mean stride,
Today's Tom Sawyer
Mean mean pride.

Though his mind is not for rent,
Don't put him down as arrogant.
His reserve, a quiet defense,
Riding out the day's events.
The river

And what you say about his company
Is what you say about society.
Catch the mist, catch the myth
Catch the mystery, catch the drift.



This is a great article on how your brain reacts to mistakes.



 If time is defined as a measure of seperated-ness of events then,

i) Does time not exist in vacuum, where there are no events?

ii) Does time not exist in black holes, where there are no events?

Analogously to someone watching the tape tick by tick (HFT guys you are doing that, only, albeit with faster machines than most others) market-time does not exist in a price jump / gap? Market-time does not exist when at a single tick very large volume occurs?

How can such a perspective alter any enterprises modelling markets on (dis)continuous time, in any more profitable ways than the traditional ones?



Unless I am mistaken, the "twist" is not duration neutral; whereas
real bond investors tend to be duration sensitive. That is, selling $1
billion at the short end and buying $1 billion past the 10 year is
roughly equivalent to putting 7x the amount of real investor money into
the market. This is a point that has not been widely discussed — and
may explain why the bearish effects at the short end will be dwarfed by
the bullish effects at the long end.

Alston Mabry replies:

If 'duration' is the sensitivity of price to a change in 100 basis points of yield, and the Fed sells 2's and buys long bonds in equal amounts, and the Fed is effectively increasing their portfolio duration, does it follow necessarily that the Fed is putting around 7x more money into the bond market?

Doesn't it matter how the rest of the market participants decide to adjust to what the Fed is doing? What if long rates go up? I'm not saying they will, just wondering. Once QE2 was announced, the 5-year rate went up and stayed up until the end of QE2 was in sight. Now the Fed was actually printing money with QE2, and so the rise in the 5-year rate was coincident with a huge run-up in the stock and commodities markets. But it wasn't unreasonable to predict that QE2, aimed at 5-6 year maturity, would push the 5 year yield down.

Paolo Pezzutti writes:

For those who want to try and find quantitative relationships between Fed intervention and market moves…this operation schedule may be useful.

Bud Conrad writes: 

I still wonder how they sell off the short end and maintain ZIRP. Something will have to give, and I expect it to be the selling of short term. 

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