Just learned there is a severe shortage of natural gas in many cities in China.

In a large southwestern city with a population of about 10M and near huge NG fields in the country, the NG usage is up 400K cubic meters per day over same period of last year. As a result, the municipal NG company has a shortage of 300K cubic meters per day, and has to cut off services to various sections in the city everyday.

The increase of demand is likely a major trend for the coming years. More and more people's homes in cities and towns are furnished with NG pipes in recent years for home cooking. A major reason in my view has to do with winter heating. The country provides public heating only to towns and cities in the northern part of the country, leaving those in southern part (roughly half of the country size) and all villages with no public heating. That has been the case all along the many decades. The northern villagers generally have to burn in house whatever they can find cheap (usually wood).

In northern cities, partly due to calls for better air quality in recent years, some public heating facilities have switched from coal to NG. Take Beijing for example, the NG usage for the city on December the 24th is 62.57M cubic meters. Shandong province has seen the annual NG usage reaching 4B cubic meters, an increase of 20% over 2011.

Traditionally, all southern people spend the winter in the cold (temperatures may stay in the single digit or 10'es Celsius for various length of the time in a year, usually a few months) without any heating. This was not because it was not cold enough for them, but because they could not afford any heating without government's provision. Only in recent years, as city people get richer and move in to their new housing, many install in-house burners for winter heating (in place of or in addition to air conditioners). A predominant choice of fuel for these burners is the NG as it has been very cheap relatively (on average, the residential price is about 2.3 yuan per cubic meter).

NG price in China are priced in cubic meters, which is argued to be abnormal. One report cited the wholesale price in China is about US$3.34 ~ US$6.81 per million BTU in 2011, much lower than US$11.15 in Germany for instance in the same period.



 It is well known here that where two fields intersect, great advances are made from study and reflection. The Knicks beat Phoenix on Thursay Dec 27 by 1 with a wild shot from Smith at the buzzer and lost by 1 to Sacramento on a three at the buzzer the next day. "Karma comes around" said Smith who is a lunatic guaranteed to make the team lose as his eye is one of the worst in the league and he's become the Knicks go to player. "That's the toughest way to lose" Novak said. "you'd rather lose by 40 than to lose on a game winner at the buzzer".

How many times has "ever changing cycles" as Bacon and we call it caused the end of one day to be exactly the opposite of the end of the previous day. (Novak's game winner was a 1 in a thousand shot as he was off balance and almost out of bounds with 0.2 seconds left as was Johnson's 3 pointer who hadn't scored a 3 pointer in the whole season and was 0 in 13 on previous 3 point attempts). In the Phoenix game, Knicks were down by 28 points. They went ahead by 5 and wound up losing by 1. The previous day, Dec 27 in the market, the spu's were down by 17 at 1400 gmt, rallied to up 5 on the day at 1530 gmt and closed down 3 at the close at 1615.

Okay, I say the market moves on Dec 27 and the scoring moves in the Sacramento game on Dec 28 are much too close in swing moves to be just chance. Had the Knicks won, it would have been their greatest comeback in a 2000 + game history. Had the market ended up on Thur, it would have been one of the greatest comeback in history. And the swing from down a lot to up on day to down a little at the end must also have been a 1 in 1000 shot for basketball and a 1 in 250 for the market. The ever changing cycles of a loss by 1 and a win by 1 at the buzzer in a game of 60 jumps of a few points either way with the outcome hinging on a non-percentage outcome by the losing side must also be highly unlikely by chance. I say that the market follows sport and sport follows the market. And the highly non-random outcomes in both spring from common weaknesses in human nature, as most meaningfully limned by Bacon and the people on this list.



 Driving a motor car or motor bike is probably the best analogy I can think of for trading.

Start, Stop, traffic lights, dogs and cats on the road, cows, give way signs, t intersections, signs saying "kangaroos for next 50 kilometres ahead–and that is just in the first few 100 metres of leaving home– and then when you hit the express way, and consider yourself in the clear, there may be road works, or fog, and unsighted hazards ahead.

It's very rare you can enter an express way…of start to finish, or finish a journey uninterrupted.

It is our jobs as traders to close down all risks as they appear, in whatever form, to cause minimal bumps and bruises to ourselves. Problematic situations will appear when you expect OR when you least expect them, and when you do get uninterrupted runs, you appreciate them, since it is what you have planned for, but see less often than one may hope for.

Be flexible, bend like the tree, always give way when on the road, and when you hear the sirens move top the left and beware of trouble ahead.

Peter Tep writes: 

"Be like water" - Bruce Lee

Nice post Craig. I liken trading to Bruce's Jeet June Do methodology– using all the skills we have to move forward and strike the opponent down.

What worked yesterday may not work tomorrow. Especially with the presence of HFT, SMSF, central bank presence.

Chris Tucker adds: 

If one were to "always give way when on the road" in NYC, one would never get anywhere. Cabbies will eat you alive if you let them, they will try to force their way in front of you and then look at you as if you are a criminal when you fail to yield.

Yes, always giving way is a much less stressful way to navigate, but there is no victory in it!

Jeff Sasmor writes: 

Depends on how aggressive you want to be and what sort of car you are driving. If you are driving a beat up car and honk and go, they give way. I speak from personal experience on both sides of that transaction.

Jim Lackey adds:

Look where you want to go. Do not look where you don't want to end up. In a slide, if you look at the wall, you'll run right into it. If you look ahead down the race track it's amazing, you'll auto steer and correct your way out of the spin. In a crash, hold on, and do your best not to get hurt and head for the pits for repairs.

Last night during the 200 MI trip from the hill outside of Birmingham, AL, the transmission cooler lines on my BMX van broke. It must have been a sight as trans fluid was all over the engine trans and back of van in a cloud of smoke. Good thing we didn't have a fire. You know what I did? I eased it back to the pits. I exited, dumped some fluid into the trans and made it home. This AM all fixed.

I froze my tail off shooting weapons for 12 hours in the Bama country with my Sisters family. They have more weapons than anyone I know. My son did the walk balk with the AK-47 and I burst out laughing as another teenager was taking some hot brass as they ejected from the chamber. I told the kid to move. Good fun safe day. I can still hit a 300 meter tager with a .22 rifle 2nd shot after 20 years of no practice. Okay, it wasn't 300, but simulated as a 4" target X meters away…bing…

My nephew made the comment, all these weapons are so easy to use it's ridiculous. Yeah, that is how and why there are 10 year olds in the militia in Africa. The only reason I shot at all was the current news flow. I really have no interest in firearms. After shooting the 150MM main gun and killing tanks at 4,000 meters on the move, with F-15's as cover and the Apache on my 6 and MLRS destroying 1k by 1k boxes at a time… real war is reprehensible. All the arm chair warriors really need to tone it down a bit. The only comment I agree in the past 4 weeks of talk was Professor Stefan with his Bellini. If you want to put on the show of defense, that is the smartest idea I have ever read. Those shot guns are world class and perhaps I'd buy it from him. I own no weapons.

I am still thawing out after 13 hours outdoors then the 3 hour drive home then the work this am. My water heaters theromcouple died.. Lowes and HD are useless! Ugh, Ace hardware has all the parts they are amazing, but after inspection my buy American just bit me… Standard brands, made here in TN, has a special thermocouple. I asked the local heater man if he'd be kind enough to drop one off in my mailbox. He said sure, but the clerks said they have to charge me 69 bucks for the Sunday trip. I can wait a day. The part is 14.99. I can do it myself. It's already apart.

I am a man. The ladies must have hot water now. Ill sacrifice my McDonalds budget for Jan and have my man stop by. Perhaps he will find another problem as well.

Back to Carz racing and trading… it's not the one big edge that makes a champion…it's the 10,000 little things all done perfect that adds up to a big edge. The biggest edge of all is the drift over 100 years. After two crashes and a dozen panics the past 12 years, I find it hard to believe that buying every panic with prudence over the next decade will not produce a fine profit. 



Does anyone believe there is a contagion in things like mass shootings, and pushing people onto the tracks in subways, and that it has to do with the Qe's, the tarps, and the singling out of the successful for "takings" by the remaining 99%? I do.

Jeff Watson writes: 

It's just a permutation of the old "madness of crowds" meme.

David Lilienfeld writes: 

There are a few papers published in the New England Journal of Medicine and some other venues over the course of the last decade that illustrate social contagion for behaviors such as obesity, smoking, and so on. I don't know that there's been any efforts, though, for less frequent behaviors.



 This working paper published by the Dallas Fed Bank is helping in articulating the questionable assumptions underlying the Fed's ultra-easy monetary policies, and the potentially harmful consequences of that policy.

Stefan Jovanovich writes: 

Peter Temin has a wonderful paragraph in the introduction to his book Did Monetary Forces Cause the Great Depression:

"it is not surprising that the policies we now recommend for similar conditions were not tried. For if they had been tried and found wanting - if the Depression had occurred despite the imposition of expansionary monetary or fiscal policies - we would not longer count them as effective. Given the existence of the Depression, only policies that were not tried could escape with untarnished reputations".

Temin's book only addresses the U.S. — the one country where the Depression was truly "Great". As Hugh Hendry recently reminded people at his Buttonwood interview, the "depression" in the early 1930s in Europe saw real output fall by less than 5% from the 1920s peak; in the U.S. the decline was a THIRD! FWVLIW my assessment of what happened in the U.S. agrees neither with Rothbard nor Keynes nor Friedman. Art Cooper and I have been discussing this question recently. Art will, I hope, forgive me for making him guilty by association in presenting the Stefan theory:

In the decades that straddle the First World War, the U.S. became - for the first time in its history - a country with customers who were overseas. If you look at the histories of the giant enterprises - Standard Oil, Ford, Firestone and the other rubber companies, General Electric, DuPont to name only the ones that immediately come to mind - all of them developed large overseas operations and exported products abroad. American and Canadian farmers enjoyed a shorter but more dramatic boom because of the war. I have to quarrel a bit with your facts about the 1920s. They were not a "boom" for the U.S. any more than the period from 1945-1955 were; they were relatively good times only because the rest of the world was flat broke. Rothbard is right about the government's extending credit but he has the wrong recipients; domestic credit in the U.S. remained strict (it is the reason the farmers found it impossible to roll over the loans they had taken out during the boom of the war years) and the beginnings of consumer credit (people buying radios and cars on credit) came not from the banks but from new "finance" companies. The easy money was the stuff being sent overseas under the Dawes Plan, etc. It began back in 1914 when the U.S. Treasury unilaterally abandoned the gold standard for the British and French Treasuries and central banks; those countries were allowed to run chronic trade deficits without ever having to settle their accounts in gold. The Depression (as opposed to the stock market crash) came from the final collapse of the European borrowers who were the defeated nations (German, Austria-Hungary). U.S. policies were not helpful; and Roosevelt prolonged the Depression by taking the U.S. off the gold standard at the very time the Europeans were restoring it (the Japanese followed the American example - which meant that military socialism became their solution just as the revival of the Wilson economy became ours). But the ultimate cause was the bill for WW I finally coming due. You cannot have your major overseas customer go broke and somehow expect that everything will be OK by paying them to continue to buy your stuff. If you then decide that you can avoid the foreign exchange pressures from your now recapitalized, lower cost customers who are now competitors (by destroying the mechanism for trade itself i.e. the gold standard) and then confiscate the nation's bank reserves, you are going to have a collapse in your employment and production that will last for a decade or more.



The Hobo may count cig butts: I count private jets at the Kona airport where the richest people in the world come to vacation and live. As you recall last year the fixed base operator was overflowing jets with over 75 with overflow routed to Maui. This year there are only about 30 jets. Mostly small jets. I guess the top 1% is worried about the higher taxes of about $80 per mil which is about the cost for jet fuel for a private jet to fly to Hawaii. So this year the rich were flying at the beginning of the year, and the market was up nicely. Next year doesn't look so good by this forward looking indicator.

Richard Owen writes: 

I think it was Andrew Smithers who noted that the IMF when flying their jets over latitude generally made good decisions, and over longitude bad decisions. Thus attributing the difference to jet lag and the importance of sleep.  




Directed by Christian Petzold

With a time-frame starting back in 1980, the accumulating tension of time and place in Barbara begins as physician Barbara Wolff (Nina Hoss) arrives at a modest rural pediatric hospital in East Germany, clearly transferred there not with her acquiescence, from a prestigious hospital in Berlin by never-named Authorities. Her 'crime' is obliquely referred to as that she had had the unmitigated gall to commit a request for an exit visa.

What comes to mind is the Orwell book and film 1984 (1984), where remorseless monitoring, and literally rewriting reality into a never-was 'history,' are the norm. Adding to the received nerve-rattling classics of life under surveillance as the German The Lives of Others (2006), and 2007's Romanian 4 Months 3 Weeks and 2 Days, director Christian Petzold—one of Germany's leading contemporary filmmakers—visits the perturbed, seething yet everyday calamities and wastes of the East German totalitarian era: Paranoia goes deep. But, heavily draped with an Iron Curtain, paranoia is entirely justified.

The Barbara we see for the preponderance of this meticulously reported could-be reality is cool to stand-offish with colleagues—even a handsome, responsive doctor named Andre (Ronald Zehrfeld) who gallantly batters against the wall of her reserve. No matter her remoteness from her physician coworkers, she comes to life with immediate sensitivity, professionalism and warmth when dealing with her sometimes desperate patients, who suffer from a plethora of socially induced ills. A century ago, these women would have been given a DX of "hysteria," but here, their paroxysms and longeuers have readily apparent etiologies. People cannot live healthily under constant fear, badgering, harassment and humiliations large and small.

We see from constant random body searches and intrusive shakedowns of her apartment that Barbara has ample reason to maintain her reserve. Anyone, everyone, in Cold War-era East Germany could be an informant or "a cadre" (as my grad students in China called class informants they surreptitiously, and cautiously, pointed out to me). Through another ocular, by the same token, anyone can also be an anonymous, clandestine hero. This however takes planning and cunning.

We see from constant random body searches and intrusive shakedowns of her apartment that Barbara has ample reason to maintain her reserve. Anyone, everyone, in Cold War-era East Germany could be an informant or "a cadre" (as my grad students in China called class informants they surreptitiously, and cautiously, pointed out to me). Through another ocular, by the same token, anyone can also be an anonymous, clandestine hero. This however takes planning and cunning.

With spare narrative and a dead-on sense of physical and emotional atmosphere, Petzold creates an unbearably vivid portrait of a period that, in the intervening decades, has come to seem strangely both current as well as fractured-old. Facial expressions do not alter with time, nor does the practice of medicine; even the era-clothing is not distinctive enough—as in the new American release about adoptive restrictions to non-typical couples in the early 1980s, Any Day Now, which shouts gaudy gauche gefehrlach post-psychedelic America to such an extent that you keep wanting to bring in the wardrobe mistress—to spank her for such transgressions against good taste. Filmed in strong mustards, greens, blues, it nevertheless reads like a grainy black-and-white feature of Russian 1950s vintage.

Filmed in the verdant, lush, blustery province of Brandenburg, Barbara is often ravishing to the eye, especially as the lithe eponymous character pedals through forests, windblown fields and country roads. As she appeared in the harrowing WW II A Woman in Berlin (2008), Hoss, who never smiles for the first two-thirds of the film, exerts an almost-hypnotic effect, drawing us in steadily to unveil a character whose single-minded goal, only gradually glimpsed, slowly yields to more, and more complex, issues. John Le Carré spycraft sensibility threads the story. Secrets are harder to keep when one's office, home and bodily orifices are searched at whim. As the story transmogrifies to assume the lineaments of a thriller, it might be open to debate whether the film ends the way Westerners are accustomed. Is it a 'happy' end? Such questions are often irrelevant to serious filmgoers, as they are noxious to fair consideration of the handling of important themes.

 This is not a manicured, made for TV all-ends-tied-together pastiche. In this sophisticated, deftly crafted portrayal of grass-roots Communistic realpolitik, Petzold leaves viewers with the sense that, when it comes to such events, people and issues, neat packages are rarely available. Nor, to be fair, ought they be.

The residuum is a silent acknowledgment that, indeed, some progress has moved the needle forward. Injustices and totalitarianism still exist, but a few of the worst have in time been ameliorated. There is some sort of hope in that.
In German. English subtitles.



The market went to great lengths and excursions Thursday to tease out 1.5 million of eminis. 100 billion of trades. Up to 18 down to 96 then up to 18. 44 points of total move. Hats off. 

Alex Castaldo adds:

I believe they call it "giving them a full tour of the court".



 The "get the joke" theme works well when it comes to business and the trading of stocks and markets. My theory about why it doesn't work in politics, unless you have a man in DC, is that the political men have a two party monopoly over all. They will drive business or the country into the ground simply to disgrace their competition.

This would never happen with Coke and Pepsi or two MX racers or anything I can think of right now in life. The only thing I can think of this minute is when my dad was in Indianapolis for a convention and he went to the rest room. Quail and his cronies walked by and saw working man dad in a biz suit and didn't realize who he was. Dad overheard him say I told those A holes what they wanted to hear. Trust me when I say Dad was a very strong and able man. At the time he was 39 years old.




I just noticed you are running a contest on best investment idea for the year (2012). Yes, I even have time to read dailyspecs when I am in Cambodia. I don't know if its to late to qualify, but I have couple for this year. Short Yen and long Vietnamese stock market. My thinking goes, Japanese would have to come up with something drastic and they will, to stop appreciation of yen, and as much as i don't like people's thinking in Vietnam, long Vietnamese exchange (hnx or ho chi minh), median age is 27, hungry and ready consumers. And there is a want among the young to be westernized as fast as possible. I met lots of ex-pats from US in Vietnam who came back to open up small business in Vietnam. One other important thing is the communication infrastructure around the country, internet wifi is everywhere and inexpensive due to cut throat competition.

I wish I could say the same about Cambodia, my god, people are wonderful, but if you move 5 minutes from the center, streets are not paved yet no running water and forget about electricity, and there is 0 infrastructure (again, thats outside the center. The whole place is running on charity. I am not sure why this is (not long enough here), every business man I meet says, it takes forever to get anything done here. Third one is a gamble (its all a gamble, this one is a bigger one), long Euro, I hate euro, and there is 0 reason for its existence, but everyone hates euro these days, so I went long (today actually), there is no way (anything is possible) on the election year we will see collapse and/or deterioration of the currency, it will happen, but not yet (at least that's my thinking).

If I still qualify and win, make winnings go to the charity of your choice, I am sure you looked into many already (but not to 9/11 museum fund, you know how I feel about those salaries). After South E.A. the salaries and lifestyle of most Americans seem obscene (I am living with my wife in as much comfort as we need and want on $15-$20 a day and that's A LOT here, (including rent). Good observations on Paris and London, Paris is not the same anymore and moving into a sadder state every year (same is with my ex-favorite city Florence, compare to 1999 now its just a Chinese clothing market).

Arthur Khaldarov adds:

Just to clarify: This was written and emailed on Thu, Jan 5, 2012. 



This report "Trading With SVMs: Performance" sounds very interesting. The result on trading the S&P500 (without leverage, I think) since 1952 is 32.59% of annualized return while during the same period Buy&Hold is only 15.14%.

Here is Wikipedia's article on SVMs.

I wonder if anyone has used SVMs in real trading. Could you kindly share any experience about it?

Victor Niederhoffer writes: 

One of my very rare strengths counterbalanced by many much more glaring weaknesses is that I can usually look at any paper in statistical finance and find its weaknesses in 30 seconds or less. I looked at support vector machines in that context and could not figure out why it should do better than discriminant analysis or similarity analysis. I was turned off by the statement that armi garch results using the last 5 changes gave similar alluring results, as I don't believe they will work unless they are retrofitted during particular periods. The non-linear features that SVM tries to capture would not be predictable or repeatable I would think nor would it in any case be immune to ever changing cycles. I will look at this much more carefully with the doc before I can render a totally worthless opinion on this. 



 Does caring as shown by understanding and empathizing with another person's feelings have any place in the analytic world which shows caring more often by analyzing, assessing, evaluating and solving problems?

One woman I knew years ago made the statement, "just because someone is emotional doesn't mean they are irrational and just because someone is logical doesn't mean they are rational."

What do you think?

Richard Owen writes: 

I was trying to place your name — then I realized you're the author of Real Influence — I've randomly been recommended it as a modern Dale Carnegie!

I would say that the experiences I have had that cost me the most were where I was analytically right but naive about how I communicated it. If "rational" is acting in your own interests, sometimes the full brunt of logic will only do you disfavour. Socrates was respected for his dispassion and logic. However, he was also ultimately made to take his own life. Principally for getting on everyone's nerves.

Leveraged loan bankers in their gut in 2005/6/7 knew they were underwriting spicy stuff. And by '07 were feeling queasy. But the cold analysis they had disproved it, so they carried on. You can argue that the "emotional" feeling was more rational than the analytics.



Where the interests of signaler and signal receiver diverge, there exist both incentives and opportunity for manipulation by sending misleading information. Deception is the major obstacle to information sharing. And the living world is rife with deception. From the lure that an anglerfish uses to attract prey, to the false alarm that a flycatcher raises to dissuade competitors, from bluegill sunfish males that sneak matings by masquerading as females, to the mimic octopus that can imitate a wide range of poisonous creatures and other underwater objects, from the false mating signals of carnivorous fireflies, to the shame regenerated claw of a fiddler crab, from the chemical mimicry that caterpillars use to invade the nest chamber of ants, to the bluffing threats of a molting stomatopod, organisms deceive one another in every imaginable way in order to attain every conceivable advantage ".

From Carl Bergstrom's Dealing with Deception in Biology

What is needed is a model and practical means for dealing with deception in markets.

Gary Rogan writes: 

Perhaps whats needed first is classifying the different classes of market deception. At the very least there are two very distinct classes: deliberate and evolved. "Deliberate" comes in many flavors, like "flexionic"/insider where some privileged few act on advance information as in the recent "fiscal cliff" related flash crash or "accounting fraud" when a company (or a government agency) puts out deliberately distorted information. It seems like various market patterns that evolve/appear for some internal and often not clearly understood reasons are often not related or only peripherally related to the deliberate types, but still act to draw in the unsuspecting/unduly exposed and provide an energy source to the markets as opposed to benefiting some specific perpetrators.

a commenter writes: 

Good idea, Mr. Rogan. Other categories might be subdivided:

1) company specific deception which affects only a company stock price (HLF)

2) macro-economic deception which affects entire indices (fiscal cliff).

So, in order to beat deception, it is critical for one to fully understand the mentality of the targets (oneself at times when one is the primary target) as well as that of the deceiver.

When we come to model deceptions in markets, modeling the mentality of the crowds is perhaps much less of a challenge than objectively modeling the subjective nature of one's own mentality.

Alston Mabry writes: 

The biggest deception is self-deception: We are much more likely to believe a lie that we *want* to be true. Make a promise, charge a fee. The bigger the promise, the bigger the fee.

Self-deception can apply powerfully to things like chart patterns, or tempting but shadowy cause-and-effect relationships that you can almost tease out of the data. The market displays a pattern. Then displays it a second time. The third time you put a little money on it and score. So the fourth time you go in large, but unfortunately….



 We're now into Year 3 of the Greek implosion. Lots of austerity measures in place in Greece, though it's not clear if anyone pays any income tax. Government employment rolls have been cut by more than 25%. At what point do Greek banks become buyable? Granted, there may be some social instability short-term, but given that the country has stomached the austerity measures thus far imposed, I'm not sure that my concern about the social fabric further unravelling is well-founded anymore.

Ralph Vince writes: 

A good point, but I think we should asses what is and has occurred in Greece, and elsewhere, as not just a function of duration but of time. I don't see the Greek situation improving an any substantial measure any time soon. Or Portugual of Spain or Italy or France or….

I fear europe — and the rest of the world (assuming the US follows suit on austerity) will be in a similar situation wherein the prisoner seems fine after 90 days of incarceration. But he has a 20 year sentence.

I think the real fear isn't so much "social fabric coming apart," lies in the realm of political reaction after sustained periods of hardship. This is where some pretty unsavory actors have made their mark — not in all cases, but it is the ground they have grown in, and no one has been into this long enough or suffered for enough of a prolonged period. We will know it is that time by the symptom of right-wing leadership and if it is sensible or extreme.



 Throughout the year, you can run your maze of responsibilities, your jobs, your organic woes, your ironic little side-turns to absorb time we used to call hobbies. And you do it, you accomplish these daily To-Dos with as much dispatch as everyone else. More or less.

But comes the hols, those dreaded end-of-year false-cheer times, when people rush about buying unavoidable 'gifts' they can't get away with not buying. When doormen and concierges and mailmen and all the run of the necessary people we deal with have their smiles pasted on their warm and inviting palms. Tip or die, we might call that. They might make more in absolute terms than we, but Heaven succor you, sucker, if you fail to lard that particular bundt-cake pan.

For the average, which one believes is still the two-fer, the married duality of citizens, holidays is a grit and grin it and bear it. If in the rear-view mirror anyone accidentally admits they had a grand time with distant family and micro-universal friends from here and far, it seems, by the weight of post-holiday scrivenings, to be an anomaly.

Most people prefer the company of their nuclear selves, if they are well-married and well-childed. Even the Grinches in feathers and elongated nails have their preferred broods, and sit out the mandatory meals and avaricious present-openings with as much grace as can be mustered.

But the Single.

Now, we won't pretend that what was once the case, with a tiny sliver of the population being in the garb of the Star Wars creatures who could throw over their carefully coiffed heads a cloak of invincibility. No, the Single is now a huge demographic, like it or not. Particularly in the metropolis that get the most filmic exposure and the rivers of ink flowing into our still-breathing magazines and papers.

Singles can make plans, as they ought to, months in advance of the Chanukah/Christmas logjam of false merriment and hysteria, the flurry of swarming Happy! Jolly! Merry! That threatens to bury us before our time. Because though the days in January seem long and far before the horizon of the "the holidays," in fact they steal up pretty darned fast, and there you are, solo at the friend's table, alone at the vet's party with your shih tzu, hustling onto the Metro North to your aunts or cousins or nephew's aromatic, festivity-strewn homes.

Singles dread them. If they are not hooked up with a Signif. Oth., or a reliably haul-'em-to intimate partner, they are always the one at the tail end of invitations, at the nether end of the living room, at the "oops" side of the gift ledger. Not getting gifts is no calamity, of course. Most Singles can buy their own, we know.

But the prospect of yet another hilarity-imbued family or friend get-together where the preponderants are able to point to a spouse or cherubic Sunday-best-dressed kidlet is a quick killer. The data for self-send-offs are pretty clear—more people, probably solo, do away with themselves around the holiday period than at any other time. In nobody's book does the festival tranche engage Singles in an amplitude of joy and resolve: They are, /whoa/, again at the sideboard buffet, alone. Buying a ticket to the multiplex for the hot actioner, for one, then hiding companionably in the cozy bosom of the dark theatre, where no one can distinguish Matched from /Oy yey, still single?/

The single, in a sculpture, could be—not all, of course, but enough—anthropologized as a forward-leaning, vaguely huddled figure pressing his, and increasingly her, nose against a cold pane. The sculpture could be of bronze, as that is a suitable, enduring material, and well headlines the circumstance of the outsider who wouldn't like it to be so.

Of the great new possible holiday ideas, has anyone yet proposed a Singles week, or month, for those who give wedding presents to everyone, and never get anything back until or unless he/she ever manages to find a mate? For the millions who are perfectly unsubstance-abusing, relatively washed and shod and perfumed, yet have no one in their lives who can open that vault of loving feelings just waiting timorously to be opened and distributed in intensity borne of long sequestration (/not, /mind, the 2012 fiscal kind). Nah, because the namers of holidays, National Mushroom Day, National Chewing Gum Day, are married, and it never falls to their active creativity to cast a lasso to the ones pressing their noses to the wrought-iron gate of Everyone else.

Are these maudlin thoughts at a time when bells ring and smiles wreath the faces as leis bedeck the doors in MostTown, USA? Recent clerics in the received religions have doubted the existence, really, of Hell. Quite. No proof attends, and no one comes back with a cheeky Tweet to assure us it exists. But for Singles, Hell is a resident transparent reality existing side by side with the gratifyingly abundant life we lead in the 21^st century modern West. Hell is coping-through. Hell is Nobody-with. Hell is smiling-fast.

Singles have their own outreach programs by religious entities all too aware of the dichotomies of yoked, paired and unpaired, solitaries. But not everyone is within the compass of the religious outreaches striving to incorporate the not-hungry, not-destitute, but the flailing and annually sad.

Holidays evolved from holy days, of course. But for the Single, such periods of usually frigid temps and hurrying from transit to warm convivials and grog always making up for the parched absent embrace of someone else, holidays could as easily be spelled Wholly Daze. Wandering around in mandated visits, or alone, waiting for normalcy to re-descend. The tendrils of chugging into January's revived work or reconnoitered tasks, unremarked upon and anodyne.



The Daily Speculations annual tradition is that we link to Jack Schaefer short story (4,800 words) "Stubby Pringle's Christmas", about the adventures of Stubby Pringle, a young cowboy at Christmas time. We hope you enjoy it and have a Merry Christmas.



1. The move in the 10 minutes before the announcement from 1440 to 1428 was flexionic. Who had the inside information that an announcement that the vote on plan b was canceled and that it would be announced, and who acted on it? Let us hope that the authorities will be as vigilant in uncovering inside trading on this legislative announcement as they are on infractions about corporate events.

2. The move from 1428 to 1390 in 1 minute shows the danger of leaving limit orders on a scale down or up when algo can move 50 points and margin must be maintained at all times. The advice of good chess players to stall is paramount.

3. The other markets like bonds did not catch up until 800 am the next day, showing the tendency to underestimate change, and the cascading effect of one market on the other.

4. What a field day the brokers who can trade against their clients must have had. In the old days it was considered illegal to run the stops of your clients and take positions on the other side in certain markets. Why not today? Give the public the illusion of a level playing field

5. As always, the public will be behind the form. And no one will put in limit orders a few points below or above the market overnight for a while, and that will be the strategy with the highest expectation if you have things set so that you are not susceptible to gamblers ruin or top feeders and institutions who have no capital worries because of ability to borrow from the cb's et al bluffing you out into oblivion.

6. Volume will decrease as all the weak hands lick their wounds, and circle the wagons to preclude it happening again.

7. The moves preceding the flash crash in bonds and gold and the ratios augured the likelihood of such a free fall.

8. The wisdom of acting on the rumor and taking profits on the rumor was underlined. Or as they say in board games, "the threat is worse than the execution."

9. Old man river, the drift in the market, is paramount. And those in index funds, and those who buy and hold, and those who live in stately mansions waiting to take out their canes or specializing in panics were able as always to deposit the overplus in blue chip 5th avenue properties.

10. Will it be a lobogola or a finnegan. I say a lobogola. But it has to be tested.

What did you learn that I have not covered?

p.s.  Note that this little "night squall" (as opposed to "flash crash") had to happen just before a holiday-weekend period when many players would be looking to lighten up anyway, so they can relax and watch the kids open their presents.

Anonymous writes: 

Was there a political reason the flush came just after 8pm (such as timing of the expected vote) or is it not coincidence that the flush occurred just after electronic trading closed in US Equities, leaving participants stuck overnight with positions (not to say there is much liquidity at that time; and if I were running the show I'd have released the information at 19:55 with bids lower across the board just above erroneous trade limitations). Maybe it was a favor. 



This is an interesting article on kayfabiation, negotiated choreographs rehearsed falsity as a substitute for failed reality as a model for deception that occurs in the markets. 

Chris Tucker writes: 

This is a very good discussion of kayfabe on Wikipedia which posits a comparison with the Fourth Wall in theater.



 Jack Reacher

Directed by Christopher McQuarrie

Key to enjoying this competent and enjoyable flick is the fact that, one, Tom Cruise produced it, and his mother didn't spawn no laid-back fluke—he's not in the business of selling dogs; two, we are in the presence of a tightly crafted entertainment that aims to please, and it achieves just that.

A solid police procedural of a convoluted and ingenious crime, Reacher is a former USAF M.P. with Sherlockian powers of ratiocination. Hailed into a case of seeming mass murder, he immediately takes mastery of the mise en scene, baffling the defense lawyer (pert Rosamund Pike) who must patch together some sort of defense for the accused sharpshooter despite overwhelming evidence against him. We willingly suspend disbelief because Cruise/Reacher shows us how initial cut-and-dried judgments of who is guilty, why and how, can be…dead wrong.

Beyond the fun of a tsunami of testosterone (you feel like chewing 10-inch nails when you get out, even if you're a protected party fille in designer Louboutins), you have in the lead character, eponymous Jack Reacher, an update of the taciturn Alan Ladd Shane icon, a slightly more stateless cool Clint Eastwood. Man Alone. You get the idea.

Cruise's shrewd conceit is to strip his anti-hero hero of the lanyards of civilization today: While none of us can cruise through life without credit cards, jobs, telephones and bills, a change of clothes, a set of wheels—the whole connectedness matrix—the film asks us to accept that unlikely convention. Reacher is hard to reach, 'cause he lacks any of the usual tentacles of society making it so easy to Google or Wiki him blam in a tick. It further teaches us to accept his rootlessness. We do.

By this time in the ongoing saga of film's century we've seen enough crime thrillers to expect a chase, but this one's done by the hero—no stunt subs. The pacing is no shilly-shallying. And the script features a pilpulic intelligence: Reacher is encyclopedic in his grasp of the essentials, the details of any setting, the unstated unobvious. It's a Mensa tease-out to see him at lightning speed dismiss the supine superficial clue for the tertiary extrapolation of what something means. You try to out-jump him in his leaps from the evidence to what is really at issue. More fun than an SAT, Watson.

Add into the mix the droll, welcome appearance of crusty and lovable Robert Duvall; an authentic sonuvaB bad guy, Zek (Warner Herzog), that your skin crawls at the sight of; and an impressive if ambivalent D.A., Richard Jenkins. It's played out in Pennsylvania, too—no jamming up the bridges and back-roads of Gotham or LaLa Land, for a decided and relieving change.
Much of the flash-by scenery is dark, gritty, uncosmetized. Another aspect of the film is that it is devoid of scatology, a holiday surprise. And even more unusual, considering the lovely heroine, there is nothing you couldn't show to your maiden church-going aunt. Say what you will about the nutcase private sensibility of Mr. Cruise, under this film's game-plan, he pulls it off, as confident and maximally controlled as any Luke, Craig or Gosling.

No cursing. No smoking. No onscreen s-e-x. All right, it's not a perfect holiday bonbon. How compelling could such a flick be?


Caveat emptor: The film features gun violence that some will react negatively to, given the recent deplorable events at Sandy Hook.



 I had a few rants and raves vs. the Md's on these lists the past few months. My biggest beef is with congress. The VA has a very good system for those with certain illness. Currently if you have a job that pays above the minimum, congress didn't fund enough for X combat vets. They do not accept my insurance or cash! Huh? It turns out I am fine, and after seeing 4 MD's and the dentist I am worn out. Only thing I know for sure is MD's are fantastic. It's clear the insurance companies are in charge. Soccer moms are excellent at gaming the current system. They get the job done. Medical office management needs reform. They are not happy. I learned that with a big smile, a hello, a I hope you have a great day, you'll get more done with medical clerks than offering 100$ cash tips. I am fine, 100% healthy and back to myself.

Over the past many years we have had orders from Berlin or DC to NY markets. Let's just say I didn't cope well with my lack of sleep. A post a year ago was on how great men must have the ability to go weeks on 4 hours per night and retain their abilities. I can make it three days in a row and work a straight 48, then I crash hard. I need to sleep. The markets know this and turn just as we have hit our exhaustion point.

My Dad, the boilermaker, worked emergencies for power plants or the mills many times in his career. He'd get his over time, bust out 7-12's and run it the straight 48. This is what men do. Yes, this is what women with small children have always done.

I have no idea why it took so long, but dad finally asked me what the hades my problem was. I said its the shifts. Some nights 1 am, some 5 am, some we know there is nothing as of the open so we can be at work 8 am. He said ooooh son, you can't do that… He could never work nights, and never ever do shift work. Son, why don't you get up 0200 every day and work til the close? Take a break and do your research once the kids are in bed, then hit the rack. It's only 5 days a week and that will not be a problem for you. You're tough, go get them tiger. "It's better then 7-12's, welding 200' in the air in February at Bethlehem steel in Gary IN. Immediately my entire life changed. Thanks dad, as a kid I needed you. Now that I have kids, I need you even more.

p.s. Young traders you will read in Ed Spec you must exercise every single day. I don't care if you lace up your running shoes, hop on your bike, get to the end of the drive way and say, that's it for today… The next day you'll make it to the end of the neighborhood, a week later you'll run 2 miles or bike 5-10. The excuse, you're tired, you work 75 hours is the reason you must exercise. Sleep and a consistent schedule is imperative. Traders must work 2x as hard to make the same money we did 10 years ago. Hey, that is true in any sport, job or gig that is a free market. Once you get your head around these facts of life, the stress, the ability to deal with kiddy colds and school functions, the ability to walk away from work, and not think about Sunday night's opens your day of rest will return. You'll be back.




I have revised this essay from some years ago. It is my take on the market economics in Dicken's A Christmas Carol.

Maybe Daily Speculations readers would enjoy it.

Season's Greetings!



The Economics of Scrooge, Speculation, and Wages

by Gregory Rehmke

Charles Dicken's Ebenezer Scrooge has been brought to life on stage and screen a great many times. Mister Magoo's Christmas Carol from 1962 was my first introduction to the story. Years later a George C. Scott’s 1984 television version of A Christmas Carol shows Scrooge as a competent businessman who just finds Christmas and philanthropy a waste of time and money. His eyes are opened (as were Mister Magoo’s), through a series of nightmarish dreams. The book and various movie versions are offered today as indictments of greed and business. Dickens saves his Scrooge from his self-centered world and awakens him to celebrations of the joys of family, Christmas, and giving to those less fortunate.

Market-savvy viewers can look at this classic story through pro-market lenses and see deeper lessons than those who mistrust the business and investment world. Market enthusiasts can imagine a new last chapter to the story with Scrooge living a happier life but still running a productive and profitable business.

I would argue that a better interpretation of the story is simply that people—including successful businesspeople—can get too wrapped up in their work, and lose touch with the rest of their lives. Engagement in civil society brings many unexpected and hard-to-quantify pleasures. Philanthropy feels satisfying to the giver, sometimes more than it is helpful to the receiver. A Christmas Carol concludes with an enlightened Scrooge helping the poor through his private philanthropy. Anti-business readers may believe Scrooge caused the problems by paying low wages and speculating in grain. But this view I think reflects a misunderstanding of economic forces.

The story begins with Scrooge successful in business but having let his personal and social world fade. He long ago let his love relationship drift away and deep down regrets the loss. After a difficult childhood, he gradually gained a kind of comfort in solitude and emotional isolation. As is usual in novels and movies, nothing positive is said about his work. No glimmer of understanding that successful business people are likely providing valuable services in order to stay in business and earn profits. But we can agree that focused businessmen like Scrooge can lose track of their family and social lives and find themselves years later wealthy but alone.

Second, the story features an interesting, if subtle, attack on government welfare. Scrooge is asked to donate to a relief fund. He answers that he pays taxes for just such purposes. Why don't the homeless go to existing poor houses or to prisons he asks? The private-relief fund-raisers ask him if he has ever seen the government relief houses. Scrooge answers no, he hasn't. He is responding reasonably and so are they. (Should we expect a socially-responsible Scrooge of today to donate to well-run private charities, or to agitate for repair of failing government welfare programs?)

Tax-supported relief houses give the emotionally-distant Scrooge an excuse not to feel personal responsibility for the poor. He has already paid through his taxes. He uses government-funded welfare agencies as an excuse to avoid supporting private relief agencies. With no state-run poor houses in England, he might still have said: “Bah, Humbug!” and been tempted to “free-ride” on donations of others. That is, he might free-ride (an economics term) by relying on others to donate to help beggars. Scrooge would benefit from beggar-free streets without spending a dime on donations (he is greedy in the story, after all).

Few of us enjoy seeing and dealing with homeless people begging on the street or in front of the neighborhood Trader Joe's. Scrooge could well have been drawn into private relief just to keep beggars out of his way. Still a selfish motive, but one that would require helping others in order to help himself. He could have invested in enterprises that create job-expanding opportunities to help the unfortunate or unwise get back on their feet. Consider too that Scrooge's current business, speculation, could very well be helping the poor more effectively than any charity he might choose to support (more on this possibility below).

Had Scrooge invested in a job-training firm, for example, he could carry business cards promoting his services to put in the cups of those asking for help. In this way he could have helped the needy and profited as an investor in training-services at the same time. Many for-profit as well as Christian and secular nonprofit organizations provide job-training services and generate income through job-placement. The poor learn skills and pay a portion of their later salaries back to the job-training/job-placement organizations.

My great-great-grandfather, Dr. Thomas Guthrie, helped start the Ragged Schools for Children in Scotland and England. He went to the Scrooges of his day (the 1840s) and convinced them to contribute. With 192 Ragged Schools in operation at its peak, 20,000 destitute children attended each year, learning skills through work, and receiving an education. An estimated 300,000 attended overall, from 1840s to 1880s. The English government apparently saw the Ragged Schools as unwanted competition to their poor houses and new government-funded schools, and worked to undermine the Ragged Schools. (Students apparently preferred the industry-training education at the Ragged Schools, and voted with their feet. The government filed lawsuits to force students out of Ragged Schools and into government schools. Glimpse this fascinating story here: The Christian emphasis of the Ragged Schools was scorned by the enthusiasts for the emerging utilitarian welfare state.

Because Scrooge had already been taxed to provide for the poor through state-funded poor-houses, he lacks any voluntary or civil society connection with charities for the poor. He doesn't bother looking into the management and operation of poor houses because their tax-funding insulates them from private reform. He knows he wouldn't be allowed to withhold his taxes if he found them badly managed.

Had he donated to a private charity, Scrooge would have an incentive to investigate how his donation was used. He doesn't do much investigation after being saved, in the George C. Scott version. He just gives a big donation to the private relief effort he refused the day before. But even so, he will surely take an interest in that private relief project after donating a huge sum to it. He would be angered as well as embarrassed if the relief effort he supported turned out to be ill-managed or a fraud.

Thanks to tax-funded welfare state programs, Scrooge is less likely to be drawn into civil society philanthropies that might have opened up his life. The holiday season is rich with Christmas gatherings for charities of various stripes, and these social occasions allow donors to meet others of similar interests and hopefully to learn more of the good deeds their donations enable.

Scrooge's very skeptical eye would be a valuable service for private charities, as he seems to understand that good intentions matter less than good results. He would likely be a better trustee of a private charity than his "do-gooder" nephew, for example.

George C. Scott's Scrooge notes with disapproval his nephew's offer to overpay Cratchit's son. Scrooge understands that overpaying for a young person's first job can have negative consequences. It breaks the connection between a person's productivity and their pay. It confuses charity with wages in the mind of both the employee and employer.

The intricate dance toward “just” or market wages not only pits each worker against others willing to take on a job, it pits each employer against other employers willing to pay higher wages for productive workers. When employers get greedy and try to hold wages below the marginal earnings each worker brings the firm, other employers have a profit opportunity, if they can hire that worker away.

The push for profits in the labor market leads employers to a bidding war that narrows the gap between what workers earn for firms and what they are paid. Competition for workers is endlessly frustrating for employers who hire and train new employees only to find them lured away by better offers. The core source of Bob Cratchit’s low pay is likely his limited responsibility and productivity at the firm of Scrooge and Marley. In fairness to Mr. Cratchit, it may not be his fault that Scrooge has been holding on too tight and not delegated enough. Perhaps the late partner Marley offered Scrooge more opportunities to learn and share responsibilities at the firm than Scrooge had so far given Cratchit. Either could be blamed, but it seems reasonable to find fault with the side most capable of changing the situation: the boss.

Seeing the Ghost of Famine Future

Some are visited by the ghosts of terrible futures that never happen, but might have. Imagine Ebenezer Scrooge dreaming a terrible famine would soon strike. Perhaps nightmare tariffs on imported grain coupled with bad harvests in England drive corn prices beyond the reach of the poor and spread famine across the land. Or maybe a Civil War in America will soon block cotton imports, shutting down textile mills that employ millions.

Famines in Scrooge’s time were not rare and he would have lived through one in his youth. The Europe-wide famine of 1816/17 followed poor harvests across Europe and the general destruction of the Napoleonic Wars. Crop yields in Western Europe fell 75 per cent triggering wide-spread famine and death.

For a businessman like Scrooge, such a vision might lead to careful (and costly) review of weather news across Europe as harvests approached. News of potentially bad harvests or of bad politics raising the chance of conflicts, could be a reasons for taking a major investment position in grain. Early on in the movie George C. Scott’s Scrooge visits the city grain exchange to do some business. He holds out for a higher price for corn in his warehouse, and is accused of hurting the poor through his greed. But is holding out for higher prices really hurting the poor? Yes and no.

His “hoarding” is speculating on grain futures and does raise the price today. But it also has the consequence of pushing prices down in the future. Scrooge has seen a vision of scarcer grain and higher prices in the future (otherwise he would sell at today’s prices). He is raising the price of grain for the poor (and everyone else) today, in exchange for lowering the price in the future. If his vision proves true, he will have performed a service for society by pushing all to conserve now a resource that will be more scarce in the future.

The businessmen in the movie claim Scrooge is raising grain prices for the poor today by holding back. These less visionary businessmen may lack the weather or foreign politics information Scrooge could have gathered. Or they may just wish to buy Scrooge's corn at lower prices either to help the poor today or to help themselves. How can we know they would pass these lower prices on to consumers? Perhaps they would just pocket gains from below-market prices themselves. In any case, I will argue that raising prices now can in fact help the poor. (How is that for a Scrooge-like claim!)

Speculators like Scrooge are time-shifters. Whether or not inspired by ghostly visions, they trade goods through time. Scrooge fills his warehouse with corn then turns the dial on a time-machine to transport them to the future. It is an expensive and risky enterprise. Who knows what the future will bring? Such businessmen make informed guesses, they speculate about the future. If they are right, their fourth-dimension transportation system earns profits, even after paying rent on warehouse space and counting the interest lost on money tied-up over time. If they guess wrong they lose money. And after too many wrong guesses, both Scrooge and Cratchit would be looking for new work.

Across Europe, in old city-centers, you can often find the grain exchange building. Here sellers and buyers of grain would gather each day to buy, sell, and speculate. Farmers are just one part of working agricultural markets. Weather and harvests are hard to predict. Grain can be stored for some time, though at a cost. Grain prices embody the collective guesses of hundred or thousands of people about what the future will bring for the supply and demand of grain. Prices change each day as news of hundreds or thousands of events small and large filter into the buyers, sellers, and speculators on the grain exchange.

Steam powered ships opened vast lands in American and Argentina to supply grain the Europe. And steam-powered railroads allowed Ukraine to become a bread-basket to the world. Transportation costs dropped gradually, then rapidly through the 1800s. Low-priced grain from the America's “flooded” Europe with less-expensive grain, leading European landlords, the landed Aristocracy, to lobby Parliament for tariffs on imported grain. The landed Aristocracy of the time favored “fair trade” not free trade. Lower grain prices led to lower rents on their farmland. Struggling workers who benefited from lower food prices had less opportunity to explain the benefits of lower food prices whilst playing whist at the club.

Scrooge was neither a landed aristocrat born with a silver spoon, nor a farmer, nor a manufacturer. How did Scrooge happen to have the corn in his warehouse in the first place? Economists argue he is performing a service by warehousing corn and releasing it when demand is strong. In the movie he is presented as being greedy and pushing prices higher, thus hurting the poor. But by aiming to make profits speculating on corn, his early purchase pushes prices slightly up and encourages conservation now. By speculating in corn he is a visionary. He guesses that in the near future, current plentiful corn supplies will turn scarce. Those lulled by relatively low corn prices to use it casually today would regret it later–but by then it would be too late. Only by taking action ahead of the shortage can some of today’s relative plenty be set aside for tomorrow.

No one can really see into the future and know what corn, oil, or copper prices will be next week, next month, or next year. No one can know the future, but professional speculators invest time and resources to make educated guesses. When they are wrong, they lose their own money, but when correct they make money by better coordinating consumer behavior through time. The warning from a Ghost of Famines Future alerts speculators to act today. Consumers angry now at rising prices benefit in the future when Scrooge’s warehoused corn is released, easing the shortage and stabilizing or lowering the future’s higher prices. Scrooge profits by coordinating consumption through time.

Yet, interestingly, his actions also generate incentives that can eat away at his potential earnings. By warehousing corn and pushing prices higher now, he not only signals conservation by consumers, but also new production. Higher than expected prices signal farmers to work to expand output, to bring new land into production. These behavior changes caused now by Scrooge’s purchases and warehouse will take time to bear fruit. So when the future shortage and perhaps famine arrives some farmers will have expanded production without ever having seen a ghost themselves. Scrooge’s vision and visionary action, signal invisibly through higher prices today that high or higher prices are expected in the future.

Such “excess” grain production does not help Scrooge profit, in fact it will lower his potential gains as the expanded harvests come to market. Still, Scrooge could not expect to feed all of London from his warehouse. He will likely profit enough even with his speculating having spurred production. The ghost of possible famine will fade in the face of both grain sources. All this happens invisibly through changing prices, trusted contracts, and private property. (And not only happens invisibly, but stays invisible for 160 years!)

Back to Cratchit, Wage Rates, and Responsibility

Many have been written of the economics of A Christmas Carol. But some I think hit a sour note by attacking Cratchit as incompetent and painting the early Scrooge as a hero. We have the luxury of writing our own postscript to the story, one where Scrooge gains some friends, socializes some, and continues to run his business profitably. In our free-market postscript, Scrooge can take an active interest both in supporting well-run and effective charities, and in agitating for government to shut down poorly-run poor houses.

After his conversion, Scrooge gives Cratchit a raise, doubling his salary. Does that mean he was just exploiting him earlier? Or that Cratchit was not particularly competent? No, I think the raise can be seen as a very reasonable decision, part of Scrooge's change of heart, that he wishes to give Cratchit more responsibility at the firm. Scrooge met his own mortality in his dreams that night. He dreamed himself standing before his own grave. Mortality creeps up quietly on all of us, perhaps especially on busy and successful businessmen. With no board of directors to push for a “succession plan” for the firm of Scrooge & Marley, he had avoided the issue.

Scrooge likely didn't pay more earlier because he hadn't given Cratchit enough responsibility to enable him to be worth more. With Scrooge’s change of heart, higher pay would go hand in hand with higher productivity from Cratchit, which would follow from additional responsibilities. And Scrooge will need to free up his time for board meetings at the charities he will be asked to join–word of unexpected large donations gets around fast in the nonprofit community.

Consider too that giving Cratchit more responsibility and more knowledge of the business could dramatically raise Cratchit's income earning ability for the firm. Scrooge might make even higher profits from a better-paid Cratchit.

It could be claimed that Cratchit is incompetent, but nothing indicates bad work habits in the movie, apart perhaps from showing up late to work–but that could be blamed on the overlarge and unexpected turkey Scrooge himself donated the day before. The audience, unfortunately, sees only the seemingly arbitrary nature of pay. Bosses can apparently double someone's pay if only spirits scare them half to death in nightmares (something politicians and labor unions have tried to do ever since).

So I recommend George C. Scott’s A Christmas Carol to students. They will enjoy it, though perhaps not as much as the Mr. Magoo’s cartoon version. So Hollywood can offer lessons in sound economics. It just takes a little reading between the lines.

Gregory Rehmke is a writer and economic educator based in Seattle. He directs Economic Thinking, a program of the nonprofit E Pluribus Unum Films. More information at

(Revised and expanded from 2004 article quoted in December 17, 2004 Toronto Star article "The Politics of Ebenezer Scrooge")



 A friend will ask you what you think of gold. "It's below the round number," the personage says. "Well, I doubt anything bad could happen near the end of year you say. Christmas et al," you say. The friend buys, wets his or her beak. News of liquidation of big gold bugs hits. Gold has the biggest drop of the year 50 bucks in two days. You don't look like Marilyn Monroe or Paul Newman in the friend's eye as the case may be.

Allen Gillespie writes:

The big leg down in bonds seems to have been the hammer on all things. On nights and days like this, however, one cannot help but think about Profitable Grain Trading by Ainsworth-- his basic system looked to by the lows of the prior month 7-9 months before final expiration and weekly lows once the time to expiration was 3-4 months. I think his explanation of the economics of discounting futures is conceptually sound. One cannot help but notice that the Aug futures low in gold in Nov was 1680.90 and we just traded through that two days ago.

Vince Fulco writes:

Not bad, an 80 year old book which in reprint still runs around $50. Can't say that about the vast majority of trading tomes.

Easan Katir writes:

It was reviewed on Dailyspec a few years ago by Mr. Sogi.



 1. You run a pattern to give you sustenance for a position and you nod approvingly when you see that it gives bullish forecasts. But then you realize you were looking at bonds as the dependent variable rather than stocks, and the actual forecast is disastrous to you.

2. You have a spread on and after giving up the bid asked and the commission, taking into consideration your expected profit, you're giving up more than 100% vig. But then to reduce the certainty of a loss you leg out. And you leg out of the one that was ready to go through the roof in your favor, and the leg you're stuck with plummets to terrible levels ( happened to me today).

When your friends hear that you're a speculator, they say "how can you sleep at night".

The watched pot never boils. So you step away from the market for one minute, and during that time, the one chance that you had to get in for a profit is dissipated.

5. Anyone who meets you over 50 will greet you with "you know, edspec and reminiscences of a stock speculator are my favorite two books of yours". (Is the Sherry Netherlands lounge still open?).

6. The most frequently asked question you'll be asked is "how can the fibonacci systems be so accurate?"

A bank trader will receive a bonus of 10% of his profits on a 1 billion position, and complain that he's getting less than he would if he worked for a hedge fund.

8. Your alma mater will pay its investment team 200 million in bonuses, 10 million each while they lost money in the year on the grounds that they beat their bogey.

9. When the market goes up, more than 100 dow points, all your friends will say to you "the market was way up today. You must have made a fortune" not knowing that you were short.

10. You hold onto a position while it goes violently against you and finally give up at the worst point, at which time it turns around and goes through the roof in what would have been your favor.

11. You make small gain after small gain– over a day, a week– and your confidence and well-being grow. Then it's all wiped by one big loss. 

Easan Katir adds: 

1. One could not find a more appropriate song to listen to than this while waiting for theta to decay.

2. You are called a nerd when you price an option using the Black-Scholes model going through the formula by hand.

3. No one in your family appreciates the genius of RPN.

4. It looks like a done deal so you go long double S&P, which tanks after hours.

5. You read "among the plays which men perform in taking different parts in this magnificent world theatre, the greatest comedy is played at the Exchange. There in inimitable fashion the speculators excel in tricks, they do business and find excuses wherein hiding places, concealment of facts, quarrels, provocations, mockery, idle talk, violent desires, collusions, artful deceptions, betrayals, cheating, and even the tragic end, are to be found" written by de la Vega in 1688, you and realize nothing has changed in four hundred years. 



I cam across a great blog post about a very interesting paper called "Multiple Victim Public Shootings, Bombings, and Right-to-Carry Concealed Handgun Laws: A Study by Profs. John Lott and William Landes". This is the abstract:

Few events obtain the same instant worldwide news coverage as multiple victim public shootings. These crimes allow us to study the alternative methods used to kill a large number of people (e.g., shootings versus bombings), marginal deterrence and the severity of the crime, substitutability of penalties, private versus public methods of deterrence and incapacitation, and whether attacks produce "copycats."

Our results are surprising and dramatic. While arrest or conviction rates and the death penalty reduce "normal" murder rates, our results find that the only policy factor to influence multiple victim public shootings is the passage of concealed handgun laws. We explain why public shootings are more sensitive than other violent crimes to concealed handguns, why the laws reduce both the number of shootings as well as their severity, and why other penalties like executions have differential deterrent effects depending upon the type of murder.

The results of this paper support the hypothesis that concealed handgun or shall issue laws reduce the number of multiple victim public shootings. Attackers are deterred and the number of people injured or killed per attack is also reduced, thus for the first time providing evidence that the harm from crimes that still occur can be mitigated.

Not only does the passage of a shall issue law have a significant impact on multiple shootings but it is the only law related variable that appears to have a significant impact…A particularly surprising result is how the death penalty is so important in deterring murders generally, but has no significant impact on multiple victim public shootings.

Gary Rogan writes:

I have little interest in guns one way or the other. What little interest I do have is based on the instructive nature of how magical thinking is applied by ideological fanatics to "solve" the problem exactly the wrong way.

1. It is clear that if you ban any kind of widely available gun type today, "the bad guys" will have access to guns for decades because there are currently hundreds of millions in circulation. It is also clear that access to guns will become more difficult for "the good guys". And while it is also clear that there will be SOME reduction in the type of gun violence like the latest incident, that was a very unusual case in that the nut stole the guns from his law-abiding mother. It is not at all clear how widespread such reductions would be given that the nut would still be able to obtain many forms of different guns from the same type of law-abiding source and more typical nuts would get some guns somewhere without any problem.

2. It is clear that when you create "gun free zones" and proudly advertise them as such you create "fish in a barrel" type situation for the nuts, which they find highly attractive both psychologically and practically.

3. It seems obvious that concealed carry permits and specifically having a lot of their holders in the former "gun free zones" will dramatically cut down on the number of casualties. This is due both to the ability to stop the nut and to the observed tendency of such nuts to kill themselves as soon as being even vaguely aware of a confrontation with another armed person. And of course just the knowledge that the formerly "gun free zone" no longer is will make that zone infinitely safer based on the deterrence effect. It would be therefore amazing to watch how the usual suspects immediately start talking about gun control without explaining anything about the linkage between such and the number of victims or even any logic behind their line of thinking, were it not their normal modus operandi. The same "logic" the usual suspects apply to higher taxes on the rich being beneficial, and Bush causing the big recession by his "policies" to which we don't want to go back to, is applied to gun control. This supports the theory I advanced a couple of weeks ago that the biggest thing that rules the world today is "suspension of disbelief".




Directed by Kathryn Bigelow

Hunting Bin Laden: Zero Dark Thirty

Ultimately, though it is an inevitable Academy Award nominee, I found ZD30 suspenseful, well-complected—but unsatisfying in parts, and as a whole. Others will probably disagree with my assessment.

Even in midweek, at a midnight showing, the queue stretched all the length of the huge AMC across the street in Manhattan's Upper West Side. This is a movie that was pre-sold in a major way—not by ads, either.

It is not only the liberties taken with the objective truth of the event, the culmination of a decade-plus of intensive CIA and allied effort. Bigelow and her associates purportedly spent considerable time closeted with the oh-so-busy President getting secrets that ought not, in many people's view, to have been shared. Operational coverts have no business being bandied about in an entertainment as easily viewed by national enemies as by the neighbor's kid. Our SEALs and our national security are abridged and narrowed by such disclosures. All for a buck or a billion.

It is also not only the fictionalized so-called 'torture,' which is scarcely even in the ballpark of real exertions visited upon our servicemen in the field when taken prisoner by jihadi and related Middle easterners or Mexican drug cartelniks. As this stuff goes, it was not, to this reviewer, even reasonable or realistic. The intensive enhanced interrogations looked uncomfortable, to be sure, but torture? No. Even so, the interrogator, a handsome, bearded guy (Jason Clarke) who scarcely fit the image of the kinds of guys who get put into this gig, was somewhat…genial…while intimidating, occasionally bequeathing drink and food along with his threats and demands.

Littleinaccuracies, here and there, marred the whole.

Watching from not far away, Maya, the female CIA operative intel officer (interesting Jessica Chastain, in a career-making role) stood awkwardly with an unlikely cascade of strawberry blonde hair and somber expression. (Originally cast: With Rooney Mara, */The Girl/* */Who/*… franchise, in the key role, the movie would have been immensely different if she had accepted.) Though she is murmured about as a "killer from Langley," Maya looks upset and uncomfortable on site at each 'enhanced' interrogation—this is wrong. She is telegraphing her own feelings as an actress to the movie audience; she is not playing the 'killer' who can take whatever is dished out in the highly charged field of black ops in Pakistan, Afghanistan and similar wastes.

Having spent some time in both the American Air Force and the Israeli, I think her speech tone and texture sounded about right, but her posture and reactions semaphored wrong. The expectable gaping (a beautiful woman! In "torture" scenes! And the prisoner/interrogatee [French actor Reda Kateb] did not seem to take note?) and service sexism that exists in all such government anti-terrorism outposts was entirely absent, which struck a continuing false note. Maybe writer Mark Boal, whose film this is, was not sensitive to this obvious issue, but its absence through the 2-hr film clanged. /Uh uh./


Even a total professional, as Maya evidently is, would get hit on in a 99%-male environment. Correctly, she encounters skepticism along the way, dedicated and insightful and hard-working as she is. As Gandolfini as CIA chief says to an underling who wants to trust Maya's judgment because "she's smart," in the face of widespread skepticism, "Hey, we're /all /smart."

The 'story' of the long and often frustrating hunt for UBL is so well-drilled into the audience that much of the work storytellers have to impart was pre-accomplished if you read the papers or have a TV or net access. The film begins in voiceover headspace, total black-screen pierced by audio of voices, cries and soothing 9/11 operators to incinerating WTC victims.

The gadgetry and spy tradecraft was about right, and the SEAL teams, seen relaxing at base as well as in the suspense-tautened scenes of the actual attack, are well-schooled, if beefier and more grizzled than the Channing Tatum-models we envision.

We don't see anything of Maya's private life—she evidently has none. She is single-minded about her goal. Bigelow must have kissed the stars for finding this bon-bon of a gift to her movie; most such narratives are devoid of females of such importance to the story. Maya doesn't, like Angelina or ScarJo, kiss ass. She kicks major IT. As she doesn't answer another female intel operative, another beauteous op, Jessica (Jennifer Ehle), in the ill-fated Islamabad Marriott, who asks if she has any friends, we gather Maya has none. /Homeland/'s intense Carrie Mathison comes to mind, but here, minus the bi-polarity. Explosions and bomb effects in */Zero Dark/* are done very well, indeed.

Though the film shows dead ends and many snatched meetings with bigs in DC and along the decade-long trajectory of the narrative—including a welcome James Gandolfini as top general, to amused chuckles in the audience to see Tony Soprano suddenly elevated to such a high government post—the film is a tale of eventual success. The last half-hour is extremely well-done, though almost entirely in night-vision dim and green-light specialty goggles. The Angel of Death choppers are top of the line, but even as "quiet" as they could have been, how could they not alert the entire Abbottabad neighborhood? Which, of course, they did.

All that being said, and as deft as Bigelow and her tremendous crew clearly are, and despite the smattering of applause by the late-night SRO audience, I felt unsatisfied with the lacunae and drifts from actuality that I know were displayed. And I'm nobody.

We know the story in outline. We see the striving for telltales and leads come to naught. But the audience is all at the edge for the successful terminus, which gives the film more impetus than a regular entertainment offers. The conclusion, in this case, matters.

Is it worth a come-see? Assuredly. By the fanatic long lines even late at night, this is the pic to see. And probably 90% went out satisfied. But is it /all that/? Not so sure. Bigelow earns her stripes/, *The Hurt Locker*/ won Best Pic of 2008, and merited it. Moreover, probably few directors could have landed this baby as well as she. But somehow I think the hype is selling this sizzle more than the steak.



 It is called in China "Shizi", in Japan "Kaki", and in Isreal "Sharon fruit".

I generally have liked the fruit since my childhood, but until recently, I had never had any special feelings for it.

Don't know for what reason, but there are a lot of high quality persimmon fruits on the market this year. They are large, delicate, beautiful, colorful, bright, shiny and almost translucent. Put in the mouth, they are so tender, meaty, sweet, and have no seeds or core.

The Greek regard them as "divine fruit" or "the fruit of the gods". I feel they well deserve the titles.

a little about the health benefits from wikipedia:

The Sharon fruit was found to contain high levels of dietary fiber, phenolic compounds, potassium, magnesium, calcium, iron and manganese. They are also rich in vitamin C and beta carotene. Regular consumption of the fruit is believed to reduce the risk of atherosclerosis heart attacks. A separate research project showed that a diet rich in Sharon fruit persimmons improved lipid metabolism – the way the body copes with fat – in laboratory rats.

The fruits of some persimmon varieties contain the tannins catechin and gallocatecin, as well as the candidate anti-tumor compounds betulini acid and shibuol.

So ladies and gentlemen, bon appetit et bonne sante!



 The Iquitos Prison occupies twenty acre surrounded by a 12´concrete wall with four corner turrets that rise like rooks over the denuded jungle within. Eight pavilions house 160 prisoners each for a total of 1300 while forty guards stroll the garden patched complex to keep order. The prison uniform is street clothes but long pants only, while the guards sport tight black T-shirts inscribed INPE in gold on the back. They are armed with .45´s.

On my last day in Peru I visited the prison, first stopping across the street to rent long pants and a dress shirt for $1.00 for admittance. I turned to face the prison entrance, an arched gateway with a short line of visitors.

Inside this walled town inmates are indistinguishable from citizens outside who at any moment may end up right here due to the evil Amazon mothers-in-law and the crooked court system that convicts on bribes and rarely justice. You are put here and kept here depending on your pocketbook, not the crime. The four main convictions in order are sex crimes, drugs, robbery and last fighting. After talking with about one hundred prisoners today I will conclude that half are innocent and nearly all have overextended sentences as the system and their ex-girlfriends slowly squeeze money out of them over the days and years.

Some of the very females in the visitor´s line batting eyes in front and behind me, who lied in the first place to thrust their boyfriends here, and now of legal age, visit each Sunday to draw the curtains before the bunks. Each is paid for sex and, anticlimactically, the boyfriend urges her to retract the original rape charge.

The queue of fifty visitors, lovers, contraband runners and Sunday ministers moves quickly with eight at a time admitted through a ten-foot iron gate in the wall. Then there´s a pause at each of five stations where guards copy identification information, a green chicken imprint is stamped on my right forearm, at the next pause a visitor number is drawn in yellow magic marker below the chicken, at the next another black number 3-16 who is the prisoner I´m fated to visit, at the ensuing a beautifully engraved chit # 43 is traded for my passport photocopy, as I keep my original taped to my side that soon escapes a quick frisk at the final station.

The chit and number penned in red at the bottom of my arm journal prove I´m a visitor rather than convict and I´m told to return in five hours by 2pm or spend the night in the Crossbar Hotel. A pleasant guard in black and gold points me to a plank path across a muddy field to Pavilion 3 to ask for Ruso, the only gringo inmate in the entire complex. I briskly walk the wood plank expecting to find an Italian in for drug smuggling, and a guard politely steps off the one lane into the mud to let me pass, tipping his hat, and pointing ahead for ´Ruso´.

After walking the plank, the guard at Pavilion Gate 3 reads my arm moving his lips, pulls the single skeleton key to unlock the ancient lock, it opens with a creak, and locks behind me. I march a dim aisle like an alley on a moonlit night with open door cells on either side as inmates stare stunned, gape and a few cup their hands to mouths whooping, ´Ruso!´

I turn into Cell 16 and am surprised as a shaggy head pops out from the bed screen, giant bare feet hit the floor, and a huge hand envelops mine with a hardy ´PriVet´ (Hello!) in Russian. This is Ruso, which I quickly learn is Spanish for Russian rather than his name, though he is known throughout the system as Ruso.

A solitary black chess pawn sits on the desk in front of his bed as a clear invitation that I ignore for the moment. Our conversation is in Spanish as he speaks little English.

Ruso exports wood, and has lived in Lima for six years. One year ago he and his brother arrived in the heart of the Amazon at Iquitos to search for wood. His brother got in a fight with three men and bested them, and was subsequently arrested for beating a man to the pulp. Ruso was not at the fight but his crime in Peru is being the brother of the man who fled to avoid trail to Russia. In the perverse Peruvian court system Ruso was put behind bars to serve his brother´s aggravate assault sentence of three years. Before coming to Lima to start the wood business he earned an economy degree, is keen eyed, moves purposely with a royal bearing, twenty-eight, powerfully built, and no worry lines on a square face that begs a shave and haircut.

We make short small talk for he´s anxious to introduce me to the Teacher whom he claims will open every nook of the prison, even places I don’t want to go.

First, we tour his Pavilion, or concrete blockhouse with two flights of stairs and long cement halls connecting about twenty cells with eight beds each that are flung open each morning. Each 30´ square room has one toilet and shower, and each inmate has painted his space with a personal color scheme and hung posters of politicians, scantily clad girls or his own artwork. Ruso´s space is glossy white, tidy like the others, and stacked with non-fiction books on economics, nature and biographies from the block library.

We amble to the Block core that hems a 30´ x 60´ concrete soccer area alive with kicks and shouts over a deflated excuse of a soccer ball. Around the mini-field a dozen inmates run picnic table cafe´s, gambling rings, a crafts shop and barber shop. Prisoners whittle and fashion knickknacks, some paint, and others design or patch clothes to barter or sell to each other to eke a living. A weight lifting area with bars through concrete blocks as dumbbells and barbells gets constant use as many inmates are heavily muscled like Mastiffs. A rousing sermon well attended by forty hand clapping, foot stomping inmates screams through the windows over the soccer field. The scene is a sort of Eden in the Sunday morning sunshine away from the dank cells. It is hardly different from outside the walls except for the thick iron locks.

An 8-foot chain link fence with razor wire hugs the Pavilion with one gate to liberty to roam the twenty acres compound… and enter, if you can afford a ticket at each gate, the other seven Pavilions. It´s a macabre Disneyland. The chief guard at each gate, not his helper screw, has a key, for he has worked the system for years to attain this commanding post to accept or snub bribes to admit or refuse anyone to his Pavilion. So prisoners are free to walk within their own walled blocks in daytime, are locked in their cells from 10pm to 6am, and may leave the same way visitors enter, by bribing the guard chiefs.

´Money talks inside,´ Ruso quips and winks, adding, ´You are my guest,´ and palms the equivalent of $2 with a hand pump to the guard chief at the exit. It is a large sum where outside the minimum wage is $1 an hour. The guard pockets the money, claps Ruso on the back, and opens the gate to exit Pavilion 3 onto the main grounds where the other six pavilions and turrets reach to the sky like War of the Worlds. Few prisoners see this for years because of the price.

We pass Pavilion 2 adjacent to the prison perimeter wall where the last prison escape attempt in 2007 failed when the guards allowed via bribes a 19-inch diameter, 30-meter tunnel to be dug for six months from inside the Block and under the wall to the street, and then swooped in for the capture of 35 escapees. The breakthrough day that Peru´s national soccer team was to play the first qualifying round of the World Cup was smartly timed thinking the guards would be watching the soccer game and not tending to their posts, but someone squealed.

We slip into the carpenter shop within a 20-meter square hut with a log saw to cross-section and cut planks, planer and other equipment. Ruso brushes his hand gently across the wood like a lover´s cheek, explaining that he spends a lot of time here filling orders for civilians for tables, chests and beds. They´re custom crafted and picked up on visitor´s day. It would also be a tight place to hollow a log or furniture leg to store or transport contraband.

On reaching Pavilion 4 that resembles and is minimum security like Ruso´s Block, he pulls the chief guard aside to grease his palm while I chat with the backup screw who informs that the two guards per Pavilion gate work 24 hours straight, and then are off for two days. He avows the turnkeys prefer this arrangement that requires them to work only ten days a month. Each of the dozen guard´s I´ve bumped into is savvy, amicable toward the prisoners and me and, according to my tour guide, on the take. The chief gives him a big bear hug, shakes my hand, and admits us into the Block. We search the bobbing heads on a concrete cafeteria floor that fills the core area instead of soccer. Five cafes and as many pushcart vendors do a bustling business as prisoners chat, play cards and board games as if at Starbucks. This is a more affluent crowd with many seniors, and I´m tipped it is the white color crime Block.

One graying man with twinkling eyes holds an erect posture that stands out so brightly that I inquire of him. He is the former Pevas Mayor, a large jungle town downriver one day by boat, where he was convicted four years ago of accepting money while in office, and for some reason has chosen not to or cannot afford to bribe the court for a get-out-of-jail card. I was told that anyone with a non-violent crime may pay via an attorney to the court about $3000 for quick release, or $10,000 for the worst crime.

The majority of the men are sex criminals, or better termed victims, serving an average ten years for having an affair with an underage (17 years or below) girl; or twenty years for so-called rape. One man I speak to has spent a month short of twenty years inside for having sex with a drunken legal age girl who told police and testified in court that he raped her. He will be released in one month and is anxious for freedom. A few other men tell me, yes, they had sex with a teenage girl like most other Peruvian males, but that the mothers-in-law came at them with claws bribing the police for arrest unless they paid the girl´s family a queenly sum. They cannot afford that game and end up skewered in the penal system.

Ruso spots and yells over the mill to the Teacher. A shout back, and a tall thin man with spectacles above a perpetual smile weaves to draw the Russian´s hand and, on learning that I not only speak but have taught English, clears the floor with a jig. He is respected inside as the official English instructor- the guards address him in English as Teacher- with thirty students in all eight Blocks whom he charges pocket change. He picked up a little English in his youth as a jungle guide, strengthened it inside by reading books, and I am the first person who speaks better whom he has met in three of his six year sentence for having sex with a 16-year-old minor. There was leniency since she was his steady girlfriend that he planned to marry until she brought up the rape charge.

Ruso buys the Teacher a coffee and me lemonade, and on finishing suggests that we walk outside around the yard. Teacher bows his head in shame admitting he cannot afford the standard $1 bribe to leave the Block, but Ruso tells him not to be silly, that Teacher is our guide and the Russian foots the bill.

On swinging gaits with new elbow room we saunter the twenty acre compound, greeting ´Hola´ to the guards and ´Buenas´ to inmate gardeners of little jungle patches outside the Pavilions. Then past a tangle of construction equipment and abandoned bunkers from years gone by to the maximum security Block. .

In maximum men are stripped of their faculties by drugs and time served and so sadly are seen to their core, ragtag and clawing the chain link fence thrusting bubblegum and trinkets at me for coins to support their habits. They beg and alternately roar like lions. ‘You are dangerous!’ the Russian scolds them cheerfully, and then whispers to me, ‘Do you want to go inside?´’

‘Sure,’ I reply, and we turn the fence corner past the frantic men to the Sergeant with the key in to their cage.

It is a din inside. The halls are littered with men sitting sleeping with their foreheads on their knees and gum wrappers. Only six inmates watch TV, hardly any smoke cigarettes due to the cost, many sell candy or dirty girl sketches for change to fill out their emaciated frames or empty minds. The Block houses a younger crowd with strained faces, wild eyed, and doomed to spend decade sentences for crimes of violence, usually robbery or rape.

An atypically rotund middle-aged inmate with accountant eyes seeks out Ruso like a viper, wraps his arms like an anaconda around him and all the while narrows his eyes at me. The alert Russian squeezes him back hard, nods okay at me, and the man releases and smiles warmly. I get the feeling he believes I’m there to buy something, which is fixed when he introduces himself as the prison drug kingpin. Willie Sutton said he went to banks because ´That’s where the money is´, and the kingpin apparently has placed himself in this miserable Block because that’s where the business is. Marijuana and coke for personal use are legal in Peru, but heroin also works through the visitors and guards to the kingpin. ´Anything you want,´ he tells me, ´I can get,´ and then bows out politely that cues a circle of young unkempt inmates to tighten around us.

Yet a man of simian proportions parts them to grin broadly at my guide who nods a second okay that prompts him to utter, ´I am the Block Enforcer, and if you need help just whisper my name Pedro and your fears will go away.` He then steps back through the circle that breaks to allow his graceful exit, and a dozen young convicts approach without touching to beg cigarettes, offer marijuana, and sell candy.

Word echoes along the hard hallways that a gringo is in maximum! and fifty men more shyly than not come up in tactful groups of three to five. Many move directly to the Teacher to show off their new English vocabulary to which he grunts and grins and solicits my corrections. I hold court and teach everyone the words for sky and hope…

Two Mongrel pups prance down the hall sniffing for scraps and accepting tender pats from the inmates. The dogs are in far better flesh than the men in leading a Life of Riley with Carte Blanche to scratch and exit without bribing the guard and, no doubt, to enter another Block where the pickins ain´t so slim.

The dogs pass under a 6×12´ exactingly painted ´Rules and Regulations´ sign in rainbow colors that strictly forbids contraband such as drugs, electronic devices, weapons, fighting, and touching a guard. The punishment is solitary confinement in the Hole for stealing, fighting or breaking most of the other rules. The Hole which a few of the men cringe to recall is 1×2 meters by 2 meters high with only a mattress from which a person may not leave for his stay of one week to two months on bread and water.

I don’t meet the maximum Block Leader but he and the other Leaders seem to run the penal institution. Eight Pavilions with eight Leaders, as outside where chiefs run villages. Their responsibility as mediators is to iron out problems before they would annoy the authority. The guards are loath to enter any of the Blocks for any reason without a SWAT team, and so the Leader keeps them out of the loop. I am told that the guards never taunt or hit a prisoner. Let’s say an inmate infracts the most commonly broken rule of no fighting that if not for the in-house system would result in being sent to the Hole for two weeks and going stir. Instead, the offender is brought by the Enforcer to the Leader who listens patiently, decides on a short counsel, or as often as not doles out harder encouragement. That discipline, as in my school days, is a hit across the hands with a ruler, except in this case the offending prisoner is made to cross his hands and given blows on the palms with a heavy rattan stick. One young guy displayed bruised swollen hands, and attested, ´The stick hurts like heck!,’ but cheerfully accepted it in lieu of the Hole.

In contrast, American prisons host fairer courts, shorter sentences, broken rules, snitches, fighting and gangs, and combative guards. The Iquitos penal complex is more like an American turn of 20th century rural town except no one is at liberty to leave.

The Russian as the sole gringo in the community seems to be the King of all and kept in check only by the guards and his Block Leader who also respect him, if not for his physical prowess and sharp mind, then for his wallet that is always padded for bribes to get nearly anything he wants. He is totally at ease among the Peruvians on both sides of the bars who all seem in awe of his size, wealth, intellect and communication skills.

His parents do not know he’s in prison because it would embarrass them, and the returned brother to Russia has told them their son is walking in the jungle looking for wood. He has served one of a three year sentence and is content to fill in for his brother except that he’s bored to tears. It is more expensive to bribe himself out because of his noteworthy case and large bankroll that may be pinched longer by the court and jail. Yet, he claims that after one year imprisonment the balance has tipped in his favor and he is working with two Lima lawyers on the proper fee to be sprung.

‘How do you communicate with the lawyers all the way in Lima,’ I ask after we drop off the Teacher at the carpenter shop and stroll on to Pavilion 3. He smiles quickly and silently, guiding me by the elbow past the turnkey, down the hall where I first walked in alone and into his cell. The black chess pawn sits lonely on the desk. He asks if I play. I say I used to. He remarks that he started playing at age six, but it is just a hobby. ‘Chess is to Russians as baseball is to Americans.’ He pulls a board from under the mattress, I sit on his bunk and he on a crate with his back to the cell door. He extends fists across the board and I choose the left, that opens to a white pawn and we quickly set up the pieces. The Teacher walks in with something in his hand too, hops surreptitiously into the bunk behind me and draws the curtain.

There is no chess clock except the game must end in one hour to get me out before the end of visiting hours at 2pm, and if the game has no winner in that time we agree in advance to a draw. I have one strong opening, the King’s Gambit, and push the King’s pawn two jumps ahead against the Russian. The Gambit is taken and the game evolves into a wild and wooly middle with hands flying over pieces like a Bruce Lee movie. In thirty minutes of nearly flawless play at one of the most beautiful games of my life, in a King and pawn end game I am a pawn up. He rises and tips his king, shakes my hand, and then draws open the curtain behind me.

The Teacher is reclined on the bunk texting his attorney to get out of jail in three months for $1000 to a judge. He has brought the contraband phone perhaps from the carpenter shop to escape the weekly scrutiny of unannounced Swat Team cell shakedowns. I nod in understanding at them both and turn for a long walk out without looking back.

The Iquitos prison visit was an invaluable seminar where I learned that behind walls and wire and bars life goes on not so differently as outside on the streets of Peru. It is the most pleasant Crossbar Hotel of ten I’ve visited around the world, and nearly anyone could bear a year looking through the slats here though I have no desire to return except for a good chess game.



 As far as emotional bloodsports go, there promises to be a bit of athletic theater at MSG in NYC tonight.

Mike D'Antoni and his Ritalin offense, both recently of the Knicks, come to town with his newest victims, the low-ebb Lakers, a roster of all-stars suddenly resembling the cast of a Jerry Springer show in their collective dysfunction.

Carmelo Anthony didn't exactly see eye-to-eye with D'Antoni when they were both here in NY last year so Melo is probably going to try to put on a show to rub it in to his erstwhile nemesis. While on the other hand, Kobe Bryant never likes ceding the spotlight to anybody so he's probably he's going to try light things up as well.

As for D'Antoni, this does not exactly shape up as a MacArthuresque return, as the crowd is probably not going to be very hospitable. There will be nothing genteel about any of this. D'Antoni probably won't need a Kevlar vest but a pocketful of Xanax might be strongly advisable.

Victor Niederhoffer comments: 

This was written before Antoni trash talked the team after his loss and boos. Someone has to say, "coach, it's not the players, it is your system". 

Uncle Howie Eisenberg writes in: 

Agreed. His system obviously doesn't work for the current Laker roster and he keeps trying to shove square pegs into round holes. He is the anti-Jackson who became the greatest coach or manager that ever lived by getting the most out of what every player brought to the table. Case in point: Instead of capitalizing on Pau Gasol's great ability inside which puts him among the top 3 power forwards or centers in the league, he has him on the perimeter where his outside shooting is middling and berates him for not being in shape to run full speed all the time. He (actually) is a Hatfield in need of a McCoy to run him out of town. Unfortunately Jim Buss by his early morning rejection phone call to the Zen Master has forever precluded the return of the guy who could have best exploited the 4 HOFers on the Lakers while enabling the others to transcend themselves.

As far as the defense is concerned I don't know whether it is as Felton said not getting back in time, or the over emphasis of the fast moving offense that causes players to either not put out on defense or maybe not have the energy to do it on both ends of the floor.



Attacked, from Leo Jia

December 17, 2012 | 1 Comment

 This article is an incredible story, likely being told by a neuroscientist, on how the fear mechanism in the brain helped a woman escape from the jaws and paws of a mountain lion.

A few lessons are quoted below:

1. When the fear brain's responses align with the crisis at hand and we follow its instincts, we can become virtually superhuman.

2. In the first flush of terror, the body releases two powerful substances into the body: cortisol and adrenaline. Cortisol prepares the muscles for vigorous activity by releasing their key fuel, glucose, into the bloodstream. Adrenaline further prepares the body by revving up the heart rate, constricting blood vessels and opening airways. In the brain, a variant of adrenaline wipes out pain and fatigue and focuses concentration on the threat at hand.

3. When panic is triggered, it overrides the complex reasoning of the logical mind and switches on a suite of automatic behaviors. These can feel so overwhelming—and so un-willed—that it's like being taken over by an outside force.

Tonic immobility, better known as playing possum, is an ancient behavioral strategy that's designed to fool a predator into believing that its prey is already dead and therefore not palatable. Tonic immobility is a long-shot strategy. The only way it will work is if it lulls an attacker into letting its guard down.

5. Somehow during her blackout, her midbrain had switched to a fourth panic mode. Now every fiber of her being was geared up to fight.

6. One of the many incredible powers that the fear response unleashes is imperviousness to pain.

7. Gone was the mental fog of panic that had gripped her just a moment ago. Now she saw everything with crystalline clarity, as if the world were moving in slow motion.

8. Still, the one part of that day that Groves holds valuable is the insight it gave her into her own resilience, into the powers of her own fear mind, a part of herself she'd never experienced until that day.



 I'm sitting in a Panama City Youth Hostel next to a sailing board with departure times for Columbia. There are twenty sailings in as many days but most are filled by an assortment of backpack travelers from ten countries speaking five languages. It's musical chairs around the board for a $400 berth on a boat that takes four days to Cartagena, Columbia with a stopover at the San Blas Island. Every fifteen minutes a seat fills or opens and the standbys frown or cheer.

I arrived a week ago to help an American ex-pat on a Philosopher's stone land quest, a list of some 600 properties of which he has bought and sold five in the past year at perhaps ten times his dollar cost and two months research and surveying each to get the titles. I accompanied him a few days ago to seven hectares on the Caribbean Coast that sold for $250,000 on the spot to a Mexican developer, and viewed others on Lake Gatun within and Tobacco Island at the inlet of the Canal.

The primary reason for arriving in Panama, however, was to hike the Darien gap, a 90 mile jungle locked strip that is the only break in the Pan American Highway from the Arctic Circle to Tierra del Fuego. This is my third attempt to hike and canoe this gap and I flew in on the promise of a Darien village chief to guide me through to Columbia, but yesterday he backed out saying he couldn't be paid enough to risk his family's lives with recent increased activity of the Columbia rebel FARC throughout the region.
So, I set about alternatives and earlier today sat in Manual Noriega's Paymaster House eating a hamburger in a converted restaurant in Santa Clara, Panama that was one of his power centers with troops wearing boa constrictors around their necks to intimidate the locals and guarding the nearby airport. In December 1989 the sky filled with U.S. paratroopers who landed at the airport, asked the locals for an English speaker who pointed a Major and company of 30 Marines to where I bunked the previous night at an American ex-pat's home. He led them to the Paymaster House that was captured by the U.S.

I returned to Panama City and even as I write a space opened on the December 20th sailing of the Mars De Gato sloop and I grabbed a seat.

Tomorrow there's a 30th anniversary racquetball clinic at the Fort Clayton Gym where in the 1980's I led the racquetball invasion of Central and South America with clinics throughout Latin America, that was also the first failed attempt at the Darien Gap.
After the clinic and sailing I'll alight in Columbia and work south to climb 14,000' Ecuador mountains, and then ply rivers down to Peru where I was hired hours ago via Internet as a Butterfly hunter. I'll capture only five exotic species that an amigo collector sells on EBay for $500 to $1200 each. He has provided me with a net, glassine envelopes and mothballs, and will pay $50 for each rare species that I hope to net to finance my passage home in a few months.



 Today I heard a striking point about the British Navy, a frequent subject on this site.

At the start of WWII the British Navy was the largest in the world, but its effect on WWII was inconsequential. (I know Stefan will probably give various counter-examples but still, this statement is certainly accurate in relative terms compared to, say, the RAF, the American Navy, etc.)

The reason was the British Navy was out of date in forward thinking. It still thought battleships were the key, although they were fairly useless, and it had not really taken into account the effect of airpower — the key role of aircraft carriers and also the effect of enemy aircraft on British naval operations. Maybe also hadn't sufficiently taken submarines into account.

A lesson to all of us about military and other institutions, and life in general.

David Lilienfeld writes:

The Royal Navy had two impacts on the war:

First, it made the Mediterranean a British lake. There was never any contesting that control throughout the war. Second, it prevented Sea Lion. Whether Hitler would have prevailed in such an invasion is great fodder for holiday discussions with cognac by a blazing fire in the fireplace.

As for battleships, they still had a role–shore bombardment–but it was hardly the dominant role it had had pre-war. It's interesting that the Japanese looked at the air raid on Pearl Harbor as a partial success even as they didn't touch the US carriers or the critical US Navy's (and Army Air Forces's) supplies of fuel.




 A lesson I learned from Einstein is the benefit of being able and willing to changes one's mind. At times a pacifist, he changed after witnessing the rearmament in Europe. In physics and science in general when presented with new evidence it is quite normal to revise theories and mathematical proofs, or even to reverse a position entirely. Putting ego aside, he did this many times, most famously dropping his famous Constant variable regarding a static universe when through experiment it was proved no longer necessary. This is skill which comes more naturally at a younger age, but is quite possible for the post 40 crowd as he demonstrated in his long career.

Russ Sears writes: 

It seems to be increasingly clear that part of Einstein's long term productivity was due to his long walks often with Godel. It makes me think of this article: "Exercise Grows Brain Cells".

Dr. Brett S. maybe able to clarify, but it is my understanding that some of the latest ground breaking research shows that "changing your mind" is more than just a figure of speech. It appears that meditation can reroute the neuron wiring especially between the regions of the brain. This may also produce new brain cells. Or perhaps it uses the new cells produced to strengthen the bridges between regions.

Brett Steenbarger adds: 

There's also interesting research on brain changes following successful behavior therapies, such as treatments for phobias. And, yes, a good amount of research on brain changes related to meditation practice. What's most interesting is that the brain changes following effective medication are nearly identical to those following effective talk therapy:




In the middle of the 90s I was beating slots here in Greece where I come from like butterfly cherry master or similar video 3 reel slots so I even had rng. I could 'read' these machines, or we had an electronic device to cheat royal poker, so I'm just trying to say that nowadays slots can be beaten if you only know a very small detail of software.



This obituary of Nguyen Chi Thien is fascinating. A poet and a hero. 

Nguyen Chi Thien, who has died aged 73, spent nearly 30 years in prisons and
“re-education” camps in Vietnam because he had the temerity to insist on
historical truth and to write poems which attacked communist repression.

Richard Owen writes:

I have often thought that if in the unlikely circumstance someone forced me to invent one test to spell high future potential trading macro, it would be poetry comprehension.



 Since I married an Albanian, I have become an olive fanatic, and I have to say the upcoming Californian olive industry is going to be a real challenge to Greece. Californian olives are fantastic, and presumably harvested much more efficiently than the Greek ones.

Bruno Ombreux writes: 

I've read Spain produces about four times as much olive oil as Greece, so if there is a threat to anyone its to Spain. Italy produces over 50% than Greece too. Greece is only third ranked producer (about 15% of World production) in what is a niche commodity market. Also, almost half of Greek production is consumed locally.

I do not think California is ever going to be a threat to Spain or Italy. Consumption is growing. The world is short olive oil. California can fill part of the growing needs.

If competitors should arise, it would be more the Southern Mediterranean countries if they ever get their acts together and increase quality and quantity.

At the top end side of the business, a niche within a niche, nothing is ever going to compete in terms of prestige and quality with oils like Nunez de Prado's Flor or some Italian oils or even some obscure French ones (which are a niche within a niche within a niche).

Olive Oil, an Eyewitness Guide is a great book about olive oil. Most of the other books on olive oil are more about showing beautiful pictures of Mediterranean landscapes. This one talks about cultivars and brands.



My transparent, stretchable Fibonacci overlay seems to be successfully identifying price levels around which the main indexes cluster. This in itself does not predict the future, it identifies where the holes are on the bagatelle table, but not which one the ball will settle in. Moreover it may reflect a self-fulfilling prophecy rather than a rule. Nonetheless, the information can be useful in constructing multiple-leg options positions.

But my overlay is not predicting timing. All the pundits mention Fibonacci but this does not seem to be the case, has anyone tried other methods? Interested in any pointers.

Looking forward to stepping back in the water, but want to maximise the acuity of my toolset first.

I found this nice online chart for streaming SP500, also gives longer term charts.

Jim Sogi writes:

Not sure what you're doing, but I've been pondering time and time frames and relationships of time. Some systems using returns have time exits and a study of time seems like its important. Not sure exactly how, but the idea is to maximize return based on time while minimizing loss. The relationships change by cycle. It seems time itself and speed and roc volatility all have cycles in time. Perhaps survivorship times give some info.

Bill Rafter writes:

The question is whether one wants to value time or eschew it. Both can be done, so it's up to the practitioner.

Valuing time is easy, as most economics is time series processing. And most all market data comes dated. Shunning time is trickier; do you want to avoid just some time, or all of it?

Point & Figure analysis is what most subscribe to if they want to eliminate some time, and they do that by defining "box sizes" or the minimum move they consider significant. The theory is to define the noise level and throw that noise away. Sounds great, such that someone would be willing to be a tad late on a move if the signal had a higher degree of accuracy. Our extensive research says that P&F is certainly a tad late, but there is a decrease in accuracy. Here's another caution: most of the literature on P&F is written by those lacking native intellectual capacity (IMO) who have no concept of research. To them P&F is a religion akin to animism.

A more successful approach than P&F is not to create box sizes, but to drop all "inside days". I say more successful in that you eliminate insignificant data, and do not lose accuracy. However we have not been able to increase accuracy over normal data analysis. But we are still working with it, and may find something. You still get a time grid, but with lots of the days missing.

The most effective way to eliminate all time is to use Lissajoux patterns. That link will give you an animated example of such with two sine waves. There are lots to be said about this, but I don't think many have the appetite for it



 My girl has escaped to the Galapagos for a pinch hitters holiday. Last minute, she substitutes for a broken off boyfriend on a mother-daughter romantic cruise. I am left to fend alone back home. This provides the opportunity for a swift beer with a friend to turn into an impromptu night out, clubbing in Shoreditch.

One needs a spright female on hand to perfect the nightclub experience. I love to dance, but my beau is far away and tonight I boogie alone. I content myself with being a wannabe insipid Susan Sontag for the evening and see what market lessons can be pried from a meta state of mind.

Shoreditch is now Chelsea mark II. We pile into one of the McNightclubs that have sprung up, impoverished attempts to replicate the Shoreditch of old. But only the immigrant toilet attendant has stayed the same, swallowing his multi-lingual, degree educated pride to beg pound coins from drunks passing through his urinaled office. The rest is all change.

In five years, all the themes of Global Capitalism have sprung through. Asians and Russians. New money. The true roughneck suburbanites have been pushed out to cheaper Dalston, preparing the cultural groundwork for its inevitable rich-bitch colonisation in ten years time. London spreads its tentacles outwards, a multicultural Tokyo in the making.

Everything must bubble up through the ecosystem. Out in Dalston, they're preparing the cool of tomorrow. That's where the real coke and E, life limiting Epicureans can be found. Venture a little further, be the artists and repertoire man for the market, and you might learn something. When Robert Johnson sized up his Asian shorts, he knew the outcome. That the cracking of the currency band would also break the backs of subsistence Thais. He knew the multi-order effects that would ripple through and was prepared. But most have such a vanity of their profession that they don't want to think through the other side of the trade.

The margins must inform the centre always. Innovation is never from the middle out. Here in Shoreditch, they deceive themselves that they have urban cool to themselves. But the beats of Dalston today cannot be offered up to Shoreditch's dance floors. Social permission must be given first. Schwarzman has whip hand. David Swensen tells you to pile into PE. You do so gladly.

 Doorman paid off and inside, I pull off my jumper and roll up my sleeves. I suddenly remember I dressed scruff for a quick beer. Hauling furniture for my father in law has stunk up my shirt. But here's a market lesson: sometimes you can blend into the beta and cover over your current flaws. In the funk of a club, nobody can spot my sub-hygiene; right now I don't need to do better than the crowd. And soon, my own deposit to the toilet attendant wins a spray of Calvin Klein from his collection.

For the youngsters seeking romance, the club is a floor market of old. Position and size is offered in full view of all players. Bargains are transacted; matched orders are paired and moved off to the side. Like the great traders, the great seducers know core principals, but the art can't be reduced to a set of rules.

Look to the DJ. He is a super skilled hauteur, playing all the Mixmag approved material for pop connoisseurs. But he is deeply mistaken. Watch the floor. He has forgotten this is pretend, bought hedonism for urban wealthy. Experian's Mosaic calls them Alpha-As. This crowd wants the cheap, easy beats. The Ibiza classics. They don't know how to dance to this complex, nuanced stuff.

Similarly, to shoot the lights for your clients, you need to pick the right ones. Play in the connoisseur nightclubs only. The right families know to endow the smart boy with his bar mitzvah gift and give him room. But if you're sourcing from the broad crowd, offer 200 over the index only. Play the same tune as everyone else, just execute a handful better.

Switch to later - back home and unwinding briefly in front of the TV as the ringing clears my ears. Bruno Mars shows how the DJ should have worked it. Bruno mixes doo wop and reggae traditions with a sweet voice. He's an ultra-straightforward mix of old time Motown, Jackson, with a hint of Blues Brothers. Nothing he is doing is rocket science; Bruno is just great at it. When suddenly his big band start to dance behind him in syncopation, the crowd goes wild. The moves are so simple, and that's why we instinctively love it. Our need to empathise with the protagonist overwhelms everything else. We could do that! Bruno's reward is scale: best-selling global artist of 2011. Get out of your own way.

The market is alike: it wants to trend to a simple tune and dispose of nuance. Into the election we get a consistent menu from the central bankers, Merkel and Obama. It vibes simply and pleasantly and the market moves accordingly.

 On the club dance floor the same can be seen. As soon as the DJ offers the basic beats, the crowd immediately ratchets up and energy spreads across the room. A range breakout has occurred. What's our leading indicator? Certain attendees got to see the DJ's playlist before hand and know when we are set to change tone. The cool-kids roughing with the bouncers and the bar girls. Watch for when they rush to the floor. Don't want to live that lifestyle ourself: hedonism takes its toll. But we can watch for their moves.

Same for the break-ins. When the DJ falls back to his instinctive complexity, uncertainty starts to spread and the floor slowly clears. But not quickly. By being alert, we can get out in front and hit the bar first.

I shift naturally to rhythm whatever it is. Girls look quizzically as to how, and compliment me on my moves as the rest of the floor jars. Similarly, the good trader sticks to his system, but adapts to the nuance of the current tune. I would readily exchange all rhythmic skill for even an ounce of the same in the market.

A Chelsea girl grabs my ass as she shuffles past on the dance floor. When you want to raise capital you can't and when you've got your fill, everyone's interested to add more. I ignore it and self-indoctrinate, thinking to my girl in the Galapagos. Don't be tempted into the cheap, impulsive trades. Don't go on tilt. Remind yourself of your principals and stick to your proven system. Work your long term plan and you'll profit more.

The light must be catching me favourably or my perennial uniform of old chinos and worn out dress shirt must have accidentally intersected with the current whim of Shoreditch fashion. But any false flag cool on the dance floor belies my cardigan wearing, shoe staring tendencies. Do your diligence in the light of the day, not the setting the vendors or advisors have picked. Don't bid the banker's book for an asset. It's the pork not the rouge that matters on the lipstick wearing pig.

 A drunk in our party rabbits into my ear. I can't make head nor tale of what they're saying, but I'm sure it makes perfect sense to them. They are intoxicated by the market of the moment and convinced of its internal logic. Tomorrow, a hangover.

Back home. After only a few hours sleep, I pay the penalty, rising too early to return a borrowed car on-time to a friend. I peer brain-dead over the steering wheel onto the icy road and hope for the best. Selling out hard-touch front month options on myself, I get to my destination safe and in favour. We all do it, let's hope the vol isn't mispriced.

Victor Niederhoffer writes: 

Mr. Owen's fine soliloquy is wonderfully poignant and is as good as the soliloquy from Carousel and should be made into a ballet or set piece of a musical.



 The City of London merchants had been complaining for years that the colonies wanted to have their cake and eat it, too, when it came to money and credit. They wanted the City and the Crown's colonial governors to expand the ability of the colonial merchants and landowners to issue their own bills, to allow the colonies' own courts to decide all commercial disputes and to allow Gresham's law to always work in their favor - i.e. to get prices in sterling but pay debts in script.

By 1751 New England's practices had become so egregious that the Crown abolished their rights to issue paper that the law would recognize as legal tender. But throughout the 1750s the political majority in Virginia under John Robinson, who served as both Treasurer and Speaker of the House had been practicing modern finance at its very best. Virginia had been issuing notes to pay its bills that were secured by that year's anticipated tax receipts. The notes themselves could be tendered in payment of taxes. The notes themselves were supposed to be cancelled when collected; but Speaker Robinson was alleged to have reissued the notes to his friends and cronies.

The "radicals" (sic) in the Virginia House led by Richard Henry Lee demanded that the accounts be audited. Robinson refused, the appointed his own auditors who declared that everything was fine, just fine. Since these notes were also legal tender as far as payment of private debts were concerned, the members of the Board of Trade and other English creditors became incensed. They demanded that all Virginia's legal tender currency be abolished. The Act of 1764 was the compromise; it did not touch Robinson's outstanding notes, but it did stop the printing presses.

Any suggestion that these events have a current parallel is as dumb as the notion that a private association with monopoly authority over the country's legal tender should be subject to regular and full disclosure of its accounts.



 I found this article about the nocebo effect quite interesting on a number of fronts. It made me think about religion and applications to trading, as well as what sort of trader you are and what you may be affected by. There may be a scientific basis as to why you should turn off the tv and not read any one's views of what you're looking to invest in:

"Most experienced the placebo effect and their pain decreased. But to
the doctors astonishment, 15 per cent got worse… They suffered the
nocebo effect."

"I think if you are told something from someone who has the authority, whether it's a witch doctor or physician and you take that in, then I think your entire physiology starts to play around with that belief."

I think about people's susceptibility to salesmen and how salesmen often risk being prosecuted for losing investments simply due to an individual's biological make up.



 I have a question for Jeff Watson and Jim Sogi, our two surfing experts. Do you think Kelly Slater been able to dominate surfing for the last decade plus partly due to the conditions in surfing being so variable…so nobody gets "set" ? Not to diminish his obvious ability to take new younger opponents and their fresh techniques apart piece by piece…

I am reminded of this article I recently read from the world of cricket… Michael Vaughan (England) was commenting on when Sachin (India) (arguably, or maybe not, the second best ever batsmen in the world) should retire:

"Sachin could still eke out a few runs for another 12 months but he is not batting at the levels he used to. Look at the way he was out in the second innings in Kolkata. It was a good ball from Graeme Swann but he was just prodding at it.

He got 76 in the first innings but the man at the crease was not the Sachin Tendulkar I know. He was not playing the free-flowing way we have loved down the years. He is having to think and really work out where he can score every single run but in the past it came naturally."

… once you have a solid start, the middle order feels more comfortable and is coming in with the game already set up."

Jeff Watson replies: 

Slater is smart, is a complete waterman, and a great competitor who knows how to win. Pro surfing contests are a game, and Slater plays it better than anyone. That being said, he is an animal, a freak of nature, a surfer like one has ever seen before (and we might never see one like him again). Slater is arguably the best surfer in any and all conditions, from the slop in New Jersey to big gnarly Teahupoo in Tahiti. Slater has that uncanny ability to predict what the wave is going to do just like the best chess grandmasters are able to look 10 moves into the future.

I don't know of any other athlete in any other sport that has dominated like Kelly and been the best in the world with a 22 year run. It simply has never happened before, so there's no data to compare it too. Furthermore, whenever the naysayers say Slater has lost his mojo, he wins another title…..and the naysayers have been saying this since 1996-1998……One could argue they thought he lost it in 1991 when he was on the TV series Baywatch, and was dating Pamela Anderson . And I think that was around 10 titles ago. 

Jim Sogi adds:

Kelly was the youngest world champ and is now the oldest. He is in phenomenal shape and has muscles on his muscles in his calves. He trains constantly and scientifically down to what he eats. He has a fierce and competitive attitude. The mental part is probably the biggest factor. Many younger guys have athletic ability or gifts, but the road around the world to the competitions is tough. Kelly cherry picks the contests to which he is seeded, so doesn't have to work his way up or qualify, saving him valuable mental and physical energy. He can travel with style. He loves what he does, and this is the most important thing.

Craig Mee says:

Thanks for your thoughts gentlemen. And now a few words from Slater himself while at this years concluding event where a few points separated Slater and another world championship):

"Slater played guitar and sang at a concert at the Turtle Bay Resort while the event went on hold this week. Golf has been high on the agenda. The stress does not appear to be killing him.

'We've had enough time to think about it,' he said.

'We're trying to put it out of our heads as much as possible because when you're out in the water, if you're thinking about a world title, it's taking away from what you need your mind to be on.

It's Pipe. You have to be on your toes. Which way are the waves going? Do you have to paddle deep? How's the lineup look? How far in on the reef are you? How big is this set going to be? Where's the guy you're surfing against?

'You have to be clear-minded enough to make good decisions every time there's a peak coming at you.

'There's enough to think about in the present moment without worrying too much about the bigger picture.'



 Jeff's coin proposition bet illustrates a nice lesson for me when applied to trading. That is, even if probability is favorable, there can and will be streaks against. So, there needs sufficient N and staying power for probability to work in trading. So all the seasonal or studies that trade once or twice a year probably don't have a statistical edge.

The inverse lesson is that sometimes it is good not to trade when the probability is not in favorable, as in never take a proposition bet against a Florida surfer with a low handicap, (humor intended).

Jim Sogi writes: 

I read that in a sample of 10^10 binomial chances, there can be a run of a 1 million 1's.

The idea that in an infinite random time series every possibility will occur, such as the history of the earth, kind of worries me. There seem to be laws of nature, but are they? Will they change? Do they?

Ralph Vince writes:


Yes, and it is man's innate ability to asses such probabilities (and hence, the fallacy of Huygens and Pascal — that risks should be assessed based on mathematical expectation) that is the most fascinating thing about the entire story of evolution (again, to me).

Why do you get on an airplane when it can crash? Why do you get in your car and go out to buy a quart of milk? We have evolved over eons to pursue often time-critical rewards on a risk-laden planet — it IS how we operate or we would be still cowering agoraphobically in the shadows of a primeval world. This notion fascinated me (and the reason I wrote a book on it in 2011), and the more I dove into it, the more I saw that the answer to it — i.e . the fundamental equations we posses innately for assessing risk, pertains to all other mathematical decision (game theory is rife with concepts that are tuned to the Huygens/Pascal model, not our innate model) and ought to be reassessed under the lens of our superior, realistic model (and yes, it is superior, or we would all be looking for termites to eat up in a tree some place.

Leo Jia writes: 


Your notion about man's innate ability to assess probabilities is fascinating to me. I hope to read your new book soon (I presume it is Risk-Opportunity Analysis.)

It is clearly phenomenal that the human species was able to advance over other species. It is not as clear though whether it was man's special innate ability that made man evolve or it was the evolution process that gave man the innate abilities. Regardless of whatever came first, I think many of man's innate abilities that exist today were largely fostered by the evolution process. While this was wonderful, it is perhaps also very discomforting to learn that many of our innate abilities were more meant for the environment of the wild, not really for the modern times as the modern couple hundred years is far too short in evolution terms. It begs the question of what of the very innate abilities are really useful and what are not. Whether we realize what abilities we have or not perhaps is not a big issue as we naturally use them in life. It does become more important for us to know what of our innate abilities are actually harmful to ourselves today.

Leo Jia adds: 

I did a test. It went like this:

1) toss a coin 10 times,
2) if there is 5 heads then add 1 to a record do the above 2 steps 1 million times.

The chance that in ten tosses one gets exactly 5 heads and 5 tails is 24.5539%. 

To be more comprehensive with the test results:

4 heads and 6 tails: 20.4194%

6 heads and 4 tails: 20.5125%

3 heads and 7 tails: 11.7019%

7 heads and 3 tails: 11.7010%

2 heads and 8 tails: 4.4018%

8 heads and 2 tails: 4.4145%

1 heads and 9 tails: 0.9783%

9 heads and 1 tails: 0.9830%

0 heads and 10 tails: 0.1004%

10 heads and 0 tails: 0.0968%

Easan Katir writes:

Thank you, gentlemen. This is good info to ponder and apply to trading. For my part, I found a shiny Lincoln-cent and spun it 10 times. Result: 7 heads.

Jeff Watson writes: 

But there is also another trick of spinning a coin very fast, get down to coin level on the table and observe carefully, and if you get a blurring image of tails, call tails…same thing if you see heads, call heads. Since the coin spins at a slight angle, the side that you can see the image will be what lands.

Ralph Vince adds: 


As far as coin tosses and trading — and this may be redundant information to many of you — to me, personally (in my sciatica and failing vision nowadays) I find the largest implication pertains to the nature of the equity curve and expectations, and the deceiving nature of randomness.

We know if we plot out the equity curve of consecutive coin tosses (with heads +1, and tails, -1, say) and we plot this out, we can then draw bands around the mean expected value (0 in this case) of standard deviations. Thus, we can draw a one standard deviation band above and below.

Such a band will be parabolic, like a parabola resting on its side, rightward-facing, opeining up as time or trades or plays go by. That is, the upper band will always be ever increasing albeit at an ever decreasing rate. Thus. to be ahead of the expectation by play number X to the tune of 1 standard deviation, is below being ahead of the expectation by play X+1 or X + N where N is any positive number.

Couple this now with the Second Arc Sine Law*, which pertains to such randomly-generated equity streams and tells us (the essence of The Second Arc Sine Law) that we would expect both the peak and nadir of equity stream to occur least likely towards the center (time-wise) and most likely near the start or finish of such a stream.

These two principles, take together, warn us that in a stream of randomly-generated outcomes (coin tosses, or trading if/when the outcomes occur with randomness) we should expect the rightmost endpoint to be at or near the very top (or bottom) of the entire equity run, deluding us into conclusions, "This works!" or "This fails," that have no basis in a causal existence, but are merely the artefacts of randomness.

*The First Arc Sine Law buttresses this further, this law being that we should expect the ratio of the cumulative equity line (comprised of X number of plays) least likely to be above the expectation X/2 number of times, and most likely to be above or below X or ) number of times — the same Arc Sine distribution as the Second Law. Thus, say, if I toss a coin ten times, it has an expectation of 0 (given the caveats mentioned in this thread!) and I would expect with highest probability that ten of those tosses see the cumulative equity line above (or below) the expectation line of 0 and with the least probability, see 50% of them above and below the expectation (0) line.



 When capitalism spread along the trade routes toward the Indies…when radio opened an era of mass communication…when the Internet became part of the global economy…pirates were there. And although most people see pirates as solitary anarchists out to destroy capitalism, it turns out the opposite is true. They are the ones who forge the path.

In The Pirate Organization, Rodolphe Durand and Jean-Philippe Vergne argue that piracy drives capitalism's evolution and foreshadows the direction of the economy. First published in French to great critical acclaim and commercial success as "L'Organisation Pirate: Essai sur l'évolution du capitalisme," this book shows that piracy is not random. It's predictable, it cannot be separated from capitalism, and it likely will be the source of capitalism's continuing evolution.

A paper on the subject.

A softer, gentler anarchy is popular with a Connecticut semi-agrarian: "Professor Who Learns From Peasants".



 There is something idempotent with the Knicks performance against Chicago and the 75 page paper by Hou, Xue, and Zhang.

They both start out so hopefully, and end up to me with a wimper. They suffer from look back effects, regression biases, part whole biases, multicomparison problems, and most of all basing a prediction on past results which contain many random factors.

The regression biases are overwhelming. How do the Knicks expect to win relying on a man like Smith whose shooting percentage is south of 30%? Why he did well the previous game, when the three percentage was almost 50%. Don't they realize that when they score that kind of % in a previous game, luck was involved to a large effect, and it is random, or negative serially correlated because the other team tries harder to defend against the threes and the Gallinari types like Smith are over confident.

Similarly in the Zhang studies, don't they realize that of course their results will appear significant if they base it upon already published results showing effects for the periods included in their study. Don't they realize that within a month, all the results of companies with different balance sheet characteristics are highly correlated and clustered, and that by the time they sort by dozens of variables with split after split they are left with few independent observations—certainly not enough to make meaningful significance. The companies in their various sorts don't change much from month to month, so they are measuring the performance of a small number of companies similar in style for say six months in the future…the tests, are certainly not enough to make any sort of meaningful predictions.

There is something to be said for their independent finding of change in assets divided by assets as a measure of past success and similarly for returns on equity. As far as I can see, however, they use a retrospective compustat file rather than the as is file and that makes all their results meaningless as companies with seemingly high returns on equity like Rimm often go from the black to the red and they appear to eliminate such companies from their comparison. Debt is not considered and with a retrospective file like Compustat, the value stocks will look great until they are delisted and not covered because of problems.

The study should have been performed with a given universe of large stocks with prospective data and data covering only the future years for their anomalies that were not already shown to have significant effects in past studies. Watching the Knicks hapless performance so typical of the Antoni led team of the past and reviewing this heroic but flawed study by Hou, Xue, and Zhang leaves relatively contemporaneousy leaves one with a certain sense of displeasure if not revulsion.

Alston Mabry writes:

Are papers like these read and digested and used by finance professionals? Who are these guys? This quote makes me think they are taking their own work quite seriously:

"Our work has important implications for academic research in finance and accounting. The qfactor model can be used as a new workhorse model of expected returns. Any new anomaly variable should be benchmarked against the q-factor model to see if the variable provides any incremental information above and beyond investment and ROE. More important, the vast anomalies literature in empirical finance and capital markets research in accounting should be reevaluated with the new expected-return benchmark provided by the q-factor model. Much work remains to be done."



I read an interesting paper [Hou, Xue, Zhang: Digesting Anomalies] with a new model of cross sectional returns with factors based on return on equity and change in assets divided by previous assets. Apparently it uses retrospective compustat files and with all the data splits would not seem to be any better than the 20 year outdated fama french model it is supposed to replace. But I have not fleshed out all the lacunae and possible ideas of merit yet.



 This is an interesting study and model of how subsurface processes (involving groundwater flow and erosion) influence topography and eventual river branching.

"River Network Mathematics":

Understanding how river networks originate and evolve is key to understanding how landscapes have evolved in the past, and how they will evolve in the future," says Attal, who did not participate in the research. "What is fascinating about these two papers is that they provide a physical explanation for the geometry of river networks using some very simple concepts. Studies such as these will help better parameterize models and help make more accurate predictions of what may happen in the future.

"Ramifications of Stream Networks":

The geometric complexity of stream networks has been a source of fascination for centuries. However, a comprehensive understanding of ramification—the mechanism of branching by which such networks grow—remains elusive. Here we show that streams incised by groundwater seepage branch at a characteristic angle of 2π/5 = 72°. Our theory represents streams as a collection of paths growing and bifurcating in a diffusing field. Our observations of nearly 5,000 bifurcated streams growing in a 100 km2 groundwater field on the Florida Panhandle yield a mean bifurcation angle of 71.9° ± 0.8°. This good accord between theory and observation suggests that the network geometry is determined by the external flow field but not, as classical theories imply, by the flow within the streams themselves.



Modernist Cuisine is a scientific book about cooking using science rather than tradition to develop the best quantitative parameters and methods for cooking. A teaser for the book describes cooking poached eggs at 144 degrees rather than the usual boiling water. It takes 25 minutes but the eggs are perfectly consistent with a smooth soft texture throughout the white and yolk.

It turns out that egg coagulates at just over 140 degrees. The violent boiling water disturbs or breaks the whites before they are cooked; when water doesn't boil, the whites don't break, and it is enough to cook the egg.

There are a number of other foods that also can be cooked at lower temperatures such as steak which needs 138 for a consistently perfectly cooked medium rare steak evenly through the entire cut. The steak is cooked in temperature controlled 138 water inside a sealed bag to the correct temperature. Then just brown the exterior to seal it on the bbq or pan and to add flavor. Special equipment helps such as the Sou Vide cooker.

Dylan Distasio writes: 

I have been lusting after a copy of Modernist Cuisine since it was released, but have been unable to convince the wife to let me blow $450-500 of hard earned cash on it as an amateur cook, It's truly a labor of love. Nathan Myhrvol, one of the co-authors, was the CTO of Microsoft before moving on to pursue his love of food science. You may be interested to know that Modernist Cuisine at Home was released earlier this fall. It is one oversized volume as opposed to four separate ones and is geared to recipes and techniques that are a bit more feasible for a home cook.

It is also significantly less expensive and probably does not sacrifice too much for the home cook at a current price of $105 on Amazon. I have a copy sitting here waiting for me under the Christmas tree that my wife was kind enough to give me, but that I had to promise not to open ahead of time. If you're interested, I'll post my impressions to the list after I open it and have a chance to peruse it and cook from it.

Jim Sogi gives us an update:

Modernist Cuisine at Home by Nathan Myhrvold just arrived. Reading his CV is astounding. He has multiple degrees, Phds and has worked with Stephen Hawking. He made millions at Microsoft early on and after an early retirement, he devoted his genius to cooking. This book is to cooking what Ed Spec is to investing, using the scientific method to cook.

He used sealed pouches to seal in foods while cooking. He uses pressure cookers to bring out smooth caramelly flavors in vegetables which require higher temperatures than boiling water allows. The expensive part is buying the additional equipment such as the sealer, the sous vide bath, the induction stove. One could get by with a digital thermometer on a budget. If I ever get to another Spec Party I promise to demonstrate the techniques.



 Our band's new lead guitar player is one of the best in town and knows music theory. He recently gave me a quick lesson on the Circle of Fifths. A chord is basically two notes, often three. Chords in a song have progression. Typical overtones are 3, 5, 7, 11, 13. Interesting to note the prime numbers. The 5 easily resolves to the 1. The 7th and higher overtones create tension and the resolution to the one is a release or catharsis. Minors and diminished chords have a unique emotional resonance. Interestingly, the same notes can be different chords depending on the the tonic. There are some similarities to Japanese Candlestick chart theory with record highs of 11 wanting to resolve. I imagine there is some tendency of stock charts to follow an emotional path similar to music and the theory would be similar also. Chair wrote about music and markets in Edspec.

Jeff Rollert writes: 

Jim's next lesson involves power chords and the blues… ; )

Easan Katir writes: 

Much more original thinking in Educ of a Spec, however as one who learned music theory before trading theory, it is useful to see how the 11th resolving to the octave is similar to the attraction of round numbers noted by the Chair.

Also the octave is similar to investors selling when they have doubled their money.

The recent trajectory of FB is not totally unlike the dominant phrase in Thus Spake Zarathustra , which could be the PR theme of its übermensch founder.

Jeff, blues might be similar to options traders, with the endless repetition of the same chord relationships selling vol the way the bluesman makes lamenting his lost loves into an art form and ekes out a living.



 "Senior Cherishes Australian Open Win":

The 53-year-old Peter Senior overcame galeforce winds and a three-hour delay at the windswept Lakes course to become golf's oldest Australian Open champion.

'God, golf is such a funny game. One minute you think you're down, the next minute you're up.

'I didn't play particularly well this week, but I got it up and down out of some places all week and today was no exception.'

Sounds like something else I know…. the old boy holding his nerve (and assessing the situation and his options at each exact time to the best of his abilities, I'm sure), when he needed it most… and took all his tools out of the box… 



 Robert Buxton, the last of the Vavasseurs, which was a huge dried coconut company, died this week.

Coconut, as an ingredient in the production of confectionery items was first utilized in the United Kingdom in the late 1870's. At that time, whole nuts were being shipped into that country from its colony in Ceylon (now Sri Lanka), where coconuts grew in great abundance. However, because of difficulties in the handling and distribution of the raw material, coupled with long shipping times, product spoilage became a major problem. In 1888, a firm headed by a British entrepreneur, Henry Vavasseur, conducted experiments on a tea leaf dryer, successfully developing a process for preserving the material through drying (or desiccating) of the coconut meat. Vavasseur subsequently introduced the very first desiccated coconut brand in England called the Black V and commenced commercial production in Ceylon. The brand became an instant success and the company quickly expanded distribution throughout the rest of Europe. Before the end of the century, the brand was introduced into the United States. In 1909, the USA imposed a heavy tariff on imports of the product into the country. It, however, exempted the Philippines, which was a part of its territories in Asia at that time, seeking to help in the development of its coconut industry. Taking advantage of the duty exemption, the Vavasseurs established production facilities in the Philippines in 1923.

The Vavasseur brands (Red and Black V) are still sold; but the original company is long gone.



The DMS group has a quote that I can't find but goes something like this: "There are substantial drawdowns to be visited upon those who follow the momentum strategy. In 2009, by buying the winners of 2008, and selling the losers, one would lose 75%, in a year when the market went up 20%. Such a 95% differential would be hard to accept. A similar drawdown occurred in 2004."

One would think that such divergences would be enough to curb the enthusiasm. But no, the band plays on, and numerous studies refer to the momentum anomaly as the most glaring and recurring way of achieving alpha that academics and practitioners have found. One imagines the wrath with which such purveyors will receive this rebuke from a poor speculator like myself.



A key question that amateurs and professionals must always ask is "do the winners perform better than the losers?". The question is of interest to all who like growth or contrary strategies, who like to back the good or the bad, and who have to choose which stocks to buy or sell from a portfolio. It's also of great interest to my colleagues and me as we are trying to relearn from scratch the sources of performance in individual stocks. The academics have performed numerous studies on this. Most of the famous names have looked at it one way or the other. One of the classic studies is by Griffin, Ji, and Martin 2003, Journal of Finance [33 page pdf]. They conclude that the best performers outperform the worst performers for subsequent periods up to a year in every world market. Before this there was Jegadeesh and Titman 1993 [28 page pdf], and a myriad of other studies.

One has been very wary however, of accepting academic findings throughout one's career, especially in an area like this. The problems are legion. Many of the worst performing stocks are very small. Let's say 100,000 in market value. The price could be $ 0.25. The returns in any period are highly variable. Indeed, the bid asked spread in the old days frequently averaged 50% and commissions and rebalancing could easily add another 50%. Another problem is that most academics don't take the trouble to properly take into account survivor bias in all its terrible manifestations. The most apparent one is that the worst performers that continued to perform badly go bankrupt and are not covered in the files. Furthermore the best performers in any continuous period often while great today were unknown yesterday and wouldn't have hit the files on a contemporaneous basis.

While academics sometimes address the problems of survivorship, bid asked spreads, impossibility of implementation, transactions costs, comovements between securities of different styles in a year so that what looks like 1000 independent observations is really one, selected starting and ending points (it's always easy to find a good time to start and end ), non-contemporaneousnous data (Shiller is the poster boy for this), retrospective multi comparison reporting of good results only kinds of problems, they never consider the problem of ever changing cycles.

Thus, it was great eagerness and pleasure that I learned that Dimson, Marsh and Staunton had made a thorough study of momentum. Their work is always of the highest standards. They get original data from the actual contemporaneous newspapers of the time. They examine many years of data, always bringing the results up to date. They present their work in a form suitable for both the academic and the layman to understand. And they always consider the profitability and commercial viability of their work. Between them, they are fully conversant with all literature in the field, they relate their work to every important academic model that has come down the pike. Furthermore, they can always be counted on to add a few embellishments of their own that raise important questions for further research. Their studies of momentum cover many universes of individual stocks from 1897 to 2010 for several English Markets, with updates for the last 55 years for all world markets. What more could you ask.  And yet … (to be continued)…

The naïve speculator starting from scratch has studied the issue for a universe of stocks that is actually big enough to matter and implement. The stocks are the OEX 100.. all the big companies are in there and there is turnover of less than 5% a year. Here are results. Let's consider the performance of companies in 2008 that were the best and worst performers in 2007. Consider the worst 20 performers in 2007 versus the best performers in 2007 and look at their performance in 2008.

   performance in next year

             of best performing 20              of worst performing 20
    2007         -32                                -25
    2008         +10                                +55
    2009          19                                 10
    2010          07                                 09
    2011          25                                 11

The standard deviations are so high to make all these differences totally random except for 2008. 

Momentum Continued:

The Dimson, Marsh, Staunton trio has outdone even their usual superb work in the extensiveness and depth of their momentum study. They study yearly momentum returns from 3 English markets, including all stocks, and the top 100 from 1900. They report international returns from 18 countries from 1950, to 2000, and then update these returns to 2007. They consider all leads and lags and skips in defining momentum, and then regress these returns on the standard though flawed measures of superior performance from the Fama French studies of 20 years ago. Their conclusion is that "momentum has been consistently profitable over the last 108 years, and is not subsumed by other factors. The momentum premium has been substantial across equities as a whole, but also within size and value based partitions".

Some highlights from the 9 figures and 8 tables that appear in their study.

1. A value weighted cumulative return for the winners from 1956 to 2007 us 5200% versus 30% for the losers. The winners beat the losers in38 years and lost in 13 years. An annual value weighted momentum portfolio of the winners from 1900 to 2007 returned 4.25 million % versus 111% for the losers. Of 17 international markets, in all but the US, the winners beat the losers from 1955 -2000 and 2000 to 2007. The average monthly superiority in return was approximately in both the earlier and later periods. DMS define a momentum strategy in terms of the base period for ranking the best and worst, the skip period for waiting to implement the trade, and the forward period. The returns are relatively invariant for all of the 3 parameters, and all breakdowns of where to define the cutoffs for the best and worst, e.g the top 10%, 20% or 30%. We will pass over the regression results showing the dependence of the return on value factors as there seems to be a statistical lapse in the measures of variance accounted for in their results, and the significance is vastly overstated. 

The main problem with the study is a combination of ever changing cycles and enormous losses that the strategy takes after a bad year for the S&P. In 2008, they report a loss of 75% for the best - worst strategy. Similar catastrophic results occurred in year, 2000, 2003, and 1973. Indeed the 2007 result was so horrid that the winners losers strategy did not work in the 2000-2010 period for us stocks. the results could be improved dramatically by taking account of the dependence of the winner -loser results on the market return during the preceding period. There is also an enormous negative serial correlation between the winner - loser returns. 

The second main problem with the study is that when results are widely disseminated they tend to be dissipated. This is the first part of the problem of ever changing cycles which Bacon and I have found so prevalent in all speculative activities. The public shoots down the odds on good systems, so that they aren't as attractive any more. And then regardless of the attractiveness, they perform worse than they should because the bigs can't makes as much by investing in them. It is no wonder that the momentum strategy has not worked in the last 10 years in the US markets. We would predict it would have similar lapses in the other big markets, just until they become big enough to lure big investments from funds and other slow moving participants searching for opportunities of superior performance by following slow moving, easily implemented systems. This is by no means a criticism of the fine work of the DMS trio. They are to be complimented on implementing one of the most thorough tests of an anomaly in the literature.

Momentum in Conclusion: 

In recent days, I have read a number of mopping up studies of momentum including Barroso,  Asness, (he of the no Fed model),  and Choi, and I have received a final note from the DMS trio. All of these papers are highly flawed in that they enter and close and faulty door. They try to improve on momentum, when it doesn't work in the first place. They try to improve it with better definitions of momentum, and multiple comparisons of momentum with the worthless FAMA french model. It is sad to see such wasted effort, dead weight effort. Splits of a series into seemingly alluring returns when the basic regularity is random. How many of us have wasted our time, knocking on a closed door in markets and life?



As one enters a trade, one is making a bet– he is not sure if it is a good trade. My question is then after the entry, what would make him more sure that it is a good trade so that he would add to his positions? Is it the condition that the position is in profit, or that it is in a loss, or regardless? If regardless, then what else?

The conventional wisdom seems to say that one should never add to a losing position citing martingale reasoning on random bets. While I understand the logic, I don't know how to accept the reasoning in trading. Perhaps my question is whether trade results are really random or not. The evidence that with the right strategies many are making consistent money trading clearly says no to that. My own test also can not prove that adding to a losing position would clearly lead to failures.

So how should one really determine how to add to his positions? Would someone kindly advise on this matter?



This is possibly a useful indicator of where development is occurring. The North Slope of Alaska, Pretoria-area South Africa, Nigeria and Gabon/Congo, Lanzhou-area China, and Puerto Rico really pop to name a few. Also there's an interesting line from around Caracas to Medellin Cali Bogota Colombia and then along west side of Andes to Quito and Cuenca, Ecuador.

"Earth at Night":

Scientists unveiled today an unprecedented new look at our planet at night. A global composite image, constructed using cloud-free night images from a new NASA and National Oceanic and Atmospheric Administration (NOAA) satellite, shows the glow of natural and human-built phenomena across the planet in greater detail than ever before.



 A beautiful book "The Earth as Art" is available for free download:

"This book celebrates Earth's aesthetic beauty in the patterns, shapes, colors, and textures of the land, oceans, ice, and atmosphere. The book features 75 stunning images of Earth from the Terra, Landsat 5, Landsat 7, EO-1, and Aqua satellites. Sensors on these satellites can measure light outside of the visible range, so the images show more than what is visible to the naked eye. The images are intended for viewing enjoyment rather than scientific interpretation. The beauty of Earth is clear, and the artistry ranges from the surreal to the sublime. "



A Model, from anonymous

December 5, 2012 | 3 Comments

The best model I have for how the future will unfold is that of a "weakly" occupied country:

-The remaining enemy must be marginalized and denied growth opportunities

-Order maintained with a heavy hand (although without violence, as much as possible), those who are not with us are against us

-The "hero myths" of the Ancien Regime wiped out and/or turned upside down

-A new base of support and new institutions established

-Leadership enjoying the spoils of war without undue sensitivities

Kim Zussman writes:

This game is a perfect example of intelligent use of the source of power in democracy (majority rules):

Obama will only accept higher taxes on the minority (wealthy), which is supported by his constituency (the majority / non-wealthy)

The minority's representatives (house Republicans) lose in all cases. If they capitulate they will lose seats. If they don't, we go "over a cliff"– defined by Obama and the majority as increased taxes and decreased services for the majority — and Republicans will be to blame.



 I'm not familiar with the habits of the California tradesman, but for any homeowner residing in a state where deer hunting is a second religion, this couple's action would be fully justified. "Holding a tradesman hostage during deer hunting season" ought to receive the same widely accepted legal defense of "He deserved killing". If it doesn't exist yet, one of our court's will surely invoke a doctrine of "compelling homeowner interest" to legitimize otherwise criminal activities.

Handyman Held Hostage In Morgan Hill, Forced To Fix Home MORGAN HILL:

Two people who live in a large Morgan Hill home have been arrested on suspicion of holding a handyman hostage and forcing him to do home repairs.

Investigators said the 50-year-old victim was lured to a home on 200 block of Caldwell Court Monday morning. The sprawling 4,600 square foot home has five bedrooms and is equipped with a pool, a beach volleyball court, and a tennis court.

"He was assaulted, he was threatened with his life, and he was forced to do some work at the house," Sgt. Jose Cardoza of the Santa Clara County Sheriff's Office told CBS 5.

Detectives said 36-year-old Jason DeJesus and 33-year-old Chanelle Troedson beat the handyman, threatened to kill him and forced him to fix several items in the house over a six-hour span. The repairs included a dishwasher and a broken door.



 The payroll tax receipts are virtually identical to that of a month earlier. If there is any tilt to the data, it is slightly higher (i.e. bullish equities). If the media expects it to be down (maybe because of Sandy), then the released data will catch them a little off guard.

From the end of the reporting period Nov. 16th thru Nov. 28th, the data has been higher, but that should be reflected in the next month's report. Please note that I remove the seasonal effects to avoid enthusiasm over the temporary Christmas employment.



 An archaeologist looking through my house in the future would come across a purple post it stuck on p.322 of Paul Johnson's "A History of the American People". It's over the quote "all serious visitors such as Dickens, Trollope, and Thackeray who intended to write books about their travels visited one or more prisons as well as workhouses, homes for fallen women, and similar dismal but worthy places". Now who would have placed such a post-it. Ha, only one person. The Hobo. And it would lead the archaeologist to conclude that Hobo was living here in the attic in 1997 when the book was published before his trip to Thailand.

The Hobo  (Bo Keely) responds:

u clairvoyant.

Victor Niederhoffer replies:

One wishes it were true.

T.K Marks adds:

To your credit, let it be said that anybody who has never had a hobo living in their attic has led an unfulfilled life.



Why do people with any reputation at stake like to predict major moves in the market? If they are talking their book, it's mostly silly because they can't influence it enough. If it's to take a chance that they will enhance their reputation, I guess it's worth it, once, if they happen to be right. Some have gone to great fame by making that one call and their subsequent bad calls are often forgotten. It must be mostly because they have to say something because of the nature of their business and they can't afford to always be vague.



I tested the DeMark Sequential system, as best I could understand it from the information I could find, on S&P 500 futures daily bars about a year ago and found that there were some strikingly good calls on buy signals, including on October 4, 2011 just before a monster rally, but only 14 buy signals in 29 years. Results of the sell signals appeared consistent with randomness.



 You have been adamant that the Lakers under the new coach will be unbeatable. "We got two of the greatest players in the world" you say. And once Nash comes back he'll find a way". But as I've said about the market many times, it's not the execution, it's the system. The defense and offense must be considered in tandem, connected, comovement wise, the same way euro and stocks, or euro and bonds must be considered in the market. The inexorable defeat that your team will experience, so common to those in New York who watched the Knicks often lose games in the last 5 minutes that they were ahead by 15 points or more in the second half is not a piece of bad luck, but an inevitability. The same say that the market often ends up end on the day after spending a reasonable inexorability down throughout 3 pm.

Howie, the defense keeps getting better, and the motivation to stop those random 7 second shots gets higher and higher as the game gets on, and the laws of regression eviscerate the random good luck from the previous quarters the same way the random bad news that held the market down, is overcome. You should know all this Howie, from our experiences in handball and racket sports. Often a player will get ahead but you and I know that if he gets ahead with drop shots and lobs and non-percentage killers in the early game, it will backfire in the end as we try harder to defend, and the opponent tires. I always loved it when my opponent made a 3 wall boast on me in the early part of the game, and saved a few up for the end. No way was he going to make the point on that as I was going to be up for it, the same way the opponents are up for all the 7 second 30 feet shots of the current coaches collabs.

Believe me, Uncle, rather than bemoaning the loss to the Magic as bad luck, and lack of foul shooting, (which of course is part and parcel of the offense without a rhythm), accept this as the norm. Change your system as we must do in the market when the cycles change. Each of the players on the Nets often touches the ball before a layup is made. Come back to your home town, and save yourself the inevitabiliy of sorrow.]

anonymous writes:

That's a great letter; thanks for forwarding. We've found that one of the best questions to ask a portfolio manager in a hiring interview is to outline, specifically, how he has adapted to changes in markets. The ones that offer detailed, thoughtful responses are the ones with particular promise. It's fairly easy to hire people who have been successful over a several year period; much harder to find people who have what it takes to sustain success over many years. Learning markets is difficult; unlearning and relearning them is what makes the greats.




 I'd been wondering, even if Obama and the Republican House did reach an agreement to avoid the fiscal cliff, how it would be possible to negotiate all the crucial terms before the Christmas recess.

From yesterday's proposals, I now understand. They are not trying to negotiate what you and I would view as an agreement with substantive terms. Instead what they are trying to negotiate is just the numbers. For example:

1) $800 billion of tax revenue increases, from "millionaires and billionaires" or at least from "the wealthy"; and

2) $1.2 trillion of spending "cuts", of which (i) $400 billion would be from Medicare and Medicaid (but of course no benefits would be cut, so would have to come from "administrative savings"; and (ii) the remainder to come from "wind-down" of the Iraq and Afghanistan wars.

They would then congratulate themselves, and maybe each other, on the wonderful compromise they have reached to save the American people from going over the cliff. And the stock market would go up initially and then straight down as it did after Obama's election. And any substance would be put over to the first half of 2013, when there is far less media and public attention, to try to work out how these numbers are to be achieved (to the extent they are to be achieved at all).

Far better to go over the cliff. At least then the American people would have a half-way honest view of where we stand.



The next meeting of the NYC Junto will be on Thursday December 6, 2012 at 7:30pm. As usual it will be held at the Mechanics & Tradesmen Library, 20 West 44th Street, NYC.  The main speaker will be Wayne Leighton:

How and when does political and economic change happen? Does such change require a crisis? What role do ideas play? And how might those who hope to effect change invest their time, money, and effort?

Wayne Leighton, economics professor at Universidad Francisco Marroquín in Guatemala, will address these questions, drawing on the book he recently co-authored: "Madmen, Intellectuals, and Academic Scribblers " (recently reviewed in Barron's). Wayne will will also discuss the effort he spear-heads, the Antigua Forum, a project sponsored by UFM.



Here's an interesting article saying that daylight savings time is bearish because it's disruptive. I believe the study should be generalized to all disruptive events.

Jordan Low asks:

But what about this article saying the opposite? Which article is correct?

Vic Niederhoffer continues:

That's the point. Daylight savings time comes too rarely for a scientific study to be based on it, and there are too many comparable events that occur once or twice a year. Or perhaps I don't get the joke?

Bruno Ombreux writes: 

I cannot think of anything more disruptive than the dreaded EFA calendar in the UK power market. You may want to study its impact on spark spreads and UK-continent spreads.

Also, their days run from 23:00 to 23:00 instead of 24:00 to 24:00 like everywhere else in the World.



 James Bond used to use charm, guile and judgement to rock his opponents. More recently, however, he lays down the physical smack and appears more credible as prime rib attendee of a gay bathhouse and sauna.

I say this with utmost respect to all fans of such bath houses, living across the road from one of the UK's largest. And listening regularly to the dealings of an ultra-camp local steroid dealer who's evening office is frequently my local Pret cafe.

This is actually topical to real life Bonds. You can also see reflected in my above snap of Chariots Spa, the headquarters of the UK secret service. I wonder how many "extraordinary renditions" have occurred at Chariots on her majesty's service.

What might this tell us of the market zeitgeist? Judgement and art is a bust. Focus instead on the pumped up, superficial and artificially stimulated. Bruise your way to success.



 The economic impacts of disease and an aging population appear to be a big concern in China. Their problem is diabetes. The longer term, additional strain on the health care system and society may be more than the $28 billion per year, all things considered.

One would think that an "authoritarian" regime interested in keeping annual rate GDP >7 at all costs would institute bigger changes than bans on "Big Gulps".

China has almost four times as many people with diabetes than the U.S., where there are 23.7 million sufferers, according to the IDF. By 2030, 40 million more will have the condition in China, where diabetes causes 173.4 billion yuan ($28 billion) a year in medical costs, the diabetes group estimates."

China, unfortunately, has become the world's capital for diabetes," said Michael Rosenblatt, Merck's chief medical officer, in an Oct. 25 interview in Shanghai. "

The government is starting to pay more attention as this is the beginning of a huge problem, both health and economic."'

full article here.



 In the early seventies Canadian magnate Roy Thomson's family fortune was vastly enhanced by a speculative co-investment with Armand Hammer in the North Sea. At the time British Energy Minister Tony Benn insisted on Scottish bidders. Thomson owning a Scottish newspaper was considered to suffice in desperate resort. When the bankers forming the consortium for Thomson sent a fax regarding their fee, a typo led to read that it should be increased as they had "played a bugger role."

Benn had previously, under the first Wilson government, been involved in the state sponsored restructuring of British industry. This helped facilitate, among other things, the liquidation of several assets into the hands of Jim Slater who's shell Slater Walker was one of the first raiders in Britain. When Slater Walker collapsed in the secondary banking crisis of 1975, Slater declared that "cash was now the best investment". The Bank of England was forced to bailout out the shell and acquire Slater Walker's banking book.

By the late seventies, having written several cheap options for the taxpayer's account, Benn had a change of heart. He turned to promote pipe smoking syndicalism as the way forward.

Armand Hammer later cameo-ed on the Cosby show. Benn had tea and biscuits with Saddam on Channel 4 news.

All were wise men.



It is interesting for me to see that my article with Lorie from 48 years ago showing that insider buying by 3 or more insiders in 1 month leads to superior performance has apparently held up for more than 60 years. Seyhun seems to have made a career of this and there are funds that trade based on this anomaly. And apparently, as we know, insider trading is increasing.  Flexionism is timeless.



 This new book The Success Equation looks interesting.

Here is a graphic from it from a Wired article that seems surprising (chess and basketball—really?!).

A brief description of it:

"In his provocative new book, Michael Mauboussin untangles the intricate strands of skill and luck, defines them, and provides useful frameworks for analyzing their relative contributions. He offers concrete suggestions for how to put these insights to work to your advantage in business and other dimensions of life. "

An Excerpt:

"Marion Tinsley won a lot, too, but it wasn't because he was lucky. Tinsley was known as the greatest player of checkers (also known as draughts) in the world. In 1948 he was crowned as the United States champion; shortly before his death in 1994, he tied Don Lafferty and a computer program named Chinook for first place. In the intervening forty-five years, Tinsley lost only seven individual games for a near-perfect record. In two of those games he was defeated by Chinook. Despite the fact that he didn't play for long periods of time (he was a professor of mathematics at Florida State and Florida A&M Universities), he reigned as world champion in three separate decades.2Tinsley's success resulted from years of deliberate practice. In his youth, Tinsley spent eight hours a day, five days a week, studying checkers, and he continued to study the game, though less intensely, throughout his life. He cultivated a prodigious memory that allowed him to recall the flow of games he had played decades earlier. Tinsley was fiercely competitive and claimed that he could beat all comers, man or machine, as long as his health didn't fail him."



 I loved this article with new findings about the giant sequoias.

"They are so old because they have survived all the threats that could have killed them. They're too strong to be knocked over by wind. Their heartwood and bark are infused with tannic acids and other chemicals that protect against fungal rot. Wood-boring beetles hardly faze them. Their thick bark is flame resistant. Ground fires, in fact, are good for sequoia populations, burning away competitors, opening sequoia cones, allowing sequoia seedlings to get started amid the sunlight and nurturing ash. Lightning hurts the big adults but usually doesn't kill them. So they grow older and bigger across the millennia."


"Among the striking discoveries made by Sillett's team is that even the rate of growth of a big tree, not just its height or total volume, can increase during old age. An elderly monster like the President actually lays down more new wood per year than a robust young tree. It puts that wood around the trunk, which grows wider, and into the limbs and the branches, which grow thicker.

This finding contradicts a long-held premise in forest ecology—that wood production decreases during the old age of a tree. That premise, which has justified countless management decisions in favor of short-rotation forestry, may hold true for some kinds of trees in some places, but not for giant sequoias (or other tall species, including coast redwoods). Sillett and his team have disproved it by doing something that earlier forest ecologists didn't: climbing the big trees—climbing all over them—and measuring them inch by inch."


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