To what extent did the 20% rise in the grains in the two weeks preceding the beginning of this week, presage the upward move of 50 points this week in S&P? How to quantify?

Jeff Watson writes: 

Grains were oversold a couple of weeks ago because many players thought Greece would leave the Euro, and China's economy might crash.

Gary Rogan writes: 

It seems rather unlikely that China crashing would affect its demand for grains much. Perhaps some substitution from animal feed to human consumption. I had read in the past that its demand for basic foodstuffs is pretty inelastic, and in fact this demand becoming such is what really led to the upheavals in the Arab world as there was a huge new inelastic customer entering the market thus leaving the low-end elastic customers in the dust ready for partial starvation. It also seems strange that Greece's fate would have any appreciable demand on grain demand. Oil maybe, but not grain.



 These people (including Roberts) are Corporatist Globalists completely. Before yesterday I would have wagered that they would strike EVERYTHING in the bill except the mandate! The corporatist, globalist party is what unites these freaks, Kagan, Sotomayor, Roberts (just look at all of these people, that's all you really need to know anyhow if you've been walking around on this planet for at least a few decades with your eyes open. Really, look at the picture of these freaks together, then the class picture of the jox riding in The Derby. Who would you want deciding these matters? Does it matter?.

Be it Kelo, Arizona Immigratino, Affordable Care Act or any other Orwellian-monickered bill before them, the ONE thing the court invariable rules in favor of is the entities, the globalist, corporatist entities and never the individual.

I'll reiterate my case: The 21st century is not one of class struggle, but one of the struggle of the individual versus the globalist, corporatist interests. We are being ruled by our enemies.



 I note that one of our noted contributors has observed that "What Madison et. al. did not anticipate was the Federal government would supersede the States in authority [and] would have laughed/cried/raged at the notion that the "commerce clause" enabled Congress to have the power to do anything more than pay for the Army and Navy…"

While this observation may be true enough for Madison, I find that among the "et als" there were contemporaries who disagreed…and did so quite publicly and aggressively. Their thoughts and objections were widely distributed at the time. Unfortunately, their observations, which have proven prophetic, have been largely forgotten or ignored by current commentators and educators. I view the "Anti-Federalist Papers" as Liberty's Abel to the Federalist's Cain.

In Anti-Federalist #32, Brutus reads Article 1, Section 8 and concludes that "Under this clause may be imposed a poll tax, a land tax, a tax on houses and buildings, on windows and fireplaces… comprehends an excise on all kinds of liquors, spirits, wines, cider, beer, etc., and…on every necessary or conveniency of life, whether of foreign or home growth or manufactory…It opens a door to the appointment of a swarm of revenue and excise collectors to prey upon the honest and industrious part of the community, [and] eat up their substance. . . "

As to our contributors surprise that the ruling "says the Federal government cannot automatically compel the States to follow Congress' mandates", Brutus, responds: "I shall only remark, that this power, given to the federal legislature, directly annihilates all the powers of the state legislatures…the general government having in their control every possible source of revenue, and authority to pass any law they may deem necessary…[s]hould any state attempt to raise money by law, the general government may repeal or arrest it in the execution…"

I would further question the contention that this apparent sop to States' rights might is a victory. In fact, I wouldn't be surprised to see the reasoning used (or mis-used) just as the commerce clause has been used and mis-used by Congress to step a little beyond the boundaries envisioned by the founders. That said, the Federalists, though heralded as deep thinking patriots who brought a "dream" to life, a substantial number were among that period's well-to-do (the aristocracy, if you will). The author of Anti-Federalist 1 describes them as members " of the NOBLE order of C[incinnatu]s, holders of public securities, men of great wealth and expectations of public office, Bankers and Lawyers…[t]he Lawyers in particular, keep up an incessant declamation for its adoption; like greedy gudgeons they long to satiate their voracious stomachs…I hope my fellow-citizens will look well to the characters of their preference, and remember the Old Patriots of 75; they have never led them astray…"

They were little different from the gentlemen and (now) ladies currently occupying Congress and assuring us that the Declaration is their pole star and the Constitution sacrosanct. (Other interesting contentions one discovers in the Anti-Federalist Papers is that many of the fine gentlemen elected to attend the Convention, didn't..resulting in a more limited debate, conducted largely by those intent on creating a new document, not amending the existing Articles.) Whether these contentions can stand up to historical scrutiny is open - but, to date, the secondary education establishment has limited its scope on this period to fulsome praise for Federalists X and LI (Roman numerals 10 and 51).

I would argue, despite strident claims to the contrary, that our representative are not interested in a better informed, better educated, and more involved public. Governments prefer well-fed, as opposed to well read, voters.



 I thought this was a fascinating article: "To Improve Kids' Chinese, Some Kids Move to Asia"

But before one commits to a relocation, here are some of my thoughts on the characteristics of the language.

1) The pronunciation and writing of any character are totally independent - requiring double efforts not only in learning but also in maintaining the skill of the language; In this computer age, due to phonetic typing mechanisms, many natives often forget the actual writings of a lot of characters.

2) Every word, normally combined with two characters, has a lot of words with same or similar pronunciation but totally different meanings; This results in constant misunderstandings or the need of verifications in daily life. As an example, a recent laughter amongst a few friends was like this: the first guy mentioned there are a lot of huihuier (an informal word for a Muslim ethnic called Hui), the second guy responded he did't see any wenwuier (mosquitos), then the third guy said where are the kuihuaer (sunflowers). They were not joking but simply misunderstood one another.

3) The language is not well structured - meaning that many sayings can have different meanings resulting in people constantly having to rethink what the other person really meant. Writers throughout history have made use of this character in their works.

4) The nature of ambiguity from the language has actually become a tradition in ordinary communications, totally ignoring the very purpose of communications.

5) There are so many dialects, some of which are nearly of total independence. Even though most speak the official dialect, Mandarin, people from regions of different dialects don't communicate intimately.

6) In spite of being an old language, it had a big makeover during the last 100 years or so, resulting in ancient literatures nearly not understood at all by the modern contemporaries. Don't expect to understand Confucius or Sun Tzu at all after you learn the modern language for 10 years or even longer.

7) I speculate one amongst other well analyzed reasons why the industrial revolution didn't happen in China is fundamentally because of the language. The language, not being alphabetic, prevented algebra, which is basically a natural extension of an alphabetic language, from coming about in China.

8) Not getting algebra was an old pity. Not being easily handled by computers as well as by the entire IT systems for automatic processing then is the current one that the speakers of the language have to swallow.



A short squeeze is really more of a commodity market function and serves a valid economic purpose.



 Although this piece about the sorry state of "Generation I" was written by an Australian about that country's young people, it could just as well have been written by an American teacher. In fact, I've read (and heard) similar opinions from numerous American "oldsters" - a number of them teachers. I'm not especially enamored of much that Millennials represent, embrace, or hold sacred (seemingly nothing). However, these youngsters didn't spring from the earth fully formed.

Indeed, much of what they are is the result of molds we've designed, promoted, supported, and enforced.They are not the same molds I was asked to conform to by my parents and grand-parents. We may have believed we were special but only after we had accomplished something that merited "special" recognition. Making the "no-cut-everyone-plays-everyone-gets-a-trophy" soccer league is now considered "special." Worse, several years of T-ball (a pale imitation of athletic prowess), followed by several more of "coach-pitch" has led a multitude of pre-teens to mistakenly believe they have a real shot at future stardom. This "specialness" carries over into the classroom where it is becoming unusual to find fewer than 80-90% of the class on either the "all-A" or "all A & B" honor rolls.

Yet, when they finally reach those golden years of secondary education, they're exposed to mentors like Van Der Wagen who are shocked to discover his students are, in fact, barely literate. Worse, the meme that "math is hard" has become such a broadly accepted truism, that students beyond the fifth grade are required to use a hand calculator. Any young person with the ability to perceive these distortions, and also hearing the calumny being heaped upon them for their "backwardness, would rightly rebel. However, in spite of the fact that rebellion brought about this nation, it is currently considered (and taught) that rebellion is a bad thing.

I don't have to look back too far to recall a generation that took to the streets rebelling against many of the things their parents and their government thought righteous. Many felt Viet Nam was terrible and young men and women demonstrated in the streets, on campuses, and in the capitol (after Ford did away with the draft the young women continued to protest while many of their male counterparts ran into scheduling conflicts).

Going back a little further, we discover another rebellion - this for the civil rights of black people. Today, it's difficult to find any of my fellow high school compatriots who will not boast of his or her contributions to the movement. Yet, still possessing a modicum of memory, I know quite well that most never strayed far from our rural hometown - most, in fact, had never met a black person - some still haven't.

So, as abhorrent as rebellion is considered, those of recent generations have not been reluctant to participate - admittedly, it has been fobbed off as "civil disobedience" but demonstrations against governments resistant to change is frequently required - Jefferson said so. Yet our current crop of youngsters, despite the scorn regularly directed their way, have remained remarkably docile. What, might you ask, do they have to complain about?

Let's see…well, first off, there's my generation. We've been promised the moon by both parties and in programs like Social Security, Medicare, and Medicaid. Despite their imminent bankruptcy, we're demanding that they deliver on those promises - no matter that though they'll ease us to a semi-comfortable ending, their design and funding guarantees that Millennials not only will not particpate, but may well be bankrupted by them. Then there's my children's generation. Overall, they were born in comfortable settings and enjoyed the good things that happened to us (economically) in their youth and middle age.

Unfortunately, we neglected to teach them the virtue of thrift and the danger of debt. We taught them that they could achieve anything they wished - it was the American promise. They neglected to note that things wished for frequently also had to be paid for - as a result they've spent (or borrowed) themselves into a monstrous hole and there is little chance they'll get out.

We've been great role models. One generation, though old enough to know better, still believes in the Entitlement Tooth Fairy; a second generation, born with unprecedented opportunity, has not only frittered away its own birthright but that of their children, too. And yet both generations read articles like Van Der Wagen's and pronounce "amen."

A final observation on Van Der Wagen. He (or she) doesn't help his argument when he points out that Chinese students "expect that they will be given a tonne of information and will be assigned extensive homework…" Asian students in American schools feel the same - but unlike their American counterparts, they go out and find the information and do homework. And they go on to become successful in their further studies and are extremely careful in pursuing a course of study that the commercial world rewards well.

Their success, though, underscores a more important point. Students learn; teachers rarely "teach" rather they guide and, hopefully inspire. But he's right in one aspect - it is a "gargantuan task" and one he clearly is not up to. Australia is better off with his retirement.



 The Lipstick Effect:

"Furthermore, we discovered that the lipstick effect and a woman's desire to attract a mate with resources are unrelated to her independent resource access. Women of both higher and lower socioeconomic status expressed an increased desire to buy luxury beauty products when primed with recession cues. This suggests that an uncertain economic climate leads women to heighten mate attraction effort irrespective of their own resource need.

 More Lipstick:

Although consumer spending typically declines in economic recessions, some observers have noted that recessions appear to increase women's spending on beauty products—the so-called lipstick effect. Using both historical spending data and rigorous experiments, the authors examine how and why economic recessions influence women's consumer behavior. Findings revealed that recessionary cues—whether naturally occurring or experimentally primed—decreased desire for most products (e.g., electronics, household items). However, these cues consistently increased women's desire for products that increase attractiveness to mates—the first experimental demonstration of the lipstick effect. Additional studies show that this effect is driven by women's desire to attract mates with resources and depends on the perceived mate attraction function served by these products. In addition to showing how and why economic recessions influence women's desire for beauty products, this research provides novel insights into women's mating psychology, consumer behavior, and the relationship between the two



 I am at a loss why seemingly great athletes — those you would expect to have the keenest kinesthetic awareness — seemingly struggle on the dancefloor (I am not referring to ballroom-type dancing here…..not just shaking around on some club floor). I used to think that they were merely overly-self conscious, and this was causing their seeming stiffness. Yet, these very athletes excel precisely because they do NOT stiffen up and understand perfectly well the necessity of avoiding that, as well as preventing adrenalin surge, or coping with it in beneficial ways.

Peculiarly, the only atheletes-turned-dancers I have seen who can perform the dancing aspect gracefully are those who are boxers or very good standup fighters.

And the more I have watch this, the more evident it has become to me why (this is my hypothesis, which I am seeking feedback on here). A great ballroom dancer, like a great boxer or stand up fighter, has to have his feet under him such that if he were wearing a belt buckle, it would be slightly pointed upwards. In all other sports, be it playing shortstop, returning a tennis serve, a hockey player…..there is a certain, crouched position where the belt buckle is pointed downwards.

Yes, the best boxers, the best standup fighters almost invariably have tremendous footwork, where even their punches come from the balls of their feet (watch a slow right cross from Ali, how the ball of his right foot pivots, the heel up and turning outward, allowing that complete extension through his target). Many of these guys are often even built much like Fred Astaire, light not just in bodyweight, but seemingly light on their feet as well (though, not to the extent of Astaire, who must have been filled half with helium, the man was truly superhuman). Yet, footwork aside, it seems the angle of the belt buckle, in a range of, say, ten degrees, is a hugely discriminating factor in what permits an athlete to go from his game to the dance floor.

Russ Sears adds: 

In my opinion, there are at least 2 reasons "great athletes" are not dancers both stemming from your definiton of "great". Most of the highest paid athletes need 2 things extra-ordinary size and extremely high levels of fast twitch mucles.

The size comes at a considerable price to "grace". Extra ordinary increase in growth during teen years happen with increase muscular strength often very awkward years for even more normal sized men. It takes much more to control a large body to make delicate movements. Those needing the speed spend considerable time training for raw speed, to go with that size, not necessarily intricate steps and bends. Those needing delicate touch, likewise spend considerable time to get the hand/arms to move just so.
But perhaps more important is the fast twitch need in most of the highest paying sports leaving the "great" athlete with little endurance. Endurance comes with a more balanced slow twitch combination. A cardio taxing dance last several minutes long.

Dancers have considerable cardiovascular fitness, as do boxers. The middle distance runners I have known often are great dancers and often make great boxers and vice a versa. In the olympics note the events that last 2-5 minutes at a hard pace with no rest and you probably have some great dancers. The longer events suffer the opposite, slow twitchers can't jump but have great endurance but lack the explosive movements ability.

Anecdotally, didn't Apolo Ohno win "Dancing With The Stars" one season? 

Duncan Coker writes: 

I used to take lessons and compete in some pro/ams back in the 90s in New York, and also got to know a lot of the professionals at that time, mostly British and Russian. Ralph is right about the position of the man's belt buckle as it is quite important. The center helps create a floating style important in ballroom. Also interesting, the term swing as it applies to ballroom dance is not really about 1940s swing dancing. Rather it means to mimic the swing of a pendulum in fox trot and waltz. As the dancers are moving laterally across the floor they are also gliding up and down. Another position technique that was taught was contra body movement (CBM). It means to move the feet and legs in one direction while maintaining contact with a partner in another direction. Most professional couples start dancing in childhood, so the steps and physical attributes are ingrained early. I can see how many of these techniques would be hard to learn by even accomplished athletes in other sports later in life.

Ballroom is a strange and wonderful world. It still amazes me the tv shows are so popular, but I think it is great.

Ralph Vince writes: 


Once, in working with a biochemist-turned-programmer, and talking about my pathetically slow running, the Chinaman, the biochemist (who was no runner, not the slightest athletic propensity whatsoever) told me that age, weight, and cellular mitochondria were the limiting factors. The only one I could really change was my weight, in order to get faster.

Now, I don't believe that entirely, because that would mean that whatever training I did only benefited by whatever weight I took off, and clearly there are 02 factors that you can train for, etc. But he did point out that I am not going to cut my average mile time in half — a valid point. He then mentioned that in all creatures, speed is a function of how much mitochondria is in one's cells, with, say, a cheetah having a great deal of it, human beings, in differing degrees, of course, possessing far less.

Now, this has nothing to do with Fred Astaire's ability to beat the living daylight's out of most thugs (I am convinced a man with his feet and coordination could have done that handily, and I say that based on the little thugs I knew in my youth who were physically disposed in similar though far less amazing ways) but I would like to know your take on that given your background in the world of running.

Russ Sears replies: 

Despite the popular assertion to the contrary you can not "be anything you want to be." relative to others. No amount of training will get a sprinter to turn into a distance runner and vice versa. I believe it was Flo Jo that after retiring from sprinting tried to become a distance runner. She was very dedicated, hired smart coaches and believed she was going to be great… but never ran a 5k faster than about 21 minutes. Now this is a decent time for the general population. Competitively this would only get her onto most high school girls cross country teams. In most teams even small schools this time would not be the best on the team. In evaluating kids to guide them into the right event to try out for in track in field I have tested for the following.

Sprinters- Fast twitch explosiveness- standing and running vertical jump relative to size. Muscle size relative to strength is important, lean muscles verses bigger more explosive. Bone size is also important.

Stalky - bigger muscles large bones, built for sprinting and short middle distance.

Lanky - Small bones, lean muscles for distance and longer middle distance. Middle distance - repeat 200 meter and 400's times. Distance VO2, max heart rate, and recovery time - Push-up and pull-up counts coordination for most field events - timed box steps up and down in patterns. Weight /Size and arm and leg strength with fairly good fast twitch relative to size for throwing. Small bones but explosive for high jumpers. Pole vaulters - coordination, explosive, stalky, fearlessness- look for trampoline and diving craziness.

You can be good at an event simply by loving it, training for it, have some core athlete talent and being in shape, but to be great you have to have several genetic factors in your favor.

Some of these factors can be changed by type of training, eating and lifestyle while young etc. But you can not completely reverse them by nurture. Most people that run regularly will see their times drop for many years. It takes about 10 years of hard cardio training to fully develop your cardio system. But your body will break down due to training before it could develop someone without the core body type and muscle types into a distance runner.

Peter Saint-Andre writes: 

Lessons for traders and investors here? Probably some folks are built for short term trading, others for long-term investing, others for building companies directly, etc…



 The period right before a hurricane is very often a good time to surf as there is a large fetch that brings up big waves. After the storm has passed, and there are calm wind conditions, there might be waves for days after, although they are ever decreasing in size and power. Even though there is no hurricane wind forming them, there will be a left over swell. In fact, some of the best, most enjoyable surfing with great shaped waves comes from the leftovers after a hurricane.

Waves after a hurricane are generally smaller, less powerful, frequently more organized, more predictable, and better shaped then the waves before and during the hurricane. I'm curious if one can find a parallel of waves after a hurricane to the action of the markets after a cataclysmic event……Has the market shown to be more predictable in any time frame after such an event? Is there any way to reliably make such a prediction? Would the markets be more orderly? After the initial volatility has gone, is there an attenuation?



 I recently read Michael Burry's keynote speech to 2012 UCLA class. I think the last sentence of the following quote points out a sad reality about western countries and the political elites in particular. They do not intend to pay the bill today and face the issues. They need to postpone the moment of truth in order to preserve their position and priviligies and continue to milk the cow until there's something left for them. With very little transparency, statement after statement, and summits after summit, they explore solutions that would enable them to remain in power and win the next election. Exchanging long term term risk for short term benefit. Their benefit and the benefit of those who continue to make money thanks to their policy. Bad news hit the public and the situation gradually deteriorates month after month. As frogs put into a gradually heated pot filled with water, the public does not jump out. Until they realized they are boiled.

In any environment and situation there are opportunities to speculate and make money. This time is not different. Burry profited from the 2008 crisis. I have no idea yet how to profit from the next big wave that will hit us (it is not a black swan and it is only a matter of time). The point is that it is sad that our kids have to pay the bill for wrong choices they have not made. And that our societies are wasting the quality of life standards, the competences developed over the past decades because of greed and power of a few:

"Ben Bernanke continues to backfill this logic and I fear that history is being written wrong yet again that ignorance is willful. Our nation's economic policies are born of a synthesis of theories on how to deal with the great depression of the nineteen thirties yet seem unable to honestly examine the most recent one. Sadly at the highest levels of economic thought in government questions are not tolerated. It is as if we are dealing with the binary judgment of a fundamentalist religion. Finance theory and practice fare no better; the continuing crisis makes a mockery of the principles which have guided credit policy and risk management since the 1960s. As it turns out information is not perfect, volatility does not define risk, markets are not efficient, the individual is adaptable. But the dark ages of finance allow no such light. Mainstream economists and finance practitioners please check your premises. You have contradictions before you. Truthfully I do not expect much to change. Practically speaking, history has demonstrated the ability of sovereign nations to justify themselves and to postpone the moment of crisis."

Kim Zussman adds: 

Doctor used to be the zenithal career: near impossible barrier to entry, rigorous education, prestige and high income for improving people's lives.

Now it is the financial manager.

Maybe during his lifetime the meme will swing back and Michael will go back into practice.



 White House Press Secretary Jay Carney on Sunday:

We look forward to working together with President-elect Morsi and the government he forms, on the basis of mutual respect, to advance the many shared interests between Egypt and the United States…We believe in the importance of the new Egyptian government upholding universal values, and respecting the rights of all Egyptian citizens – including women and religious minorities such as Coptic Christians. Millions of Egyptians voted in the election, and President-elect Morsi and the new Egyptian government have both the legitimacy and responsibility of representing a diverse and courageous citizenry.

Mohammed Morsi on Saturday:

The Koran is our constitution, the Prophet is our leader, jihad is our path and death in the name of Allah is our goal.



The trans-Atlantic shipping trade is about to have its 200th anniversary. The first Atlantic packet sailed from New York to Liverpool on 1/5/1818 under the flag of the Black Ball Line. Its owners established regularly scheduled trans-Atlantic shipping with freight and passenger service. 132 years before Malcolm McLean, Thompson, Wright and Marshall were accepting less-than-shipload cargoes and delivering them - intact - to the customers on the other side of the ocean.



 Last night (very late) I put down my reading and turned to Book TV. The weekend interviews and presentations are usually fairly interesting and highly partisan - generally speaking, both sides are given significant representation. I just happened to catch the middle and end portions of a presentation given by one Dambisa Moyo. She was talking about her latest book, Winner Take All.

It's an overview of China's methods and actions in acquiring the resources it feels will be necessary in the near and very distant future. Its investment rationale, unlike those we're familiar with, have nothing to do with discounted cash flow models, but with perceived need. As a result it will purchase whatever it wants at prices that may seem outrageously high. The government's only concern is remaining in power and that it will do anything to do so. This includes cooking the books, manipulating the currency, and over-building just to keep the labor force content.

Her views are remarkably different from this I hear from either the China bulls or bears. Simply put, the Chinese leadership cares nothing about Western investment models or practices — it does whatever is necessary to secure its future access to vital resources - and, unlike many of our policies, to do so in the least intrusive way, with many carrots and few sticks.

This is a very bright, literate woman who gives a great presentation and, I believe, some fresh insights into the world's most interesting country.

Her website is dambisamoyo.com

You can check your cable listings for her current interview which, as I recall, was recorded on 6/24

While these types of allegations have certainly been made in the past, does anyone close to China have any thoughts on this? Leo?

From the NYT :

As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles. Record-setting mountains of excess coal have accumulated at the country's biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said. Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country's economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.

Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.

The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals.

The National Bureau of Statistics, the government agency in Beijing that compiles most of the country's economic statistics, denied that economic data had been overstated."This is not rooted in evidence," an agency spokeswoman said.

Carder Dimitroff comments:

I would not focus on one commodity. Coal in China is a complex issue. I believe many coal-fired power plants are running on the margin, and many are privately owned (AES, for one). When a power plant is on the margin, there is no gross margin. No private owner will operate in the face of negative gross margins, so units with high production costs (fuel cost and heat rate) sit idle until prices return.

Coal is on one leg of the dark spread, the consumer is on the other. My understanding is the government placed a cap on electricity prices. I understand they want to curb inflation and keep electricity prices low. That cap keeps the dark spread compressed. Leo may be able to provide insight in this area.

However, I think the overall conclusions might be correct. While I'm an amateur in Chinese economics, I did research publicly traded utilities and found implausible balance sheets. If you believe their quick ratios, the should have been out of business years ago. Colleagues warned that the numbers were meaningless.

I've worked with a number of project developers that were either working on projects in China or were using Chinese money for foreign investments. They warned that Chinese investors don't always care about pro formas and they will buy into projects that others might shun.

One example is their huge investment in new nuclear power plants. It's impressive, it's aggressive and it makes no economic sense if anyone looks at the levelized costs. However, if only production costs are analyzed, nuclear makes a lot of sense. This is confirmation the Chinese are in fact ignoring capital costs to achieve an altered goal.

Others may be in a better position to comment, but overall China's economy seems to be struggling. Combining the coal situation with oil, iron ore, copper, it seems like a slowdown.



 Next week my 10 year old daughter takes her first sailing class. She will be learning in an 8' long Optimist. Now the Optimist is a sprit rigged pram (a dingy with transoms fore and aft - a flat bow and stern). I was trying to recall the difference between a spritsail and a gaff rigged sail and began snooping around the web for the answer. As I read along, relearning the difference between a Barquentine and a Barque and a Fully Rigged Ship my mind wandered a bit - okay the Barque is square rigged on the forward masts and fore and aft rigged on the aftermost mast, the Barquentine is fore and aft rigged on all but the foremast, the Schooner is fore and aft rigged on all her masts. Now what is the name of that small triangular sail above the gaff rigged sails on a schooner? So I go to the Wiki article on Schooners to find out and something catches my eye. What … Holy Cow, the sample picture is of the Regina Maris (which is odd because I remember her being a Barquentine). Now I've come across this name a few times. Most recently I recognized her because just before her demise she berthed in Greenport on eastern Long Island. But I knew her name before..why? I do a quick search and find a blog and as I scroll down I come across this amazing photo showing a skysail and a moonraker above the royal. But she is also wearing a studding sail! (Which is extremely cool if you've read the Aubrey/Maturin series by Patrick O'Brian.) But that doesn't answer my question.

I scroll down a bit more and stop, transfixed by a photo of the cover of a book that I have owned for twenty years but not read in as many. The book is in a box in the attic and I will have to fish it out after I write this. As I stare at the photo I remember how much I loved reading this book. It spoke to me as I was going through some of the same growth of character as the author at the time and it touched me again and again. The book is called Tuning the Rig by Harvey Oxenhorn and it details the authors physical and spiritual journey aboard the Regina Maris, bound for the arctic to study humpback whales. While I was dealing with my own fears, Oxenhorn was dealing with the fear of having to go aloft and reef the mainsail like this — notice that the men in the photo are reefing the lowest of the sails on the foremast — there are at least three, probably four sails above them. Reefing the royals might put a man a hundred feet above the deck — when he WAS above the deck, in weather a topman can expect to look down and frequently see nothing but the roiling sea. Doesn't sound like much fun to me either.

I highly recommend this book to anyone interested in the sea and sailing — it is beautifully written and gets deep into the working of the vessel. But it is much, much more than that. This book is a soulful and heartwrenchingly honest self assessment written by a young man as he learns how to become a grown man. A fantastic journey.



 More retail trouble afoot for the Billabong surf brand.

I see the potential hazards of a singular founding father in control. Though it currently appears all hope is lost, opportunities on the long side may be surfacing. However, when put into context of what has gone on in the past six months it is no surprise. For starters, it has removed a chief executive, had a profit downgrade, issued an equity raising and knocked back a private equity offer at what was more than triple the present share price.

The company and Merchant have a lot of soul searching to do between now and a takeover but one thing is certain - Billabong will never be the same again.

Read more here.



We'll soon see if the Israeli economic model for electric automobiles is viable. This is an interesting article on the subject.



 One visited Belmont Park as a guest of noted handicapper, writer and spec Keven Depew's family on a beautiful Saturday afternoon with great gratitude. The place reminded me of a mausoleum. Right out of Rosebud. More empty betting booths than customers existed. Hundreds of unused betting booths with lettering from the 1960s that hadn't been used in decades stood unattended. About 1000 were at the track which sits on at least 100 acres and houses thousands of employees.

The average handle per race was about 150,000 including all exotics and simulcasting. And that's 25000 per race to the associating. The average purse was 60,000 of which about 80% is paid by the track. The losses on the Belmont Park must be of the order of 50 million a year, and taking the opportunity cost of the land on the park which is worth billions, it's a billion dollar a year loser. Naturally the state just agreed to take it over, so the losses will escalate and the ordinary citizen will pay for the entertainment of a dying breed of 90 year old bettors, and for maintaining the status of the owners and horsemen.

Throughout the industry, there is devastation, degeneration and loss. The breeders are desperately trying to sell their farms, and the attendance and handles are decreasing. Not much attention is paid to the losses except that an indirect effect is that twice as many horses are dying each year from the races. We only saw one death on Saturday in the 8th race, and it was properly handled with a black screen, and an ambulance truck. Apparently it's the norm because the purses are getting bigger as an offset to on track occasions and the trainers have more of an inducement to get their horses into the races with greater frequency.

In the good old days, on a nice Saturday with a 300,000 high stakes race like the mother good handicap, we would have seen 60-75,000 in attendance. No touts letters were available and the usher who had been there for 45 years said he hadn't seen the Lawton brothers' the famous clockers, or any replacements there in 25 years.

The mother goose handicap was won by the beaten favorite at 5 to 1, and he had been 2 to 1 against the same field the previous two races. A good lesson to learn for speculators. Laurel got the exact on the mother goose with the help of Lila Depew who knows horse racing so well, and makes one wish that one had half the knowledge in his own field as she does in hers where she runs online racing for the racing form. The average racehorse costs 35,000 a year to keep in a barn and race. With 85,000 foals born each year from the breeders, that's 3 billion a year in costs. The average horse at Belmont wins about 40,000 a year, of which the owners take is say 30,000. Let's say 10,000 of them race each year, making their prize money about 300 million.

Whatever the economics of breeding are and some horses produce 600 foals at 20,000 a foal, there is a tremendous loss to the horse racers. It has to be done for prestige and enjoyment. The race tracks themselves must lose another billion or two a year considering the opportunity costs. No wonder the NY government is taking over the racing association, as the owners can't afford it any more. In New Jersey however, with attendance at The Meadowlands down from an average 0f 25,000 10 years ago to 1,000 these days, all the barns are being torn down, and a grandstand 1/5 the size is being built at a cost of 85 million in the futile hope that a reduced size will make the place look less like the mausoleum that all the non-casino racing tracks looks like.

The main reason for the decline in racing handle is that the average bettor is 90 years old. Young people these days don't wish to spend a whole day at the track for action when they could be playing video games or watching porn. The off-track take of 20% is much higher than they can get at the casinos, and they are not comped and romanced at the races. The price of admission to Meadowlands I believe last time I was there was 0.50 but to its credit Belmont maintains a 2 buck admissions charge, although there is a rebate of 1 buck for most circumstances.

I liked the nice touch that when you come into the horseman's area, it's a jacket and tie policy only. There were about 25 in the only restaurant on premises, and the restaurant looked like it had a capacity of about 600 from the good old days. I was reminded of how uncle Howie walked through the Loews Hotel with a yarmulke on to go to his wedding in one of the private rooms there, and the general manager walked up to Howie and told him to remove the yarmulke as it might offend the guests. Howie has always rued that day to the present. He was so revved up for the wedding that he completely overlooked knocking the block off the general manager, cursing him out, creating an uproar in the hotel and canceling the wedding. As I saw the forlorn handful of bettors straggling at the finish line, I thought of what many commodity brokers have told me. "It's so sad to see Smith trading now. He used to trade 1000 lots. Now he's reduced to trading one lot, and we're on his back every moment to see that he doesn't stiff us if the loss goes above the margin."

There but for the grace of the good one be I and all other gamblers. Laurel is a big gambler and bets much more heavily than I do, and one couldn't but be thankful that …

David Hillman comments: 

It's taken three decades, but this is a pretty god description of what's happened at Pimlico in Baltimore. Absent the Preakness, I have to wonder if the course wouldn't have been dismantled already.

J.T  Holley writes:


Back when Lila and Kevin lived here in Richmond she invited me to bring the kids down to the 17th Street Farmer's Market that she ran. She told me that I should play Tony Cibo in checkers. At that time Tony was 86 years old and was a master of the board. Lila was so nice to walk around with my children after they watched their father get beat in the first two matches. After I realized that it was hopeless and I didn't have a game I asked Tony if he could talk with me about his win against Tom Wiswell. He broke out a newspaper article that was preserved. It had a picture of him sitting at the table playing with Tom and mentioned the feat attained. I asked Tony how he did it and he said "practice", "memorization", and "studying books" from the greats.

That was the first time I also learned about St. John's and being a "Johnnie" as Lila told me of her education. She is awesome and Kevin and her are really great people.

I take my kids to Colonial Downs here in Virginia whenever I can. On Sunday's the place is a ghost town, but they offer a 16 dollar package. You get 4 admissions, 4 tip sheets, 4 hot dogs, 4 drinks, and entry into prize drawings for only those attending that day. I've never been where one of my children didn't win a half way decent prize due to the small pool of attendees!

I don't know how the Jacob's Family is profitable owning that track? I've always thought that it had to be the satellite-casts that they are a part of because the place is complete empty the majority of the time. Heck even the Virginia Derby that is coming in a few weeks only has around 10,000 attendees.

Anything that I've learned from Horse Racing has come from your book/posts over the years and Kevin.

The other slice of heaven that I would recommend people to visit is Montpelier the former home of James Madison. The Orange County Fair is there annually and it is a true historic agriculture fair. It also has been turned into a thoroughbred rescue and has some of the most amazing horses that I've seen. Yes, they have fox hunts, polo matches and steeple chases there as well. Don't go there on any days of those events though. Go when there isn't anything planned. The silence is powerful and Montpelier sits there as if you have been placed back in time. You can listen to the horses in the distance stalls and running around in the fields. It isn't a commercialized landmark but one that is barely kept up it seems and the raw preservation is still intact.

There is a nostalgia that seems to hang onto Mr. Jefferson. I wonder if many who hang onto such nostalgia even have read much about Mr. Jefferson? He actually passed away indebted and broke, if I remember my readings the bankruptcy laws were different back then and when your parents and inlaws passed you inherited their debts. Not many know either that he had a nail manufacturing facility and worked hard with incentives "red coats" to further produce and profit.

One of my favorite quotes by T.J. is in a letter to his daughters. They wrote him and asked him to help buy dresses that were fashionable and newer. His response was "dress like the others, be different with your mind". Far from buying farmland to be fashionable and doing such for nostalgia or to foxhunt and having an expensive hobby.



 Anyone who is into horse racing may want to keep an eye on a truly impressive mare, Black Caviar, who is unbeaten in 21 starts. Just got off the plane in England after traveling from Australia for the Group One Diamond Jubilee at Royal Ascot on June 23. If I was in the old dart I know where i would be heading on that date.

Follow Up:

22 from 22. Another win for Black Caviar at Royal Ascot. But there's a trading lesson in there. A different length straight, and changing time zones (horse lacked a bit of zip), almost saw the jockey blow it, as he eased up 200 m from the line, and almost got swamped. Beware complacency in different environments under changing conditions. Even elementary apprentice errors, can still plague you, even when your well experienced. The little things, like this , were probably the last of the jockeys concerns before the big race, but were almost his ruin. 



"The Waiting Game" By Frank Partnoy is a great read.

How Watching the world's best tennis players at Wimbledon over the next fortnight can help us make better decisions–



 I happened to catch a History Channel re-run about the Bermuda Triangle. They offer some interesting commentary, some farfetched. One person they interviewed observed that "water is water" and the water in the triangle is no different.

Actually, the water in the triangle is very different in two ways. The most obvious is the Gulf Stream; it goes right through the Triangle.

The most interesting is the recent discovery of methane hydrates. The U.S. Geological Survey reports, "A pair of relatively small areas, each about the size of the State of Rhode Island, shows intense concentrations of gas hydrates. USGS scientists estimate that these areas contain more than 1,300 trillion cubic feet of methane gas, an amount representing more than 70 times the 1989 gas consumption of the United States."

It turns out there're methane hydrates more all over the coastal U.S., with huge amounts deposited in the Gulf of Mexico and Alaska. But for the moment let's stick to the Triangle.

Natural gas bubbles in the water will cause some boats to lose buoyancy. The same is true with natural gas and airplane buoyancy.

I'm wondering if there is a connection between the methane hydrate field and the Gulf Stream. Specifically, I'm wondering if the Gulf Stream warms, it "melts" the methane hydrate crystals and releases natural gas. With gas occasionally appearing in the water and air, boats and planes begin to have challenges.

If this is true, then the Bermuda Triangle is more than folk lore.

In any event, it's becoming apparent that the U.S. has a lot more natural gas than has been recently reported. Apparently, there are companies working with the Department of Energy looking for safe ways to harvest and convert methane hydrates.

For your evaluation, here are some references:

USGS map of the methane fields

Museum of Unnatural History's map of the Bermuda Triangle

University of Miami's map of the Gulf Stream

Department of Energy's discussion about methane hydrates (notice the reference to thermogenic sources)



 A sporting illustration of the nature vs. nurture argument occurred a few years ago when San Diego Horizon high school visited our Blythe, California Yellowjackets on our own playing field. The visiting team was ´naturally´ genetically gifted in one of the top scholastic and beefiest schools in San Diego county, while the Blythe bunch was a ´nurtured´ dirty dozen playing in one of the harshest environment on earth. The visitors outweighed the home team by about 15 pounds per body, but our boys had practiced double-day workouts throughout August with daily highs of never below 120F in preparation for the homecoming game.

I entered on the visitors´ side to go recognized as a teacher by the students and players who had been talking the game up all week. It was a starry night, 9pm and the field thermometer dipped to 100F at the kickoff. The Horizon visitors lined up holding hands along the sideline in front of me swaying gently in silent prayer until the referee´s whistle, as across the field the Yellowjackets piled on each other like a tumbled hive as the student body screamed like banshees.

I heard a ´Putt Putt´ over my shoulder and was started to see the town mosquito fogging machine rolling 10´ behind me on the running track along the sideline. The machine spewed a deadly spray that engulfed and rose above the bleachers and line of Horizon players like a San Francesco fog. Six species of flying insects fell dead on arrival from the field lights into the hair of the visiting team parents, and mothers squealed and left for Starbucks. One cheerleader fell to the ground clicking her heels in spasms and I waved for the nearby ambulance. Two football players went to their knees and vomited piles a short run from my feet.

Nature had been equalized by the heat and haze to give nurture an even chance.

The ref blew the kickoff whistle, and the two teams faced off. Our Yellowjackets ran the kickoff return through their staggering opponents for a touchdown. An early first-quarter three-point field goal put them up 10-0 on the scoreboard. In the second half, the poison wore out of the opposing team´s systems and the heat of the night settled to a tolerable 90F. Horizon battled back to 10-7, Blythe went on the board with a field goal, a safety for Horizon and when the game siren sounded the score stood 13-9 for the nurture boys.

The brute simplification by Francis Galton of the relative influences of heredity and environment on personal, business and social advancement was illuminated on the field that night. A person´s innate qualities will carry him past the masses unless he steps into an arena of greater familiarity by the opposition. Then the contest evens out and the result is unpredictable.



 This is a study with possible implications for future growth. The coastal area around Senegal has an interesting combination of high productivity and lower depths to groundwater:

"Here we present the first quantitative continent-wide maps of aquifer storage and potential borehole yields in Africa based on an extensive review of available maps, publications and data. We estimate total groundwater storage in Africa to be 0.66 million km3 (0.36–1.75 million km3). Not all of this groundwater storage is available for abstraction, but the estimated volume is more than 100 times estimates of annual renewable freshwater resources on Africa. Groundwater resources are unevenly distributed: the largest groundwater volumes are found in the large sedimentary aquifers in the North African countries Libya, Algeria, Egypt and Sudan. "

And as noted in NY Times:

This water holds enormous potential to help people and nations move out of poverty, produce more food and better adapt to climate change. But it also could lead to tensions between neighboring countries.



 The works of Charles Darwin and Adam Smith are often compared. My wife the high-school science teacher has informed me that despite the descriptor "Darwinian" often being attached to economic or capitalist ideas (Darwinian capitalism, Darwinian economics), rather it was Darwin who got his ideas for Evolution from Adam Smith. Hence we should really say "Smithian" in reference to Evolution, rather than Darwinian in reference to Economics. Nevertheless, that is the way the language has evolved. In the world of Nature or Evolution, the incentive structure is that of "jungle capitalism". That is where the term originates, I believe.

That being said, I don't find the line between "jungle capitalism" and what most of us believe in, which for contrast is often referred to as "rule-of-law capitalism" to always be that clear-cut or well defined! Well known Capitalists (e.g Gupta) often cross the line into jungle capitalism, and vice versa (refer to the "Godfather" movies where the mafia goes "legit" in Las Vegas, but still using violence and their ill-gotten capital to do so.) Other historical examples: union-busting by Andrew Carnegie and grey areas: anti-monopoly laws (a subject for the courts), "Bundling" by Microsoft (a subject for the courts), and most recently "too big to fail".

To my mind, too-big-to-fail clearly crosses the line into jungle capitalism. Here a company does not have to follow the same rules, or face the same risk profile of smaller competitors, simply because of their size. Granted there was presumably some merit involved in attaining this size, but once it has been attained the same merit is no longer required to maintain it. I like the idea of the Beekeeper! Perhaps we as a society should put legal incentives in place that incentivize large corporations to "swarm" once they reach a certain size. (Spin-offs, de-megers are obvious ways of doing this.) Although the benefits of size are well-known (and espoused by Jamie Dimon, was it?) the benefits of diversity are also fairly obvious (for ex, the honeybee, which has been around for roughly 100 million years). I am also a beekeeper, BTW.

Best Regards from vacation,

balloon boy



 Duveen by S.N. Behrman, the prolific playwright (The Second Man, Fanny) contains a smorgasbord of interesting, amusing, and illuminating grist for the mill of readers interested in marketing, history, and finance. Joseph Duveen (1869-1939) was the most successful dealer in fine arts, or indeed any pricey collectibles in history. He achieved almost a monopoly on selling almost all Italian art painted before the 1700's. His techniques to achieve the monopoly are at once hilarious and instructive. He insisted on paying the highest prices for all paintings that came up at auction or through collectors, and made sure that none of his collectors ever suffered a loss on the market value of any paintings he sold to them. He was the main force behind the collections housed in the National Gallery, the Tate Gallery, and the Frick. His customers, included Mellon, Kress, Rockefeller, Hearst, Frick, Morgan, Altman, Huntington, Bache, Goldman (of Goldman Sachs), Widener, Rockefeller and almost every other magnate of his time.

A key feature of his selling method included preparing a catalogue of the collector's holdings that immortalized the collection and the collector. The one magnate he wasn't successful with, Henry Ford, is the subject of a hilarious story. Duveen presented a catalogue to Ford with all the greatest pictures available in the 30s. Ford said it was such a beautiful book, that there was no reason for him to buy the pictures.

On other occasions, he refused to sell to a collector, until his collection has reached a certain point of grandeur. He always insisted that he could sell his best paintings to Mellon or Kress so why would he wish to sell to a mere millionaire who was not one of his favored customers already. In this technique he predated Madoff. In describing his methods, Mrs. Hearst said, "Duveen didn't want to sell any of his paintings. But his customers always badgered the poor fellow until he gave in."

 He liked to buy entire collections, and stored the collections in palatial dealing rooms that he maintained in London and New York. His mantra was that "Europe had the paintings but America had the money" so his main customers were the American industrialists, and 5 and 10 centimillionaires of his era.

His financing method was to use his paintings as collateral for loans, and to buy up all good collections and store them until the values increased. He was able to beggar his brothers and sisters by buying up their interests and refusing to pay them off during his lifetime. He didn't understand the concept of interest on money, and gave his collectors infinite time to pay their debts to him. Yet during this time, he had to borrow from banks like the Mellon and pay enormous interest. In addition, he had heavy expenses from maintaining his business and paying off all his runners, and finders across the world. Thus, he was always cash poor during his life.

He bought out all the interests in his family but didn't pay them off during his lifetime. The main problem in his financing was that he had to pay cash for everything he bought but he gave unlimited credit to all his customers. A favorite technique was to lend a painting to a collector to hang in his home or gallery for several years, while he became acquainted with the painting. He liked to say that the painting was the one asset that a collector could buy that would cost him no upkeep, and give him constant enjoyment from viewing it. They were unable to sue because he was the only one that could sell the paintings in his inventory.

 Behrman believed that the main customers were lonely, silent men who were ashamed of how they obtained their wealth, and unhappy with the ne'er do wells in their family. Through the paintings they gained respect and immortality. And the paintings never talked back to them, became playboys or died in race track accidents like their children.

Duveen had many partnerships with those who could aid him in his marketing. One was with Bernard Berenson, who vetted all his pictures, and received a commission on all that Duveen sold. Berenson eventually turned on Duveen, when the two had a bitter fight about the authenticity of a Titian that Duveen wanted to sell. Other partnerships were with the butlers and comptrollers of all his customers so that he could get advance knowledge of what they had to sell, and when they were in a mode of buying.

One of his marketing techniques was to buy up all the English and Impressionist paintings of the era that his collectors had in their possession, so that they would not be tempted to add to their collections. He liked to upgrade his customers into buying only the best paintings and eschewing all commercial items. He found out early that his collectors liked pictures of pretty woman, with bright colors and action in his paintings that came from English Nobility. And when a great masterpiece came up without these characteristics he would buy them but not try to sell them, and store them in his warehouse. He liked to say, "it is much easier to sell a second rate picture that has belonged to any English nobleman than a first rate one that has belonged to a treat man of the Italian nobility."

Duveen got his start selling Delft antiques that his poor family collected in Holland. He learned all the techniques of selling from his family's antique furniture business. But he soon came to the conclusion that it was much better to sell million dollar paintings than $ 5,000 rugs and medals. The book is sprinkled with great anecdotes and selling procedures of the time. For example, when he found a Da Vinci that a Russian countess was selling, he had first to pay for an option to buy the piece at a set price of 1 million. But then it had to be offered to the Tsar at that price before he could buy it.

Behrman, the author, is one of those 20th century men who despised business people. He took pleasure in thinking that Duveens' customers were "scrupulously dishonest". And he seemed to think it fair that Duveen was equally dishonest with the customers. He fails to note that people like Kress, and Woolworth, and Rockefeller, the billionaires of his day got their wealth from selling goods to the masses that uplifted their standards of living and gave them the comforts that the richest of two generations back couldn't buy. Behrman writes, "as his customers aged, they felt guilt about such things as machinegunning the strikers at their mines, they were characterized as exploiters of the poor and the source of their misery. they felt futility and hostility closing in around them, they longed passionately for the happy company, in the even darker regions ahead." Duveen's paintings and persona provided that company and relief from their guilt.

 Duveen was always cash poor, as he had enormous overhead and inventory from carrying all the items that were out of favor. He also maintained a lavish life style and was constantly giving works of art, and paying for the buildings of the institutions that ultimately housed the paintings like the Tate and The National Gallery. His New York Gallery was built at enormous expense on the corner of 56th street and Fifth Avenue, currently the Bendel building, but then called the Ministry of Maine. His family complained about the expense but Duveen assured them he had "all the pictures sold". The family said "show us the bills of sale". Eventually when he died, he made a big sale to Mellon, and was able to pay off all his debts and died with an estate of about 7.5 million pounds, the first time he was solvent and debt free in his life.

After he died a rival dealer said "We miss him but we are glad he is gone". What can we learn from Duveen? He had a complete marketing operation, with tentacles in every aspect of the supply and demand chain, paying every conceivable source of supply with bribes and emoluments. In this he reminds one of the publicity hungry flexions that run conglomerates of today, especially those in the Midwest, with their politician antennae always attuned to the sources of cheap goods that they can get ahead of everyone else.

He liked to pay the highest prices for things, maintaining the market for his goods and creating enthusiasm among his customers. He was completely attentive to the needs of his customers and would do anything to please them, thereby showing the wisdom of the motto used by most great businesses that "the customer is always right", and taking back items with no questions asked at the original selling price regardless of the legitimacy of the complaint. He maintained the viability of his market by buying up all goods that came to it, thereby insuring that his customers always made a profit. But after he died, the prices of all his goods suffered a terrific fall. He was a master at manipulating markets. He bought goods, not because he expected to make a immediate or reasonable profit on them, but in order to maintain the illusion that none of his customers ever sold a painting at a loss, and that his favored 400 year old Italian masters would never decline in value. The importance of running stops, and hitting the exercise price of knock out options comes to mind.

I'd like your comments on what we can learn from Duveen. 

Steve Ellison writes: 

His operation sounds like a corner.



 There are two movies named Bernie. Both of them killed a friend. One, the Canadian one, is about the most loathsome person in the world, an alcoholic, trigger happy romantic who helps no one and hates his life. All his actions and all the people about him make you feel low and scatalogical. The other, the American one from Carthage Texas, is about a man who loves life and helps everyone and does good. All the people interviewed are admirable, and have timeless wisdom and character, and one wishes one could learn more from them. One leaves the American Bernie by Richard Linklater feeling uplifted like one feels after reading the Reader's Digest compendia about the greatness of America. But the compassion for the wife is somewhat tarnished. The current Bernie is highly recommended.



 Take a virtual tour of the infamous Lurigancho Lima prison before visiting Peru as a tourist. Watch 50,000 cans of beer tumble off a truck into the prison yard courtesy of the warden who takes a 25 cent commission, try your luck at the casinos, dance shirtless in the disco, pretty girls, drugs, attend church, get a haircut, 12 restaurants run by inmates, a multiple-language library, private rooms and condos, and each of the 300 foreign inmates has a laptop WiFi to run world drug operations on Skype or, as my friend Hank avows, to stay in touch back home.

´I didn't do anything!´ Hank exclaims.

Hank is a Maine, USA ex-pat who before the set-up that put him in luxurious stripes lived in Pucallpa with a Peruvian wife and bouncing baby. We spoke yesterday in a Pucallpa plaza where his ex-pat friends have been wondering where he disappeared to. They say he does no drugs, is an outstanding athlete, 40-year businessman and good father.

"Peru set me up, took some of the best years of my life, made me miss father´s funeral, and the family businesses has fallen behind!¨

Three and a half years ago, Hank was on his way to get a hair transplant in Lima before flying home to spread his father´s ashes over an Atlantic offshore island the family owns. Asking on the sidewalk for a hair salon he was surprised to be answered by a tourist guide he had known in Pucallpa. It seemed strange to run into Pedro in Lima, but since the guide always smiled and spoke perfect English Hank decided to accept his invitation to stop over at his apartment for a beer. Later in the day he knocked, the door opened, and the Peruvian let him in. They cracked a couple beers, and then the Peruvian excused himself to the bathroom, returned with a white powder up the right nostril, and they chatted for about 30 minutes. A knock on the door, and when Pedro opened it and stepped aside two uniformed policemen burst in demanding to know where he got the white powder up his nose. "The gringo gave it to me!" he shouted, pointing at Hank. The cops quickly found a kilo of coke behind the couch, and asked, "Where did you get it?" The nark repeated, pointing at Hank, "From the gringo!"

Hank told them he didn't do cocaine, never had, he had no knowledge of the kilo, and he was a businessman on the way home to his father's funeral with no time for that nonsense. It fell on deaf ears, handcuffs clicked on, he was carted to jail.

Drugs, like prostitution, are legal in Peru but both are illegal to sell. In the case of girls 18 or older, pimps are illegal.

The Peruvian accomplice vanished into the apartment to crank up the mill on Peruvian prison tourism.

A month later, facing a monocle judge between a court provided attorney and mandatory translator, the trial was a farce. The judge scanned the documents for one minute and without glancing up at the defendant, rattled, "Plead guilty and go to jail for three years, or plead not guilty and go for seven!" His attorney advised guilty, Hank agreed, the gavel hammered, and he was taken to Lurigancho.

Lurigancho is Lima´s largest and is called the country´s worst of the worst prisons in the world. Guards armed with machine guns patrolled the gray perimeter wall. Hank shook in his shoes as the front gate creaked opened, a guard shoved him in, and the door slammed. The guards rarely venture in, and inmates control what goes on- who gets food, a place to sleep, who lives, dies, and is sexually molested. The official capacity of Lurigancho is 1600, but it holds more like 6000, with so many inmates that prisoners are hired as in-house guards.

One of these guided him by the elbow through about twenty blocks to the foreign pavilion of 300 inmates, explaining that money talks in jail and if he could afford it he could buy anything except freedom. If you could buy freedom the squeeze on prison tourism inside the walls would stop. Hank quickly made friends with North Americans, Europeans and others, learning how to have his family funds sent to a go between who brought them on visiting days when a guard was paid to look the other way. Hank´s family fishing company money spoke loudly, and he started by renting a room with an Israeli, laptop with Skype, and healthy food.

A Peruvian guard collected 50cents weekly from each foreigner and disappeared outside the wall until the next payday, or till beckoned to accept bribes for nearly anything- TV´s, books, girls, steaks- and Hank found that for $10 he could have his baseball pitching machine delivered, but he kept hoping for a parole that never came.

At about $350 per head per month in the foreign block, it´s estimated that the prison, legal system and cops milk foreign visitors for $1 million a year. The average foreign prisoner stay is three years, but some have been there for seven. Most Hank figures are guilty, usually of drug crimes, but if the cops can´t catch you legitimately they entrap you when they know you have money.
Some Latin countries including Peru and Columbia have been accused of scanning arriving tourists' bank accounts via their passports to tag high rollers for possible kidnapping and prison tourism.

Many of the inmates are conducting world-wide drug deals via Skype, enhanced by connections within in the pavilion. "I watched hundreds of transaction for huge amounts of money, but basically spent ten hours a day every day surfing the web or on Skype, as the weeks turned into months into three and a half years."

"I can take you on a virtual tour via Skype inside the prison to visit a dozen friends who wander up and down the halls with cameras." However, there wasn´t time because my Iquitos boat was leaving. Hank is on probation for four years, but this month will flee across a remote Ecuador border, as others have done and was part of his prison education, and then he´ll send for his baby.

"Not that it made an iota difference, I was innocent. Now the only memory I want of Peru is my child back in USA."

Lurigancho is located in the run-down district of San Juan de Lurigancho district of Lima. There are even a couple dogs in Lurigancho doing prison time. National Geographic featured this prison as one of the worst in the world. No prisoners may leave the closely watched precincts, but once inside the walls they can do whatever they like. In this way the prison authorities do not have to bother about the prison's organization. Most of the Peruvian prisoners in Lurigancho haven't even gone to trial or been convicted of a crime, while others languish in rags for years long after their sentences are served.

That is, unless you have money to buy velvet stripes and a condo in the foreign pavilion.

If someone asked you where the most dangerous tourist resort on earth is, you might start looking behind the bars of Lurigancho.



 I've been told that most people have recurring dreams of one sort or another. Many recurring dreams involve school, taking final exams without ever attending the class, or being unprepared one way or another. Recurring dreams are never good in my opinion.

Last night I had a variation of my most common recurring dream. I was trading on the floor while the pits were still open. I had suffered great losses for a few months and was down to the last $20,000 in my trading account. The grain market was in the middle of a great summer rally, crops were short, there was a drought, and the wheat prices were moving up 10-15 cents a day all summer long. However, I was scared money and not willing to even scalp a 5 lot without scratching.

It was about five minutes before the close and the market looked like it was going to have a very strong close, up 18.4 cents or so. I was looking at the board and saw KC start to weaken and my mind said something like "Reversion to the mean" and before I knew it, I was offering a million bushels of wheat at the buck. I immediately regretted the stupid decision to sell volume at this point, in fact, any other person would have s**t his pants. The broker at Bunge said, "Take it" almost before I got the offer out of my mouth. I carded the trade and said "Oh Crap" but thought to myself that the market might sell off in the next five minutes and I'd be OK. The market didn't trade above my million and now the market was trading down to .6 offer, then .4 offer, then .2 offer. The bids dropped and the market started to sell off about 3.6 cents on heavy volume. I decided to cover during the last 30 seconds with the market down a nickel. I turned my hands inward and started to bid frantically a cent over the other bids to cover the million bushels I sold. There was only one problem…..I completely lost my voice and nobody heard me. The final bell went off, the market closed, and I still had a 3 cent profit on a million bushels. Still, I was sick to my stomach.

I figured out that I could do what most people do after the market closes and they are either light or heavy….I sauntered over to a bunch of different brokers and tried to cover my position through "after the close" trading(this practice was very common back in the day). Unfortunately for me, nobody had any wheat for sale at the closing range price. I turned in my cards and headed out the door to the bar downstairs. About 45 minutes later, while nursing a drink, Cathy the margin clerk came up to me and said that I needed to deposit a check for $150,000 to carry my position. I told her that I was down to my last $20K and would just have to be liquidated when the market opened back up. The market opened limit up and my position was liquidated first thing and I was wiped out. I woke up in a cold sweat. When I finally got out of bed this morning, I checked the market.



 In a recent trip to the Netherlands, I noted the weakness in the Dutch real estate market. This brought back a memory of a speech by Alan Greenspan in Cambridge, referencing a PhD thesis, that a loss on the value of one's home (nest egg) had twice the impact on consumer spending as an equal loss in the stock market (risk capital). According to Behavioral finance, "errors" like this are a natural tendency of people, and hence persist (are not averaged out) by Mr. Market. In principle, a shrewd investor can take advantage of these market inefficiencies.

The problems with Dutch real estate, similar problems in Denmark, not to mention Spain, do not bode well for European consumer behavior to my mind, possibly for years to come. Does anyone have any thoughts or data on this?

Secondly, my hypothesis regarding the origins of the real estate problems in the US (also possibly Europe, Japan?) has to do with the "baby boom", (the overreaction to the loss of good men in WWII.) One definition of the baby "bubble" are people born between 1946 and 1964 (average 1955), which makes the average baby boomers roughly 57 today. My hypothesis goes like this: as the baby boomers retire, or approach retirement, they shed risk assets or assets they are overleveraged. In this case real estate. As this process ends or mitigates, the real estate market should improve, with dramatic consequences for US consumer behavior. (not tremendously original, I know.)

My question in this: Does anyone have any data on the demographics of people shedding assists, particularly real estate, related to retirement? That is, a graph hopefully showing the peak of asset shedding by people in their 50's and 60's?

Thanks in advance for your thoughts, criticisms, or data,


Andrei Kotlov writes: 


Two quick remarks (but no data) :

(1) Curtailed consumer spending is good for the economy (current consumption destroys capital; production is [mostly] in anticipation of future consumption).

(2) The U.S. housing bubble was caused by the easy-money policy of the Fed; rather, that policy ensured that *a* bubble would appear; other factors (e.g., acts of Congress) directed the easy money into the housing specifically. What you describe (shedding of real estate by the baby boomers) could explain the *burst* of the bubble—though, in my opinion, the burst occurred primarily because the Fed [temporarily] reversed its easy-money policy.



Jack Tierney writes: 

I don't know that your hypotheses will hold up. I agree that Boomers, and more significantly, their parents, will want to shed assets - including homes and equities. I believe Boomers, like current retirees will find it easy to sell their homes (or condos) IF they're willing to take a significant haircut. Despite what real estate cheerleaders might claim, there's no getting around the facts (from the Fed) that between '07 and '10 the average American household experienced a 39% decline in net worth. The following two years have seen no improvement. Traditionally, those most likely (and financially equipped) to purchase a single family home are college-educated professionals. Unlike those of other past generations, these will be populated by graduates who carry significant amounts of debt - and their creditor is the most relentless, and unforgiving, collector imaginable - the Federal government. Since these debts cannot be negotiated down, expunged by death, or bankrupted away, they will be paid down before capital accumulation can begin. As a result, the cohort most likely to support a resurgent real estate market will be, at best, delayed in bringing it about. Even then, there is and will continue to be a contraction in wages. Significantly, the post-Boomer generations (Gen-Xers and Millenials) will be, relatively speaking, financial beggars. We must remember that the technological advances we can't stop raving about came about as all business advances do - to reduce the cost of production…and wages are (or used to be) a big cost of production. Those few who have been able to overcome the "math is difficult" meme and obtain an education (and degree) in a handful of specialty fields will continue to do well…and will become home owners assuming they have also learned to save…a problematic assumption.

Another cohort, which will include a significant number of college grads, will fight for positions that offer something a little better than above average incomes…they may become home owners but their zip codes, like mine, will not be noted for country clubs, cotillions, or Chris Crafts. A similar cohort, but one slightly less fortunate and/or ambitious, will contain a fair representation of graduates from every level, and their lives will be marked by a payday-to-payday narrative. Some in this group will never repay their education loans and either move in with family members or migrate from one transient hotel to another. They will not contribute to a real estate boom or consumer spending. The final group will be composed of the poor - working and otherwise. I have no idea how big it will be, but am sure it will be substantial, it will be urban, and it will be restless. Public housing will be the order of the day but among its residents there will be those who recall the "good old days" when various government sponsored programs were numerous and sufficient. Some will recall the wealth that existed, how quickly and inexplicably it disappeared, and the culprits (real and imagined) who destroyed it. The primary concern of the government, whatever form it may have taken, will be, as it ever is, to maintain docility.

While these developments might well result in "dramatic consequences for US consumer behavior," I doubt we'll ever see a housing market or the level of consumerism like that we experienced following WW II. It not only requires great wealth, but a great concentration of wealth. The kind that exists only when your major competitors have destroyed their manufacturing bases not once, but twice, in three decades - and yours remains unscathed. Under those circumstance you can build homes or automobiles with varying degrees of quality, pay substantial wages, and still have an incredible boom.

Andre Clapp responds: 

Hi Jack,

Alas, I think I agree with you. Looks like we're in for some tough sledding for at least another decade, maybe longer. Not to sound too much like the writer of "Generation X", but I think that the argument can be made that this older generation (including me) has very much "borrowed" or "stolen" from the younger generation. (Pay as you go SS might be an example of this. The high cost of healthcare, the national debt, etc.)

In this sense, I am somewhat sympathetic (often unpopular in financial circles) to the inflationary monetary policies of the Fed and the ECB. Although I agree that printing all this money amounts to "confiscation" of wealth from Savers and bond holders, I think it may be morally justifiable as a politically feasible way to transfer wealth from the older to the younger generations. At least give the younger generation some motivation to work, invest, and take some risk, as opposed to moving in with their parents/grandparents and playing video games all day. I believe we have seen the later in Japan, which to my mind decided to let deflation run its course (and protect the savers and bond holders, which of course are predominantly the older generation.)

What do you think of this?

Also, it is notable that despite the trillions of dollars that have been injected into western economies by the Fed and ECB, it has yet to produce meaningful inflation… Any thoughts on this? Is the psychological impact so great that no amount of monetary easing will produce inflation? Can't push on a string kind of thing?

I couldn't help noticing that the Danish government recently sold bonds at a negative yield.

Best Regards,


Andrei Kotlov writes: 


Two quick thoughts:

(1) Inflation (money printing) amounts to enriching those who stands by the printing press (the gov't) and confiscation from those who are removed from the printing press, in proportion to their distance. The savers (the older gen) will suffer just as much as the future lenders (the younger gen) who will pay the higher rates.

(2) Money printing has not lead to 'meaningful inflation' *yet* because it has been done concurrently with the naturally-occurring deflation (caused by the contraction of credit).

Gary Rogan writes: 

To advocate as "morally justifiable" the despicable activity aiming "to transfer wealth from the older to the younger generations" is itself not morally justifiable, regardless of how much the younger generation is expected to benefit.

Also another reason why this activity hasn't resulted in inflation yet is because the Fed is paying banks significantly higher than the market rate to keep their excess reserves on deposit there. Sooner or later this music will stop, and there will be a flood of inflation that will be declared "unexpected" for months on end, just like the number of unemployment claims has been.

Russ Sears writes: 

For a bigger picture that takes finance into the picture look at the census data on home ownership before and after the bubble .

The meal for a life-time I believe is in the anatomy of a bubble contained in the home ownership percentages.

Ownership rate in the US was 63.9% in 1990 with the magic of Mortgage Backed Securities, the Fannie and Freddie programs this was raised to 67.4% by 2000. Then came the push into sub-prime and this was raised to 69.0% by 2004… It hoovered at this unsustainable level a couple years where the greater fool seemed to take over before the dam broke in 2007 with a drop of 0.7% (68.8%/2006 to 68.1%/2007) and the QE fix was in to keep it from continuing the crash and clearing the market. The home ownership in 2010 still stood at 66.9% off 0.5% from 2009. I suspect your conclusions are correct that with the lose of government subsidized financing the ownership rates need to get back to closer to 1990 levels.

However, looking at the numbers it would appear that the older ages have continued to value home ownership.. Those aged 65+ followed a similar path of the overall demographic until recently. (76.3%/1990; 80.4%/2000; 81.1%/2004

With the lower rates they appear to be the ones that currently are taking advantage of them to purchase housing. going from 80.1% in 2008 to 80.5% /2009 and 2010)

This group may very well continue to drop below to the 1990 levels once the rates are not being stimulated.

However, as an actuary well aware of the risk of out living your wealth, I would argue that the home ownership is many elderly household's main hedge against long term inflation. Plus the nostalgia of setting roots and maintaining an inheritance. They would need to be clearly convinced deflation is here to stay before they give up on home ownership.

Gary Rogan writes: 

Andre, I'm not sure which intergenerational theft mechanism you mean (one could argue that say Social Security is some for of that type of theft or whatever), but regardless:

Just talking about returning wealth to its rightful owner is communist rhetoric and implies collective punishment for a class of people. There is no justice in making a group of people pay for something they didn't individually undertake. There is no justice in making members of this group pay out of any proportion to how much each of them supposedly "stole". There is no justice in an unelected and unappointed (for this purpose) body extracting this retribution, especially without even a semblance of due process. There is no justice in this body using a totally spurious explanation because it's politically convenient for undertaking this sort of justice.

Of course as a practical matter, this is just theft in order to make the constituent banks whole and to impose taxation by more palatable means mainly to support those in power staying in power. Nobody has any intention helping the younger generation. But to me, justifying collective theft as collective punishment or justice is simply abhorrent.



 Yesterday's announcement that WAG will buy Boots (from KKR) provides a textbook example of the lifecycle of corporations. For decades, WAG was a mid-teens growing company (longterm return S&P500-plus 500 bp), with a stellar balance sheet and a strong competitor to CVS and other small retailers. Their growth was mostly driven by new-store openings, the organic growth in prescription demand, and the gradual expansion of general merchandise and food product offerings. Yet, the ubiquity of their stores, the evolution of the prescription drug market, and most recently, the loss of one of their largest pharmacy customers (they refused to accept the realities of the current market) left them with negative comps and all of the arrows pointing downwards.

So, what do they do? They raise their dividend. Good. They buy back stock. Good. They announce a massive lateral acquisition at a very rich 11X Ebitda. Very very very bad.

They will pay for the Boots acquisition with mostly debt, which will whack their credit rating; produce no obvious growth; and make them bigger, not better.

This smells of desperation. Not strategic vision. Boot's CDS(debt) had been trading at +428 bp ; but immediately tightened by about 250 bp on the deal. In contrast, WAG's enterprise value is about 5.4x EBITDA and CVS trades at 7.5x EBITDA. So even if one believes in a 20% or 30% takeover premium, that still doesn't justify an 11x EBITDA multiple. (WAG justifies the premium because they will have "synergies" in negotiating prices with generic drug manufacturers. But given the nuances of global pharmaceutical pricing, and their inability to cut a deal with ExpressScripts, this sounds like continued denial of market reality.)

Who negotiated this deal? Did they hire Leo Apotheker when I wasn't looking? http://en.wikipedia.org/wiki/L%C3%A9o_Apotheker

One submits that WAG has decided to aggressively pursue the zombie world of no-growth companies who run faster and faster to stand still, rather than running their existing businesses better — and accepting (rather than denying) the changing competitive landscape.

And if I worked for KKR, at the same time that I was selling Boots at 11x EBITDA, I'd be thinking about using the proceeds to eventually buy Walgreen stock at 5x EBITDA.

JetCat1 writes: 

Seems like an international problem of shop front retailers, having huge internal problems trying to make massive adjustments with policy, in turning the ship around. It would appear, it shouldn't be so difficult, but one would think no one wants to make the big call that are needed, early in the piece. Just like having replays at the Euro Football championships 2012. Ukraine gets the ball over the line, still no goal against England. At what stage has technology not being up to the job, of having a TV replay settle the matter in the last 30 years, and still the rubbish of bad calls persist. It seems the larger the flexionic group, the lack of balls, for want of a better word, to stand up and say "this isn't good enough, this is the direction that needs to be taken".

Rocky Humbert replies: 

I respectfully disagree with both your metaphors and your conclusions. If WAG has simply re-negotiated their ExpressScripts deal at the market-clearing price, their stock would be north of 40. Not south of 30. Walgreens is an excellent operator. It's not about turning the ship around. It's about living in today's world. Not yesterday's. Put simply: The competitive landscape for retail drug stores have changed over the past several years. WAG used to be a price maker. But they are now a price taker. Rather than accepting this reality, they decided to pay (too much) for another price taker (Boots) with the vision of re-establishing their negotiating (price-making) power over suppliers … in the spirit of Walmart's business strategy. It's not crazy, and if they had paid a reasonable price for the acquisition, it might have even worked a little bit. But if you pay too much, you are doomed. Their transaction has all of the hallmarks of a McKinsey/Bain/Booz/BCG study on it. If I were the CEO, I would have renegotiated the deal with Express Scripts.And some day, when KKR was really desperate, I might have let them him my bid. At 5x Ebitda.



This is a very interesting article on beekeeping as it pertains to risk:

Take, for example, their approach toward the "too-big-to-fail" risk our financial sector famously took on. Honeybees have a failsafe preventive for that. It's: "Don't get too big." Hives grow through successive divestures or spin-offs: They swarm. When a colony gets too large, it becomes operationally unwieldy and grossly inefficient and the hive splits. Eventually, risk is spread across many hives and revenue sources in contrast to relying on one big, vulnerable "super-hive" for sustenance."



 Hormonal location is the tropical vagabond method to evaluate factors in new lands to determine his future wife and home. It is an odd twist of scientific location used by individuals and businesses to factor where to set up store. Once the factors are identified and weighed, pack the bags.

The right spot from my observations for thirteen years of ex-pats and personal experiences is Iquitos, Peru with 400,000 natives and the prettiest, most aggressive females on the planet, The average daily wage is $7 and all is nonviolent except the sinister mothers and witches who cast spells on hapless gringos driven by hormonal location.

For centuries the girls have boated up and down rivers from their five to fifty dirt floor or stilted hut towns to Iquitos for work, that puts thousands in the stores, cafes and on the streets at a ratio of three per harangued male. The imbalance leads them to seek companionship as much out of personal as financial need.

The four questions asked of every man, regardless of age, on his day of arrival in sexual Shangri-La and hourly thereafter, are: Where are you from? Do you have a wife? What is your job? And, (if employed or on social security) Where are you staying?

On alighting a month ago in Iquitos, I rode a surrey moto-taxi around to twenty hostels in the $3- 5 range to discover that rooms rent by the hour for sex at the daily rate if you pay a week in advance. So, my Coo´s Hostel fills every room with clients whom I never see in leaving at 7am and returning after midnight, and except for the open doors, rumpled sheets and pretty cleaning lady, I have the place to myself.

A handful of young to retired male tourists step off the daily flights into the chlorophyll scented air, and are swept off their feet if not by the first, then the second or third young, pretty jungle girl. They think they are in heaven swinging from a hammock with wild grapes dropped into their mouths. The girls are not prostitutes but rather predators taught by their mothers in an Iquitos tradition of prey. In other countries throughout Southeast Asia, Africa and South America the girls stop short after attaining the ultimate dream of marriage, while the Amazon girls begin to sharpen their claws.

If their mothers are correct, and statistics bear them out, the dividends begin after marriage in a hot brand of sexual tourism unique to Iquitos. Since first visiting in 1999, I´ve fraternized with a dozen ex-pats and know of another dozen who arrived, quickly married, unwillingly divorced, and now tear hair. There is only one surviving marriage in town belonging to the most successful restraunteur, and I hope it´s for love rather than money.

The mother is the guiding light in the search and seizure of the right man, as was her mother. The first lesson is to ask the four questions. The second lesson seems to be to perform well in bed. The third is to have a baby, and decry the father. The fourth is to marry, the fifth in about two years to divorce. And the sixth is to torment the lover for eighteen years to support mom´s family in the background.

The deepest claw of the jungle girl, as her bloom of beauty fades and mother´s sway comes to fist, is the baby. If the guy takes his newlywed to USA, mom and family follow, he supports them, and in six months his wife moves in with a richer man. However, most ex-pats fall into the local picture and in rapid domino succession beg to divorce, are refused for a couple years, face a stack of charges in a molasses court system, and end up financially strapped and gibbering in a dollar-a-day boarding house.

When the Spanish inquisition arrived in a city they used five steps to confession that are no more effective than the mothers of Iquitos: Step one is ask the citizen to sign a confession, step two is lead him to the door of the torture chamber, step three if there is no confession is open the door, step four he is strapped to the rack, and step five he screams.

Gone not only is the wife but the peculiar Iquitos custom due to the lopsided sex ratio that the newlywed introduces her best girlfriend as a second lover to her husband after the wedding night so that she has someone to talk to in the new neighborhood.
Normally, six months after the nuptial vows the gringo gets shocking news from his best man that he is accused of cheating on his wife. This is a mockery because he is so in love with two girls that the thought of a third never entered his mind. He runs into a wall trying to talk to his wife who insists that so-and-so chica is willing to testify to adultery. Next he is summoned to the police station to respond to a wife beating charge and pictures of her black and blue arms that the officers and court weigh more heavily than evidence that he was elsewhere on the night of the ordeal.

The final hook into the ex-pat is the birth of a baby that he fears getting blood tests for which may prove out rumors of his wife´s infidelity. She forces him out of the house and raises the kid with her girlfriend, while dad is forced by the court to pay $100 monthly child support.

A few months later, ´My mother says, gringo, that if you don´t start paying $100 monthly for mental anguish, things could sour between us.´ If he has the money, he pays on top of child support, but if not, she publishes a deuncio in the newspaper that is the kiss of death for everywhere he goes is under a rain of eye daggers and curses. After being forced to visit a psychiatrist, he returns a denuncio saying she is crazy, and she plays trump with a pin-filled effigy on his doorstep.

Nearly every gringo ends up hating his wife but loving his child and paying until she is 18-years old since his mother-in-law refuses to take a balloon payment for consent to take the child out of the country that would kill the golden goose. He should prefer to go crazy for what awaits him in the legal system as the daughter matures and a stack of charges wind through the slow Peruvian system for his sentencing.

Foreigners do not entirely discount hexes. A 6´1´´ British pilot came to me in tears saying he had just hired a defense witchdoctor to counter the spell of an effigy with pins stuck in the head that was in his mailbox. He wanted to talk, to know that it was ok to get egg yolk poured on his head to break the spell. Then he burst, ´The family has defamed me, the police tail me, everyone in the street stares, and yesterday when I picked up my four-year old daughter there was a rash on her vagina that the family has pictures of to prove that I molested her. I´ll languish in prison to old age, and the mother will continue to extort funds. Please take a look at my daughter´s vagina.´

I stepped back in hesitation as he thrust out the cradled baby. ´You´re a veterinarian, so just pretend she´s a puppy and tell me if it looks like a rash from sleeping on dirty bedding in her mother´s house, or rape.´ A quick look suggested dirty underwear or sheets. He seemed relieved, I left and lost track, but heard that he fled the country.

Once a foreigner tastes jungle romance he often thinks to get married, but when I first tasted the rainforest I sought a business marriage to obtain a residence visa. I was savvy enough to ask an ex-pat to set me up with a girl I´d never met whom he considered physically unattractive, who didn't want sex, just money to sign a few documents in the Peruvian fashion. I met the girl and jumped through the hoops of meeting her family, buying them drinks, and getting cross-examined by the mother who´s first four questions were, ´Where are you from, Are you married, What is your job, and Where are you staying?´ She hardly got the last word off her tongue when I excused myself and left.

Iquitos is the most miserable place in the world to get married and the best to have sex. Or, seeking storybook romance, take a ferry a day or more up or down river, and hike a couple miles into the jungle and through a town game of volleyball played by predominantly nubile girls who develop physically about two years earlier than their American versions. Their mothers-in-law have never seen a white man before, and you may swing happily from a hammock for the rest of your life.

In hormonal location Iquitos offers some of the prettiest, penniless, and happiest girls in the world, however one cannot study long enough before settling with the girl of his dreams.



 On Tuesday, Mayor Bloomberg's proposal to limit sugary drinks served in New York City restaurants to 16 ounces was submitted to the city's board of health. Setting aside for now the question of whether the proposal is justified, I wish to show that one thing in particular which Bloomberg has said – that the proposal does not take away your freedoms –can't be true.

This may seem obvious to some, but, as Bloomberg has pointed out, "we're not banning you from getting the stuff." Though individual drinks couldn't exceed 16 ounces, you'd still be allowed to buy as many as you wanted of them, and this fact is the basis for Bloomberg's defense: the proposal won't take away your freedoms because it allows you to buy any amount of soda that you were allowed buy before.

This defense invokes a natural idea about freedom, which is that your freedoms haven't been taken away if you are still allowed to do what you were previously allowed to do. As a defense, though, it is self-defeating. There is at least one thing which the proposal would not allow you to do which you could do before, namely buy a soda larger than 16 ounces at an NYC restaurant. The proposal fails to meet Bloomberg's own standard of freedom preservation.



"I analyzed the chords of 1300 popular songs for patterns. This is what I found.":

For many people, listening to music elicits such an emotional response that the idea of dredging it for statistics and structure can seem odd or even misguided. But knowing these patterns can give one a deeper more fundamental sense for how music works; for me this makes listening to music a lot more interesting. Of course, if you play an instrument or want to write songs, being aware of these things is obviously of great practical importance.

In this article, we'll look at the statistics gathered from 1300 choruses, verses, etc. of popular songs to discover the answer to a few basic questions. First we'll look at the relative popularity of different chords based on the frequency that they appear in the chord progressions of popular music. Then we'll begin to look at the relationship that different chords have with one another. For example, if a chord is found in a song, what can we say about the probability for what the next chord will be that comes after it?



Many “alternative currencies” today are novelties, born from the ingenuity of individuals tethered to a specific locale. By construction, they do not have a global scope; and, often, there is no desire for one. Take “Berkshares” in the Berkshires region of Massachusetts; it is a relatively new “local currency”, backed by a basket of local goods.  Berkshares is still a function of the dollar: when dollars are exchanged for Berkshares– they are in turn invested in US treasuries – instead of in, say, gold. However awkward, there’s something nice about it, since it elicits pride for the community’s productive efforts along with a feeling of independence. But a medium of exchange such as Berkshares doesn’t even approximate a free banking money regime – in the way that the crypto-currency Bitcoin promises to.  

With the federal funds rate parked at 25 bps –you’ve probably asked yourself why you should hold on to cash.  Last year, like many of you, I sold dollars and went long Bitcoin: 2/3 risk-on neophila, 1/3 genuine optimism with a tempered expectation for profit.  At the time, it took two weeks for clearance and dollar transfer to MtGox –the exchange where trading this cross is the most liquid.  That means the price you see today can end up nowhere near this rate on the day when your funds hit the exchange and become available for trading.

With more efficient market making for the digital currency and full-fledged electronic Bitcoin banks, that kind of barrier to entry will reduce in time. A bold step forward in this direction today would be to couple the digital currency with a protocol known as Open Transactions (OT). The infrastructure would enable agents to enter into banking contracts. It centralizes transactions and makes it easy to trace their lineage –regardless of the medium of exchange used.  In theory, as a user, you could engage in traditional banking with Bitcoin money, such as: market making, origination of derivatives, check issuance, and contract settlement. 

Morally speaking, with a free banking monetary regime, there is a unique (more or less “correct”) level of reserves a bank should hold for each level of nominal spending in the economy. So, if this total level of spending changed (i.e., if aggregate demand changes), banks should respond by adjusting their reserve ratios to meet that demand. Those that don’t are left behind –but no one is too big to fail. One of the most stable banking systems in history, the 19th century Scottish banking system , held gold reserve ratios as low as 1-2%. Banks were signaled to adjust their gold reserve holdings by monitoring levels of total payments through a central payment clearing system. The same idea goes for the digital coupling I’m suggesting.

The value added by using the OT protocol with Bitcoin is due to the transparency of the Bitcoin block chain.  As the user, the onus is on you to decide whether you have confidence entering into contracts with other agents. To assist you in that decision, this infrastructure, operating with a publically accessible digital currency network would provide users with valuable information about banks' reserves, so to speak.  In the long run, it has best chance of lending itself to a fractional reserve Bitcoin where P2P lending is possible. Popular –and, by now, tiresome – deflationary concerns about Bitcoin fall flat against this backdrop.  Free banking theory, where changes in the velocity of money are offset by changes in the private money stock– just got its modern flair with Bitcoin as a commodity base.

(If you have interest in development and validating the protocol, email me or comment: mmreilly- at - gmail.com. There are a few kinds of cryptography operations necessary to understand the public-key aspect—any expertise in cryptography/number theory/hacking would be useful).



 One notes that all the baseball swings end at the opposite shoulder and usually with the opposite hand holding the bat. That's similar to the way the good one handed backhands are hit and one of the 10 lessons I learned about improving my weak backhand.

One thinks of the palindrome. He fired his kids in the summer of 2008 so he could bear the market down. He took on the Bank of England when he thought that the pound was too high. He often swings for the fences. Even his vulgar former partner liked to go for the fences when he had a profit for the year. The most intelligent thing I've ever read about the former soft commodity trader now a philanthropic fund of funds is that he likes when he's had a loss to ride it all the way up for a profit. There must be something to taking a full follow through to the opposite side that can be quantified in markets between and within.

Anatoly Veltman writes: 

The "rubber-band trade" logic went as follows:

1. When I first decided to buy, of course, I was rite, as I'm no fool
2. Mr. Market — as it always should — treated me harshly at first, as I'm often in too early
3. But that's where the key event took place: Market saw my back to the wall, barely holding on and unable to add — but Market was so desperate to buy RIGHT HERE, that it couldn't even wait a tiny bit (for me to throw in the towel and give itself an even better price). Now, that really proves my original idea.
4. Market keeps chasing her up, well past my original entry. That's my chance to turn the tables on Market: now I will front-run them, with little risk to be bullied myself



One predicts without knowing anything about the subject that if the supreme court rejects the health care bill, the market will go down because so many flexions have profited from it. And if they uphold it, the market will go up as the flexions will maintain their profits. Of course, since everything the supreme court does is political especially in a pres year (I don't know this but speculate it's true), their decision will be a middle of the road one, that's not too helpful to either party.



 So, what of employment?

A more primary question would have been, what of the economy? Why are we still struggling? But then, a more primary question yet is, why did the economy tank in the first place?

We had a bubble, which consequently burst. Why should that cause the economy to contract? A bubble is a massive overpricing of an asset (housing, in this case). Overpricing means that many people (i.e., the economy as a whole) had a massive misallocation of resources. Resources were directed toward activities which were not, it turned out in the end, productive.

It seems widely accepted that the economy 'overheats' during bubble creations. In my opinion, the economy does not 'overheat;' there is just a wide-spread misconception of general wealth creation, while what is in the works is general resource misallocation, i.e. wealth destruction.

E.g., you have invested your capital into a widget factory, because your neighbor wants to be buying widgets, on credit. You make 1,000 widgets at $1K a piece; he buys them from you. You make 10,000; he buys them. Are you a multimillionaire? You may think that you are, until he defaults on his credit. And when he does, all you have 'produced' were 10,000 useless widgets. You have misallocated your resources.

We can modify this example slightly by replacing your neighbor's credit with a printing press. Instead of defaulting on his credit, he just prints more and more fiat money, until you realize that your wealth has been denominated in Mozambique currency all along. All the same, you have misallocated your resources.

The latest bubble we have lived through had two massive prongs of misallocation: housing and (related) consumer staples. MacMansions were not the only things built; useless widget factories, warehouses, and retailers were the other. The economy was not 'thriving'; what was being created was not 'wealth'. Them were piles of widgets, purchased on credit and freshly-printed fiat money.

Anyway, the bubble burst and all, you may ask, why no [or sluggish] recovery now? Please see my next post: "Unemployment: (2) why slow recovery?"



Within hours of jetting into the Mexican Pacific resort of Los Cabos today, Prime Minister Julia Gillard was lecturing an international business audience on "the Australian way" as a response to faltering economies in Europe and elsewhere in the world.

Read more here.


And this is not unexpected… :

"THE Aussie PM has been publicly slapped down at the G20 summit by the President of the European Commission for lecturing Europe on how to solve its economic crisis.

In an embarrassing swipe at the PM, on the first day of the official meeting of leaders gathered at the Mexican luxury resort region of Los Cabos, EC President Jose Manuel Barroso said he would not be lectured by anyone."

meanwhile back at the ranch.. (or farm) in Oz:

"Mr Hockey, the opposition's treasury spokesman, said Ms Gillard's letter to G20 delegates on why they should get their economies in order backfired when European leaders said it contained no new ideas."The Prime Minister is delivering a lecture for local political purposes only," he said."Around the world no-one is taking the Prime Minister seriously."Instead of engaging in megaphone diplomacy the Prime Minister should be admitting to the Australian people how her record debt and record deficits compromise Australia's international competitiveness.

Julia Gillard would be better placed to take a leaf from the Coalition's playbook during the Asian Financial Crisis and offer behind the scenes regulatory and administrative support."



 U.S. earnings seem to be humming along fairly well. Why is unemployment staying so high? What are thoughts on the "why" of continued high unemployment. Also, what would change that inducing hiring?

Steve Ellison writes:

Eric Falkenstein posits a correlation between bank stock declines and the unemployment rate which I find very interesting.

Gary Rogan writes:

"Confidence" (or lack thereof) is the stock answer from the right, and "corporate greed" on the left: those two are quite common these days in many documented discussions.

There is not specific reason why corporate profits have to lead to decreasing unemployment, although under normal circumstances they are positively correlated. They haven't been for a few years as the graph in this NY Times article demonstrates [link may require registration].

The key determinant of making the decision to employ someone is the answer to this question: do I need someone right now, in the geographical locale, to address current or future demand? And given that getting rid of people is expensive and unpleasant, there is a hurdle attached to the "need", and of course being able to afford the employee in the first place is another hurdle.

Corporate profits do help with macro demand and being able to afford new employees, but profits only translate into demand if employers have enough confidence to invest in new equipment/building, etc. or hire someone based on the future estimate of "need". So the lack of confidence does freeze the whole process in its tracks. High unemployment itself leads to lower macro demand on the part of the consumers due to the lack of incomes, so the only real way to break the deadlock is for the businesses to have enough confidence in the future to invest or hire. Of course the Keynesians believe in a totally different way to break the deadlock, but as I have mentioned multiple times I consider that nonsense.

High levels of unemployment compensation only slow down employment recoveries instead of doing the opposite as those on the left believe. On the macro level, they lead to mild consumer demand destruction as opposed to the supposed increased demands as they spend their transfer payments.

The geographical question is of course very big and complicated. There are a lot of alternatives to hiring locally and due to the tax-related lack of of foreign income repatriation as well as foreign political pressures, it's hard to correlate global profits with local employment anyway.

I personally believe that until Obama is out of office and the fate of the health bill is undecided (which may or may not be resolved in a few days) the employment picture will not improve. What seems like a slow-motion collapse in global demand may matter even more depending on the magnitude, but is hard to forecast. The recently documented household wealth destruction in the last few years doesn't portent a good story for local demand either.

Rocky Humbert writes:


In lieu of a titillating academic paper to share, I will reprise my typical rant: There are only two things on which ALL economists can agree: (1) Resources are limited; (2) Incentives matter. So, let's pull out the old Supply and Demand curve which derives from both (1) and (2) and repeat out loud: Ceteris paribus, if the supply exceeds the demand, the price must fall to achieve equilibrium. (A) If there is excess labor (aka unemployment,) the price of labor must decline to clear the excess from the market. or (B) The demand (hiring) must increase dramatically from the status quo. All of the political squawking focuses on the demand side. I don't hear anyone on the left OR the right talking about pay cuts as a way to clear the labor market. Maybe I should run for President on the platform that, EVERYONE should cut their wage rate by 30%. I promise you that unemployment will be below 4% before the end of my first year. Any volunteers to be my campaign manager? (It's an unpaid position — which is a first step towards reducing the unemployment rate.)

Andrei Kotlov writes: 

This is a reply specifically to Rocky's [witty and entertaining] latest post (as it has little to do with the original question); an economics post to follow in a couple of hours.

(1) There are no incentives in physics; only cause and effect. Incentives imply free will. An agent's behavior *tends* to be affected by incentives—but it does not have to be. (Do not get me wrong: I do fully agree with your original "incentives matter.")

(2) The second law of thermodynamics implies increase in entropy, but I am afraid only when no agents [of free will] are involved. The latter can [and do] decrease chaos.

(The main objection to your statement "resources are limited" should have been not an objection but a modification: "agents can use [albeit limited] resources with varying efficiency." Of course, you agree with such a restatement yourself.)

(3) Perhaps most importantly, "experiments" in economics are, in principle, not replicable because (as Mises has explained) agents are capable of modifying their behavior based on the outcomes of previous "experiments."

Andre Clapp writes:

As a former physicist, I'm not sure I agree with the statement that "There are no incentives in physics". As previously pointed out, objects and systems have a natural tendency to seek potential energy minimums (a ball is "incentivized" to roll down the hill, and requires intervention to prevent it from doing so). Similarly, there is a natural tendency towards greater disorder (castles turn into piles of stones naturally, but a great deal of "intervention" is required to turn a pile of stones into a castle.)

I find the analogy to be quite good. The natural tendencies of physics can be harnessed to create rocket fuel that makes a rocket fly. The natural tendency of humans to enrich themselves and make a better life for themselves and their families can be harnessed to make a better and more productive economic system. I agree that the ball rolling down the hill has no "free will", but incentive is just a word… I'm not sure if it implies free will or not. I'm not sure it matters.

As an aside, the question of whether humans have "free will" is actively debated in the relevant community. In thinking of how to design an experiment to demonstrate the concept of "free will", I find the concept to be poorly defined, if not undefined, and therefore meaningless (to a physicist!)

A pleasure to be part of the discussion group.

Respectfully yours,

Andre Clapp (The rocket scientist)

Andrei Kotlov writes: 

 To Andre Clapp: one indeed needs to start with the concept of free will—but, may I hide behind the statement that it is too big of a topic for me to cover here? I have spent long time thinking on the nature of free will, and still do not know how to summarize it in a few sentences. To me, it is a combination of randomly-fired processes (e.g., discharges in the neural net) with a deterministic ability to select. Ol' good dialectical "quantitative becoming qualitative."

If one accepts the notion of free will (not as an article of faith, but scientifically) then the word incentive is only meaningful in the presence of a choice. If you want to equate 'incentive' with 'cause,' well, you have just redefined the word meaning "a thing that motivates or encourages one to do something." Once again, in physics, one speaks of cause and effect. When agents [of free will] are involved, the relation between the causes and effect may not be traceable [because of the complexity and multitude of the randomly-fired prior events in the brain over the course of each agent' life]. Thus, it makes sense to separate 'incentives' (for agents) from 'causes' for 'inevitable' effects, in particular on inanimate objects.

Andre Clapp writes:

Hi Andrei,

First point: In the world of quantum mechanics the future is not completely predictable, even for inanimate objects (particles) in the absence of agents. The world is not deterministic, it is probabilistic, a point that N. T*leb seemed to understand well when he wrote "The Black Sw@n". It is not just humans that are to some extent unpredictable. The ball rolling down the hill is (to some extent) unpredictable. Does that mean the ball has free will?

I think it is better to simply think in terms of "causes" and "effects". "Free will" to me is an article of faith or religion, not science or reason. The fact that you cannot define it, yet ask one "to accept it", points very much in that direction.

Not that theology is a bad thing, but these are questions without right or wrong answers. "How many angels can fit on the head of a pin?" Tell me what (define) an angel is, and I'd be willing to discuss it, otherwise it belongs in the realm of religious leaders, artists, and traumatized children and families. In other words, in the realm of emotion. As I'm sure you know, centuries were spent (wasted?) discussing this very question. (And no, "people with wings that come from heaven" is not a definition of angel.)

(I think) I know how you feel. This concept is so deep in our culture, like "the soul", that it is difficult to reject. We feel like something fundamental is being ripped out of us. And yet, it doesn't bear up well under scrutiny, or the light of reason. Even something as fundamental as a definition is missing! Surely that tells us something…. In the end, is it really so (emotionally) different to say that human actions are a result of cause and effect, than to say that everything happens because it is a deity's will (an idea that many people find comforting, not threatening.)

All the best,

Andre - The rocket scientist



This is a chart illustrating the S&P shaded to reflect the yearly trend of Initial Unemployment Claims (Fed St. Louis series ICSA). While the chart does not prove anything, it does illustrate a possible relationship. Note that the data relating to the claims have been inverted, such that increases in claims implicate poorer economic conditions and in-turn declining equity prices.

Editorial comments: I do not prefer the ICSA data because it is weekly and goes through a process of human intervention (?corruption?). I prefer daily data that gets recorded electronically without any possible manipulation. HOWEVER even the ICSA data is now showing bearish market indications. I could torture this data to present the current situation as bullish (by introducing significant lag), but have tried to show it similar to how most would be receiving the information.



 Ahh Fathers Day. That annual day to offset the fact that most of the year we are just the surly man in the background yelling for quiet and some crap about getting the chores done. All over America men are unwrapping ties they will never wear and the 209th coffee cup to add to their collection and eating a breakfast cooked by some decidedly unculinary offspring. Later we will probably get to fire up the grill and grill some stuff and thank the heavens we are not Moms and so at least the dreaded brunch is not in the equation.

I am lucky in this regard. My kids are in their twenties and my stepdaughter is heading off with her dad today so I get to be taken out to eat crabs drink beer and hopefully watch the Orioles smack the Braves around the diamond. My wife and my kids are my three best friends on the planet so it's going to be a pleasant day and I have a quasi-legal excuse to skip most chores. The little one has already started the day off with a pretty cool gift and card. Having a curmudgeonly ogre for a step dad is tough when you are a 9 year old princess but she makes the most of it.

One can't help but think about the journey and adventure that is fatherhood on this day. I don't give a shit if it is a Hallmark created day that exists to sell greeting cards, ugly ties and charcoal. It still makes me think to the past 28 years and all the steps, missteps, adventures and disasters that have led to this particular Father's Day. It has been an interesting experience and worthy of reflection.

 I never set out to be a Father. It was never high on my list of life's priorities. Both my kids just sort of happened along the way. They frequently give thanks to Scotch for the miracle of their birth. I had no idea what I was doing and just sort of made it all up as I went along. I may not have set out to be Dad but I cannot imagine what my life would have been like if I wasn't.
I can still, as I am sure most fathers can, recall the moments of my children's respective births. To be clear I was not, and still am not, a huge fan of the whole father in the operating room bit. I was dragged from my mother's heavily sedated body while my father sat in the waiting room chain smoking and nipping from a flask with other soon to be poppas and that's a system that makes perfect sense to me. But I was there and the one single moment will stay with me forever.

Lisa came into the world screaming and making noise (this is no surprise to anyone that knows her. The child is just loud). She was born with a full head of hair and eyes that took up about half her face. She was making all kinds of bellicose noises right up until they scrubbed all the yuck off, wrapped her in a blanket and handed her to me. She stopped crying and those enormous eyes looked up at me with a look that said she knew me and was glad to be here. Of course she ruined the moment by taking a giant crap shortly thereafter and I had to change my first diaper before we could present her to the rest of the family in the waiting room.

Tommy ,on the other hand, didn't cry at first. As the little Asian doctor lifted him up so the nurse could cut the cord he decided, like most guys after a long period of confinement that he needed to take a leak. He pissed all over the little doctor as a way of introducing himself to the world. That's been pretty much his approach to life ever since.

 I have been a divorced father pretty much most of their lives. Lisa was 6 and Tommy 2 when their mother and I split up. My perspective is perhaps not the same as one who lived in an Ozzie and Harriet family but is probably more the norm these days. I have learned a few lessons along the way and thought I would write them down while I was reflecting on fatherhood. They may or may not be of any value but it is too early to drink beer and the game does not start for several hours so this will help me pass the time. I don't know how much of it is because of anything I did but my kids have turned out to be amazing. I hope I played at least a small part in that and that the lessons learned along the way have some value.

I always get a kick out of those who tell me that kids won't change their life. Of course they will. You are not going to be taking the stroller to happy hour and kids are frowned up in casinos. You and Jr, are not going to hit the racetrack on Saturday or take in the symphony that night. Baseball games and war movies are going to be replaced by little damn purple dinosaurs, robots, princesses and other horrible little creations. Life is going to change more than you can possibly imagine. Don't blame the kids however. It doesn't matter if your offspring were procreated in a moment of candles and whispers or during wild monkey sex on the kitchen table after a drunken night at the dock bar. They are here now and your life is going to change. You made them and it's your job to mold them.

It's not always easy. We all have those nights where you come home after a shitty day. The market took a crap on your portfolio, you biggest client wants to know why they don't own latest piece of shit.com and is talking about taking his account to Goldman Sucks. You firm made the front page of the WSJ and not in a good way. The SEC called and by the way the audit is tomorrow. You assistant discovered the joys of cocaine and disappeared with all copies of your presentation to the largest pension fund in the area. You just want to sit back drink some scotch, watch some mindless TV and forget the damn day.

Tough shit pal. The algebra has to get done and the whole concept of this damn solve for x thing is not penetrating your daughters brain. Your son has a report due on Tom Sawyer and wants to know if he can watch it on DVD instead of reading the book. They haven't had dinner yet and unlike you they do not live on beer and leftovers from the diner. And by the way the pinewood derby race is this weekend and that block of wood on the table is probably not going to perform well with no wheels or decorations. You can relax some other time, say in 10 or 15 years.

There's more to it that that I am afraid. If you are going to do this right they have to come first much of the time. That trip to the Keys is out of the question if it coincides with the little league tournament. That dream job in New York is going to be delayed if the ex has custody and lives in Peoria. That date with the hot chick you met at the bar will have to be cancelled if someone has a fever. You can still live your life but you will have to make choices and modification along the way. You made em, you raise them.
I have one key to raising kids that has served me well over the years. You have to love them. I don't mean hugs and kisses and all that crap as nice as that is. You have to love them enough to tell them no early and often. No they cannot have jello and chips for breakfast. No they can't say up to watch Charlie Sheen's new show. No, they cannot leave the house dressed like that No, they cannot do their homework later. No they can't go hang out at the mall with all the budding trailer trash and lounge lids from school. No they can't take the car tonight.

You have to love them enough to be the bad guy. In my general experience Moms suck at being the bad guy. No matter what is going on with your ex or how much you wish she would run off to the far corners of hell with her biker tennis pro boyfriend she needs to be able to scare the shit our of your kids by threatening to call you. You need to love them enough to hop in the car and go over spank their little asses or ground them for eternity to whatever it takes to restore discipline. You and your ex can hate each other on your own time. When it comes to the kids you still have to fill the dad disciplinarian role.

You need to love them enough to let them fall and stumble. Mom can kiss their boo-boos. They are good at that. Unless there is vomiting or stitches involved dad needs to get them brushed off and back in the game. Teach to take the bumps of bruises of life and get back up. Its dads job to teach time how to overcome setbacks, that broken hearts don't last forever and that pretty much everything can be overcome if you want it bad enough.

Love them enough to be an asshole. You know, the asshole that turns off the TV and kicks them outside on a nice day. The kind of asshole that puts passwords on the computer and won't let them have an iPhone until they can pay of it themselves. Be the kind of absolute asshole who makes them contribute to their first car and pay their own insurance. Be the unbearable bastard who grounds them for anything less than honor roll. Be that dad who won't let them read the cliff notes or watch the movie, the one who just doesn't give a shit what Susie and Johnny s parents let them do. Set your standards and be enough of an asshole to hold your kids to them.

As they get older it gets tougher because you have to hold your own instincts in check enough to let them trust you. Your kids will experiment with sex, drugs and booze. They will make some incredibly stupid mistakes and questionable decision. In other words there is a very good chance that your teenagers will do the same type of stuff you did. If your kids trust you and can talk to you without a self-righteous angry response perhaps you will be able to guide them through these difficult years. If you're as lucky as I was your kids will do only a fraction of the truly stupid shit you did at their age.

It is not all being the hard ass tough guy. You have to take time to play with your kids. Wrestle with them, tickle them until they pee. Take them outside and teach them to throw a baseball. Teach them chess and checkers. Go to all the little league games and dance recitals you possibly can because as big a pain in the ass as they are now they will be big memories for all of you later in life
Fatherhood is not easy. It takes effort, concentration and balls the size of your average wild alligator wrestler. Some of the stuff you thought you wanted is going to have to be set aside. I have had to make a lot of choices and decisions over the years that would have been no brainers if I didn't have kids. I do not regret a single one of them. The success of my kids and their happiness in life so far is proof that I made the right decision. As a result I am far happier with my own life.

When I look at my life so far I am more than satisfied with my legacy to date. I didn't cure cancer; I am not the biggest hedge fund a manger in the entire world. I didn't build any libraries or endow any foundations. I did play a part in bringing the world an honest hard working business man with integrity and a school teacher who is devoted to teaching your kids to read, to learn and to grow as individuals. Erin and I are working on bringing you a Pulitzer prize winning author who is also the world's most famous fashion designer in her off hours. I have done much in my life but if my only achievement was my children I would be proud to stand on my record. That's the secret of being a dad.

Now, I am off to stick the little shits with my bar bill for a change. Happy Fathers Day to all.



 One of my greatest regrets outside of death, sickness, of family and friends, and other great losses, is that I have always had a poor backhand in rackets sports. How in the world I won so many championships with that poor backhand I can't imagine. It wasn't quickness or natural ability or any kind or great analytical skill. That I know.

Like most things, the backhand has gone through ever changing cycles of strength and weakness. I started out switching hands the way most handball players did when playing with a paddle or tennis racket. That was very good for a while as it expanded my reach and gave me many angles that the normal backhand couldn't handle. Then I took lessons from a great backhander named John Nogrady and he assured me that I'd have the greatest backhand in two weeks. But it didn't work. And I gravitated to a slice backhand without any torque. But the left, ambidextrous forehand was good enough so I won lots of tournaments, and like an idiot, I decided I could be the best in the world in squash even before I had ever played the game, as I was the best in paddle ball. If I knew how many defects I had relative to the champions, who were so much more athletic than me, and had so much better backhand than I could ever aspire to, I never would have thought that crazy thought. In retrospect, knowing what I do know, I never would have even dared to play squash, considering all the weaknesses, which were soon to be exacerbated by the infernal short slice backhand that all the Harvard guys under Barnaby that hadn't played the game were taught.

That turned out to be bad for my tennis. I never could beat a good 6.0 player, and when we played the tough college matches, where the number 1 and 2 rotated, (I was number 2 throughout. I was ashamed to play the good number 1's on other teams because they were so much better than me, and I was granted the ignominy of playing the number two on the other team twice.) But that cycle was okay for me in squash. Somehow with the hard ball, the slice backhand wasn't that weak. Others, especially all the good Philadelphia payers had infinitely better backhands than me, but somehow I was able to prevail against all except Sharif.

I love Jack Barnaby but I am confident that if I had gone to another college and learned a decent topspin or full swing backhand I would have been able to surmount that one personage who stood in the way of my being best. The slice backhand I picked up at Harvard, was disastrous for me in racketball. I had better stuff than most when I played but I couldn't kill the backhand and other players hit the ball twice or three times as hard as I did. Marty hogan humiliated me with all the torques and backswings and follow-throughs he had on his backhand, as did Steve Keeley. But I was too foolish, and too insensitive to change.

The cycles change again. I've learned a good top backhand in both racketball and squash now, and if I could go back in time, I'm sure I would be 6 or 10 points a game better. But of course it's too late. I can hardly beat Aubrey who's 6 years old now, because I am so much immobile. Anyway, today for the first time in a year, I played tennis. I practice my new backhand playing against myself just dropping the ball. I learned 10 new things I was doing wrong on my backhand, or things I could improve.

1. Take a bigger backswing.

2. End the swing like a baseball player up high on the right side.

3. Get torque from the legs the hips, and the shoulders into the shot.

4. Keep the wrist locked and vertical never dropping it.

5. Tilt the racket into a slight slice face before hitting the ball top so that you get another torque into it

6. Bend the knees so you can get some lower body into it.

7. Extend the left hand at the end of the stroke the way Federer does on his slice.

8. Hit on the outside of the ball when you wish to hit it cross court.

9. Step into the ball like you're going to approach the net on all backhand shots.

10. Get on your toes and keep your head down on the flight of the ball.

All this seems very technical and specialized, but then I realized that the lessons I learned from the backhand today, would also apply to markets, which I'll relate in the next memo.

Bo Keely writes: 

A forehand has many similar movements in life– from rattling the crib to grasping a fork and swatting flies– but not so with the backhand. By the time one begins racquet sports even at your tender age of what, five, in the deep end of a swimming pool with your father on the diving board shouting instruction, you had no muscle memories nor neurological models to hit a backhand. I, on the other hand, kept a diary from the same age and developed what others have called the best racquet backhand. Writing is placing an instrument in hand and drawing it across the page in the left to right backhand direction for the righty. By age 16 when I first took a racquet in hand as a senior trying out for the tennis team, I beat the number three and two singles players and so was kicked off by coach Kiley for not going out for the team sooner. The three best ways to develop a backhand, after a decade of teaching racquetball, and for once to fly in the face of a sport's maxim of specificity of training are: write longhand and especially print in order to accustom the fingers and eyes to stop and start, drive golf balls left handed, and throw a frisbee.



 It only takes 3 months (if that) to lurch from a bullish supermajority to a bearish supermajority as far as China is concerned. From a sentiment perspective it doesn’t get much more bearish than this. On our TMT buy side trip, there was 1 bullish contrarian. The most bearish person in our entire group was the analyst from CIC, the Chinese sovereign wealth fund.

The “policy cycle” promises to be much weaker now than before. The Chinese view the 2009-10 stimulus as a disaster and don’t want it repeated (or so they insist; after power has been transferred, incentives will change, and policy will no doubt follow.)

Chinese real estate transaction volumes have been recovering for two months. However, developers are not buying more land from city governments to replenish liquidated inventory.

The more connected a given investor happens to be with Chinese princelings and elites, the more bearish he seems. Nobody, and I mean nobody, knows how political power will be apportioned when the power transfer happens later this year. The Hu Jintao-Wen Jiabao “liberals” (to the extent that any Chinese faction has any accurate ideological label) seem to hold almost most, if not all of the cards, and the only question is how far they will press their advantage. The corrupt wealth accumulated by the underlings of Bo Xilai, Zhou Yongkang, Zeng Qinghong, and their many underlings, wants and needs to escape China ASAP, before the late-2012/early-2013 change of power.

The American EB-5 visa program, the fastest and most expensive route to a green card, is going nuts. (An EB-5 requires $500k of investment and 10 American jobs.) Canadian citizenship was considered highly preferable before, because it’s much easier to obtain, and Canada doesn’t tax non-Canadian income. But that door seems to have closed.

It seems like the “liberals” have compromised with the devil (the PLA) to determine the composure of the next Standing Committee. Over time the PLA, which has historically been underrepresented in political decision making bodies relative to the raw muscle at its disposal, took the side of the Bo Xilai-Zhou Yongkang nationalist-socialists in the factionalism within the Standing Committee. When Bo Xilai was in political limbo in late February, the PLA’s loyalty was judged extremely uncertain by Hu and Wen (resulting in an avalanche of headlines in People’s Daily and other organs, reminding PLA cadres of their allegiance to “the Central Military Commission *headed by Hu Jintao*”), giving way to a sense of imminent instability among Chinese elites.

The sense of imminent instability in early March is now gone, but the medium term power structure remains completely uncertain. Meanwhile, there is a growing sense amongst many Chinese elites that their the PRC’s system of governance is completely unsustainable. One of my friends, a Mainlander who went to the US for college, worked for a hedge fund, and now works for one of China’s largest internet VCs firms, bounced John Hempton’s “The Chinese Kleptocracy Is Like Nothing Seen in Human History” article around her Beijing office. Pretty much all of her Chinese friends – Mainlanders – agreed with it: the country is being looted; nobody has the power to stop it; anybody who tries to stop it is firstly a hypocrite, and secondly, on the cusp of political suicide.

Chinese people are also more skeptical than ever of everything, if that’s even possible. The Chinese wife of a Beijing-based American insisted that Bo Xilai is a hero and was an instinctive democrat, and all official accusations and “leaks” against Bo (11 murders; US$6bn laundered out of the country; wiretapping the entire Chinese Politburo) are fabrications. A very plugged-in American-born Chinese person was also sympathetic to Bo, believes Bo was no worse than average – and believes most of what has been reported about him.

Still others, also very politically attuned and connected, believe that although Bo’s liquidation was a very political power play, not only are the officially documented crimes real, but the true extent of his crimes has been significantly understated – the CCP has already lost a huge amount of credibility over the rumors which have leaked out and nobody has any interest in this spinning further out of control.

Most people shrug, say it’s none of their business, and go on with their lives.





 Rocky asked this question once a year or so ago about the outlook for the Euro after one of the many EU/peripheral events, and I thought it was a good one. So how might we measure and estimate, and what are people’s expectations for moves on Sunday-Monday following the Greek elections?
I am of the opinion in the medium term the elections don’t even matter. But, that is a different topic and exclusive of any short term opportunities.

Anatoly Veltman writes: 

A quick note on S&P: I think current risk is enormous (due to recent complacency).

Paolo Pezzutti writes: 

I think that we have to be aware that if Germany accepts the eurobond concept, Europeans will buy a lot of time although will only delay to pay the bill. That may have a significant impact on eurusd and equities. Not sure how likely is that, but as the situation worsens pressure on Germany increases. Especially after that in France, an important player, it prevailed the idea that socialists can improve things by increasing public spending.

John Netto writes: 

Long gold / short silver. I've been working this position for most of this week and it is telling us about some of the macro variables at play. This ratio is currently shy of 57 and can ascend to 60 given all of the global macro variables at play. Silver has been trading very heavy and under most circumstances I put together, the long gold short silver one helps me take on the sort of risk-adjusted exposure I like…

GL in the markets…



 Cotton, sugar, corn, and soybeans all have significant backwardation between the July contracts nearing first notice and the new harvest contracts. The entire forward pricing curve is backwardated for soybeans, but the curves for cotton and sugar reverse to contango.

Jul’12 1379.75
Nov’12 1316.50
Nov’13 1189.50

Jul’12 80.04
Dec’12 71.15
Dec’13 76.70

Jul’12 20.77
Oct’12 20.01
Oct’13 20.95

Harry Kat found that commodities in backwardation are more likely to positive returns, and commodities in contango to have negative returns.



 Rock of Ages

Directed by Adam Shankman

"Rock of Ages," the long-run Broadway jukebox musical set to beloved 1980s power bubble gum ballads and demographic-cohort anthems, takes place in the '80s, when bands were still found in the smoke-wreathed clubs downtown, in CBGB's or along Los Angeles' Sunset Strip. No CDs or instant call-up of music that played subliminally in your iPod zonked-out consciousness 24/7. In times when record emporia were places to scumble through racks of LPs. Remember Tower Records?

Set in LA, 1987, rocker Drew (Diego Boneta) and ingénue songstrice Sherrie (Julianne Hough) are two new starry hopefuls chasing their (never before heard-of Hollywood-make-it-big-in-music) dreams in the City of Cynicism. When they meet, these two pluperfect examples of give-me-a-break, it's amour at first meet, though their romance will face a series of hurdles and setbacks. Yawn.

The film is a not-humorous graft of affectionate smirking homage and snarkily subsumed copycat for such icons as Journey, Foreigner, Guns N' Roses and Pat Benatar. It features such bastions of humility as Tom Cruise, Alec Baldwin, Russell Brand, Catherine Zeta-Jones and music-sirenista Hough, attractive young talent Boneta and the ever-commercial skeevy agent played by Paul Giamatti. Almost unrecognizable as a philandering, masochistic husband, also a secret cuckold, is the intense actor Bryan Cranston, who has won Emmy plaudits for his TV persona as a drug-manufacturing chemistry prof, in Breaking Bad. Mary J. Blige's strip-club owner, who hires the perky Hough to "waitress" as she struggles to make it in Hollywood, does not exist at all in the stage play, like Zeta-Jones' character. Even in the film, one can't really see a reason for Blige's inflated role. One sign the script will be unreal: The minute Hough arrives in Hollywood, her suitcase is snatched by a sharky passer-by. Bloomy Hough frowns for a nanosecond, then proceeds to wear dozens of wardrobe changes from no money and no luggage.

I write "not humorous" because, aside from a very few visual pokes, such as Tom Cruise's bejeweled dragon codpiece, self-adulatory tats and tuchis-cutout chaps, and scruffy Alec Baldwin's mockup of a discovery I-have-feelings-for-him duet with over-the-top Brit Russell Brand, there is little to make anyone with a gamma-plus IQ laugh. Still, Baldwin and Brand are at least smile-worthy for going along so gamely.

The songs are of course winners, but the production is 'way over-tweaked, over-teased, over-something'ed. There does not appear to be a genuine emotion in the entire 2 hours. In the play, BTW, Catherine Zeta-Jones as a Tipper Gore-like scold does not exist. And Tom Cruise's role as the hyper-sexualized, tattoo'ed louche druggie Stacee Jaxx has a role no bigger than child-killer Casey Anthony's post-legal popularity in the stage play, like the energetic and talented Cath Zeta-J, who does her best with a singer/dancer yet still hackneyed role.

Whoever the high-priced talent, the film is like a two-polished speech: There is nothing fresh, nothing surprising. It is a stylized caricature. We've seen it all before, and we liked it not that much the first two dozen times.

The Cruise turn is at least amazingly seductive, more pronounced in his erotic squalor and vocal excess than his "Magnolia" (1999) huckster. His bevy of half-dressed bimbos and his half-cocked sensibility are more of the same: What Hollywood erzatz think a hot time consists of. And there might be truth to the blitzed-out druggie stupor and the lack of ethical dimension. He has a particularly libido-drenched interlude with a 'prim' Malin Ackerman, a reporter for Rolling Stone, to Foreigner fave, "I Want to Know What love Is." She never comes across as anything other than a comely starlet barely managing to keep her knees together, not a reporter from anything. But who cares?

Tulsa Sherrie befriends a sweet barristo name of Drew (Boneta), as a troupe of disapproving housewives protest 'filth' outside the Bourbon club where it all happens. Zeta-Jones's "Thriller" swivels–in a bravura production number of Benatar's "Hit Me With Your Best Shot," in a church, no less–exemplify fleeting amusements that provide an otherwise-becalmed exercise in overproduction momentary lift. (Others arrive courtesy of Baldwin and Brand, as well as Cruise and Malin Ackerman, whose libidinous duet of Foreigner's "I Want to Know What Love Is" is staged for goofy indulgence more than explicit humpty-rumpty.) Throughout, sartorial excess, audial excess, booty excess.

Director Adam Shankman makes the camp and kitsch pile on for the demographic aimed at, but it is hardly worth the popcorn. "Rock of Ages" is chockablock treacly in add-on dead-ends, predictable snafus and theatrical numbers that are all too obviously pickups from the stage show. It goes on and on, per the trigger Journey song. And more than anything else, the word vulgar comes up as the aptest adjective for the entire endeavor.

As much fun as it is to watch Cruise, Giamatti, Cranston and Brand/Baldwin self-deflate at their own typical personae, "RoA" jumps the shark rather early, and never achieves the deft humor, release or gaiety it strives so sweatily to attain.

And if you're of the exeunt from Egypt faith, utilizing the name of a timeless Hebraic paean to immortality and perseverance seems a bit uncalled-for, too, you ask me.

Lots of sexual innuendo, pole dancing, drinking, drugging and profanity.



My 'own' economic theory starts with the observation that man, unlike other [social] species, has invented an alternative to plunder/defense from plunder: *explicit* exchanges. While ants/bees/wolves/lions/etc know division of labor, all their exchanges are implicit, within 'economic units'; theirs is a subsistence 'economy.'

(At this junction, I would offer replacing Mises's "man acts" with "man exchanges.")

This observation prompts defining *production* as the result of that [human] activity which is performed with an explicit exchange in mind, i.e. above and beyond subsistence economy. More formally, the value of one's production is the [perceived] improvement in one's utility as the result of exchanges, over what could be accomplished by autonomous activity.

Since [perceived] improvements in individual utilities are hardly additive, it seems hopeless to speak of the total value (volume) of production in an economy. However, changes in utilities may manifest themselves in exchanges, especially when—as is typically the case in a modern economy—common media of exchange are involved.

From these definition and observation, one can prove the following 'theorem': if a coercive transfer of resources increases the total volume of production, then such a reallocation can also be achieved voluntarily, via mutually-beneficial exchanges. I.e., laissez-faire capitalism is the most efficient system of production.

An equivalent theorem is the claim that laissez-faire capitalism fulfills J.S.Mill's (or, rather, Bentham's) greatest-happiness principle: if a coercive transfer of resources can increase the total utility in a society, then this increase can also be achieved voluntarily, via mutually-beneficial exchanges.

To summarize, what can be established is that voluntary exchanges are the most efficient way to grow society's prosperity. As a word of caution, what is *not* established is that coercion is unnecessary. This is because an exchange is only a good alternative to plunder when the price of plunder is too high. Therefore, private property must be secured. I view this condition as primary to free market's existence; this puts me at odds with anarcho-capitalists.

Second part of 'my' theory is the theory of money. I view 'money' as an adjective rather than a noun, meaning that many things can have quality of common media of exchange, and to a varying degree at that. Gold, silver, and other commodities may have quality of money, but so do financial instruments, such as banknotes (IOUs)/etc. I strongly feel that it is a mistake to call bank IOUs fraudulent documents, as Rothbard does. Else, everything which involves uncertainty—e.g., insurance—is a fraud. In a free market (e.g, with no FDIC) banks would develop mechanisms such as redemption gates to guard against runs, and thus attract customer deposits. Needless to say, if one is to be prescriptive, gov't must be completely divorced from regulating money; in particular, there should be no national currency (unless free market [temporarily] comes up with one)—and, certainly, no fiat money.

By recognizing IOUs and other financial documents as having quality of money, one understands a mechanism for natural inflation/deflation cycles. One view is that banks, by issuing credit, de facto anticipate the rate of economic expansion over the life of the loan. When they are, on the average, too optimistic, inflation ensues, followed by a corrective deflation; when they are too pessimistic, vice versa. E.g., currently we should be experiencing a significant deflation—but are hardly, because the Fed is printing money, trading it for the gov't IOUs. So: a [permanent] gov't inflation (caused by fiat-money printing) concealed by the simultaneous deflation (caused by credit contraction). This is [one of the] bad news. (Aside from creating a permanent inflation, the Fed is blowing and bursting bubbles by resp. lowering and raising interest rates (this is well understood by the Austrian school, via Hayekian triangle)—then 'cures' them with more of the same!)

Finally, consumer spending is detrimental to production. (This thought is far from being original; I am only including it here because the opposite opinion seems prevailing.) Production is in anticipation of a *future* consumption; the *current* consumption destroys resources (capital) which could instead be used (invested) in production. Postponed gratification hence allows for a future consumption that is larger in absolute terms, but smaller as a percentage of the economy. Thus, if one is to tax anything, it'd better be consumption. However, tax it too heavily, and you have encouraged subsistence economy (i.e., zero production, by my definition)—a bad move.

Rocky Humbert writes: 

Welcome Andrei. Thank you for sharing your thoughts. I am the self-appointed SpecList curmudgeon, liberal and insomniac, so please take my words with good humor (and a shot of vodka).

You write: "This observation prompts defining *production* as the result of that [human] activity which is performed with an explicit exchange in mind, i.e. above and beyond subsistence economy. " If you want to redefine words, that's your prerogative. However, as a mathematician, you understand that a correct definition is critical to a meaningful theorem and proof. And one can't just change definitions willy-nilly. So when you define "production…is the result of human activity which is performed with an explicit exchange in mind," you have re-defined the word production — hence you can no longer use that term "production" in any other generally accepted economic manner. If I pick up a shovel and dig a black rock out of the ground in my backyard (which just happens to be a nugget of coal), that is an act of production — and the utility of that nugget of coal (specifically the calories of energy) are the same whether my act of digging was motivated by the coal stove in my kitchen or the steel mill up the road. The successful act of production produces utility (nugget of coal). Because the MOTIVATION for the act of production (the steel mill or the kitchen stove) is independent from the UTILITY of the act of production,the motivation is irrelevant. So your definition seemingly fails. You write: "if a coercive transfer of resources increases the total volume of production, then such a> reallocation can also be achieved voluntarily, via mutually-beneficial exchanges. I.e., laissez-faire capitalism is the most efficient system of production." Here again you are playing fast and loose with the rules of logic and accounting. You seemingly are confusing mixing the income statement(volume of production) with the balance sheet (total wealth). It is basic economic theory that the coercive transfer of resources (i.e. a tax) can never increase the total volume of production (except in the unusual cases of war or exceptional circumstance.) I challenge you to find any normal example where the coercive transfer of resources increases GDP! (The only exception I can find is slavery … where the resource coercively being transferred is labor!)



These numbers seem to change all the time, but this is what Bloomberg is reporting today:

$42 - Qatar
$44 - Kuwait
$71 - Saudi Arabia
$84 - UAE

$105 - Algeria
$112 - Iraq
$117 - Libya
$117 - Iran



 We reprint here some remarks made by Rocky Humbert on July 29, 2011:


The Japanese stock market continues to have a similar complexion to what gold had in the late 1990's. Back then, gold was trading below its marginal cost of production; central banks were selling gold; it was a barbarous relic. There was NO good reason to own gold. And it took about a dozen years of compounding at 14% to make people bullish. [,,,].

I cannot find a single compelling reason to own Japanese stocks (but for one.) The demographics are horrible. Their debt problems may be worse than Greece. They get hit by catastrophic earthquakes, tsunamis and radiation. Even Toyota is a mess. So — (other than the fact that their stocks are reasonably priced, and in some cases, extremely cheap), am I systematically nibbling at Japanese stocks with a 10+ year horizon? The answer is: ANY COUNTRY THAT DOESN'T LIKE THE iPAD CULT CANNOT BE ALL BAD!


Charles Pennington comments:

Back in July of 2011 we had a discussion [see excerpt above] of how cheap the Japanese market was at the time. Today, the Nikkei is more than 10% below where it was at that time. Morningstar says that the portfolio of Japan etf, ticker EWJ, is at 10.5 times earnings and 0.94 times book value with a 2.6% dividend yield. So it doesn't look like it's too late to get on board.

If you want to avoid the hassle of foreign dividend withholding (money that you'll never get back if you're investing in a tax-deferred vehicle), and if you're agnostic about the yen, then one way to play this is with CME / Globex's dollar-denominated Nikkei contract, which has reasonable liquidity.

Rocky Humbert responds:

To mimic the archetypal Wall Street analyst: "I reiterate my position, I cannot find a single compelling reason to own Japanese stocks (but for one.) ANY COUNTRY THAT DOESN'T LIKE THE iPAD CULT CANNOT BE ALL BAD!" But in fairness, their Central Bank is now actually buying some hard assets — including REITS.There's a Japanese REIT index fund (1345 JN), but I don't know the company or its holdings. And amusingly, the Bank of Japan is a public company (8301 JN). It's always mystifying how a central bank, with it's ability to create money out of thin air can be a bad investment in its local currency. Yet the BOJ has been an awful investment: 10year return= -41% and 5 year return= -75% Only in Japan can a company that prints money lose money.



 (With hat tips to Shinya's work and promotion of fermented vegetables, the previous posts on sauerkraut, Mr. Sogi's kimchi recipes, and the recent increase in number of articles on the human gut bacteria).

I recently read this great article about the Lost Art of Fermentation and Katz's Deli.

Katz's journey to fermentation missionary from food novice began in a little Jerusalem of microbially enhanced delicacies: New York City's Upper West Side. Jewish cuisine is littered with the handiwork of invisible bacteria working their magic: pickles, challah, sauerkraut, salami, Sabbath wine. When Katz was a kid, Zabar's, the legendary food emporium on Broadway, was a critical feature of his food landscape — the place where barrels of crunchy, pungent pickles were always at the ready.

Here is a link to Katz's New Book (he has lots of free info too on his website)

And the latest issue of Nature is out and like Science this journal is featuring articles on human microbiome research.

Makes you want to run to Walmart and pick up some quart-size pickling jars and give it a try.



I often ask about ways to test a system to know when to stick with it or abandon. Quality control/TCM is one of the ways people mention of knowing how far removed your model or process if from the expected. I thought of another semi related way borrowed from blackjack.

In blackjack counters use a system wherein certain cards are given a +1 value, others a -1, and then some receive 0. Idea behind this is low cards (2,3,4,etc.) benefit the dealer while high cards (10, j, q, k, etc) benefit the player. If a player sees a lot of low cards come out successively, the count goes up by +1 per low card and the odds go up. When the count gets high the players have a decided advantage.

I think an interesting way to apply this to markets, mainly via systematic models, would be to line up the overall stats/odds of a given model. Then one could paper trade it keeping a sort of count for high probability entry. So if paper trading and you see the model loses 6 straight trades and this has only happened <5% of the time over a large N and the historical info shows that the odds (in both frequency and magnitude terms) favor a win on trade 7, you go live. The "count" has given you a high probability entry within a high probability system.

An ultimate stop loss per model could be assigned. You could give the model maybe 10% total drawdown potential. Subdivide this into 4 parts of
2.5%. Enter when the odds or "count" go in your favor (as described above). If you start making money then great, let it ride. If however you lose 2.5% (even after entering at the high probability point) you stop trading, wait some predetermined amount of time, and try again with the approach above. If the model experiences a 10% drawdown after 4 attempts with the count approach then you shelf it.

The same could be applied to the winning side but I would be more inclined to just let it run if in the black. If playing with the house's money why not let it ride.

This logic could also be used to size trades, increasing size when the count gets high and decreasing when the count gets low.

Jim Sogi writes:

Since stops degrade performance, the alternative is to use trade size to prevent disaster. Yet smaller trade size decreases performance as well. Is there a study stop systems vs a trade size systems comparing the two with some sweet spot data on lower drawdowns, and ultimate returns? I think the long term historical optimum was 1.9 leverage. 2.1 leverage went bust long term in the big crashes.

Phil McDonnell writes: 

In my opinion trade size is the only reliable way to control risk. I am not sure why Mr. Sogi believes that reducing size reduces performance. If you have a stock picking method that gives you many stocks then the edge should be similar for each of them with no loss of edge. I suspect he is assuming something else.



On March 2nd, Chairman Bernanke testified to Congress and faced pointed questions about the effect of ZIRP and TWIST on retiree finances. He claimed that "something less than 10 percent of all savings by retirees is in the form of fixed-interest instruments like CDs." He said most of the savings were in assets like stocks (and housing) which depend on a strong economy…. The Chairman got it wrong. Oops.

In a just-released Federal Reserve study (which I cited in a previous post) on page 27, table 6 shows the median values of family financial assets in 2007. According to this table, the median value of CDs for retired families is $31.4K and the value of bonds is $83.3K. The value of stocks is only $30.1K (and that's from before the most recent big market decline). The table also shows a value of $81.9K for pooled investment funds and $52.4K for retirement accounts. (It's unclear what those accounts hold.) This Federal Reserve study shows that bank CDs comprise a significant portion of the financial holdings of retirees. The study also shows that retirees have seen a large decline in income from 2007 to 2010.

The Fed report is here … there's tons of data here for wonks, including portfolio allocations based on years of education. I submit (without any supporting evidence) that the propensity to consume by retirees is strongly linked to the nominal level of interest rates. I further submit (without any supporting evidence) that retiree consumption habits correlate with other stuff including corporate earnings and afternoon coffee sales at McDonalds restaurants.



 Dr. Bud Muehleisen, I called him Mule when we lived together and played countless matches, was a pivot in my racquetball career after moving from Michigan to San Diego from 1972-79. San Diego was the racquetball mecca in this golden era. I was the first racquet moth drawn to the lights of Mule. Charlie Brumfield and Carl Loveday, and hundreds followed. Sooner or later they found themselves on the PPA (Pacific Paddleball Association), Gorhams Sports Center or Browns 70th Street club to be dissected by the mild-mannered dentist. State champs and rising national champions left the court shaking their heads, some in tears, at the trouncings. They had felt so comfortable losing two out of three points. ´I never operate in pain," Dr. Bud told his patients.

Others extoll Dr. Bud´s 70+ national and international championships, however I will list five effects in my career that likely represent hundreds with other players who fell under the White Knight´s spell. The first memory on arrival in San Diego is mentioning that I was looking for a place to live, and I was instantly ushered into his home. The second is him politely suggesting that I buy hair conditioner for my unruly mop that refused a comb, before the blond afro and dual-colored converse shoes became the scream after I started winning tournaments. The third is when he got me a job as perhaps the first teaching pro in the country at the 70th Street club by elbowing me into the front door to simply ask… after he explained in our living room how to teach, step by step the strokes, and progressive lessons from serves to shots to tournaments. After I conditioned and earned pocket change, he introduced me to girls. Finally, when I fell ill with the second worst case of mononucleosis in San Diego county history, Bud carried me into his mother's house to recover for a month.

His forehand, court sense and strategies are among the best the sport has known, and hundreds of trophies still lay unseen in Dr. Bud Muehleisen´s attic after he recently retired after fifty years from dentistry, but not from racquetball.



ANYONE who has tried to swat a cockroach will know those insects' strange ability, in the heat of pursuit, to disappear. Robert Full and his colleagues at the University of California, Berkeley, have now worked out how they do this—and taught a miniature robot to copy the feat.

Dr Full had been using high-speed photography to study how cockroaches employ their antennae to sense and cross gaps. When the researchers made the gaps wider, they saw the animals flipping back underneath the ledge at the edge of the gap, rather than jumping across the empty space. As they report in the *Public Library of Science*, cockroaches running towards a gap suddenly grip the edge with the hooklike claws on their rear legs and swing 180° to land firmly underneath the ledge, upside down. They can pull off this stunt in a fifth of a second—so fast that the animals' bodies are subject to between three and five times the force of gravity, and also so fast that the movement is invisible to the human eye.

Dr Full and his colleagues have since identified similar behaviour in other animals with hooklike toes that are good at escaping pursuit: geckos, for example. They have also teamed up with members of Berkeley's robotics laboratory to program a small six-legged robot that has strips of Velcro attached to its rear legs to do the same trick. Such a robot could be fitted with a camera and used as a surveillance device. Some people, though, might prefer it to be fitted with a miniature machinegun and used as a UCPV (unmanned cockroach pursuit vehicle).

Full article.  



 Anatoly shared this interesting article with me: "Jack Schwager explains why trading is more difficult now".

My thoughts:

So Uncle Ben's innovative efforts and the endless bailout/disappoint cycles, currently centered in Europe, have nothing to do with making the situation more unpredictable by a non-flexionic observer?

Anatoly Veltman writes: 

Hmmm, was trading actually "easier" a few decades ago? I don't think so. I think returns may have been, on average, a few hundred basis points higher. I think that is what he (Schwager) is referring to).

So too were rates a few hundred basis points higher though. In short, I think the difference is, (ceteris paribus) attributable to differences in rates, not that trading on things that move are moving in ways that elude us any more than they always have.

Reasonable size orders are played against by HFT algorithms. That's exactly how they take billions in profits out of the zero-sum every quarter

Ralph Vince adds:

If I have an order in for BA to sell, say, at 70.10 limit, what do I care if it's done by one big tuna or a school of piranha? I'm not following you I think on the last point.

Anatoly Veltman responds: 

All depends on the size you're trying to execute. If small, your fill will be random. But a reasonable size limit order at 70.10 will only get filled, if algos figured out that there will be no chance to sell at 70.10 immediately thereafter — according to what they automatically sniff in order books. Thus you are only allowed to buy a loser. If your 70.10 is currently a good buy — you'll never execute, which is the highest level of slippage.

Ralph Vince writes:

Anatoly, doesn't that argument though say that there are no other sellers around at 7010? Would there be the same number of sellers at 7010 as if there were no HFT? (I'm not trying to taunt you here, I'm trying to see if this really MAY be a problem to me that I am oblivious to.)

Anatoly Veltman writes: 

You're implying "fair" market as you used to get via direct execution. But there is no direct execution now, as HFT's are co-located. Thus the execution of your limit order (that seems fast to your eye) is in fact a slow-mo replay of the actual market that experienced multiple biases in the meantime. I'm not sure why you should be "oblivious to the problem", if a handful of HFT entities report consistent billions of profits every single quarter. These ARE modern commissions. 

Paolo Pezzutti comments: 

Trading is as difficult as it was I guess. Each time has its challenges though. In the past you had less access to real time data, software, information, but higher commissions. Today you have more sophisticated players and technology (hft), which can provide an expensive edge to some. There always be an edge and niche for everyone in some market, some product, some time frame. And it is everchanging. So if you are fast and adaptive you can find new ways to make money and abandon old and exhausted patterns. This is the beauty.



 Last night's Stanley Cup final game illustrated the Chair's point about diversion of energy. Having lost the first three games of the best-of-7 final to the Los Angeles Kings, the New Jersey Devils won two games and could have tied the series with a victory last night. Early in the game, the Kings' Jarret Stoll put a late hit on the Devils' Steven Gionta from behind and went unpenalized. Seconds later, the Kings' Rob Scuderi retrieved the puck. After Scuderi passed the puck to a teammate, the Devils' Steve Bernier hit Scuderi late from behind, drawing blood. The officials threw the book at Bernier, assessing a 5-minute penalty and ejecting Bernier from the game. During the 5-minute penalty, the Kings scored three goals. The television announcers noted that the Devils' coach and players were furious at the officials for the gross inconsistency in responding to the two late hits. And, it seemed, the Devils had a valid point. Nevertheless, they went on to lose the game, 6-1.



Suppose there were 2 people in an economy. And they traded. The second lost a lot. The other did not. A central bank bought the asset that the second had to make him whole. The Treasury then spent the amount of the loss on better environmental things for government buildings. The money to pay for this would come from the first person in current taxes. What would happen? The total spending would not change as the second would have spent the money he was taxed or invested it with someone who would. The incentives of the second would decrease to zero so that there was no effort to improve any more. The situation would not be much different for 10 traders. The incentives would be ruined for the winners. The spending of the winners on voluntarily exchanged things would be replaced by political wasteful spending by the government. The economy would not grow. Jobs would not be created. Why is this not a reasonable model of what's happening now and what happened during the 30's when FDR tried similar government works?

T.K. Marks writes:

A creative academic sort might counter with a disingenuous application of Ramsey Theory, positing that unduly reducing the number of elements in the set strips it of the properties from which the desired outcome will emerge. According to such an approach, reducing the system to only 2 or 10 traders (i.e., dynamics easy to understand) would inherently alter the palliative effect of intervention models. Models which can only work on vast systems of millions of traders (i.e., dynamics extremely difficult to understand).

If somebody can sit before some House subcommittee on something-or- another and manage to keep a straight-face, the above can actually be pulled off. As a matter of fact, variants of it happen all day long in Washington.

"…Ramsey theory, named after the British mathematician and philosopher Frank P. Ramsey, is a branch of mathematics that studies the conditions under which order must appear. Problems in Ramsey theory typically ask a question of the form: "how many elements of some structure must there be to guarantee that a particular property will hold…"

Phil McDonnell writes: 

Rocky [see post below] makes some good points but at some point finesses the concept of (some?) politically wasteful spending into all government spending is wasteful. Personally I would posit that some government spending is always wasteful but not all is. On the other hand most government spending is uneconomic. I say this based on the fact that if the activity was economic then the private sector would probably have already done. it.



 The economic analysis of "dead weight loss" puts in perspective the loss that occurs to the totality when an external body spends money on things that consumers would not buy voluntarily. Without intervention, consumers buy things where the price does not exceed the value they place on it. For all units purchased except the last, there is excess value or utility that consumers receive over and above the price they pay. With intervention, money is spent on goods that consumers were not willing to pay for before. The real cost might be assumed to be higher than the amount that is paid. There is a dead weight cost to extent that the price of the good is higher than what consumers would have voluntarily paid.

Let us consider all the earmarks in the bail out bill, and all the environmentally friendly improvements to government buildings, and all the construction projects that were earmarked to special groups or unions. How much of this is a dead weight cost? Perhaps 95% of the amount spent. The value of the total output of the economy is reduced by this amount. There is a smaller total to divide among consumers. This to me explains why the economy is having a much smaller recovery from a recession than in the past. See Consumer Surplus.

I have not fine tuned the analysis in the above, and would have to go take into account many other variables and factors, and would have to make my analysis much sharper for it to be dispositive, but I think it catches the essence.

Rocky Humbert writes: 

I agree that deadweight costs influence economic performance, but I believe the literature is inconsistent on the magnitude of the costs. A simple example puts this into context. Assume that there are 1,000 unemployed construction workers in Podunk, and lots of potholes in the streets of Podunk. The mayor of Podunk has no money to fill the potholes because his budget has been exhausted by pension contributions to the teachers union, combined with a decline in real estate tax collections (due to the housing price decline.) The mayor has fired a number of employees and cut back his maintenance cap. ex. budget. If the Federal government borrows money from China and uses that money to hire the unemployed Podunk construction workers, and pays them to fill potholes, there are obviously deadweight costs associated with these transfer payments — in particular, the salaries of the government tax collectors, bureaucrats managing the program, debt issuance costs, etc. (The effect of debt is beyond the scope of this example.) The Podunk workers fill the potholes, pay 30% of their wages back to the government (income taxes), get the psychic benefits of productive work, and the other residents of Podunk are able to drive faster, require less car maintenance, etc, and perhaps Federal Express even considers opening a new distribution center in Podunk because of the improved roads. In this example, there's no way the deadweight cost can be 95% — if only because more than 30% of the wages are making a round trip — and this doesn't consider the increased consumption by the hired workers — (which of course raises prices for some stuff they are buying–a "good" deadweight cost!?) — but the increased goods prices benefit the shopkeepers/(owners of private capital) in Podunk who are making more profits.

There are several other assumptions that I made in this example (including the level of wages paid to the Podunk workers, what China would have done with its dollars other than buy US Gov't debt, etc) but the gist is clear — it's unclear how the deadweight cost can be 95% of the money spent. I may be mistaken, but for the deadweight costs to be 95%, it would require a stimulus multiplier that is close to zero. Today's WSJ has two good articles that are on point. On the opinion page, the story "Obama's Real Spending Record" argues that growth is lower when government % of GDP is higher. While I am sympathetic to their view (for many reasons), the authors fall into the trap of using correlation<->causality. That is, ceteris paribus, if gdp is lower, than government spending and taxes as a % of GDP will be higher UNLESS the government engages in pro-cyclical behavior like the private sector does. The second article is "Median Family Net Worth Falls 40% From 2007 to 2010". (This is based on a Fed analysis, and is largely due to the housing price decline.)

Apart from incentive destruction, increased regulation, tax policy uncertainty, foreign labor competition, years of debt-financed consumption, etc. etc., I believe that an important cause of the slow economy is the Wealth Effect. The US economy is highly geared towards consumption — and families that see their largest asset value decline (and stay down) make lasting changes in spending/saving behavior. Apart from reducing worker mobility (due to underwater home prices), I believe that the pernicious reverse wealth effect can be blamed as easily as the deadweight loss effect.



 I just read that the CEO of BAC is going to donate $50 Billion over the next 10 years to fight climate change (global warming).

I thought BAC had financial problems.

The concept of man-made global warming is now being challenged by a growing group of scientists.

As for climate change, we've always had it.

At one time icy Greenland was green.

Also, at one time we had the ice age and ice covered vast areas of the North American continent.

In my opinion, the only logical reason for this action by BAC's CEO is to curry favor with Obama.

Maybe that's why the CEO spread the donation over 10 years, anticipating an Obama defeat in Nov. and then BAC's CEO will retract the offer.



 A traveler or U.S. resident willing to take a junket to a 5-star hotel plus quality hospital care in an exotic land need not have American medical insurance and he'll get quality treatment at a fraction the cost. Third world countries charge cheap rates, the same for locals and visitors, for diagnosis, treatment, operations and hospitalization. Someone has pointed out to me that it is correctly termed medical rather than health insurance because many American doctors poorly promote your health.

In El Centro, Mexico, a month ago a physician told me after I walked cold into his office where he had learned from his father before going to medical school and returning to take over that the difference between Mexican and American doctors is that the patients trust the doctors who are not hampered by AMA protocol such as rote antibiotics, radiographs, blood tests and so forth before getting to the heart of the matter with a simple oral history and physical exam the minute you step in the office.

Then I walked around the block to an American dentist who moved to El Centro where, though his rates for fillings and crowns are a quarter his U.S. peers, no doctor's insurance is required, there are no legal suits, and he does well in dental tourism with the majority of clients from USA.

It's all in finding the right doctor… anywhere. I insist on seasoned docs and sports med physicians, or at least one who does sports. In a dearth, visit a sharp young clinic of a handful of friend docs who in synergy come through with the proper diagnosis and treatment. My luck with physicians in foreign countries has been excellent in Africa, South America and Southeast Asia. Sometimes they kick the price up 20% for ex-pats or visitors, bringing it to maybe 5% of the American rates.

Foreign hospital doctors nearly always run private practices at home, and that's where I get instant professional help. The red carpet rolls out. No appointment, his wife is the secretary, and he's linked to the top local specialists for radiology, lab tests, surgery, etc. You're in and out his doctor's door in 15 minutes, and feeling so much better that you're tempted to toss the prescription to be filled down the block instantly at about 25% USA costs. The doctors and pharmacists generally speak some English. In many countries such as Peru the pharmacists are so versed in medicines that the doctor is bypassed and he diagnoses and prescribes for simple cases.

Foreign docs, while making less than American, often own auxiliary businesses. A physician-owner of a restaurant who gave a tour of his clinic, some excellent off-the-cuff health pointers, and was willing to trade english lessons for future diagnoses. He had worked at three American hospitals for a total of eight years but prefers to practice in Peru. This country offers resident visas to foreigners willing to have their monthly social security deposited in a local bank, and comprehensive medical/hospital insurance for about $50/month.

On the other hand, in Lake Toba, Sumatra, a year ago an elderly restaurant owner tossed a salad explaining that no one in Toba gets sick, there are no dentists– what for?– and in the event of a village accident or emergency a local or foreigner is whisked in one of three town cars to a nearby city where the doctor accepts homemade pies and chickens, just like the old-time American doctors.

Medical tourism is a welcome wave set off by shock American fees, and a seeming U.S. government ploy to shunt citizens into corporate, county, state or federal jobs to be able to afford the one thing you cannot provide for yourself– medical care or health insurance.

Predictably, as medical tourism grows an American backlash should lower medical insurance and care, but until then why not take a vacation for an operation?



I question if I am being too cynical if I assume that the government is simply another "player in the game"? Talking about it in abstract theoretical terms seem to leave out that dynamic. Politics is like the weather: It changes all the time; there's not much you can do about it; and the main thing is to make sure it doesn't kill you.

Easan Katir comments: 

Not an economist am I, but sometimes one thinks about the velocity and turnover of currency: each time a dollar changes hands it is taxed in some way, whittling it away to a stump of value.




 A special issue of Science devoted to the human gut microbiota is out this month– an area of study attracting much attention.

One of the journal articles discusses how a Chinese scientist, who studies gut microbiota in rats and humans, changed his gut biota and greatly improved his health by eating "prebiotics", fermented Chinese yam, bitter melon, and a diet rich in whole grains.

The term "prebiotic" has a definition slightly different from the more commonly heard "probiotic". The definition of a prebiotic:

"A prebiotic is a selectively fermented ingredient that allows specific changes, both in the composition and/or activity in the gastrointestinal microflora that confers benefits upon host well-being and health". (prebiotics that may be more readily available in a US grocery store include raw chicory root, raw Jerusalem artichokes, raw dandelion greens, raw garlic and leeks, etc.)

The Gut Microbiota
1. Kristen Mueller,
2. Caroline Ash,
3. Elizabeth Pennisi,
4. Orla Smith

From the article

"We are on the threshold of making profound discoveries about the microorganisms with which we share our bodies, indeed whose cell count vastly outnumbers our own. In Science's 2005 special section Gut: The Inner Tube of Life, we saw hints of the important relationships we have with the microbial inhabitants of our guts. Since then, next-generation DNA sequencing and functional studies have begun to reveal how crucial these inhabitants are for our evolution, development, metabolism, immune defense, and susceptibility to a multiplicity of infectious and noncommunicable diseases.

Science and Science Translational Medicine have joined forces to resume the exploration of our inner tube and its microbiota. As Gordon points out (p. 1251), investigations into gut microbiota draw from many fields: ecology, genomics, metabolomics, immunology, and public health. A gathering of diverse minds and ideas will drive the development of new therapies for treating intractable infections, scourges of the developing world such as malnutrition (Sci. Transl. Med.4, 137ps12), and lifelong inflammatory diseases, such as Crohn's disease and colitis, as well as offering options for relieving the burden of metabolic diseases, including obesity and type II diabetes.

A new appreciation of the diversity and interactions among our microbiota has prompted Costello et al. (p. 1255) to turn to ecological theory to gain an understanding of the dynamics at work in gut communities. Functional studies have shown us that disruptions to the community caused by diet and medication can be detrimental to health. In a companion Review, Lemon et al. (Sci. Transl. Med.4, 137rv5) use ecology to gain insights into the disruptions caused by antibiotic therapy and remediation using probiotics. Nicholson et al. (p. 1262) explain explain how the gut microbiota is a major contributor to host metabolism through nutrient release, and how microbial metabolites boost fitness. Haiser and Turnbaugh (p. 1253) take up the theme of microbial metabolic activities and discuss their influence on drug metabolism. A related Review by Holmes et al. (Sci. Transl. Med.4, 137rv6) discusses the interplay between host and microbial metabolisms, which is providing new therapeutic opportunities for treating human disease.

From birth, the microbiota intimately shapes the development and function of the human immune system. Hooper et al. (p. 1268) review the mechanisms by which the immune system regulates the microbiota and vice versa to maintain intestinal homeostasis. And Blumberg and Powrie (Sci. Transl. Med.4, 137rv7) discuss how disruptions to this homeostasis can lead to severe diseases such as cancer and Crohn's disease. Some of these insights have come from dedicated programs in microbiome research, as discussed in a news article by Balter (p. 1246). A profile by Hvistendahl (p. 1248) highlights the efforts of Zhao Liping to fight the developing obesity epidemic in China with prebiotics.

These joint special sections in Science and Science Translational Medicine still provide only a distant view of our inner world. The next decade will see a revolution in understanding our microbial symbionts and how they can be manipulated for therapeutic benefits that will bring true inner world peace."



This last week the SP was up about 3.8%, following the prior week which was down about -3%. Using SPY, looked for consecutive calendar weeks with the first week down more than -2% ("DN wk"), and the next week up more than 2% ("UP wk"); then checked the return for the third week ("NXT wk"):

One-Sample T: DN wk, UP wk, NXT wk

Test of mu = 0 vs not = 0

Variable   N     Mean   StDev   SE Mean    95% CI              T
DN wk     37  -0.0462  0.0337  0.0055  (-0.0574, -0.0349)  -8.34
UP wk     37   0.0481  0.0260  0.0042  ( 0.0395,  0.0568)  11.26
NXT wk    37  -0.0021  0.0276  0.0045  (-0.0112,  0.0070)  -0.47

>>NXT week was down slightly, N.S.

 Bivariate regression suggested the size of DN wk was an important predictor (smaller DN wk resulting in higher NXT wk). Here are the results if -0.05 < Dn wk < -0.02 :

One-Sample T: DN wk_1, UP wk_1, NXT wk_1

Test of mu = 0 vs not = 0

Variable     N     Mean   StDev SE Mean       95% CI               T
DN wk_1   25  -0.0296  0.0082  0.0016  (-0.0330, -0.0262)  -17.95
UP wk_1   25   0.0397  0.0166  0.0033  ( 0.0328,  0.0466)   11.94
NXT wk_1  25   0.0005  0.0251  0.0050  (-0.0097,  0.0109)    0.12

>>Now NXT weeks were about flat, N.S.



 Meat goes into the sausage factory….

Meat comes out of the sausage factory.

So, by the conventional measure of GDP (which counts government spending as a positive, the only negative being imports) counts government spending twice. That positive has already been accounted for (and perhaps it should be a negative, as it must be made up by taxation, past, present or future).

The government could borrow 5 trillion, spend 5 trillion, and GDP would increase by 5 trillion.

If we look at my version of GDP, we haven't had positive growth in years in the US.



How do multiple lead changes, and their duration in minutes very close, i.e. from up to down from close or open, or within + or - 2 for multiple minutes, affect the outcome of the day in markets? In the playoff game they had a 14 point lead. "There were six lead changes and five more ties in the final 7 minutes of the third. For the next 13 minutes, a span of 46 dizzying possessions, neither team led by more than two points." By the way, the quotes are from the AP story about the game. One of the few times that I've ever seen a good meaty story rather than boiler plate from the AP.

Bill Rafter adds: 

Sounds like a job for the Spearman Rank Correlation.



Pete Earle wrote a magnificent article: "Of Krugman and Diocletian"



 It is interesting how Doc Rivers got his name. He came to a training camp wearing a Doc J sweat shirt. Ever since, the players perpetually have been calling him doc. I like to give nick names to people. Called wisdom "the Wiz". Called John Normile, "normal" or "Doji". Call Michele "Ms. Increment " Yes. I am "the Chair " because it's sedentary. Called the guy who invented "trading algorithms for NYSE "Mr. Small" because he programmed in Small talk.

On another front, I don't know much about basketball but to me the best player I've ever seen is Durant. He can shoot well from outside or inside, and is very fast. So many of the others can only play well when they're a few feet from the basket like James, or Melo, and when they're forced deep have an average eye, and lose the game by shooting because their team is unlikely to get the rebound. Trading for the trend following reminds me of Melo's 30 feet one on one. The other player I think is second best, is Iso Joe on the Atlanta Hawks who again can do everything. I wish I knew a trader like these two, or could aspire to it myself.

Russ Sears writes: 

Of course since I am currently residing in OKC area, I've watch a few games. As a runner what struck me was how good Durant was in game 6 in the third quarter, such patients and confidence when the Spurs had spent their legs in the first half, Durant then took it to them. His endurance began to wane in the 4th, but was still above the Spurs starters. Both coaches in my opinion left their starters in too long after obvious signs of fatigue were showing.

In racing the sign of pending collapse in pace of the opponent is change in their breathing pattern. A runner instinctively learns that this is the time to press the pace on the opponent.This will bring the collapse on before they can strategically slow the pace. If their cardio's exhausted they cannot "kick". Both sides were showing signs of cardio exhaustion. For fast twitch, however, there is more than cardio. A fast twitch athlete has 3 or 4 supreme total explosive efforts before their muscles start showing great decline. (Hence why in jumping events in the Olympics strategy calls for passing until the near the optimal height.) . There were several times the Thunder could have made a statement with a explosive dunk, but settled for a gentle lay-up.

Durant played with the legs of a highly conditioned young man, but the strategic timing of an experienced jumper/racer.




 Weather is a big factor in the success of a ski mountaineering expedition. Weather goes in cycles in large systems moving from west to east due to the rotation of the earth. The weather systems take a week, sometimes less ,sometimes more to play out. The coriolis effect causes the systems to spin and striate, often resulting in pulses of weather, creating small systems of mild rain or snow. Sometimes major systems blow for a week or more. When the weather is adverse its very important to have the ability, patience and time to sit out the bad weather and wait for good weather for your activity. Its bad to head into deteriorating bad weather. You could get caught in a life threatening situation.

The parallels to trading are many. The energy moves from West to East as the trading day moves from Europe, to Asia to the US. The market moves seem to have cycles moving in a week, sometimes in pulses, sometimes in severe moves. Its good to have a count on the current patterns. Its good to know when to sit out, and to have to ability to sit. Its one of the hardest things. Its good to have other things to do other than sit and watch a screen which can be harmful in many ways. Some of my best trades have been when I've taken off to go for a ski or surf for a day rather than brood over the screen. You come back refreshed, and hopefully with a nice profit for a day outside for a doubly rewarding day. I remember seeing the Chair in the middle of a huge trade out playing tennis… classic.



 "After the Keynesian financial and monetary stimulus in the 1970s and '80s, which led to inflation, repeated devaluations and low growth, Swedes believe in fiscal discipline. They are scared of huge national debt and budget deficits — especially at the levels they are in the U.S."

Do the Swedes on site have further remarks? The author, Anders Åslund, has an impressive bio. Would you recommend his books?

By Anders Aslund June 7 (Bloomberg) 

Not so long ago, Sweden could claim world leadership in unmitigated Keynesian economics, with a 90 percent marginal tax rate and a welfare state second to none. Now Swedes look at the conflict between the U.S. and German examples over whether more spending or more austerity is the key to financial salvation, and for them the choice is easy: Germany was right. Northern Europe harbors no sympathy for the spendthrifts of Southern Europe. Americans still think of Sweden as a tightly regulated social-welfare state, but in the last two decades the country has been reformed. Public spending has fallen by no less than one-fifth of gross domestic product, taxes have dropped and markets have opened up.

The situation is similar in the other Scandinavian countries, the Baltic nations and Poland. But no turnabout has been as dramatic as Sweden's.

Read the full article here: "Booming Sweden's Free Market Solution". 



 I really like Atul Gawande's writing and ideas. Failure is an interesting subject that's not looked at enough. The success stories always get the spotlight, the books, the movies, but part of it is just survivorship and luck. Tragic failure comes from making a whole series of mistakes in a row, and making a minor problem in to a major one. Your judgment is not as good under pressure and mistakes lead to others. Sometime multiple small mistakes lead to death as we saw in our previous discussions on the book Deep Survival.

Older people are cautious because they have failed. Many young people have not experienced failure, partly from being protected, partly just less exposure to random bad luck. It's as good as most major ideas, accomplishments are done by the brave, often young people willing to take the risk.

George Coyle comments: 

I'm reading a book called Great Failures of the Extremely Successful by Steve Young. It goes through perhaps 100 or more stories (a few pages each) about failure and how it helped various people from different walks of life. Some are great, others not so great, but the book is littered with facts (I am skeptical about some but regardless) about people who overcame failure and adversity. Whenever you have a bad day look up Abe Lincoln's road to the white house.

Larry Williams writes: 

Charlie Sheen is my new hero this guy bounces back from disasters better than anyone I have ever seen how can he go through that much humiliation and still go on stage…pretty amazing or great drugs… one or the other I suppose



 "I'll Have Another" was just scratched due to a tendon injury. So no Triple Crown this year.

This leaves the field looking strange — with 8 out of the 12 entries showing a line over 10-1. I'll have another was the favorite at 4-5; the next closest was Dullahan at 5-1. "Alpha" (supposedly the biggest threat to I'll have another) was scratched a couple of days ago.

I can't resist the pun: This race has no Alpha.



My instinct tells me that when in drawdowns I should reduce my trading sizes. However, historical testings don't seem to indicate that is a good thing to do in general. The key is that I can't easily distinguish long-term drawdowns from the short-term ones. Reducing trading sizes at certain levels of drawdowns, though saving me from the long-term drawdowns, often ruins the chance of quickly recovering from short-term ones, which occur more often.

On the other hand, I tried to increase trading sizes when in moderate-level drawdowns. Unsurprisingly, historical tests indicate that this largely improves trading performance. Even so, I sense that this might be a dangerous thing to do in reality. It still comes to the point of not being able to distinguish long-term drawdowns from short-term ones.

What are your experiences and thoughts? Much appreciative of any sharing.



I found these 10 simple rules on Software Carpentry. There are plenty of juicy bits here for academia/commercial straddlers:

The "Ten Simple Rules" series being run in PLoS Computational Biology has a lot of useful gems. Written by editor-in-chief Philip Bourne and others, the entire collection to date is available as a single PDF, but for those who prefer bite-sized reading, here are ten simple rules for:

- …Starting a Company (PDF)
- …Getting Involved in Your Scientific Community (PDF)
- …Teaching Bioinformatics at the High School Level (PDF)
- …Developing a Short Bioinformatics Training Course (PDF)
- …Getting Help from Online Scientific Communities (PDF)
- …Building and Maintaining a Scientific Reputation (PDF)
- …Providing a Scientific Web Resource (PDF)
- …Getting Ahead as a Computational Biologist in Academia (PDF)
- …Editing Wikipedia (PDF)
- …Organizing a Virtual Conference—Anywhere (PDF)
- …Chairing a Scientific Session (PDF)
- …Choosing between Industry and Academia (PDF)
- …Combining Teaching and Research (PDF)
- …Organizing a Scientific Meeting (PDF)
- …Aspiring Scientists in a Low-Income Country (PDF)
- …Graduate Students (PDF)
- …Doing Your Best Research, According to Hamming (PDF)
- …a Good Poster Presentation (PDF)
- …Making Good Oral Presentations (PDF)
- …a Successful Collaboration (PDF)
- …Selecting a Postdoctoral Position (PDF)
- …Reviewers (PDF)
- …Getting Grants (PDF)
- …Getting Published (PDF) So, what would your ten simple rules for good computational science be?



 When I was a kid, my father got the family out of blue-collar South Philadelphia to blue-collar Wildwood, NJ for the entire summer. The beach towns of New Jersey are either nice or tacky, and Wildwood was extremely tacky, with most tackiness related to its boardwalk. When you are at the seashore for the summer, collecting shells wears a little thin, so a friend Buzzy and I got a discarded window screen and would go under the boardwalk just below several pizza shops and shovel sand into the window screen. Patrons reaching into their pockets for coins would regularly drop some through the slats in the boardwalk. A few hours work would produce about two bucks each for Buzzy and I, and that was in the days when a quarter could buy you a slice of pizza.

It was dirty work, but rewarding. And of course the dirt was easily washed off in the ocean. Invariably when one of the other kids would find out about our wealth their comments were, "You guys are sooo lucky!" Luck had nothing to do with it. There was a distribution of coins that would fall through and a lot of work by the harvesters. The same is true of the markets.

Jeff Watson writes:

Bill, your experience reminds me of that failed, but magnificent musical, "Paint Your Wagon" where Clint Eastwood discovers that the gold dust gets spilled on the floor and falls through the cracks. Eastwood, Lee Marvin et al proceed to dig tunnels under the entire town and they collect all of that spilled gold dust. They do extremely well for awhile, until a black swan moment where everything collapses and the entire town caves in. There are many market lessons in this movie. About 2:50 of this video is where Eastwood has his eureka moment. 

Vince Fulco writes: 

For those who have never been to Chair's Weston office, right next to the Captain's chair is a painting depicting a similar scenario. Not sure if it is a L'Amour story but the gold miner/spec is on the verge of hitting a nice vein while the precariousness of the surroundings become increasingly more apparent. The moment on the razor's edge is caught perfectly.

Just a beautiful piece.



 Kona, Hawaii is a small town and usually lags behind the rest of the country in booms and busts. We've had a bad bust here the last few years, but this month was the best month ever for tourism numbers and spending. Looking around the little town is bustling. The increased population is evident in a wider divergence of classes of tourist is notable in more bums and pan handlers who tend to stick out. This leads to the broader conclusion that despite the problems in EU and issues being harped on in news, there is a recovery occurring. I even had an employed carpenter trying to rent. He was one of over 20 applicants at a 20% higher rent for a unit I had trouble renting a few years back.

When the market was touching negative territory last week, it didn't sound right that the year would end up negative. The president and other flexions have too much to lose at this juncture to let it go negative. Plus, there was all the public who bought the spring bull run all going underwater getting cleared out.

keep looking »


Resources & Links