A party for Jack Barnaby was held on July 28th, commemorating his 70 years as a coach at Harvard where he was the Johnny Wooden of squash.

He liked to teach his students about the stock market and music and introduced many of us including me to Beethoven, Gilbert and Sullivan and Bach oratorios. His mantra for stocks was buy and hold good companies in the oil producing and insurance field. His holdings date from his father, a mathematician who was a consultant for the insurance industry. He held many 10-baggers.

Since he passed away, in Feb 2002, one notes that the insurance companies have been relatively constant to down 20% depending on the index you use. The energies companies have doubled with Exxon a favorite of his moving from 30 to 90. He felt that everything that Exxon did was first class, and that they were very scientific and efficient despite their size, a legacy from Rockefeller.

He taught Jay Nelson, then an also ran and me, who had never played from scratch. A picture was taken by Dean Bauer one of his tennis and squash hands of Jay and me and we discussed all the weaknesses we each had in our game at the party with great sadness. Between us, however, we have about 50 national championships, and the picture is enclosed in honor of Jack.



 Are there any events these days that make people inordinately happy or sad. Perhaps these would influence the market? An event like an earthquake or a mass tragedy in a theater would seem to qualify. Perhaps there are classes of events that effect particular groups like flexions that cause them to be happy or sad that have a measurable effect also, like intervention by the EC, or the Fed. What do you think? Is it worth quantifying?

Rocky Humbert comments: 

Yes, there are such events. Flying a Boeing 767 into a tall office building is one such example.

Scott Brooks writes: 

Not sure this is an event, but…..the realization that massive fraud is occurring. For instance:

The Accounting debacle (i.e. Arthur Anderson, Enron, Worldcom, Global Crossing, etc.) of 2001.

The Mortgage Fraud Debacle of 2008.

Jordan Neuman writes:

The 2003 rally began with the freeing of Elizabeth Smart. Certainly the market was sold out, but I thought a collective sense of gratefulness served as a catalyst. But file this one under the difficulty of setting up the study.

Craig Mee writes: 

Potentially state dinners and the like, when the flexions are busy cleaning their shoes and are getting ready for another free meal. Maybe that's why silly season (late Nov through December) appears to do ok. Plenty of back slapping, industry awards and the like. Also maybe Oscars week (or award month) is a winning combo for listed movie stocks.

Jim Sogi adds:

Here's a couple of ideas. Use facial recognition software to detect a "smile" tune in all the security camera in the world, process for correlation. It's a bit big brother-ish, but there are cameras all over in cities now around the world.

How about using beer sales? Old Chinese proverb: If you want to be happy for two hours, drink wine; if you want to be happy for two years fall in love. If you want to be happy forever, take up gardening.

Track marriages.

Track gardening sales, or farming yields. It's said one of the few real producers of wealth is farming. Good weather=good farm yield=good production=happy markets.



 I read a recent Op-Ed piece in the NY Times which asked "is algebra necessary?". His opinion was that it wasn't. In my understanding, algebra is the foundation of physics and engineering, and all three were the very foundation of the Industrial Revolution, which shaped our modern lives. Without the fortune of having algebra, ancient countries like China missed the boat of the industrial development and had to suffer for hundreds of years. Sure it was long ago, but are we at a stage where it can be thrown away? I seriously doubt it.

Let's face it. Most of the things in our lives were created in its wake or on its foundation, be it cars, airplanes, electricity, and in the broader sense, modern ships, missiles, rockets etc. Are these things about to die so that we can dust off the old memory and move on? Not to me - these things are still a necessity of our lives or the society (I hope we could do away with the military) and still under constant improvement.

Let's look at the stuff in our modern era. Without algebra how does one get about the following things? A program that draws price charts on the screen, a financial calculator, algorithmic trading, CAT scan, digital video, Google Map, GPS, all communications, digital TV, weather forecast, touch screen inputs on the iPhones and iPads… Anyone please add more.

Are we taking all these for granted? Sure not everyone has to learn algebra. But if only a minority of the people learn it, it would a tragedy for us all, wouldn't it?

Plus, an added benefit to any individual learning algebra (or math as a whole) is that reasoning ability gets sharpen.

Another post on Scientific American also discusses about this: "Abandoning Algebra is not the Answer"

Bruno Ombreux writes:

China knew something about Algebra as soon as around 200 BC. Matrix representation is a direct offspring of the Chinese counting board.

Source: chapter one of "Matrix analysis and applied linear algebra".

I do not think China missed centuries of industrial development. It missed only about 150 years. And it was more because of political upheaval and communism than because of a lack of algebra. China remained a powerhouse until the early 19th century, with about 30% of the World's GDP. Then its share went down as low as 2%. Now it is in the process of going back up to 30%.



 I believe one of the elements we overlooked in our conversations about Apple was (is?) the Mac's superior graphics applications. Whether this superiority was by accident or design, it played a major role in the Mac's initial financial success.

Apple was (numerically) a small player (and seller) in a big and growing field. But outfits with big bucks and a need for superior graphics (i.e., newspapers, ad agencies, job shops, and design studios) had no difficulty in choosing the Apple products despite their much higher prices and refusal to license out knock-offs.

If I remember correctly, Macs had about 5-8% of the consumer market, but were dominant not only for those businesses listed above, but for any organization that wanted to produce a professional looking, graphic-intensive mailer or newsletter. As a result, many graphics-oriented software developers submitted their best work to Apple — and the disparity grew.

Despite owning over 80 Macs in our department alone (the editorial staff had more), we could never negotiate a volume discount; Mac was the market. Only a little before my retirement did the PCs begin to show some advances in design capabilities. My few remaining contacts tell me Macs are still used. If Jobs factored this into his development plans then he was very insightful.

Ken Drees writes:

Jobs made huge inroads with schools/universities as a distributions channel for macs–thereby seizing a very healthy nitch that became loyal. Journalism schools were MAC city in the 80s /90s.

Daniel Flam writes: 

Apple does have some nifty innovations, but along with a very totalitarian mentality. Democracies can turn into anarchy –monarchies can become totalitarian, and Apple is a dictatorship. Some people yearn for a messiah– Apple gave those people what they want. 



1) From a  forthcoming book on the use of algorithms which looks interesting.

"What started on Wall Street - a takeover at the hands of emotionless algorithms - has now spread to all corners of our lives. Music that sounds as if it could have been written by Bach was, in fact, composed by an algorithm. The best analysis at the CIA doesn't come from experienced agents, but from an algorithm. The best mind reader in the world isn't a psychiatrist or a psychologist, but a set of five million algorithms that knows what you're thinking and what you'll do in almost any situation. How did we get here?"

2) An article from Steiner on algorithms and creativity:

"Music X-Ray's algorithms use Fourier transforms—a method of separating a signal from the "noise" of complex data—to isolate a song's base melody, beat, tempo, rhythm, octave, pitch, chords, progression, sonic brilliance, and several other factors that catch a listener's ear. The software then builds three-dimensional models of the song based on these properties and compares it with hit songs of the past. Putting a just-analyzed song on the screen with No. 1 tracks of yore shows a kind of cloud structure filled in with dots representing songs. The hits tend to be grouped in clusters, which reveal similar underlying structures. Get close to the middle of one of those clusters and you may have a hit."



 On a recent trip to the Allerton Botanical Garden in Kauai the guide noted that the mango trees have recently gone through 3 seasonal cycles in one year when only one is normal. He had no idea why. Our mango tree did the same. The explanation here was the big unseasonable rainstorm that knocked off the flowers at the beginning of the season. Now we have ripe fruit, unripe fruit and flowers on the same tree. Chair often compares trees to markets. I wonder if unseasonable shocks (EU, Fed,) might have thrown off the seasonal tendencies in the markets, shortening cycles, or forcing cycles. The changing cycles are the hardest to understand.

Bill Rafter writes: 

That is not unique to mangoes.

Take grape vines for example. Generally the only fertilizer you should use on grapevines is a shovel-full of manure in the spring. My wife thinks we should have flowers in between the grapevines and occasionally will hit the vines with some spray fertilizer she is using on those flowers after midsummer. Relatively soon thereafter the vines put out some new flowers (although most people would not recognize them as such), which will bear fruit (grapes are mostly self-fertile). But the fruit won't have time to develop fully and is a waste.

Fig trees typically produce two crops each year. The early crop (called breva) has generally unworthy qualities, whereas the late crop is to die for. But if you wanted, you could fertilize the tree weekly and have figs all summer long. People with summer vacation homes tend to do that as they know they will not be around after Labor Day, when most of the big crop would come in. You could even fertilize yourself to a second crop of determinate tomatoes, which are "programmed" to bear one crop all at once.

I don't know how good that is for the respective plant because I don't do it. And the lessons for the market seem to relate to Quantitative Easing. Perennial plants (particularly fruit trees) need a dormancy period. If they don't get it, they produce poorly until they do. I believe the same is true with markets: you cannot preempt or "outlaw" the business cycle and expect the economy to respond favorably all the time.



I was cleaning out one of my drawers recently, and came across an interesting pamphlet on Crises and Panics by James L. Fraser. It's an interesting if brief history up through the early 60s. I thought I would share his comments on identifying traits and causes of panics/crises. I am paraphrasing a bit and not completely quoting him on each bullet point here. Bear in mind, this was written in 1965.

1) Extravagance of living, first by a few, and then by many…
2) General belief in impregnable prosperity…
3) Lavish private expenditures, which appear to be natural offshoots of immense federal projects…
4) An appetite for speculation
5) Easy money and availability of credit

Indications of impending crises:
1) Rising prices
2) Increased activity of established businesses seeking more production, more sales…
3) Active loan demand
4) Strong increase in labor employment
5) Extravagant public and private expenditures
6) Speculative mania, together with dishonest methods, fraud
7) Labor strikes and increased general violence / social instability
8) Excessive pride of opinion, especially an "American First" attitude

1) Great failure of confidence at crucial moment(s)
2) Magnificent abuses of credit
3) Readjustment of conditions to changes in values/prices
4) General fall in prices
5) Changes in the monetary unit / revaluation
6) Contractions of or lack of money
7) Over production or under consumption
8) Psychological tendencies which covers a multitude of ideas, of which only a few ever hit the public press.

I also found his comments on "The Permanent Crisis 1960-?" interesting:

"Homer said 'After the event, even a fool is wise.' I suppose before the event, even a wise man looks foolish. Today, with strong opinions and solutions being voiced daily, a wise man tries to look for facts and thoughts which are forgotten in the heat of backing the opinion of the moment. Social control is exercised now more than ever before. We have a service-oriented economy, supported by the Federal Government as a prime mover in all walks of life. This is social action. We may not wish it or like it but we have it."

The rest of the pamphlet is also a great read, and reminds one of a quote from my favorite book of the good book (this is for Gibbons):

That which has been is what will be, That which is done is what will be done, And there is nothing new under the sun. Is there anything of which it may be said, "See, this is new"? It has already been in ancient times before us. There is no remembrance of former things, nor will there be any remembrance of things that are to come by those who will come after.



Up and down the California central valley, you can watch the cities filing bankruptcy. They don't have the money to do anything else. Some might say that "it's California. That's what happens when you eat lotuses." Perhaps. But here's the thing. There is no way to get the US functioning again without having California operating smoothly. It's not like Wyoming, where no one might notice for a spell. With 12 percent of the nation's population and a higher percentage of its economy, California still sets the trend. Even in foreclosures!

Seriously, though, the fiscal cliff at the end of the year isn't necessarily the biggest challenge facing this country economically. I think California is.



 I find this "bravery demotivator" interesting.

It means one should live truly, go big, live your dreams, follow your heart. If you do this, you won't die of stupidity. Many people have regrets on their deathbed of not following their dreams.

Most people don't think of their deaths, and consider it morbid if you do. But considering death makes life more precious. Each day is not the first day of the rest of your life, it is one less day left. Live it the best way you can.

As a side query: Is it possible or good to choose the time and manner of your own death? Death is rarely dignified, but is it better to die with dignity? Whose life is it?

For many, the baggage of others, of family, make death a struggle. At some point its better to let go.



On his headstone Cyrus McCormick has this epitaph: "He Made Bread Cheap"

The inventors of the gene sequencer will deserve similar praise - "They Made Health Common".



It was interesting to see that long term fixed income was down the most in 16 years as of gmt 1430 on Friday from the previous day's close. The move up in stocks from Tues at gmt 1430 to Friday's close was also the highest in 16 years. What a change in the guard this 10 percentage pointer represents. And how typical of summer markets. One takes the hat off to the Europeans and any fellow travelers who were able to orchestrate such a move for their sheer ability to gain such a mechanical advantage with such seeming small strides and words.

William Weaver writes: 

It was fun to watch many dividend ETFs/ETNs (especially internationals) on Friday spike to large premiums over NAV. It was frustrating to find few locates. Larger players were so anxious to lock in higher interest rates in any way possible that they were willing to pay up almost 2% on some issues for fear that waiting for creation on close might lose them points in the underlying.




 I grew up running barefoot on paved Michigan county roads, graduated to marathon running in Converse Chucks tennis shoes, and had the honor of jogging with Micah True of Born to Run in Mexico´s Copper Canyon before he ran to exhaustion recently in New Mexico. RIP.

The effects of trotting barefoot as the author points out are obvious to anyone who has tried it both ways. The heel extends farther allowing the calf muscles and Achilles tendon to lengthen. Repeat this tens of thousands of times and there´s a physical change in the legs and gait. One notices the same effects in hiking long distance, say on the soft rather than hard soil of the Vermont Long Trail, or running the beach during low tide, or around that well-trodden track within Central Park. In all places, barefoot or not but better barefoot if the feet hold up, the effects all stem from widening of the unshod foot, and from a longer, more natural stride.

Here´s a story from Micah True´s lips after he threw a playful kick at me about four years ago to demonstrate his world ranking as a kick boxer. Most people knew him as a runner, then as a boxer, but he also had a stint as a full contact pugilist that has a sanguine ending. Micah had terrific reach at maybe 6´4¨ with arms and legs. He got into the boxing ring once and found that years of running barefoot provided the balance and stamina required to kept him in the ring long enough to win fights. He got a small time manager on a two-bit boxing circuit like Louis L´Amour. He also started writing a fictionalized account in the buses and skid row hotels as he traveled, that was his shadow boxer.

He went on a winning streak, as the book reflected, and because he was so tall and Caucasian his agent got him a contract with the 2nd ranked in the world full contact karate champion. The bout was three weeks away on the Pacific Rim, but True had the boxing technique, and the savvy to know that if he threw the required half-dozen or so required kicks per round he could oust the man with his longer reach punches. He won, and for a few weeks was ranked #4 in the world of full contact martial arts.

With the notoriety, he fell in love, as the novel he scribbled between bouts reflected, he told me, with a beautiful masseuse who massaged him before matches and unlimbered him after. As sometimes happens in the sordid boxing world, she ran off with another boxer, and he was so distraught that he lost a pivotal match he should have won. His world ranking fell until it was no longer economically feasible to travel overseas for full contact karate, and he reverted to the second-rate American boxing circuit, riding in buses, sleeping in flophouses…

His novel began to mix up his mind so he could no longer identify between what happened on the pages and in real life. He wrote a happy ending but didn’t know if he could reach it. So he retreated from both to the California redwoods where he built a bonfire, lit a cigarette, and one by one fed the hundreds of pages of the novel into the fire.

Unbridled now, he returned to running distances. He picked out spots 25 miles away in the Copper Canyon that fifteen Grand Canyons can drop into, and ran there, and back, and this is what he was doing when I met him on a hike. Then he died and we are talking about the length of his stride.



 When falling at more than 75 miles an hour, starting from above 100 feet above the ground off a tree, the custom is to yell "headache". Apparently certain death is imminent. I haven't figured out if it's a courtesy to those with the pine box, or just to get out of the way not to die along side.

A certain pres candidate was telling us that he fell 50 feet from a tree after power gliding and did not know the proper call. He lost 1 1/2 inches immediately and it took him 2 1/2 years to recover. Tore all sorts of vertebrae.

One has been in that situation in the market many times, and now I know what to call out. If you hear me, or as a courtesy you are in that situation, you know what the word means.

Russ Sears writes: 

I would suggest that this is akin to arranging the chairs on deck or playing in the orchestra on the Titanic. Its purpose to give your left brain a vacation, through a mundane task so as not to panic. The time for logical analysis has passed. While at the same time giving notice to your right brain to engage in humor, art or intuition to create the highest probability of survival and one last chance to take in the beauty of it all; to go out living. 



There is a lot of corruption and dishonesty in the markets. The recent Nomura shake up on insider trading, the Libor manipulation scandal, Madoff, PGF, JPM. It seems endemic. People will always cheat and lie. It's only human. It's a cynical view, but the conclusion is unavoidable. Regulation doesn't seem to help much. The question is whether such dishonesty is built into the data, and whether it negatively affects the average joe. Chair's theory is that all under the sun is built into the statistics, the data and if the right questions are asked in the scientific method, information is available. Or does all the manipulation make it futile if one is not a flexion? Or is it, as Tim says, luck?

Craig Mee: 

James, I suppose a question is has this got any hope of diminishing or does the vested interest of the insiders to hold their station under deteriorating economic conditions drive this insanity to greater heights? Will people sell out their grandmother, (well, in this case their great great grandkids) and lock and load until the games not just up for them, but more importantly up for the arrogant, all and sundry.



Google+ is increasingly leaving one with a feeling that Late Mover Advantage can be as significant as the Early Mover Advantage. A lot of thoughtful work seems going into Google+ avoiding so many of the aches that a stand alone twitter or a stand alone Facebook may be giving. This one seems way more integrable into many things in the future, what with the android keeping growing.

I had been bearish on Google as a business earlier, based purely on my nationalistic sentiments of their display of different maps of India when viewed from different locations in the world. I need to look beyond my own sentiments and of course on a longer term business basis, this giant continues to display clairvoyance.

Yet, for a speculative mind, if indeed Late Mover Advantage can be significant, how does one profit systematically from ideas such as if a market takes much more time than other related markets to achieve a movement, is the adage delay is not denial become ever-more profitable? Is there a good way to identify how much bunching of a volatility or delay is a good trigger for firing in a trade?

David Lilienfeld writes: 

Microsoft has built a company around Late Movers Advantage–it's their business model. Google has not. The question that needs to be asked, I think, is how and when Google+ can be monetized. As I think most on this list serve know, I'm a skeptic about FB's ability to monetize the 900 million accounts it has. I am equally skeptical about Google+. So far as I can see, the only social media company which has successfully monetized its accounts is LinkedIn. Otherwise (and I know many will disagree), I think social media is the fad-du-jour, much as twitter was the fad-du-jour from a few years back .(Tim Melvin and I had a great correspondence about this when twitter first came in–we followed one another, and neither of us had any idea what it meant to do so!) Or Flickr. Or email (remember when Microsoft bought Hotmail for $400 million? Can someone explain to me how Microsoft has earned any sort of return on that $400 million? I don't think I would change one iota what I think of Google as an investment because of Google+ or anything else it does until it shows it can obtain some revenue from doing so. Otherwise, it's just a freebie, and it doesn't take much to get lots of people using a freebie. Especially since I think Congress is going to shut down the marketing data collection that FB and Acxiom are marketing. And if Congress doesn't act soon (and it's already moving in a bipartisan way to address such data collection), the EU will likely do so.

Bottom line: Where's the revenue? Show me the revenue. Otherwise, it's Larry and Sergei's excellent adventure.



 Very European that Draghi would make some vague heroic comments to save the Euro sending the market up 20 points, mid-day on Thursday. Most on the continent take off Friday and the August vacation soon approaches so the timing in retrospect seems obvious.

Paolo Pezzutti writes:

Quite impressive how markets are reacting to Draghi's remarks. Assuming that it is hard to believe that effective actions will follow his statements. I wonder if this another opportunity to short the Euro. Unless actually they are counting more on the US printing presses getting ready…..

Anatoly Veltman writes: 

One absolutely should have a long-term EUR shorting program. The European experiment was flawed at its core. The result will be eventual technical breach of the currently defended 6-7 year low. It happens to coincide with the same price area, from where the just-introduced EUR slid non-stop in 1999-2000, until it landed near 83.00. This time, the matching of the initial 1.6->1.2 leg will again target 1.2->.8 straight slide. Being involved in the world's most liquid trade is a must for every spec!



I did a quick look at real GDP vs. SP500 quarterly changes to see if there is any relationship. Regarding GPD there are numerous revisions and this study uses the final revision. Using the first estimate for GDP would have been better, but I don't have that data. So there is a retrospective bias. Here are the correlations with lags of up to 5 quarters since 2004:

GDP to predict SP500

0   .55

1   .16

2  -.17

3  -.21

4  -.11

5  -.09

Even given all the shortcomings of the study I would not have expected correlations to go negative after 1 quarter lag 

SP500 to predict GDP

0  .55

1  .51

2  .35

3  .37

4  .15

5  -.04

 Correlation is stronger in this direction and fits with the adage that the market it looking ahead 3-9 months.

Here is the same using the change of change for real GDP(1st derivative) vs SP500:

Rate of GDP Change to predict SP500

0  .47

1  .39

2  .06

3  .-15

4  -.01

5  -.01

This is somewhat interest with lag1, but not actionable since all the revisions for GDP usually take a full quarter.

SP500 to predict Rate of change of GDP

0  .47

1  -.05

2  -.20

3  -.02

4  -.26

5  -.23

Some relationship a year away, but seem suspect as not stationary.




 In a scene from the 1999 BBC documentary "1900 House," a woman declared that no organized political movement did as much to liberate women as did the vacuum cleaner.


23 July 2012

Editor, Washington Post

1150 15th St., NW

Washington, DC 20071

Dear Editor:

Arnold Packer is unhappy with Robert Samuelson's upbeat interpretation of data on Americans' income mobility (Letters, July 23). Although Mr. Packer agrees that "the Pew Mobility Project report [shows] that most Americans' (84 percent) income exceeds their parents' income," he discounts this fact because "today many wives work when their 1960s counterparts did not."

Two points are noteworthy.

First, women's increasing participation in the workforce is strong evidence against the common notion that the number of jobs is fixed. In reality, this number rises over time with increases in the size of the labor force.

Second, and contrary to Mr. Packer's suggestion, income gains from more women working in the marketplace should not be discounted when reckoning improvements in families' living standards. Women entered the workforce over the past 50 years largely because the greater availability of prepared foods, as well as of home appliances such as automatic dishwashers and clothes dryers, freed them from the need to work in the home. So families today, as in the past, enjoy good meals, clean homes, and well-laundered clothing but, unlike in the past, enjoy IN ADDITION the goods and services purchased with women's monetary earnings.


Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030



 Hi. Vic Niederhoffer here.

I am hosting a party in honor of Jack Barnaby, the squash and tennis coach at Harvard for the better part of 60 years on July 28th at noon. Food and entertainment and all sorts of racket courts and swimming there. Just to honor Jack and reminisce and meet old and possibly new friends. The party is at a home facility in Connecticut. It's merely to honor Jack, not a fund raiser of any kind.

I have also invited all Jack's tennis friends. There is a very good sports library on premises. Please contact Linda at 203 840 0777 or email her at lap(at)mantr(dot)com for details so I can arrange proper logistics.

All who wish to honor this great man who taught so many from scratch including Jay Nelson and me are invited. and please if you know any friends of Jack, and they are legion, let them know about the event.





There is much pessimism on the site about the stock market. One thing I always like to ask is suppose it were true that the economy is really going to be weaker than people expect. Like we'll have 1 or 2% growth rather than 2 or 3. Why should this affect stock prices? What is the evidence that stocks do worse during periods of below average growth? Why should it matter? How does the rate of return on capital of businesses compare to the 30 year rate as stocks are valued based on discounted value of expected future earnings adjusted for risk, with the growth rate of earnings being determined by the rate of return on capital less the pay out on dividends rate. Is it better to buy stocks when people are pessimistic or optimistic?

All these things must be tested. I'm not saying that I'm bullish or bearish on stocks or that one should be. I'm just questioning the glue and the weakness type of stuff. Assuming it was true, which I doubt, why should that be bullish or bearish? Testing is required.

Steve Ellison writes: 

A regression of the 1-year S&P 500 return from 1981 to 2010 against the US unemployment rate reported the previous December shows a 16% positive correlation, with the regression line for the next year's S&P 500 net change being -1.9% + (1.9 * unemployment rate).

t=0.86, p=0.40

Leo Jia writes: 

I often ask myself similar questions but can not answer them. Perhaps one has to answer this question first: what percentage of the people in the market are rational? Or rather, what percentage of the money in the market is rational? Though I don't have an answer, I tend to believe that there is more irrational money than rational money in general. The clear problem is that the degree varies all the time.

J.T Holley writes: 

With the std dev of 18% and annual rate of 8-9%, I'll order a double helpin' of "drift" with a side of "thank you".

If that meal doesn't fill you up then you must question where you get your meals and disregard the gratuity the next time you sup.

Tim Melvin writes: 

Drift only exists if you have a 100 year time frame in my opinion. See 1970s and 2000 to present. Much of investing success last fifty years for most investors is result of membership in lucky sperm club.

Craig Mee writes: 

Doesn't one new variable in a mix during the testing period influence the outcome– QE, no QE, etc etc…(sure, there's been other ways of doing it). But how to judge what has the over riding influence on the outcome? This could vary under certain conditions. How much of the US equity recent rise is in default of Europe, just like EURGBP taking the heat…and how much of the current price is underpinning based on QE to come?

What has recent price action illustrated, if anything at all…

How should weaker growth effect share prices? I would argue that this would just be a further nail in the coffin, when all the ducks are lining up, but how can we say it's got more weight currently than some other significant half ? It's tough. Are the number of running variables any different than twenty years ago? Maybe not. Are market conditions, HFT, leverage, number of participants in the market any different? Certainly. Has this influenced price action? Maybe Richard Dennis may have some views here.

When does the variation in conditions influence the ability to test? I suppose this might be the question.



I still long for Unix Version 6 from the mid 1970s. It was the first operating system that I tinkered with. Bell Labs had created a masterpiece, and between it and the C programming language (still the basis for the internet), I found a system able to do almost anything asked of it.

It's nice that Unix lives on, particularly in a widely used system, Linux.



 I have a lot of friends on Wall Street who are losing their jobs and/or are concerned they will lose their jobs imminently. Most of these people are 30-50 and have financial responsibilities, wives, kids, etc. Most seem to hang on and try to find jobs but the time to find work has been growing and growing and hearing someone is out of work for 12 or more months isn't that shocking anymore. The business is shrinking. Regulation is expanding. Jobs are scarce. Qualified applicants are plentiful. Incomes are dropping. Technology is replacing the need for people. Arguing the financial industry is in a jobs depression is not that far fetched. Reports are that for every opening there are thousands of applicants.

What do you think? Will the industry rebound or is this the end of Wall Street as we have known it. How does this jobs environment compare to the 70s recession or before, were those times equally as daunting? What are alternatives for people who are forced out of the business?

David Lilienfeld writes: 

Are you sure you're not talking about the 1930s? or perhaps the 1970s? Or the 1890s? or the 1850s? (See the pattern here?) There will always be a need for financial services in a capitalistic economy. The problem these bankers are having is that given the oversupply of them (or relative lack of demand, if you prefer), and given their lack of wealth creation in the society (industry creates wealth, services create QoL), I don't see where the problem is. Financial services is overstaffed the same way retail is. 7/11s and digging graves sounds like it has more value-add. Maybe they'd like to work picking crops in central California? I understand that since the crackdown on the border took hold, the San Joaquin Valley farms are short-handed. The wages aren't great, the sun's a bitch, and occupational hazards abound, but there are jobs, and those holding them do get paid. But I grant you, it's hard to pay for a Porsche SUV on a farm-picker's wage.

Leo Jia writes: 

Perhaps I can offer some sort of soothing message.

They at least have some very good unemployment benefits.

I remember years ago (perhaps the same now) the state regulation on the unemployment benefit for all domestic people working at so-called "wholly foreign owned enterprises" (WFOE's) in China is as follows. All of one's personnel issues are registered at one of the state-owned so-called "personnel management companies". The company withholds a certain percentage from the employee's salary every month. By regulation, the unemployment benefits it offers to the employee are: 1) it first tries to find a job for the person if unemployed; 2) if no job can be found, it pays the person certain percentage of his original salary (for 3 months?); and 3) if one doesn't want to take the job it finds, then no unemployment payment. Sounds not too bad. But the key is the job it find you. It literally could be a street sweeping job, and they always find one for you. 

Dan Grossman writes:

A person knowledgeable about business (and as talented as most finance professionals seem to regard themselves) can think of a needed product or service and start his own business to provide same. I am always surprised how few do, even after many months of unemployment.

Or, instead of just "looking for a job", a person with such background and talent should think of the way he could bring new or significantly increased profits to an existing business, large or small. And then go to that business with a proposal that he be engaged (whether as an employee or at-risk contractor) to bring about those new or significantly increased profits. As a business owner, I would be very interested in such a proposal, far more interested than in "giving someone a job".



 I recently visited a Bed Bath and Beyond and was amazed at the improvement in housewares over the last 20 years. Almost all have automatic features for noise abatement and better grip, and many sanitary and cooking improvements have been made. The extent to which business is constantly improving our standard of living in down home down to earth ways is enormous and under appreciated.

What improvements in packaging, cleanliness, efficiency and cost have you noticed in every day items in recent years? And what are the market implications of this. I am reminded of Roger Longman's idea that the price to weight ratio of a company's products is a good guide to its future market performance. On another note, he is very familiar with the advisory board nasdaq and thinks it fruitful for investigation.

What brought my discussion of improvements in every day things to the fore was that I chatted with Don Boudreaux today, and we discussed the improvements in weather forecasting over the last 25 years. Now, one can get an incredibly accurate forecast of the weather, temperature, and moisture for 5 days in advance with seeming 90% accuracy whereas the old articles in the monthly weather review would have a hard time distinguishing the accuracy of forecasts from random predictions of no change. Of course Galton discovered weather maps, and that improved forecasting enormously but one just wishes his own forecasts of the market were 1/5 as accurate as weather forecasts and one would be a very wealthy man.



The recent paper from BofA/Merrill Lynch on long term returns had several equity market charts which cast doubt on inevitable long-term drift. Given what happened in WWII the charts are as expected in Japan and Germany, but look at France and UK (Picture Guide to Financial Markets Since 1800). [Ed.: sorry, link no longer works].

There are many decade flat to down periods (in USD).

One keeps returning to the question of whether the long-term updrift of US stock market would have occurred had we not been on the winning side of two world wars, one not hot war, and of course the resulting transformation to the first world leader.



 I recently got a pair of the Five finger shoes after reading Born to Run. I have never been able to run much at all: shoes didn't fit, feet, shins hurt, back hurt. The only time I remember running was in high school/college soccer, and cleats had no heels. The Five Finger shoes are comfortable and allow me to just run and run. It's very interesting. The calves get a bit more tired. The running mechanics are much different. There's no don't heel strike, rather the foot rolls down outside along toes and spread along ball in a rolling motion. The run feels more like a rolling shuffle than a stride. I've heard American Indians ran long distances like this with moccasins.

I've ordered a pair of custom made shoes from Russel Moccasins, they are Safari Boots and will be interested to get them. Takes five months for them to make the last and custom sew them. I've never had a pair of shoes fit right with flat feet, left foot bigger, wide toes. I can't see why now with 3d imaging a guy can't scan his foot, send computer file to to China, have the computer adjusted foot model push out slabs or pins to identically model the foot, and cut then sew a pair of custom shoes. Why not clothes for that matter? They might be hand sewn, but the pattern could be computer laser cut to fit.



 1. It is remarkable to note that for the S&P futures, there has been a complete symmetry in the number of big up and big down opens over the last 6 years. Using 1/2 % as the cut off, one finds that 340 have been big downs, and 345 have been big ups.          

Breaking it down by day of week, one finds that there is no day where the number of big ups diverges by more than 5 from the the number of big downs. Even more remarkable is that no day diverges from any other day by more than 15 in the total number of big ups or big downs. For example, on  Monday, there are 64 big downs, and 65 big ups. But of Friday, 70 big ups and 74 big downs.          

It used to be article of faith from efficient market types that news was generated randomly in time, like the number of horse kicks (v. Bortkiewicz 1898 ), i.e. a poisson process and that Mondays should have more bigs than the other days.

                 Big ups followed by big downs                                                

Mon 65 big ups, 64 big downs                                                     

Tue 69          73                                                              

Wed 68          61                                                            

Thur  73         68                                                            

Fri 70          74                                                                      

Even someone as prone to finding regularities in randomness as the signer, can't find any departures from randomness here. 

2. The concept of a bear market, i.e. a decline of 10% or 20% as an indicator of further bearishness is a hallmark of the charlatan. I think one recently saw millions of headlines to that effect of a bear market in commodities  (right before the 50% rise) but there has been a remarkable decline in Nikkei relative to the S&P, similar to other remarkable divergences notes in these humble speculums. [Note: Nikkei now 8670 vs 10185 on March 27, i.e. down about 15% vs S&P down only 3%].

3. There are many ephemeral things that move the market. One tends to shrug the shoulders and haul out some Shakespeare or Aesop on these occasions. "What fools these mortals be"  or "the ant and the grasshopper who played music for the day". But whether they are ephemeral or not in the market, they can have a lasting effect, and there is signaling to consider also.                                

To me, the  most ephemeral things in the market are the reaction to alcoa earnings, and the Philadelphia fed, and the various manufacturing surveys. All of these are random numbers based on a small sample representing 1/1000 th of the economy for one month even if they were not subject to so many sampling and seasonal errors.                                

Of course, 99% of the announcements are like this. However, they can have lasting effects as the meaningless monthly employment numbers show even though ofter an increase or decrease in the raw employment number of 900,000 or more can be converted to a 50,000 gain or loss through random and self interested adjustments.    

One is reminded of times I've tried to make a statement at a lecture before asking a question and in the middle a hundred agrarians from the audience shout out at me in disgust "what's your question".                      

In any case, what are the most ephemeral announcements and worthless things that move the market in your ken? And which ephemeral things tend to be reversed the most?                        

Okay. Are then any ephemera that have lasting effects?

Anatoly Veltman writes:

I can think of one that's puzzling: a Nikkei jump over night can create a follow the leader impression, which will trigger a wave of optimistic equity rises around the world. Is it ever considered that an oftentime .5% over night gain in the Nikkei is, in fact, unchanged in the neutral currency terms (by virtue of simply the Yen devalued .5% vis-a-vis the currency denominator of any other equity market)?



 Where does one learn about the economics of the farming business. I'm curious if there is a good place to read up on a sort of income statement on farming on a per acre basis (averaged across different crop types and soil grades). I'm curious to understand the economics of the business of farming.

Vince Fulco writes:

King Corn is a short and amusing documentary (found on netflix) which documents two college graduates who decide to return home to their grandparents' town in Iowa. They rent an acre of farmland and attempt to grow corn all the while profiling the inputs and costs. Needless to say with no economies of scale they make a pittance netted mostly from govt programs.

Big River was their second movie documenting the amount of pesticides which go into our food supply and the prevalence of odd cancers in farming families; striking more wives than husbands.

Scott Brooks writes: 

I wrote this post back in January of 2008…..so it is very dated, but I think it will give you a good primer on the subject of growing and the economics of corn from a ground level. List member, Mike Ott is a MUCH better resource on this subject, but I think this will give you, at least, a decent idea of what's involved in growing and raising corn.

Russ Sears writes: 

While not an expert on the subject, my in-law are crop farmers and my paternal Grandparents rental farmed until they passed.

Much of the individual farmer's income statement depends on the type of agreement from the land use. (Rental, share expenses and crops, debt on land, corporate owned, farming own land etc.)

But I believe Scott posted the basics with perhaps a few notes. Property taxes are a big expense for most farmers. Also profit/losses on the value of the land should be considered. Most farmers are asset rich and "cash poor". Often they take out short term loans on the seed and fertilizer. Plus they often have some leverage or debt on the land. They generally keep this to a minimum so they can withstand some shock and long term downturns. (lessons learned from 70's and 80's) Most farmers budget their living expenses They often put off purchasing equipment and new cars/pickup until a good if not great year. Darwinian nature of the business has left a pretty conservative bunch for the individuals who still farm.

They also sometimes leverage to diversify their holdings investing in stocks and bonds.

The average farm owner is generally above 65. But if not often they take second jobs or have the wife work for health benefits. As independent business health insurance can be very high. Social Security and Medicare are also part of the taxes or part of the income depending on age.



 The two most salient features on the face of the Peru economic boom are corruption and fat.

The Transparency International
is a world index of the corruption of nations you may choose to live or do business in. You may read about it, except between the lines, as Peru businessmen point out, that the index method is the perception of businessmen doing business in the countries. Among corrupt South America, Peru is rank middle-of-road but actually is the most corrupt country on the continent, if not the world. This is because nearly every businessman by default is corrupt in order to do business in Peru. Certainly they are not going to report that to TI.

A fun way to look at fat is on a calculator based on research pulled together by a research team at the London School of Hygiene. Using United Nations data on population size in the world´s nations together with estimates of global weight from WHO and mean height from International Health examinations, the calculator figures an average BMI (body mass index) for human fat. It so happens that Peru is in the midst of one of the largest economic booms due to relaxed foreign trade restrictions and increased gold price since the rubber boom bounced in early 1900s.

Today on the streets of Iquitos I see each person has gained 10 lbs. Under new polyester shirts in a rising middle class since my last visit four years ago. Where are you on the global corruption and fat scales?



 A good book to put engineering in perspective is To Engineer is Human: The Role of Failure in Successful Design and others by Petroski.

John Lamberg writes: 

I have read some of Petroski's works, with To Engineer is Human my favorite (should be required reading for all undergrad engineering students that intend to be design engineers as well as anyone assigned to an engineering Failure Analysis Team), with Success through Failure: The Paradox of Design a not too distant second. I'll withhold comment on his March 2012 release, To Forgive Design: Understanding Failure, until I read it.

Along the theme of engineering failures, Fenyman's account of his role on the NASA Challenger disaster commission is a solid gold classic. Here's a brief clip.



 I recently read the wiki page about The Endowment Effect.

Basically, it says the one values his possession much more than others value it.

Thaler conducted the following experiment. He randomly gave some participants a mug, which sells for $6 in a store. He then asked the ones now owning the mug to give a minimum price below which they would not sell the mug, and asked the ones not having the mug to give a maximum price above which they would not buy the mug. It turns out that the owners valued it for $5.25, while the bidders valued it at $2.75. He concluded that the very fact that the persons owned the mug made them give it a higher value.

Very interesting research. But I wonder if the conclusion is as that simple.

First, I wonder what would happen if the owners were asked to buy another mug. How would they now value it? Since it is not a critical item to have and they already own one, it is reasonable to believe that they would bid an even lower price than the bids from those who didn't own it, isn't it?

Second, what about selling short is allowed in the experiment? If the people who didn't own the mug were asked to price it if they would sell it short. I bet their price would be even higher than what the owners offered, and very likely be higher than the $6 store price.

Any input on this, please?

Gary Rogan writes:

Leo, I'm not sure it's productive to attempt to extend these "effects", and there are many of them, beyond their original definition without doing actual experiments. This particular effect seems to be as simple as "defend what's yours harder than you would attempt to get the same thing from someone else", one of the ancient evolutionary developments. Primitive (as well as advanced) animals demonstrate the same effect when fighting for territory, that's why the challenger loses most of the times. Of course someone who has a relatively useless (from their original standpoint) mug to begin with doesn't want another one. Personally I find it more interesting to think about the practical value of the original effect. In the behaviorist books it's supposed to manifest itself by "holding on to losers too long". Every time I read this I always think about whether the logical conclusion is that a rational person should always sell "losers". Sometimes they bring up the tax loss effect, and that's fair but it doesn't get to the heart of the matter. Considering this question, and all the robotic trading that goes on, how would one take advantage of this effect? 

Pitt T. Maner III writes: 

The self-storage business might be an area where this effect is felt most strongly. There is a lot of rent money being paid (by baby boomers and those who have left houses) and property used to store old things instead of buying new.

Rocky Humbert writes:

This is a fascinating subject for exploration. Being only slightly tongue-in-cheek, I wonder what effect negative real interest rates have on the willingness of people to hold onto "junk" ? To the extent that "the cost of carry" (i.e. monthly rental fees) are small, hoarding is a rational behavior. Also, there was an article in the WSJ last week discussing the effects of "clutter" on marriages and home life. Lastly, there may be a "depression-era" and "aging demographic" effect occurring here. In the situations where I've (sadly) had to empty out elderly relative's apartments, I've discovered that depression-era people hoard useless things like return envelopes from bills, archaic car and doorkeys, memorabilia from bygone days, etc. I think that there are many interesting factors at work in this trend — and there is market-related utility in thinking about them.

Jim Sogi writes:

It's really hard getting rid of one's "junk". There is a weird attachment to the stuff. Its almost painful to throw stuff away. Then there's the issue of getting rid of the junk, and then needing that item the next day. Feng Shui has some good tips on clearing the clutter. There must be some sort of hardwired effect causing one to collect stuff. Look at the bag people pushing around carts of junk.

Craig Mee writes: 

I'm with you, Jim, and in the tropics, clutter, dirt and smells brings mosquitoes, which is a very good reason to keep things clean.

On a side note. I've had a lot of trouble with mosquitoes, though I went to a friend open air villa the other evening , and when dusk hit, no mosquitoes ? I looked around and put it down to a) everything was white, walls , furniture, coverings, a well cared for garden, two ceiling fans, (some sea breeze) and importantly I thought …lights under the table we were sitting at. ie everything was clean , tidy, and white, with air.

Further, I read once, if you haven't worn clothes for a season, toss them. That's certainly worked for me.

No doubt those who make money in one particular stock , get attached, (you see it)…it clutters their mind, and they will drag any positive out of fundamentals, value, whatever to get back involved. Got to clear the clutter, or put it out of sight, to free the mind.

Rudolf Hauser writes:

In considering the impact of the pure psychological effect on value from ownership, one should not ignore the economic effect. The cost of the purchase is not just the purchase price of the item but the value of all the effort that went into finding the item in the first place and how difficult it might be to be able to buy it again. Then there is the risk of the replacement being defective or other problems in the acquisition thereof that might happen. One also has to consider the potential cost of needing an item and not being able to acquire its replacement in time to meet that need. As an example, I once wanted to buy a new ink eraser to replace the one that wore out. I then found that I had to run around to seemingly countless stores to find this inexpensive item –an effort countless times more expensive in opportunity cost than the price of the item itself. Needless to say, when I finally found the item, I purchased a whole box full to insure that I never would have to spend so much in search costs again for that item. Nor would I have sold those again except for much more than I paid for them.

As for the psychological impact, say one has purchased an object of great beauty at a price that subsequently appreciated considerably. The new higher price might be one at which one would not consider it prudent to buy given the overall state of one's financial resources even though it is an item one might wish one could buy. But already possessing it one has the excuse for buying it via not selling it because one already had done the deed in effect. When an item is not unique or rare and is easily replaced when a new one is needed, one would not suspect that same tendency to value the item in possession more than the same item not in possession. It would be interesting to see if this effect still persists in that case and how it compares to the former.

A stock would be of the latter type at least in small quantities. With larger quantities there is always the uncertainty as to how much such purchases might impact the price, which would the economic reason as opposed to a psychological reason. A psychological reason might be the emotional difficulty of making a decision that one is not anxious to repeat, ignoring the fact that with an investment an implicit decision has to be made every day as to whether to continue to hold or not. The difference is that to sell or purchase is an active decision whereas to hold can be a passive decision. In effect holding is also a way of putting off a decision.



 Talking about morals, there seems to be no shorting of those without. Note the Secondary Scam. Wow, is this another reason why some in the market keep on getting clipped and have a lack of versatility. "Consistently more are likely to show renewed interest in contact from fraudsters". The magnetic attraction …of what? Excitement, revenge, thrill seeking–it smells of lack of due diligence at a minimum.

From "Nigeria With Love":

"Meanwhile, ''The Psychology of Scams'', a study commissioned by the UK Office of Fair Trading, shows people who have already been a victim of a scam are consistently more likely to show renewed interest in contact from fraudsters. One trick of conmen is the ''secondary scam'' in which they contact a victim some time after they realise they have been scammed and pretend to be lawyers, government officials or police from the scammer's country. This happened to Munro. ''Sean King'', whom she chatted with on another site, told her he had also been the victim of a scammer. He said the Economic and Financial Crimes Commission, a Nigerian law enforcement agency that investigates 419 scams, had helped him and a friend to recover their money. Her local police had already suggested she get in touch with the EFCC, but ''I emailed them and never got a reply,'' she says. Sean told her he would get the employee who had helped him to contact her. ''So he [the EFCC employee] emailed me and then it was all on again,'' Munro says. The emails had the same EFCC logo as she had seen on the site to which the Australian police had directed her. ''They said because such a large amount of money was due to me, I had to get anti-money-laundering and insurance certificates from the bank. All the documents that came to me looked totally believable,'' she says. ''They named the guy who scammed me and said they had his IP address. It was very clever. I was sucked in.'' Thousands of dollars later for a variety of ''fees'' and ''certificates'', Munro realised she was being scammed again.

An interesting article on The Psychology of Scams



 Here's the brewing problem that I think about every day: "The Real Class Warfare is Baby Boomers vs. Younger Americans".

I'd claim it drives me to drink, but do I really need excuses?

While my parents worry about my future… I worry about the solvency of the programs that their generation built… and how 14 percent of my freelance revenues might as well be lit on fire because (let's be honest) my social security and medicare taxes are not coming back with the same purchasing power or benefits guarantees (The healthcare system in 2053 will be tremendous, I'm sure).

These programs obviously need some means testing, as Pelosi's generation and anyone with 20-30 years of business experience will likely be much better off in the U.S. at their age then my generation will at 50 through 70, given resources, expanded competition from abroad and so on.

I personally feel sorry for anyone under the age of 27.

I graduated in 2004 (in a bad job market) and was still just able to sneak out and get 4-5 years of solid experience before the bottom fell out in 2009. Then I was able to go onto grad schools…I think I barely escaped. But it appears that fewer and fewer in 2008-2011 undergraduate classes are able to get the practical experience before they hit 30.

I spend a lot of time researching the impact of the recession on MBA education, and I'm seeing the ages go up, and applicants 22-27 being shown the door before they even get a chance to say hello. How we're going to sustain and educate our next crop will be a new gap. I am interested to see if there will be a significant pay gap between individuals 30-40 today, and individuals 30-40 in ten years.

Every day, Australia looks better and better to me for a 2014-2015 move. Too bad the IRS will meet me at the docks once I get off that slow boat.

Ralph Vince writes: 


Thanks for your posting. Your post deserves comments from the more geezerly here. Permit me to be the voice of those despised boomers.

I agree with you on inter-generational warfare notion. I hear it incessantly from the younger (<35) crowd, and not that it is without merit, I find it's rather one-sided. I am left wondering, despite the miserable economy and resultant job market of recent years, why the animosity? I, for one, twice your age, having been paying into the Ponzi schemes at over 18% per year for over 4 decades of my working life. Most in my circle seek to dismantle these Ponzi social programs, and agree the place to begin is clearly through means testing. I too don't expect to see a dime from these systems (not that I would qualify under means testing, but I would prefer we stop the Ponzi nonsense and consolidate it all under Welfare. Actually, I would prefer they do away with it entirely for that matter!)

Don't forget, roughly half of us boomers have been relentlessly voting against any of this nonsense our entire lives, and have sought to have it dismantled, but we have been outnumbered by the handout crowd — I believe your generation fear the boomers now becoming the handout crowd, an understandable concern given the demographic imbalances. Here is what they evidently don't teach in grad school (and I don't say this with condescension, rather because I find a conformity in perspective among the < 35 crowd). Straight-line forecasts into the future never work. The image presented to those your age — the straight line, cause and effect, demographically created scenario — that demographic doomsday isn't going to happen. Things always, invariably, descend from outside the system, rendering the straight-line forecast of the masses substantially wrong.

I don't know precisely WHAT those outside influences will be, but I'm pretty certain they will be severely pro- economic growth. This will have profound and far-reaching economic effects on the generation of workers now < 35. I'm not talking in the distant future either, but rather this decade. Don't be surprised to see home values surge, 200 to 300 percent over an 18 month stretch — when people least expect it. Don't be surprised if we need to bring in a few million qualified tradesman, or real competition among medical services in the US, wrought from outside the US. Don;t be surprised with plentiful, inexpensive oil and electricity. There are a myriad of factors now conspiring to create an enormous economic boom. Don't buy the "We are going the route of Japan" scenario. We are not Japan. Don't be surprised by double-digit GDP growth at some point this decade. The ground is shaking right now, and the < 35 crowd is unwittingly standing atop a mountain of opportunity for those who can shed the yoke of perspective that has been sold to them.

Lastly, Australia? Forget about it. Throughout my entire adult life, I have been of the mind that the US is really NOT the place to be if one wants opportunity and economic growth. I believe that is now flipped, and the states very likely presents the prospect for great growth and opportunity in the coming decade. This is a time to sit tight, take chances, and if things soften more, risk more, buy into it.

That's my two cent take, I wish I was young enough to capitalize on it the way a young man could, but I'll stake my future entitlements on it.



 My favorite economic witticism (I think it's funny; others may not) is R. G. Hawtrey's comment that "currency is better explained in terms of credit than credit in terms of currency". Hawtrey thought it was self-evident that money existed in a society only because there was a government that required money to be used in the payment of taxes. In that sense he agreed with the Paulistas; in a perfectly free world there would be no need for legal tender because, in the absence of a government, people could freely agree on whatever they wanted to use for the settlement of private accounts. But, with governments and their monopoly authority, the payment of debts became a matter that involved "policy" - i.e. making certain the mandarins got paid for sitting and talking and writing and meeting. For governments to exist, money had to be invented because, unlike private parties, the government had nothing to offer in exchange.

Hawtrey had no success in convincing others in his profession that the importance of the gold standard was to let people go back to speculating about each other's credit and stop worrying about some final settlement of accounts into a sovereign currency or currency of all sovereigns. Whether or not a country stayed on the gold standard, left it, or tried to cheat by imposing capital controls would become simply a matter for discounting between private parties as long as one country in the world was willing to follow the simple rules and let its currency supply fluctuate depending on how much people wanted to hold gold or gold certificates and how much they wanted to convert dollars (for example) into bullion and send it abroad or do the reverse. That country's currency would be come the universal unit of account precisely because it would be the one money that would not have a political speculation attached to it.

Believing that the political manipulations of a currency could somehow rule economic behavior was, in Hawtrey's mind, literally to put the cart before the horse. (To my mind it also means the "wise" men and women are even worse the committee in charge of describing an elephant; they spend all their time looking at the ass-end of the wagon and talking about where it is going even as it stands completely still.)

Europe was broke in 1919 not because it failed to adopt the proper monetary unit of Keynesian design but because all of its nations had utterly ruined their public and private credit in the extravagance of 4 years of world war. This was no more a popular an opinion in the 1920s than it is now; reviewers of Hawtrey's book on the gold standard took him to task for arguing that money itself was unimportant except as a measure of credit-worthiness and the gold standard - at whatever value - was only important because it prevented the governments of the world from fudging the measurements. Hawtrey thought that governments' credit-worthiness was entirely dependent on their ability to conform their legal tender to what the country could, in fact, afford to pay to its foreign creditors and tax collectors; and that was all there was to it. Here is what he wrote in 1919: "There never was a time at which the currency systems of the world were so exposed to danger as they are likely to be in the immediate future. The portentous profusion of paper money affords unparalleled opportunities for deflation while the development of credit and the elaboration of such devices as the exchange standard have opened the way to an almost indefinite further inflation cloaked under the disguise of an economy of gold. Between these two contrary dangers there seems to be no clear principle to keep mankind in the middle way and it is even possible that one may succeed by way of reaction to the other.

Footnote: Under the "exchange standard" countries could pretend to pay each other in gold for the net balances of trade and credit without actually delivering the bullion. It was "the gold standard" without the essential element of that system - namely, the ability of the creditor to ask the borrower to actually settle up his account in specie. It was, in that regard, indistinguishable from our present fiat money system.

Britain did not, in fact, restore the gold standard until 1925. Britain's comparative success during the 1930s (even as Orwell was writing The Road to Wigan Pier British unemployment was slightly more than HALF what it was in the U.S.) can be attributed to the fact that Britain's banks did not, in fact, fail after the country went back on the domestic gold standard. Neither, for that matter, did the French banks fail as France also restored it promise that the franc could be changed into specie. In academia the severe U.S. depression is blamed - as David suggests - on the collapse of the Credit Anstalt, etc. yet the volume of U.S. trade in 1930 to central Europe was less than 1% of U.S. GDP. Smoot-Hawley raised the effective tariff rate by less than 5% for a country whose economy was almost entirely focused on domestic consumption; yet that also is the villain. What is ignored is the central fact; all the debtors to the U.S. were broke and, once they defaulted on their sovereign debts, they were in the position debtor-in-possession companies usually are - they could do business at a much lower cost. It was the U.S. response to this fact that made the defaults of the European debtors into a world collapse. Instead of accepting the fact that American consumers would now profit from cheaper imports - if Americans were allowed to send their money abroad, the Hoover and Roosevelt administrations decided that the solution to the problem was the ultimate Keynesian response - the country should do away with the barbarous metal by permanently hoarding its gold reserves and NEVER PAYING THEM OUT TO ANYONE.

That was, of course, Hawtrey's point; you kept money reserves precisely so they could be used in a credit crisis; but the reserves had to be actual money, not more pieces of government paper. The "global" banking collapse occurred throughout the 1920s, along with sovereign defaults from the German and Austrian and Italian and Polish and Czech and Russian (er, Soviet) hyperinflations; but the severity of the U.S. depression cannot be blamed on those events. It is attributable to the efforts of the U.S. to pretend that its underwater debtors could pay their war debts by having the U.S. lend them the specie and then have it immediately redeposited in the New York Fed's vault (quantitative easing's grandfather). The irony is that the U.S. decided that it had to abandon the gold standard and run away from world trade just as its European allies were finally ready to pay for their own imports with real money. Enough said, indeed.



Today I watched a child kiss her pregnant mother goodbye on the stomach. Children are that important in Peru.

Being a naturalist means doubling as a mid-wife in the Amazon, as Richard Fowler has found on five occasions. Probing the deepest Amazon he is legend in backwater villages as the Lone Ranger mid-wife where there is no medical facility.

A few days ago, I met the grinning 6-year old godson whom his mother, Lilla, claims has never had a sick day, compared to the siblings with a gauntlet of gripe, malaria, hepatitis and other ailments as common in Amazonia as chicken pox and measles are to American kids. Her smile was as wide as her child's as she hugged Richard with great might.

It was 3-degrees south of the equator, 100km off the tourist grid up the Ampiyacu River where few outsiders venture. Richard was tapped from a deep sleep by scared and panicky villagers of Lilla, a young widow of the chief´s son from Pucarquillo another 100km downriver. It was a surprise as the baby wasn´t expected for another month.

She was stepping off the platform of the hut when he arrived, and grabbed the edge, assuming a squatting position, as is the natural way for a bush birth. No screams, no grimaces, ´Just inhale and exhale,' he told her, and put a towel in the drop zone. He instructed the father into a quarterback position who caught the 3kg baby boy named Jason.

Fowler´s first delivery was in Vietnam as he led his 101st Airborne squad in a search and destroy foray into a tiny village where the Viet Cong couldn´t be distinguished from the natives. A stunned lady fell to the ground in labor.

´We´ve done enough bad today, Now let´s do some good, ´The point man boiled rags, the gunner found gloves, and the lady gasped in the first pang of birth. He caught the baby like Yogi Berra, and handed it to the radio man to hold. The woman started to rise, and he pressed her down gently gesturing, ´Wait for the placenta.´ It passed.

He waited for the umbilicus to turn from blue to white, and then sliced it with a one-foot hunting knife that he carries to this day for such occasions. He pressed the baby to its mother´s chest, smiles all around, and wagged his finger at her, ´Don´t name him Charlie.´

Since that first delivery the Amazon midwife has caught four others leaving behind only a white umbilicus.

newborn baby

new mother and baby




















We had a recent debate on the economics of medicine that — unfortunately– veered over into the realm of politics. I hope these facts will be considered solely as a question of how the business of medicine has evolved recently for hospitals:

According to the NEJM ED (emergency department) visit rates increased by more than a third between 1997 and 2007…The number of hospital admissions increased by 15.0%, from 34.3 million in 1993 to 39.5 million in 2006; admissions from the ED increased by 50.4%, from 11.5 million to 17.3 million.

The proportion of all inpatient stays involving admission from the ED increased from 33.5 to 43.8%.EDs have become the primary growth area for what all hospitals must have in order to make money - a supply of patients who stay for more than 1 night and have a major procedure.

Jeff Watson writes: 

I suspect the hospitals realize Stefan's observation. All around my town, Doctor's Hospital has billboards up with a real time wait numeric display for the wait time of the emergency room posted. If they say that the ER an 11 minute wait, a 2 minute wait, or a 30 minute wait, and they advertise this all over town, is it really an emergency room? FWIW, they also have smart phone apps doing the same thing.

Dan Grossman writes: 

I doubt anyone who has received or seen a hospital emergency room bill in recent years would regard it as a loss leader.

It is a mystery to me why Medicaid, Medicare and other programs do not encourage patients to go, if possible, to one of those for-proftt medi-quick clinics for a $150 bill, instead of to a hospital emergency room for a $1,500 bill.

Bud Conrad writes: 

I fell off my bicycle. (In Calf.)

I was strapped to a board and taken against my will to the Stanford hospital where I was in a neck brace for hours and was X rayed. Cat scanned and get this: given a sonogram! I guess they thought I might be pregnant. The 10 minute ride to the hospital was $1500 the emergency room about $15,000, and a couple of days later in a different hospital the surgery for a broken arm was $103,000 - not including the doctor, anesthesiologist, nurse or follow up care.

This system is broken beyond repair and a disgrace. From my point of view a POX on the whole lot of doctors, lawyers and government sponsored payments system!



I recently wrote to my friend Bob in Hawaii. Thought he had some interesting news from Hawaii and Asian Markets: 

It's summer here which means overnight lows are 72 rather than 65. Tourism to the islands is way up this year. The big increases are in Asian tourists, with many Japanese and the Chinese market starting to boom. What it means for us, especially here in Waikiki, that the low price places are on their way out — a long-standing sports bar just closed because the tourists are now looking for more "upscale" locations. As an example, a new bistro just opened in the Halekulani Hotel; a beer is $20 (not that I drink, but still).

I've got a start in the local writer's market; I'm having a 5,000 word story published this fall in "Tales from the North Shore" and I'm hoping that will get me some exposure for publishing longer work.

Of course, the Checker Maven is still top priority.

Regards to you and family,

Bob Newell
Honolulu, Hawai`i



 The current issue of Outside magazine has an article called "Could You Survive" with 27 tips on how to survive a shark attack, a cougar attack, an avalanche, falling through ice, and a forest fire. The tips seem very relevant to how to survive in markets. But I don't know enough about survival and Hobo is far away I believe in Ecuador or Blythe and not likely to have access to this issue, so I appeal to the survivalists here to relate the good and bad tips to our field.

Jim Sogi writes: 

Surviving specific threats is very specific. With a bear, one does not fight back, but plays dead after the attack. However, before the attack one must counter charge and wave hands, yell make noise because the first few charges are bluffs. With a cougar, one must fight back with all you have. Prevention, avoidance and awareness of bears and cougars before an attack are even more important.

It's important to know the context in which the threat occurs and the nature of the threat. In terms of markets, its foolish to fight back aggressively at the top of a rapidly falling market. Its a different story near lows after a big fall in a consolidating bottom. That's one of the problems with a list of general rules. While they can be good rules of thumb, they might not apply in a certain specific situation. Beginners or the inexperienced tend to rely on simple rules and get into trouble by applying the rules in the wrong context. When the "rule" doesn't work then panic sets in, multiple mistakes are made and death ensues. Experts use different and more specific sets of checklists and know the context.

Tom Printon writes:

Deep Survival by Gonzales and Checklist Manifesto by Atul Gawade echo Jim's points, both make for good summer reads or re-reads.

Bo Keely writes: 

I ran this by bear, gator, snake & cougar wrestler naturalist Richard Fowler and he sent us this:




 An often overlooked component of the grain market is Country Movement. Country movement is basically how much grain is being transported around the country, in and out of terminals, mills, ports etc for consumption, processing, or export. Grains primarily travel by barge, rail, and truck. Different grains are usually shipped differently with wheat being shipped more by rail to end users or ports than corn or soybeans. A bottleneck in any of those transportation systems will affect grain prices. Right now, a situation is developing where the Mississippi River is getting low and it's hard for barge traffic to move. While the forecasters are not expecting a repeat of 1989, it will be close. Barge traffic is by far the largest method of shipping grain for export.

While I'm on the very important subject of grain transportation modes, here is an illuminating paper that will provide a high level overview of the various grain shipping methods. This paper sorts out the different methods of shipping, costs, areas, and crop specific shipping domestic use, and exports.

Country movement is very important and I monitor it very closely, along with transportation costs, which greatly affect the end/retail price of the commodity. Another note, the Mississippi is such an important transport route that the top 4 grain companies own the top barge lines and control around 35-40% of the tonnage shipped on the Mississippi.



I have been thinking a lot about the difference between investing and speculation. In my opinion they both rely on other people's action to hopefully change the price of things you have an interest in in the favorable direction. Investing relies more on them agreeing over time with your perception of their value, and usually over the relatively longer time frames, and speculation on them moving the price in your direction for any reason, and usually over a shorter time frame. Clearly the two intersect where realizing value is concerned, but the difference in time frames seems the most important.

I'm wondering if anyone else has any different definitions/distinctions.



 I have always wondered to what extent a random walk with normally distributed steps would differ from a Pareto distribution with comparable means and third moments. I have never believed that stock prices are fractals or infinitely variance, or any way different from a shifting normal distribution or a mixture of same. The hazard rates of fall off for both distributions could be compared, and one would hypothesize that there would not be a observable difference.

Ralph Vince writes: 


I have always agreed with precisely what you are saying. The "Pereto Explanation," does NOT explain market conditions changing; it is stationary. Clearly, those who posited that were naive when such might be better modelled by moving distributions (maybe even Cauchy distributions, where variance issues still persist).

However, when we speak of variance in returns, we must consider that the ntion of "infinite variance" is equally naive(!) as follows: What is varying is returns, specifically, today's price divided by some price in the past (e.g. yesterday for daily returns). Everyone seems to (conveniently) discount that these cannot go below zero. Thus, if returns were equivalently bound on the upside (at 200%) we could be certain that variance in returns was NOT infinite. Sine we cannot makes this assumption, we can only assume that variance can be infinite ONLY by upside moves of ever increasing maximum magnitude as we increase the window of time into the future.

We should be so lucky!

p.s. my own take on it is that we are dealing with moving distributions, likely Normal or at least where the variance is measurable and finite. The shape of the distribution, it;s moments, however, can move rapidly and without any warning whatsoever. price change, is just the single data point selected at that moment from such chrono-dynamic distributions, the real question pertaining to price change — and challenge — is to discern what that distributions is at the moment. THAT is the real price change, the solitary point witnessed, just a random manifestation of it.

Steve Stigler writes: 

On stock models: Some aspects of these models are driven by a wish for internal consistency, that the step distribution is the same (rescaled) for steps in minutes or hours, etc. And the steps are independent. These imply that the steps are "stable distributed", a class that includes normal and some heavy tail distributions. The reason is the central limit theorem (clt) - if the step for a minute was pareto with finite variance then the step for an hour would be the sum of 60 such and by the CLT approximately normal. If the step for a second is pareto, even more like a normal for an hour. So if you don't want a very complicated analysis the only choice with finite variance in normal, and if you take any other step dist for small steps the dist for large steps will be approx normal.



 On a moral note, which I feel totally inadequate to opine upon, why is it considered so universally reprehensible to be a stool pigeon, or to dessert a sinking ship? Maturin always refused to spill the beans on his fellow mariners even when it would have helped to defeat the French or save his ship, or help out his best friend, because of the moral stigma.

Jack Tierney comments: 

This dilemma is dramatically presented in "Scent of a Woman." Al Pacino gives a rip-roaring soliloquy on why his "ward" is justified in not implicating three associates who violated the school's honor code - first, by behaving in an ungentlemanly manner, and second by not admitting to it. Due largely to the speech, the young man is exonerated to cheers from his fellow classmates and much of the faculty. The line from the speech that I recall vividly goes something like this: "Many times I was faced with the choice of doing right or wrong. In every case I knew what the right decision was. I never took it. Why? Because it was too damn hard!"

Almost everyone seemed happy with the conclusion. I was not. As far as I'm concerned. the over-riding issue is whether, once we have sworn to adhere to a code, it is permissible to toss it to the winds because popular opinion or powerful forces believe otherwise. The young man and Pacino are, unsurprisingly, both portrayed heroically. Hollywood has a history of lionizing scoundrels and demonizing those who spoke against them. Should that be the template by which we measure honorable behavior?

Rudolf Hauser comments: 

This may well be something some of us are genetically programmed to do. The fact that the trait is so common across cultures is suggestive of this. Genetic traits depend on survival of the gene that carries them, which means they aid survival and reproduction. The logic is that on the evolution of reciprocal altruism is that it genetically paid to help one's siblings since they shared many of the same genes, increasing the odds that the gene that encouraged such behavior would be more likely to survive since some of one's siblings would share that gene. But then there was a recognition problem.(The evolution of such traits is likely to have started among our pre human ancestors who did not have the benefit of language.) An older sibling would know who its younger siblings were but not the other way around. But the odds of the gene thriving would increase if it acted in the interest of those who helped one as they might be older siblings. Members of the same tribal group would be more likely to share that gene than outsiders. But altruistic behavior has costs to the entity engaging in it. The most favorable trait would therefore be to appear to be altruistic without being so in fact but benefitting the altruistic behavior of others toward oneself. But that is costly to those who do engage in altruistic behavior, so a genetic response in which the behavior of cheaters and traitors is punished would tend to reduce such cheating. Experiments have shown that people are willing to punish cheaters even if it has an economic cost to them of doing so. Along similar lines, there is more of a hostile attitude toward those outside a group than those within one's group. Both of these traits account for why it is considered so reprehensible to be a stool pigeon or engage in other behavior inconsistent with what are viewed as societal obligations to the group.

From a moral standpoint, doing what is right morally is far more important than loyalty to someone whose moral behavior turns out to be reprehensible. The purpose of liberty in part is the belief that one should be able to act on the basis of one's individual conscience rather than following the possibly evil dictates of society. The opposition of society to such behavior is one reason the fight for liberty is often so difficult and why individuals are often reluctant to stand by what they believe to be right.



 When thinking about the future of Facebook, I believe it could be helpful to consider some context. In particular, it might be helpful to understand FB's evolution, trajectory and emerging substitutes.

My understanding of FB comes from my children and the movie. My children are Mark Zuckerberg's age and my oldest was a classmate's Mark's sister in another college. My youngest had personal insights about the Winklevoss twins though a collegiate rowing community, also in another college.

Initially, FB was aimed at one college, Harvard. Later it expanded to the Ivy and Ivy-like colleges (not graduate schools). Initially FB was intended to network among America's future elite. As time progressed, students from other great colleges were allowed to join, but they had to possess the proper e-mail extension.

As time went on, students from good universities were allowed to join. Finally, anyone with an "edu" extension on their e-mail address could join FB.

During this period, FB was aimed at the 18 to 22 year old college student. It was a symbol of, "I've made it to college and I'm a member of an important network." Because FB was largely confidential, postings were largely about gossip, interesting parties, crazy behavior, linking up and engaging in various college-age discussions. From the perspective of college students, FB was safe because parents, teachers and non-college students were denied access and those older folks had no idea what was being shared.

Then FB took a step that almost ruined its future; it allowed high school students to join. College-age students were devastated. And while privacy settings were limited, college age students began blocking the younger set. In addition, they thought of ways to prevent younger people from viewing certain areas and began to restrain themselves from certain posts and conversations.

Then FB became attractive to cool people in their late 20's and early 30's, primarily college educated. However, FB's culture was changing; it was no longer elitist, unique nor confidential. Online behavior, particularly among the undergraduate age, became formalized and restrained.

Then the worst happened. Mom and Dad signed up. Mom and Dad started posting baby pictures of their college-aged students. They posted obscure discussions about their good 'ol college days (sans the bad stuff they didn't want their kids to know about).

With Mom and Dad watching, a whole new culture evolved, particularly among the college age and recent graduates. They avoided discussions about religion, politics, sex and money. They rarely talked about another person unless it's good news. They tried to blend into the background.

Even though some thought the worst had already happened, the absolute worst hit when Granny got her account. Granny didn't understand the culture and protocols and ranted about this and that, publicly mused about the future of the nation's youth and reminisced about the good 'ol days.

For some, FB's value had been completely diminished. For people in their 20's, online conversations became limited. Posting of pictures had to be Granny-safe. FB, once a private network, had become a family album.

Young people finishing college or recently out of college began to focus on LinkedIn. There they can create a variety of networks, including alumni groups, and focus on professional development. While Granny is unlikely to connect in LI, they don't care. On LI, the language is already sanitized and professional; Granny would be proud if she only understood.

FB's trajectory suggests the site is becoming less relevant for certain age groups. FB started with undergraduates who are now in their late 20's. It appears FB is now losing that age group. In addition, it seems FB's loss is spreading to nearby age groups.

Accelerating FB's downward trajectory are gaffs that violate users' sense of privacy, cultural mistakes that make assumptions about user preferences and reporting profiles to marketers and government policing agencies. FB is becoming more like Microsoft and less like Apple.

In the end, I believe FB will become family oriented, at least for users in the West. LI is becoming more relevant, particularly the 20 to 40 age group.

I don't know what will replace FB, but it certainly isn't twitter. Right now, for the 20 to 30 age group, it seems smart phone texting is de rigueur; it's private, focused, discrete and direct.

It seems to me there's a void developing. It's in the very market Zuckerberg originally identified; a live yearbook.

More directly, FB seems to be losing relevance among its core users at an accelerating pace. I think FB peaked, at least in the West.

Looking forward, I wouldn't be surprised if FB bought Ancestry.com (ACOM).



It is interesting to see that the sage was the one that blew the whistle on their competitor AIG, in a so typical gesture of deflection, self-servingness, sanctimony, and fellow travelership. How many others beside Sobel and Greenberg has he deflected.

Mr. Krisrock comments: 

Buffett hates hedge funds, high tech, anyone who has lots of money and like him hasn't created foundations that pay no cap gains or ordinary taxes…he doesn't buy new cars, he gave up his reinsurance insurance CEO…he is truly the last angry man.



 It is interesting to note that Friday the 6th of July, the SP closed at 1351.80. And Friday the 13th July SP closed at 1351.70 . Similar proximities occurred on 2/10/2012 and 2/03/2012 at 1327.30. Headlines in the media such as Bloomberg state: "US stocks gain for week, erasing losses".

I am drawn to look at such things as rank correlations and inversions in such books as Kendall on rank correlations to study this with a view to reducing the ability of the market mistress to relieve one of funds.

Chris Tucker asks: 

Is the options market in ES, SP, SPY and component stocks large enough to pin the S&P?

Anatoly Veltman writes: 

Alas, it should be treated solely as market trivia, of no predictive value. I wouldn't worry about newswire's interpretation; I'd be more worried about optimized coding interpretations. How should researcher classify daily or weekly delta? E.g, is change of mere .10-.90 on SP500 trading 1350.00 = no change, or should some percentage threshold classify as a change rather than unchanged? Percent change makes more sense for longer-term (years) of studies. The levels near 666 should normalize different delta than levels near 1576. I guess that levels of interest rates might also have impact — but we've been relieved of this variable issue for a couple of years hind and hence by the true Libor fixers.

Victor Niederhoffer comments: 

One is often involved in things too trivial or microscopic. Indeed that is what was said to me 50 years ago when I started counting eighths in individual stocks in my undergraduate thesis–a count that set off a field that one is told has not been entirely fruitless. Thanks for the firm guidance.

Anatoly Veltman replies: 

It's interesting that 25 years ago I was taught that the less observed the security is — the better the technicals! In that regard, one-eighth 50 years ago might have been more predictive than .90 delta in e-mini today. We're in the age of battle of the black boxes, the most successful of whom manage to relieve us of funds the moment we start over-relying on a particular minor indicator.



 We often hear from the media of some financial analyst saying "there is some uncertainty with that situation. …". It is quite obvious that they are telling investors to hold back with their money. Uncertainty is always bad, as the majority of the people always say.

How does one really deal with it? Is there any certainty in anything really? Seasoned investors generally would say "we are not talking about certainties, we are dealing with probabilities". Then how does one decide on investing based on probabilities? A general way of dealing with probabilities for instance would be when "there is a 70% chance of that happening" (I know, there is the concept also with expectations, but for the simplicity of this discussion, let's disregard it now as it is not that relevant here). It sounds very good. But the question then comes "are you certain that there is 70% chance of that happening?". To that, one perhaps would answer "there is 70% chance that there is 70% chance of that happening". Well, it sounds not too bad either. But why stop here? One could keep asking "are you certain that …". As it goes on, the answer becomes "there is 70% times 70% times 70% times … times 70% chance of that happening". When getting to the infinite loop, it becomes ZERO percent chance of that happening.

So it sounds that even one dealing with probabilities would invest on something when there is 0% certainty or 100% uncertainty.

What is going on here? Does one's reasoning matter at all in making decisions? How then really should one decide?



 To what extent does the concept of speed ratings, popularized by Crist , have applicability to markets. One variant of the idea being which horse had the fastest quarter last race, or which one had the greatest move down from 1 quarter to the next, like from first quarter to stretch, or stretch to close. Can this concept be applied to days within weeks, or months within years? How would some of the handicappers or horses extend this and what would Bacon say?

Bill Rafter writes:

While in grad school a buddy and I used to go to Golden Gate Fields regularly. For some reason it was always on a Thursday, and we went for the last two races to avoid the entrance fee. The lack of admission was critical because it removed the necessity to bet. (relation to low fixed costs?) The Racing Form was a critical part of the exercise, and I would bet on the horse with the highest speed rating that was showing greater than 8 to 1 odds close to post time. The bets were on the minimal side.

My results were successful if you measured my wine supply, which was quite good. The accumulation of wealth from horse racing was not something I relied upon, so any winnings were spent on the way home at the liquor store on the main drag. Racing bets were not something to aspire to, for a very good reason. Going to the payout window revealed the demographics of those who typically bet on longshots, as an 8-to-1 horse was considered. We also tended to meet those same people in the liquor store, where they were buying Thunderbird.



 Perhaps someone can explain this one for me:

Facebook is valued at an astronomical amount. Its revenue base is, basically advertising. But FB is sustained, use-wise, by kids and young adults ( <30 ), who at one time had a fair bit of purchasing power and/or influenced significantly what a typical family bought.

Today, however, that demographic group doesn't have that kind of purchasing power. So what's the appeal for advertisers in supporting FB? Is there any data to suggest that ad buys on FB have a higher ROI than other media venues?

If not, is FB just a lousy investment, or a good one because these things are temporary?

Anatoly Veltman writes: 

Also, consider the theory of reflexivity in the case of FB, of self-perpetuation. I notice that my 11 y.o. daughter has gained self-confidence (and self-absorption) via FB-ing.

Those kids flaunt their "social edge" over the older purse-holders, and pull on purse-strings with ever-increasing zeal.

Like Henry Ford said, "I'll pay my workers enough to buy my cars", FB is fostering its own consumer channel.

Gary Rogan writes: 

The hope with large end-user software companies has always been that they (a) create dominance in their particular specialty (b) use this dominance to figure out as yet unpredictable way to monetize way beyond their current valuation (c) use this dominance and their speed of execution to stay ahead of adverse end-user trends. If often hasn't worked out this way, but of course when it does you get outsized returns.

Stefan Jovanovich writes: 

For the most recent quarter FB generated roughly $.5B in EBITDA - the same result that my favorite submarine with screendoor investment - AMAT - produced. FB did it with 1/4th the number of employees and 40% of the revenue. Does that justify a valuation 5 times what the market now pays for Applied Materials? Yes - if the belief continues that network effects will predominate in social media as they have in paid search. The world will need the production of foundries - both steel and silicon - but it will only pay a premium for businesses that promise that their profit margins will increase on marginal sales because there is no used/distressed inventory out there to compete with the "new" products. The answer will be No only if the world of corporations and teenagers decides that Google+ is a better way to sell their virtual images to the world. (Note to file: since those of us here at Chaos Manor now buy and own stocks as if they were cars and houses - i.e. once we find one we like well enough to buy, it is usually a decade and more before we even think about selling, these comments are only for people - all 3 of you - still willing to attend early morning mass at the church of Buy and Hold.)

Peter Tep adds: 

Above all else, Facebook is just a huge time sink and besides being a networking tool, is another place for people to gloat and boast or climb the social hierarchy — meant in a non negative way. With so many kids using it and literally connected to it 24-7, it's probably going to be a good investment if Facebook finds more ways to market to it's users on an even more emotional level. Has anyone seen the series posted on Ritzholtz blog about this?

I guess it is a great investment because it keeps people emotionally connected, like a great movie is playing out in front of them and they are part of it. If Facebook refines its marketing strategies even more using its users' data, then I guess the sky's the limit.

Jack Tierney writes: 

David asks some important questions regarding FB and its value. I agree that the current price is astronomical, but have very little knowledge of the operation — I am not a member and, barring any unforeseen developments, will not join. I have followed FB for sometime and have not joined because of the incredible amount of information they can gather regarding your personal history, preferences, and affiliations.

That very knowledge, though, explains why this could be a very rewarding investment. Back when I was still employed I did some work with the "research and marketing" groups. One of the first puzzling discoveries I made while going over some data was that, although our newspaper regularly received a huge amount of national food advertising, the relatively small markets covered by the Miami Herald and the Milwaukee Journal, received more.

It was explained to me that both cities were unique in that they were split almost evenly demographically. The wealthy, well-to-do, and upper middle class occupied one half of town, those not that well off, the other. This gave General Mills, Coca-Cola, Proctor & Gamble, etc. ideal platforms from which to launch new products, different packaging, innovative couponing programs, size and container preferences (12 oz. cans vs. 16 oz. bottles).

These two cities gave marketers some valuable insight into buyer preferences…yet it was no where near good enough. The Holy Grail, what each individual preferred, was not only impossible to discover, but impractical to reach. That may now be achievable with FB.

While many who are members argue that they reveal very little about their preferences, few are aware of how much their "friends", directly or indirectly, reveal about them. The most memorable story sent to me regarded an English woman who had been "on the dole" for a couple of years, receiving whatever that country's monthly stipend is for an unmarried, unemployed woman with two children. Someone from Inland Revenue (apparently the equivalent to our IRS) decided to check up on her. Rather than checking her page, he started with the pages of some of her friends.

He happened to come across one that featured a several month old picture of the woman in question, relaxing on a beach in some exotic, expensive European resort — with her new husband. Her friend also happened to mention how fortunate she had been to have an employer who let her take a month long paid vacation.

Well, the outcome was not a pretty one. But the story illustrates that if a "friend" should just happens to mention you're a pizza lover, expect to get an uncommonly large number of pizza promotions - from Pizza Parlors in your very own neighborhood. (How did they know???)

If FB plays this right, they could pull in billions. Marketing has always been about reaching the maximum number of potential buyers for the least cost. From what I've read about FB, this is within their reach. If they follow through, or allowed to follow through, their reach is incredible and I would consider buying.

J.T Holley writes:

I'm 41. I choose to "like" The Jefferson Theater so that I could see the feeds/updates of concerts that were being booked. I got notice that they were having a Southern Rock Band "Blackberry Smoke" play on July 25th. They also said that if you "liked" the announcement then you would be put into a drawing for free tickets. I won. I have two free tickets and allowed them (they asked) if they could say that I won.

GM and all others that don't understand the power of FB are foolish. It reminds me of A. Miller's "Death of a Salesman" and Charley's wise words:

"The only thing you got in this world is what you can sell. And the funny thing is that you're a salesman, and you don't know that." Charley

and he best double negative ever to be used in writing when Charley addresses Willy (foreshadowing).

"Nobody's worth nothin' dead." Charley

Google became the yellow pages.

FB is becomin' greater than the yellow pages.

It's a tectonic shift that many aren't willin' to accept or grasp. I'm nobody and humble and I get it.

Dylan Distasio writes: 

While I think your example is a good one of what Facebook COULD monetize, they are far behind Google on most advertising metrics and have a very low click through rate on the ads they do allow. It's understandable, Google is in the business of ads and has been at it for longer. Zuckerberg seems hesitant to admit or embrace the fact that FB is also in the business of advertising.

And the fact that Google is a yellow pages should not be scoffed at. It is a large part of why their ads in search work and demand higher prices. They are for things people are looking for and highly targeted.

I think with the amount of personal data Facebook has, they have great potential to monetize ads. The big question is whether they are interested, and if so, will they be able to execute.

The current issue of MIT Technology Review has a great article on a team at FB that is looking at the bigger picture in sociological terms of what they can do with the data. While their explicit goal is not focused on monetizing the data, some interesting techniques for doing so may come out of it indirectly.

Facebook has to be careful about how far they go in using people's data in the interest of monetizing it, and has to build a more sophisticated toolbox of ad types and techniques if they want to compete with Google. While they have certainly reached what appears to be critical mass as a social network, people can be fickle with their allegiances, and are happy to jump ship to something else when they get bored or feel slighted. FB will be forced to walk the same tightrope Google does if they want to seriously compete with them.

It should be an interesting couple of years watching this unfold. That said, I think based on the current view of things, FB is tremendously overvalued unless they are willing to start heavily exploiting the data in their possession. I'm not sure Zuckerberg is willing to, and he controls the company with 51% of voting shares. He's now a billionaire and can run his own agenda for quite awhile at the shareholders expense. As an example, I would question his acquistion of Instagram for $1 billion dollars but I guess time will tell. It will help them in the mobile space where FB is currently very weak, but we'll see if it was worth a billion to buy a company with no revenue.



So, corn and wheat are going up, just about all other commodities, gold included, is headed down. Copper, too? Jury's out. Stocks don't look so hot–valuations are high and guidance is turning pretty crappy. Oh, and there's an election in the offing. So, with the 10 yr Treasury south of 2% (and maybe setting another low in the next several days), where does one put one's money–in Europe?(!?) In…

Tim Melvin writes: 

Every time I think if passing on the mess that is Europe I think if John Templeton's advice to invest at the point of maximum pessimism.

Of course all of us have found a supposed max to be a min to our dismay.

I have a baby toe in Europe at this point.

Andre Clapp writes: 

My point exactly… Pessimism on Europe, if not at a maximum, is certainly very high. Significant career risk for professionals. Everyone knows you'd have to be an idiot to invest in Europe. Reminds me of the US market during March of '03 and '09. Buffett out today saying Euro is "doomed to failure" with one small caveat. (Who is more front page than the Oracle?) Reminds me of the Economist issue "Drowning in Oil", when oil was $12 a barrel. They felt that oil should trade at $5 a barrel, with one small caveat, "in the absence of political considerations"… Hmmm, seems like a pretty big caveat to me! Needless to say, oil (Brent) trading at triple digit levels only a decade later, even in a weak global economy. The lesson to me: Mind the caveat!

Lastly, The Oracle may have his own personal reasons for "encouraging" the Europeans. He is not above that, IMO. People stating the consensus opinion often leave this kind of trap-door caveat behind. My guess is that the sun will still rise, and Europe will still be here, 10 years from now.



 This is a very interesting short film about risking life and limb to bring a delicious gooseneck barnacle to market:

"The Life of a Percebeiro"

In the northwest corner of Spain, in the coastal region of Galicia, fishermen boat into fjord-like inlets called rias and rappel from slick rocks to collect gooseneck barnacles in crashing surf. They hang down in pairs and watch each other's backs as they scrape and claw the crustaceans from slick six-foot sections of barnacle-tiled rocks battered by frigid waves.

And this is another interesting article about them

"Galicia's Hard to Come By Barnacles"

Structuring their lives around every subtlety of this unpredictable climate and treacherous coast, fishermen must wait for the proper tide (it should be as low as possible to expose the percebes) and ideal sea conditions (relative calm), and watch for signs of strong undercurrents or of brewing storms. Any conditions that are less than ideal keep them idle at port, sometimes for days at a time.

I bet they are wonderful with a local white wine.

They have a short piece here showing how they made the film and it shows the fish market with the price of the barnacles—love how the fisherman (at 1:05) points to eye to tell the cameraman to watch. Quite fascinating.

Interesting use of camera on small, remote control helicopter too.



This is amazing. "Wind Powered Car Travels at Twice the Speed of Wind".

I am thinking perhaps a trading model can be generated with a similar idea. Why trade with the trend? Why buy low and sell high? Why can't one go fully against the trend (not in the sense of mean reversion) and still make money? Say one is long in a down market, for instance. Wouldn't it make sense to have something propelling one's account equity to increase at double the speed of the downward move of the instrument?



 There are those, like Doug Kass, who are pounding the table and screaming about the dawn of a multi-year housing boom in the US.

Yet I remember reading in Barron's a few years back that the major determinant of long-term housing trends is the formation of new households. Many kids, who have had trouble finding a job that pays sufficiently for them to run their own household or not having a job at all, have moved back in with their parents (the boomerangers). We've deported a lot of folks, too (who might otherwise form households), and there's been no increase in immigration quotas. In general, it's only the middle-aged and elderly that are growing in size, and those age groups aren't known for lots of new (or net) household formations.

So where's the increase in households going to come from to drive that boom in the market? What makes me even more confused is the comment on the Toll Brothers call that the company finally has pricing power in 16 or its top 20 markets.

Something's not right here.

If there is a boom, or even a boomlet, do you go with Toll? Lennar? Ryland? Or the suppliers (small caps like Lumber Liquidator or large caps like Home Depot)?

Thoughts, ladies and gentlemen?



 A question was raised after Tyler's talk at the Junto this month about how to inculcate conscientiousness and someone suggested that perhaps a good business might come out of attempting to train people to be more conscientious.

I suspect that this might be difficult as, in my opinion, being conscientious requires more effort than many people are willing to exert. There will always be a portion of society that gains from the output of others as it is simply easier than doing the work oneself. Or perhaps this segment, the loafers and slackers, simply excels in other ways - perhaps they are particularly good at getting others to be productive in their stead or perhaps they are good at stealing or siphoning off the productive output of others.

I noticed this recently at the beach while observing seagulls. There was a group of seagulls actively pursuing their dinner by spending time hunting and pecking for clams and mussels in the shallows. Members of this group would search long and hard and eventually find something to eat and then spend time carrying their food to some altitude and dropping it onto the pavement to crack the shell so they could get to the meat inside. All this time, another group of gulls, instead of hunting for their own food, would spend their time actively harassing the "working" gulls, chasing them when they were carrying food and making every possible attempt to steal their supper. These gulls only resorted to hunting for their own food if they were unsuccessful at absconding with the hard earned production of others. But I noticed that some gulls were so good at stealing that they never resorted to doing their own hunting. No surprise there.



The infinite creativity of the market mistress, (who must be very good on the romantic front) gives us and me, a 1% down open after an unchanged day, vis a vis close and yest open to close, to help relieve the weak from their funds in a summer month.

Anatoly Veltman writes: 

I listened carefully to everyone at the annual FX WEEK conference Tuesday at NY Hilton. The complacency toward the EUR currency trading levels was stunning: some called 1.22 bottom and rally to 1.32. I was profoundly baffled. Yes, there may be opportunistic pops here and there - but that currency is conceptually doomed. I wonder if equity holders will ever want to take this doomdom into some consideration



 Australia is also setting themselves up to displace Qatar and become the world's largest exporter of natural gas. Australia's oil and gas producers are planning massive investments in LNG trains, export facilities and floating LNG platforms. In addition, Shell (RDS.A) is building the world's largest ship that can drill, produce and transform deep-water natural gas into LNG. Shell's mother ship, larger than several aircraft carriers, will be parked off Australia's shores and it will feed Asia's LNG fleet. By 2015, Asia should begin to see lower LNG prices.

For Australia, United States and other coal producing nations, thermal coal production has to endure a difficult transformation. Worldwide consumption is adjusting to a long-term decline in demand as natural gas displaces coal in the power sector. It's not just environmental regulation driving the decision, it's economics. A combined cycle gas turbine is a more efficient consumer of fuel than any coal boiler. Add lower natural gas prices into the mix, and coal becomes relatively uncompetitive.

Nevertheless, coal markets will ultimately reach a baseline level of consumption. As Harvard's Michael Porter argued decades ago, the coal industry's cost leaders will own that baseline.

One key metric for achieving a competitive advantage will likely be dollars per million British thermal units ($/MMBtu), not dollars per ton. Owners of high-ranked coal reserves will likely survive the transformation.



 Apparently the vacation picture of Romney and wife on their jet ski is considered a campaign gaffe in a league with Kerry on his windsurfer (pic ), and almost in a league with Dukakis in his funny helmet driving that Abrams tank (pic ).

I certainly don't see it that way. Far from elitest, or Frenchy, like Kerry windsurfing, I would think jet skis much more blue collar (like snowmobiles and ATV vehicles), noisily tearing around the lake to the annoyance of elitists in the sailboats or sitting on their terraces drinking gin-and-tonics.

Perhaps it was the added fillip that blond and buff Ann Romney was driving the jet ski, doubly annoying the collectivists.

Or as the Chair would say, just the media with their now constant agenda of favoring Obama at all costs.



 I recently watched this incredibly fascinating TED talk by game designer Jane McGonigal on The game that can give you 10 extra years of life and wanted to share it here. 

Jim Sogi writes: 

Leo, thanks. That was really a great talk on positive actions and thoughts. It's amazing the different paths to positive life forces and meaning in life. There is incredible power harnessed in a game. Think of the fun family times together or with friends over a game of chess, cards, monopoly, or Scrabble. There's something more going on than just the game.

Easan Katir writes: 

Call me a grump, but counters please note the speaker asserts watching her video will extend the viewer's life by 7.68 minutes, but her video is 19.3 minutes long, resulting in a net loss of 11.62 minutes.



Does the market lift higher to support the ecosystem when dividend cash arrives on deposit to be reinvested into same shares?

For tax purposes, the UK has an ISA. This is a relatively small wrapper that allows you to put money away each year and buy securities with no income or cap gains.

Given it is a retail product, to take advantage, one has to hold shares in a nominee account at somewhere like Hargreaves Lansdown.

Because it is an aggregate nominee holding, if shares have an in-kind vs. cash dividend option, all accounts must accept the cash option.

So if one is reinvesting dividends, one must wait for the cash to arrive and have the broker's automatic dividend buying program take care of the share purchase.

1. The cash purchase typically has a 1% fee, so you lose 1% of your dividend, plus the bid/asked share. De rigueur.

2. Worse: the "in-kind" dividend option typically prices around the ex-date. My casual observation from my nominee held stocks is that: a. When the in-kind share ratio is determined, the security is conspicuously often down. b. When the cash arrives and there is forced buying, the price is conspicuously often much higher than on the dates when the in-kind ratio is determined.

If statistically valid, this would achieve:

1. Expropriation of the small accounts
2. Benefits to hedgies etc. who don't hold nominee + management who's own options / dividends will typically time inline with the exchange ratio days rather than the cash deposit days.

Has anyone seen data to confirm or deny this sort of thing?




 There are only 5 things you can speculate in categorically that have volume that is present in the World. Yes, there are those that will respond with other ideas but I tried to narrow such to the main categories. They are as follows:

1) fixed income i.e cd's and bonds
2) equities i.e stocks
3) commodities
4) currencies
5) antiques and collectibles

Yes, there exists derivatives on all those, they need not be mentioned because they are based on the root basis.

The category that is the least liquid and has the least volume is number 5.

The last Honus Wagner card was brought to auction in Maryland from a heir of a Catholic Nun. He profited and dispensed according to his preference.

Now we have an even bigger find.

This find not only carries the name Wagner, but Cobb, Young and Matthewson. The fact that it was stowed in the attic for a couple of generations is amazing considering the heat/humidity that helps in preservation versus the humidity of a basement that produces decay of paper.

The market to bid on such cards is far and few percentage wise across the globe. It will be interesting to track and see the results.

Ironically I know a heir named Mrs. Cobb that lives in C-ville, VA. I help her with her retirement income. She is a fan of her families name sake. When shared she was disheartened in that she wouldn't be able to add to her "two card" collection of her family name. She mainly wants to update the condition of her two cards from poor to good. She understands that she'll never be able to do such and that she is grateful to have such cards. Mrs. Cobb knows that the accomplishments of her husbands family is forever priceless and that she is just excited whenever it is brought up. She is one lady that I know understands speculation, risk v reward, and value. She also has a firm grip on thinly traded markets. I've pointed out to her numerous times that the verbage in her trust doesn't mention any of her cards that she owns that were handed down. She told me that her husband upon death gave her the instructions to make sure that the ashes of those cards were spread with hers as he was tired after all of those years with dealing with the compounding and expectations of their value. The trustee is working on adding it to the trust, but ironically she is reluctant to pay him for the new docs!

What treasures are in your attic? library? basement? safe deposit box?

Jim Sogi asks: 

JT, Is Ebay an okay place to sell my old 50's era NY Yankee cards? Do you sell them one by one? or lots? How do you value or price them? Is there info somewhere that's good?



 Corn had a horrific report earlier today. It rallied early, but sold off sharply. Buying opportunity or reason to jump ship…that's the conundrum. The mistress of the market sometimes plays games to separate us from our money.

Gary Rogan writes: 

I just came across this snippet:

"Corn prices fell in today's pit trade despite a bullish corn production forecast by the USDA due to dry/hot weather. CNBC suggested that one of the reasons for the slide was that the USDA will help farmers with the drought."

Can this be actually a cause of a sharp sell-off? How would anyone know to sell so quickly?

Also a more general question: what is the general lesson here, don't act on any news?

Bud Conrad writes:

I used to call myself a grain trader. The game was to predict the USDA numbers, then to see if you are more right than the consensus predictions. There is no secret that the Midwest is hot and killing corn. The question is how much?

If you know something that the market or the government don't, you have a chance. So today the government confirmed the well known situation. It common to see the markets "Sell the news". The question is whether it will continue to get worse (stay hot) in the future. Any few day of rain before July 4 can turn things around. At this date it looks like permanent loss.

I have no positions, but am sorry that the last month was a pretty good run on the situation that I should have seen. Aren't you afraid that the broker could be stealing your stash? I'm not reopening my futures accounts because of the lack of protection, which may be what the government wants, so prices won't be driven by speculators.



 I recently read this interesting article: "Vast deposits of Gold and other Ores Lure Seabed Miners".

Quite a leap from the 70s when scooping up manganese nodules off the sea floor was to be the next big thing. As a side note there is a very good exhibit of a black smoker in the American Museum of Natural History in NYC:

These finds are fueling a gold rush as nations, companies and entrepreneurs race to stake claims to the sulfide-rich areas, which dot the volcanic springs of the frigid seabed. The prospectors — motivated by dwindling resources on land as well as record prices for gold and other metals — are busy hauling up samples and assessing deposits valued at trillions of dollars.

Based on the International Seabed Authority website, exploration activity is indeed picking up:

"If all these applications are approved, this will bring the number of active exploration contracts issued by the Authority to 17, compared to only 8 in 2010."



 Have you seen this article- "Obama: Government Job Slayer". Supposedly Obama has cut more than 500,000 government jobs. 

Jack Tierney writes:

Members of the military are counted as government employees. For many who weren't sure this became evident during Clinton's administration — you might remember his assertion that government had become too big and he intended to cut back on its size. One of his follow-up pronouncements declared that substantial cuts had been made. However, the cuts were primarily in the military numbers; about 700,000 full-timers and 275,000 reservists.

Cuts that became an election issue…primarily in the Bush/Kerry confrontation — Kerry had been a supporter of the cuts. At almost any other time this might have served him well - but 9/11 cast a giant shadow.

Rudolf Hauser writes: 

I believe the recently released public sector employment numbers refer to total government employment at the BLS definitions, which exclude the armed forces. The seasonally adjusted numbers from Jan. 1993 to Jan. 1997 show an increase in government employment of 692M, but a decline in Federal government employment of 247M. The corresponding numbers from Jan. 2001 to Jan. 2005 show and increase in total government employment of 900M and a drop in Federal government employment of 26M. The numbers from Jan. 2009 to June 2012 show a total decline of 633M but a slight rise in Federal government employment of 16M. In essence all of the trends referred to where in state and local government employment, something that Clinton and Bush can hardly be credited for and a decline that Obama can only be blamed for by arguing that he made the economy so bad that those governments revenue trends brought about the drop. It certainly had nothing to do with a desire on Obama's part to reduce the size of government.




Directed by Anne Kauffman
Written by Greg Pierce

Tucked away directly above the Vivian Beaumont, in a brand-new intimate theatre seating fewer than 132, is an inaugural new piece called "SLOWGIRL." It stars the longtime stage and screen character actor, Zeljko Ivanek, and (relative) newcomer, Sarah Steele. The story occurs on a long week of days in the Costa Rican jungle (FYI: This reviewer spent a while there while living in San Jose, capital of Costa Rica).

Zeljko plays the reclusive, loner uncle of his niece, a wise-acre, smart-mouth Californian late-adolescent who has been sent down to stay with her uncle in his isolated hideaway until things cool down back home, where she has been accused of a serious crime involving the death of a schoolmate. As we learn as the play proceeds, the laconic, self-sufficient uncle has a few secrets of his own involving stock dealings and partners, money disclosed and money undisclosed. Circumstances and precise stories evolve slowly, as the two mostly unacquainted relatives spend time in the wooden shack–drinking, smoking, reacting uneasily–surrounded by trees, geckos and various creatures of the forest. They talk. Truths emerge, fragmentedly. Playwright Greg Pierce is a fierce, assured voice; there is little humor, much menace and unfolding as the no-intermission play unfolds. Both characters are exceptional in their roles.

We don't know what to think, but raptly go along for the uncoiling of secrets. There are hints of actions and interactions that make brief appearances, but surprise the viewer by veering in another direction from what one expects … or fears.

There are no easy answers to the ethical considerations brought up by the protagonists. It is a great evening at the theatre, enhanced by the wooden lanai right nearby that lends an unwonted view of the Lincoln Center Fountain and plaza, and abetted, if you have a mind, by cocktails or bocas at the well-appointed little bar inside near the terrace. Also a factor: In an earnest to encourage new demographics attending the theatre, The Claire Tow Theatre, the diadem of the LCT3 effort devoted to producing the work of new writers and developing new audiences for Lincoln Center, makes tickets available at $20 per. "SLOWGIRL" mark's the playwright's New York debut production.

The roof complex was designed by Hugh Hardy, and offers valuable rehearsal and office space as well as the attractive open-air deck. Pierce's first production was performed last year at Scotland's Edinburgh theatre festival. My companion (usually a hard-to-satisfy hombre) and I spent an intense while afterwards discussing aspects of the play.

The theatre was understandably packed for the evening. Get tickets well in advance if you want to see America's newest theatre, in a taut, well-directed, contemporary mise en scene. Now through 29 July.



 The chair is in the down east 1000 population of Vinalhaven but saw the Murray Federer match. Murray is so stiff and immobile. His serve has no lower body in it. His game is stale and dull and uniform. A total non-entity with no potential whatsoever. He seems a sullen poor sport to boot–must be an agrarian. He should take lessons from Jack Aubrey. It was a foregone conclusion he was going to lose… and he gave up like Djokovic last year in the US Open somewhere in the third set, totally unforgivable. Has no bend in his knees. And in any other sport except perhaps curling he would be bringing up the rear.



 It was a cold night in Baja a month ago when I struggled off the trail into a ghost town with an adobe house, and scraped a hole in the leaves for a nest, and thinking twice pushed them into a corner to start a fire. I fell asleep, but the fire did not, with a view of the stars through the rafters.

In minutes the flames climbed the corner reflecting heat and singing my blanket. They licked the dry rafters that sparked, and ignited the corner that threatened to leap to the next house. There was no water in my canteen, however recall from Jonathan Swift´s Gulliver´s Travels, (thinking quickly, Gulliver chooses to urinate on the fire, putting it out completely and keeping it from spreading to the rest of the palace) I swiftly leaped and dashed out the open door to climb broken bricks on the outside. Standing at the top, I extinguished the blazing rafters with a stream of urine to save the ghost town from certain death.



 Orwell's contribution to the fight against totalitarianism can't be overstated. He's by far my favorite socialist — one of the ones that thinks more realistically. I especially like the Essays. Here is a random bit of sense:

If one harbours anywhere in one's mind a nationalistic loyalty or hatred, certain facts, although in a sense known to be true, are inadmissible. Here are just a few examples. I list below five types of nationalist, and against each I append a fact which it is impossible for that type of nationalist to accept, even in his secret thoughts:

BRITISH TORY: Britain will come out of this war with reduced power and prestige.

COMMUNIST: If she had not been aided by Britain and America, Russia would have been defeated by Germany.

IRISH NATIONALIST: Eire can only remain independent because of British protection.

TROTSKYIST: The Stalin regime is accepted by the Russian masses.

PACIFIST: Those who 'abjure' violence can only do so because others are committing violence on their behalf.



 The 100+ citizen line winds early each morning around the block across from Yellow Rose of Texas where I eat breakfast. There arrive from every two-bit port and jungle hamlet to Iquitos to replace their identity cards, the equivalent of a U.S. driver's license, that is required of each person over the age of 18. They will say their cards were lost to save money, to beat the system. This is the way it works. In Peru each person over the age of 18 must have an identity card at a cost of about $8, or nearly a day's wage. Peruvians are required to vote in the national elections every five years, and for the city mayor, and a sticker is put on the card at each election. If a citizen misses a vote his card is invalidated, and if picked up with an invalid card he is fined $70. It is cheaper to wait in line for hours and pay $10 for a replacement.



 On first reading Kahneman's Thinking: Fast and Slow I believed the only possible reason he could have been so wordy on purpose was because he believed in the "tell it 3 times if you want people to remember" theory of teaching. But upon reflection it seems perhaps it is simply an old man waxing on and on about his glory days. So skip the pages once you got the point.

While a great read for presenting his research, it was not without biases of its own…as the Chair is fond of saying he presented his case too strongly for the meme that has the world in its grip "our purpose in life is to share…". He simply ignored any research that proves "skill" is involved in being "above average" and focused almost exclusively on "reversion to the mean". Or that poorly designed incentives can make matters worse. Or that "greatness" can be proven to have some luck. That is even in some of his examples "the mean" of a group is several standard deviations from the average of the population, but he implies they were simply "lucky".



(BN): "Obama Proves No Carter in Romney Linkage as Investors Favor U.S."

Let us expect many articles like this using ad hoc measures, selected starting and ending points, and forgetting that the market dropped 50% before Nov 2008 as investors anticipated victory by agrarians.

Phil McDonnell writes: 

This is a classic straw man argument. Take the worst performing President and show that Obama is only the second worst performing President.



 Things learned from dinner with Tyler Cowen:

Always order salmon when at a good restaurant (they have to do something good with it to keep it on the menu).

At a fish restaurant, the greater the number of Asians the better. The greater the number of pretty apricot tarts, and joke-telling happy people, the worse the restaurant as they're not serious about food.

Order the ugly and unknown as they have to be good to be on menu.

The best strip malls for food don't have a big box like Walmart.

Conscientiousness is the key quality to get a job for young people these days.

The median income has declined some 10% in last 10 years.

The rate of unemployment for males of working age these days is 18% up from 8%.

Le Bernadin (New York, NY) is his favorite American restaurant.

Get the best sushi on side streets rather than avenues, and stay away from Paris for good food.

He has eaten at Noma in Copenhagen.

Cowen was New Jersey chess champion or some such at age 14. His step daughter Yanna is very expert at health care, and works for a firm The Advisory Board Co. that is very interesting.

German economists have depth but not agility unlike his friend Kasparov, who has both but is better at the tactics than Karpov.

Canned food has the best (i.e. least) environmental impact.

Italian wine growers are leaving their firms disproportionately to their female progeny but he doesn't believe the explanation is mainly genetic as in Galton's demonstration that the decline of eminence in England was due to the eminent marrying heiresses who were relatively barren.

A good question that Tyler always asks before ordering any item of the waiter is "if this were your last meal on earth, what would you order?".

Steve Leslie writes: 

I liked the last point. Here are a few extra thoughts. If you have a favorite restaurant, get to know the owner, the maitre d, the bartender, and the ex chef. When you make your reservations, mention the owner by name and tell them you want a good table.

Find out what the specials are for the evening. If there is any advanced preparation necessary tell them to set aside enough for you. If necessary leave your credit card. When you arrive, ask to speak to the chef for just a moment. Depending on the place you might be able to go into the kitchen and speak to the chef directly.

Send a drink to the kitchen for the chef and one to the bar for the bartender. This lets them know that you are discriminating and want special service. They will respect this. Trust me they will take care of you. 

If you want service you have to kiss a little ass. Ask the chef what is they would recommend. and go with it. 

If you are traveling ask the concierge to suggest somewhere to eat. Have them make the reservations for you. That is their job. Also ask them if they have privileges at private restaurants and clubs by staying at the hotel. Be specific as to what you are looking to eat. Fish, chops, steak, Chinese, Japanese, Italian, Brazilian Beef, Asian Fusion.

When you arrive, be polite and friendly but not snobbish or pretentious. Be pleasant. If the place doesn't meet your expectations, mention to the owner or the manager that things were not to your standards. They will take care of it for you. Once again deftness is the key. Fine dining should be a special experience. In the words of Julia Child "Bon Apetit"!



"It's not possible to do the same each time, and I wanted to see nonetheless if he could do it again," Federer said. "I was really happy he couldn't do it".

Federer talking about his two wide serves to Djokovich's forehand, the same show that Djokovich luckily slapped back, thinking it was a lost cause to win the US Open final last year against him. Oh my, never fish in the same place twice when crocs are around in Australia or the markets.



 This 4-part BBC series about psychoanalysis is amazing and eye-opening to me. I didn't get to watch it on BBC, but got it on YouTube (here's the link to the first part of The Century of The Self ) and I've finished Part 2 so far.

One obvious question is what social-economic effects can it generate by itself?

Another question is, since psychoanalysis theories have been used in public relations with respect to mass consumerism, have they been or are they used in finance on the markets?



 I've had a few encounters with sharks while in the water, but nothing major except for being next to a person who got bit at New Smyrna Beach, shark bite capital of the world.

This is the story of my perfect non-encounter with a shark.

One morning, a few years ago I went out, solo, for a dawn patrol (Nobody around me). The water was cool, glassy, and the waves were about waist high, with a thick marine layer keeping visibility and sounds attenuated. In other words, a perfect morning to surf. I had just paddled back out after riding a wave, and saw a lot of small schools of 1-2 inch greenbacks going through the water, darting around too and fro.

All of the sudden, the school of greenbacks started jumping, panicking, and I immediately knew something was chasing it. I thought, maybe a big snook, or maybe even a tarpon was getting breakfast. They were jumping for a minute or two, all around me, then I noticed the tell tale fish oil slick on the glassy surface that happens from recently chomped on fish. I didn't think anything of it and caught a nice wave.

Paddling back out, I noticed the slick got bigger, and the greenbacks were really nervous, and it seemed like a whole acre of them were jumping all over the place….some even landed on my board. My mind started to wander and I started to think, possibly irrationally, "It's really getting sharky out here."

Right when I got that "sharky" feeling, I felt something bump my fin pretty hard. That got my sphincter tightening and I pulled up my legs and hands as well as I could and waited, trying to see what was below. Boom, got bumped again and I started to feel real scared……humans are not at the top of the food chain out there in the water.

About 20 seconds after that second bump, I saw the dorsal fin of a porpoise surface next to me, and I realized that he was just checking me out. With Flipper out there protecting me, I felt fine and surfed my brains out for a few hours with only a few thoughts of sharks.

There must be a market lesson here…

Don't panic if and when the market puts you in danger…

Not all market moves that appear dangerous will hurt you if you don't overreact.

Keep the irrational thoughts out of your head while in a position, as those thoughts are simply flawed thinking, and flawed thinking about your position and/or the market is never good.

When watching the market, open up all your senses and try to see what is unseen, just like I was trying to "see" what was happening underwater while my board was getting bumped.

If the perceived danger doesn't materialize, still don't let your guard down.



 "A Faster Fourier Transformation" :

In January, four MIT researchers showed off a replacement for one of the most important algorithms in computer science. Dina Katabi, Haitham Hassanieh, Piotr Indyk, and Eric Price have created a faster way to perform the Fourier transform, a mathematical technique for processing streams of data that underlies the operation of things such as digital medical imaging, Wi-Fi routers, and 4G cellular networks.

The principle of the Fourier transform, which dates back to the 19th century, is that any signal, such as a sound recording, can be represented as the sum of a collection of sine and cosine waves with different frequencies and amplitudes. This collection of waves can then be manipulated with relative ease—for example, allowing a recording to be compressed or noise to be suppressed. In the mid-1960s, a computer-friendly algorithm called the fast Fourier transform (FFT) was developed. Anyone who's marveled at the tiny size of an MP3 file compared with the same recording in an uncompressed form has seen the power of the FFT at work.

With the new algorithm, called the sparse Fourier transform (SFT), streams of data can be processed 10 to 100 times faster than was possible with the FFT. The speedup can occur because the information we care about most has a great deal of structure: music is not random noise. These meaningful signals typically have only a fraction of the possible values that a signal could take; the technical term for this is that the information is "sparse." Because the SFT algorithm isn't intended to work with all possible streams of data, it can take certain shortcuts not otherwise available. In theory, an algorithm that can handle only sparse signals is much more limited than the FFT. But "sparsity is everywhere," points out coinventor Katabi, a professor of electrical engineering and computer science. "It's in nature; it's in video signals; it's in audio signals."

A faster transform means that less computer power is required to process a given amount of information—a boon to energy-conscious mobile multimedia devices such as smart phones. Or with the same amount of power, engineers can contemplate doing things that the computing demands of the original FFT made impractical. For example, Internet backbones and routers today can actually read or process only a tiny trickle of the river of bits they pass between them. The SFT could allow researchers to study the flow of this traffic in much greater detail as bits shoot by billions of times a second.



The market continued its inexorable advance while I was away in Ocean City, New Jersey, one of the finest resorts I have even been privileged to be in. A reason for its harmony is the absence of alcohol. I have been reading Master and Commander again, and find many fantastic insights in it–Nelson always said that since you were always five minutes and a few pieces of wood away from a terrible disaster, you had to be eternally vigilant. What will the employment figures look like tomorrow. There will not be as much pressure on the employees to adjust them upward one would think with the favorable supreme court ruling to them. 



I was thinking while away that someone is going to make the case soon that stocks should be 10 times higher than they are now, because they are comparably volatile to bonds, and yield 10% return on equity + growth of 5% versus 2% on bonds via the Gordon model or some such. 

keep looking »


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