Cycles, from Jim Sogi

April 30, 2012 | 1 Comment

 On a recent ski mountaineering trip to the Alaska Range, the guide said to me that the recent AMGA guide's association newsletter had an article about the Chinese Year of the Dragon and how that way of thinking might affect mountaineering decisions. He scoffed at this. I explained that the study of cycles is important to get a larger perspective on detailed studies. The Chinese system has a repeating twelve year cycle. Whether or not it is significant is not the point, rather what is important to understand is that life and the earth go through long term cycles over a period of years. Weather and snow have long term cycles. An entire season such as this drought season for snow in the Rocky Mountain and Wasatch ranges may have a weak snow pack leading to dangerous avalanche conditions the entire year. That is a cycle which if ignored could lead to dangerous short term decisions to go skiing on a snowy day, when in fact the whole year is bad. The entire year was a record snow season for Alaska. The entire spring in Alaska was a anomalous cycle of clear steady weather and perfect snow where risk was low.

It is important to recognize longer term cycles in markets. This entire spring was a bull cycle with no pull backs and low volatility. We are in a range or consolidation cycle now. Last fall was a bear high volatility cycle, for lack of a better term. In hindsight cycles are easier to see. The trick is to recognize them in progress. This can only be accomplished with the idea of longer term cycles in mind to recognize the conditions that exist during the various cycles.

The weather reports have a number of model they use to have the computers predict the weather. They use as inputs some of the larger global weather conditions. In finance, there are some long term large scale models like the FED model using interest rates, rate direction, TED spreads, to predict and model the market and economy. The weather forecasters have global satellites to use. Finance people look to Europe and Asia to see if bad finance is working its way through the global markets around the globe.

Phil McDonnell comments: 

There is a well known Pacific Decadal oscillation. Basically there is always a cold spot and a warm spot in the North Pacific. Sometimes it is near Japan and sometimes in the Gulf of Alaska. Currently it is cold in the Gulf of A and Seattle weather is responding. There is no warming going on here.

Here is an intro to these cycles



 Is there a reason to use PayPal rather than a direct credit card disclosure to a Credit Card accepting vendor? Yes. The CC accepting vendor may be wholly unknown to you, and could potentially be a front for 'harvesting' CC and all one's other information needed to forge your identity online.

True story: there appeared an online vendor that Google's Shopping feature 'found' that purported to have in stock and for immediate shipment an unreleased product from 'pointing device' manufacturer Wacom. I was dealing with their engineering product team, and at the time in question, they checked for me and confirmed that no authorized shipments had occurred to any authorized sales agent.

The order form for an entity with no physical office and no phone number was most comprehensive in gathering personal details for the CC authorization and shipment, of course. This was in the back of my mind, and I concluded not to proceed to provide such information to the 'seller'.

By using PayPal, one adds a intermediary to avoid disclosing CC details — number, expiry and CVV — to a potential gateway agent to identity theft, and also gets a guarantor to the transaction (PayPal) who actually has existence and does not hide contact information from its patrons.



The gbpusd had 10 straight up days as of Friday. For the crunchers, this has happened, if my information is correct, only 3 times (including Friday's run) in the last 3 decades. (none greater). Whats no10 Downing Street to do? Where's the stop? Where do I take profit? Is there a viable risk /reward trade in there anywhere? Oh so many questions…



 For visually oriented learners especially, like me, there are two techniques for remembering things and names. For things, say, in a room, make a mental picture of a grid or shelf, and mentally place each thing in a room and make a mental snapshot of the "grid". That helps remember the things. For names, associate the name of the person with an image of a thing. For example say you meet Mr. Tokimoto. Think…"big toe…car key…little toe…" Put that image in your head. Next time you see Mr. Tokimoto you'll remember your big toe, your car key and trigger his name in your mind.



 I've been reading some good pulp fiction recently. Stieg Larsson's The Girl with Dragon Tattoo series is much better than the movies. It's a page burner with a driving plot. Wilbur Smith's Hungry as the Sea and Those in Peril have adventure, cheap thrills, improbable characters, but are great time wasters. Suzanne Collins' Hunger Games series is really touching in parts for young adult fiction, and is great vacation reading. Buy all three at once, cause you'll burn through them at one time.

All great escapes if you're inclined and have a little time, and the worst of them is so much better than even the best Hollywood crap.

Reading is truly a miracle where you look at little black marks and are transported body and soul to another world.



It occurred to me this morning as Eddy's Mom sent me the links on Amazon to the new outdoor furniture we(she) will be buying that Amazon is Sears, Roebuck reborn. They started with watches; Bezos started with books, but the mail order/Railway express model is the same.



 A bittersweet moment in Ty Cobb's life reportedly came in the late 1940s when he and sportswriter Grantland Rice were returning from the Masters golf tournament. Stopping at a Greenville, South Carolina liquor store, Cobb noticed that the man behind the counter was "Shoeless" Joe Jackson, who had been banned from baseball almost 30 years earlier following the Black Sox Scandal. But Jackson did not appear to recognize him, and finally Cobb asked, "Don't you know me, Joe?" "Sure I know you, Ty," replied Jackson, "but I wasn't sure you wanted to know me. A lot of them don't."

Stefan Jovanovich adds: 

Given the fact the Jackson remained a respected figure of the community and the liquor store was owned by Jackson and his wife and his name was above the door, the story could be one of Grantland Rice's maudlin inventions. For the people of his home town, Greeenville, SC, Jackson always was a figure of respect.

The site shoelessjoejackson.org has a link to the PDF of Furman Bisher's interview with Jackson — the only one he ever gave. Eliot Asinof's book (the one John Sayles relied on for Eight Men Out) is a very large pile of crap which completely ignores Bisher's interview and the Jackson's own grand jury testimony. If Jackson had, in fact, been guilty, it is hardly likely he would have prevailed on the civil suit against Comiskey for his pay for the 1920 and 1921 seasons.

Apologies to all — this subject always gets my dander up. During the series Jackson had 12 hits (a Series record) and a .375 batting average—the best record for a player on either team. He had no errors and threw out a runner at the plate. The principal "proof" against him was that the Reds had hit a number of triples to left field (where Jackson played) because Jackson deliberately dogged it in running the balls down. None of the contemporary newspaper accounts mention ANY triples being hit to left field by the Reds. Once again, the lies run round the world while the truth is still putting its boots on.

Thanks, Bill, for bringing up one the 10 greatest ball players of all time.



 In the Franklinian spirit: My computer in my car went out; quote at dealer $2000. Forget that. Price at on line junk yard for same part $100, and $150 to install. My wife cracked the rear view side mirror in the other car. Dealer quote $550. Price for same part at on line partstrain.com $39. My body shop guy put in on in ten minutes, no charge.

They're ripping you off, and there are much much cheaper alternative out there. Time to deal with it is even less than hassling with dealers.

Chris Tucker comments: 

There is another issue related to this as well. Most people are terrified of doing any serious work on their own vehicles, either because they don't want to get dirty or because they are afraid they won't be able to figure out what to do or how to do it. Auto mechanical issues can be very intimidating. But there are tremendous resources available today that can make even the most daunting task much easier to complete.

The power window on my truck stopped working a few weeks ago and I took the door apart to see if it was something obvious. No such luck. There is a thick plastic sheet that covers most of the inner workings and I was very hesitant to pull it off as I wasn't sure how to get it back on securely. And I had no idea what to do once I got it off. So I did what most DoItYourselfers do these days — I turned to Youtube. I didn't just find out how to replace the motor and associated mechanism (its a contraption called a regulator that raises and lowers the window) - I found very detailed troubleshooting advice and diagnostics. In addition I found a complete step by step video of the removal and installation procedure on my exact door. Several of these videos are made by part selling companies and I managed to locate the part through one of them cheaper than I was able to find anywhere else.

I have always changed my own oil but when my mechanic failed to secure the bolts that held on the brake caliper on my last car I decided I should do my own brakes. There are some things you MUST know to work on brakes, but you can find them all easily online. Working on your own car can be time consuming though, especially if you have to learn a lot about the repair - so I will tackle some jobs and defer to my mechanic for others.

Jim Sogi adds: 

Youtube is a great resource. I learn complicated guitar parts by watching folks play it on video. I found a reference for a famous international guide for a recent ski mountaineering trip to the Alaska glaciers on you tube. There is stuff there that is current and informative, in addition to all the garbage.  



Ever changing cycles in public sentiment or just a catchy headline?

"French Sour on Nuclear Power"



The VIX futures never made much sense to me (among other things there is no real deliverable — it is just a bet on what a highly volatile number will be on a specific day in the future) , but maybe the Stock Index Variance Futures to be introduced by the CBOE later this year will have more applications (and certainly could make more economic sense):

CBOE Futures Exchange And DRW Trading Group Complete Agreement To Create Stock Index Variance Futures



 I found this comment by "Global Guru" on the perceived shift back to the west in manufacturing very interesting:

And for all the talk of the decline of the United States, and the rise of China, India and Brazil, much of the know-how behind this shift is coming from the world's developed economies, with the United States far in the lead.

Much of this historical shift is thanks to the rise of three dimensional (3D) printing. Although it's hard to get your head around it, 3D printing is actually pretty much what it sounds like. Design a part on your computer using some type of three-dimensional software and the "printer" actually manufactures it for you right then and there. In many ways, 3D technologies are the closest things to Star Trek-like transporters you can have. Scan an object in Silicon Valley, and another machine in South Africa can build a copy.

3D printing provides for mass customization on an unimagined scale. And chances are it's already part of your life. Your last customized dental crown or hearing aid was manufactured using this technology. Companies soon will be making customized drugs based on your own DNA sequence. I have no doubt that other 3D printers will one day be manufacturing customized hearts and livers from your body's own cells.

The applications of 3D printing know no bounds. New 3D technologies are helping carbon fiber replace steel; breed viruses to make batteries; and help researchers at Cornell "print" cupcakes. 3D also helps manufacturing processes to accelerate at an exponential rate. While it took 3,000 hours to manufacture a carbon fiber Formula 1 race car in 1981, today it takes four.



 For those of us addicted (Vic's fault) to 19th century naval fiction, but having run out (several times over) of the fix–Aubry/Maturin, Bolitho, Hornblower, I'd like to recommend Herman Melvilles White Jacket. I listened to it on Librovox, which is another recommendation for public domain free audio books.

This is the blurb from Librivox on "White Jacket":

This is a tale based on Melville's experiences aboard the USS United States from 1843 to 1844. It comments on the harsh and brutal realities of service in the US Navy at that time, but beyond this the narrator has created for the reader graphic symbols for class distinction, segregation and slavery aboard this microcosm of the world, the USS Neversink. (Introduction by James K. White).


For me flogging, though graphic and clearly political, is not what makes the book so interesting. It's interesting because the viewpoint is truly from the lower deck, and it's written with Melville's incredible gift for humor and description.Those of us, who like me, have read the term "selvagee" many times, but really didn't understand what it was, will find this book a wealth of descriptions for the running of a 19th century wooden fighting ship.



This might have applicability to quantifying market moves. Instead of counting past expectations and % up, and variabilities, count the number of big 1% or 2% or more days in each direction:

"Off the Dribble: Late in the Season, the Knicks Have Won Bigger"

In my last post on Off the Dribble, I wrote that the percentage in which teams blow out their opponents may indicate they are stronger than their record would indicate. This season, the Knicks have won 28 percent of their games by 10 or more points. That rate ties them for seventh best in the N.B.A., a substantial showing despite their middle-tier ranking in terms of actual wins.

One curious fact about these blowout wins for New York is when they occurred. The Knicks made a coaching change after 42 games, swapping Mike D'Antoni for Mike Woodson who has presided over the last 22 matches. Despite the disparity in games, both coaches have the same amount (9) of blowout wins.



 There are some intriguing financial aspects of the Bo Xilai case.

1. Bo Xilai racked up $26bn USD of debt while he was mayor of Chongqing. He supposedly ran the city's budget at 150 percent of revenues - *net of *the massive "sing red smash black" campaign which looted billions of private assets from the city. He is accused of moving $1.3bn overseas just for himself, most of which came during his Chongqing tenure.

2. Bo was definitely at the gangsterist extreme in terms of how violent he was (he and his wife are now accused of nine murders between them, and massive use of torture in Chongqing. These reports did not all suddenly emerge post-scandal to humiliate him - the FT and others have been running articles on the subject for months.) However, Bo was able to do this with a very large amount of protection within the Chinese government for a very long period of time, in both Dalian and Chongqing. None of Chongqing's debt was classified as at-risk. (In fairness to the PRC, you could make an identical argument against the one-third-ish of American muni bonds which aren't backed by a specific revenue stream like a toll road or utility fees

Chinese people, imho, have known that stuff like this has been going on for a very long period of time (at nowhere near this level of organization or sophistication, however). I think this is a huge driver in Chinese capital flight - rich Chinese people hear scattered stories of insane corruption (well beyond any ethical pale) and simply do not feel safe at all, and export capital at a massive rate. If the best-informed insiders are selling so much stock in PRC Inc, why should anybody else be buying?

3. Bo Xilai's close business crony, Xu Ming, was president of the Dalian Shide conglomerate. He has vanished in PRC detention for a month and his business empire is unraveling.

According to the dissident site Boxun that has been leading the news cycle on this whole scandal, Dalian Shide's core business - petrochemicals manufacture - has been unprofitable for a very long period of time. The stock-speculation side of the business has been successful, and the conglomerate also engaged in a lot of land permit arbitrage (using the commercial nature of its business, plus close government connections, to gain land and land permits very cheaply. The overall financial status of the conglomerate is very murky, but appears to have required enormous amounts of debt in order to stay functional, and the debt recall has blown the firm up.

38 lenders had exposure to Dalian Shide. Before this scandal occurred, not a single loan to DLSD was classified as non-performing, even though many of the loans had no realistic prospect of being paid back. imo, this is a blunt example of why NPLs in the PRC are massively understated.

4. Even before the Bo blowup, DLSD's Hong Kong subsidiary, Gaoden, was trying very hard to access liquidity thru HSBC, RBS, and others in Hong Kong. So the house of cards was in some trouble even before its political risk premium exploded.



Some interesting stats from Easley, D., M. Lopez de Prado and M. O. Hara (2012b): Bulk Volume Classification, Working paper about E-mini trade sizes:

Most of the[..] trades are small, averaging 4.50 contracts per reported fill. Figure 1 plots the frequency of trades per trade size. […not shown…] The frequency line quickly decays as a function of the trade size, with the exception of round trade sizes (5, 10, 20, 25, 50, 100, 200, etc.).

That round trade sizes are much more common than their neighbors may be attributed to so-called ‘mouse’ or ‘GUI’ traders, i.e. human traders that send orders by clicking buttons on a GUI (Graphical User Interface). As an interesting aside, this footprint of ‘GUI traders’ could be used by machines to learn the patterns of their human competitors, and eventually anticipate them to the advantage of the ‘silicon traders’. For example, size 10 is 2.9 times more frequent than size 9. Size 50 is 10.86 times more likely than size 49. Size 100 is 16.78 times more frequent than size 99. Size 200 is 27.18 times more likely than size 199. Size 250 is 32.5 times more frequent than size 249, and size 500 is 57.06 times more frequent than size 499. Such patterns are not typical of ‘silicon traders’ who usually randomize trades to disguise their footprint in markets.



 I assigned my 13-year old to read Letters from a Self-Made Merchant to his Son and write me a page on what he learned. Here is his report:

Graham’s letters to Pierrepoint were intended to teach him things, but the letters have been educational to me as well—and very likely to many others. For one thing, I have learned that if someone makes the same mistake multiple times he can’t keep making excuses and that if you’re going to make a fool of yourself, you should at least try to make sure you’re being a different sort of a fool every time. I could use this to avoid problems. Then there’s that some people can only see those above them, and some can only see those below them, but a good man can see both ends at once. It’s easier to climb if you help those above and below you, because they might help you up. This could be useful in many aspects of life. Finally, there’s that you shouldn’t start talking before you know what you’re going to say and that you shouldn’t keep talking beyond when you’ve said what you were going to say. You may have noticed that this letter is shorter than you might have intended, but that is because I applied the third thing I mentioned to this letter.



I occasionally look at the AAII (American Association of Individual Investors) weekly sentiment survey. I've not found any reliable use for it, except that when the AAII survey is uber-bearish, it's anecdotally a good time to start gently nibbling at stocks (when valuations are reasonable).

This morning's survey data may be apocryphal, but it's also interesting:

Bulls 2.2%; Bears 3.8%; Neutral 5%

The bull, bear, and neutral numbers are remarkably similar. So I looked at the history of neutral opinions:

From 2002 to 2007, the "average" neutral opinion was 25%. (Defined as the mean of the entire period for neutral.) From 2007 to 2009, the "average" neutral opinion was about 20.But from 2010 to the present, the "average" neutral opinion is over 28% and continues to climb higher!

There are some amusing/surprising (and perhaps interesting) conclusions:

1) The financial crisis marked a "bear market low" for neutral opinion.

2) Since then, we have been in a "bull market" for neutral opinion. Or more succinctly, the number of people who have "no clue" continues to rise sharply!

As everyone knows, I never have any idea what's going to happen. But perhaps I need to reconsider my position since it appears to be a "crowded trade…"



This is a fascinating article extolling the benefits of free markets and how the free market (and freedom), and the invisible hand, guided the development of the Blues.



 I claim that all well-known technical chart patterns that are capable of quantification have an opposite predictive power to that posited in the books on technical analysis from Magee to the updates at the top the list is the triple and quadruple top (there's one right now).

Philip McDonnell added:

One is reminded of the paper by Andrew Lo which tested something like 65,000 technical patterns. It found that the double top and double bottom patterns worked and were statistically significant even after adjusting for the serious amount of data mining.

Andrew W. Lo writes: 

I believe [Vic's claim]. No pattern can truly be 100% consistent, otherwise it would be exploited to its limit… The problem is when it seems to works 52% of the time.

Rocky Humbert writes:

My former partner was fond of saying, "There are double tops, and triple tops. But no quadruple tops." Importantly, he is my "former" partner….

Anatoly Veltman writes: 

In the upside down, they say that only cats have four legs.

Craig Mee writes: 

In my opinion, technicals have everything to do with quantification of patterns and allowing for the edges to play out just like any area of business you're trying to gain an edge. The larger the patterns IE 1 hr to 4hr, D to W, and the stronger the boxes ticked in one's strength meter, the more risk, and a little more risk/reward is expected on the trade. One might say all head and shoulders or double or triple tops are not equal.

The risk appears to lie in the fact that most technical traders move off the course, trade too many patterns from trend line breaks to wedges, etc, over too many markets over too many time frames, and thus the edge they're trying to work with or look for is blunted.



The gaming of the market by power utilities is described in more academic terms in Hirschhausen und Zachmann in this paper

Cf. Figure 1, strategy of withholding.

The problem is that it is very difficult to detect and prove that a utility is gaming the market. If one wants to find technical reasons to shut down a plant, they will always find technical reasons. This is just an example and there are other ways utilities can game the market. […]

Rocky Humbert comments: 

The paper states that RWE, EON, EnBW and Vattenfall account for 85% of total production, and allege that these producers are engaging in practices that represent a "problem." Oddly, the authors fail to calculate (or even cite) the classic HHI "Herfindahl Index," which is the standard methodology by which US regulators apply anti-trust law to industries and mergers.

I submit that the "money quote" in this paper is:

Thus, even though demand has risen, generators have reduced capacity by 4.2 GW (1.3 GW of new construction 7vs. 5.5 GW of plant closures). 3.7 GW of the retired power plants had low generation costs. The European Commission also suggests extensive inefficiency of the existing capacity: mid-load power plants have relatively low load factors (30-40%) while several more expensive power plants show load factors of 70-90%.

It doesn't take a lot of brain power to see that rising demand and falling supply means higher prices. That's not collusion. That's good old-fashioned supply and demand. They also suggest that generators are intentionally shuttering "low-cost" capacity for the sole purpose of raising prices. That belief defies rational logic. Something else must explain that behavior. Admittedly, I don't know anything about electricity generation in Germany. So I'll ask the following simple questions:

1) E.ON's ROE from 1992 to the present has averaged about 12% — with unremarkable profitability. So if they are extracting monopoly profits, they're not very good at the game.In contrast, RWE's ROE from 1993 to 2003, averaged about 15%. But from 2004 to 2010, it averaged about 20%. So, something seems to have structurally changed for them in 2004. What was it? And why isn't E.On playing that game?

2) If there are excess profits to be made, what keeps out new entrants from eventually entering the generation market? This is especially true since the authors acknowledge the availability of long-term supply contracts from producers.

3) Price-spikes are annoying, and power-outages are troubling (especially when you're in the elevator), but the authors don't suggest that the grid has become less reliable. They just say that the price has gone up. And rising prices (absent obscene profitability) could easily be attributed to other regulatory effects. It could also be attributed to better grid reliability…

Just some food for thought from someone who is naturally dubious of blaming the evil speculators and profiteers…



 I think the following passage from Siddhartha by Herman Hesse has a lot of gems in it for speculators and gamblers despite the fact that Siddhartha is attempting to wash his hands of these filthy earthly pursuits in an attempt at spiritual nirvana:

The world had captured Siddhartha: voluptuousness, lust, lethargy, and in the end even greed, the vice he'd always thought the most foolish and despised and scorned above all others. Property, ownership, and riches had captured him in the end. No longer were they just games to him, trifles; they had become chains and burdens. A curious and slippery path had led Siddhartha to his latest and vilest form of dependency: dice playing. Ever since he had ceased to be a Samara in his heart, Siddhartha had begun to pursue these games with their stakes of money and precious goods- games he had once participated in offhandedly- with growing frenzy and passion. He was feared as a player. Few dared to challenge him, for his bets were fierce and reckless. He played this game out of his heart's distress. Losing and squandering the wretched money was an angry pleasure; in no other way could he have shown his contempt for wealth, the idol of the merchants, more clearly and with more pronounced scorn. And so he bet high and mercilessly. Despising himself, mocking himself, he won thousands and threw thousands away, gambled away money, gambled away jewelry, gambled away a country house, won again, lost again. That fear- that terrible and oppressive fear he felt with rolling the dice, while worrying over his own high stakes- he loved it. Again and again he sought to renew it, to increase it, to goad it to a higher level of intensity, for only in the grasp of this fear did he still feel something like happiness, something like intoxication, something like exalted life in the midst of this jaded, dull, insipid existence. And after each major loss he dreamed of new wealth, pursued his trading with increased vigor, and put more pressure on this debtors, for he wanted to go on gambling, he wanted to go on squandering all he could so as to continue to show his contempt for wealth. Siddhartha lost the composure with which he had once greeted losses, he lost his patience when others were tardy with their payments, lost his good-naturedness when beggars came to call, lost all desire to give gifts and loan money to supplicants. The one who laughed as he gambled away ten thousand on a single toss of the dice turned intolerant and petty in his business dealings, and at night he sometimes dreamed of money. Whenever he awoke from this hateful spell, whenever he saw his face grown older and uglier in the mirror on his bedroom wall, whenever he was assailed by shame and nausea, he fled further, seeking to escape in more gambling, seeking to numb himself back into the grind of hoarding and acquisition. In this senseless cycle he ran himself ragged, ran himself old, ran himself sick. Never before had it seemed so strangely clear to Siddhartha how closely sensuality was linked to death. Siddharta had spent the night in his home with dancing girls and wine, had made a show of superiority before others, of his standing, though he was no longer superior, had drunk a great deal of wine, and had gone to bed long after midnight, weary and yet agitated, close to tears and despair. For a long time he sought sleep in vain, his heart full of misery he felt he could no longer endure, full of a nausea that coursed through him like the vile, insipid taste of the wine, like the dreary all-too-sweet music, the all-too-soft smiles of the dancers, the all-too-sweet perfume of their hair and their breasts. But nothing made the nausea well up in him more bitterly than his thought of himself. He felt nausea at his perfumed hair, the smell of wine on this breath, the wary slackness and reluctance of his skin. Just as someone who has eaten or drunk too much vomits it up again in agony and yet is glad for the relief, sleepless Siddhartha yearned for a monstrous wave of nausea that would rid him of these pleasures, these habits, this whole meaningless existence and himself along with it…



My erudite son let me look at this very interesting essay, just published today in Lapham's Quarterly.  An enlightening, alternative take on Virgil, to say the least. The final paragraph in this magnificent piece summed it up:

"…As the nations of the young West fought to define themselves, Virgil stood as proof that, evidence of Rome itself notwithstanding, "empire without end" was not only possible, but worth the struggle. We saw in him what we needed to see: a hope of immortal civilization. Then, when the world cracked around us, we again took from Virgil what we needed: comfort that progress and ideal empire was an illusion, and had always been so. Perhaps there are more revelations yet to come."

There are many, many market lessons in The Aeneid.



 I offer the following question only because I would appreciate some constructive criticism.

Free markets work well for short term investments, such as publicly traded commodities and equities. The free market falls down in long term investments because they lack liquidity and price discovery for investments lasting 5, 10, 15, 20, 30, 40 or 50 years.

How is a utility to finance capital improvement projects under such circumstances? I'm finding every investment organization I've talked to is unwilling to participate in a US deregulated power market asset because they cannot hedge their investment.

Today, few are financing power plants in deregulated regions because there is no bankable offtaker. The result is few power plants are being built in these areas.

What is the Austrian School's take on this challenge?

Henry Gifford responds:

As for deregulated electricity markets, I think what is currently called "deregulated" is different from what I think of as free market. I will use the California deregulation as an example.

When California deregulated the electricity markets, they formed three new state government agencies, one with monopoly power to sell electricity at the wholesale level. I have no idea what the other two did. The agency signed long term sale contracts with local utilities, and bought electricity from both in-state and out of state (California is a net importer) suppliers on the spot market or on short-term contracts. I repeat - they signed short term purchase contracts, and signed long term sale contracts for set prices. The agency made a few billion dollars of profit in a few years, as buyers were barred by law from buying from anyone else (remember, I am describing deregulation), and the state bought for a lower price than they sold for.

The inevitable happened - short term prices rose above the prices they had contracted to sell for. The state government did the inevitable: they passed price control laws, barring their suppliers from selling at a price that would be unprofitable for the state government (remember, I am describing deregulation). Out of state suppliers refused to sell at the lower prices, so the California governor asked the president to pass price controls for suppliers outside of California. The president did not do this. Meanwhile, suppliers went unpaid. I repeat - the state agency did not pay for what they had bought. Instead of paying, the state demanded to first investigate their allegations of "unfair profits" while the bills went unpaid. As out of state suppliers who were owed money were getting investigated, they refused to sell power to the state, and the lights went out. (repeat: I am describing deregulation). This gave deregulation a bad name for a generation, spawned the usual anti-freedom documentaries, and because the arrangement was called deregulation, free markets were also given a bad name. But, I don't think a government monopoly is a free market, and have never met anyone else who does. Instead, people just keep calling it deregulation and saying deregulation doesn't work, and the free market doesn't work, including many people who know the deregulation involved formation of monopolies, price controls, etc.

Now if you reread the description above, and think of the position you would be in if you were a producer of electricity in California, or were considering becoming a producer, or financing a new power plant, your lack of enthusiasm would be understandable, but have nothing to do with failure of what I think of as free markets, long term or short.

The statement that free markets fall down in long term investments is I think inaccurate. Lack of liquidity is priced into investments that are difficult to sell.

 I don't know what "price discovery" is. Real Estate is rather illiquid, but prices for most transactions are a matter of public record, and advertised prices for comparable properties are always available.

I would invest in an electricity producing plant in California if I thought the price was right. With some looking I would tell you what that price would be, which I think indicates there is no lack of price discovery for long-term investments.

Gary Rogan writes:

 It seems in retrospect that combining regulated rate utilities with unregulated power assets is asking for trouble. It's the same kind of trouble as defined benefits pension obligation funders eventually always have to face: when you promise something definite far into the future but the source of funds for your promise is indefinite, this has to blow up sooner or later for many participants. Nothing is ever really guaranteed and some percentage of attempts to make such promises will either run out of money or will have to ask the government for help. Some bonds in the "real world" become worthless, and some insurance companies promising life-time annuities go belly up.

There must be a long and complicated history of how natural regulated monopolies came into existence, but I bet they were accepted too easily. The real cost of energy cannot be projected too far into the future, and in what I would consider a "fair" world nobody would be guaranteed any particular rate of return, and anybody would be allowed to compete for the end customer's business, with property access rights of course being in private hands is so historically determined. Investments in new sources of power would only be made when the benefits were outrageously obvious or the investors were unwise. Even the wise investors would of course sometimes striker out. That's free market, and that's what delivers an ever increasing standard living. That said I will always look for monopolies to invest in where I can find them at reasonable prices. You have to somehow deal with the unfair world.

Tyler Cowen adds:

Maybe political risk is the worry.

If the market is pricing a Monet painting, or a forest, it seems quite well to account for the services yielded decades into the future…



 I just saw the Royals (getting swept by the Indians) put in their outfielder to pitch the ninth to save what is left of a depleted pen.

The pitching was akin to batting practice, the tribe went quickly, and the pitcher got a Royals' standing ovation, the only pitcher all weekend to get one.

Market equivalent?

It seems like the batters may have been a bit taken out of their element by the novelty, maybe the overconfident factor at work.

Maybe the Royals' skipper scored a tiny tiny mental victory here to lift the team for the next series.



 One spent many pleasant moments this weekend after uncovering a cache of books that no one has seen for some 80 years: Squash and Badminton Annual, the magazine of winter court games of Massachusetts 1932, and 1933 and Set For Three, A Brief History of Squash Rackets I, Massachussets, 1905-1934, Volume 1. One saw pictures and history of the game that started by displacing squash tennis in 1905 and already by 1927 allowed women the privilege of playing the game in the mornings at the Union Boat Club and the Harvard Club. Eleonara Sears was the womens champion and she was closely followed by Mrs. George Wightman, Miss Maurine Boyen and Mrs. Will Howe, and Miss Priscilla Bartol. The game took a big change in 1921 when Harry Cowles became the coach at Harvard until 1932 and taught the college kids the short drop and the volley pioneered by Palmer Dixon. Jack Summers, coach at MIT and John Skillman, coach at Yale, were already prominent in the pro circuit. It is rare that I read something that I don't learn something about markets and it was the case here.

Here's a list from the April 1934 magazine of don'ts in badminton.

1. Don't alter your grip for any stroke

2. Don't lose short

3. Don't try to kill everything

4. Don't omit to feint but not too often

5. Don't do a half-hearted smash

6. Don't try impossible strokes

7. Don't underrate your opponent

8. Don't give up trying

9. Don't forget to encourage your partner

10. Don't get in your partner's way

11. Don't forget that to lose your temper generally loses the game

12. Don't ever stand still but be always on the move.

The advice is very good for all activities including trading. Don't alter your grip, I would say, means don't go long and short the same day. Don't lose short— they didn't mean it, but going short is much riskier of the squeeze than going long. What I think they mean is don't stand too far away from the net. I would say that one shouldn't stand too far away from the screen or leave it during pay. Never underrate your opponent. Don't ever succumb to thinking that the other side isn't very smart. It only takes a few smart people at the margin to put prices to where they should be. Particularly dangerous is the idea that fixed income people are foolish and that a big inflation awaits us with fixed income prices falling 30 or 50 points to 30 year rates of 4% or so but the foolish people in fixed income don't understand that increases in the monetary base or money supply are guaranteed to cause tremendous inflation. Don't try impossible strokes is don't try to fit your trades through a key hole and give yourself many options to get out of the trade rather than waiting for the one singular event. You get the picture. Yet another of the 523 different areas where market people can learn from another activity.



It is interesting to note that the S&P has gone up more in the subsequent days when it's up over the past year than when it's down. For example, of 1030 days when it was down over the previous year the expectation the next day is -0.2 % , and of the 2658 days it was up over the previous year the expect the next day was 0.2%. Doesn't appear to be much and certainly not significant, but in total a differential of 600 S&P points in favor of going with.



 I offer the following question only because I would appreciate constructive criticism.

Free markets work well for short term investments, such as publicly traded commodities and equities. The free market falls down in long term investments because they lack liquidity and price discovery for investments lasting 5, 10, 15, 20, 30, 40 or 50 years.

How is a utility to finance capital improvement projects under such circumstances? I'm finding every investment organization I've talked to is unwilling to participate in a US deregulated power market asset because they cannot hedge their investment.

Today, few are financing power plants in deregulated regions because there is no bankable offtaker. The result is few power plants are being built in these areas.

What is the Austrian School's take on this challenge?

Thank you for considering the question.

Henry Gifford responds: 

As for deregulated electricity markets, I think what is currently called "deregulated" is different from what I think of as free market. I will use the California deregulation as an example.

When California deregulated the electricity markets, they formed three new state government agencies, one with monopoly power to sell electricity at the wholesale level. I have no idea what the other two did. The agency signed long term sale contracts with local utilities, and bought electricity from both in-state and out of state (California is a net importer) suppliers on the spot market or on short-term contracts. I repeat - they signed short term purchase contracts, and signed long term sale contracts for set prices. The agency made a few billion dollars of profit in a few years, as buyers were barred by law from buying from anyone else (remember, I am describing deregulation), and the state bought for a lower price than they sold for. The inevitable happened - short term prices rose above the prices they had contracted to sell for. The state government did the inevitable: they passed price control laws, barring their suppliers from selling at a price that would be unprofitable for the state government (remember, I am describing deregulation). Out of state suppliers refused to sell at the lower prices, so the California governor asked the president to pass price controls for suppliers outside of California. The president did not do this. Meanwhile, suppliers went unpaid. I repeat - the state agency did not pay for what they had bought. Instead of paying, the state demanded to first investigate their allegations of "unfair profits" while the bills went unpaid. As out of state suppliers who were owed money were getting investigated, they refused to sell power to the state, and the lights went out. (repeat: I am describing deregulation). This gave deregulation a bad name for a generation, spawned the usual anti-freedom documentaries, and because the arrangement was called deregulation, free markets were also given a bad name. But, I don't think a government monopoly is a free market, and have never met anyone else who does. Instead, people just keep calling it deregulation and saying deregulation doesn't work, and the free market doesn't work, including many people who know the deregulation involved formation of monopolies, price controls, etc.

Now if you reread the description above, and think of the position you would be in if you were a producer of electricity in California, or were considering becoming a producer, or financing a new power plant, your lack of enthusiasm would be understandable, but have nothing to do with failure of what I think of as free markets, long term or short.

The statement that free markets fall down in long term investments is I think inaccurate. Lack of liquidity is priced into investments that are difficult to sell.

I don't know what "price discovery" is. Real Estate is rather illiquid, but prices for most transactions are a matter of public record, and advertised prices for comparable properties are always available.

I would invest in an electricity producing plant in California if I thought the price was right. With some looking I would tell you what that price would be, which I think indicates there is no lack of price discovery for long-term investments.




 How does one find value in commodity markets? In stocks you can hang your hat on P/E, Breakup Values, P/B, etc. Bonds have relative value in rate differentials. Currencies tend to be driven by carry differentials (outside of a crisis). But how do you ascribe value to a commodity? I would think interest rates and/or inflation would apply to commodities in general, but not individually. Nat gas dropping sub $2 on the May '12 contract sparks my interest in the topic.

Carder Dimitroff responds: 

Hi George:

You ask an interesting question. Dan Dicker wrote a book called Oil's Endless Bid on the issue of creating assets out of commodities. His conclusion is that indexed funds and ETFs based on, say oil is a mistake. It is was mistake to create them and it is a mistake to "invest" in them.
From my perspective, commodities have two types of investors. The first are hedgers. In the case of natural gas, they could be utilities locking in margin on future deliveries to retail consumers. They could also be drillers, who are monetizing future deliveries. They could also be independent power producers who have a fixed contract to deliver power. Until the ETFs arrived, I believe most transactions were from hedgers.

The second investor is the speculator. This is very tricky business because it has another dimension to their bet. Prices can differ by geography. Frankly, I do not know how speculators make money in the natural gas. I am hearing many aren't and are leaving the business.

One issue in commodities is that prices can go negative. You frequently see this is electric power. Just a couple of weeks ago, I captured a screen shot of power in West Virginia at -$25 at the same time it was $80 in New Jersey. If you send me a request off list, I would be happy to send you the picture.

I've been thinking natural gas prices could go negative. The problem is producers must produce, no matter what. You can see the issue in Ohio. Chesapeake is working the Utica Shale for oil. A byproduct of their oil production is natural gas, and a lot of it. Also, to maintain hold on leases, producers must produce during the contract period or lose the lease.

If prices go upside down, it would likely occur in the spring or the fall when overall demand is light.

There are more knowledgeable people on this list, but I thought I would start the conversation.

Bruno Ombreux states:

In my opinion, commodities are not meant to be invested in. They are meant to be traded.

A stock or a bond can be invested in, because it produces a future stream of cash-flows. This is what an investment is.

A commodity is meant to be consumed. Ultimately it vanishes: in a stomach, in a turbine, in an Atmospheric Distillation Unit… It does not produce any future income stream. It is not an investment.

George Coyle writes: 

I disagree. I think a commodity is very much a viable investment and, on a long enough time horizon, nat gas will look like a home run at $2 in much the same way shorting bonds at current interest rates will. But the issue, in my mind, is the best means to express the investment. Futures require rolls, ETFs have contango priced in to the detriment of an investor, related equities are not pure plays. The lack of a pure play vehicle is the issue on trading vs investment. But that said, the original question is still valid if only hypothetical.

From November 26, 2004 to April 12, 2012 GLD is up 264% vs SPY up 16% (per Google finance).

Rocky Humbert writes:

I believe that it is with this statement, that Bruno's entire logical argument falls apart.

To wit, if gold is an exception, then so must be silver. Because silver has the same monetary characteristics.

And if silver, then so must copper…. And if copper, then so must platinum… And if platinum, then so must lead…

And then so must diamonds?

But what about the itinerant artist or court jester who provides a service to the king and is paid in room, board, food or a gold coin?

What about any merchant who uses his product in barter?

What about the farmer who stores his excess wheat over the winter and then barters his crop for some gold or silver? And then uses the silver as payment for a new pair of shoes for his kid ?

As I demonstrate linearly, all commodities can have monetary attributes. And historically did.

Hence Bruno's standard that only commods with monetary attributes are investments means all commodities are investments.

He may have other arguments, but this argument fails as illustrated in examples of barter. He also doesn't address art as an investment (which doesn't produce cash flow) but which clearly has investment characteristics. So cash flow is certainly important when valuing a piece of paper, but as illustrated commods have tangible value as well.

Craig Mee writes: 

What maybe of further consideration is that nat gas at these levels is a direct result of crude trading 150 approx, in 2008. What other "secondary markets" to the main event see capital inflow when the "majors" price goes parabolic, and the secondary "stuff" is so much easier to find than the major, and supply is lifted sharply thus collapsing price for some time. Possibly instead of trying to sell the "major" near the high or on the turn, a better strategy may be to take a long dated position short the "secondary".

An anonymous commenter writes: 

Hi Craig.

I'm not sure I fully understand the argument, but I would like to participate in the conversation

You said, "that nat gas, at these levels is a direct result of crude trading 150 approx, in 2008." I'm not sure this is true, but it might be.

I would like offer the following:

1. Natural gas is trading at these levels because, in the U.S., there is more supply than there is demand,
2. Demand is lower now than it was in 2008,
3. Supply is greater than it was in 2008, and
4. The U.S. gas market is entirely domestic, it cannot be exported and
it cannot respond to international market forces.

I believe there is more supply because oil prices floated over $100 making previously uneconomic plays economic. Some of those new plays come from stimulating shale where oil and gas are produced. Producers are exploiting oil but are also getting gas as a byproduct.

It turns out 2008 was a seminal year for another reason. It was the first time in decades were the downward production trend reversed. Every year starting 2008, the U.S. produced more oil than the previous year.

Leases are another driver. In order to maintain a leasehold, producers cannot sit on unproductive wells. They must produce or lose their rights (lease). As such, many are producing, even though they prefer to defer.

You ask, "What other "secondary markets" to the main event see capital inflow?" I recently learned of several. A big one is waste water wells. People are making fortunes constructing deep geologic waste water wells and providing producers access to those wells. Typically, producers see about one barrel of brine for each barrel of oil and they have to safely dispose every barrel.

Another is piping. Massive amounts of piping are needed to build the well and even more to transport product. I am aware of an Ohio company that is going to old wells and pulling out pipe, straightening it out and reselling to producers.

Another is specialty sand (and rail to deliver that sand). To stimulate rock requires truckloads a specific type of sand to lodge between the fissures. I am aware of a company that has developed special technology that produces pellets that work better than sand.

Finally, wet gas derivatives, or natural gas liquids. These are used to make all sorts of products, including plastics. The market will be flooded with these products.

Rather than going short on these secondaries, would it not be better to go long?

I may have completely missed your point. If that is the case, I hope others will add to this thread.

Craig Mee responds:

Very interesting points, thank you.
I suppose by "secondary" I was referring to Nat Gas as a secondary energy source to Crude (each obviously very specified in there uses though). However my thoughts were really that markets get bid up as the leader runs through the roof, bringing in fresh capital investment, but the overload increases supply x fold, where as the primary market i.e in this case crude, doesn't have the massive over supply coming through, no matter what the investment is that's pumped in…I suppose its a relative issue.

Price increase leads to capital investment generated by the leader(crude) = x increase in supply….. to related capital investment in the secondary = x increase in supply. If the investment in say gas, in this case, leads to large new finds, then the overall price maybe under some pressure for some time to come. (Interesting you mentioned that "Producers are exploiting oil but are also getting gas as a byproduct ) This only adding to the assistance of this potential strategy, since they are directly linked in exploration).

Hope that's a bit clearer, and no doubt there's lots to be quantified, when looking at a strategy such as this, where a deleveraged position is taken on (to maximise hold and volatility whipsaws), but I like the idea, that much interest is centered on the driver" i.e crude , but it's the passenger" i.e gas, which may prevent the better trade. 

The anonymous commenter strikes again:

Hi Craig. I think I see where you are going. However, I believe crude is a special case.

First, I don't see crude as a pure commodity. The crude coming from the next well is not the same as the crude coming from the existing well. The only reason producers move to the next well is because of increasing prices. If prices were to decline, the next well would be off the table.

Arctic offshore and oil shale (kerogen) have production costs $100 and above. Oil sands have production costs of approximately $70 per barrel. Presalt deepwater has production costs of approximately $60 per barrel (not including litigation costs). Tight oil has a production cost of about $50 a barrel.

As the price of oil moves up and down, different types of oil are "discovered" or are lost. But, it is clear, the general trend for oil is up as the low hanging fruit is depleted and the costlier fields are gradually becoming economic.

Second, crude oil by itself is useless. It takes refining to extract the important commodities, namely gasoline, diesel, jet fuel, kerosene, and so on.

Third, I see natural gas, not oil, as the bubble. Actually, it is an inverted bubble. Natural gas is responding to market forces. Refiners can make gasoline, diesel and jet fuel out of natural gas. Qatar just invested $20 billion to do such. Canada is contemplating another facility and I'm waiting for the US to follow suit (if anyone can raise a few $B, the pro formas are unhedged but the earnings potential is insane).

Do these points shift your thinking on oil, or am I still missing an important point?



 I just read The Atlantic article "The Man Who Brok Atlantic City" about Don Johnson the blackjack player who once took $ 6 million in one night from an Atlantic City casino. It was a great read, and I think any one who asks questions about how to be a trader or an investor should read it.

One amazing thing I learned is that Johnson figured out how to drive the house edge even lower. Through hard negotiations he got it down to (by his estimate) just one quarter of one percent. That’s super close to dead even — but still not quite enough. And then came the coup de gras. With some negotiated loss discounts on top of that — agreements for the casino to reimburse a certain amount of if Johnson lost — he actually flipped the overall edge in his favor without the casino realizing it.

House management got played by a math shark. So how did all these casinos end up giving Johnson what he himself describes as a “huge edge”? “I just think somebody missed the math when they did the numbers on it,” he told an interviewer.

Sam Marx writes: 

The article stresses that the player, Don Johnson, did no card counting.

If true, he may have used the Basic Strategy with a few of the newer techniques , plus the concessions he received to get the edge.

Card counting is primarily used to determine size of bet and to a lesser extent to vary the Basic Strategy under different counts.

Beating the House and varying the size of the bet are the two things that give away card counting.

However, varying the size of the bet may be somewhat hidden by betting the same amount from hand to hand but after a winning hand if the count is positive then just the let the original bet plus the winnings ride, as letting a winning bet ride is a technique used by many gambler who are not card counters and usually does not cause the House to be suspicious.

The article does not indicate if Don Johnson varied his bets.

If the article is true, he may have been a big winner even with a small edge , because his bets were huge and he may have quit before playing many hands and with luck may have had a good streak during those few hands he played.

The article is interesting, it may be true or hype.

I would like to know more details.



 I'm very skeptical about ANY credible way to reliably value small and moderate tech companies. Scalability (in both directions) is a part of it. How do you value something that can be multiplied by 0.99 or 100 in short order? Having (or not having) complementary technology to someone else is another problem. For all you know, Instagram may have two competitors that didn't get chosen, but were close, and as a result their valuation got affected by perhaps a factor of 10 or more. The nature of this type of competition could even be such that there was a choice of different, unrelated technologies that some fixed (but knowable by an outside observer) amount of money was to be spent on, so these "competitors" could not be determined by any reasonable means. Then there is the effect of bugs, flaws that only get discovered with time, etc. Couple that with the subtle nature of tech management skills and technological ebbs and flows, and a myriad of other factors, and the whole thing looks hopeless to me.

Rishi Singh agrees: 


I think attempting to predict the next big tech winner can be incredibly difficult and similar to picking "the next big penny stock."

The question I'm trying to dig into is established software companies -what separates AAPL from MSFT. Is GOOG heading in the direction of MSFT ( http://www.forbes.com/sites/robenderle/2011/10/27/steve-jobs-final-lesson-to-me-microsoft-google-and-obama/)? We could compare Microsoft today from 1998 or Google today from 2005. What can tech companies do to become better?

How do we backtest Steve Job's ideas of focusing and simplification to see if that's what separates successful tech companies, or is there something else?



 At one time the Chair recommended a 3 strikes and out rule. If your system has lost three times in a row it may be tired and needs a rest. Another way to monitor that is more sophisticated is to use the techniques of industrial quality control. Essentially you monitor your average expected gain via something like a moving average and then take the standard deviation around that. If your average ever wanders outside the 2 sigma band above or below then your process has failed and needs to be reviewed. The idea of Shewhart diagrams is similar to this.



 My friend Jim Loy sent me these general observations about checkers. I find them quite enlightening:

Among amateurs (beginners to middle of the road Majors), I would say that wins and losses mainly occur because of:

1. Lack of planning.
2. Shots.
3. Failure to realize that we are in trouble.

That third one is very important for tournament players, both Minors and Majors and the very bottom of the Masters.


Among Masters, wins and losses occur in these broad and important categories:

1. Shots and other tactical errors.
2. Ending maneuvering.
3. One or both players king early, and threaten to win pieces from behind.
4. Half-blocked positions in which neither player is going to king soon,
and in which both players will move up most of their back rows to gain time.

Of the four, I am beginning to think that number four is the most common source of wins and losses. I don't know how to improve a person's skill in that direction, except to make them aware that that category is of great importance.


Among the Masters, draws most often occur when:

1. One of the players breaks the tension (much tension or very little tension) by trading into an easy or known ending.

2. The game is still a book draw (sometimes early in the game).



I just noticed that the S&P dividend yield is now virtually identical to the 10-year treasury yield.

Photo finish?

Charles Pennington writes: 

Mr. Rollert was pointing out to me that the yield on German 2-year bonds is now 0.09%, about equal to that of Japan's and lower than the incredibly low US 2-years at 0.29%. That kind of sneaked up on me. That German 2-year yield fell through last summer/fall when the crisis was in full gear, but even in October it had only gotten down to ~0.5%. Now with stocks up massively, it's fallen to 0.09%.



 One should read the chapter on strange anomalies in presidential names and victories in Fads and Fallacies in the Name of Science by Martin Gardner to see how multiple classification, i.e. over determination, and many more hypotheseses than elections can come up with the strangest, craziest predictors of election results based on things like their names, or moves in the market during certain period.

I always love when Bloomberg, which is the most biased in my opinion news service in favor of democrats, always trots out the canard that markets do better during democratic presidencies than republicans. Martin Gardner where are you. Of course if you start here or there, and don't take account of the moves likes in 2008 of -50% before the inauguration in fear of the coming president you can come up with things as silly as what Gardner reports.



 It has always seemed to me that one of the worst and most frequent causes of defeat in basketball is showboating. After being ahead two games ago by 17 points at the end of the third quarter, the Knicks managed to lose to Atlanta. The loss came after a 3 point shot by Novak that the whole bench jumped up to cheer about to Novak's Gallinari like smile of triumph and joy. I say that too many games are lost when one team has a large lead to bear consistent with randomness or lack of serial correlation which some Kahneman like biased researchers playing to the crowd have posited for bastketball. A main cause is showboating but the general problem of letting up is relevant also. "Never let up" is a great motto for market players and basketball players. I tried to insulate myself from this in squash by pretending that the score was reversed against me when I got a good lead in squash. I tried to hold my opponents to straight game losses and under double digits when I played. And to a remarkable extent I was successful at it. I don't ever remember losing a match when I had a big lead, and I remember all my losses. I wish I were as good at not letting up or winning in the markets as I was at squash. I am not one tenth as good. What is the remedy for letting up and showboating in the market? I would say the answer must be quantified. What's the expectation when the market is up by x or more with just y hours to the close. What happens after a inordinate move with a bar? That's a start.

A coach unlike the terrible and ineffective D'Antoni who was such a source of the Knicks losing records, and now that he has been fired is receiving such loving and adulatory treatment by the press, in a syndrome of "don't say bad things about the man who died" was actually encouraging of the showboating. Which coaches are good at rooting out showboating, and good at maintaining leads? What can we learn from them? How could it be applied to markets?

On another front, a reader writes in response to Tim Melvin's great piece about baseball that baseball is dying in the US as the blacks abandoned it for basketball and the kids now abandon it for soccer. He says the baseball diamonds are empty. Is this statement true? Are there any profitable activities based upon that idea? I wonder if it can be generalized to buying stocks that the kids are interested in as opposed to what adults like. My kids are very adept at picking stocks.

T.K Marks adds: 

The showboating tedium would appear to be not limited to basketball, but rather a pervasive plague that cuts across all sports. Golf may be the last refuge of sporting decorum. Same for Wimbledon.

Some years ago NFl coach Marty Schottenheimer referred to this trend as the "SportsCenter mentality." Everybody wants to be an ESPN highlight. As such, the objective in many football circles is no longer to wrap one's arms around the ballcarrier to better ensure making the tackle but rather to lead with the shoulder and try to knock the guy into the next zip code. The problem is they're going after a moving target and shoulders however brawny can't grab. Arms can.

"…In 1998, when the Kansas City Chiefs were penalized 15 times in a game, many for taunting, showboating, late hits and every act of unsportsmanlike conduct, their disgusted head coach, Marty Schottenheimer, explained, "It's the 'SportsCenter' mentality."

A cultural anthropologist might say that the devolution of decorum that we see on playing fields is a reflection of shifting social mores that increasingly accommodate an anything-goes, me-me-me collective mindset. It's the ascendance of flamboyance over fundamentals.

It's not a trend that is limited to sports. A friend's mother is an English professor. She once shared with me an observation she had made of her students: Nobody could spell anymore. Even seemed to be oblivious to the 'i before e' thing. Rather, they all went for shock value in their compositions. The implication being that spelling was insufficiently postmodern in their eyes, I guess.

P.S. I may have to re-visit that golf as a redoubt of manners notion. As I type I'm watching The Masters on tv and Tiger Woods just hit an errant shot. He kicked his club, demonstrably pouted, cussed. The whole fairway intemperance package.

Kurt Specht writes:

Fortunately, Tiger is the rare exception and nearly all involved with professional golf do maintain civil decorum. He has been an arrogant ignoramus for many years.

Jay Pasch adds: 

This is a gold mine for a trader, and for the bullish chartist to invert the chart once in a while in order to see what the other side has in mind…

An anonymous contributor writes in: 

Perhaps the markets equivalent to showboating is market arbitrage, because both have a way of snatching defeat from an apparent victory. Both show disrespect for those on the other side of your performance. Both imply that you are the smartest most talented and your approach is the only side worth considering. The other side is either stupid, without hope of duplicating you or blind to the easy win.

Sometime the common sense of "no free lunch" will help those vulnerable to hubris reject something presented with the actual word "arbitrage". However, if you are vulnerable to hubris of omniscience (including science is complete and has all the answers) or manifest destiny (mystical chosen favor) you still are prone to believe the con man pitching your talent, position and place. You want models or world views that confirm you are right rather than confront where you need improvement. You do not want to look for the true risk reward trade off.

The reason both showboating and "arbitrage" are so dangerous is: it disarms one to the risks, so that you become blind to the risk outside your vantage point. It dismisses the risks that you are the one wrong or the sucker at the table that you are being hustled (see AIG or subprime CDO counterparties to the too big to bring to justice). It makes others hold you in the same contempt you show to the weaker hand… and makes you a target for the bigger fish. It invokes envy. It causes you to seek affirmation rather than constructive criticism, making you prey for those with flowery words. It rejects coaching especially from those "beneath" you. It assumes you have arrived and need not evolve.

Risk is constantly evolving. If there was an underlying attitude that caused the crisis it was that AAA credit was not vulnerable to this evolution. 

Russ Sears writes: 

Vic, one need not worry too much about baseball's future if one visits small towns in Oklahoma and Texas. What the blacks may have abandoned, the hispanics have filled in. There will still be those most hungry for success ready to fill the city kids place.

35 years ago, in 6th grade, I lived in Glencoe, OK, a town so small that I could walk from one side to the other in 5 minutes. I played 3 sports, baseball, basketball and track. The biggest building was the school gym. The stands would be half full for a 6th grade baseball game. The population would more than double when the high school teams played since the county folks and the visiting team's fans also swarmed the stands on a Friday night.

I went back to visit a couple years ago. The dirt track was now trailer classrooms. The whole town had turned into a trailer park,  perhaps tripling the population from 1970s. Glencoe is now the "new" poor, those outside the mainstream media view but growing, looking and waiting for their chance. The town is run down, the houses from the 70s all are run down and trailers surround them, even on the smallest lots. Besides the trailers, the school building are all from the 70s.

However, the baseball diamond is much bigger and better than before. The stands and concession building are much bigger also. I imagine them full on a Friday night in May.

I would suggest that in addition to trusting the stock picks of your kids, you ask farmers and others who travel all over the country their local picks. Ask those where the money is flowing what they see.



Here is a good list of movies that use math in the plot.



 I remember having read somewhere about the philosophy and objective of the modern education. It originated from the industrial revolution when disciplined, organized, and time-abiding people were needed to work in unity. Farmers were quite opposite and were not suitable for the new era. So then the modern education system was created to serve this very need. The actual knowledge or skills it taught were quite secondary.

I think up to today the education systems worldwide have all inherited the original purpose and still have not deviated much from it. They all stress that students think and behave uniformly. Psychology has long been promoting that we human have all lost large part of the creativity and originality of our childhood due in big part to the education we get. It seems quite true that the more school education one gets, the fewer outlier ideas he could come up with.

I believe that in order to be oneself and to live one's own valuable life, one needs to somehow undo some of the school education, and release the fixation on the mentality. There are more real things to learn for the benefits of ourselves and on ourselves. Fortunately also, trading permits us and requires us to be ourselves.

Charles Pennington adds:

 The book Crazy U is very good.

Here's an amusing passage from it on legacies at Harvard, and on the contortions that the school goes through in order to avoid telling anyone anything useful about their admissions.

The setting is an informational meeting for prospective Harvard undergrads with the Director of Admissions:

(Condensed version below is from this site:

A Chinese parent stands up and asks:

“What about legacies?”

“What do you mean?”

“How many of class are legacies?” he said. “Their parents went to Harvard.”

“Oh, I don’t have that information,” she said. “I’m not sure we even keep that information.”

Just a guess, then, the man persisted.

“I wouldn’t want to guess.”

“So you have no way of knowing?” he asked, with exaggerated incredulity. “The numbers don’t exist?” His wife, short and stocky, stood next to him, staring at the dean. Their son bowed his head and closed his eyes.

“Legacy is just one of many factors that Harvard considers,” the dean said. “I like to say, ‘legacy can help the wounded, but it can’t raise the dead!” She laughed uncomfortably but the father and mother still stared.

“Answer the question,” another father called out.

“Maybe I can get that information for you afterward,” she said, twisting one hand with the other. She moved one foot backward.

“Come on,” said another parent, with just a hint of insurrection.

She was quiet a moment before surrendering. “If I had to say,” she said, “thirty, maybe thirty-five percent.”

There was a shock before the murmuring began. The number was hard to square with the egalitarianism of the video we’d just seen. The number suggested the traditional Ivy League primogeniture.

Another takeaway that I had from the book (and this is not original; e.g. Steve Sailer has suggested something like this) is that society has a need for more TESTING. Instead of studying once for an SAT, kids and adults should have the opportunity to study and be tested on subject matter throughout their lives, and they should have the option of posting their scores publicly. There is much testing that's more or less pass/fail, on basic things, like the Series 7 or the bar exams, but there is room for testing for higher levels of accomplishment and creativity. For mathematics, for example, one could have the option of taking an N-hour exam similar to the Putnam. Programmers could take language-neutral tests in which they tackle coding problems. It seems like there could be a market for much more testing. The benefits arise both from "signalling" AND from the fact that people could truly build their skills by preparing for the tests. So it's not just about how to divide the pie, but also about making the pie bigger.

One puzzling thing — the book mentions that it has become more or less illegal to test prospective employees, yet I keep reading about the spontaneous tests of creativity that Google and other elite techie companies give to their applicants. How do they get away with it?




 A potential leading indicator for whether to be involved in direct business dealings with a country could be domestic violence statistics.

I think the reasons may be self evident.

It appears difficult to get solid stats though, which may hamper our ability to quantify.

(2004) China's women suffer the highest suicide rate in the world, a rate 25 percent higher than for Chinese men, and in the countryside, where the majority of China's women live, one-third of all deaths among young women are a result of suicide.

"There is no specific law in China that a woman can charge her husband," said Chen Mingxia, of the Marriage Law Institute.


Four out of 10 women in Turkey are beaten by their husbands, according to the recent study entitled "Domestic Violence against Women in Turkey."

"The definition of honor, in the Turkish, more eastern, sense, is always defined within the sexuality of women," Agduk said. "Men believe that when they marry a woman, they possess her. They see a woman just like a car."




 This is a review of the new book Alger Hiss: Why he Chose Treason relying on relatively newly declassified historical evidence about the Soviet spy Alger Hiss who was instrumental to the creation of the United Nations as well as several New Deal policies.

To those who doubt that the US can be controlled by a conspiracy, especially foreign-controlled, this should shed some light on what is actually possible in the real, not imaginary world of nefarious and anonymous Wizards of Oz. This also sheds light on how no amount of evidence no matter how obvious and undeniable will convince the left that there is treason in their ranks and in fact they themselves are involved in it.

"Why exactly were the intellectual elite so determined that Hiss was innocent? His accuser, Time magazine senior editor Whittaker Chambers – originally Hiss’s Soviet handler and author of the classic “Witness” – presented compelling written evidence. However, the intelligentsia were intent on supporting one of their own. They ignored the facts, a willful blindness that helped contribute to a polarization still in place in our country today.

Thirty years of intelligence analysis gives Shelton the expertise to approach the story from many different angles, especially:

* Her persuasive argument that communism and fascism are not polar opposites, as has so long been claimed, but highly similar ideologies.

* How Hiss’s central role at the Yalta Conference and the founding of the United Nations are examples of the significance of Soviet intelligence recruitment of high-level Americans who could influence U.S. foreign policy in their favor.

* Why the silence surrounding the implications of Hiss’s espionage continues—and why apologists fear that smearing his name would undercut New Deal policies and the United Nations. Shelton doesn’t just detail the body of evidence pointing to Hiss’s guilt; she suggests new layers of meaning in light of the current political landscape.

Today, the importance of understanding Hiss’s ideological commitment has never been more vital. His advocacy of collectivism and internationalism still resonate among the political elite, making this book an important and timely analysis of American thought at this critical juncture in our country’s life.

Stefan Jovanovich writes: 

It is a measure of our European bias that the discussions about betrayal by the State Department always focus on the part of the globe where the spies did no damage and ignore the part where the damage was immense. Regardless of what Stalin learned from his spies, the boundaries in Europe were going to be what they were. The Russians lost more men fighting the Battle of Berlin alone - nearly a million casualties - than the American and British armies lost on all front - North Africa, the Balkans, Italy, France, the Lowlands and Germany itself. The Patton speech in the movie is great theater, but it is complete nonsense. By 1946 the U.S. had 1 1/2 divisions east of the Rhine; the Russians had over 100.

Where the spies did immense damage was in the East. By persuading Truman that the Kuomintang had "lost China", they enabled the Chinese Communists to win. 2 expensive Asian wars later, we are still paying the price of that betrayal.

Gary Rogan replies:

My main point was that some spies are more than spies. When a spy is able to affect major wide ranging policies he has partially subjugated the country he is working against instead of just supplying the information about troop movements, etc.

My observation today is that essentially NONE of the foreign policy initiatives of the United States benefit the United States as a whole. It is also my belief that if you consider the interests of a few financial oligarchs, Saudi Arabia, China, Russia, and the cause of "global governance" in approximately this order you will figure out what steps the US is likely to take in any given situation.

For instance, Libya was easy: the head of the country was a personal enemy of the Saudi King, and "global governance" would benefit, so it was a decision to invade for no real American interest of any kind.

Syria is harder, because there Saudi and Russian interests conflict with each other and also with "global governance". Iran is really hard, since there Saudi interests are semi-ambiguous and conflict with both Russia and China. Removing the missile shield from Poland is easy since it benefits Russia.

Whether assisting the oil industry in Brazil, looking for some probably long dead murderous warlord in the middle of Africa, choosing what to do or not to do in the Middle East, Eastern Europe, giving some Alaskan islands to Russia, or doing anything anywhere else in the world there is no longer any discernible "American Interest" of ANY kind, misguided or otherwise the I can see. It's always what benefits one of the other major players.




 Up until about a few years ago, I was quite afraid of going to cities smaller than 3rd tier. The reason was simply that there were no good places to stay The following concerns are among the tops.

1) room hygiene: linens, towels, floor, and toilet were not clean;
2) bad smells: smoke residual was everywhere, and worse, most sewage pipes in the bathroom release strong smells;
3) bed comfort: nearly all beds were hard solid;
4) disturbance: often girls would call on the phone or at the door asking whether a massage was needed in the middle of the night.

These seem largely changing in recent years.

To better understand some of the changes, one perhaps needs some brief knowledge of the history.

Before 1980, in any city, there were generally only a couple large hotels, and they were only for official events or dignitaries and did not receive normal travelers. There were many smaller places (which were termed as traveler's communes), usually with 2-4 beds in a room. They generally only received business travelers who carried a letter of recommendation from their respective state enterprises. When received, one only got one bed in a room shared with other total strangers. How were the conditions? Well, one would really thank god if he got a bed. During this time, travel was largely discouraged. If one had to travel, he had to find friends or relatives to stay with.

Since the 80s when the country was opening up, big foreign hotels started to operate modern hotels in first/second tier cities. These were only to receive foreign travelers. The Chinese could not afford them, nor were they allowed in. They were strictly guarded by some kind of police. Most of these foreign hotels (like Sheraton, Hilton, Crown Plaza etc.) were given 5-star ratings.

Since the late 80s, seeing what a hotel could really be like, many local governments and state enterprises started building their own modern hotels. But they were really mimicking the surfaces — the amenities and services were really not that good. These were generally given 3-4 stars. To compete with the foreign ones, they offered cheaper rates (if a foreign one charged 1000RMB/night for instance, the domestic ones would charge 300-600RMB). To be more attractive, they generally operated full-service massage parlors in the hotels. And up until the late 90s, most rich Chinese stayed at these ones. And, these are the ones that have my concerned problems listed above.

Though since long many Chinese could stay at the foreign hotels, up until mid-2000, the standards of the foreign hotels were not spread much to places below 3rd tier cities.

In the recent couple of years, there happen to be many private hotels, usually with 20-40 rooms each, across the country, even in very remote county-level towns. Among them, some have really high quality amenities (you name it) in the rooms, which could nearly compare with those in a typical 5-star foreign hotel in China (keep in mind that 5-stars are not that equal here). And the rates are really low.

As an example, in a town where typical real-estate price is 4000RMB per square-meter, a 25 square-meter room in a 4-star domestic hotel (which is most likely not too comfortable) costs about 600RMB. The similar-sized but nicer room in the private hotel costs about 100RMB. The difference from the big hotels is that the private hotels don't have dinning rooms, bars, business centers, conference halls etc, but they do offer mini-bars and broadband/wifi (or even computers) in the room.

How much is 100RMB? Today, the cost of gasoline is 8.2RMB per liter. So to drive a mid-size car for 100 kilometers would cost about 60RMB for the gas. Now nearly all highways in China are toll roads, which charge 40RMB per 100 kilometers (set by the government). So to drive the car on a highway costs 100RMB per 100 kilometers just for the two expenses. In a tourist town, a bottle of 300ml domestic beer in a nicer bar costs 30RMB, a small cup of freshly-made locally-produced coffee also costs 30RMB.

How to make economic senses for the hotels? The property cost today of the room is 25 x 4000RMB = 100,000RMB. A rough estimate for the decoration and furnishing is about 80,000RMB, yielding total initial cost of 180,000RMB. The fill-rate, though a wild guess, can be assumed as 50% in a town near some tourist attractions. So the annual income is 360 x 0.5 x 100RMB = 18,000RMB, 10% of the initial investments.

How could the owners consider that a good business? The big bet is the upward real-estate market and a booming tourism in the country. It has been long that many people invested in many units in a building and kept them empty for years. The rental from a 50 square-meter flat (double the size of the hotel room, but of course with much poorer decoration) in a similar town could be 500RMB per month. The reasoning for opening a hotel is that it takes advantage of the booming real-estate plus the booming tourism. It could also be that some owners are real-estate developers and the initial real-estate cost for the hotel was only on paper.

More on Chinese Hotels:

In China, one US dollar is exchanged for 6.3RMB (or CNY, or Yuan) at banks, which have a limit for a maximum of US$10K per day per person, and US$50K per year per person (accumulative of all bank transactions in the country). In the black market, the figure runs to 7RMB per dollar.

Ordinary wage for a waitress-type job is about 1000RMB per month plus room and board.

Stays at hotels are strictly controlled. The Ministry of Public Security (central police department) requires that each occupant present his/her ID card. Hotel personnel said that they have to transmit the copy of the ID cards to the local police station immediately. I don't know about a formal law as to where foreigners are not allowed, but it does appear that passport (even Chinese) is not accepted somewhere, and one has to hand in the domestic ID card.

There are a growing number of economy hotel chains now (being part of the revolution). A famous one (and the pioneer) is the Home Inns which is traded on the Nasdaq. The rooms are very nice and clean, and have basically everything you would need. Home Inns is very popular and has a high occupancy. These hotels generally buy very old buildings in good locations (mostly downtown) and fully renovate them. Rates are also good, generally below 200RMB. These chains have not penetrated to places below 3rd tier cities.



The Moon Illusion

April 9, 2012 | 2 Comments

 This was the moon over Manhattan Saturday night.

It was a great example of the phenomenon known as the Moon illusion. The viewer's brain plays tricks on the eye that result in an optical illusion that the Moon is considerably larger nearer the horizon than when it's higher up in the sky. It's not larger actually, but it certainly looks like it is.
When it happens it's breathtaking to behold. One of my favorite natural phenomena.

The first time I saw it was in NYC and it was extremely low on the horizon. An absolutely gigantic sight, it was framed by the tall buildings of a crosstown street I was walking down. It looked like a huge orange beach ball sitting on the ground somewhere just across the East River.

All the pedestrian traffic stopped and everybody just stared eastward at it. In silence, mesmerized. Finally some kid asked me, "Why did the Moon land in Queens?"

I told him it was re-fueling at LaGuardia.

Judging by his nodding reaction, I think he bought it.



How many decidedly creative but reserved people are so locked into to their blinkered existences in the west (or east, north or south) that their lives couldn't be so much more fulfilling for them and productive for the economy and other people given the right government analysis and framework to work with. What is the cost of pulling blanket rules and regs and raging costs and inflation so that this creme does not rise…

Clock in…clock out…



 The new book The Mark Inside: A Perfect Swindle, a Cunning Revenge, and a Small History of the Big Con by Amy Reading may be of interest:

"[Norfleet] got swindled partly because of his intelligence. He was a 54-year-old self-made man. He had gone from being an itinerant cowhand to owning his own cattle ranch, and the way that he grew successful was to do business with a handshake with other honest, straightforward men. And those were exactly the qualities that the swindlers, who encountered him in Dallas when he went there on a land deal, used to take him for everything that he was worth. … When he met Joe Furey, Furey represented himself as a broker on a stock exchange — someone with inside knowledge of this arcane financial world that was very different [than] the world of cattle. So, it's not so much that his moral radar was off as that he thought he was vaulting up into a new plateau of financial savvy. And they flattered his knowledge and his intelligence."

From an NPR article about it.

Reading's uses material from a 1924 book by Norfleet entitled Norfleet: The Actual Experiences of a Texas Rancher's 30,000-Mile Transcontinental Chase After Five Confidence Men.



A meeting of the NYC Junto will take place on Thursday April 5, 2012 at the usual place (20 West 44th Street, NYC) starting at about 7:30pm, main speaker at 8pm. The speaker will be Robert Higgs, economic historian at the Independent Institute, and author of Neither Liberty Nor Safety. His topic will be "Likely Politico-economic Legacies of the Current Crisis".  All our readers are invited.



 To execute a chosen strategy from the initial plan until exit, takes more gumption than may be initially thought. Ghosts of other strategies, like short term versus a new longer term holding period, try their best to capsize the ship, throwing in sniper bullets, coming up at you at unexpected angles through increased volatility and erratic counter moves, and so do the memories of previous campaigns that have been dealt massive blows in the past, no matter how strong the leadership was. It gives the night watchman plenty of food for thought.

But "holding the wall" and protecting the predefined strategy at all costs is imperative no matter what the adversary. (It maybe wise to remember to say, as per the vow below, when a position has been cleared and a strategy followed to the letter, "And now his watch has ended".

If you are reading or watching Game of Thrones you may be familiar with the vow of the Night's Watch:

The "Night's Watch" is a military order dedicated to holding the Wall, the immense fortification on the northern border of the Seven Kingdoms, defending the realms of men from what lies beyond. The order's foundation dates back to the Age of Heroes, at the time when the Others  were pushed back. The men of Night's Watch wear only black.

When the recruits are considered ready to take the black, they say their vows either in a sept or before a heart tree. The vows are as follows:

“Night gathers, and now my watch begins. It shall not end until my death. I shall take no wife, hold no lands, father no children. I shall wear no crowns and win no glory. I shall live and die at my post. I am the sword in the darkness. I am the watcher on the walls. I am the fire that burns against the cold, the light that brings the dawn, the horn that wakes the sleepers, the shield that guards the realms of men. I pledge my life and honor to the Night's Watch, for this night and all nights to come.”It's customary to finish a black brother's eulogy with the words, "And now his watch is ended."



I defined a Flexion Index as the z score of the price of XLF relative to its 39-week average and standard deviation (for example, a z score of -2 would mean the price was on the lower Bollinger Band). My theory is that flexions are happy when the index is above zero because their stocks are going up and they are getting bonuses. When the index is below -1, the flexions are in distress and likely to clamor for bailouts and accomodative monetary policy.

Regressing the net change in SPY in the next 39 weeks against the z score of XLF, I found a positive correlation with N=16 and t=1.40 (scatter plot below). Too few observations for significance; furthermore, 30 weeks into a 39-week period that started with a z score of -2.37 last September, SPY so far has nearly a 20% gain.

   39-week               Change in SPY
  Date             XLF  average   z score  next 39 weeks
 9/17/1999   22.91  24.84   -1.58     9.6%
 6/16/2000   24.00  23.45    0.33   -21.5%
 3/16/2001   25.95  27.58   -1.11    -1.6%
12/14/2001   25.50  26.64   -0.70   -20.7%
 9/13/2002   22.37  25.35   -1.66    11.0%
 6/13/2003   25.34  22.38    2.16    13.1%
 3/12/2004   29.57  27.03    1.51     6.0%
12/10/2004   30.04  28.66    1.83     4.4%
 9/9/2005   29.87  29.45    0.54     0.6%
 6/9/2006   32.69  31.92    0.58    12.3%
 3/9/2007   35.87  34.92    0.52     7.2%
 12/7/2007   31.20  34.79   -1.50   -17.6%
 9/5/2008   21.74  24.72   -1.00   -24.0%
 6/5/2009   12.32  12.12    0.05    20.8%
 3/5/2010   15.22  14.04    1.07     7.6%
 12/3/2010   15.18  14.90    0.37    -4.1%
 9/2/2011   12.54  15.55   -2.37



 While the book could have used a better flourish of English, Nicholas Best's collection of individual stories 5 Days That Shocked the World surrounding the final five days of World War II is an informative and compelling read, a script worthy of consideration for the budding film-maker. One notable story comes from a Dutch girl as she expresses her gratitude toward the Flying Fortress pilots on their humanitarian air-drop over Holland:

"THANKS, YANKS." The Dutch had spelled it out in flowers, clipping the fields of tulips into capital letters to show their appreciation. Some of the most hard-bitten airmen had tears in their eyes as they read the words and saw the waving crowds, so obviously glad to see them. But the most heartfelt response from the Dutch was spotted by a vigilant ball gunner, who immediately got on to his tailman over the intercom: "Close your eyes," he told him. "You're much too young to see this." On the ground below, already vanishing into the distance, a young Dutch woman had lifted the front of her dress and was waving it cheerfully at the Americans. She wore nothing underneath.

Obvious parallels with regard to trading are how narrow leadership both in governments and markets can lead to disaster, and throwing it all in ahead of a margin call can so often lead to a charred body…



 My friend is counseling his daughter who wants to pursue a career as a classical musician to double major. My daughter also is a music major and we have discussed this with her quite often. She is a freshman oboist in Chicago. You basically have to be a superstar in classical music, or close to it, to earn a good living and not be hugely dependent on income from teaching. If you love teaching, then its not so bad, but the competition for the larger orchestras is very intense. Plus, several symphony orchestras are cutting back, so the strained economics are more true now than ever. My daughter is on a double major track and it will be a year-by-year assessment process to determine what she does after graduation. Continue on with the oboe in a masters program, if the signs are reasonably positive that she can make it long term, or look for work (and probably a masters too) in her other field. Likely to be accounting or economics.

Laurel Kenner writes:

Studying music confers a multitude of qualities useful in business: discipline, an appreciation for timing, devotion to perfection, the ability to comprehend different voices, a readiness to "hear" change, competence in meeting deadlines, comfort in communicating with an audience. (And music can bring great personal joy.)

Not so long ago, classical musicians were mere servants in the households of the nobility or employees of the church. Even professional musicians today usually experience significant downward mobility from their parents' lifestyle. The pressure to be mobile — to accept jobs far and wide –makes it very difficult for them to maintain stable marriages and establish families. I recommend "Mozart in the Jungle" as a cautionary tale. The oboist in the story ended up becoming a journalist and wrote extensively about the economics of classic music today, as well as the pitfalls of the musician's personal life.)

I applaud the double major as a way to avoid starting at the bottom in an alternate career. But those kids are going to have to work twice as hard as anybody else.

Yishen Kuik writes: 

Certain doubles can be pulled off quite easily - many classes can be applied to several majors. Statistics, for example, is a common requirement for many fields. Skilful negotiation can obtain cross credit approval for a class not yet listed as such.

The most unusual double/triple majors however will be the left brain right brain ones, which tend to have very little overlap. I have yet to meet someone else with my combination : math, economics, history of art.

I have noticed also that just as many Asians of my generation who went to good schools started their careers in the West to obtain better opportunities and experience, post the 1997 recession in Asia, I bump into many young Europeans and Americans starting fresh from school out here in Asia.

These economic migrants as it were have little to lose, no family to hold them back and can be found in all parts of China and Asia in junior jobs. I would not be surprised if in ten years, these intrepid job seekers return to Europe and the US as the next important community of business people who can move seamlessly between Wichita and Wuhan.





In Association with National Basketball Association

Directed by Thomas Kail

Written by Eric Simonson

Juggling. That’s what comes to mind as you sit transfixed by the terrific new play at the Longacre.

Juggling gets its power from two things: The juxtaposition of multiple balls or knives or bowling pins in the air, simultaneously, as the performer in front keeps up a running patter. And keeps those heavy, dangerous things in the air at all times.

With your expectation that they’ll fall. Especially if you’re sitting in the front row.

You hold your breath, convinced the agile guy doing his thing will ‘drop’ them, and all the whizzling, whirling heavy things in the air will plop, maybe onto your lap. Maybe into your face.

Just so, this fascinating study of the well-known animosity between the hoop greats, Louisianian Larry Bird, and the equally fantastic Michigander, Earvin “Magic” Johnson, in a terrific long one-acter by Eric Simonson. The stage design accommodates the sport by having two pneumatic backboards with fixed hoops revolving onto the stage for many of the scenes featuring the two main characters. They do lay-ups and toss basketballs from various angles into the hoops. (Are they gonna miss? Will I get hit in the head, since I’m right next to them?)

They don’t. They are big guys. They have big hands. They command the ball, the stage—and you.

Peopling the stage is a cast of wonderful actors, black and white, with accents from French Lick to LA to Boston. They are hoopsters, managers, barristas, moms, the greats themselves, assistant coaches, media egos, and friends of the Celtics and Lakers. The action takes place from 1979 through to the present. Along with the net contrivance are screens and scrims that show you the actual games, foul lines, interviews and rivalries as they were telecast back in the day. The woman next to me, some sort of Celtic fanatic, grunted and feverishly repeated the wins and losses, hoarsely whispering: That was the actual game! That was when it was happenin’!

And as terrific as are all the revolving characters onstage, you soon realize they are just six dazzling (mostly very, very tall) people, doing a whole mess of roles. As we know, Larry Bird was a whiz, but was, let’s face, it, pretty doofy looking. The guy playing him onstage, Tug Coker, is much handsomer, a Nordic stony-faced monolith, as taciturn as Magic (played by the generous Kevin Daniels, who actually wrote to thank me for my rave Tweet praising him) is gregarious and winning.

Another thing that hits you as you watch, not far from spellbound, is that with most plays, even titans like Tennessee Williams or Eugene O’Neill–let alone a Mamet, Shepard, Athol Fugard or Albee—they have their emotions cooked into the play. Absent the characters’ doing a creditable job onstage, you aren’t all that involved or moved. The pyrotechnics are on the boards, or you are becalmed in non-reactive dormancy. But because, even to a sports illiterate, we know the cultural givens of our beloved (or be-hated) cultural icons, the emotion can be far more nuanced and subterranean than in the flaunt-it! characterizations of most Broadway vehicles, Off-Broadway pleasers, or even your perennial straw-hat circuit faves.

What a delight to hear and see the laconic answers of this largely outstanding dramaturgic team, and yet laugh with knowing—we remember or have seen the stuff that went on before and after these captured onstage moments. You bring to it a lifetime of hearing the dish, reading the gossip and watching the blah-blah. We revel in the life given to them here, in the grainy film clips from TV and game telecasts, or as a clearly non-Bryant Gumbel (Francois Battiste) squeaks out some freeze-frame datum or other about the latest Celtic-Laker win, loss or rival moment. The managers’ (Peter Scolari as Pat Riley and Red Auerbach) devotion to their charges is evident. Bird’s mother’s obsessional stats-awareness (a spectacular Deirdre O’Connell) is hilarious, homey and believable. Bird is a stoic, totally taciturn tall presence (though miles more good-looking than his alter ego). Magic is engaging, lovable and delicious. We are let in on their ailments, aches and sprains and more … dire … diseases.

A particularly risible moment came amidst a two-fer argument between the two rivals, as offstage, a huge roar went up, and the two ball-players looked at one another and, simultaneously, knowingly dipped their heads, grimaced, and mouthed: “Michael…”

Credit where credit is due: The writing is not flashy but is constantly first-rate. Even without an intermission, two words sum up this welcome arrival on West 48th Street: Slam dunk.

At the Longacre Theatre, 220 West 48th


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