"How Political Clout Made Banks Too Big to Fail" by Luigi Zingales"

A brilliant beginning.

Rocky Humbert adds: 

But its chock full of sweeping generalities ; not supported by the full historical record.



 The web that the bankers have always spun with those in political power is more intricate than any spider's web, and could only be duplicated by one of the negative feedback loops that we see in electronic diagrams, and is ably limned and enumerated for current generations of bankers and their flexionic friends and counterparts, by no means exclusive of each other in the education, NGO, banking, treasury, political and consulting field, by Janine Wedel.



 I'm involved in some utility-grade solar projects in the US. The ideal size is 4 to 5 MW, which will require approximately 20 acres. With all government incentives combined, solar projects are currently not bankable.

If homeowners are going to take on solar, most shouldn't use their roofs as their platform. Most homes are oriented incorrectly and will their roofs will not produce the optimum amount of power. A better approach is to mount panels on the ground. Ground-mounted panels are cheaper to build, cheaper to operate and will always produce the optimum amount of power.

In most states, net-metered panels cannot produce more power than the customer normally consumes. This is normally not a problem for homeowners because panels only produce power a third of the time and peak consumption tends to occur slightly after the panels are dark.

For U.S. consumers, it is not worth the investment to go off the grid. Energy storage equipment are costly and inefficient; they will consume approximately 20 to 30 percent of all energy produced.

When judging the efficacy of solar, consider the various points of view. If you are a consumer in a deregulated state, you want your neighbor to build a lot of solar. Solar has production costs approaching zero. The market-clearing price of wholesale power is largely based on production costs. If your neighbor's solar facility is producing power, it displaced the marginal generator or most expensive power producer. In deregulated states, solar reduces the cost of wholesale power.

If you are a utility in a deregulated state, you are indifferent about solar. Electric utilities in these states are not regulated power producers.

If you are a policymaker, solar is a winner. It is an ideal peaking generators as it produces power during the peak of the day. It will displace the the most costly generator and, in all likelihood, the dirtiest generator. You have an economic win and an environmental win. Score!

If you are a utility in a regulated state, you are also indifferent about solar. Electric utilities in these states will get a return no matter what assets are deployed.

If you are a consumer in a regulated state, you might have some concerns about solar. The levelized cost of solar is high and you will have to pay that price plus a margin. High prices are offset by lower fuel adjustments, but not a full offset.

If you are an independent power producer such as Calpine, GenOn Energy, Dynegy, Exelon and Entergy you might not like solar. Solar is hitting your gross margins. When solar power facilities are producing, market clearing prices fall and so do your gross margins.

Keep in mind, most power production policies are set at the state level, not the federal level. This might explain why northern states (deregulated states) endorse solar power and why southern states (regulated states) do not.

Bruno comments:

This is what you said. The little guy is making sacrifices for the future.

If you look at the problem only from an energy standpoint, the German look stupid. They are building renewable capacity which is more expensive than nuclear.

But if you look at the whole picture, this is brilliant. They pay more today to have an even more competitive economy in the future.

It is like building autobahns and panzer divisions. Out of the box thinking, a bit of daring going against conventional wisdom, sacrifice for the population, flawless execution (> 26 GW solar installed in less than 3 years, that is no small feat, and they are doing the same with windpower), incredible discipline (they are doing exactly what they said they would do a few years ago).

If you were the little guy, what would you prefer? Consume a bit less today and still have a job in 10 years, or consume more today and have no job in 10 years?

Does it mean that each household is forced to pay for the "their" piece of the renewables infrastructure? If so, is this the new advanced German "invention": let's make the little guy pay for our competitive industry and that's how we'll finance our future competitiveness? Sounds surprisingly old school, if that's the case.

Stefan Jovanovich comments:

A few minor quibbles. The Germans did invest in panzer divisions; what they did not invest in were maintenance and supply corps. The basic logistics of the German Army in the field in WW II were handled as they had been in WW I - by horse-drawn wagons off-loading from rail depots.

When the German General Staff ran the military exercises for Barbarossa, they found that they had to stop in front of Moscow, even if the Russian Army completely disappeared; the forage loads for the horse transport were consuming 100% of the supply chain capacity.

The autobahns were almost entirely a show-piece; the national transport network was rail. The U.S. alone produced nearly 2.4 million trucks in WW II; the Germans made fewer than 350,000. The British built 100,000 more lorries. Using WW II as an example of Teutonic foresight is not - perhaps - the best example.

The local market for power is, as you say, deregulated; but the market for capital has the Federal government's thumb on the scale, along with many of the state's that have deregulated the buying and selling of power itself. It is, as you say, what it is. I may be expressing my bitterness at California's capacity to do everything so badly - slaughter raptors in the name of wind power, adopt the one kind of deregulation that could allow the clowns at Enron to think they were the smartest guys in the room since the ones from Baldwin-United. Happlly, after tomorrow, that is no longer my concern.



 Tom Waterhouse is the youngest of a bookmaking dynasty in Australia. On his website he offers some fine racing tips which are easily translated to the markets. Here they are:

AIM HIGH. Always take the top of the market.This can be done by betting Top
Fluc on saturdays and Best Tote on weekdays.

AVOID the sinking feeling: If the track is heavy , and you see a horse that
is odds on, get on. All bookies want to lay the favourite on wet tracks .
For the horse to remain in the red, it means its going to be very hard to

WIN BIG LOSE SMALL: Bet bigger if you are winning smaller if you are losing.

GO LONG: If there are two horses with odds under 3.00 get on the longer
priced one.

LAYDAY LAYDAY !: The horses on the front of sportsman and Winning Post
(racing newspapers) are the lays of the day.

DON'T FOLLOW THE HERD: Be very surprised of the hot tips in the papers.Yet
be extra keen if you like a horse and its not mentioned- you will get far
better value.

THE BLADDER EFFECT: If a race jumps and you need to go to the toilet, or
you feel overly nervous, you are betting too big.

STAY THE COURSE: If you reckon a horse is worth 3.00 and you see it paying 
10, do not alter your bet, put on the same amount.Value is king.

OFF WITH THE CASH!: The punter who loses his head loses his money.

TOUGH LOVE: Keep your eyes and ears open when you are on the track and
follow the tough money.

TAKE HALF MEASURES: It always is easier to back winners in the first half
of a race meeting than the second half.

THE CUP DOESNT RUNNETH OVER: It is much easier to find a winner at a
midweek hitout, than the most glamourous race of the year.

DONT PANIC: Never take under. If you miss getting on at the right price,
there will be another race.

A good read about the man for those interested is this article: "A Serious Man".



 MIB fandom: This third installment of the alien-fighting franchise headlined by the lovable duo, slick Will Smith as Agent J, and dour Tommy Lee Jones, Agent K, still wows with jaw-dropping CGI special effects, terrific galaxy-saving home-office somewhere on Wall Street, with ever-more incidental extraterrestrials tickling the retinal funnybone—including the small-fry skinny gold instrument-playing worms we loved from the first MIB–with the clipped, understated Emma Thompson in a comedic cameo as Agent O. Her younger blonde self is played Alice Eve. (One–<sigh>–misses Rip Torn, however.)

This time out (pun intended), hunky Josh Brolin does a head-turning rollout as the younger Tommy Lee Jones, giving a tiny bit of back-story to his usual laconic dryness. This segment installment of the enjoyable partnership presents us the ugliest villain, yet. When so many films are competing to out-ugly each other in the bad-guy department, having one this memorably alarming is an achievement of sorts. Boris the Animal is done by Jemaine Clement, who gives Hannibal Lector a run for his money in terms of hideous amorality and resentful nastiness to his captors on Earth. SNL standout Bill Hader is comfortably acceptable as a 60s icon, unrecognizable as Bill Hader.

Boris the Animal breaks out of major security in a remote, really inhospitable Moon prison keep, and threatens to destroy the Earth as his genus or whatever have in the past destroyed every planet they have hit upon in the galaxy. Scenes take place on the Moon, NYC, Coney Island, the Chrysler Building and Chinese restaurants cum aquaria, with hugely unappetizing “foods” available for the intrepid and undiscriminating. MIB HQ is, as ever, evocative of the brilliant architectural innovations of Eero Saarinen. J must go back in time to rescue his partner, K, from Boris' depredations.

Fewer laughs fly in this one, though the faster you are, the more likely to get the zingers that occasionally loop out at the audience–but also nothing in the way of blue language. The scripting is a lot darker, less larky than the first time our hearts went to these intrepid invader-fighters. It’s safe to bring the kids, if they can sit without fidgeting for the elimination of many alien life-forms in refreshing explosions of spectacular slimy goo. The love (=sex) interest here is exceedingly curtailed, a throwback to pre-movie code primness. Basically, don’t go expecting erotic stuff, as there is exactly none—the plot gets its kicks from time travel back to 1969, where we can comfortably amuse ourselves at the extended makeup, Andy Warholiana, and Hippie cool of The Scene. But for the fact that it’s not really true, the residue from the film is that there is not that much difference between 45 years ago and today, except for the miniaturization of cell phones and the tamping down of hairdos. Not everyone will want to be tickled, and it is always a treat to be in the presence of Smith, Jones and Brolin.

No Afghanistans, Syrian massacres of protesters or Egyptian elections. No Occupy foolishness. No terrestrial debt-ceiling headaches. Not even any Army or Marines–our heroes manage touts seules.

The good-natured biff-bam-boom offing the bad-guys that our black-suited designated alphabetic agents preside over is less taxing than the heavier hardware of many contemporary films, which is a small triumph in itself. The credit roll, BTW, had almost everyone in the non-industry audience sitting put, hoping for a post-credit scene or outtakes: Uh-uh. One assumes then that this is the last of the series.

Still, not a bad evening at the celluloid altar.



 A friend recently recommended Hungry as the Sea by Wilbur Smith. Smith is a great writer of epic historical fiction with complex plots, rich and full blooded characters, great action, graphic sex and violence which fit in perfectly with the stories. Warlock, a novel of ancient Egypt, is the second in a series.

Monsoon, also second in a series, is a swashbuckling novel of sailing in the 17th century that Chair would love and which I highly recommend to him, follows the Courtney family over the years through their adventures in Africa. Warlock and Monsoon have battle scenes with strategies and tactics worthy of study both in large scale battles and in hand to hand fighting techniques.

The stories are totally absorbing page turners perfect for traveling or vacation reading. Highly, highly recommended, and some of the best time wasting reading of all time. Very enjoyable. You can order hardbound versions for $.03 if you can wait that long.



 One has read the book Smart Choices for Successful Life by Abilio Diniz, the founder and CEO of a chain of hypermarkets in Brazil. He sold his interest for 800 million in 2002 and was ranked as one of wealthiest persons in the world with net worth of 4 billion by Forbes.

He was kidnapped in 1989, on the day of the election and the two Canadians that masterminded it, hoping to gain money for the sandinistas were deported to Canada. The conservatives won the election that day because of the kidnapping. He's written a self help guide. The main elements in it are diet and exercise and love. He follows Covey's 7 principles of success and is big on time management. He recommends eating 5 meals a day, and combining training, stretching and aerobics in every exercise session.

He is a man of faith and gets up at 5:30 every morning for some vigorous exercise with his wife. Testimonials from his kids and wife appear in the book. They are all triathlon and squash players. There is very little scientific but much anecdotal evidence in the book. He runs his business on love and happiness for his employees and customers. It is worth reading to learn these universal principles.



 Here is a poem I wrote in the style of Gertrude Stein from the perspective of a heart implant patient:

Do I need an implant? Do I really need it? Really need it? What else can I do? Is there something else I can do? You can do? Can I go without it? Without one? One or two? Three for the price of two? What will happen if I do? If I do? And if I don't? What will happen? What will happen in my life? What will happen to my wife? Will we never live in strife? If I do?

When you do how will it feel? Will it hurt? Will I hurt? Will I end with a red shirt? Will my mouth hurt like your back? Will your bones stay in a stack? Will my drivey sex a lack? Can something happen and go wrong? Will I go missing or write a song? Might we start short but end up long?

Tell me now the total cost. What will gain and what gets lost? Each and every piece and part. Throw them in and note your chart! How much will insurance cover? Bill the rest to my old mother.

I think I'll schedule my appointment. (Over and over to your bifointment) In between get more opinions. From sleek Iranians who aren't your minions. They'll tell me this will save my heart. Round and round a healing art.



Love of a son or daughter
Love of your wife
Love of a parent
Love of knowledge
Love of life
Love for your fellow man
Love of food
Love of power or money
Love of competition
Love off ports and thrills
Love of nature

All you need is love.



 The Third Industrial Revolution (link is to a video of Rifkin speaking) will create thousands of businesses and millions of jobs and usher in a fundamental reordering of human relationships, from hierarchical to lateral power, that will impact the way we conduct business, govern society, educate our children, and engage in civic life. Rifkin writes on his website:

With Oil at 147 a barrel people stopped buying, because all the supply
change was too expensive…the entire economic engine of the industrial
revolution shut down, July of 2008, ..that was the great economic
earthquake of the 2nd industrial revolution, the collapse of the
financial markets 60 days later was the aftershock…. we now know the
outer limits of how far we can globalize this world based on elite
fossil fuels its about 150 a barrel and it will shut down.

From the man's home page:

Rifkin's vision is already gaining traction in the international community. The European Union Parliament has issued a formal declaration calling for its implementation, and other nations in Asia, Africa, and the Americas, are quickly preparing their own initiatives for transitioning into the new economic paradigm.

Stefan Jovanovich comments:

Any "revolution" — industrial or otherwise — that needs an "international community" is — by its own definitions — a non-starter. As for the people "stopping buying" when oil was $147 a barrel, a question: did they start buying again at $146? Renewable energy is the canal craze of the 21st century. The one part of it that has worked is the one that people fully understood 100+ years ago when Buffalo, NY was the center of the electrical world - hydro. Everything else has been a crock for the simple reason that it has - and still does - require subsidy. Mr. Watt needed no subventions from Parliament, only the liberty to build an engine without having a committee decide whether or not it was an "appropriate technology".

See the wiki pages for Matthew Boulton and James Watt.



 Isn't what we are seeing in the EMU just an economic version of the US Civil War?

Stefan Jovanovich responds: 

It seems to me a difficult parallel to apply if we are talking about geography. The "northerners" - the Germans and French - has always controlled the EU; but in the United States it was the Southern Democrats were the majority party for the first 5 decades of the country's history. Starting with Marshall, they controlled the Supreme Court. It is difficult for "conservatives" at George Mason and elsewhere to admit it, but most of the precedents for extension of Federal executive authority (the Louisiana Purchase, for example) came from the Democrats whose children and grandchildren would discover the doctrine of states rights. Of the 15 Presidents before Lincoln, only 4 were Whigs. Of those Whigs Harrison and Fillmore were the only ones born north of the Mason-Dixon line; neither was re-elected and between them they only served the equivalent of a single Presidential term. The only other exception to Southern domination was John Adams, who - along with his son (who was not a Federalist but a member of Jefferson's Democratic-Republican party) - had the distinction of being roundly rejected when they ran for re-election. The first 5 Southerners, on the other hand, (Washington, Jefferson, Madison, Monroe, Jackson) were all elected to second terms.

If David's suggestion is that the Germans are the Southerners, then I can see why that might be an apt comparison. The Panic of 1857 certainly led the Southerners to believe that "the north needed the south" - as the wikipedia entry suggests. What is difficult to see, however, is any comparison that has Spain, Portugal, Greece and Italy taking the place of Ohio and New York in 1859.




 Let us give thanks to the veterans who sacrificed life and limb to protect us from those who would do us harm or restrict our freedom. People talk about protecting the American 'way of life'. I've thought about that and concluded that in essence it is our freedom to achieve our full potential. So, to do our part, our sincere payback to veterans, is to realize what the full human potential is, and achieve it. What is the highest potential? A wise man once told me "think of the person you admire most. He or she is a reflection of your highest potential."

Of course, achievement is not necessarily be measured in money. While researching Mongolian gold mines, I discovered one-third of the population were monks a hundred years ago, in other words people serious about achieving their concept of full potential. Stalin invaded and killed most of the monks. They lost that freedom.

Let's not take our freedom to achieve for granted. In parts of the world, they play 'hunger games' for real every day, where achievement is simply surviving. We live in a peaceful prosperous land, so let us make the most of our freedom, and not waste life on trivialities. That seems to me to be a practical celebration of Memorial Day.



 At the risk of covering my face with egg, I need to go on the record:

First the first time in years, I am not long gold.  I admit that I feel very naked — like I just got out of the shower and can't find my towel.

And I have no clue what gold will do next. $100 either way is a rounding error.

And I might trade around a tiny bit (until I find my towel.)

But my multi-year structural trade is over. And it won't be re-entered anytime soon.

I've been in this trade for years, and I promised you that I'd tell you when I exited. And I did. I didn't buy the lows. I didn't sell the highs. But it sure beat a poke in the eye with a sharp stick.

If I just correctly called the end of the mega gold bull market, please remember my brilliance. And if gold rips toward 2000++, please remember my stupidity.

Anatoly Veltman hints at future revelations:

Well I have a very interesting pattern that I anticipate in Gold this summer. I'll try to share it as soon as I have time to present it succinct manner.  

But game d'jour is EUR, which touched 1.2500 in the last hour - and bounced high! (knock-out option defense anyone?) I anticipate some shenanigans around this long weekend. Brings to memory EUR's first ever crawl up toward 1.5000 -just to punch thru with a huge gap smack between the NY banking close and Asia's open!!



 Mark Perry posted this today on his website. It bears repeating:

"Legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole—with their common aim of legal plunder—constitute socialism.

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime."

Kim Zussman wrote:

A friend asks, "If I pay tax, which pays for a fire department, and my house never burns; but your house burns, and my tax money is used to put out your fire, that's 'plunder?' "

Garrett Baldwin replies:

Perhaps it would be better if the fire department charged individuals directly instead of allowing monies to be transferred through a central local government that takes money off the top.

Then again…

"Firefighters Watch as Home Burns to the Ground" (because the family didn't pay $75 in annual dues to fire house). 

You would have to be ready to deal with the consequences of your market decision should you not pay.

Jeff Watson notes:

I pay for my fire protection every year.
  My neighborhood association also pays for off duty Sarasota County deputies to patrol our neighborhood and keep us safe.

Stefan Jovanovich responds to Kim:

Kim's friend is assuming that fire protection is some kind of natural monopoly that requires state action. It is just the reverse. Fire departments were (and, as Jeff notes, still are in many parts of the country) voluntary. What made them "public" was not necessity but the discovery by progressives that private fire departments had "failed" - i.e. been unable to prevent urban firestorms. The truth was - and is - that no public or private fire departments can stop fires in balloon frame buildings once they get started. The best fire prevention technique is do do what the Swedes and other sensible people do: establish a perimeter around the fire zone and spray water not on the fire itself but into the air around the fire using a mist, not a stream so that any embers are cooled below ignition temperature. The U.S. techniques are - by comparison - nearly medieval. That is all the more surprisingly because the American Navy developed almost all the modern fire fighting techniques to defend its aircraft carriers and other ships during WW II; what I know about fire-fighting comes from the time and trouble they spent to train me and from one summer working as the lowliest of the low on a Forest Service crew in Oregon (even the work-release convicts had seniority over yours truly).

A typical California public fire department story: When the Oakland fire occurred, the response of the local fire department (3 pumpers, 2 ladders and a chief whose ANNUAL RETIREMENT PAY WILL BE $330K A YEAR) was to have the police tell everyone to evacuate. Those of us who had some experience with fires knew that for anyone not in the immediate holocaust zone the largest risk was from wind-blown embers being caught under the eaves of buildings or landing on shake roofs (like the one our then neighbors had because of its wonderful "rustic" qualities). Those risks can be answered with a well-aimed garden hose if someone is around to do the job. When the police arrived, Eddy's Mom told them we would prefer to stay. Very few people manage to tell Eddy's Mom to do things, but the figure of official authority might have been tempted to press his luck if I wasn't already up uncoiling the 100 ft. of forest service hose we had on a spool attached to the side of the house. It turned out, in the end, to be a false alarm because the wind shifted and pushed the fire back towards the Bay; that allowed it to burn itself out because it was moving back over ground that had already been burned. After the fire was over, everyone congratulated the heroism of the Oakland fire department, etc. What started the fire was a local blaze that the Oakland fire department had put out but not bothered to establish a fire watch over. When the hot winds from the Delta came over the hill that evening, they added enough warmth to allow the embers to flash over. IF the fire had been someone's private liability instead of an act of God (how else can sovereign immunity be justified), some poor Mexican would have been paid by the landowner to stand watch with another one of those garden hoses.



 Entitlement in a good sense is not talked about much but is the effect of consumer surplus. Loosely defined, most of the gains from productivity over the last decade, generation, century, accrue to the consumer in the form of much lower prices, higher quality and often products and services that were not even available before.

The split is about 70-30%. The 30% goes to the capitalist who took the risk and deployed resources. But the other 70% of the value goes to the consumers.

For example, laptops cost a fraction of the cost 10 or 20 years ago. Sure, Dell deservedly gets rich. But with the surplus, millions of consumers can buy iPhones, something not even available a decade ago at any prices. Food cost as a percentage of income has declined steadily for decades. With that surplus consumers buy other things to better their lives.

It's a pretty good deal all thanks to competition, which drives down their returns on capital for suppliers. In growing open societies consumers take this entitlement almost without acknowledging it is there.



 The latest Inc. Magazine (June 2012) is probably one of the best magazines I've come across in 12 months in terms of sheer content.

Topics include:

1) Motivating employees (two articles– one takes the novel stance of "What would Churchill do after a demoralizing run of bad results?")

2) Appreciating leader types & their lessons even with highly narcissistic or other unenviable qualities

3) Stories of entrepreneurs bouncing back from tremendous adversity (i.e. ex-cons)

4) the requisite Jim Collins on "secrets" of extraordinary leaders (yes, i know the pitfalls of his work)

All in all, chock full for those trying to grow their (operating) businesses. Great for a long weekend catching up on reading.



 Enoch Powell predicted in the 1970's exactly what would happen to the Euro when a individual country's interests were opposite to the greater good of the European community as a whole. It is amazing to see it playing out. I predicted that Brussels would be the best real estate market in the world when I visited in 2002.

I predicted this because of the expected build up in the European community infrastructure, and the associated NGO's and lobbyists and purveyors. I felt that this build up would be even greater than Washington DC, which has never had a down real estate market, because there would be less countervailing force for economy from the heterogeneous and distant countries that make up the E.U. as compared to the individual states in the U.S.

It would be interesting to see if that prediction turned out to be true.

Peter C. Earle comments:

It was sheerly utopian in the Marxist sense to expect that nations as diverse as found in Europe might be corralled into a single currency unit, a classic conflation of proximity with uniformity. Sic semper alvei.

Here's my hoping, but not expecting, that in Greece the forces of Gresham will be brought to bear in the selection of a new currency.

An anonymous contributor adds:

It is debatable whether having a common currency is adverse to a country's interests — if there is labor mobility and free trade. In fact, Hayek free market/hard money theory might? argue the opposite. But this is predicated on certain RULES being followed. The reality is that Greece etc. decided to break the rules and follow short-sighted expedient policies. A skeptic would argue that this was inevitable….

Uncle Milton (Friedman) was also negative/skeptical on the Euro, but (like me) was surprised that they were able to put it together in 1999. (One recalls that part of LTCM's implosion were the Eurozone convergence trades that blew up when Russian defaulted in 1998. I was on the right side of that trade for entirely wrong reasons.)

Here is a nice Cato institute essay that quotes Uncle Milton.

"Not only are member countries unable to finance government
spending through inflation, they are bound by the Stability Pact to
keep their deficit at less than 3 percent of GDP. Except under
unusual recessionary circumstances, violators would face automatic
or semi-automatic and massive fines (The Economist 1996). As long
as these rules are respected, discretionary fiscal policy on the part of
national governments will disappear. Finally, the adoption of a single
European currency would mean the end of arbitrary manipulations
of the exchange rate-"exchange rate policy," as it was called, would
vanish. In its intentions at least, the Maastricht world is one of strict
and impartial rules, a living monument to the market-liberal wisdom."
Can the euro be considered an application of the lessons we have
learned from Milton Friedman? In a sense yes, in a sense no, and in
yet another maybe. Yes, the monetary constitution embedded in the
euro construction is Friedmanian in that it aims at price stability,rules out debt monetization, and helps prevent exchange rate manipulation. No, because the European Central Bank's accountability is
very weak and because the monetary rule is not made explicit.
Nothing is said about how price stability will be achieved. Maybe,
because the monetary authorities could pursue a stable course,
avoiding both stagnation and inflation (yes, in this case), but they also
have the power to destabilize the entire European economy (obviously no, if this happens).
Also, the construct is still based on the rule of man rather than the
rule of law: if things go wrong, there is no provision for remedying the
situation. Milton would not have approved this particular facet. He was
well aware that the unrestrained power to do good is also the
unchecked possibility to do harm. The liberal wisdom, at least since
David Hume, has always assumed that, since it is possible that knaves
could end up ruling, we should draw constitutions on that assumption.
Not because that scenario is inevitable but because it is possible.
So far the ECB has behaved acceptably and it has succeeded in
resisting pressures from national governments, but we have no guarantee that this is going to be the rule in the future. As Milton often
said: "Money is too important to be entrusted to central bankers." He
may prove to be right once more. 

John Floyd writes: 

Those are pretty big "IFS". While Greece is the headline culprit du jour remember both France and Germany also "excused" themselves from following the rules. I don't have the exact number on hand but I believe various Maastricht or other rule violations would number in the dozens. The economics and politics speak for themselves currently as to the validity of the system working. Remember this currency was borne almost entirely of political will.

The interesting questions to me going forward are:

Does the Greek election even matter anymore?

How large are the feedback loops and knock on impact from future European developments?

Is the market too sanguine given firepower of monetary, fiscal, and bailout money is perhaps largely exhausted?

If the actions of a butterfly flapping its wings in a place like Iceland was a contributing cause to much turmoil how might Europe be viewed?

Who else has positions and exposure similar to JPM?

What about US money market fund exposure to Europe?

What about the size of Spanish private sector non-financial debt?

Why can't the Euro trade at .50?

I would also posit that well beyond current events there will be future attempts at a New Euro of some sort.



 I've had a terrible head cold for the past week, and it's made me think about what a weak approach the world takes to the common cold. Doing a little wiki search you'll find that people are out of commission for something like 2 weeks per year. Tens of millions get poured into some cancer drugs that are viewed as successes because they increase life expectancies from one month to three months. But when you go to the pharmacy for your cold, 80% of what you see is junk, and what's not junk is just barely. (I'm making up a lot of the actual numbers in this post, but you get the idea.)

Here's a rundown on some of the pharmacy items:

Long-last 12-hour nasal decongestants, inhaled (like Afrin): This stuff works for awhile and provides actual relief, but 1) it doesn't work for 12 hours–more like three, and 2) they tell you you can only use it twice per day and up to a maximum of three days. OK, well I'll just have to make sure my cold only lasts three days! If you consider how people treat the warnings about drugs like crystal meth, I would imagine that a lot of people use Afrin for longer than three days and more than twice per day and don't get badly hurt. The CVS pharmacist kind of hinted that that was the case. But on the other hand, I don't want to get a permanent stopped-up nose and Afrin addiction.

Short-last nasal decongestants, inhaled (like Neo-Synephrine): These are supposed to work for 4 hours, but of course they don't. There are scattered hints that they don't pose much dependency risk, but the label says otherwise–use no more than once every 4 hours and not for more than 3 days.

Oral pill nasal decongestants — phenylepedrine — These don't do diddly. I discovered this on my own, but later the pharmacist told me that everybody pretty much knew it.

Oral pill nasal decongestant — pseudo-ephedrine — For these, you have to go to the pharmacist and show your drivers license so that they can check that you're not making crystal meth. Usually I don't want to go to that kind of trouble, but word on the street is that phenylephrine, which is the new pseudo-pseudo-ephedrine, like the one that Mother gave Alice, doesn't do anything at all–you have to get the REAL pseudo-ephedrine. Anyway, I got some 12-hour slow-release capsules of pseudo-ephedrine. They seemed to have some slightly helpful effect, but not nearly enough to give comfort.

"Nite-time" stuff — There are literally dozens of varieties of this at CVS including multiple store-brand versions of the same thing. They're all equal to Tylenol+Phenylephrine (useless) + Dextromethorphan HBr + Chlorpheniramine Maleate. The Dextro… is described as a "Cough Suppressant" and "Chlor…" as an antihistamine. I know what Tylenol and Phenylephrine are. I don't really understand the last two drugs, but I think their real purpose is to put you to SLEEP. That's not the worst thing in the world, but they only last for about 4 hours or so. So then I wake up at 3am and want some more, but I worry about taking more because I've been reading that it's easy to overdose on Tylenol and mess up your liver.

Various Zinc stuff, acidophilus, Vitamin C — I already pretty much know that Vitamin C doesn't work, since I already take a lot of it, having read Linus Pauling's book years ago, but I still get plenty of colds, and they last a good, long time. It's possible that some of the other stuff could work. The typical story is that one study showed good results in 1996, but it had some kind of flaw in its setup. Of the remaining studies about half showed something good and half got nulls. Well gosh, 1996 was 16 years ago, and we're talking about alleviating the common cold, which keeps the entire world out of commission for two weeks per year. Why in the heck doesn't somebody do the definitive study? Meanwhile, I have the option of paying the toll to what I suspect are charlatans.

I read about a real company called Biota in Australia that supposedly has something that pretty much cures the common cold, though it's not on the market yet, and it will be very expensive and perhaps only available to asthmatics [I will apply to become one]. However, in the best of circumstances I can't imagine the FDA approving something like that in less than two decades because it will be argued that since nobody dies from the common cold, it's fine for us to just suffer.

I'd be very interested to hear helpful tips.

Leo Jia writes:

Prolonged exposure to negative psychological states such as fear, tension, anxiety and etc, which seem to be inherent but unconscious to most traders, can make one's immune system weak. The immune system is key in fighting cold and other abnormalities in the body. Best things to me that help strengthen the immune system and alleviate negative senses are physical exercises combined with meditation, Yoga or Zen practices. For me personally, playing the violin helps a lot also as the dedicated playing puts one into a concentrated mental state that can be close to meditation.

Victor Niederhoffer writes: 

To what extent do we catch most of our colds from the classmates of our kids at school or our coworkers at work? Is one of the great advantages of home schooling aside from the fact that the kids don't have to spend every weekend with a wasteful birthday party, that they are healthier and don't catch colds as much? And similarly for work at home. 

Bill Egan writes: 

We homeschool six children. The kids tend to be less sick than the kids of my colleagues at work. Ours still manage to contract a sufficient number of plagues from other kids in our homeschool network, the YMCA, choir, etc.



The average American trader is basically insecure due to among other things a 120 point continuous drop. In other words, just from waiting around for that plain little market to go into the gold today, a trader could develop a cold.



Once in a while we all like to engage in charitable efforts. Even if it means to "preach in the desert", trying to make technical analysts realize the unprovable nature of their beliefs.

Facebook is the greatest of deserts, if you look through this point of view. (So are traders "forums").

But well, we all want to go to Heaven, so we tried a little effort of preaching.

The analyst's rage was unleashed!

(The funny part was to acknowledge that he took our advice of "drawing a uptrend line with a ticker line so it was less susceptible of being broken" seriously, as a real advice!)



 We are well into the Triple Crown season with just one race left to go. It's been fun for me so far as based purely on the name I liked I'll Have Another early on in both Derby Futures as well as Santa Anita. Now we have a decent shot at a real Triple Crown winner as the horse is one of the better closers we have seen in a few years and the length of the Belmont Stakes should favor the him. We have been disappointed several times since Affirmed in 1978 so we shall see what happens in two Saturdays.

I have always been a huge fan of horse racing, racetracks and all the associated depravity. Some of my fondest memories of the past decade are the trips we used to take to Keeneland in Lexington Kentucky every year for the Bluegrass Stakes. Lexington is a town founded by Irish gamblers and is made to order for me. A diverse group of traders, investors, professors and other assorted ner' do wells used to assemble for a long weekend of horse racing and bourbon drinking with the expected adventurous and occasionally disastrous results. I guess we all outgrew the trip or just got to busy but they will be telling some of those stories at my funeral in fifty years or so!

I don't hit the races or even the poker table the way I did in the past. A combination of marriage, kids, getting older, and the end result of the earlier explained IRR have kept me from wagering and whiskey in the quantities of days past. I still follow the ponies however and am always cognizant of the lessons learned at many racetracks and card tables over the years. A day at the track contains lessons in statistics, psychology, marketing, and a host of other scientific disciplines. Many of these I have found to be directly applicable to the markets and to life its own self.

The track contains many of the elements of the financial markets. You have the touters and system developers who look for the answer and failing to find it sell their services to others. It was Tom Ainslie who pointed out how these systems develop in his book on handicapping. *" A longshot wins a race. A disappointed bettor consults his Form and discovers that the longshot had been timed at 36 seconds in a breezing three-furlong workout a couple of days ago. No other horse in the race had worked so rapidly so recently. Powie! A new system is born!"* How many of these have you seen in the stock market. Someone curves fit data to show that the winning stocks of the past had a particular characteristic or price pattern and a brand new newsletter and web site is offered to investors as the answer to all their problems and a sure fire path to short term wealth. In truth none of it works any better on Wall Street than it does at the track but selling easy answers to greedy people has always been a source of profits for stock market and horse racing system developers.

Then there are the people you meet at the track. You have the bleary eyed beer soaked despondent souls who pick up discarded racing forms to search for a long shot winner to just get them back to even so they can start over again. They won once and hit some exacta or trifecta bets, usually by luck and have been chasing that short term success for a lifetime of almost and faded in the stretch. There are those who offer an informed opinion on each and every race with all the certainty of the Delhi Oracle. They bet each and every race and brag of their fantastic winnings before hopping in their classic car (a 1988 Buick Riviera with balding tires and cracked windshield) to head off to their luxury furnished studio apartment with a spectacular view of the railroad tracks and oil refinery. The stock market is full of these folks as well. The oracle of the last market cycle and the expert who never loses are everywhere on Wall Street and I am never sure if their hearts desire is to get to the winners circle or just drag as many others into their pool of disgrace and desperation as possible. Whichever the case, they are to be avoided in life, at the stock exchange and along the rail.

 At every track I have been into in my life you can always find a few gentleman, usually older who sit through the race scribbling notes in their racing form each and every race. With the exception of perhaps a close friend or two they do not talk to anyone else or engage in the tip sharing and" who da ya like?" camaraderie of their fellow rail birds. They watch, take notes and perhaps sip a cold beer, or more likely a coffee. They wander off to the paddock before each and every race and the vast majority of the time they return to their seat to scribble some notes without bothering to place a bet. On rare occasions they get up, go the window and make a bet. These are the ones who have figured out the game. They only bet when they see an advantage and are more likely to fly over the grandstand than tell you how they derived their advantage. This is similar to investors who don't see the need to trade every day and only pull out their wallets when they have an edge and prices are favorable enough to offer a high probability of long term investment success.

One such astute gambler was among the best of them all. Pittsburgh Phil had a distinguished and successful career as a horse bettor. He once said *"Playing the races appears to be the one business in which men believe they can succeed without special study, special talent, or special exertion."* This is the case in the markets as well. So many people sit down and read a book or look at a chart and think that they, of all the speculators, traders and investors who came before them, have figured out the answer to market success. They do not study, research, or test and care little for other opinions. The worst thing that can happen to these people is initial short term success that makes them even more confident in their flawed opinions. Eventually the all go spectacularly bust. If this was easy everybody would be rich.

Phil, whose real name was George Smith also once said *"Know when to put a good bet down and when not to." *This is not only the best advice for horse gamblers but stock investors. Just because the window is open does not mean you have to get in the action. Patience pays at the racetrack and in the stock market. Just because they open the casino down at Wall and Broad does not mean you have to trade. Once a year or so you will get a steep decline in stock prices that carry 10 to 15% lower. Every few years you will get a gullywhumper of a selloff and prices will fall 20% or more from the highs. That's when you want to invest your cash. Keep in mind the excellent advice not only of Pittsburgh Phil but Henry Clews in his investing classic, 28 Years on Wall Street as well. *"But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellow will be seen in Wall Street, hobbling down on their canes to their brokers' offices. Then they always buy good stocks to the extent of their bank balances, which have been permitted to accumulate for just such an emergency."*

 When I was a more frequent visitor to the track I used to look for horses that were stepping down in class in a race. I looked for a horse that had run middle of the pack races in higher dollar stakes race and are now stepping down a bit. If I could find a horse in a $50,000 stakes race that had run a few $100,000 races and had placed third or fourth I was interested. Racing against lesser competition the horse had a strong chance of running well and the past performance figures against better horses usually gave longer odds than should have been the case. The biggest ticket I ever cashed came from finding two of them in one race and hitting a badly underpriced exacta. It also provided a pretty steady diet of simple win tickets over the years. To me this is a lot like buying fallen angel stocks. Former blue chips that have had a reversal of fortune and fall into single digits have provided a fertile shopping ground for winning stocks over my career. It also applies to people. I am more comfortable being associated with someone who has fallen or failed and gotten back up to run again that I am with someone who has yet to taste defeat and disappointment. These temporarily blessed souls usually think it is their brilliance rather than circumstance that has so blessed them. When the fecal matter hits the the fan as it always does they are apt to become unreliable partners or friends in my experience.

If I was betting on a rainy day I always wanted to look for the mudder in the race. Some horses like Storm Cat just love the mud and run very well thought the slop. I have seen horses that need a taxi to reach the finish line on a dry day win by 10 lengths when the rain is falling and the mud is thick. This plays out in the stock market as well. Even in a crappy market and economy like 2008 there were some companies that will benefit from current conditions. In 2008 as the world and portfolio values sank like a well-ventilated submarine companies that catered to low end bad credit consumers did very well. AaronRents, Dollar Tree, Wal Mart, Family Dollar and others that catered to the broken consumer saw their stock prices do very well. Last year it was energy stocks and companies that sold to a resurgent upscale consumer that ran to victory in a flat market. In every economy and market condition there is a group of companies that will benefit and buck the trend.

There a lot of comparisons found at the track that apply to markets and to life. That sleek looking thoroughbred that goes off at short odds may win a good percentage of the time but if you bet him every race he will take your wallet for a ride. He will do well for his owners but gamblers will go broke betting short odds. The same can be said of buying high growth issues at very high multiples and trophy wives. The feisty little colt at long odds that has run well in the past but is under bet can make you a fortune. So can stocks that are experiencing temporary difficulties or just ignored by the investing public. The stunning high maintenance slut queen at the bar may attract all the attention but it is the good looking smart quite woman in the corner that will make you happy man for decades of life. Flash and short odds does not reward in any endeavor as does substance with a high payout.

I love the race track. Not only is it enjoyable and some of the best people watching you will ever experience but you can gain an MBA in Investing and Life $2 at a time.

Sam Marx writes: 

But how does one overcome the 17% edge that the track has?

The stock market vig was high in the days of fixed commissions but now you can have the edge in certain markets such as options especially options that are traded with a penny spread. 

Tim Melvin adds: 

The article is not intended to suggest one make their living at the track. Merely that there are lessons to be learned that may be applicable to markets and other areas of life…

Stefan Jovanovich comments: 

Tim's wonderful piece is better advice than some of us deserve. At the risk of being one of the beer-soaked wretches who used to hang on the rail at Hollywood Park, I have a "fallen angel" tip for the $2 bettors that even meets Tim's ''fallen angel" criteria: AMAT. And, if you want to make it a 2-horse parlay, add KLAC. The foundry business is like coking coal in the 19th century– ugly, unattractive and essential, as Mr. Carnegie and Mr. Frick well knew.

Sam Marx writes: 

From my experience of going to the track, always with a friend who talked me into it, I found interesting characters and observations there.

But I never bet there, even at the $2 window. Same with slot machines at Vegas or A.C.

Logically I know that a $2 bet would've given me something to root for, increasing my enjoyment at the track for a small amount, but my aversion to betting when the edge is against me is almost of a religious intensity.

To learn about markets and trading psychology when young, I'd recommend the stamp or coin market. If you know your markets there and try to avoid having the urges of a collector but as a trader and buy at close to wholesale prices, you'll do well.
Tim's piece was a very enjoyable read but I don't think horse players are the best source for learning about markets.




I note Henry Winkler and Fred Thompson touting the merits of reverse mortgages.

Without any facts my gut says they are bad?

Any Specs have any facts to share?

Russ Sears writes:

Those considering this should shop around. The commissions are high and the margins are also. This is especially true if they are not in perfect health, as the actuary tables assume anti-selection. A much better option, for those with family that can afford it, is to have a family member monthly buy a higher percentage of the resale value at time of inheritance. 



 Dailyspecs who like a good Indiana Jones adventure might want to check out the book The Mountain of Moses: The Discovery of Mount Sinai.

The book is a true story expedition to find the Mountain of Moses in the Arabian peninsula not Sinai.

It does not star Harrison Ford but rather features the site's own Larry Williams.

It is a great read.



 Imagine: The Fed engages in another round of QE, and does a reverse dutch auction tender for Treasury securities. However, it's a "failed reverse auction." That is, they don't receive enough OFFERS from the Street! So the QE3 policy option door gets slammed shut by Mr. Market. Last week, this is what happened in Japan. (Eat your heart out JGB bears!) The BOJ printed yen and tried to use the fresh Yen to buy government debt from their banks. But the reverse auctions were under-subscribed. Politicians want the BOJ to dramatically expand their balance sheet. But they are seemingly unable to achieve this because JGB holders won't sell their paper and hold Yen. That this could happen in the midst of fiscal profligacy and massive debt/GDP raises many questions about macro economics not covered in textbooks or research papers.

Could this be a new twist on deflation and the long-term effects of ZIRP. Or might it reflect a fear on the part of investors that the central bank will impose a negative nominal interest rate on cash? Or perhaps it's some weird Japanese-market dynamic? Or perhaps its related to mandates and duration matching? Or that JGB's are safer than cash in the bank? Even Paul Krugman must be rubbing his eyes. Ultimately, I conclude that this must lead to the central bank buying other assets besides JGB's (and in fact they are buying other assets). But I recommend Specs give this situation some thought as it may be coming to a theater near you soon!



 Often times I wonder If I am the only sane person in the world. For most of my career I have never understood why a corporate seller or I-banker should be praised because an IPO zoomed in the first few days of trading. By and large we praise people who buy low and sell high, but with IPO's the conventional wisdom is that we should praise those (and their agents) who sell low.

Imagine you hired a real estate agent to sell your house. He/She advises you to sell it for 300K. You do. The next day after you sell it sells for 500K. Are you happy? Of course not. Yet, when I-bankers do that very thing, they are praised, and so are the seller who sold at a low price.

The two decades of my career have seen only the following dynamic:

Stock goes up after IPO: Seller and Seller Agent good Stock goes down after IPO: Seller and Seller Agent bad.

Now, good and bad are subjective terms. If I were a buyer of an asset, I would want it to go up in price afterward. Of course, If I were a seller, I would want it to go down.

Conventional wisdom would probably say that it is in the interest of sellers and their agents as a whole if IPO's perform well, as that makes sure that buyers are around in the long term. However, shouldn't the seller's agent have a fiduciary responsibility to the seller, and not to the market as a whole?

The simple fact is this: This is the most successful IPO ever, and if I am ever in a position to IPO my company, I would want the stock price to plummet the day after I sold. That is how I would know that the investment banker(s) on the deal did a good job.

Yishen Kuik comments: 

I am sure there are other people who have been in and around the equity capital markets, but let me take a stab at Gordon's question.

1. An investment bank needs to have a stable of happy buyers and happy sellers to stay in business. All issuers like FB (the sellers) want to sell their equity for as high as possible - greed is universal among issuers. What investment banks will say in rebuttal is that you want to give the buyers a pop to make them happy, this way when you want to do a secondary down the road, your chances of successfully building a book is enhanced. Every businessman understands this — you have to leave a little on the table for the other guy, so that when you really need their cooperation, you can cash in those goodwill chips. This is why most IPOs are priced to pop a little. It's a goldilocks game - not too high and not too low is where both sides are happy.

Sometimes like Google, they thumb their noses up at Wall St and go their own way. But from what I understand the Google IPO was a mess.

2. At an investment bank during an IPO, the institutional sales coverage is the buyer's advocate and the ECM desk is the banks advocate. No salesguy who wants to stay in business wants to burn his client on a bad deal (although they are not adverse to inserting fat fees into a deal that won't burn the client - cue the selling of rich vol in creative re:opaque ways). The ECM desk however sometimes needs the buyers to take one for the team and support a weak deal. This is then repaid by participation in a good deals. Keeping track of favours owed and granted is the job of the respective heads of sales and capital markets, and this is what keeps the circus going, and how IPO books are built. The ability of an investment banks to raise stupendous amounts of capital very quickly is a non-substuitable service, and why they can charge substantial fees. A ECM desk that does not have the investment banking deal flow, does not have access to a top sales force, does not have skilled market makers, does not have the marketing power of a good research team and does not know how to manage favours with institutional investors will see it's ability to raise capital for clients degraded. And that ability is the engine room of an investment bank.

CFOs and CEOs usually have careers that span several companies, all of which will need to go to market now and then. Therefore it is in their long term interest to cultivate good relationships with investment bankers. They will give a little, not much though, in order to get a little when they really need it. So when the ECM guy says he wants to price in a 10% pop, they will acquiese.

Buyers want to align themselves with a bank that will feed them IPOs that have a high probability of popping. It's a sure strategy to pad their annual returns. But there is a dance here as well - buyers need to know that the investment bank is able to do a good job in pricing so that between the competing interests of the seller and the buyer, it is resolved slightly in favour of the buyer so that the health of the long term game is preserved. Buyers also want to know that their favours in swallowing bad deals are at least fairly noted and repaid. A good ECM professional therefore gets paid 7 figures, and the head can clear 8 figures.

This is why an IPO that goes up a little on opening day is viewed as a success by all parties. If it goes up too much it is viewed as a success by buyers & a mixed bag by investment banks ( the seller is pissed off, but then the industry is excited so more paper comes to market). If it tanks, it is viewed as a failure by buyers and the investment bank. The sellers have a mixed reaction.

This is also why I think it is very difficult to create an investment bank — there are many very expensive moving parts (teams of highly paid professionals) that need to come together. The Europeans and the Japanese have been trying for decades with very mixed track records and most recently Ken Griffith tried and failed.



 Suction is the production of a more or less complete vacuum with the result that atmospheric pressure forces fluid into the vacant space (OED definition)

To what extent did the big down moves in such markets as gold, Russia, Spain (down 24% on year), Italy (down 15% on year) and Europe cause the decline with a lag in US stocks. Is there a general phenomenon with which suction can predict declines in closely related geographic areas? How does the concept of substitute good enter into the fray. A substitute is defined as a good whose price rises as the other good rises  A complementary good is one whose price declines as the price of the other good rises. Are bonds a substitute for stocks? The dollar? What are the predictive relations?

Gary Phillips comments: 

It seems many of the moves and traditional correlations occur without much logic behind them and have little to do with valuation fundamentals but rather with the tactical games the liquidity providers play.

Also, country ETFs emerged as an asset class and this has contributed to increased price volatility.

Similar phenomena were seen with commodities whose financialization led (see Tang & Xiong, 2010) to increased price volatility of non-energy commodities and an increased correlation to oil.

Another factor to consider may be global QE policies. Each country that adopts QE [Quantitative Easing] creates mispricings in assets and goods & services; however, the Central Banks have no control over which assets are inflated, to what degree they are inflated, or in which countries they are inflated in.



It is remarkable to see the extent to which the interests of the market are now considered impotent with the interests of the top feeders who have unlimited capital and live off the service revenues of the forgotten men directly or once removed these days.

Whenever a threat to one country remaining in the EC, or any threat to an increase in service revenues occurs, (deficit reduction is now a code word for increasing service revenues on the rich), the market goes down. Is this a syndrome of man's willingness to go into slavery with a sigh, or part of the Stockholm syndrome?

One notes that stocks have gone down continuously through 3 fifties in S&P without a rise from above 1400 to 1350 to below 1300, what I call a negative sequence of length, a very rare event only 3 times previously in last 8 years. And that there have been repeated 20 day lows starting out with a rise, again not having happened since 2009 and 2008 when it occurred twice a year. The two things above are related.



On December 8, 1981, Lloyd Free legally changed his name to World B. Free. This past September Ron Artest became Metta World Peace. hat further question is there that we are within months of an historic opportunity to buy U.S. equities?



 An extremely low ranked golfer just shot a 55 on a 6698 yard par 71 course. The score of 55 matches a record set in 1962 and some are claiming it to be a world record because this course is a bit longer and is a par 71 vs a par 70 in the 1962 record. The golfer, Rhein Gibson, also shot a course record of 60 earlier this month at the same course in Oklahoma.

I wonder if Gibson has the course so dialed in that his scores are reflecting his familiarity with the course? After all, he did make 12 birdies and 2 eagles and played a virtually flawless game. Is this real or is it a fluke and this golfer is merely the equivalent of a Bob Beamon long jump in Mexico City? I wonder if there is any similarity with this golfer and his game to traders who "know" their markets like this golfer obviously knows his home course. If not, why?




thanks for sharing with us your 18 years of heartfelt effort. From the twinkle in your eye and the cooing the first time I held you, I could tell you're a fighter with a zest for life. It could be said that your birth was a miracle: twice while still in the womb you picked just the right time and way to alert Dr. Deseay you wanted to live. When things get rough, and you wonder "why", take it from a first time Dad that saw the birth, the twinkle, and the smile over and over; your life is a miracle: Never forget that. You and I never had the big battles so many parents and kids have over their independence; nevertheless, I can tell you yearn to take control over your life. Never feel guilty for wanting this. Nor should you let this responsibility overwhelm you until you cede control just so you don't have to make the tough decisions that will make you who you will become.

Over the next few years there will be plenty of people that will try to replace Mom and Dad. Suitors, bosses, even teachers and preachers will all try to exploit you to make you into something you are not. Some may be trying to enlarge their power, but others are simply passionate and want to mold you into their passions no matter the mismatch. Be true to yourself.

Over the next few years try to discover who that is. Try new things. Take classes, just to explore something. Go places just to meet different people. Take risks. Do not settle just to settle. I know it is tough, sometimes you may not know your major, may not have a job, may not have boyfriend, or may not have a group of friends to hang out with on a weekend and money will be tight. But each of these things is too foundational to pick the wrong ones.

It is scary and disheartening to think you may not be needed or wanted. But never be too afraid of the unknown to quit. When you find yourself without these anchors, then is the times to double down have confidence and invest in you. If it is not working for you, be quick to admit you made a mistake and reverse course.

However, on the other side, once you see both the potential and the real cost and you believe in something or someone and enjoy your work, do not look back. If you decide it is for you, do not trade your responsibility for the thrill of the chase, or to keep dreaming rather than face the harshness of the real world. Neither should you give up because it is too hard or not as easy as you thought.

But most of all trust in yourself when others say you cannot, it is impossible, or that only the lucky "make it" in that world if you really want it and know that you are made for it. The critics maybe right about the luck needed. The critics are always right that effort required would be too monumental if there is no passion. But for the passionate, effort is child's play and sacrifice is a perfect fit for those built for the job.

Perhaps the secret to controlling your universe is believing in others. Call it God or Karma, but "what measure ye mete, it shall be measured to you again". Therefore, look for what others bring to the table, rather than define them by their weaknesses. Look for the good in others.

This is how you find favor with other because this is how they see themselves. They believe what they bring to the table is of the utmost importance. They then can return the favor. Those that do the same for all are those that you should trust, rely on, and bring close. These are the people that will make you prosper and bring you happiness. Recognizing the richness that others bring to your life in return will bring you love. When you look for and believe the good in others only then you can see it and believe it about yourself. Recognizing what you bring to the world, and will then help you find the richness that makes you, "YOU".

Love always,




 There is a problem with every opportunity.

The following situation enforces the truth of the subject.

A few years ago, I finished decorating a house. It is in a gated and somewhat upscale community of about 400 single or attached houses, built somewhat after 2000 and just at the edge of a big metropolitan area. People here appear to be very wealthy — premium cars are common — some have 2 Mercedeses, 2 BMW's, or 2 Porsches. But please don't over imagine it –by North American standards, this is still way too shabby and crowded. Each 250-450 square-meter house has about 100-200 square meters of yard. Outside the yard, there is some limited public area, in the form of roads, trails, greens, woods, and somewhere, streams and lake. My closest neighbor is about a few yardsticks away.

I was quite excited and happy to move in the community after having stayed in downtown apartments for many years. The city life made me a schedule of going to bed at about 12am and getting up at 8am. One usually has to shut all windows at night just to be quiet. Now at this community, I was thinking that windows can be kept open (in spring, fall or summer) for the night as it is much quieter. There are trees outside and the air is cleaner.

It turned out that some home owners were raising chickens and roosters, and the many roosters crow starting at about 3am. I was shocked and angry, and wondered why other people didn't have problems with it as they moved in a few years earlier than I did. I made quite some effort in talking to property management and also seeking to find and talk with the owners. It got alleviated somewhat but never went away. I was struggling and suffering.

Gradually, partly due to the lack of sleep, I started to turn in earlier. It helped. Now years have passed, I adopted a schedule of going to bed just after 9pm and getting up at 5am, and I am very happy about it. Not only that, I also cut the propagandistic cable service into my house and have not wasted my life on it. In its place, I read more books and play more music.

P.S. there is still one rooster now in the community, but it doesn't bother me much.



 I have sad news to report….the ukulele market in the UK has crashed, the price of a used Uke going from 45 pounds to a pound and change. The Ukulele market was showing bubble like conditions….when, suddenly it went south, popping like a balloon, and sinking like the Titanic. Luckily for me, I saw the move coming and was able to short the Ukulele market, my son taking the other side of the trade.

This Ukulele debacle is the worst musical instrument crash since Recorder Wednesday back in the 1993 when millions of students simultaneously quit the recorder. This might be time for the canes to step up to the plate and buy good Ukes to the extent of their balance.



 It is interesting how words can become watered down and lose or change meaning. In a current context, Hedge (verb) is one of those. Not so long ago it meant to offset or reduce the exposure of an underlying position. In a new context there is hedging for profit (JP), broker hedging customer orders (white glove firm), hedge funds in general (Paulson down 50%, not really hedged), hedgerow (great led zeppelin lyric).

The Volcker Rule in Dodd-Frank, though I've not read, I am sure is littered with wording around acceptable and non acceptable hedging. Since hedging can not really be defined, this is a vague area that will be applied subjectively and retrospectively. As a rule one would want a hedge to lose money, as the larger underlying position would then be gaining, but somehow I don't think this applies.



 Gary Johnson could catch presidential race by surprise

May 12, 2012 Fox By Douglas E. Schoen

With his name slated to be on every state ballot in the country in November, Libertarian presidential nominee Gary Johnson is an important voice – bringing bold new ideas to the table that appeal to voters across the political spectrum.

Johnson, a Republican who served as governor of New Mexico from 1995 to 2003, is running on a platform that includes slashing government spending to balance the federal budget by 2013, ending wars the U.S. in involved in, and drug reform — beginning with the legalization of marijuana but extending all the way to the war on drugs, drug policy, relations with Latin America, and even law enforcement policies and priorities– issues that neither of the two major candidates President Obama and former Massachusetts Gov. Mitt Romney are pursuing right now.

Having received the Libertarian nomination in Las Vegas last weekend, Johnson must now cross a new threshold to ensure that his voice is heard and give these important initiatives a lot of exposure — achieving the 15 percent required by the Commission on Presidential Debates to participate.



Despite the TV poli-drama, a $2 billion loss carries absolutely no significance to JPM Chase given the size of its asset base. It could be looked at as a rounding error.



 Being a mother is the greatest blessing of my life. (And with a son like A____y, I am grateful every day to be part of a bright new life.) One of motherhood’s great gifts is to draw out all the knowledge and wisdom learned from my own mother and grandmothers. Here is a very small portion of what they taught me. I hope it will make others remember and feel the lovely feeling of gratitude. (Sorry for the departure from the quantitative).

My mother taught me:

- — To test a pineapple for ripeness: Pull on one of the top leaves. If it comes out, the pineapple is ready to eat. (She knew this from working in Hawaii during WWII.)

- — To make spaghetti and chili without a recipe.

- — To look for the good in other people.

- — To apologize

- — To give warm comforting hugs

- — To look on the bright side

- — To get along with little

- — To finely mince garlic.

- — To make garlic bread in the broiler.

- — To make gingerbread cookies and Christmas breads

- — To make gifts

- — To invite the neighbors over for parties.

- — To make shabu-shabu.

- — To eat salads.

- — To cut out recipes.

- — To know that it is possible for a woman to knock down walls with a sledgehammer.

- — To create nursery schools, clothes, pottery, baskets, paintings, Girl Scout troops, friendships.

- — To love plants.

- — To use fish fertilizer on everything growing in pots.

- — To smile at others.

- — To swim.

- — To play piano.

- — To read.

- — To put my shoulders down.

- — To enjoy bouillabaisse.

- — To have a gentle sense of humor.

– To not drag my feet.

My mother’s mother (祖母) taught me how:

- — To test a watermelon for goodness. Knock on them and listen for resonance. She knew this from growing up in the South

- — To make a great coconut cake without a recipe.

- — To heat the pan and sprinkle it with salt before throwing on the lamb chops.

- — To harangue butchers for fresh meat.

- — To tell stories.

- — To keep sit with legs together.

- — To use nail polish.

- — To dress up for Easter.

My father’s mother (奶奶) taught me:

- — – To speak in a musical voice.

- — To grow vegetables and berries by the back door.

- — To know that it’s possible to settle down and thrive thousands of miles from home.




Wondering what the statisticians on Dailyspec think of this Atlantic article "When Correllation is not Causation but Something Much More Screwy" :

One of [UCLA professor Judas] Pearl's most interesting deductions is the idea of conditioning on a collider. If a case being observed is a function of two variables then this will induce an artifactual negative correlation between the variables. This is true even if in the broader population there is no correlation (or even a mild positive correlation) between the variables.

The article cites Professor Cowen's rules for dining out:

Assume that the two main things that let restaurants succeed are food quality and various other things that we can collectively call atmosphere. The logic of conditioning on a collider implies that among surviving restaurants there should be a negative correlation between atmosphere and food. This implies that if you are monomaniacally focused on good food you should follow the heuristic of avoiding fashionistas and seeking out unpopular ethnic groups as the only way such places could possibly stay in business is if they offer good food.



 My first memory of a car that I wanted to see as a pre-school kid was the Shelby Daytona Coupe race car.

That is one of the most beautiful race cars ever built.

Dad had a drag car so naturally I became a drag racing fan. Any kid in middle school would tout the quickest production car, in the 1/4 mile.. Some would say Jeff's 67 big block Mustang, A Dodge Hemi or the1967 L-88 427 Vette, or the big block Camaro with a ZL-1 all aluminum427 factory installed race engine that ran a remarkable 11.40 seconds in the 1/4 with those awful hard compound tires.. and that was the trick of the questions. The aluminum head L-88 that was rated at 425 HP was well over 525 Horsepower. Get this a ZL-1 68 Camaro was 7200 bucks.. a V-8 camaro was 3100$ The engine was a 4100 dollar option. They sold 50 cars. The legend was that the dealers pulled the other engines and sold them to race teams and put in a new motor and sold the car as a custom. In a way the dealers learned and became famous for specializing their cars. Yenko, a famous Chevy dealership that made the Yenko Camaro. Chevy and Ford had to stuff enough of these radical engines in a few hundred production cars and sell them to the public to meet the racing rules of the 1960's.

The Guinness World record when I was in middle school was held by the Shelby Cobra. It ran Zero to 100 MPH and… back to Zero, in 13.x seconds! Caroll Shelby stuffed the Ford racing 427 engine into the AC roadster built in England. So their trick was to sell 300 cars total vs the Factory teams that needed to dump a few hundred engines in a 35,000 production per year Corvette or the Millions of Camaros and mustangs that were sold every year in the late 60's. The Cobra was deemed the Corvette killer. Shelby was a great racer. The line is this, he built custom cars for individuals… sure he did a few hundred a year. I love racers and rule books.

Wiki is funny here: "Shelby American was also highly involved with racing".

Shelby American was founded by Carroll Shelby in 1962 to build and market high performance parts and modified cars for individuals. Some of the automobiles produced by Shelby American were the Ford Mustang-based Shelby GT350 and Shelby GT500. Shelby American also created the legendary Shelby Cobra which was an AC Ace with a Ford V8. The company was also highly involved with racing, with Shelby cars winning many races at the dragstrip, at the 24 Hours of Le Mans and America's first win at the World Manufacturers' Championship.[2] In 1966, the same year that Shelby American helped Ford Motor Company land America's the World Manufacturers' Championship, Shelby American also provided support to Ford for their successful campaign to win the 1966 24 Hours of Le Mans. Shelby American moved in 1995 to Nevada becoming the first automobile manufacturer in Nevada and began production.



 What's in a name?

A lot more than I expected.

I've led a charmed life. I was born in Budapest, Hungary into a revolution in 1956. My parents, at great risk, took me away to safety from an oppressive system, and had to start their lives again from scratch in a strange land in a new language, and I've never been in any real danger since, or have had anything at all to complain about it. Even before then, my father risked his career as an officer in the Hungarian army, by having me baptized in (what he thought was) secret on the outskirts of Budapest. This was mainly in deference to my maternal grandmother - who, bless her and may she rest in peace, as an avid Catholic was utterly determined to protect my soul. This was a big no-no with the communists, and they called him on it - every last detail. (My father had been followed.) Complicit in this little venture, and taking the same risks on my completely unaware infant behalf, was a man named Gyorgy Dirner, who my father had befriended in the army. Gyorgy (George) - or Gyurka, the more affectionate form - acted as and became my godfather at the baptism. I was born Zoltan Parkanyi, but the custom in Hungary at the time was for a boy to take the name of the godfather as his middle name, so I became Zoltan George Parkanyi. In Australia, to where we emigrated, my parents changed that to George Zoltan Parkanyi, thinking George would go easier on me as a child growing up in that country. And so George Parkanyi it is.

So today may father, at the cottage, reminiscing about those times, tells me the rest of the story, the part that I'd never heard before. Back to Hungary 1956. Fast forward from my baptism to November, in the depths of the short-lived, but brutal, revolution. One day Gyurka shows up at my parents' apartment to check on my father and make sure he's OK. He mentions to my father that he is somehow involved, but doesn't go into the details. They part. Events unfold quickly and my father is forced by circumstance to make the decision to leave Hungary, and my parents escape with me a few weeks later across the border into Austria.

My father loses touch with Gyurka, but every trip to Hungary thereafter once he started visiting again in the late 60's, he looks for Gyurka's phone number in Budapest directory. There is never any listing for Dirner, although my father painstakingly checks every time. Then about 5 years ago, while visiting a cemetery in Budapest to pay respects to the deceased parents of one of his other friends, something makes him divert from the normal pathway and cut across a different section. As he's walking to where he's intending to go he stumbles upon a headstone that stops him in his tracks and shakes him to his core. It says Dirner Gyurka …. 1930 - (November) 1956. Gyurka - my godfather - was killed within days, at most weeks, of when my father last saw him.

I'm named for a man, who, at no more than 3 years older than my eldest son now, either lost or gave his life to an unwinnable fight for freedom. What do I feel? Love. Gratitude. How do I feel? Unfinished.



 I saw Mick Taylor play at a small club in NYC last night. He is 63 years old. Rolling Stones aficionados know that the Stones most artistic and prolific years were during Taylor's tenure as the Stones second guitarist. The output during his Stones' years 1969 through 1973 include legendary tracks off Sticky Fingers and Exile on Main Street plus he was the main lead guitarist during 1969's live romp at Madison Square Garden that is famously captured on the album Get Yer YA YAs. I suggest listening to Can't You Hear me Knocking, Bitch and Love in Vain to a get a sense of of Taylor's dominance of slide and blues guitar paying. It stands the test of time. How do I know? The small audience was a mixture of middle aged rockers like myself plus some very knowledgeable college students that follow the Stones musicians like it was still 1973. The Stones still sell lots of records.

Like his more famous partner Keith Richards, Taylor has apparently struggled with drugs an alcohol and has many up and down battles with his demons. He looks physically worn, harried and over weight. However, the man can still play. He did a 90 minute set where he was featured at all times. He ripped cords and notes like the old days plus he sang. The audience loved him and appreciated every minute of the show. By the way, he is playing 8 shows in a row during at four day stint in NY. That must take a huge toll on a man of 63. That is dedication that few men of his age can muster.

I think the lesson in all of this is that he remains an awesome guitarist because he still loves what he does and he still studies and learns from all the old blues masters from Chicago and the deep south. He respects and pays homage to the ground-breakers of the 1940s and 1950s. Even at 63, he knows where he is going because he knows where he came from. I tell my kids about Taylor all the time. I want them to understand that success and originality rarely come easily. Its all about hard work and practice. I believe Taylor picked up a guitar at 14 or 15 and he still finds ways to wow an audience at 63. Age as they say, is all in the mind.



 I saw the movie Jiro and was very moved by the idea of shokunin, which I understood to be humbly doing the same work day after day and always trying improve on it. We had written about it in our book. I also was touched by the father-son dynamic — the father's care in training the son, the son's challenge in succeeding a master. I had much joy in hearing the inimitable auctioneers in the Tokyo fish market, although they spoiled it by underlaying a percussion track. Sad to see that the tuna on display was much smaller even than what I saw when I visited in 2001 — as Aubrey noted.



 I have been reading a memoir about David Ricardo, and researching the details of his life. Here are some interesting things I have learned:

Ricardo destined for the same line of business as his father; and received, partly in England, and partly at a school in Holland, where he resided two years, such an education as is usually given to young men intended for the mercantile profession. Classical learning formed no part of his early instruction; and it has been questioned, with how much justice we shall not undertake to decide, whether its acquisition would have done him service; and whether it might not probably have made him seek for relaxation in the study of elegant literature, rather than in the severer exercises of the understanding; and prompted him to adopt opinions sanctioned by authority, without inquiring very anxiously into the grounds on which they rested.Mr Ricardo began to be confidentially employed by his father in the business of the Stock Exchange, when he was only fourteen years of age. Neither then, however, nor at any subsequent period, was he wholly engrossed by the details of his profession. From his earliest years he evinced a taste for abstract reasoning; and manifested that determination to probe every subject of interest to the bottom, and to form his opinion upon it according to the conviction of his mind, which was a distinguishing feature of his character.

Mr. Ricardo, senior, had been accustomed to subscribe, without investigation, to the opinions of his ancestors, on all questions connected with religion and politics; and he was desirous that his children should do the same. But this system of passive obedience, and of blind submission to the dictates of authority, was quite repugnant to the principles of young Ricardo, who, at the same time that he never failed to testify the sincerest affection and respect for his father, found reason to differ from him on many important points, and even to secede from the Hebrew faith.

Not long after this event, and shortly after he had attained the age of majority, Mr Ricardo formed an union, productive of unalloyed domestic happiness, with Miss Wilkinson. Having been separated from his father, he was now thrown on his own resources; and commenced business for himself. At this important epoch of his history, the oldest and most respectable members of the Stock Exchange gave a striking proof of the esteem entertained by them for his talents and character, by voluntarily coming forward to support him in his undertakings. His success exceeded the most sanguine expectations of his friends, and in a few years he realised an ample fortune.

 "The talent for obtaining wealth," says one of Mr Ricardo's near relations, from whose account of his life we have borrowed these particulars, "is not held in much estimation; but perhaps in nothing did Mr R. more evince his extraordinary powers, than he did in his business. His complete knowledge of all its intricacies; his surprising quickness at figures and calculation; his capability of getting through, without any apparent exertion, the immense transactions in which he was concerned; his coolness and judgment, combined certainly with (for him) a fortunate tissue of public events, enabled him to leave all his contemporaries at the Stock Exchange far behind, and to raise himself infinitely higher, not only in fortune, but in general character and estimation, than any man had ever done before in that house. Such was the impression which these qualities had made on his competitors, that several of the most discerning among them, long before he had emerged into public notoriety, prognosticated in their admiration, that he would live to fill some of the highest stations in the state."*

According as his solicitude about his success in life declined, Mr Ricardo devoted a greater portion of his time to scientific and literary pursuits. When about twenty five years of age, he began the study of some branches of mathematical science, and made considerable progress in chemistry and mineralogy. He fitted up a laboratory, formed a collection of minerals, and was one of the original members of the Geological Society. But he never entered warmly into the study of these sciences. They were not adapted to the peculiar cast of his mind; and he abandoned them entirely, as soon as his attention was directed to the more congenial study of Political Economy.

David Ricardo came, for the first time, before the public as an author in 1809. The rise in the market price of bullion, and the fall of the exchange that had taken place in the course of that year, had excited a good deal of attention. Mr. Ricardo applied himself to the consideration of the subject; and the studies in which he had latterly been engaged, combined with the experience he had derived from his moneyed transactions, enabled him not only to perceive the true causes of the phenomena in question, but to trace and exhibit their practical bearing and real effect. He began this investigation without intending to lay the result of his researches before the public. But having shown his manuscript to the late Mr. Perry, the proprietor and editor of the Morning Chronicle, the latter prevailed upon him, though not without considerable difficulty, to consent to its publication, in the shape of letters, in that journal.

The first of these letters appeared on the 6th of September 1809. They made a considerable impression, and elicited various answers. This success, and the increasing interest of the subject, induced Mr. Ricardo to commit his opinions upon it to the judgment of the public, in a more enlarged and systematic form, in the tract entitled "The High Price of Bullion a Proof of the Depreciation of Bank Notes." This tract led the way in the far-famed bullion controversy. It issued from the press several months previously to the appointment of the Bullion Committee; and is believed to have had no inconsiderable effect in forwarding that important measure. In this tract Mr Ricardo showed that redundancy and deficiency of currency are only relative terms ; and that so long as the currency of any particular country consists exclusively of gold and silver coins, or of paper immediately convertible into such coins, its value can neither rise above nor fall below the value of the metallic currencies of other countries, by a greater sum than will suffice to defray the expense of importing foreign coin or bullion, if the currency be deficient; or of exporting a portion of the existing supply, if it be redundant.

But when a country issues inconvertible paper notes, (as was then the case in England), they cannot be exported to other countries in the event of their becoming redundant at home; and whenever, under such circumstances, the exchange with foreign states is depressed below, or the price of bullion rises above, its mint price, more than the cost of sending coin or bullion abroad, it shows conclusively that too much paper has been issued, and that its value is depreciated from excess.

The principles which pervade the Report of the Bullion Committee, are substantially the same with those established by Mr Ricardo in this pamphlet, but the more comprehensive and popular manner in which they are illustrated in the Report, and the circumstance of their being recommended by a Committee composed of some of the ablest men in the country, gave them a weight and authority which they could not otherwise have obtained. And though the prejudices and ignorance of some, and the interested, and therefore determined, opposition of others, prevented for a while the adoption of the measures proposed by Mr. Ricardo and the Committee for restoring the currency to a sound and healthy state, they were afterwards carried into full effect; and afford one of the most memorable examples in our history, of the triumph of principle over selfishness, sophistry, and error.

From "On Profits":

Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.

The clear and direct tendency of the poor laws is in direct opposition to these obvious principles: it is not, as the legislature benevolently intended, to amend the condition of the poor, but to deteriorate the condition of both poor and rich; instead of making the poor rich, they are calculated to make the rich poor; and whilst the present laws are in force, it is quite in the natural order of things that the fund for the maintenance of the poor should progressively increase till it has absorbed all the net revenue of the country, or at least so much of it as the state shall leave to us, after satisfying its own never-failing demands for the public expenditure.

This pernicious tendency of these laws is no longer a mystery, since it has been fully developed by the able hand of Mr Malthus; and every friend to the poor must ardently wish for their abolition. Unfortunately, however, they have been so long established, and the habits of the poor have been so formed upon their operation, that to eradicate them with safety from our political system, requires the most cautious and skilful management. It is agreed by all who are most friendly to a repeal of these laws, that if it be desirable to prevent the most overwhelming distress to those for whose benefit they were erroneously enacted, their abolition should be effected by the most gradual steps.

It is a truth which admits not a doubt, that the comforts and well-being of the poor cannot be permanently secured without some regard on their part, or some effort on the part of the legislature, to regulate the increase of their numbers, and to render less frequent among them early and improvident marriages. The operation of the system of poor laws has been directly contrary to this. They have rendered restraint superfluous, and have invited imprudence, by offering it a portion of the wages of prudence and industry.

The nature of the evil points out the remedy. By gradually contracting the sphere of the poor laws; by impressing on the poor the value of independence, by teaching them that they must look not to systematic or casual charity, but to their own exertions for support, that prudence and fore-thought are neither unnecessary nor unprofitable virtues, we shall by degrees approach a sounder and more healthful state.



 There are some fun "facts" and observations in the JPM 2011 Annual Report:

p. 159: Chief Investment Office ("CIO") VaR in 2011: Avg: 57 Min: 30 Max: 80

(That's $mil)

On p 108, Treasury and CIO (together, whatever that means)

Security gains: in 2011, 2010, 2009 $ 1,385 2,897 1,147

Avg Portfolio: $ 330,885 323,673 324,037

So supposedly they had 57 mil at risk on a 330 bil (perhaps) porfolio while making 1-3 billion in profit.

The 57 mil sounds "funny" for the lack of a better word, but a $2 bil loss doesn't sound like it's a lot compared to the portfolio size, and not totally unexpected given the past gain.

On a separate note, the guy running the unit is named "Achilles" and he has a 6 foot photo of a missile in flight on his wall. He preferred to hire Greeks, and endearing quality, although Bruno seems fully French. What could go wrong?

It's also interesting that if you trace "the story", it really broke around April 6th.

Or as you can read in the comments to this video even before, with various Bloomberg and other "booster shots" on April 13th but it took this long to come to fruition.

The JPM stock broke a pretty steady uptrend on April 3rd.

You can also find that the woman who ran the CIO office (not sure how she shared power with Achilles) was one of the highest paid JPM executives for several years running making around $15 mil per year. 2011 was a down year for her.



 I'm wondering why Jamie Dimon is so popular with the media.

He's always treated with kid gloves.

Even today's $2 billion was referred to as a "rare black eye".

Is he married to a black woman? Or gay?

Or have some other fact in his background that leads to his being treated as such a good guy?

I'm so out of things I have no idea what's going on here.

Victor Niederhoffer writes: 

The more one thinks about it, the more that one believes that Dimon and Buffett have the same hallmarks that make them beloved by the intellectuals and the media. What those hallmarks are, I can't put my finger on exactly. Perhaps it's a zacharian, "your own man says that you must be low".

Anonymous writes: 

It's what I call the no-bullshit bullshit factor. Americans like leaders who say, "The buck stops here. And I screwed up." Buffett took a 300+ million dollar whack on some energy bonds that collapsed. And he stood up and took the blame. And no one blinked. He does that regularly. I think the press likes to hear people stand up and say, "I screwed up. I was wrong. I take responsibility. This was bad and stupid." There are countless examples of this in politics, sports, commerce, etc. They don't like people like Audrey McClendon who say things like "I apologize." But who never stand up and say, "The buck stops here and I was wrong."

Victor Niederhoffer adds: 

One doesn't admit "I was wrong" when there are likely to be lawsuits as this wouldn't seem very good to a jury when defending yourself against damages. There must be an exemption from civil and regulatory liability for such activities in support of the greater good here that enables one to take blame for such "egregious" behavior and at the same time get it past your lawyers. 

Laurel Kenner writes: 

The Administration needs a whipping boy, and Lloyd was tired of the job. Anyway, Dimon likes harpooning whales in a highly public, loss-producing way. Remember what happened when he announced to the world that he would be liquidating Salomon's book. Call him Ahab.

Victor Niederhoffer writes: 

Perhaps he serves as a depository and station stop in the revolving door for former flexionic officials when they need money in various forms. Also, as a symbol of the trillions of bail out moneys that were taken away from the forgotten man, and given to the banks to invest in such useful activities as synthetic credit derivatives at the CIO's office (note the symbolic name sort of like showing the tv showing bush war activity while beggars starve on tv during a movie to show you're a fellow traveler), he must be shown to be Holier than the Pope to symbolize the verisimiliture, the halcyon nature of the transfer of the trillions and the reason for the lack of jobs.

Rocky Humbert writes: 

Folks, we can debate the politics, but don't miss the macroeconomics here. If they had done this by making a few hundred billion in new loans, people (but perhaps not the shareholders) would applaud (at first).But if they do the same trade by buying the CDX index, it confuses people. But it's really the same thing. Therefore, I think it's a multi-dimensional cognitive dissonance. Between the people who want the banks to loan. And the people who don't want them to use derivatives. And the people who hate Jamie Dimon. And the people who love Jamie Dimon. And the fact that as a multiple of price/tangible book value, their stock is among the most expensive money center bank. Lastly, the 10Q says that if the yield curve steepens by 100 basis points, their 12 month pretax earnings go up by $549 million. And, their credit losses made a new cycle low.



This winter it didn't rain here for nearly four months or more. Everything was dry, crispy brown. About a week ago it started to rain, and its rained almost everyday. Surprising how a big complex system such as weather can run such a long trend of just one pattern with almost no variation. Even random samples with a small drift can make very long runs. Same thing happened this spring in the market, a four month trend with pretty much the same thing everyday. Then all of sudden it changed as well. It's interesting how trends can just turn all of a sudden.



 I've been playing a lot of cash golf recently, with mixed results, and need to offer a few rules to help protect your bankroll in cash games.

1. Never play against a guy who is older, real tanned, friendly, and laid back. (If someone offers to carry your clubs from your car…run away)

2. Never believe a handicap of a stranger until you've seen him play at least 10-15 times. Funny thing is that amateurs egos make them take 2-3 strokes off their handicap, while good hustlers add 2-8 strokes….whatever the market will bear.

3. Never bet a new guy you've just played 17 holes for fun, on the 18th hole…..Never.

4. Never, ever play a guy for money who has a set of irons that have all the impact marks on the face, dead center, the size of a dime. See this and know you are going to reach for the wallet.

5. Never, ever play a guy for money who's clubs seem to be greasy(it's OK to look at and admire your opponent's clubs). Vaseline on a club face of a wood adds yards and can correct a slice.

6. Some old time golf hustlers think that if one is not cheating at least twice a round then you are not doing enough.

7. Watch out for the player that might have a couple of greens keepers who are a couple hundred yards down the fairway in carts who will kick a ball into a better lie….or kick a good lie into a sand divot….all for a picture of Franklin, some weed, coke, or whatever.

8. Never leave your clubs overnight in the locker room while you are the guest of a club…you might find the lies and lofts of your irons have shifted more than a few degrees while you were not watching them. Not all pro shops are honest.

9. Remember that not all the world's best golfers are on the PGA tour. In fact, most of the best golfers are probably not on the tour, but I cannot afford to quantify this statement.

10. Stay away from playing "Sticks" when you are a visitor put into a foursome.

11. Never accept a bet someone who is willing to play you with a pitching wedge, left handed, while offering you a ton of strokes….You will lose

12. If someone offers you a proposition bet like they can hit the ball closer to the pin than you with their 5-iron from 60 yards out, or any similar propositions, just say NO..

13. If your opponent shakes your hand, and his hand is smooth, without calluses, avoid betting money with him. Also, those squinty, cold eyes are an indicator .

14. Remember that the talent to shoot low scores is not the key to winning money.

15. The very best golf hustlers have negotiation skills that equal or surpass their golf game.

16. For the best golf hustler, when the game gets intense, it doesn't deteriorate, it improves.

17. The very best golf hustlers are more fearful of a seasoned golf gambler than a PGA pro….much more fearful.

18. Never bet a guy who says his caddy can beat you….you will lose and the caddy will win.

19. Remember the old maxim, "You drive for show and put for dough." The short game is where the real cash is made.

20. Stay out of cash games in Florida during the winter, especially with strangers. A low key guy at my club has hustling earnings that would put him in the top 15 if he was in the PGA.

21. Never play for cash with strangers at the Las Vegas Country Club.

22. Never bet with anyone who offers you any proposition up front at a public course…..especially a run down public course.

23. Even friends might turn 5 strokes into 3 on on the front nine and you will suspect it while settling up over drinks at the 19th hole..

24. Never, ever take a mulligan in a cash game with a stranger.

25. Never play cash games with strangers, and in foursomes, watch out for the tanned, laid back, callous free, friendly ringer.

Hustlers realize that the score their opponent shoots means absolutely zilch….what matters is who walks away with the cash. The sucker can shoot a 69 and lose money, but the hustler can shoot an 86 and win. Scores mean nothing until the game is over and the checkbook is pulled out..

All of these rules have market corollaries. What do you think the corollaries are?



 I have recently started to get into tea. I bought a few yixing pots and I am doing the whole gongfu cha thing.

This is a very interesting area, because tea is even more complex than wine. I am getting used to it, but I just read something which is so funny and serious at the same time, that I would like to share it.

With wine, I am used to strange comparisons. For instance, some wines are described as having a "flintlock" flavor. And they do.

But read this about tea:

Mineral impression makes up bulk of flavor. Mixed with liquor aroma it is highly reminiscent of the taste and smell of the air on a cold foggy summer morning on a beach on Mendocino's coast. I suppose Monterey is similar, but the beaches tend to be a tad coarser sand and the combined smell of cyprus and redwood is a bit more prevalent farther north.

This goes a bit beyond wine addicts descriptions. And this is not snobbery, this is actually sincere and authentic.

Leo Jia replies: 

I concur with Bruno on teas.

I drink tea everyday and have drunk many varieties: black, red, green, white, pu'er, oolong, herbal etc. Yes, one can find a lot of senses from them. One even can find different senses of the same tea at different moments.

Through the experiences with teas, coffee, wines, etc, I realized that one actually can derive sophisticated senses and feelings from just about anything one encounters in life. Be it water (from different streams, different environment/surroundings, different altitudes, and at one's different moods, etc), and likewise, air, earth, color, sound, bread, rice, etc. Very amazing.

But more amazing I think is that the very senses one gets from the things reflects, manifests and realizes one's own life. It is the fact that we can sense about these various things that makes us alive. It is also true to me that how much senses one gets actually indicate how much life one has lived - the more one has been into life, the more one can sense about the things.

With that, I am always curious about what senses I don't get, because what I don't get are what I have not got and hence are unknown to me. I am always joyful at the very moment when I suddenly sense something new, because that means I have just got something more in life.



 It is often the case that I prefer position fishing to position trading, though the two are not mutually exclusive. Regarding the prior, I enjoy fly fishing on rivers and streams. Current relates closely to positioning on a river. The ideal is directly across from the trout, but not too close. From there I cast upstream at a 45 degree angle allowing the fly to sweep with the current to the fish. If the line is tight, drag free and natural a nice trout might take the fly. When the current is slow I add even greater stealth.

When the fish are rising, there is a huge advantage for the angler. A trout has chosen to reveal his position for what must be a considerably appealing meal. This is very useful information. If I can match this insect and cast well, while concealing my own position, I may catch fish. I have heard of anglers who crawl on hands and knees to the river to avoid detection, but I have never been this disciplined. Once at Henry's Fork I worked as part of a team with a friend. One of us would act as lookout on the cliffs above yelling to the other positions of the otherwise undetectable trout.

That aside, it is never good to fish with a noisy friend. And though I love an amiable labrador, they do not make good fishing companions and always give away your position. As a rule, the largest fish will always be in the places that require the most effort to get in position. They will be in the deep pools on the wrong side of the river, in slow water just next to fast water, under limbs and fallen trees or in eddies that are impossible to row or wade to. The more effort you put in climbing over boulders, fording deep streams or running to get ahead of your fishing buddy, the better your chances.



 The Upas tree was a terrible tree according to Erasmus Darwin that was so poisonous that it was able to destroy all life of any kind for 15 miles around it. Who and what are the Upas trees of the market?

I would say that Madoff and Abelson and the conglomerates and real estate slumps are Upas trees, and in increase in rates, perhaps the first change in direction is also quite lethal. The signal of unbridled interference and flexionism galore as in October 08 would also seem to be a curse. The lyrics to "I've got a little list" from Mikado go through the head. The hoodoo, the parson and the albatross from O'Brian go through the head as does the report "there's a little shadow on this x-ray. Probably nothing to worry about."

What would you add? I would like to say Buffett but I refrain.

Victor Niederhoffer adds:

 One Upas tree regularity is the tremendous move against the weak player when he she one is being squeezed out of position. The MF, the Societe General, and the Thailand moves are examples of that. One wonders what the other side of the coin is. What are the apple trees of the market, the benevolent things that cause it to go up. The book "The Man Who Planted Trees" is a very good one for all to read describing how a French man who planted apple trees brought a village to life from death by first stopping erosion. And then providing shade and food and respite from the heat. The oak tree is also a benevolent tree providing food and shelter for countless species and Cervantes mentions the cork tree "whose benevolent fruit provides shelter for beauteous maidens without any thought of its own welfare". What other trees? What's good for the market. Many of the things that are good for the market are bad in the short term but good in the long term. Like a decline in oil prices. The prospect of a decrease in the service revenues is also very good. What are some benevolent and some more destructive things for markets?

Tim Melvin writes:

High junk bond defaults that clear the weak players and reallocate assets to stronger hands come to mind as a short term negative that is a long term positive.

Laurel Kenner adds: 

Obamacare and Dodd-Frank are the two worst and most dangerous pieces of legislation ever introduced into the American field, and have the potential to turn into giant ruinous Upas trees. They are only shells for unknown future rules put into effect by people whom neither the electorate nor Congress will be able to control. They have no sunset, no funding limits, and no restraint on their bureaucracies. 

Steve Ellison adds:

 I would nominate an inverted yield curve. An inverted yield curve pinches the flexions' net interest margins. 6 of the last 40 years began with inverted yield curves: 1974, 1979, 1980, 1981, 2001, and2007. None of them were good years to be an investor in stocks.

Kurt Specht comments:

European debt concerns and related debt market convulsions are frequently sited as short term drivers of overall market action.  

Ken Drees adds: 

 I was about to opine about the benefits of the upas, even something so deadly has good parts and then I tried to fold that into a Madoff or an MF Global and couldn't come up with any quick relationships of how a bad market tree can bestow something positive other than a lesson to be learned. Other than a lesson to future investors, sometimes positive regulation comes out of these dark trees.

From wikipedia

It is a fairly low source of timber and yields a lightweight hardwood with density of 250-540 kilogram per cubic metre (similar to balsa). As the wood peels very easily and evenly, it is commonly used for veneer work. The bark has a high concentration of tannin which is used in traditional clothes dyeing and paints. In Javanese traditional medicine, the leaves and root are used to treat mental illnesses. In Africa and other Asian nations, seed, leaves and bark are used as an astringent and the seeds as an antidysenteric. Most famous to Africa and Polynesia are the strong, coarse bark cloth derived clothings- which are often decorated with the dye produced from the bark tannins.

The plant is often grown purposely for shade or shelter around human dwellings as it provides excellent dense shade from the tropical heat. The leaf litter is an excellent compost material and high in nutrients- often spread around local gardens, which must be grown distant to the antiaris due to its extremely dense canopy.

Recently, the plant had allegedly been used by retired Tanzanian pastor Ambilikile Mwasapile to allegedly cure all manner of diseases, including HIV/AIDS, diabetes, high blood pressure, cancer, asthma, and others.

While found to be harmless to humans when boiled in accordance with Mwasapile's mode of creating a medicinal drink out of the bark, it allegedly was undergoing testing by the WHO and Tanzanian health authorities to verify whether it has any medicinal value. However, conflicting reports suggest that the plant in question is not indeed Antiaris toxicaria, but rather Carissa edulis.

Poison Humans have long used poison for hunting and warfare. Antiaris toxicaria is most famous for being employed as a poison for arrows, darts and blowdarts. In Javanese tradition, Antiaris toxicaria is used with strychnos ignatii. The Antiaris toxicaria latex sap has the active components of cardenolides (chemicals with cardiac arresting potential).

The latex, present in the bark and foliage, contains a cardiac glycoside named antiarin, which is used as an arrow poison called upas: Javanese for poison, but, commonly to the poetic (non literal) quality of many Javanese words has a duality of meanings- watchman, messenger and courier.

In China, this plant is known as Arrow Poison Wood and the poison is said to be so deadly that it has been described as "Seven Up Eight Down Nine No Life" meaning once poisoned a person can take no more than seven steps uphill, eight steps downhill or nine steps on level ground. A visitor to South Kensington Museum in 1881 noted a picture of a Upas tree and wrote in their diary 'a picture of the Upas tree the most poisonous in the world any one fall down dead before they can reach it.

Gary Rogan writes: 

It turns out there is a poem about this tree by the traditionally the most famous Russian poet:

The Upas Tree

by Alexander Sergeyevich Pushkin

Deep in the desert's misery,
far in the fury of the sand,
there stands the awesome Upas Tree
lone watchman of a lifeless land.

The wilderness, a world of thirst,
in wrath engendered it and filled
its every root, every accursed
grey leafstalk with a sap that killed.

Dissolving in the midday sun
the poison oozes through its bark,
and freezing when the day is done
gleams thick and gem-like in the dark.

No bird flies near, no tiger creeps;
alone the whirlwind, wild and black,
assails the tree of death and sweeps
away with death upon its back.

And though some roving cloud may stain
with glancing drops those leaden leaves,
the dripping of a poisoned rain
is all the burning sand receives.

But man sent man with one proud look
towards the tree, and he was gone,
the humble one, and there he took
the poison and returned at dawn.

He brought the deadly gum; with it
he brought some leaves, a withered bough,
while rivulets of icy sweat
ran slowly down his livid brow.

He came, he fell upon a mat,
and reaping a poor slave's reward,
died near the painted hut where sat
his now unconquerable lord.

The king, he soaked his arrows true
in poison, and beyond the plains
dispatched those messengers and slew
his neighbors in their own domains.



This is an interesting article on the genetic testing of horses–trying to find the next Kentucky Derby winner.

The latest trend among consultants to horse buyers and breeders is to rely on algorithms involving a "speed gene" and other markers, not just x-rays and endoscopes.



 Walking is one of the best forms of exercise. Better yet is walking uphill which causes higher cardio rates, and even better yet is climbing up mountains. Running seems to cause many injuries. The recent book, Born to Run, is an interesting look into running injuries caused by modern running shoes.

There is a move to more flexible or barefoot type shoes for running. A number of years ago, Carlos Castaneda wrote of the high involved in walking long distances. 20 minutes of walking is good, but it can easily be done for 6 hours. New Yorkers appear trimmer due to more walking than their western counterparts who drive everywhere.

The car culture is destroying the walking. Walking is very meditative and relaxing, healthy, safe, cheap. Highly recommended. Good shoes, a hat and a walking stick are helpful. Its good to bring some water on a belt or hydration pack.

Alan Millhone writes: 

Hello Mr. Sogi,

My late friend Dr. Tinsley loved to take very long walks. I carried his magnetic checker board and as we walked he would chat with me and play blindfold Checkers. He was trim and in very good shape to play at tournaments and matches for long grueling hours. I miss him.





 Aggregates and Averages, Individuality and Interventionists

By Stephen Mauzy

John Cowperthwaite, financial secretary of Hong Kong from 1961 to 1971, was the rare bureaucrat: a free-market noninterventionist inured against the hubris of grand economic scheming.

Cowperthwaite ventured into Hong Kong in 1941, joining the colonial administrative service after studying economics at Cambridge. Returning to Hong Kong, in 1945, Cowperthwaite was directed to determine ways the British government could boost Hong Kong's postwar economy.

A man blessed with exceptional instincts, Cowperthwaite determined that the best strategy to keep Hong Kong recovery's moving forward was to enervate the interventionists by disarming their most important weapon. When asked to name the one reform that swelled his pride most, Cowperthwaite replied, "I abolished the collection of statistics."

Cowperthwaite knew that statistics provided the raw input for interventionist mischief. He also knew that an organic, messy, free wealth-producing economy is too confounding and too replete with innumerable combinations of human action to be improved by mere mortals.

Rare is the bureaucrat and other overhead who will acknowledge such an obvious limitation. Cowperthwaite could; most can't.

article continues…….



 Many of the themes Vic hits strongly on in his posts about how the financial markets are fed by money supplied by the public, which ends up in the pockets of the flexions — and many others — are driven home in the article, "A Life Driven by Desire," on p C13 of today's WSJ.

The article is a review of Theodore Dreiser's "The Financier," which is based on the life of Charles Tyson Yerkes, "one of the more freewheeling Gilded Age robber barons."



 Maybe a financial version of this lifted the Nikkei to 10k? Is a stock or an index heavier/harder to move higher at retrospect lows, mid points or tops? What is heaviness in terms of financial prices at lows, inertia? Is weight in financial terms of stock movement a correct way to view? Are stock prices weightless at all times and only affected by tethers on or tethers off? What made the Nikkei rise gently to 10200 and now fall gracefully back towards its 9000 - 8000 beginning level. Lava lamps come to mind.

"Wearable Muscle Suit Makes Heavy Lifting a Cinch":

It takes a second to register, but the 40 kg of rice I just picked up like a human forklift truck suddenly seem as light as a feather. Thanks to the "muscle suit" Umehara slipped onto my back prior to the exercise, I feel completely empowered. Fixed at the hips and shoulders by a padded waistband and straps, and extending part-way down the side of my legs, the exoskeleton has an A-shaped aluminium frame and sleeves that rotate freely at elbow and shoulder joints.

It weighs 9.2 kg, but the burst of air that Umehara injected into four artificial muscles attached on the back of the frame make both jacket and rice feel virtually weightless.

The muscle suit is one of a series of cybernetic exoskeletons developed by Hiroshi Kobayashi's team at the Tokyo University of Science in Japan. Scheduled for commercial release early next year, the wearable robot takes two forms: one augmenting the arms and back that is aimed at areas of commerce where heavy lifting is required. The other, a lighter, 5 kg version, will target the nursing industry to assist in lifting people in and out of bed, for example.



 One asks: When was the last time that Russia's (or the USSR's) top military officer delivered a direct ultimatum, and nobody (other than readers of the Drudge Report) noticed???

"Russia Threatens to Strike NATO Missile Defense Site":

Russia’s top military officer warned Thursday that Moscow would strike NATO missile-defense sites in Eastern Europe before they are ready for action, if the U.S. pushes ahead with deployment.“

A decision to use destructive force pre-emptively will be taken if the situation worsens,” Russian Chief of General Staff Nikolai Makarov said at an international missile-defense conference in Moscow attended by senior U.S. and NATOofficials. Gen. Makarov’s threat comes amid an apparent stalemate in talks between U.S. and Russian negotiators over the missile-defense system, part of President Obama’s policy to “reset” relations with Moscow.

The threat also elicited shock and derision from Western missile-defense experts.“It’s remarkable,” said James Ludes of the Pell Center for International Relations and Public Policy at Salve Regina University in Newport, R.I. “That Makarov would make this kind of threat in a public forum is chilling.”“He must have been drunk,” said Barry Blechman, a distinguished fellow at the Stimson Center think tank.



 Anyone who has dined in Singapore's fabulous cheap eateries may be interested in these numbers.

"Secret Roast-Pork Recipe Tests Value of Real Estate":

How much is a recipe worth? About $1.8 million, according to the owner of Kay Lee Roast Meat Joint , who boosted the sale price of her Singapore eatery by that amount when she put it on the market this year.Betty Kong and her husband want S$3.5 million ($2.8 million) for their 60-plastic-stool establishment, a premium over the S$1.25 million assessed value of the site. The price includes the property, their recipe for roasting duck, pork ribs and crispy pig skin as well as other Cantonese-style classics, plus three months of cooking lessons

The Roast Meat Joint generates sales of around S$2,000 a day, she said, or S$620,000 annually, assuming it’s shut one day a week and three days for Lunar New Year holidays. Profit margin is 60 percent, according to her broker Raymond Lo at Knight Frank LLP. The asking price is 5.6 times annual sales, compared with the 1.1 multiple for the Singapore benchmark

Straits Times Index. (FSSTI) It would take six years to recoup the recipe premium.

Larry Williams responds:

Food costs are 20% in the best run restaurants so the 60% profit cannot include labor, overhead etc. No way

Black pepper crab in Singapore is one of the worlds greatest dishes.



 My teens say facebook is yesterday–hope the IPO isn't a "fail" as they call things that suck, or do not work. 

Facebook IPO Status Update:

The stock now could go public at a lower price. Moreover, new uncertainty about the Menlo Park, Cal., company's growth prospects may temper some of the feeding frenzy that was expected to take place on the stock's first day of trading — currently scheduled for May 18.

Craig Mee responds:

Agreed. Looking at explosive movers and shakers like Google, Facebook is a different animal. Google gets the job done, but Facebook is more part of a trend or coolness factor that can be side stepped as quick as the share/message/like buttons allow. What's more, the site, especially the log in page, looks kind of old school. You can buy things, but you can't buy coolness, once you've lost it.

Russell Sears writes:

My daughter says it is because Facebook has been taken over by all the whiners, posting all the time and losers playing games. It seems the only acceptable use is keeping Grandma up to date. Hence if you admit you use it, you are the sucker at the table.

Gary Rogan writes:

In addition to the inherent instability of any high tech company, this one adds the delightful dependence of its success on the what most of its customers think of most/some of its other customers, usually a characteristic associated with trendy fashion retailers and night clubs. Compared to this one, Groupon that made another all-time low today at significantly less than half of its initial trading range is the rock of Gibraltar.



Some new research shows that most of the population is below average with a few individuals with outlying performance. Empirical studies of the market display fatter tails than normal and slightly skewed distributions. Anecdotal evidence supports this idea as well. I am wondering how this affects the performance of normal based models.

Put Away The Bell Curve: Most Of Us Aren't 'Average'



The next meeting of the NYC Junto will take place on Thursday May 3, 2012. The main speaker will be Ilana Mercer with "Return to Reason". All readers are invited, 20 West 44th Street, NYC, starting at about 7:30pm. 



 The % of manufactures that saw increasing orders went from 53 % to 54.8 % this month, and it caused a break in the round and a 1% up move. Let's say there are 1000 or n manufactures who report in the survey. The standard error of a proportion is 1/2 divided by the square root of n, i.e. 1/60. Thus the actual proportion is less than 1 standard error away from expectation, a 35% shot by randomness to say nothing for the quantum increases in randomness caused by faulty seasonal adjustments. When you add in that manufacturing these days represents 10 or 20% of the economy, it's pretty iffy all around. That's what makes the markets run.

Steve Ellison writes:

If we are generous and estimate "more than 300" as 399 respondents, the margin of error for a 54.8% result is 4.9%, if Manta's listing of 45,000 US manufacturing companies is a rough approximation of the population.

Victor Niederhoffer replies: 

As Sholem Alechem would say, "we are both right".

Anton Johnson adds:

An off topic anecdote. For those don't who use Gmail, they mine email text to provide targeted ads. From time to time I get a chuckle at what AdWords elicits for me. Today, from Vic's "sholem alechem" comment, the algo determined that soon I will be travelling to Israel and require lodging in Tel Aviv.



 World class poker rounder and poker player, Thomas Austin Preston Jr. aka "Amarillo Slim" died of colon cancer yesterday at the age of 83. Known as a real solid poker player, he was also a great prop hustler, one of the best on the planet.

Slim listed 10 rules for poker success that have relevance in trading.

1. Play the players more than you play the cards.
2. Choose the right opponents. If you don't see a sucker at the table, you're it.
3. Never play with money you can't afford to lose.
4. Be tight and aggressive; don't play many hands, but when you do, be prepared to move in.
5. Always be observing at a poker game. The minute you're there, you're working.
6. Watch the other players for "tells" before you look at your own cards.
7. Diversify your play so others can't pick up your tells.
8. Choose your speed based on the direction of the game. Play slow in a fast game, fast in a slow game.
9. Be able to quit a loser, and for goodness' sake, keep playing when you're winning.
10. Conduct yourself honorably so you're always invited back .

How do you think these rules translate to the trading arena?


Resources & Links